LOYOLA COLLEGE

PROF.J.ARULSURESH
M.COM.,M.PHIL.PGDCA.,MBA.,PGDCIL.

BUSINESS LAW SEMESTER 2005 & 2007

QUESTION AND ANSWER

APRIL 2005 SEMESTER QUESTION AND ANSWER

PART-A

1. DEFINE ‘CONTRACT OF SALE’ UDER SALES OF GOODS ACT, 1930.

ANS. A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price. There may be a contract of sale
between one part-owner and another. A contract of sale may be absolute or conditional.
The term ‘contract of sale’ is a generic term and includes both a sale and an agreement to
sell.

2. WHAT DO YOU MEAN BY ‘CONSTRUCTIVE DELIVERY’ OF GOODS?

ANS. It is also called as ‘delivery by attornment’. Where a third person(e.g., a bailee)

who is in possession of the goods of the seller at the time of the sale acknowledges to the
buyer that he holds the goods on his behalf, there take place a delivery by attornment or
constructive delivery.

3. EXPLAIN THE TERM ‘ASSIGNMENT’ IN LIFE INSURANCE.

ANS. An interest in a policy of life insurance, which is an actionable claim, can be

assigned. Assignment has the effect of transferring the right of the transferor in respect of
the policy to the assignee. Sec.38 of the Insurance Act, 1938 contains the rules regarding
assignment of life policy.
 4. WHAT DO YOU MEAN BY ‘INSURABLE INTEREST’?

ANS. Insurable interest is necessary to support every contract of insurance. It means that
the assured must be in a legally recognized relationship to what is insured so that he will
suffer a direct financial loss on the happening of the event insured.

5. WHO IS A COMMON CARRIER?

ANS. The Carrier Act, 1865 defines a common carrier as an individual, firm or company
(other than the Government) who or which transport goods as a business, for money, over
land or inland waterways ,without discrimination between different consignors.

PART-B

6. STATE THE EXEMPTIONS TO THE GENERAL RULE ‘NO ONE CAN GIVE
WHICH ONE HAS NOT GOT’ UNDER THE SALE OF GOODS ACT 1930.

ANS: Exceptions:
1.Sale by a person not the owner or title by estoppel (Sec.27): When the owner by
his conduct, or by an act or omission, leads the buyer to believe that the seller has the
authority to sell and induces the buyer to buy the goods, he shall be estopped from
denying the fact of want of authority of the seller. The buyer in such a case gets a better
title than that of the seller.

2. Sale by a mercantile agent: A mercantile agent is one who, in the customary

course of his business, has, as such agent, or to buy goods, or to raise money on the
security of goods. The buyer of goods from a mercantile agent, who has no authority
from the principal to sell, gets a good title to the goods.

3.Sale by one several joint owners: If one of the several joint owners, who is in
sole possession of the goods by permission of the other co-owners, sells the goods, a
buyer in goods faith of those goods gets a goods title to the goods.

4. Sale by a person in possession under a viodable contract: When the seller of the
goods obtained their possession under a voidable contract, but the contract has not to
been rescinded at the time of the sale, the buyer acquires a goods title to the goods,
provided he buys them in good faith and without notice of the seller’s defect of title.

5. Sale by seller in possession after sale: Where a seller, having sold goods, continues to
be in possession of the goods or of the documents of title to the goods and sells them
either himself or through a mercantile agent to a person who buys them in good faith and
without notice of the previous sale, the buyer gets a goods title.
 6. Sale by buyer possession after having bought or agreed to buy goods: Where a
person, having bought or agreed to buy goods, obtain, with the consent of the seller,
possession of the goods or documents of title to the goods and sells them either himself or
through an agent, the buyer who acts in good faith and without notice of any lien or other
right of the original sell in respect of the goods, gets a good title.

7. DEFINE THE TERM GOODS UNDER THE SALE OF GOODS ACT,

1930.WHAT ARE THE DIIFERENT TYPES OF GOODS? EXPLAIN.

ANS: Definition: Goods form the subject-matter of a contract of sale. According to

Sec.2(7), ‘goods’ means every kind of movable property other than actionable claim and
money; and includes stock and share, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before sale or under the contract
of sale.
Classification of goods: The goods which form the subject of a contract of sake may be
either existing goods, or future goods [Sec.6 (1)], or contingent goods.
1. Existing goods: These are the goods which are owned or possessed by the seller at the
time of sale. Only existing goods can be the subject of a sale. The existing goods may be-
(a) Specified goods: These are goods which are identified and agreed upon at the
time a contract of sale is made.
(b) Ascertained goods: Though commonly used as similes\r in meaning to specific
goods, these are the goods which become ascertained subsequent to the formation
of a contract of sale.
(c) Unascertained or generic goods: These are the goods which are not identified
and agreed upon at the time of the contract of sale. They are defined only by
description and may from part of a lot.

2. Future goods: These are the goods which a seller does not possess at the time of the
contract but which will be manufactured or produced or acquired by him after the making
of the contract of sale. A contract of present sale of future goods, though expressed as an
actual sale, purports to operate to sell the goods and not a sale. This is because the
ownership of a thing cannot be transferred before that thing comes into existence.

3. Contingent goods: Though a type of future goods, these are the goods the acquisition
of which by the seller depends upon a contingency which may or may not happen.

8. EXPLAIN THE RULES AS TO ‘DELIVERY OF GOODS’ UNDER THE SALE OF

GOODS ACT, 1930.

ANS: Rules as to delivery of goods:

1. Mode of delivery (Sec.33): Delivery should have the effect of putting the goods in the
possession of the buyer or his duly authorized agent. Delivery of goods may be (1) actual,
(2) constructive, or (3) symbolic.
2. Delivery and payment-concurrent conditions: Delivery of the goods and payment of
the price must be according to the terms of the Contract. Unless otherwise agreed,
delivery of the goods and payment of the price are concurrent conditions, that is to say,
the seller shall be ready and willing to give possession of the goods to the buyer in
exchange for the price and the buyer shall be ready and willing to pay the price in
exchange for possession of the goods (Sec.32).
3. Effect of part delivery: A delivery of part of the goods in progress of the delivery of
the whole has the same effect, for the purpose of passing the property in such goods, as a
delivery of the whole. But a delivery of the goods, with an intention of severing it from
the whole, does not operate as delivery of the remainder (Sec.34).

4. Buyer to apply for delivery: Apart from any express contract, the seller of goods is
not bound to deliver them until the buyer applies for delivery (Sec. 35). Where the goods
are subsequently acquired by the seller, he should intimate this to the buyer and the buyer
should then apply for delivery. Unless otherwise agreed, the buyer has no cause of action
against the seller is he does not apply for delivery.

5. Place of delivery: Where the place at which delivery of the goods is to take place is
specified in the contract, the goods must be delivered at that place during business hours
on a working day. Where there is no specific agreement as to place, the goods sold are to
be delivered at the place at which they are at the time of sale. As regards the goods
agreed to be sold, they are to be delivered at the place at which they are at the time of
agreement to sell, or, if not then in existence, at the place at which they are manufactured
or produced (Sec.36(1)).

6. Time of delivery: Where under the contract of sake the seller is bound to send the
goods to the buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time (Sec.36(2)). But where the contract uses words like
“directly”, “without loss of time”. Or “forthwith”, quick and immediate delivery is
contemplated. Demand or tender of delivery should be made at a reasonable hour. What
is a reasonable hour is a question of fact (Sec. 36(4)).

7. Goods in possession of a third party: When at the time of the sale the goods are with
a third party, there is no delivery by the seller to the buyer until such third party
acknowledges to the buyer that he holds them on his behalf. But where the goods have
been sold by the issue or transfer of any document of title to goods, e.g., a railway receipt
or a bill of lading, such third party’s consent is not required (Sec. 36(3)).

8. Cost of delivery: Unless otherwise agreed, all expenses of and incidental to making of
delivery are borne by the seller, but all expenses of and incidental to obtaining of delivery
are borne by the buyer (Sec. 36(5)).

9. WHO IS AN UNPAID SELLER? EXPLAIN THE RIGTHS OF AN UNPAID

SELLER AGAINST THE GOODS.
ANS: A seller of goods is deemed to be an unpaid seller when-
1) the whole of the price has not been paid or tendered;
2) a bill of exchange or other negotiable instrument has been received as a condition
payment, and the condition on which it was received has not been fulfilled by reason of
the dishonour of the instrument or otherwise.
Rights of an unpaid seller against the goods:
1. Right of lien [Sec.46 (1) (a) and 47 to 49}: A lien is a right possession of goods until
of the price. It is available to the unpaid seller of the goods who is in possession of them
where-
(a) the goods have been sold without any stipulation as to credit;
(b) the goods have been sold on credit, but the term of credit has expired;
(c) the buyer becomes insolvent.

2. Right of stoppage in transit [Sec.46 (1) (b) and 50 to 52]: The right of stoppage in
transit is a right of stopping the goods in transit after the unpaid seller has parted with the
possession of the goods. He has further right of resuming possession of the goods as long
as they are in the course of transit, and retaining possession until payment or tender of the
price. It is available to the unpaid seller-
(a) when the buyer becomes insolvent; and
(b) when the goods are in transit.

3.Right of re-sale [Sec.46(1) (c) and 54]: The unpaid seller can re-sell the goods-
(a) where the goods are of a perishable nature; or
(b) where he gives notice to the buyer of his intention to re-sell the goods and the buyer
does not within a reasonable time pay or tender the price.

4.Right of withholding delivery [Sec.46(2)]: Where the property in the goods has not
passed to the buyer, an unpaid seller has, in addition to his other remedies, a right of
withholding delivery similar to and co-extensive with his right of lien and stoppage n
transit where the property has passed to the buyer.

10. EXPALIN THE RIGHTS AND DUTIES OF A COMMON CARRIER.

ANS: Right of common carrier:

1.Right to get remuneration: A common carrier is entitled to the agreed remuneration, if

any, for his work. He can also demand payment in advance and if he is not paid he may
refuse to carry, if charges have not been agreed, he is entitled to reasonable charges.

2.Right of lien: He has a lien on the goods carried for his charges which he can enforce
against both the consignor and the consignee, but as a rule this lien is only a particular
lien. He can refuse to deliver the goods until his charges are paid.
3.Right to recover damages: He can recover damages from the consignor if the goods are
of a dangerous character or if the goods are not properly packed and the carrier suffers
injury thereform.

4.Right to limit his liability: He can limit his liability under certain circumstances by a
contract with the consignor.
5.Right to recover expenses: He can, if the consignor refuses to take delivery of the
goods, takes all such steps as are reasonable under the circumstances. He can also recover
reasonable expenses from the consignor in such a case.

6.Right to refuse to carry goods: He is not bound to carry goods of all types under all
circumstances.

Duties of common carrier:

1. Duty to carry goods: A common carrier is bound to carry for the hire goods of all
persons who choose to employ him for the carriage of goods. He is however not bound to
carry the goods if-
(a) his vehicle is already full;
(b) the goods are such as he is not accustomed to carry or cannot carry;
(c) the consignor is not willing to pay reasonable charge for the carriage of goods;
(d) the goods are to be carried over a route which is not his regular route;
(e) the goods are such as subject him to extraordinary risk;
(f) the goods are not properly packed; and
(g) the consignor refuses to disclose the nature of the goods offered for carriage.

2. Duty not to deviate: He must carry the goods by his customary route and must not
deviate from it unnecessarily. He must also take all reasonable precautions for the safe
carriage of the goods.

3. Duty to deliver the goods: Upon the completion of the transit, he must deliver the
goods as instructed by the consignor at the agreed time, if of the goods when tendered to
him, he ceases to be liable as a common carrier, his only liability in that case is that is
that of a bailee.

PART-C

11. EXPLAIN THE RIGHTS AND DUTIES OF BUYER

ANS: Rights of the buyer:

1. Right to have delivery as per contract: The first right of the buyer is to have
delivery of the goods as per contract.
 2. Right to reject the goods: If the seller sends to the buyer a larger or smaller
quantity of goods than he ordered, the buyer may (a) reject the whole, (b) accept
the quantity is ordered and reject the rest.

3. Right to repudiate: Unless otherwise agreed, the buyer of goods has a right not to
accept delivery there of by installments. This has already been explained in detail.

4. Right to notice of insurance: Unless otherwise agreed, where goods are sent by
the seller to the buyer by a sea route, the buyer has a right to be informed by the
seller so that he may get the goods insured.

5. Right to examine: The buyer has a right to examine the goods which he has not
previously examined before he accepts them.

(1). the seller is bound to afford the buyer a reasonable opportunity of examining the
goods for the purpose of ascertaining whether they are in conformity with the contract.
Place of delivery is, prima face, the place of examination. Where the seller affords an
opportunity to the buyer to examine the goods but the buyer refuses to do so, the buyer
cannot say that the goods are of an inferior quality and, therefore, cannot repudiate the
contract. If the buyer repudiates the contract, the seller is entitled to damages from the
buyer.

6. Rights against the seller for breach of contract.

(1) Suit for damages: Where the seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may sue the seller for damages for non-delivery.
The measure of damages is, prima facie, the different between the contract price
and the market price at the time when they ought to have been delivered, or if no
time was fixed at the time of refusal to deliver.

(2) Suit for price: If the buyer has paid the price and the goods are not delivered, he
can recover the amount paid.

(3) Suit for specific performance: The buyer may sue the seller for specific
performance of the contract to sell. If the goods are specific or ascertained, the
court may, if it thinks fit, order for the specific performance of the contract.

(4) Suit for breach of warranty: Where there is a breach of warranty by the seller, or
where the buyer elects or is compelled to treat any breach of 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.

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 damage.The measure of damages for breach of warranty is the estimates
loss arising directly and naturally from the breach which is prima facie the difference
between the value of the goods as delivered and the value they would have had if the
goods were according to the warranty.

(5) Repudiation of contract before due date: When the seller repudiates the contract
before the date of delivery, the buyer 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. This rule is known as the ‘rule of anticipatory breach
of contract’.

(6) Suit for interest: Where there is a breach of contract on the part of the seller and
as result the price has to be refunded to the buyer, the buyer has a right to claim
interest on the amount of the price refunded to him from the date on which the
payment was made. The Court may award the interest at such rate as it thinks fit.

Duties of the buyer

1. Duty to accept the goods and pay for them in exchange for possession: It is the
duty of the buyer to accept the foods and pay for them, in accordance with the
terms of the contract of sale. Further, the buyer must be ready and willing to pay
the price in exchange for possession of the goods.

2. Duty to apply for delivery: Apart from any express contract, it is the duty of the
buyer to apply for delivery.

3. Duty to demand delivery at a reasonable hour: It is the duty of the buyer to

demand delivery at a reasonable hour.

12. EXPLAIN THE GENERAL PRINCILES OF INSURANCE.

ANS: Insurance contracts are based on certain fundamental principles. These principles
are common to all types of insurance-life, fire, marine and miscellaneous insurance
contracts, with the exception of the principles of indemnity which is not applicable in
case of life insurance contract because of it being a contingent contract.
These principles are-

1) Utmost good faith – Insurance contracts are based upon mutual trust and confidence
between the insurer and insured. Utmost good faith requires each party to tell the other
“the truth, the whole truth and nothing but the truth” it means that the parties to the
contract must make a full disclosure of all the material facts and information relating to
the contract. A material fact is a fact which would influence the mind of a prudent
underwriter in deciding whether to accept a risk for insurance and on what terms.
2) Insurable interest – For an insurance contract to be valid, the insured should have an
insurable interest in the subject matter of insurance. The insurable interest is the
pecuniary interest whereby the insured is benefited by the existence of the subject matter
and is prejudiced by the death or damage of the subject matter. The subject matter of
insurance may be a property or life or legal liability. The insurable interest to be valid
must be recognized as such under the law in operation in the country.

3) Indemnity – The term ‘indemnity’ means making up the loss. Literally it means
“security against damage or loss or compensation for loss.” All contracts of insurance
except life and personal accident and sickness insurance are contracts of indemnity.
According to this principle, the insured should be placed in the same financial position as
far as possible after a loss as he occupied immediately before its occurrence. The insured
will neither gain nor lose. In other words the insurer will pay only the actual loss suffered
by the insured i.e. the insurer will not pay the assured amount but only the actual loss
suffered by the insured.

4) Contribution – Contribution is also a corollary of the principle of indemnity. This

principle applies where there is more than one policy covering the same subject matter
against the same peril for the same period and for the same insured. In such cases the
insured can make claims under all policies with different insurers and recover pro-rata
from each. Contribution is a right of an insurer who has paid a loss under a policy to
recover a proportionate amount from other insurers who are liable for the same loss.

5) Subrogation – This principle is just a corollary of or supplement to the principle of

indemnity. Subrogation means inheriting the rights available to an individual. The insurer
after making good the loss is entitled to all the rights of the insured against third party as
regards the subject matter of insurance. Thus when the right of the insured over the
subject matter of insurance is transferred to the insurer by the way of this inheritance, it is
known as “The Doctrine of Subrogation.”

6) Causa Proxima - The maxim “causa proxima non remota spectature” means that
proximate (nearest) cause and not the remote one is to be taken note of at the time of
determining the liability of insurer. The insurer is not liable for remote cause even if it is
one of the insured perils. Therefore, if the immediate cause is an insured risk for the
occurrence of which the insured is to be paid, the insurer is liable to make the payment of
loss under the policy, otherwise not.

7) Mitigation- This principle emphasizes the duty of the insured to take all possible steps
to minimize the loss or damage to the property covered by the insurance policy in case
the mishap happens. This principle aims at making sure that the insured behaves as a
prudent person and does not become careless after taking a policy to cover any risk.
 APRIL 2007 SEMESTER QUESTION AND ANSWER

SECTION-A

1. A CUSTOMER GIVES HIS TAILOR A LENTH OF SUITINGS AND REQUIERS

HIM TO MAKE A SUIT FOR HIM, THE LINING MATERIAL AND THE
BUTTON TO BE SUPPLIED BY THE TAILOR.STATE THE NATURE OF THE
TRANSACTION.

ANS. The Sale of Goods Act applies to a contract for the sale and not for work and
materials. A contract of sale contemplates the delivery of goods whereas a contract for
work and material involves exercise of skill and labour by one party in respect of material
supplied by another, the delivery of goods being only subsidiary or incidental.

2. WHAT DO YOU MEAN BY INSURABLE INTEREST?

ANS. Insurable interest is necessary to support every contract of insurance. It means that
the assured must be in a legally recognized relationship to what is insured so that he will
suffer a direct financial loss on the happening of the event insured.

3. WRITE A NOTE ON ENDOWMENT POLOCY.

ANS. Endowment policy provides for payment of the sum assured at the end of a specific
term of year or at death should it occur sooner. This is the most popular form of life
insurance.

4. DEFINE THE CONCEPT OF “CHARTER PARTY” UNDER THE CARRIGE OF

GOODS ACT.

ANS. A charter party is a contract providing for the hiring of a whole ship. The ship-
owner agrees to place the whole ship at the disposal of a merchant (called charterer) for
the purpose of carrying goods to a particular place for a sum of money which the
charterer undertakes to pay as freight for carrying of the goods. The charterer may hire
the ship to carry his own goods or to use the ship as a ‘general ship’ for carrying the
goods of other under bills of lading.

5. BRING OUT THE MEANING OF “SUBROGATION” UNDER THE INSURABLE

CONTRACT.
ANS. Subrogation means, the insurer. On making good the loss, is entitled to be put into the
place of the assured. He succeeds to all the way and means by which the assured might have
protected himself against the loss. Whenever, therefore, an assured which he has against third
persons must be held and exercised for the benefit of the insurer until he (the insurer) recoups the
amount he has paid under the policy. In simple words, the insurer steps into the shoes of the
assured when he has paid the amount of the policy to the assured or he is entitled to every right of
the assured.

SECTION-B

6. STATE THE DOCTRINE OF CAVEAT EMPTOR AND THE EXCEPTIONS TO

IT.

ANS. This means “let the buyer beware”, i.e., in a contract of sale of goods the seller is
under no duty to reveal unflattering truths about the goods sold. Therefore, when a
person buys some goods, he must examine them thoroughly. If the goods turn out to be
defective or do not suit his purpose or if he depends upon his own skill or judgment and
makes a bad selection, he cannot blame anybody excepting himself.

The rule or caveat emptor is enunciates in the opening words of sec.16 which runs thus :
“Subject to the provisions of this Act and of any other law for the time being in force,
there is no implied warranty or condition as to the quality or fitness for any particular
purpose of goods supplied under a contract of sale…”

Exceptions: The doctrine of caveat emptor has certain important exceptions. The case law
on these exceptions has already been discussed.
The exceptions are however briefly referred to-

1. Fitness for buyer’s purpose. Where the buyer, expressly or by implication, makes
known to the seller the particulars purpose for which he requires the goods and
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, the seller must supply the goods
which shall be fit for the buyer’s purpose (Sec. 16(1)).

2. Sale under a patent or trade name. In the case of a contract for the sale of a
specified article under its patent or other trader name, there is no implied
condition that the goods shall be reasonably fir for any particular purpose (proviso
to sec. 16(1)).

3. Merchantable quality. Where goods are bought by description from a seller who
deals in goods of that description (whether he is the manufacturer or producer or
not), there is an implied condition that the goods shall be of merchantable quality.
But if the buyer has examined the goods, there is no implied condition as regards
defects which such examination ought to have revealed (Sec.16 (2)).
 4. Usage of trade. An implied warranty or condition as to quality or fitness for a
particulars purpose may be annexed by the usage of trader (Sec.16 (3)).

5. Consent by fraud. Where the consent of the buyer, in a contract of sale, is

obtained by the seller by fraud or where the seller knowingly conceals a defect
which could not be discovered on a reasonable examination (i.e., where there is a
latent defect in the goods), the doctrine of caveat emptor does not apply.

7. ENUMERATE AND EXPLAIN THE RIGHT AND LIABILLITIES OF A

COMMON CARRIER.

ANS. Definition: the Carriers Act,1865 defines a common carrier as any individual, firm
or company(other than the government) who or which transports goods as a business, for
money, over land or inland waterways, without discrimination between different
consignors.

Right of common carrier:-

1) Right to get remuneration: A common carrier is entitled to the agreed
remuneration, if any, for his work. He can also demand payment in advance and if
he is not paid he may refuse to carry, if charges have not been agreed, he is
entitled to reasonable charges.

2) Right of lien: He has a lien on the goods carried for his charges which he can
enforce against both the consignor and the consignee, but as a rule this lien is only
a particular lien. He can refuse to deliver the goods until his charges are paid.

3) Right to recover damages: He can recover damages from the consignor if the
goods are of a dangerous character or if the goods are not properly packed and the
carrier suffers injury thereform.

4) Right to limit his liability: He can limit his liability under certain circumstances
by a contract with the consignor.

5) Right to recover expenses: He can, if the consignor refuses to take delivery of the
goods, takes all such steps as are reasonable under the circumstances. He can also
recover reasonable expenses from the consignor in such a case.

6) Right to refuse to carry goods: He is not bound to carry goods of all types under
all circumstances.
Liabilities of common carrier:-

According to the English Common Law, a common carrier of goods is an insurer of

the goods carried. He is bound to make good to the consignor the loss of damage to
the goods in the course of carriage whether occasioned by his negligence or not.
8. WHAT IS A CONTRACT OF INSURANCE? EXPLAIN THE BASIC
PRINCILPLES OF THE LAW OF INSURANCE.

ANS: Contract insurance is a contract by which a person, in consideration of a sum of

money, undertakes to make good the loss of another against a specific risk, e.g., fire, or to
compensate him or his estates on happening of a specified event, e.g., accident or death.

Principles of the Law of insurance:

Insurer and insured: the person undertaking the risk is called the insurer, assurer or
underwriter and the person whose loss is to be made good is called the insured or assured.
Premium: The consideration for which the insurer undertakes to indemnify the assured
against the risk is called the premium. It may either be a single or a periodical payment.
Policy: The instrument in which the contract of insurance is generally embodied is called
the policy. The policy is not the contract; it is the evident of the contract.
Subject matter of insurance and insurable interest: The thing or property insured is called
the subject matter of insurance, and the interest of the assured in the subject matter is
called his insurable interest.
Perils insured against: That which is insured against is the loss arising from uncertain
event or causalities, i.e., destruction of a person, and these are called perils insured
against.

9. STATE THE IMPLIED CONDITION IN A CONTRACT OF THE SALE OF

GOODS.

ANS:
1.. Condition as to title (Sec.14 (a)): In a contract of sale, unless the
circumstances of the contract are such as to show a different intention,
there is an implied condition on the part of the seller that-
(a) in the case of a sale, he has a right to sell the goods, and
(b) in the case of an agreement to sell, he will have a right to sell the goods
at the time when the property is to pass.

2. Sale by description (Sec.15): Where there is a contract for the sale of

goods by description, there is an implied condition heat the goods shall
correspondent with the description. The rule of law contained in
Sec.15 is summarized in the following maxim: “If you contract to sell
peas, you cannot oblige a party to take beans. If the description of the
article tendered is different in any respect, it is not the article
bargained for and the other party is not bound to take it.”

3. Condition as to quality or fitness (Sec.16 (1)): Normally. In a contract

of a sale there is no implied condition as to quality or fitness of the
goods for a particular purpose. The buyer must examine the goods
 thoroughly before he buys them in order to satisfy himself that the
goods will be suitable for the purpose for which he is buying them.

4. Condition as to merchantability (Sec.16 (2)): Where goods are bought

by description from a seller who deals in goods of that description,
there is an implied condition that the goods are of merchantable
quality. This means goods which they are known in the market at their
full value.

A. Condition implied by custom: An implied condition as to quality or

fitness for a particular purpose may be annexed by the usage of trade
(Sec.16 (3)).In such cases, the purpose for which the goods are
required may be ascertained from the acts and conduct of the parties to
the sale, or from the nature of description of the article purchased.

B. Sale by sample: A contract of sale is a contract for sale by sample

where there is a term in the contract, express or implied, to that effect.
In the case of sale by sample, there is an implied condition-
(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of comparing the bulk with
the sample; and
(c) that the goods shall be free from any defect, rendering them unmerchantable.

4. Condition as to wholesomeness: In the case of eatable and provision, in addition

to the implied condition as to merchantability, there is another implied condition
that the goods shall be wholesome.

5. DISTINGUISH BETWEEN ‘SALE’ AND AN ‘AGREEMENT TO SELL’.

ANS: 1. Transfer of property. In a sale, the property in the goods passes from the seller to
the buyer immediately so that the seller is no more the owner of the goods sold. In an
agreement to sell, the transfer or property in the goods is to take place at a future time or
subject to certain conditions to be fulfilled. In this sense, a sale is an executed contract
and an agreement to sell is an executory contract.

2. Type of goods. A sale can only be in case of existing and specific goods only.
An agreement to sell is mostly in case of future and contingent goods although in some
cases it may refer to unascertained existing goods.

3. Risk of loss. In a sale, if the goods are destroyed, the loss falls on the buyer
even though the goods are in the possession of the seller. In an agreement to sell, if the
goods are destroyed, the loss falls on the seller, even though the goods are in the
possession of the buyer.
 4. Consequences of breach. In as sale, if the buyer fails to pay the price of the
goods or if there is a breach of contract by the buyer, the seller can sue for the price even
though the goods are still in his possession. In an agreement to sell if there is a breach of
contract by the buyer, the seller can only sue for damages and not for the price even
though the goods are in the possession of the buyer.

5. Right to re-sell. In a sale, the seller cannot re-sell the goods (except in certain
cases, as for example, a sale by a seller in possession after sale under Sec.30, or a sake by
an unpaid seller under Sec. 54). If he does so the subsequent buyer does not acquire title
to the goods. In an agreement to sell, in case of re-sale, the buyer, who takes the goods
for consideration and without notice of the prior agreement, gets a good title. In such a
case, the original buyer can only sue the seller for damages.

6. General and particular property. A sale is a contract plus conveyance, and

creates jus in rem, i.e., gives right to the buyer to enjoy the goods as against the world at
large including the seller. An agreement to sell is merely a contract, pure and simple, and
creates jus in personam, i.e., gives right to the buyer against the seller to sue for damages.

7. Insolvency of buyer. In a sale, if the buyer becomes insolvent before he pays

for the goods, the seller, in the absence of a lien over the goods, must return them to the
Official Receiver or Assignee. He can only claim a rateable dividend for the price of the
goods. In an agreement to sell, if the buyer becomes insolvent and has not yet paid the
price, the seller is not bound to part with the goods until he is paid for.

8. Insolvency of seller. In a sale, if the seller becomes insolvent, the buyer, being
the owner, is entitled to recover the goods from the Official Receiver or Assignee. In an
agreement to sell, if the buyer, who has paid the price, finds that the seller has become
insolvent, he can only claim a rateable dividend and not the goods because property in
them has not yet passed to him.

11. WHAT IS ACUTION SALE? WHAT ARE THE RULES RELATING TO

AUCTION SALE?

Meaning: A sale by auction is a public sale where different intending buyers try to
outbid each other. The goods are ultimately sold to the highest bidder. The auctioneer
who sells the goods by auction is an agent of the seller. i.e., the owner. His relationship
with the owner of the goods is governed by the general principles of the law relating to
agency.

Rules of auction sales: The law on auction sales is contained in Sec.64 of the Sale of
Goods Act. According to it, in the case of a sale by auction the following rules apply:

1. Goods put up for sale in lots. Where goods are put up for sale in lots, each lot is
prima facie deemed to be subject of a separate contract of sale (Sec. 64(1)).
 2. Completion of sale. The sale is complete when the auctioneer announces its
completion by the fall of the hammer or in some other customary manner like “one, two,
three” or “going, going, gone”, Until such announcement any bidder may retract
(withdraw, revoke) his bid (Sec. 64 (2)). If before the fall of the hammer any bidder
retracts his bid, the security amount may not be forfeited.

3. Right of seller to bid. A right to bid may be reserved expressly by or on behalf

of the seller. Where such right is expressly reserved (but not otherwise), the seller or any
one person on his behalf may bid at the auction (Sec. 64 (3)). Secret employment of even
one puffer (a person employed to bid at an auction to incite other and raise prices) is
fraudulent unless a right to bid is expressly reserved, and even in that case, the
employment of the second puffer is fraudulent.

4. Sale not notified subject to a right to bid. Where a sale is nor notified to be
subject to a right to bid on behalf of the seller, it is not lawful (i) for the seller to bid
himself or to employ any person to bid at such sale, or (ii) for the auctioneer knowingly
to take any bid from the seller or any such person. Any sale contravening this rule may be
treated as fraudulent by the buyer (Sec. 64(4)).

5. Reserve price. The sale may be notified to be subject to a reserve or upset price
(Sec. 64(5)). It is a price below which the auctioneer will not sell. Where the sale is
subject to a reserve price, every bid is accepted conditionally on the reserve price being
reached (McManus v.Fortescue, (1907) 2 K.B.1). But where the sale is without reserve,
the goods will be sold to the highest bidder whether the sum bid is equal to the real value
or not.

6. Use of pretended bidding. If the seller makes use of pretended bidding to raise
the price, the sake is voidable at the option of the buyer (Sec. 64(6)).

7. Knock out or agreement not to bid against each other. Where a group of
persons form a combination to prevent competition between themselves at an auction and
arrange that only one of them will bid and that they will dispose of anything so obtained
privately among themselves, such a combination is called a ‘knock out’ and is not illegal
(Jyoti v. Jhowmull, 36 cal.164). But if the intention of the parties to knock out is to
defraud a third party, the ‘knock out’ is illegal.

SECTION-C

12. WHEN IS A SELLER OF GOODS DEEMED TO BE A UNPAID

SELLER?WHAT ARE THE RIGHTS AGAINST
A.THE GOODS
B.THE BUYER PERSONALLY?

ANS: A seller of goods is deemed to be an unpaid seller when-

1) the whole of the price has not been paid or tendered;

2) a bill of exchange or other negotiable instrument has been received as a condition

payment, and the condition on which it was received has not been fulfilled by reason of
the dishonour of the instrument or otherwise.

Rights of an unpaid seller against the goods:

1. Right of lien [Sec.46 (1) (a) and 47 to 49}: A lien is a right possession of goods until of
the price. It is available to the unpaid seller of the goods who is in possession of them
where-
(a) the goods have been sold without any stipulation as to credit;
(b) the goods have been sold on credit, but the term of credit has expired;
(c) the buyer becomes insolvent.

2. Right of stoppage in transit [Sec.46 (1) (b) and 50 to 52]: The right of stoppage in
transit is a right of stopping the goods in transit after the unpaid seller has parted with the
possession of the goods. He has further right of resuming possession of the goods as long
as they are in the course of transit, and retaining possession until payment or tender of the
price. It is available to the unpaid seller-
(a) when the buyer becomes insolvent; and
(b) when the goods are in transit.

3.Right of re-sale [Sec.46(1) (c) and 54]: the unpaid seller can re-sell the goods-
(a) where the goods are of a perishable nature; or
(b) where he gives notice to the buyer of his intention to re-sell the goods and the buyer
does not within a reasonable time pay or tender the price.

4. Right of withholding delivery [Sec.46(2)]: Where the property in the goods has not
passed to the buyer, an unpaid seller has, in addition to his other remedies, a right of
withholding delivery similar to and co-extensive with his right of lien and stoppage n
transit where the property has passed to the buyer.

Right of an unpaid seller against the buyer personally:

These rights of the seller against the buyer are called right in personam as against the
right in rem (i.e., right against the goods), and are in addition to his right against the
goods. The right in personam are as follows:

1. Suit for price (Sec.55):

(a) Where property has passed: Where under a contract of sale of property in the goods
has passed to the buyer and the buyer wrongly neglects or refuses to pay the goods,
the seller may sue him for the price of the goods.
(b) Where property has not passed: Where under a contract of sale the price is payable on
a certain day irrespective of delivery and the buyer wrongly neglects or refuses to pay
such price; the seller may sue him for the price. It makes no difference even if the
property in the goods has not passed and the goods have not been appropriate to the
contract.

2. Suit for damage for non-acceptance (Sec.56):

Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the
seller may sue him for non-acceptance. As regards measure of damages, sec.73 of the
Indian Contract Act, 1872 applies.

3.Repudiation of contract before due date (Sec.60):

Where the buyer repudiates the contract before the due date of delivery, the seller may
either-
(a) treat the contract as subsisting and wait till the date of delivery, or
(b) he may treat the contract as rescinded and sue for damages for the breach. This rule is
known as the ‘rule of anticipatory breach of contract’

4.Suit for interest [Sec.61(2)(a)]:

Where there is a specific agreement between the seller and the buyer as to interest on the
price of the goods from the date on which payment becomes due, the seller may recover
interest from the buyer. If, however there is no specific agreement to this effect, the seller
may change interest on the price when it becomes due from such day as he may notify to
the buyer.

13. “DELIVERY DOES NOT AMOUNT TO ACCEPTANCE OF GOODS” DISCUSS,

WHEN A BUYER CAN BE SAID TO HAVE ACCEPTED THE GOODS AND
THE TULES AS TO DELIVERY OF GOODS WITH PRPER ILLUSTRATIONS

ANS: Delivery of goods may be actual, symbolic, or constructive.

1. Actual delivery: Where the goods are handed over by the seller to the buyer of his
duly authorized agent, the delivery is said to be actual delivery of goods may also be
made by doing anything which has the effect of putting the goods in the possession of
the buyer (Sec. 33).

2. Symbolic delivery: Where goods are ponderous or bulky and incapable of actual
delivery, e.g., haystack in a meadow, the delivery may be symbolic. Handling over of the
key of a warehouse to the buyer is symbolic delivery of the goods to the buyer and is as
effective as actual delivery, even though there is no change in the possession o the goods.

3. Constructive delivery or delivery by attornment: Where a third person (e.g., a

bailee) who is in possession of the goods of the seller at the time of the sale
acknowledges to the buyer that he holds the goods on his behalf, there takes place a
delivery by adornment or constructive delivery (Sec.36(3)). This may happen in the
following cases:
a) Where the seller in possession of the goods agrees to hold them on he half of the
buyer.
b) Where the buyer is in possession of the goods and the seller agrees to the buyer’s
holding the goods as owner.
c) Where a third person in possession of the goods acknowledges to the buyer that he
holds them on his behalf.

Rules as to delivery of goods:

1. Mode of delivery (Sec.33): Delivery should have the effect of putting the goods
in the possession of the buyer or his duly authorized agent. Delivery of goods may
be (1) actual, (2) constructive, or (3) symbolic.

2. Delivery and payment-concurrent conditions:

Delivery of the goods and payment of the price must be according to the terms of the
Contract. Unless otherwise agreed, delivery of the goods and payment of the price are
concurrent conditions, that is to say, the seller shall be ready and willing to give
possession of the goods to the buyer in exchange for the price and the buyer shall be
ready and willing to pay the price in exchange for possession of the goods (Sec.32).

3. Effect of part delivery:

A delivery of part of the goods in progress of the delivery of the whole has the
same effect, for the purpose of passing the property in such goods, as a delivery of
the whole. But a delivery of the goods, with an intention of severing it from the
whole, does not operate as delivery of the remainder (Sec.34).

4. Buyer to apply for delivery:

Apart from any express contract, the seller of goods is not bound to deliver them
until the buyer applies for delivery (Sec. 35). Where the goods are subsequently
acquired by the seller, he should intimate this to the buyer and the buyer should
then apply for delivery. Unless otherwise agreed, the buyer has no cause of action
against the seller is he does not apply for delivery.

5. Place of delivery:

Where the place at which delivery of the goods is to take place is specified in the
contract, the goods must be delivered at that place during business hours on a
working day. Where there is no specific agreement as to place, the goods sold are
to be delivered at the place at which they are at the time of sale. As regards the
goods agreed to be sold, they are to be delivered at the place at which they are at
 the time of agreement to sell, or, if not then in existence, at the place at which
they are manufactured or produced (Sec.36(1)).

6. Time of delivery:

Where under the contract of sake the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them
within a reasonable time (Sec.36(2)). But where the contract uses words like
“directly”, “without loss of time”. Or “forthwith”, quick and immediate delivery
is contemplated. Demand or tender of delivery should be made at a reasonable
hour. What is a reasonable hour is a question of fact (Sec. 36(4)).

7. Goods in possession of a third party:

When at the time of the sale the goods are with a third party, there is no delivery
by the seller to the buyer until such third party acknowledges to the buyer that he
holds them on his behalf. But where the goods have been sold by the issue or
transfer of any document of title to goods, e.g., a railway receipt or a bill of
lading, such third party’s consent is not required (Sec. 36(3)).

8. Cost of delivery: Unless otherwise agreed, all expenses of and incidental to

making of delivery are borne by the seller, but all expenses of and incidental to
obtaining of delivery are borne by the buyer (Sec. 36(5)).

9. Delivery of wrong quantity (Sec. 37):

The delivery of the quantity of goods contracted for should be strictly according
to the terms of the contract. A defective delivery entitles the buyer to reject the
goods. The three different contingencies which may arise in case of a defective
delivery. i.e., delivery of a wrong quantity, are:

(1) Delivery of goods less than contracted for. Where the seller delivers to the buyer a
quantity of goods less than he contracted to sell, the buyer may reject the goods. If
he accepts them, he shall pay for them at the contract rate (Sec. 37(1)).

2) Delivery of goods in excess of the quantity contracted for. Where the seller
delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer
may (i) accept the whole: of (ii) reject the whole; or (iii) accept the quantity he
ordered and reject the rest. If the buyer accepts the whole of the goods so delivered,
he must pay for them at the contract rate (Sec. 37(2)).

(3). Delivery of goods contracted for mixed with other goods. Where the seller
delivers to the buyer the goods he contracted to sell mixed with goods of a different
description, the buyer may accept the goods which are in accordance with the contract
and reject the rest, or may reject the whole (Sec. 37. (3)).
 10. Installment deliveries (Sec.38):

Unless otherwise agreed, the sellers are not entitled to deliver the goods by
installments and if he does so, the buyer is not bound to accept the goods (Sec.38 (1).
The Parties may, however, agree that the goods are to be or may be delivered by
installments.
When there is a contract for the sale of goods to be delivered by installments, the
delivery should be in installments as stipulated in the contract. Such a contract may be
express or may be inderred from the circumstances of the case, or from the nature of the
contract. In a contract for delivery by instalments which are to be separately paid for, the
seller may sometimes make no delivery or make defective delivery in respect of one or
more instalments, or the buyer may neglect or refuse to take delivery of, or pay for, one
or more installments. In such a case, it is a question in each case depending on the terms
of the contract and the circumstances of the case, whether the breach pf contract is a
repudiation of the whole contract, or a severable breach giving rise to a claim for
compensation (Sec. 38 (2)). In deciding whether the breach in respect of one or more
installments of a contract justifies a party in repudiating the whole contract, regard must
be had to:
(1) The quantitative ratio which the breach bears to the contract as a whole, and
(2) The degree of probability that such a breach will be repeated.
Where the repudiation is on the part of the seller, the buyer is relieved of his obligation to
accept the residue of the goods. Where the repudiation is on the part of the buyer, the
seller is not bound to tender the residue of the goods. The Seller need not make an offer
of the goods which he knows the buyer will refuse.

11. Delivery to a carrier or wharfinger (Sec. 39):

Where, in pursuance of a contract of sale, goods are delivered to a carrier for the
purpose of transmission to the buyer or to a wharfinger for safe custody, delivery of
goods to them is prima facie deemed to be a delivery of the goods to the buyer
(Sec.39 (1)). In such a case, the seller must enter into a reasonable contract with the
carrier or wharfinger on behalf of the buyer for the safe transmission or custody of the
goods. If the seller omits so to do and if the goods are destroyed, the buyer may
decline to treat the delivery to the carrier or wharfinger as a delivery to himself, or
may hold the seller responsible in damages (Sec. 39 (2)). Unless otherwise agreed,
where goods are sent by the seller to the buyer by a route involving sea transit, the
seller must inform the buyer in time to get the goods insured otherwise the goods will
be at the seller’s risk during such sea transit (Sec. 39 (3)).

DEAR STUDENTS KINDLY DOWNLOAD THE MATERIAL AND SEND YOUR

FEEDBACK TO DEVELOP THE QUALITY.