Book Name: Commercial Law and Industrial Law 26th Edition
Writer: Arun Kumar Sen, Jitendra Kumar Mitra
Sale of goods
The law relating to the sale of movable goods is contained in the Sale of Goods Act (Act 111 of 1930). The Act came into force on 1st July, 1930. It closely follows the English Act on the subject.
BUYER, SELLER AND GOODS
Buyer means a person who buys or agrees to buy goods.-Sec. 2(1)
Seller means a person who sells or agrees to sell goods. Sec. 2(13).
The term "Goods" includes every kind of movable property except
(i) actionable claims and
(ii) money.-Sec.2(7)
- An actionable claims means a debt for a claim for money which a person may have against another and which he may recover by suit. (see p. 109) Money means legal tender money.
- These two types of movable property are not included in the definition of the term goods as used in the Sale of Goods Act. All other types of movable property are "goods" under the Act.
- Movable articles like furniture, clothing etc. and shares and debentures are goods. Things attached to the earth are not movable. But growing crops and grass, which can be easily separated from the earth before sale, and fruits which can be severed from trees, are included within the definition of movable goods.
- Goods may be classified into three types : Existing Goods, Future Goods and Contingent goods.
Existing Goods
Existing goods are goods which are already in existence and which are physically present in some person's possession and ownership.-Sec. 6(1).
Existing goods may be either
(i) specific and Ascertained : Specific Goods are goods which can be clearly identified and recognised as separate things e.g. a particular picture by a painter, a ring with distinctive features: goods identified and agreed upon at the time of the contract of sale etc. The term Ascertained Goods is used in the same sense as Specific Goods.
(ii) Generic and Unascertained:. Generic Goods or Unascertained Goods are goods indicated by description and not separately identified. If a merchant agrees to supply one bag of wheat from his godown to a buyer, it is a sale of unascertained goods because it is net known which bag will be delivered. As soon as a particular bag is separated out and marked or identified for delivery it becomes specific goods.
Future Goods
Future Goods are goods which will be manufactured or produced or acquired by the seller after the making of the contract of sale.-Sec. 2(6).
Example :
P agrees to sell to O all the mangoes which will be produced in his garden next year. This is an agreement for the sate of future goods.
Contingent Goods
There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen. Sec. 6(2) In such cases the goods sold are called Contingent Goods. Contingent goods come within the class of future goods.
Example :
X agrees to sell to Y a certain ring provided he is able to purchase it from its present owner. This is an agreement for. the sale of contingent goods.
SALE AND AGREEMENT TO SELL
Sale
A contract for the sale of goods may be either a sale or an agreement to sell (Sec. 4). Where under a contract of sale the property in the goods (i.e.,the ownership) is transferred from the seller to the buyer the contract is called a sale. The transaction is a sale even though the price is payable at a later date or delivery is to be given in the future, provided the ownership of the goods is transferred from the seller to the buyer.
Agreement to sell
- When the transfer of ownership is to take place at a future time or subject to some condition to be fulfilled later, the contract is called an agreement to sell.
- When an agreement to sell becomes a sale ? An agreement to sell becomes a sale when the prescribed time elapses or the conditions, subject to which the property in the goods is to be transferred, are fulfilled.
- Where by a contract of sale the seller purports to effect a present sale of future goods, -the contract operates as an agreement to sell the goods.
Examples :
(i) P agrees to buy from B a haystack on B's land, with liberty to come on B's land to take it away. This is a sale because the property in the goods has passed to the buyer.
(ii) P agrees to buy a quantity of soda to arrive by a certain ship. This is an agreement to sell because the property in the goods will pass to the buyer when the goods come and the agreement is naturally subject to the condition that the ship arrives in port with the goods.
PREFERENCES BETWEEN A SALE AND AN AGREEMENT TO SELL
1. Transfer of ownership
In an agreement to sell, the property in the goods remains with the seller until the agreement to sell becomes a sale by the expiry of the agreed time or the fulfillment of the agreed conditions. Till this happens the goods can be resold by the seller or attached in execution of a decree against him. In case of a sale the property passes to the buyer and the goods cannot be seized in execution of a decree against the seller.
2. Transfer of Risk
Where the transaction amounts to a sale, the goods belong to the buyer and he has to bear the loss if the goods are subsequently damaged or destroyed.-Sec. 26.
3. Remedial measures
In the case of a sale, the unpaid seller has certain reliefs available, e.g., lien, stoppage in transit, resale etc. In case of
an agreement to sell, the seller's remedy for breach of contract by the buyers, is a suit for damages.
4. Nature of contract
`Sale' is an `executed contract' because in a sale, consideration moves simultaneous with the promises, of both parties. Also, in a sale the property of specific goods is transferred to the buyer immediately. But an `agreement to sell' is an `executory -contract because the consideration is to move at a future date. Also the property of specific goods pass to the buyer later. (See. p. 36 and ch.2 Transfer of ownership).
ESSENTIAL ELEMENTS
The essential elements of a contract for the sale of goods are enumerated below :
1.Movable Goods : The Sale of Goods Act deals ‘only with movable goods, excepting actionable claims and money. Sec 2(7). This Act does not apply to immovable properties.
2.movable Goods for Money : There must be a contract for the exchange of movable goods for money. Therefore in a sale there must be money-consideration. (See `Price', p. 204-205) An exchange of goods for goods is not a sale. But it has been held that if an exchange is made partly for goods arid partly for money, the contract is one of sale. .Aldridge v. Johnson.
3.Two Parties : Since a contract of sale involves a change of Ownership, it follows that the buyer and the seller must be different persons. A sale is a bilateral contract. A man cannot buy from or sell goods to himself to this rule there is one exception provided for in section 4(1) of the sale of Goods Act.
A part-owner can sell goods of another part-owner. Therefore a partner may sell goods to his firm and the firm may sell goods to a partner. Re Maclaren
Examples :
(i) P & Q are each of them ¼ owners of a certain stock of movable goods. P can sell his rights to Q. After the sale Q becomes owner of Z share.
(ii) A club supplies food to the members. Any member taking it has to pay its cost to the club. Thus a member of the club pays to the members jointly (i.e., to the club). This transaction is a release ,of joint interest of the other members of the club. "Members of a club or voluntary society are undivided joint owners, not part-owners.". Therefore it is not a sale. Graff v Evans.
4.Formation of the contract of sale : A contract of sale is ma e by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery and payment by installments, or that the delivery or payment or both shall be postponed. Sec. 5(1).
5.Method OF FORMING the contract : Subject to the provision of am law for the time being in force, a contract of sale may be , writing or by word of mouth, or may be implied from the conduct of the parties.-Sec. 5(2)
6. The terms of contract-: The parties may agree upon any term concerning the time, place, and mode of delivery. The terms may be of two types : essential and non-essential. Essential terms are called Conditions, non-essential terms are called Warranties. The Sale of Goods Act provides that in the absence of a contract to the contrary, certain conditions and warranties are to be implied in all contracts of sale.
7.Other essential elements : A contract for the sale of goods must satisfy all the essential elements necessary For the formation of a valid contract. e.g. the parties must be competent to contract contract, there must be free consent, there must be consideration, the object must be lawful etc.
Definition of Price
"Price" means the money consideration for a sale of goods. Sec. 2(10)
Ascertaining of price
The price in a contract of sale may be fixed by the contract of sale or may be left to be fired in a manner agreed between the parties. It may also be determined by the course of dealing between the parties. VI-'here there is no provision made in the contract regarding price, the buyer must pay a reasonable price. What is a reasonable price is a question of fact depending upon the circumstances of the case.-Sec. 9.
Goods may be sold on a condition that the valuation is to be made by a third party. In such cases if the third party cannot or does not make the valuation, the agreement to sell becomes void. But if the goods or any part thereof had been delivered to and appropriated by the buyer, he shall pay a reasonable price therefore.-Sec. 10(1)
Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault is entitled to damages.-Sec. 10(2).
DESTRUCTION OF GOODS
Goods perishing before making a contract "Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract."-Sec. 7.
Example :
There was a sale of cargo of corn without the knowledge of the seller, the cargo had before the sale become heated and was therefore landed at another port and sold. The sale is void. Couturier v. hastie.
Goods perishing before sale , after agreement to sell
"Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller of buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided."-Sec. 8.
Example :
There was a contract for the sale of a horse. The buyer would use it for eight days for trial and it was not suitable, it would be returned. Three days before the delivery of the horse, it died, without any fault on the either party. The contract was avoided.Elphick v. Barnes '
EARNEST MONEY
The payment of earnest money to mark the formation of an agreement for sale is a long standing custom in India as well as in England. There is usually an understanding that if the contract is broken by the buyer, the seller is to retain the earnest money as compensation whereas if the contract is fulfilled the amount is credited to the purchase price payable. Earnest money is security for the fulfillment of agreement. A provision for the forfeiture of earnest money is not consideration to be penalty clause.-Sec. 74.
In Shree Hanuman Cotton Mills and Anr. v. Tata Aircraft Ltd. , the purchaser deposited Rs. 2,50,000 as earnest money, being the 25 per cent of the value of goods. He agreed that the full value of goods will be paid, before taking delivery but he failed to pay it. Held, the seller was entitled to forfeit the earnest money.. Sale-amount paid whether advance or earnest money : Money may be paid by the buyer to the seller at the time of the formation of an agreement of sale. If usually expressly ' stipulated whether the money is an `advance' or an `earnest money'. In the absence of any stipulation, the payment is interpreted as advance if it is a large part of the contract price. If the money paid is a small part of the contract price, it can be interpreted as earnest money. Marimuthu Gounder v. Ramaswanry Gounder and others.
HIRE-PURCHASE AGREEMENTS .
Definition
A hire-purchase agreement is one under which a person takes delivery of goods promising to pay the price by a certain number of installments and, until full payment is made, to pay hire charges for using the goods) From this definition it can be said that a hire-purchase agreement is a bailment plus an agreement to sell.
Formerly, hire purchase agreements were frequently worded ambiguously and it was difficult to determine whether a particular transaction was a sale or a hire-purchase agreement. The law regarding this subject has been codified by the Parliament in 1972, viz., the Hire-Purchase Act (No. 25 of 1972), but the Act has not been applied yet.
Summary
The main provisions of the Hire-Purchase Act are summarized on the next pages :
1.Hire-Purchase Agreement means an agreement under ' which goods are let on hire and under which the hirer has an J option to purchase them in accordance with the terms of the agreement and includes a agreement under which,
(i) possession of goods is delivered by the owner thereof .toa person on condition that such person pays the agreed; amount in periodical installments, and
(ii) the property in the goods is to pass to such person on the payment of the last of such installment, and
(iii) such person has a right to terminate the agreement at any time before the property so passes.-Sec. 2(e).
2. Hire-Purchase agreement must be in writing and signed by parties. A surety, if any, must sign the hire-purchase agreements. The agreement shall be void if the above requirements have not been complied with.-Sec. 3.
3. Contents of hire-purchase agreement must include the following.-Sec. 4 :
(i) the hire-purchase price of the goods to which the agreement relates ;
(ii) the cash price of the goods i.e., the price at which the goods may be purchased by the hirer for cash ;
(iii) the date on which the agreement shall be deemed to have commenced ;
(iv) the number of installments by which the hire-purchase price is to be paid, the amount of each of those installments and the date, or the mode of determining the date, upon which it is payable, and the person to whom and the place where it is payable ; ,
(v) the goods to which the agreement relates, in a manner sufficient to identify them ;
(vi) where any part of the hire-purchase price is, or is to be, paid otherwise than in cash or by cheque, the hire-purchase agreement shall contain, a description of that part of the hire-purchase price ; and
(vii) where any of the above requirements has not been complied with, the hirer may institute a suit for getting the hire purchase agreement rescinded ; and the court may, if it is satisfied that the failure to comply with any such requirement has prejudiced the hirer, rescind the agreement on such terms as it thinks just, or pass such other order as it thinks fit in the circumstances of the case.
4. The purchaser has the option of paying the full price before it was due. In that case the purchaser is entitled to get a rebate.-Secs. 9, 10.
5. In every installment of the full price, it includes the hire of the goods and the purchasing price.-Sec. 7.
6. The seller can recover the possession of the goods, if the purchaser fails to pay any of the installment price Section 17.7. The Act provides that there will be certain warranties and conditions to be implied in the hire-purchase agreement. The words and expressions are defined in Contract Act and the Sale of Goods Act.-Sec. 6.
8. The Act shall not apply in relation to any hire-purchase agreement made before the commencement of this Act.-Sec. 31.
SALE AND OTHER CONTRACTS
sale and Hire-purchase
In a sale, the property is transferred to the buyer ; he can deal with the property as he likes and the transferee of the purchase gets a good title even if the price is unpaid. But in a hire-purchase agreement, the purchaser does not become owner till the full price is paid and therefore, the transferee from a person who has not paid the full price, gets no title.
In a Bombay case it has been laid down that
(i) if the purchaser has no option of terminating the agreement by returning the goods, the transaction is a sale and not hire-purchase agreement and
(ii) the transaction is hire-purchase agreement only if the buyer has the option of returning the goods. 13himji v. Bombay Trust Corporation.
Hire-purchase and Installment Sale
There are differences between a hire-purchase agreement and an installment sale, in the former, a sale is concluded after the .total price and the hire charges are completely paid. The purchaser is not entitled to transfer the goods until the terms of the agreement are fully carried out.' In the latter, (installment sale) the purchaser becomes the owner of specific goods immediately, although the total price is to be paid in a number of installments.
Sale and Bailment
Bailment does not change ownership of the goods. A sale involves transfer of ownership.In a bailment, the party delivering the goods is entitled to get back what he has delivered. In a sale the seller gets the price and there is no question of returning of goods.
Sale and Contract for Work and Labour
A contract of sale may be distinguished from a contract for work and labour. A contract of sale of goods contemplates' the delivery of movable goods ; but if in substance the contract is one for the exercise of skill, it is a contract for work and labour. "A contract of sale is a contract whose main object is the transfer of `the property in and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken ,by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour." Union of India v. The Central India Machinery Manufacturing Co. Ltd. and others.
The distinction between the two types of contracts is of importance in England but not in India, except for taxation purposes.
Examples :
(I) A dentist agreed to make a set of artificial teeth to fit the mouth of a customer. Held, it is contract for the sale of goods. Lee v.Griffin.
(II) G engaged an artist to paint a portrait and supplied the canvas and paint. Held, it is a contract for work and labour and not one for the sale of goods. Robinson v. Graves.
(iii) G' entered into three contracts with Western Railway for construction of railway coaches on the under-frames supplied by the Railway. Labour and materials were supplied by V. Held, under the Bombay Sales Tax Act of 1953, the contracts were works contracts and not a sale. State of Gujarat v. Mls Variety Body Builders.°
(iv) The Railway Board entered into a contract with a company for the manufacture and sale of wagons to the Union of India by the company. Even though some advance was taken from the Railway Board, the bulk of the material used in the construction belonged to the manufacturer who sold the end product for a price. Held. the contract was not one for work and labour but one for sale. Union of India v. The Central India Machinery manufacturing Co. Ltd. and others.
CONDITIONS AND WARRANTIES
Section 12 of the Sale of Goods Act states that a stipulation (or term) in a contract of sale with reference to goods.may be a, condition or a warranty.
Condition
A condition is a stipulation essential to the main purpose of contract, the breach of which gives rise to a right to treat the contract as repudiated.-Sec. 12(2).
warranty
A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated.-Sec. 12(3).
Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be *a condition, though called a warranty in the contract.-Sec. 12(4).
Conditions and Warranties may be expressly stated in a . written document or may be implied from the circumstances-, under which the contract was entered into.
It is for the court to find out whether a particular term was intended by the parties to' be a condition or whether it was intended to be a warranty only. The intention of the parties is always to be given effect .
Stipulation as to time
Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract.-Sec.l l
Example :
There was a contract for sale of goods, c.i.f.- Antwerp. Delivery was to be given on October. Owing to a strike in the port of loading the goods were not shipped 'until November. Held, buyer were entitled to reject. J.Aron & Co. v. Comptor Wegimont
Reasonable time a question of fact : Where in this Act any reference is made to a reasonable time, the question what "is a reasonable time is a question of fact.-Sec. 63.
When a Condition can be treated as a Warranty
1.Voluntary waiver of a condition : The buyer may elect to treat a breach of condition as a breach of warranty, i.e. instead of repudiating the contract he may accept performance and sue for damages, if he has suffered any.-Sec. 13(1)where a contract of sate is subject to a condition to be fulfilled by the seller, the buyer may waive the condition.
2. Compulsory waiver of a condition : Where a contract of sale is not severable and the buyer has accepted the goods or a part thereof, he cannot repudiate the contract but can only sue for damages. In such a case, the breach of condition can only be treated as a breach of warranty, unless there is a contract to the contrary.-Sec. 13(2).
If a buyer prevents the fulfillment of a condition contained in the contract, the condition becomes invalid.
Example :
Certain goods were promised to be delivered on 1st June, time being made the essence of the contract. The goods were delivered on the .2nd June. The buyer may accept the goods.
Distinction between Condition and Warranty
l. Condition is a term which is essential to the main purpose of the contract. Warranty is only a collateral term. It is subsidiaryto the main purpose of the contract.
2. Breach of a condition gives the aggrieved party a right to repudiate the contract. It also creates a right to get damages. Breach of warranty entitles the aggrieved party to claim damages only. –
3. A breach of condition may under certain circumstances, be treated as a warranty. But a warranty cannot become a condition.
Consequences of Breach of Conditions
1. If a condition is broken there arises a right to treat the contract repudiated.-Sec. 12(2).
2. Repudiation of Contract before due date : Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either. treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.-Sec. 60.
Consequences of Breach of Warranty
1. A breach of warranty gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.-Sec. 12(3).
2. Under certain circumstances a `condition' is to be treated as 'warranty'.-Sec. 13(1) and 13(2).-See above.
3. Nothing in Section 13 shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise.-Sec. 13(3). "It merely saves the rights of the seller, in appropriate cases, to rely upon the impossibility as an excuse to himself, if sued by the buyer.
4. Remedy for breach of warranty :
(1) Where there is -a. breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods, but he may-
(a) set up against the seller the breach of. warranty in diminution or extinction of the price ; or
(b) sue the seller. for damages for breach of warranty.
(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damages.-Sec. 59.
Implied condition and warranties
A stipulation (or term) in a contract of sale of goods may be express or implied. Express terms are those which have been expressly agreed upon by the parties. Implied terms are those which have been enacted in the Sale of Goods Act. Sections 14to 17 of the Act contain a list of conditions and warranties which are implied in a contract for the sale of goods, unless the circumstances of the contract are such as to show a different intention. The implied conditions and warrants are stated below.
IMPLIED CONDITIONS
1. Condition as to title
There is an implied condition on the part of the seller that, in the case of a sale he has the right to sell the goods, and in the case of an agreement to sell, he will have the right to sell the goods at the time when the property is to pass.-Sec.l4(a). Examples :
(i) R bought a motor car from D and used it for four months. D had no title to the car. R was forced to return the car to the true owner. Held, there is a breach of the implied condition as to title and R is entitled to get back the purchase money paid notwithstanding the fact that he had used the car for 4 months. Rowland v Divell.
(ii) If the goods delivered can be sold only by infringing a trade mark, the implied condition of title is violated and the buyer can recover damages. Niblett Lid v. Confectioner's Materials Co.
(iii) In a contract for the sale of shares there is an implied condition that there is no encumbrance of charge on the shares in favour of a third party. Kissenchund v. Ramprotap.
2. sale by description
Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description.-Sec. 15.
Goods are to be sold by description when the contract contains a description of the goods to be supplied. Such description may be in terms of the physical characteristics of the goods or may simply mention the trade mark, trade name, brand or label under which they are usually sold. A sale of 50 boxes . of X brand soap or of 10 tons of Y brand mustard oil, is a sale of goods by description. In such cases the goods supplied must be the same as the goods described.
Example :
(i) A certain quantity of copra cake was sold "not warranted free from defect." The copra cake was adulterated with castor beans to such an extent that it could not be described as copra cake' Held, there was a violation of the implied condition and the buyer was awarded damages. Pinnock Bros. v Leis-is & Peat Lid'
(ii)M sold to L, 3000 cases of canned fruits, each case to contain 30 tins. Mdelivered 3000 cases, but about half the cases contained 24 tins each. Although the market value of the 24 tin cases were the same as the 30 tin cases, it was held that the buyer was entitled to reject the goods- Re Moore R Co.,, and Landauer & Co.
3. Sale by Sample
When goods are to be supplied according to a sample agreed upon, the following conditions are implied.-Sec. 17.
(a) The bulk shall correspond with the sample in quality
(b) The buyer shall have a reasonable opportunity of comparing the goods with, the sample.
(c) The goods shall be free from any defect rendering them unmerchantable. which would not be apparent on reasonable examination of the sample- If the defect is easily discover-able on inspection and the buyer takes delivery after inspection, he has no remedy.
Merchstrongantable
This term was defined as follows : "The article in such totality and in such condition that a reasonable man, acting reasonably, would after a full examination accept it under the circumstances of the case in performance of his offer to buy that article, whether he buys for his own use or to sell again." Bristol Tramways Co. v. Fiat Motors Ltd .
Example :
Some mixed worsted coatings were sold by sample.It was found that owing to a hidden defect of the cloth which could not be detected on reasonable examination, coats made out of it could not stand ordinary wear and were,therefore unsalable. The buyer was held to be entitled to damage. James Drurnmond and Sons v. g. H. Yan ingen ak Co
4.Sale by sample as well as by description
When goods are sold by sample as well as by description, the goods shall correspond both with the sample and with the description.-Sec. 15.
Example :
H agreed to sell to G some oil described as "foreign refined rape on warranted only equal to sample." The samples contained. An admixture of hemp oil and the oil delivered was adulterated in the same way. Hold, the oil supplied was not rape oil and therefore the buyer was entitled to reject the goods. Nichol v. Godts.
5.Condition as to fitness or quality (Sec. 16)
There is an implied condition as to quality or fitness for the purpose of the buyer under the following circumstances only :
A. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill, or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he is the manufacturer or not).
Examples :
(i) W supplied J with tinned salmon which was poisonous. J fell ill and his wife died as a result of eating the salmon. Held, there was an implied' condition of fitness because the seller obviously knew that the salmon was being purchased for consumption. The condition was violated by the grocer and damages were recoverable.Jackson v. Watson & Sons.
(ii) M a milk dealer supplied F with milk which was consumed by F and his family. The milk contained germs of typhoid. F's wife was infected and died. Held, there was a breach of an implied condition of fitness and A was liable to pay damages. Frost v. Aylesbury Dairy Co. Ltd.
(iii) There was a contract to supply 500 tons of coal for the S.S. "Manchester Importer". The coal supplied was found to be unfit for this ship. It was held that the buyer was entitled to get damages. Manchester Lines v. Rea Lid' !n this case it was held that a buyer relies on the skill of the seller when he makes known to him the purpose for which the goods are required and the circumstances are such that any reasonable seller would tak6 it that his judgment is being relied upon.
(iv) The plaintiff who was a draper and had no special knowledge of hot water bottles, went to a chemist and asked for a "hot water bottle". Held, that the bottle supplied must be fit for use as a hot water bottle. Preist v. Lasts
B. An implied condition of fitness may be annexed to a contract of sale by usage of trade or custom of the locality.
C. when goods are bought by description from a seller who deals i» goods of that description (whether he is the manufacturer or producer or not) there is an implied condition that the goods are of merchantable quality, that is, fit to sell.
There is one exception to rule C.-1f the buyer has examined the goods, there shall be no implied condition as regards defects which that examination ought to have revealed.
Examples of rule C :
(i) Some motor-horns were to be delivered by instalments. The first installment was accepted but the second contained a substantial quantity of horns which were damaged owing to bad packing. Held,
the buyer was entitled to reject the whole installment as the goods were not salable quality. Jackson v. Rotax Motor etc. 1
(ii) :Masked for a bottle of Stone's ginger wine in a restaurant. When he was drawing the cork the bottle broke and At was injured. Held, the sale was one by description and since the bottle was unmerchantable, A1 was entitled to recover damages. morelli v. Fitch Gibbons
(iii) B wanted to purchase some glue. The seller showed him the glue which was stored in his warehouse in casks. B did not have the casks opened, which he could have done easily, but merely looked at the outside of the casks. The glue was found to have defects which would have been found out if B had inspected the contents of the casks. Held, there was no implied condition as to merchant able quality thornett & Fehr v. Beer & Sans.
THE DOCTRINE OF CAVEAT EMPTOR
Definition
Caveat Emptor is a Latin expression which means, "buyers beware". The doctrine of caveat emptor means that, ordinarily, a buyer must buy goods after satisfying himself of their quality and fitness. If he makes a bad choice he cannot blame the seller or recover damages from him. "The rule probably originated at a time when goods were mostly sold in market overt, and the buyer therefore had every opportunity to satisfy himself as to the quality of the goods or their fitness for a particular purpose and at common law it was presumed that where the buyer could examine the goods even though he did not, he relied upon his own skill and judgment."'
Exceptions
Subject to certain exceptions, the doctrine of caveat emptor applies to India. Section 16 of the Sale of Goods Act lays down that in a contract for the sale of goods there shall be no implied condition as to quality or fitness for particular purpose except under the circumstances mentioned under that section.
The exception are as follows :
(a) Where the buyer relies upon the skill and judgment of the seller. (See examples given under rule A' above p. 215) (b) Where by custom an implied condition of fitness is annexed to a contract of sale. (Rule B above p. 216)
(c) Where there is a sale of goods by description, there is an implied condition that the goods are fit for sale. (See examples under rule C)
(d) Where the seller is guilty of fraud. A contract of sale of goods must satisfy all the essential elements of a contract and therefore if the consent of the buyer was obtained by fraud. the seller is not protected by the doctrine of caveat emptor.
In cases not falling under any of the four exceptions noted above, the seller is not liable to any penalty if the goods purchased are found to be unfit by the buyer for the purposes had in mind.
The case of patented articles
Para 2 of Section 16(1) of the Sale of Goods Act provides that "in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose." Thus if a machine is patented as a "cotton cleaning machine" and is sold as such in the market there is »o implied undertaking by the seller that the machine would clean cotton. If a buyer writes to a manufacturer, "send me one of your patented cotton cleaning machines", he cannot claim damages if he finds the machine useless. But if the buyer asks the manufacturer to supply a machine which will clean cotton, he relies on the judgment of the manufacturer and if the machine supplied is found to be unsuitable, he can claim damages.
Example :
B told a motor car dealer that he wanted a comfortable car for touring purposes. The dealer recommended a car which was being sold under the trade name of X. The car was found to be unsuitable and B sued the dealer for damages. It was held that B had relied on the skill and judgment of the dealer and was entitled to get damages. 13aldry v. Marshall'
IMPLIED WARRANTIES
In the absence of an agreement to the contrary, the following warranties are implied in every contract of sale :
1. The buyer must get quiet possession : The buyer shall have and enjoy quiet possession of the goods. [Sec. l4(b)]. Since disturbance to quiet possession is likely to arise only where the vendor does not possess the right to transfer the goods, this clause may be regarded as an extension Of the implied condition of title provided for by Section 14(a).
2. The goods must be free from encumbrance : There is an implied warranty that the goods shall be free from any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the time when the contract is made. Sec. 14(c).
The effect of this clause is that if the buyer pays off the charge or encumbrance, he will be entitled to recover the money from the seller.
3. Fitness of goods, required for a purpose, may be warranted by usage of trade : A warranty as to fitness for a particular purpose may be annexed to a contract of sale by a custom or usage of trade.-Sec. 16(3).
Exclusion of implied terms and conditions
Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.-Sec. 62.
Comment : Section 62 of the Act provides that the liability for implied warranties under a contract of sale, can be excluded (i.e., negatived) by three methods, namely :
(i) express contract,
(ii) by the course of dealing between the parties, and
(iii) by usage.
LIABILITIES OF THE SELLER APART FROM THE CONTRACT OF SALE
The Sale of Goods Act deals only with the contractual liabilities of the seller. But the seller may also be liable to pay damages under the law of torts if he causes injury by a wrongful act. Such damages may sometimes be recovered by a third party, i.e. one with whom the seller never entered into any contract. Some example are given below.
Examples :
(i) N sold to C a tin of disinfectant powder knowing that it would be dangerous to open the tin without special care. C without knowledge of the danger, opened the tin, whereupon the powder flew into her eyes and injured them. C sued for damages. Held, A should have warned C of the possible danger and having failed to do so, was liable to pay damages. Clarke v. Army Navy Cooperative Society Ltd.
(ii) The plaintiff went to a restaurant with a friend and ordered a bottle of ginger beer manufactured by the defendant. She drank a part of the bottle. When the remainder was poured into . the glass a decomposed snail appeared with the liquid. For the resulting mental and bodily shock, she filed a suit for damages against the manufacturers. Damages were granted. The House of Lords held that a manufacturer of goods intended for consumption, is under a duty to take reasonable care that the goods are free from defects which render them noxious or dangerous. Donoghue v. Stevenson.