AIMAN KHWAJA NOTES

(Affiliated to University of Lucknow, Lucknow)

Programme: M.B.A.
Semester-2

Paper Code: KMBN 201

SUB: -BUSINESS ENVIRONMENT & LEGAL ASPECT OF BUSINESS
TOPIC: Law of Contract & Sale of Goods Act

Ms. Aiman Khwaja

Assistant Professor
Department of Commerce

(The e-content is exclusively meant for academic purposes and for enhancing teaching and
learning.Anyotheruseforeconomic/commercialpurposesisstrictlyprohibited.Theusersofthe content shall not
distribute, disseminate or share it with anyone else and its use is restricted to advancement of individual
knowledge. The information provided in this e-content is developed from authentic references, to the best as
per my knowledge.)

1
 AIMAN KHWAJA NOTES

LECTUREPLAN(UNIT-III)

COURSE: M.B.A SEMESTER- II

SUBJECT - BUSINESS ENVIRONMENT &

PAPER – KMBN 201
LEGAL ASPECT OF BUSINESS

SYLLABUS(UNIT-III)
Law of Contract: Definition, essentials and types of contracts, offer definition and essentials,
acceptance – definition and essentials, consideration – definition and essentials, exceptions to the
rule, no consideration, no contract, doctrine of privity of contract, capacity of parties, free consent,
quasi contract, legality of object, performance of contract, termination of contract, remedies for
breach of contract.
Sale of Goods Act: Essentials, sale v/s agreement to sell. Condition v/s warranties, rights of
unpaid seller

Lecture 1 Definition, essentials and types of contracts; offer definition and essentials
Acceptance – definition and essentials, Consideration – definition and
Lecture 2
essentials
Lecture 3 Exceptions to the rule, no consideration and no contract

Lecture 4 Doctrine of privity of contract, capacity of parties

Lecture 5 Free consent, Quasi Contract and Legality of object

Lecture 6 Performance of contract, Termination of contract

Lecture 7 Remedies for breach of contract.

Lecture 8 Sale of Goods Act: Essentials, sale v/s agreement to sell.

Lecture 9 Condition v/s warranties

Lecture 10 Rights of unpaid seller

2
 AIMAN KHWAJA NOTES

LECTURE 1: DEFINITION, ESSENTIALS AND TYPES OF CONTRACTS; OFFER

DEFINITION AND ESSENTIALS

LAWS OF CONTRACT: DEFINITIONS, ESSENTIALS AND TYPES OF CONTRACT

Laws of contract refer to the legal principles and rules that govern the creation, interpretation, and enforcement of
agreements between parties. Contracts are legally binding agreements between two or more parties, and they are
essential to most business transactions.

ESSENTIALS OF A CONTRACT:
To form a valid contract, certain essential elements must be present. These are:
a) Offer: One party must make a clear and specific proposal or offer to enter into a contract.
b) Acceptance: The other party must accept the offer without any conditions or modifications.
c) Consideration: Both parties must receive something of value, such as money or goods, as a result of the
contract.
d) Capacity: Both parties must have the legal capacity to enter into the contract. This means they must be of legal
age, sound mind, and not under duress or undue influence.
e) Intent: Both parties must have the intention to enter into a legally binding agreement.
f) Legality: The contract must be for a lawful purpose.

TYPES OF CONTRACT:
Contracts can be classified into various types based on their nature and scope. Some of the most common types of
contracts are:
1. Express Contract: A contract in which the terms and conditions are explicitly stated either in writing or
verbally.
2. Implied Contract: A contract that is created by the actions or conduct of the parties involved, rather than by an
explicit agreement.
3. Unilateral Contract: A contract in which one party makes a promise in exchange for the other party’s
performance of a specific act.
4. Bilateral Contract: A contract in which both parties exchange promises to perform specific acts.
5. Void Contract: A contract that has no legal effect because it is not legally binding from the outset.
6. Voidable Contract: A contract that is valid but can be voided by one or both parties due to specific
circumstances.
7. Executed Contract: A contract that has been fully performed by both parties.
8. Executory Contract: A contract in which one or both parties have not yet fully performed their obligations.

Overall, understanding the essential elements and types of contracts is crucial for businesses to enter into legally
binding agreements and protect their interests.

OFFER DEFINITIONS AND ESSENTIALS

An offer is a proposal made by one party to another to enter into a legally binding agreement. It is an essential element
of a contract and must be communicated clearly and with the intention to create a binding contract.
Essentials of an Offer:
For an offer to be valid, it must contain certain essential elements, including:
a) Intention to Create Legal Relations: The offer must indicate a clear intention to create a legally binding
contract. If the offer is made in jest or without a serious intention to be bound, it is not considered a valid offer.
b) Communication: The offer must be communicated to the other party or parties. It can be made in writing, orally,
or through conduct, but the communication must be clear and unambiguous.
c) Specificity: The offer must be specific and definite, and it should identify the goods or services being offered, the
quantity, and the price.
d) Terms and Conditions: The offer may include terms and conditions, such as delivery terms, payment terms, and
warranties. These terms and conditions must be clearly stated and understood by both parties.
e) Duration: The offer may have a specific duration, and it can be revoked or terminated before the offer expires. If
the offer is not accepted within the specified time frame, it is no longer valid.
Overall, an offer is a crucial element in the formation of a contract, and it must be communicated clearly, with a
serious intention to create a legally binding agreement. By understanding the essentials of an offer, businesses can
enter into valid contracts and avoid disputes and legal issues.

3
 AIMAN KHWAJA NOTES

LECTURE 2: ACCEPTANCE – DEFINITION AND ESSENTIALS,

CONSIDERATION – DEFINITION AND ESSENTIALS

ACCEPTANCE DEFINITION AND ESSENTIALS

Acceptance is the act of agreeing to the terms of an offer made by another party. It is an essential element of
a contract and must be communicated clearly and unequivocally.

Essentials of Acceptance:
For acceptance to be valid, it must contain certain essential elements, including:
a) Communication: Acceptance must be communicated to the party making the offer. It can be made in
writing, orally, or through conduct, but the communication must be clear and unambiguous.
b) Unconditional: Acceptance must be unconditional and must comply with the terms of the offer. If the
acceptance includes additional terms or conditions, it is considered a counter-offer and does not
constitute acceptance.
c) Intention to Accept: Acceptance must be made with the intention to create a legally binding
agreement. If the acceptance is made in jest or without a serious intention to be bound, it is not
considered a valid acceptance.
d) Mode of Acceptance: The mode of acceptance must comply with the terms of the offer. For example,
if the offer is made in writing, acceptance must also be made in writing unless the offer permits
acceptance by other means.
e) Time Frame: Acceptance must be made within a reasonable time frame or within the time specified in
the offer. If the offer has a specific duration, it can be revoked or terminated before the offer expires.
Overall, acceptance is a crucial element in the formation of a contract, and it must be communicated clearly,
with a serious intention to create a legally binding agreement. By understanding the essentials of acceptance,
businesses can enter into valid contracts and avoid disputes and legal issues.

CONSIDERATIONS DEFINITION AND ESSENTIALS

Consideration refers to the exchange of something of value between the parties to a contract. It is an
essential element of a contract and must be present for the contract to be legally binding.

Essentials of Consideration
For consideration to be valid, it must contain certain essential elements, including:
a) Value: Consideration must have some value or benefit to the parties involved. It can be a payment of
money, the transfer of property or services, or the promise to do or refrain from doing something.
b) Exchange: Consideration must involve an exchange between the parties. Both parties must receive
something of value or make a promise to do something in return for the other party’s promise or
performance.
c) Adequacy: The value of consideration does not have to be equal, but it must be sufficient to support
the agreement. As long as each party receives some benefit or advantage, the consideration is adequate.
d) Legality: The consideration must be lawful. If the consideration involves illegal acts or activities, the
contract is not enforceable.
e) Mutuality: Consideration must be mutual. Both parties must give and receive something of value. If
only one party provides consideration, the contract is not valid.
Overall, consideration is a crucial element in the formation of a contract, and it must involve an exchange of
something of value between the parties. By understanding the essentials of consideration, businesses can
enter into valid contracts and avoid disputes and legal issues.

4
 AIMAN KHWAJA NOTES

LECTURE 3: EXCEPTIONS TO THE RULE

EXCEPTIONS TO THE RULES

There are certain exceptions to the rules governing contracts, including:
1. Gratuitous Promise: A promise made without consideration is known as a gratuitous promise. Such
promises are not enforceable because they lack consideration. However, certain types of promises
made for charitable or moral purposes may be enforceable even if they lack consideration.
2. Promissory Estoppel: Promissory estoppel is a legal doctrine that allows a party to enforce a
promise made by another party, even if the promise is not supported by consideration. This doctrine
is typically invoked in cases where one party has relied on the promise of another party to their
detriment.
3. Part-Payment of Debt: If a debtor owes a certain sum of money, and the creditor agrees to accept a
lesser amount in full satisfaction of the debt, the agreement is binding even if there is no
consideration. This is known as part-payment of a debt.
4. Contracts under Seal: Contracts under seal are enforceable without consideration. A seal is a mark
or symbol that indicates that the document is intended to be legally binding.
5. Agency: An agent can bind a principal to a contract even if the principal did not provide
consideration. This is because the agent is acting on behalf of the principal, and the principal is
therefore bound by the agent’s actions.
Overall, while consideration is an essential element of a contract, there are certain exceptions to this rule. By
understanding these exceptions, businesses can ensure that their contracts are legally enforceable and avoid
disputes and legal issues.

NO CONSIDERATIONS AND NO CONTRACT

In general, a contract requires consideration, which is the exchange of something of value between the
parties involved. Without consideration, a contract is generally not legally binding.
However, there are certain situations where a promise or agreement may be legally enforceable even without
consideration. For example, in some cases, a promise made for charitable or moral purposes may be
enforceable even if it lacks consideration. This is known as a gratuitous promise.
Additionally, there are other situations where a promise or agreement may be enforceable without
consideration. For example, if a debtor owes a certain sum of money, and the creditor agrees to accept a
lesser amount in full satisfaction of the debt, the agreement is binding even if there is no consideration. This
is known as part-payment of a debt.
However, in general, a contract without consideration is not legally binding. This is because consideration is
the basis of the bargain between the parties and is necessary to make the contract enforceable. If there is no
consideration, the contract is generally considered to be a gift or a promise made without any legal
obligation.
Overall, while there are some exceptions, consideration is generally an essential element of a contract, and
without it, a contract is generally not legally binding.

5
 AIMAN KHWAJA NOTES

LECTURE 4: DOCTRINE OF PRIVITY OF CONTRACT, CAPACITY OF PARTIES

THE DOCTRINE OF PRIVITY OF CONTRACT
The doctrine of privity of contract is a legal principle that states that a contract can only confer rights and
impose obligations on the parties who have entered into it. This means that only the parties to the contract
can enforce the terms of the contract, and third parties cannot generally sue to enforce the contract or claim
any rights under it.
For example, if A enters into a contract with B to purchase a car, only A and B are bound by the terms of the
contract. C, a third party, cannot enforce the terms of the contract, even if C is a beneficiary of the
agreement.

The doctrine of privity of contract has some exceptions, including:

 Trusts: A trust can create a legal relationship between a third party and the parties to the contract.
 Assignment: If one of the parties to the contract assigns their rights under the contract to a third
party, the third party can then enforce those rights.
 Agency: If a third party is acting as an agent for one of the parties to the contract, the third party may
be able to enforce the terms of the contract on behalf of that party.
Overall, the doctrine of privity of contract is an important principle in contract law, as it helps to establish
clear boundaries around contractual relationships and protects the parties’ rights and obligations. However,
there are exceptions to this doctrine, and it is important for businesses to understand these exceptions and
how they may apply to their contracts.

CAPACITY OF PARTIES
In contract law, capacity refers to the legal ability of parties to enter into a contract. The law recognizes that
not all parties may have the same level of capacity to enter into a contract, and as such, there are certain
rules that apply to different categories of parties.
 The capacity of Adults: Generally, adults are presumed to have full capacity to enter into a contract.
This means that they are legally capable of entering into binding agreements, and are responsible for
fulfilling the terms of those agreements.
 The capacity of Minors: Minors, or individuals who have not yet reached the age of majority, are
generally considered to have limited capacity to enter into a contract. In many jurisdictions, minors
are not bound by their contractual obligations and can void a contract they have entered into at any
time.
 The capacity of Mentally Incapacitated Individuals: Individuals who suffer from mental
incapacity or disability may also have limited capacity to enter into a contract. In some cases, these
individuals may not be able to understand the terms of the contract, and as such, may not be legally
bound by its terms.
 The capacity of Corporations: Corporations and other artificial legal entities are also subject to
capacity requirements. In general, corporations can only enter into contracts that are within their
corporate powers and authorized by their bylaws or other governing documents.
It is important for businesses to understand the capacity requirements that apply to their contractual
relationships, as failure to comply with these requirements can render a contract unenforceable or otherwise
invalid. Additionally, businesses may wish to include provisions in their contracts that address capacity
issues, such as representations and warranties regarding the parties’ capacity to enter into the agreement.

6
 AIMAN KHWAJA NOTES

LECTURE 5: FREE CONSENT, QUASI CONTRACT AND LEGALITY OF

OBJECT

FREE CONSENT
Free consent is a fundamental principle of contract law and refers to the idea that all parties involved in a
contract must enter into the agreement voluntarily and without any coercion, fraud, misrepresentation, or
undue influence. In other words, the parties must be fully aware of the terms of the contract and have agreed
to them without any pressure or manipulation from the other party.
For consent to be considered free, it must be given by a person who has the legal capacity to enter into a
contract, and the terms of the contract must be clear and unambiguous. Any attempt to force or intimidate
someone into entering into a contract would be a violation of the principle of free consent.
If free consent is not obtained, the contract may be voidable or unenforceable. Therefore, it is essential to
ensure that all parties are entering into a contract of their own free will and with a full understanding of the
terms involved.

QUASI CONTRACT
A quasi contract, also known as an implied-in-law contract, is a legal concept used to prevent unjust
enrichment. It is a legal obligation imposed by the courts to prevent one party from receiving a benefit or
unjustly enriching themselves at the expense of another party, even though there was no actual contract
between the parties.
In a quasi-contract situation, the court may create a legal obligation, even in the absence of an express
contract, based on the actions of the parties and the equities of the situation. The key feature of a quasi-
contract is that it is not based on the mutual agreement of the parties, but rather is imposed by law to prevent
one party from being unjustly enriched.
For example, if someone performs work or provides services for another person, but there was no actual
agreement or contract between them, the court may impose a quasi-contract to ensure that the person who
received the services pays a reasonable amount for them. Similarly, if someone mistakenly pays another
person for a debt they do not owe, the court may impose a quasi-contract to require the person who received
the payment to return it.
Overall, quasi-contracts are a legal remedy designed to prevent unjust enrichment and provide fairness in
situations where there was no actual contract between the parties.

LEGALITY OF OBJECT
The legality of an object is an important principle in contract law, which states that a contract will only be
enforceable if its purpose is legal. This means that the subject matter of the contract must not be illegal or
against public policy.
For example, a contract to sell illegal drugs or engage in other illegal activities would be unenforceable
because the purpose of the contract is illegal. Similarly, a contract that violates public policy, such as a
contract to commit a crime or to violate someone’s legal rights, would also be unenforceable.
If the object of a contract is found to be illegal or against public policy, the entire contract may be deemed
void and unenforceable. This means that neither party can enforce the terms of the contract, and they may
not be entitled to any remedies for breach of contract.
It is important to ensure that the object of a contract is legal and enforceable before entering into any
agreement. This requires a careful examination of the terms and subject matter of the contract, as well as an
understanding of the legal implications of the agreement.

7
 AIMAN KHWAJA NOTES

LECTURE 6: PERFORMANCE OF CONTRACT, TERMINATION OF CONTRACT

PERFORMANCE OF CONTRACT
The performance of a contract refers to the fulfillment of the terms and obligations agreed upon by the
parties involved. It is the act of carrying out the promises made in the contract, including the delivery of
goods or services, payment of money, or completion of a project.
In general, there are three types of performance of contract:
 Complete performance: This occurs when both parties fully carry out their obligations as agreed
upon in the contract. The contract is then considered fulfilled, and both parties are released from their
obligations.
 Substantial performance: This occurs when one party fulfills most of their obligations under the
contract, but there are minor deviations or omissions. In this case, the other party may still be
required to fulfill their obligations, but they may be entitled to some form of compensation or
adjustment for the deviations.
 Non-performance: This occurs when one party fails to fulfill their obligations under the contract.
This may result in a breach of contract, and the other party may be entitled to seek remedies for the
breach, such as damages or specific performance.
It is important to ensure that both parties understand their obligations under the contract and that they are
able to fulfill those obligations within the agreed-upon timeframe. This can help to avoid disputes and
ensure that the contract is completed successfully.

TERMINATION OF CONTRACT
Termination of a contract refers to the ending of a contractual agreement by mutual agreement or by one
party due to a breach of contract or other legal reasons. The termination of a contract can be either voluntary
or involuntary and can occur for a variety of reasons, including the following:
 Mutual agreement: Both parties may agree to terminate the contract, which can be done by signing
a mutual termination agreement or a release of claims.
 Breach of contract: If one party fails to fulfill their obligations under the contract, the other party
may terminate the contract. The non-breaching party may seek damages or specific performance,
depending on the nature of the breach.
 Impossibility of performance: If it becomes impossible for one or both parties to fulfill their
obligations under the contract, the contract may be terminated. This may occur due to unforeseen
circumstances such as natural disasters, government action, or death of a party.
 Frustration of purpose: If the purpose of the contract becomes impossible to achieve or is
frustrated, the contract may be terminated. This may occur if the subject matter of the contract is
destroyed or if a change in circumstances makes it impossible to achieve the original purpose of the
contract.
 Expiration: If the contract has a specific end date or is for a specific duration, the contract will
terminate when the term is completed.

When terminating a contract, it is important to ensure that all obligations and responsibilities are fulfilled
before ending the agreement. This may include payment of outstanding debts, return of property or goods,
and finalizing any outstanding issues related to the contract.

8
 AIMAN KHWAJA NOTES

LECTURE 7: REMEDIES FOR BREACH OF CONTRACT

When a party breaches a contract, the non-breaching party may have several remedies available to
them. The following are some of the most common remedies for breach of contract:

1. Damages: Damages refer to a monetary award designed to compensate the non-breaching

party for the losses they suffered as a result of the breach of contract. Damages may include
direct losses, such as lost profits or costs incurred to cover the breach, as well as
consequential losses, such as damages arising from the breach.

2. Specific performance: Specific performance is a remedy in which the court orders the
breaching party to fulfill their obligations under the contract. This remedy is typically used
when money damages are inadequate, such as in cases involving unique goods or services.

3. Rescission: Rescission refers to the cancellation of the contract and the restoration of the
parties to their pre-contract position. This remedy is typically used when the contract was
entered into under fraudulent or misleading circumstances.

4. Reformation: Reformation is a remedy in which the court modifies the terms of the contract
to reflect the parties’ original intent. This remedy is typically used when the contract contains
a mistake or is unclear.

5. Liquidated damages: Liquidated damages are a pre-determined amount of damages agreed

upon by the parties in the event of a breach of contract. This remedy is typically used in
contracts where it is difficult to calculate the actual damages that would arise from a breach.

It is important to note that the availability of these remedies may vary depending on the nature of
the breach and the specific terms of the contract. It is recommended to consult with an attorney to
determine the appropriate remedies for a breach of contract.

9
 AIMAN KHWAJA NOTES

LECTURE 8: SALE OF GOODS ACT: ESSENTIALS, SALE V/S AGREEMENT TO

SELL.
SALE
The Section 4(3) of the Act says that “where under a contract of sale the property in the goods is transferred
from the seller to the buyer, the contract is then known as a sale.” A sale is carried out on deliverable
goods. Goods are said to be in a deliverable state when they are in such a condition that the buyer would, under
the contract, be bound to take delivery of them [Section 2(3)].
AGREEMENT TO SELL
In an agreement to sell, the ownership of the property in goods is not transferred immediately. The objective of
the agreement is to transfer the goods at a future date, once some contingent clauses in the agreement or certain
conditions are satisfied.
The Act in Section 4(3), defines what an agreement to sell is. The section 4(3) of the sale of Goods Act defines
it as, “where the transfer of the property in the goods is to take place at a future time or subject to some
condition thereafter to be fulfilled, the contract is called an agreement to sell.”

ESSENTIALS OF A CONTRACT OF SALE

From the Sale of Goods Act, 1930, we see that certain elements must co-exist for a contract of sale to be
constituted they are as follows:

1. The presence of two parties is a must. As is the case with a contract, there must be at least two parties in
the contract of sale. One shall become the seller and the other a buyer.
2. The clauses therein present in the contract of sale must limit their scope to only the movable property.
This “movable property” may constitute existing goods, goods in the possession or the ownership of the
seller or future goods.
3. One of the important elements is the consideration of price. A price in value (currency and not in kind)
has to be paid or promised. The price consideration or the actual payment could be partly in kind and
partly in money but never in kind alone.
4. The ownership of the property of goods must change from the seller to the buyer. In the contract of sale,
like we saw in the elements of a contract, an offer has to be made and then accepted. The offer is made
by a seller and then accepted by the buyer.
5. The contract of sale may be absolute or conditional.
6. The other essential elements of a contract, that we have already seen must also be present here. The
crucial elements of a contract like competency of parties, the legality of object and consideration etc.
have to be present like in any other contract.

10
 AIMAN KHWAJA NOTES

LECTURE 9: CONDITION V/S WARRANTIES, RIGHTS OF UNPAID SELLER.

CONDITION
As per Section 12 of the Sale of Goods Act, a condition is a fundamental term that forms the basis of the
contract. It is a primary obligation and is of utmost importance to the contract. If the prescribed facts are
genuine and the conditions are fulfilled, the purpose of the contract is met.
For instance, in a contract of sales, if you are purchasing a car and the expressed condition is that it must be
a specific model, receiving a different model would constitute a breach of contract. This breach of condition
gives the aggrieved party the right to reject the car and void the contract.

WARRANTY
A warranty is a secondary term or promise in the contract. It is not as crucial as a condition. A breach of
warranty does not lead to the termination of the contract. Instead, it usually results in damages to
compensate for the breach. A warranty is often a guarantee given by the seller, collateral to the main purpose
of the contract.
For example, in the same contract of sale, a promise that the car will be serviced before delivery would be a
warranty. If the car is delivered without being serviced, this would be a breach of warranty. However, it
would not invalidate the contract. You would still have to accept the car, but you could potentially claim
damages for the cost of servicing the car.

11
 AIMAN KHWAJA NOTES

LECTURE 10: RIGHTS OF UNPAID SELLER

RIGHTS OF UNPAID SELLER AGAINST GOODS
An unpaid seller has certain rights against the goods and the buyer. In this article, we will refer to the sections of
the Sale of Goods Act, 1930 and look at the rights of an unpaid seller against goods namely rights of lien, rights
of stoppage in transit etc.

Rights of Lien
Seller’s Lien (Section 47)
According to subsection (1) of Section 47 of the Sale of Goods Act, 1930, an unpaid seller, who is in possession
of the goods can retain their possession until payment. This is possible in the following cases:
1. He sells the goods without any stipulation for credit
2. The goods are sold on credit but the credit term has expired.
3. The buyer becomes insolvent.
Subsection (2) specifies that the unpaid seller can exercise his right of lien notwithstanding that he is in
possession of the goods acting as an agent or bailee for the buyer.

Part-delivery (Section 48)

Further, Section 48 states that if an unpaid seller makes part-delivery of the goods, then he may exercise his
right of lien on the remainder. This is valid unless there is an agreement between the buyer and the seller for
waiving the lien under part-delivery.

Right of Stoppage in Transit

This right is an extension to the right of lien. The right of stoppage in transit means that an unpaid seller has the
right to stop the goods while they are in transit, regain possession, and retain them till he receives the full price.
If an unpaid seller has parted with the possession of the goods and the buyer becomes insolvent, then the seller
can ask the carrier to return the goods back. This is subject to the provisions of the Act.

Duration of Transit (Section 51)

Goods are in the course of transit from the time the seller delivers them to a carrier or a bailee for transmission
to the buyer until the buyer or his agent takes delivery of the said goods.
Some scenarios of the transit ending:
 The buyer or his agent obtain delivery before the goods reach the destination. In such cases, the transit
ends once the delivery is obtained.
 Once the goods reach the destination and the carrier of bailee informs the buyer or his agent that he
holds the goods, then the transit ends.
 If the buyer refuses the goods and even the seller refuses to take them back the transit is not at an end.
 In some cases, goods are delivered to a ship chartered by the buyer. Depending on the case, it is
determined that if the master is functioning as an agent or carrier of the goods.
 If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent, the transit
ends.
 If a part-delivery of the goods has been made and the unpaid seller stops the remaining goods in transit,
then the transit ends for those goods. This is provided that there is no agreement to give up the
possession of all the goods.

Right of Resale (Section 54)

The right of resale is an important right for an unpaid seller. If he does not have this right, then the right of lien
and stoppage won’t make sense. An unpaid seller can exercise his right of resale under the following conditions:
 Goods are perishable in nature: In such cases, the seller does not have to inform the buyer of his
intention of resale.
 Seller gives a notice to the buyer of his intention of resale: The buyer needs to pay the price of the
goods and ask for delivery within the time mentioned in the notice. If he fails to do so, then the seller
can resell the goods. He can also recover the difference between the contract price and resale price if the
latter is lower. However, if the resale price is higher, then the seller keeps the profits.
12
 AIMAN KHWAJA NOTES

 Unpaid seller resells the goods post exercising his right of lien or stoppage: The subsequent buyer
acquires a good title to the goods even if the seller has not given a notice of resale to the original buyer.
 Resale where the right of resale is reserved in the contract of sale: If the contract of sale specifies that
the seller can resell the goods if the buyer defaults, then the seller reserves his right of sale. He can
claim damages from the original buyer even if he does not give a notice of resale to him.
 Property in the goods has not passed to the buyer: The unpaid seller can exercise his right of
withholding delivery of goods. This is similar to the right of lien and is called quasi-lien.

RIGHTS OF UNPAID SELLER AGAINST BUYER

When the buyer of goods does not pay his dues to the seller, the seller becomes an unpaid seller. And now the
seller has certain rights against the buyer. Such rights are the seller remedies against the breach of contract by
the buyer. Such rights of the unpaid seller are additional to the rights against the goods he sold.
 Suit for Price
Under the contract of sale if the property of the goods is already passed but he refuses to pay for the
goods the seller becomes an unpaid seller. In such a case. the seller can sue the buyer for wrongfully
refusing to pay him his due.
But say the sales contract says that the price will be paid at a later date irrespective of the delivery of
goods,. And on such a day the if the buyer refuses to pay, the unpaid seller may sue for the price of these
goods. The actual delivery of the goods is not of importance according to the law.
 Suit for Damages for Non-Acceptance
If the buyer wrongfully refuses or neglects to accept and pay the unpaid seller, the seller can sue the
buyer for damages caused due to his non-acceptance of goods. Since the buyer refused to buy the goods
without any just cause, the seller may face certain damages.
The measure of such damages is decided by the Section 73 of the Indian Contract Act 1872, which deals
with damages and penalties. Take for example the case of seller A. He agrees to sell to B 100 liters of
milk for a decided price. On the day, B refuses to accept the goods for no justifiable reason. A is not able
to find another buyer and the milk goes bad. In such a case, A can sue B for damages.
 Repudiation of Contract before Due Date
If the buyer repudiates the contract before the delivery date of the goods the seller can still sue for
damages. Such a contract is considered as a rescinded contract, and so the seller can sue for breach of
contract. This is covered in the Indian Contract Act and is known as Anticipatory Breach of Contract.
 Suit for Interest
If there is a specific agreement between the parties the seller can sue for the interest amount due to him
from the buyer. This is when both parties have specifically agreed on the interest rate to be paid to seller
from the date on which the payment becomes due.
But if the parties do not have such specific terms, still the court may award the seller with the interest
amount due to him at a rate which it sees fit.

13