CASE LAWS : Sale of Goods Act

Definition of goods

CASE 5.1 Petitioner: Rash Behari Singh and Others vs Respondent: Emperor*Date of Judgement: 7 October 1936:Facts: The appellants were accused persons who were charged with having

been party to a criminal conspiracy to commit theft by dishonest consumption and use of electrical energy belonging to the Calcutta Electric Supply Corporation between the January

1934 and 20 January 1935, and in consequence of such conspiracy theft wascommitted at Bharat Laxmi Cinema, Jupiter Cinema, and at other places. It

was argued that Sec. 19 (a), Electricity Act, and Rule 31 were necessitated by the fact that there can be no actual property in electrical energy.

Judgement: The appellants found guilty of conspiracy and theft and sentenced to fine and imprisonment.

Reason: The evidence supplied showed that there was conspiracy to theft and altering of the electricity meter.

Formation of a Contract

CASE 5.2 Petitioner: Union of India vs Respondent: Central India MachineryManufacturing Co. Ltd*Date: 6 April 1977Facts: The contract was for the manufacture and supply of wagons. It was provided that

the contract would be governed by the standard conditions in so far as they are not inconsistent with the correspondence exchanged between the parties. Under the standard conditions, 90 per cent of the payment had to be made against the company

submitting the bill to the purchaser together with the completion certificate and onpayment of such 90 per cent price the vehicle in question would become the propertyof the purchaser. The balance of 10 per cent was to be treated as security for thedue fulfillment of the contract. The balance was to be received on the receipt ofcertificate from the purchaser to the effect that the actual delivery of the vehicle wastaken and that the delivery was made in due time. The respondents contended thatthere was nothing in the special conditions which militated or was inconsistent withthe standard condition no. 15.The special conditions, read as a whole, show that theraw materials purchased by the company against 90 per cent of advance payment donot become the property of the railway board or the Union of India because underthe express terms of the contract, such advance payment is made towards thecontract price of the wagons and not towards price of the materials.

Judgement: Petition was dismissedReason: Transfer of property in goods for a price is the

lynchpin of the definition of ‘sale’, the difficulty in distinguishing between the contract of sale and work contract is an age old one. The test would be whether the thing to be delivered has any individual existence before delivery as the sole property of the party who is to deliver it. If the answer is in the affirmative, it is sale of the thing, otherwise not. Another rule is that

if the main object of the contract is the transfer from A to B for a price of the property in a thing in which B had no previous property, then the contract is a contract of sale

Classification of goods

CASE 5.3 Petitioner: Badri Prasad vs Respondent: State of Madhya Pradesh*Date: 11 October 1968Facts: The appellant entered into a contract in respect of certain forests in a jagir in

Madhya Pradesh. He was entitled to cut teak trees with over 12-inch girth. After the passing of the Abolition of Proprietary Rights (Estates, Mahals. Alienated Lands) Act, 1950, a notification was issued vesting the estate in the State. The appellant was prohibited from cutting timber in exercise of his rights under the contract . After some negotiations, a letter was written on 1 February 1955, to the appellant, on behalf of the State, that the appellant’s claim to cut trees under the contract would be considered only if he gave up his claim to a sum of `17,000 which he had already paid under the contract and was willing to pay a further sum of `17,000.The appellant, by his letter dated 5 February 1955 expressed his willingness to pay the additional sum but reserved his right to claim a refund of the first sum .The state government rejected the appellant’s right to cut trees. He then filed a suit claiming specific performance of the contract on the grounds: (1) The forest and trees did not vest in the State under the Act; (2) Even if they vested, the standing timber, having been sold to the appellant, did not vest in the State; and (3) In any event a new contract was completed on 5 February 1955, and the appellant was entitled to its specific performance.

Judgement: Appeal fails and dismissed.

Reason: The forest and trees vested in the State under the Act. The plaintiff was entitled to cut teak trees of more than 12-inch girth. It had to be ascertained which trees fell within that Description .Till this was ascertained, they were not ‘ascertained goods’ within Sec. 9 of the Sale of Goods Act. The contract was not to sell the whole of the trees. It is extremely doubtful whether the letter, dated 1 February 1955, is an offer. It seems to be an invitation to the plaintiff to make an offer. Be that as it may, even if it is treated as an offer there was no unconditional acceptance by the letter, dated 5 February 1955.The plaintiff expressly reserved his right to claim a refund of `17,000.According to the letter of the Divisional

Forest Officer, dated 1 February 1955, the plaintiff had to give up his claim to `17,000 which he had already paid and had to pay a further sum of `17,000. It is rightly held that the alleged acceptance of the offer made on 1 February 1955, was conditional and qualified.

Warranty & Condition

CASE 5.4 Petitioner: Antony Thomas vs Respondent: Ayuppunni Mani*Date of Judgement: 28 October 1959Facts: The respondent had undertaken to deliver to the appellant 125 bundles of

cashew nuts and received `4,000 in part payment of the price. The suit was for the refund of the said sum with interest at 6 per cent per annum. The appellant rejected the goods on the ground that the bad nuts exceeded the stipulated maximum of twenty per cent. The question for consideration is whether he was entitled to reject the goods as he did.

Judgement: Appeal is dismissed.Reason: The answer depends on whether the stipulation regarding the bad nuts was acondition or a warranty. Sec. 12 of the Indian Sale of Goods Act, 1930, deals withconditions and warranties as follows:1. A stipulation in a contract of sale with reference to goods which are the subject

thereof may be a condition or warranty.2. A condition is a stipulation essential to the main purpose of the contract, the breach

of which gives rise to a right to treat the contract as repudiated.3. A warranty is a stipulation collateral to the main purpose of the contract, the breach

of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

Whether a stipulation in a contract of sale is a condition of a warranty depends in eachcase on the construction of the contract. A stipulation may be a condition, though it

may be called a warranty in the contract. It is clear that a condition is a more vital undertaking than a warranty, and that the consequences that flow from its breach are different. The comparative degree of gravity spells a condition as distinct from one, which amounts only to a warranty. The distinction is of great importance. The breach of a condition entitles the injured party to repudiate the contract, to refuse the goods, and, if he has already paid for them, to recover the price. The only remedy for the breach of a warranty is the recovery of damages. The sale was by description, and there is an implied condition that the goods shall correspond with the description. The section on which he relies is Sec.

15 of the Indian Sale of Goods Act, 1930, which provides that where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description. The general principle of this implied condition is clear and founded on the consensual basis of the law of contract. The stipulation is definite, and there are no words which indicate any room for elasticity in complying with the stipulation. The sale was, therefore, a sale by description and that there was an implied condition that the goods must comply with the description

Transfer of Goods

CASE 5.5 Petitioner: Hoogly Chinsurah Municipality vs Respondent: Spence Ltd*Date of Judgement: 18 July 1977Facts: Hoogly Chinsurah Municipality contracted with Spence Ltd to

buy a tractor on the condition that if the municipality was not satisfied it would reject the tractor. The municipality took possession of the tractor and after using it for a month

and a half it rejected it. The suit was filed upon the unwillingness of the tractor company to accept it.

Judgement: Appeal dismissed.Reason: The municipality had not only used the tractor but also a

reasonable time had elapsed. Hence the property in the tractor had already passed to the municipality and, therefore, could not reject it.

CASE 5.7 Petitioner: Dharampal & Co.,Agra vs Respondent: Firm Kila Gatla RamChandra Rao & Co.,Vizianagaram* /Date of Judgement: 29 January 1980Facts:: The suit for recovery of `1,850 as damages from the respondent firm was decreed bythe trial court and future interest at the rate of 4 per cent per annum. A contract wasentered into between the parties by means of a telegram for the purchase of 250 bagsof peas at the rate of `37 per bag, deliverable F.O.R. atVizianagram. The buyer, namely therespondent, indicated in the telegram that the peas should be friable at 6 1/2.** Thisagreement was made on 3 February 1962. On the same day, a wagon was indented bythe plaintiff for the dispatch of goods. He received the wagon on 14 February 1962 andloaded the peas and dispatched the same day. The wagon reached Vizianagram on 16February 1962. Meanwhile the plaintiff had also sent a hundi to the defendant anddispatched the R.R. (railway receipt) for collection through bank. The defendant did notreceive or accept the goods at Vizianagram and he did not also honour the hundi or takethe R.R. from the bank. The defendant’s stand was that the peas sent were not of thecontracted quality and therefore, he sought to repudiate the contract. The plaintiff had tosend a messenger to Vizianagram who took delivery of the consignment of the goodsafter paying demurrage to the Railways and sold it to a local dealer at a lower rate withthe result that he incurred loss in the price of the goods also. He, therefore, in this suitclaimed a sum of `833 as demurrage, `142 as miscellaneous expenses, and `875 as thedifference in price, totaling a sum of `.

1,850.The plaintiffs stand was that the defendant could not refuse to take delivery of the goods and was not entitled to repudiate the contract. He was afforded an opportunity of examining the goods but he did not avail of the same. The quality of the goods sent was according to the contract

Judgement: The appeal upheld.Reason: The Allahabad High Court upheld the verdict of the trial court which held that

the time was not the essence of the contract and the quality of the goods supplied was not inferior to the contracted quality, the plaintiff suffered damages as claimed and the court had territorial jurisdiction to try the suit. Lastly, it was held that the plaintiff was entitled to the damages and the suit was accordingly decreed. The lower appellate court formulated two points for consideration. The first point was about the territorial jurisdiction of the court at Agra to try the suit. This was held in the affirmative and in favour of the plaintiff. The second point was whether the contract was in respect of the goods of specific description and the plaintiff failed to satisfy the defendant about the quality of goods, if so, its effect. This was answered by holding that the goods contracted for purchase, were

of specific description and the plaintiff failed to satisfy the defendant about the quality of the goods and as such was not entitled to any amount claimed by way of damages.

Rights of unpaid seller

CASE 5.7 Petitioner: P.S.N.S.Ambalavana Chettiar & Co., vs Respondent: ExpressNewspapers Ltd, Bombay* / Date of Judgement: 10 November 1967**Facts: Suit under Indian Sale of Goods Act, Secs 18 and 54(2): Sale of unascertained goods:When property passes; repudiation of contract, vendor’s right of resale when arises.On 13 November 1951, the respondent agreed to sell to the appellants a stock of415 tonnes of newsprint in sheets then lying in the respondent’s godown. On 26November, the parties varied the contract by agreeing that the appellants would buyonly 300 tons out of the stock of 415 tonnes. After taking delivery of a part of thenewsprint, the appellants refused to take delivery of the balance and repudiated thecontract on 29 March 1952. On 21 April the respondent, after notice to the appellants,resold the balance at a lesser rate. The suit filed by the respondent claiming from theappellants the deficiency on resale was decreed.Judgement: The claim of the respondent unsustainable.

Reason: As the respondent was not a pledger of the newsprint, the respondent had no right to sell the goods under Sec. 176 of the Indian Contract Act. 1872. A seller can claim as damages the difference between the contract price and the amount realized on resale of

the goods where he has the right of resale under Sec. 54(2) of the Indian Sale of Goods Act, 1930. But this statutory power of resale arises only if the property in the goods has passed to the buyer subject to the lien of the unpaid seller. Under Sec. 18 of the Sale of

Goods Act, it is a condition precedent to the passing of property under a contract of sale that the goods are ascertained. In the present case, when the contract was originally

entered into for the sale of 415 tonnes there was an unconditional contract for the sale of specific goods in a deliverable state and the property in those goods then passed to

the appellants.

Remedies for Breach of contract of sale

CASE 5.8 Petitioner: Sitaram Srigopal vs Respondent: Smt. Daualti Devi (Dead) By Heirs* Date of

Judgement: 1 October 1979

Facts: On 26 August 1950, Tulsiram Shaw sold 1540 ‘value sluice water flanged and drilled to B.S.T.C.4’.specific goods for a sum of `35,200 to the partnership firm of Sitaram Srigopal. The latter paid the entire price in cash to the former.Tulsiram Shaw further promised to hand over the release order of the goods and/or delivery order by 28 August 1950, to enable the firm to take delivery of these goods from Panagarh. Tulsiram neglected or refused to deliver the said release order in spite of demands by Sitaram Srigopal. On the preceding allegations, Sitaram Srigopal instituted a suit in the high court of Calcutta againstthe original defendant,Tulsiram Shaw, on 15 January 1951, for specific performance by the defendants to deliver the said specific goods on the ground that these goods were not readily available in the market and were of some big value and, therefore, damages would not afford adequate relief for the loss of the goods. In the alternative, the plaintiff claimed refund of the price of `35,200 with interest at 6 per cent per annum and a further sum of `1,32,559 as damages being the difference between the contract price and the market price of the goods on the date of the breach, namely, the end of August 1950.The suit was resisted by the original defendant, who, in his written statement, pleaded that he was, at all material times ,ready and willing to deliver the release order to the plaintiff and had, in fact, offered to do so, but the latter requested the defendant to cancel the contract and refund the amount of `35,200 by cheque on 21 September 1950, but the plaintiff declined to accept it. During the pendency of the suit, the original defendant died on 15 November 1959 and his widow, Smt. Daulata Devi and heirs were impleaded as defendants in place of the deceased.

Judgement: Appeal fails. Dismissed with costs.Reason: It is clear from the above conspectus that the evidence produced by the

plaintiff wasnot cogent, convincing, and reliable to establish, either that the goods in questioncomprised were in brand new condition, or the market price of goods of similarspecifications in August 1950. In view of the circumstantial evidence on the record,the court below was not wrong in holding that the market price of the goods inquestion in August 1950 was the same at which they were purchased by the

plaintifffrom Tulsiram Bhagwandas and, consequently, the plaintiff was not entitled to anydamages, apart from the refund of `35,200 which was the price paid by him

Rules of Auction Sale

CASE 5.9 Petitioner: Consolidated Coffee Ltd vs Respondent: Coffee Board, Bangalore*Date of Judgement: 15 April 1980Facts: The Coffee Board of India is a statutory corporation. Export of coffee outside India is particularly controlled under the Act and the Rules by the Coffee Board. Coffee can be exported either by the Coffee Board directly to parties outside India or the Coffee Board authorizes other exporters to effect such exports. For effecting exportsthrough other exporters the Coffee Board periodically conducts auctions known as‘export auctions’ and it follows a procedure in that behalf.To be able to bid at theseauctions, exporters have to get themselves registered with the Board.The Coffee Board issued a circular dated 7 February 1977 to the registeredexporters of coffee, by which it took the view that in order to avail of the benefit ofSec. 5(3) of the Central Sales Tax Act as amended by Amendment Act 103 of 1976,in respect of the coffee sold by it at the export auctions the registered exporters(bidders) should satisfy three conditions: (a) they must have an export contract (i.e.,either agreement or order) from a foreign buyer; (b) they must have it on hand atthe time when they participate in the export auction; and (c) they should give proofof the export of the coffee purchased at the auction.

The petitioners, who are registered exporters of coffee, therefore have filedunder Article 32 of the Constitution raising an important question of properconstruction of Sec. 5(3), of the Central Sales Tax Act as amended by AmendingAct (103 of 1976) and also challenging the constitutional validity of the circulardated 7 February 1977, issued by the Coffee Board, whereby it required thepetitioners and other registered exporters of coffee to furnish contingency depositsor bank guarantees equal to the amount of sales tax in respect of the exemptedsales under the said Sec. 5(3) of the Central Sales Tax Act and praying for itscancellation or withdrawal and consequential reliefs.

Reason: Sec. 5(3) of the Central Sales Tax Act as amended by the Amendment Act 103 of 1976is not ultra vires to Article 286(2) of the Constitution and the said provision neithercreates any legal Action nor is it beyond the power or authority conferred onParliament by Article 286(2) of the Constitution. [645A-D] It is true that the worddeemed has been used in Sec. 5(3) but the same word has been used not merely inSec. 5(1) but also in the other two Sec.s 3 and 4 of Chapter II of the Central SalesTax Act which has the heading ‘Formulations of Principles’ for determining when asale or purchase of goods takes place in the course of inter-state trade or commerceor outside a State or in the course of export or import.In the penultimate sales (sales of coffee effected to registered exporters at exportauctions conducted by the Coffee Board) the property in the coffee sold there passesto the buyer immediately upon payment of full price, weight, and setting apart ofcoffee for delivery to the buyer under Cls. 19 and 20 of the Auction Conditions andit would be at this stage, i.e., just before this stage is reached that the agreement withor order from a foreign buyer must be available or produced in order to attract Sec.5 (3) of the Central Sales Tax Act, 1956. [674C-D]Exporters’ assessments or recoveries if made in conformity with judgement neednot be disturbed. Similarly, contingency deposits or bank guarantees already obtainedby the Coffee Board from the registered exporters, if they are contrary to judgement,these will be refunded or released forthwith, as the case may be, by the Coffee Board