1)When is a seller of goods deemed to be unpaid seller?

(4)

->According to Section 45(1) of Sale of Goods Act, 1930, the seller is considered as an unpaid seller
when:

a- When the whole price has not been paid and the seller has an immediate right of action for the price.

b- When Bills of Exchange or other negotiable instrument has been received as conditional payment,
and the pre-requisite condition has not been fulfilled by reason of the dishonour of the instrument or
otherwise. For instance, X sold some goods to Y for $50 and received a cheque. On presentment, the
cheque was dishonoured by the bank. X is an unpaid seller.

2)Enumerate the different rights of an unpaid seller? (8)

->RIGHTS AGAINST BUYER:-

i) Suit for the price- When any goods are passed on to the buyer and the buyer has wrongfully neglected
or refused to pay as per the terms and conditions of the contract, the seller may sue him as per
the Section 55(1) because once the property has been passed the buyer is bound to pay the price.

But in the case due date of payment has been passed and goods had not been delivered yet, the seller
can sue the buyer for the wrongful neglect or refusal on his part according to clause 2 of Section 55.

In case the price is due in foreign currency the damages must be calculated at the rate of exchange
prevailing at the time when the price was due not on the judgement date.

ii) Suit for damages- In case there is a wrongful refusal on the part of buyer for acceptance of goods and
payment of money, the seller can sue him for damages of non-acceptance as per Section 56. For
calculating the quantum of damages Section 73 and 74 of the Indian Contract Act applies.

In case the goods have a ready market, the seller has to resell the goods and buyer have to pay the
losses if incurred. If the seller does not resell the goods the difference between contract and market
price at the day of breach is taken as a measure for damages. If the difference between them is nil seller
gets nominal value.

iii) Suit for interest- As stated under Section 61, where there is a specific agreement between buyer and
seller with regards to interest on the price of goods from the date on which payment becomes due, the
seller may recover interest from a buyer. But if there were no such agreement the seller may charge
interest from the day he notifies the buyer.

If there is no contract to the contrary, the court of law may award interest to the seller at such rate as it
thinks fit on the amount of the price from the date on which amount is payable.

->RIGHTS AGAINST GOODS:-

i) Right of Lien (sec-47):-The right of lien means the right to keep possession of the goods until the seller
receives the due price.

Section 47 of the Sale of Goods Act provides that an unpaid seller (as agent or bailee of the buyer) in
possession of the goods has the right to keep possession of the goods until payment or tender of the
price in the following cases:
•Where the goods have been sold with no stipulation to credit, or

•Where the goods have been sold on credit, but the term of credit has expired, or

•Where the buyer becomes insolvent.

Further, section 48 of the Sale of Goods Act provides that despite the partial delivery of goods by the
unpaid seller, section 48 authorizes him to exercise his lien right on the rest.

In Grice vs Richardson (1877), the sellers had delivered a portion of the three bags of tea under a
contract of sale but had not been paid for the rest. Therefore, they could keep them until the buyer paid
the price.

Termination of Lien-

The unpaid seller of the goods loses his right of lien in the following cases:

•When he delivers the goods to a carrier or other Bailee for delivery to the buyer without reserving the
right of disposal of the goods, or

•When the buyer or his agent lawfully gets possession of the goods, or

•When the seller waives his right of lien, or

•When the buyer disposes of the goods by sale or in any other manner with the consent of the seller, or

•Where a document of title to goods has been issued or lawfully transferred to any person as buyer or
owner of the goods, and the buyer then transfers the document by sale to someone taking it in good
faith and for consideration.

ii)Right of stoppage of goods in transit:-The unpaid seller delivered the goods to the carrier for
transmission to the buyer, and in the meantime, the buyer becomes insolvent, then the seller has the
right to stop and retain the goods in transit. Thus, the unpaid seller resumes possession of the goods as
long as it is in transit.

The unpaid seller can exercise the right of stoppage in transit only if he fulfils the following conditions:

•The seller must have parted with the possession of goods, i.e., the goods must not be in the seller’s
possession.

•The goods must be in transit.

•The buyer must have become insolvent.

Duration of Transit-

As per section 51 of the Sale of Goods Act, the goods are in transit when they are delivered to a carrier
or Bailee for transmission to the buyer and until the buyer or his agents, on his behalf, take the delivery
of those goods.

The unpaid seller loses the right to stoppage in transit in the following cases:

•When the goods reach the destination, or

•If the buyer or his agent on his behalf receives the goods before they reach their destination, or

•If the carrier or other bailee admits to the buyer or his agent that he has the goods on his behalf and
continues to possess them after the items arrive at the designated destination, the transit is complete,
or

•If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent on his
behalf, or

•If they deliver part of the product to the buyer or his agent, the unpaid seller may hold the rest of the
shipment in transit if the portion transfer does not enable the buyer to relinquish possession of the
goods, or

•If the seller has consented to the sub-sale or other disposition with the buyer.

Section 52 of the Sale of Goods Act provides that the unpaid seller may exercise his right of stoppage in
transit either:

•By taking the actual position of the goods, or

•By giving notice of his claim to the carrier or other bailee under whose possession the goods are.

iii)Right to Resale the goods:-As per section 54(4) of the Sale of Goods Act, under the following
circumstances, the unpaid seller may resell the goods, if the goods are:

•Of a perishable nature, or

•When the unpaid seller exercised his right to lien or stoppage in transit and gave notice to the buyer of
his intention to resale.

We must note here that in such cases, on reselling the goods, it also entitles the seller to:

•Recover the difference between the contract price and the resale price from the original buyer as
damage.

•Keep the profit if the resale price is higher than the contract price. But if the unpaid seller does not give
any notice, that shall not entitle such unpaid seller to recover such damages, and the buyer can claim
the profit on the resale.

->RIGHTS AGAINST SELLER:-

(a) Suit for Damages for Non-delivery [Section 57]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.

(b) Suit for Specific Performance [Section 58]in any suit for breach of contract to deliver specific or
ascertained goods, the court may direct that the contract shall be performed specifically.

(c) Suit for Breach of Warranty [Section 59] 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- (1) Set up against the seller the breach of warranty in diminution or extinction of the price; or (ii)
Sue the seller for damages for breach of warranty.
3) Distinction between Right of lien and Right of stoppage in transit? (4)

-> (1) The essence of lien is to retain possession while the essence of the stoppage in transit is to regain
possession.

(2) The right of lien is applicable to goods, which are in the possession of the seller. The right of stoppage
in transit is applicable to the goods, which are in possession of the carrier.

(3) The right of stoppage in transit is applicable to the insolvent buyer. But the right of lien is applicable
to all persons, solvent or insolvent.

(4) The right of stoppage in transit is applied to the buyer through the earner. Therefore stoppage means
the seller's right to 'regain' the goods. But he means the right to 'retain' the goods. Of course both the
rights are applicable to goods only.

5) Delivery of goods maybe Actual, Symbolic or Constructive? (6)

->There are various forms of delivery as follows:

•Actual Delivery: If the goods are physically given into the possession of the buyer, the delivery is an actual
delivery.

•Constructive delivery: The transfer of goods can be done even when the transfer is effected without a
change in the possession or custody of the goods. For example, a case of the delivery by attornment or
acknowledgment will be a constructive delivery. If you pick up a parcel on behalf of your friend and agree
to hold on to it for him, it is a constructive delivery.

•Symbolic delivery: This kind of delivery involves the delivery of a thing in token of a transfer of some
other thing. For example, the key of the godowns with the goods in it, when handed over to the buyer will
constitute a symbolic delivery.

6) State the rule of delivery of goods? (10)

-> Rules regarding delivery:-

•The delivery and payment of price are concurrent conditions unless the two parties agree.

•If the intention of the seller is to deliver the goods in parts then the delivery is called a valid delivery.
But if goods are delivered in parts and the seller is not intending to contract fully then there is a breach
of contract.
•If a part-delivery of the goods is made in progress of the delivery of the whole, then it has the same
effect for the purpose of passing the property in such goods as the delivery of the whole. However, a
part-delivery with the intention of severing it from the whole does not operate as the delivery of the
remainder (Section 34).

•According to Section 35 of Sale of Goods Act 1930 unless there is a contract to the contrary then the
buyer must apply for delivery. But if it is mentioned in the contract that the seller has to deliver the
goods then the seller has to deliver without the permission of the buyer.

•If no place is decided for the delivery of the goods that, they are to be delivered at a place at which the
seller and the buyer are in the time of sale.

•There should be an appropriate time for the delivery.

•The expenses of delivery are to be carried out by the seller unless there is a contract to the contrary.

If the seller delivers the wrong quantity of goods to the buyer then the following cases may take place:

•If the quantity of goods is less as per the contract then the buyer can reject the goods.

•If the quantity of goods is more than that of contract than the buyer can keep the number of goods as
per the contract and reject the rest or he may also reject the total.

•If the goods ordered are mixed with the goods of different descriptions( i.e. goods with a different title
or different quality), the buyer may reject the goods or accept the goods.

•If there is no contract for the instalment delivery, the seller cannot force the buyer to accept the
instalment delivery.

•The buyer has the right to check and examine the goods.

•If the buyer once accepted the goods then he cannot reject the goods.

•If the buyer refuses to take the delivery then he would be responsible for it.

According to Section 36(3) of the Sale of Goods Act 1930, if at the time of delivery the goods are in
possession of a third party then there will be no delivery unless and until the third party tells the buyer
that the goods are being held on his behalf. This section would not create any impact on the transfer of
title of the goods.

7) Write a note on Caveat Emptor along with its exceptions? (16)

-> The phrase Caveat Emptor means “let the buyer beware.” The doctrine of caveat emptor is enshrined
in Section 16 of the Sale of Goods Act, 1930. This provision corresponds to Section 14 of the English Act
of 1893. This doctrine of caveat emptor is based on the fundamental principle that once a buyer is
satisfied with the product’s suitability, then he has no subsequent right to reject such product. The
objective of introducing this provision was to ensure that the buyer purchases the product at his own
risk after being assured of the quality of the product. He is required to use his own skill and judgment
except in cases of fraud where the doctrine of caveat emptor does not apply.

Statement Of Caveat Emptor

Section 16 of the Sale of Goods Act 1930 incorporates the principle of caveat emptor which reads as-
“Subject to the provisions of this act or any other law for the time being in force there is no implied
condition or warranty as to quality or fitness for any particular purpose of goods supplied.”

Scope Of Caveat Emptor

In Ward v. Hobbes (1878) 4 AC 13, the House of Lords held that a vendor cannot be expected to use
artifice or disguise to conceal the defects in the product sold, since that would amount to fraud on the
vendee; yet the doctrine of caveat emptor does not impose duty on vendor to disclose each and every
defect in the product. The caveat emptor imposes such obligation on vendee to use care and skill while
purchasing such product.

In Wallis v. Russel (1902) 2 IR 585, the Court of Appeal explained the scope of caveat emptor-“Caveat
emptor does not mean in law that the buyer must “take a chance,” it means he must “take care.” It
applies to the purchase of specific things, e.g. a horse, or a picture, upon which the buyer can, and
usually does, exercise his own judgment; it applies also whenever the buyer voluntarily chooses what he
buys; it applies also whereby usage or otherwise it is a term of the contract, that the buyer shall not rely
on the skill or judgment of the seller.”

Exceptions To The Rule Of Caveat Emptor- Section 16 of The Sale of Goods Act, 1930

1)Section 16(1) – Fitness for buyers purpose- Sub section (1) of Section 16 of the said Act prescribes the
circumstances in which the seller is obliged to supply goods to the buyer as per the purpose for which he
intends to make a purchase. It states that when the seller either expressly or by necessary implication is
aware of the purpose for which buyer makes purchase thereby relying on seller’s skill and judgment and
the goods to be purchased are of a description which the seller in his ordinary course of business supply,
then there is as implied condition that the goods shall be reasonably in accordance with the purpose.

Requirements of the Section 16(1) are as follows:-

•The buyer should make the seller aware of the particular purpose for which he is making purchase;

•The buyer should make purchase on the basis of seller’s skill or judgment;

•The goods must be of a description which it is in the course of the seller’s business to supply.

In the case of Shital Kumar Saini v. Satvir Singh[1], the petitioner purchased a compressor with one year
warranty. The defect appeared within three months. The petitioner asked for a replacement. The seller
replaced it but without providing any further warranty. The State Commission allowed it to be rejected
stating that there was an implied warranty guaranteed under Section 16 of the Sale of Goods Act, 1930
that the goods should be reasonably fit for the purpose for which they are sold.

Sale under Trade Name [Proviso to S. 16 (1)]-Sometimes a buyer purchases goods not on the basis of skill
and judgment of the seller but by relying on the trade name of the product. In such case, it would be unfair
to burden the seller with the responsibility for quality.

2) Merchantable quality [Section 16(2)]-The second important exception to the doctrine of caveat
emptor is incorporated in Section 16(2) of the Act. The Section provides that the dealer who sells the
goods has a duty to deliver the goods of merchantable quality.
Meaning of Merchantable Quality: Merchantable quality means that if the goods are purchased for
resale they must be capable of passing in the market under the name or description by which they are
sold.

Merchantable quality depends on two factors:-

Marketability- Merchantability does not merely mean that the goods shall be marketable, but that they
shall be marketable at their full value. “Merchantability does not mean that the things are saleable in the
market because it looks all right; it is not merchantable in that event if it has defects unfitting it for its only
proper use but not apparent on ordinary examination.”

Reasonable fitness for general purposes- “Merchantable quality” means, in the second place, that if the
goods are purchased for self-use, they must be reasonably fit for the purpose for which they are generally
used. Example: The plaintiff bought a hot-water bottle which is ordinarily used for application of heat to
the human The bottle burst scalding the plaintiff’s wife. The seller was held liable.

Examination by buyer [Proviso to S.16(2]- The proviso to section 16(2) declares that “if the buyer has
examined the goods, there shall be no implied condition as regards defects which such examination ought
to have revealed. The requirement of the proviso is satisfied when the seller gives the buyer full
opportunity to examine the goods and whether the buyer made any use of the opportunity or not should
make no difference.

3) Conditions implied by trade usage [ Sec. 16(3)]- Sub-Section (3) of section 16 gives statutory force to
conditions implied by the usage of a particular trade.

In another case of Peter Darlington Partners Ltd v Gosho Co Ltd, where a contract for the sale of canary
seed was held subject to the custom of the trade that for impurities in the seed, the buyer would get a
rebate on the price, but would not reject the goods.

However, an unreasonable custom will not, however, affect the parties’ contract.

4) Express Terms [ Section 16(4)]- It is open to the parties to include any express conditions or warranties
in their contract. But an express warranty or condition does not negative a warranty or condition implied
by the Act unless the express terms are inconsistent with the implied conditions. Thus, where sleepers
supplied to a railway company were required to be approved by its experts, it was held that it did not
exclude the implied condition of merchantable.