Business Environment & Legal

Aspects of Business
KMBN-201

Unit 3
Dr. Anurag Joshi
 Business or Mercantile Law
 Indian Contract Act,1872
 Partnership Act,1932
 Sale of Good Act,1930
 Negotiable Instrument Act,1881
 Companies Act,1956
 Consumer Protection Act,1986
 The Information Technology Act,2000
References:
 P.C.TULSIAN
 M.C.KUCHHAL
 N.D.KAPOOR
What is Law ?
• Law means a “Set of Rules”. The rules of conduct
recognized and enforced by the state to control and
regulate the conduct of people, to protect their property
and contractual rights with a view to securing justice,
peaceful living and social security.
Why should One know Law?
• One should know the law to which he is subject because
ignorance of law is no excuse in the eye of Law.
What is Mercantile or Business or Commercial Law ?
• It is not a separate branch of Law. Basically , it is a part
of civil law which deals with the rights and obligations of
mercantile persons arising out of mercantile
transactions in respect of mercantile property.
 Indian Contract Act, 1872
The main source of law regulating contracts in Indian law.
Two groups:
1.General Principles of law of Contract.
2. Specific kinds of Contracts,
(a) Contracts of Indemnity and Guarantee
(b) Contracts of Bailment and Pledge
(c) Contracts of Agency.
Definition of Contract
According to Section 2(h) of the Indian Contract Act.
“An agreement enforceable by law is a contract.”
A contract essentially consists of two elements:
(1) An agreement, and
(2) Legal obligation i.e. a duty enforceable by law.
Agreement: Section 2(e) defines agreement as
“every promise and every set of promises,
forming the consideration for each other.”
Promise: Section 2(b) defines promise as "when the
person to whom the proposal is made signifies
his assent thereto, the proposal is said to be
accepted. Proposal when accepted, becomes a
promise."
• Promise sec 2(b) - A Proposal when accepted
becomes a promise. In simple words, when an offer
is accepted it becomes promise.
• Promisor and promise sec 2(c) - When the
proposal is accepted, the person making the
proposal is called as promisor and the person
accepting the proposal is called as promisee.
• Consideration sec 2(d) - When at the desire of the promisor, the
promisee or any other person has done or abstained from doing
something or does or abstains from doing something or promises to
do or abstain from doing something, such act or abstinence or
promise is called a consideration for the promise.
• Price paid by the one party for the promise of the other Technical
word meaning QUID-PRO-QUO i.e. something in return.
• Agreement sec 2(e) - Every promise and set of promises forming the
consideration for each other.
• Contract sec 2(h) - A agreement enforceable by Law is a contract.
Agreement= Offer (or Proposal) + Acceptance
Legal Obligation
An agreement to become a contract must give to legal
obligation i.e., a duty enforceable by law. In other
words, the parties to an agreement must be bound to
perform their promises and in case of default by either
of them, must intend to sue.

Ex: X offers to sell his car to Y for Rs 1,00,000. Y accepts

this offer. Such an agreement between X and Y is a
contract because it create legal obligation. In this
agreement, if X refuses to sell or Y refuses to buy, the
other party can file a suit in the court of law for the
breach of the contract.
Offer and Acceptance
 Offer or Proposal
• Acc. To sec 2(a), “A person is said to have made
the proposal when he signifies to another his
willingness to do or to abstain(stop) from doing
anything with a view to obtaining the assent of
that offer to such act or abstinence.”
• The person making the proposal is called the
offerer or proposer.
• The person to whom the proposal is made is
called the offeree or proposee
 Essential Elements:
• It must be made by one person to another
person. In other words, there can be no
proposal by a person to himself.
• It must be an expression of readiness or
willingness to do (i.e. a positive act) or to
abstain from doing something (i.e. a negative
act ).
• It must be made with a view to obtain the
consent of that other person to proposed act
or abstinence.
 How to make an offer

• Express Offer
• Implied Offer (conduct of a person)
To whom an offer is made
Specific Offer: One which is made to a definite
person or particular group of persons.
General Offer: One which is not made to a definite
person, but to the world at large or public in
general. Accepted by any person by fulfilling the
terms of the offer
 Legal Rules for a Valid Offer
• Intention to create legal relationship
• Certain and Unambiguous terms (no vague)
• Different from a Mere declaration on Intention
(declaration offer made or invited in future)
• Different from an Invitation to Offer.
(Display of goods & prospectus issued by a company)
• Communication
• No term the Non-compliance of which amounts to
Acceptance (the offerer cannot say that if offer is not accepted before a
certain date, it will be presumed to have been accepted)
• Communication of Special terms or standard form
contracts. (special terms to the offer are not communicated, the
offeree will not be bound by those terms. Standard contract such as
insurance companies, railways, banking)
• Cross Offer: Two offer which are similar in all respects
made by two parties to each other, in ignorance of
each other’s are known as “Cross offer.” It do not
amount to acceptance of one’s offer by the other.
Hence, no contract is entered into on cross offers.

• Standard Offer: An offer of a continuous nature, is in

the nature of a tender. It is the same thing as an
invitation to an offer. A contract said to have been
entered into only when an order is placed on the
basis of the tender.
 Acceptance
• Means giving consent to the offer.
Who Can Accept
• Specific Offer: Definite person to whom it
has been made and none else.
• General Offer: Any person having
knowledge of the offer by fulfilling the
terms of the offer.
How to make Acceptance
• Express Acceptance
• Implied Acceptance
 Legal Rules for a Valid Acceptance
• Absolute and Unqualified
(without reservation, variation or condition)

• Manner (prescribe ,un-prescribed )

• Communication
• By Whom (or by authority)
• To whom
• Time limit
• Before lapse of Offer
Communication of Offer and Acceptance
 Revocation (Taking back or withdrawal) of Offer
and Acceptance
• Time limit within which offer can be revoked (sec 5)
Must be expressed
Must move from the offerer himself or a duly authorized agent.
Notice of revocation of a general offer must be given through the
same channel by which the original offer was made.
Offer cannot be revoked even if the letter of acceptance is lost or
delayed in transit.
• Time Limit within Acceptance can be revoked (Sec 5)
• Simultaneous Delivery of Letter of Acceptance and the Telegram
containing Revocation of Acceptance.
• No Revocation incase of contract over Telephone or telex of Fax.
LAPSE (i.e. comes to an end) OF AN OFFER
• By Revocation(withdraw)
• By lapse of time
• By Death or insanity of the offeror or offeree
• By failure to accept condition Precedent
• By Counter Offer
• By not Accepting in the Prescribed mode or Usual mode
• By Rejection of offer by Offeree
• By subsequent illegality or Destruction of Subject Matter
of the offer
 PROPOSAL

PROMISE

CONSIDERATION

AGREEMENT

LEGALLY ENFORCEABLE LEGALLY NOT ENFORCEABLE

CONTRACT VOIDABLE AGREEMENT VOID AGREEMENT

 ESSENTIALS OF A VALID CONTRACT

As per Section 10 “All agreements are contracts, if they are

made – by free consent of the parties, competent to
contract, for a lawful consideration and with a lawful object,
and not hereby expressly declared to be void .”

ENFORCEABILITY BY
OFFER ACCEPTANCE PROMISE CONSIDERATION AGREEMENT CONTRACT
LAW
 AN AGREEMENT A CONTRACT

Distinctions
What constitute? Offer and its acceptance Agreement and its
constitute an agreement enforceability
constitute a contract

Creation of Legal An agreement may or A contract necessarily

Obligation may not create a legal create a legal
obligation obligation.

One in Other Every agreement need All contracts are

not necessarily be a necessarily
contract agreements.

Binding Agreement is not Contract is concluded

concluded or a binding and binding on the
contract concerned parties.
 Essentials of a Valid Contract
• Offer and Acceptance
• Intention to create Legal Relationship
• Free Consent
• Capacity of Parties
• Lawful Consideration
• Lawful Object
• Writing and Registration (Legal formalities)
• Certainty
• Possibility of Performance
• Not expressly declared void
1. Offer and acceptance:
There must a 'lawful offer' and a 'lawful
acceptance' of the offer, thus resulting in an
agreement.
2. Intention to create legal relations:
There must be an intention among the parties
that the agreement should be attached by legal
consequences and create legal obligations.
Eg. An agreement to dine at a friend's house in not
an agreement intended to create legal relations
and therefore is not a contract.
Agreements between husband and wife also lack
the intention to create legal relationship and thus
do not result in contracts
3.Lawful Consideration. The third essential
element of a valid contract is the presence of
‘Consideration'.
• Consideration has been defined as the price
paid by one party for the promise of the other.
• An agreement is legally enforceable only when
each of the parties to it gives something and
gets something.
• The something given or obtained is the price
for the promise and is called 'consideration
4. Capacity of parties.
• The parties to an agreement must be competent to contract.
• The contracting parties must be of the age of majority and of sound
mind and must not be disqualified by any law to which they are
subject (sec.11).
• If any of the parties to the agreement suffers form minority, lunacy,
idiocy, drunkenness etc.
• What is sound mind? Acc. to sec 12, “A person is said to be of sound
mind for the purpose of making a contract. If, at the time when he
makes it, he is capable of understanding it and of forming a rational
judgment as to its effects upon his interests.” The sec further states
that:
• “A person who is usually of unsound mind, but occasionally of sound
mind, may make a contract when he is of sound mind.”
• “A person who is usually of sound mind , but occasionally of unsound
mind, may not make a contract when he is of unsound mind.”
5. Free consent:
Free consent of all the parties to an agreement is another
essential element.
'Consent' means that the parties must have agreed upon the
same thing in the same sense (sec. 13). There is absence
of 'free consent,' if the agreement is induced by
• According to u/s 14, Free consent, Consent is said to be
free when it is not caused by-
• Coercion (Sec 15),
• Undue Influence (Sec 16),
• Fraud (Sec 17),
• Misrepresentation (Sec 18),
• Mistake (Sec 20,21,&22)
 Coercion (Sec 15)
• A contract is said to be caused by coercion when it is obtained
by—
• Committing any act which is forbidden by the Indian Penal
Code; or threatening to commit any act which is forbidden by
the Indian Penal Code; or Unlawful detaining of any property;
or threatening to detain any property.
• Coercion may proceed from any person, and may be directed
against any person, even a stranger.
Effect Of threat to commit suicide:
• Suicide & threat to commit suicide are not punishable but an
attempt to commit suicide is punishable under the Indian
Penal Code.
 Undue Influence (Sec 16)
• “A contract is said to be influenced by “undue influence" where
the relations subsisting b/w the parties are such that one of the
parties is in a position to dominate the will of the other and uses
that position to obtain an unfair advantage over the other.”
• A person is deemed to be in a position to dominate the will of
another Where he holds a real or apparent authority over the
other like master & servant, doctor & patient.
• Where he stands in a fiduciary relation (relation of trust &
confidence)
• Where he makes a contract with a person whose mental capacity
is temporarily or permanently affected by reason of age/ illness
or mental or bodily distress. Like medical attendant & his patient.
Effect Undue Influence
• The agreement is a contract void able at the option of
the party whose consent was so obtained.
Relationships which raise presumption of undue
influence
• Parent & child, guardian & ward, Trustee &
beneficiary, Religious adviser & disciple, doctor &
patient, solicitor & client, fiancé & fiancée.
• Relationships which raise no presumption of undue
influence
• Landlord & tenant, creditor & debtor, husband & wife.
 Misrepresentation (Sec 18)
• A representation, when wrongly made, either innocently or
intentionally , is a misrepresentation. It may be-
• An innocent or unintentional misrepresentation, or
• An intentional, deliberate or willful misrepresentation with an
intent to deceive (mislead/Trick) or defraud the other party.
• When a person positively asserts that a fact is true when his
information does not warrant it to be so, though the believes it
to be true.
• When there is any breach of duty by a person which brings an
advantage to the person committing it by misleading another to
his prejudice.
• When a party causes, however innocently, the other party to
the agreement to make a mistake as to the substance of the
thing which is the subject of the agreement.
Consequences of Misrepresentation
• The aggrieved party, in case of misrepresentation by the other
party, can-(Void able)
• 1) Avoid or rescind the contract; or
• 2) Accept the contract but insist that he shall be placed in the
position in which he would have been if the representation
made had been true.
Loss of right of Rescission
• The aggrieved party loses the right to rescind (withdraw) or
avoid the contract for misrepresentation or fraud- If he, after
becoming aware of the misrepresentation or fraud, takes a
benefit under the contract or in some other way affirms it.
• If restoration to the original positions (where the subject matter
of the contract has been consumed or destroyed).
 Fraud (Sec 17)
• Means & includes any of the following acts committed by
a party to a contract, or with his connivance (intentional
active or passive acquiescence), or by his agent with
intent to deceive or to induce a person to enter into a
contract:
• The active concealment of a fact by a person having
knowledge or belief of the fact;
• A promise made without any intention of performing it;
• Any other act fitted to deceive;(mislead)
• Any such act or omission as the law specially declares to
be fraudulent.
Effect of Fraud:
• Void able at the option of the party defrauded.
Contract not necessarily void able –Exceptions
• Where the consent of a party to a contract was caused by
misrepresentation or fraud & that party could discover the
truth by ordinary diligence.
• Where a party enters into a contract in ignorance of the
misrepresentation or fraud.
• Where, before the contract is avoided, the interests of third
parties intervene, but the third parties acquire interest in the
subject-matter for value & act.
• Where a party cannot be put in the position in which he
would have been if the representation made had been true.
 Mistake (Sec 20)
• A mistake is said to have occurred where the parties
intending to do one thing by error do something else. The
mistake can be of two types:
1. Mistake by Law (Contract is void in case of Indian Law &
Void able in case of Foreign law))
2. Mistake of Facts
• Bilateral Mistake
• Unilateral Mistake
Bilateral Mistake: Where both the parties to the agreement
are under a mistake as to a matter of fact, essential to the
agreement, the agreement is void.
• As to the subject Matter
• As to the Possibility of Performance
Unilateral Mistake: Where only one party to the agreement
Effects of Mistakes
• In case of Bilateral- Agreement Void
• In case of Unilateral-
• As to the identity of the person contracted
with - Agreement Void
• As to the nature of Contract – Agreement Void
• Obligation of Aggrieved Party-Restore benefit
• Obligation of Other Party-Repay or Return
 Sec 23 the consideration or object of an
agreement is unlawful in the following cases:
• If it is Forbidden by law
• If it Defeats the provisions of any law
• If it is fraudulent
• If it involves or Implies injury to a person or
Property of another
• If the court regards it as immoral or opposed
to public policy
Agreement is void
• Agreement opposed to public policy
• Agreements of Trading with Enemy
• Agreement for stifling prosecution
• Agreement for the sale/Transfer of Public offices & titles.
• Agreements in restraint (control) of parental rights.
• Agreements in restraint of personal liberty
• Agreement tending to create monopoly
• Agreements interfering with course of justice
• Marriage brokerage contracts
• Agreement in restraint of marriage
• Agreement in restraint of trade
• Agreement in restraint of legal proceeding
 6. Legality of Object.
• For the formation of a valid contract it is also necessary
that the parties to an agreement must agree for a lawful
object.
• The object for which the agreement has been entered
into must not be fraudulent or illegal or immoral or
opposed to public policy or must mot imply injury to the
person or the other of the reasons mentioned above the
agreement is void.
• Eg. When a landlord knowingly lets a house to a
prostitute to carry on prostitution, he cannot recover the
rent through a court of law or a contract for committing a
murder is a void contract and unenforceable by law.
7. Writing and Registration:
• According to the Indian contract Act, A
contract to be valid, must be in writing and
registered.
• Eg. It requires that an agreement to pay a time
barred debt must be in writing and an
agreement to make a gift for natural love and
affection must be in writing and registered to
make the agreement enforceable by law
which must be observed.
8. Certainty:
• Section 29 of the contract Act provides that "
Agreements, the meaning of which is not certain
or capable of being made certain, are void."
• In order to give rise to a valid contract the terms of
the agreement must not be vague or uncertain.
• Eg. A, agrees to sell B " a hundred ton of oil" there
is nothing whatever to show what kind of oil was
intended. The agreement is void for uncertainly.
9. Possibility of Performance:
• Another essential feature of a valid contract is
that it must be capable of performance.
• Section 56 lays down that "An agreement to
do an act impossible in itself is void". If the act
is impossible in itself, physically or legally, the
agreement cannot be enforced at law.
• Illustration. A agrees with B, to discover
treasure by magic. The agreement is not
enforceable.
 Privity of Contract
• The doctrine of privity of contract is a
common law principle which provides that a
contract cannot confer rights or impose
obligations upon any person who is not a
party to the contract.
• The premise is that only parties to contracts
should be able to sue to enforce their rights or
claim damages as such.
 TYPES OF CONTRACT
•Express contract
ON THE BASIS OF •Implied contract
CREATION/FORMATION •Quasi contract

•Valid contract
ON THE BASIS OF • Void contract
• Voidable contract
VALIDITY
•Illegal contract

ON THE BASIS OF •Executed contract

EXECUTION/PERFORMANCE •Executory contract

ON THE BASIS OF •Bilateral contract

LIABILITY •Unilateral contract
 Classification of Contracts
On the basis of Creation:
1. Express Contract: Express contract is one which is made by words spoken
written.
Eg: 1. X says to Y “Will you buy my car for Rs 1,00,000?”
Y says to X “I am ready to buy your car for Rs 1,00,000.”It is an express
contract made orally.
2. X writes a letter to Y, “I offer to sell my car for Rs 1,00,000 to you.” Y send
letter to X, “I am ready to buy car for Rs 1,00,000” It is an express contract
made writing.
2. Implied Contract: An implied contract is one which is made otherwise than
by words spoken or written. It is inferred from the conduct of a person or
the circumstances of the particular case.
Eg: A transport company runs buses on different routes to carry passengers. This
is an implied offer by transport company . X boards a bus. This is an implied
acceptance by X. Now, there is an implied contract and X is bound to pay the
prescribed fare.
3.Quasi Contracts: A quasi contract is created by law. Thus,
quasi contracts are strictly not contracts as there is no
intention of parties to enter into a contract. It resembles a
contract in that a legal obligation is imposed on a party who
is required to perform it. It rests on the ground of equity
that “ a person shall not be allowed to enrich himself
unjustly at the expense of another.”
Ex: T, a tradesman , leaves goods at C’s house by mistake, C
treats the goods as his own. C is bound to pay for the goods.
 On the basis of Execution:
• Executed Contract: It is a contract where both
the parties to the contract have fulfilled their
respective obligations under the contract.
• Executory Contract: It is a contract where both
the parties to the contract have still to perform
their respective obligations.
• Partly Executed and Partly Executory Contract:
It is a contract where one of the parties to the
contract has fulfilled his obligation and the
other party has still to perform his obligation.
 On the basis on Enforceability:
• Valid Contract: A contract which satisfies all the conditions
prescribed by law is a valid contract.

• Void Contract: Void means “not binding in law” According to Section

2(j), “ A contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable.”
• In other words, a void contract is a contract which was valid when
entered into but which subsequently became void due to
impossibility of performance, change of law or some other reason.

1. Supervening impossibility (sec. 56)

A contract become void by impossibility of performance after

the formation of contract.

For example: - A makes a contract to marry B. But before their

marriage B dies. Contract will become void due to death of B.
Reasons:
2. Supervening illegality: A contract becomes void by impossibility
of performance after the formation of the contract .
3. Subsequent illegality: A contract also becomes void by
subsequent illegality.
Eg: A agrees to sell B 100 bags of wheat at Rs 650 per bags. Before
delivery, the government bans private trading in wheat. The
contract becomes void.
4. Repudiation (Denial) of a voidable contract: A voidable
contract becomes void, when the party whose consent is free,
repudiates the contract.
Ex: A by threatening to murder B’s son, makes b agree to sell his car
worth Rs 30,000 for a sum of Rs 10,000 only. The contract ,
being the result of coercion, is voidable at the option of B. B
may either affirm or reject the contract. In case B decides to
rescind (withdraw) the contract, it become as void.
(d) In the case of a contract contingent on the
happening of an uncertain future event, if
that event becomes impossible:
• A contingent contract to do or not to do
something on the happening of an uncertain
future event, becomes void, when the event
becomes impossible.
Ex: A contracts to give Rs 1,000 as loan to B , if B
marries C. C dies without being married to B.
The contract becomes void.
• Voidable Contract:- Acc to Sec. 2 (I) of Indian contract
Act, 1872
“An Agreement which is enforceable by law at the option
of one or more parties but not at the option of other or
other’s”

If in a contract, the consent of party is taken on the basis

of Coercion, Fraud, Misrepresentation or mistake then
such contract becomes voidable at the option of the
party. Such party, whose consent has been taken by
these reasons, can repudiate (reject/deny) the contract.

For Example:- A threats to B, if he will not sell his house

for Rs 5 lakh ( Market Value is Rs 20 Lakh) then he will
kill him. Due to threat B accepts. Here the acceptance of
B is due to Coercion and it is not free consent. Hence the
contract is voidable at the discretion of B.
• Illegal Agreement (Unlawful):- An illegal agreement is one the object of which

is unlawful, such and agreement cannot be enforced by law.

• For example:- A agrees to pay to B Rs one lakh , if B kills C. B kills C and claim Rs one

lakh. B cannot recover from A because the agreement between A & B is illegal as its

object is unlawful.
• Ex- B borrows Rs.5000 from A and enters into a contract with an alien to import

prohibited goods. A knows of the purpose of the loan. The transaction between B

and A is collateral to the main agreement. It is illegal since the main agreement is

illegal.
• “All illegal agreements are void agreements but all void agreements are not

illegal.”

• Unenforceable Contract:- it is a contract which is actually valid but cannot be

enforced because of some technical defect ( not in writing, registered or under

stamped). Such contract can be enforced, if the technical defect involved is removed.
• Void Agreement: - Acc. to Sec. 2 (g) of Indian
Contract Act, 1872
“An agreement not enforceable by law is said to be
void”
For Example:- An agreement with a minor or a
person of unsound mind is void because a minor or a
person of unsound mind is incompetent to contract.
 Contracts with pardanashin women
• A woman who observes complete seclusion (parda)
from contact with people outside her own family,
because of custom of community.
• For proving the absence of undue influence
(a) Terms of contract were fully explained
(b) She understood their implications
(c) Was free to have independent advice in the matter.
lliterate ladies are also considered as pardanashi.
Can Silence be fraud
• According to sec 17, “mere silence as to facts
likely to affect the willingness of a person to
enter into a contact is not a fraud.”
• Exceptions to the general rule: -
– where parties stand in fiduciary relationship like
parent-child, trustee-beneficiary.
– Where the silence itself is equivalent to speech
– Half truth
 Discharge of contract
• Discharge of a contract means
termination of contractual relations
between the parties to a contract. A
contract is said to be discharged when the
rights and obligations of the parties under
the contract came to an end.
 Mode of discharge of contract
• By performance– actual or attempted
• By mutual agreement and consent
• By subsequent impossibility
• By lapse of time
• By operation of law
• By breach of contract
 Discharge of contract by performance
• A contract can be discharged by performance in two
ways-
(1) By actual performance
A contract is said to be discharged by actual
performance when the parties to the contract
perform their promise in accordance with terms of
contract.
(2) By attempted performance or tender
when the promisor offers to perform his obligation
under the contract, but is unable to do so because
promisee does not accept the performance, it is
called attempted performance or tender.
Essentials of a valid tender
• Must be unconditional.
• Made at proper time and place.
• Must be of whole obligation.
• Must give a reasonable opportunity to the
promisee for inspection of goods.
• Must be made by a competent person.
• Must be made to the proper person
• In case of money exact amount should be
tendered.
Discharge by impossibility of performance

• The effect of impossibility of performance of a

contract may be discussed in two parts
(a) Effect of initial impossibility
(b) Effect of supervening impossibility

(1) Initial impossibility Sec. 56 para 1&3

(2) (i) where both promisor and promisee know
about the initial impossibility – void ab-initio.
(ii) where both do not know -- void Mistake
(iii) promisor alone know - compensate for losses
• Effect of supervening impossibility sec. 56 para 2
(i) Act became impossible after the contract is
made ---becomes void
(ii) Where an act become unlawful by some reason
beyond the control of promisor --- becomes void
(iii)Only promisor know about impossibility --- must
compensate for losses
(iv)Where an agreement is discovered to be void or
where a contract become void--- benefit
received must be restored.
 Cases when contract is discharged on the
ground of supervening impossibility

• Destruction of subject matter

• Death or personal incapacity
• Declaration of war
• Changes of law
• Non-existence or non-occurrence of a
particular state.
Cases when the Contract is not discharged
on the ground of supervening impossibility

• Difficulty of performance
• Commercial impossibility
• Default of third party
• Strike, lockout, and civil disturbance
• Partial impossibility
 Discharge by breach of contract
• A contract is said to be discharged by breach
of contract if any of the party to the contract
refuses of fail to perform his part of the
contract or by his act makes it impossible to
perform his obligation under the contract.
(1) Anticipatory Breach
(2) Actual Breach
on due date
during the course of performance
 Anticipatory Breach (Sec. 39):-
It occurs when the party declares his intention of not
performing the contract before the performance is
due. When a party refuses to perform a contract even
before it is due for performance, it is called
Anticipatory Breach.
• For Example: - A contracts with B to supply the goods
of Rs 50000/- on 30th June. But A informs B on 15
June (before the actual date) that he will not supply
him these goods.
• Modes of declaring an intention not performing the
contract ( Sec 39):-
– When a party to a contract has refused to perform his
promise
– When a party to a contract has disabled himself from
performing his promise in its entirety.
Options available to aggrieved party:-
Aggrieved party has 2 options:-
– He can rescind the contract and claim damages for the
breach of contract without waiting until the due date of
performance
– He may treat the contract as operative and wait till the due
date for performance and claim damages, if the promise
still remains unperformed.
 Actual Breach of Contract:-
When a party to contract refuses or fails to perform
his part or promise of the contract at the time fixed for
performance of that contract. That person is called
defaulter party and held liable for breach of contract.

For Example:-
• A promises to B to give him goods of Rs 10000/- on 1st
January. But on 1st January, he refuses to deliver the
goods to B or perform part one (means in
installments) . Here A has not performed his promise.
It is actual breach of contract.
Remedies available to an Aggrieved Party

Remedies available
to an Aggrieved
Suit Party
Resci for Suit
ssion Suit Suit
Specifi upon
for for
of Damag
c
Injunct
Quantu
contr Perfor m
es ion
mance Merits
act
 Rescission of a Contract:-
When a contract is broken by one party, other party
may treat the contract as rescinded. In such a case,
he is free from all his obligation and entitled to
compensation form any damages that he might have
suffered.
For Example:-
A Promises B to supply 10 bags of rice on a certain day.
B agrees to pay price after the receipt of goods. A does
not supply the goods. B is discharged from liability to
pay the price.
Suit for Specific Performance:-
Suit for specific performance means demanding the courts
direction to the defaulting party to carry out the promise
according to the terms of contract. Granted usually in cases of
land, building, rare articles and unique goods having special
value because of family association.
For example:-A agreed to sell an old paintings to B for Rs
50000/-. Subsequently A refused to sell the painting. Here B may
file a suit against A for the specific performance of contract.

Cases where suit for Specific Performance is not maintainable:-

• Where the contract is of personal nature ( Marriage)
• Where one of party is minor
• Where the court cannot supervise the performance of
contract.
• Where monetary compensation is an adequate relief.
 Suit for Injunction:-
Means demanding courts stay order. Injunction means an
order of the court which prohibits a person to do a
particular act. Where a party to a contract does some
thing which he promised not to do, the court may issue
an order prohibiting him from doing so.

For example:- A agreed to sing at B’s theater only during

the contract. But during the contract, A made contract
with C to sing at another theater and refused to perform
the contract with B. It was held that A could be
restrained from singing for C.
 Suit for Quantum Meruit:-
Quantum Meruit means as much is earned. Right to
quantum meruit means a right to claim the
compensation for the work already done. In simple
words, it means payment in proportion to the amount
of work done or remuneration according to work done.
Acc. to Quantum Meruit, if a person does some act for
another and other person breaches the contract or such
event occurs that it becomes impossible to continue the
contract further, then the first party has the right to
claim reasonable remuneration from the other.
For Example:-
A enter into a contract with a publisher for writing a
book. A starts working on the book. But before the
completion of book, publisher refuses A for publishing
the book. A has the right to claim for the work done so
far.
 Damages for Breach of Contract
• Damages are monetary compensation allowed for loss
suffered by the aggrieved party due to breach of a
contract. Aim is not punishment but compensation.
• Types of damages:-
– Ordinary damages
– Special Damages
– Exemplary (excellent, perfect) Or Vindictive damages
(bitter, cruel, hurtful, nasty)
– Nominal damages
– Liquidated damages & penalty
 Quasi Contract Meaning & Definition
Quasi Contract is not a contract at all because one or the other essentials for
the formation of contract are absent. It is an obligation imposed by law upon
a person for the benefit of another even in the absence of contract. Such
obligations imposed by law constitute as known as Quasi Contract or Implied
Contract.
Definition of Quasi Contract:-
“Quasi Contract is a transaction in which there is no contract between the
parties, the law creates certain rights & obligations between them which are
similar to those created by contract”
• It does not arise from real contract, it is a contract imposed by the law on
the parties.
For example:-
• A is a publisher. He sends some books to B. But wrongfully goods are
delivered to C. C keeps those books & start using them. Here, A claim the
price of books from C. In the eyes of law, No contract has been made
between A & C but inspite of this. It will be treated as valid contract.
 Characteristics of Quasi Contract:-

• Imposed by Law and does not arise from any

agreement
• Applied only on special persons in special
circumstances
• Contracts are not created by the desire of parties.
These are created by law due to circumstances.
• Arise or come into existence when a party has
obtained a profit from others.
• If a person does not fulfill his obligation, he is held
responsible in the same way as in the case of
breach of actual contract.
 Types of Quasi Contract

• Right to recover the price of necessaries supplied

Sec. 68
• Right to recover Money paid for another person Sec.
69
• Right to recover from Non-Gratuitous (with Cause)
Act Sec. 70
• Responsibility of Finder of goods Sec. 71
• Right to recover from a person to whom money is
paid or things is delivered by mistake or under
Coercion Sec.72
Right to recover the Price of Necessaries supplied Sec -68

The person who has supplied the necessaries to a person who is

incapable of contract or anyone whom such incapable person is
legally bound to support, is entitled to claim their price from
property of such incapable person. In India rent, food & clothing,
medicine expenses, Traveling expenses, cremation of dead body
covered in necessaries. These goods or amount should have not
been given to a incompetent person as a gift or donation.
For Example:-
A provides a sum of Rs 5000/- to B (Minor) for his treatment. Here
B does not return the money. A can recover this amount from B.
But he can recover this amount from his property

A is a minor person. His parents are ill. B gives him Rs 10000/- for
their treatment. Later on, B can recover this amount from
property of A.
Reimbursement of person paying money due
by another, in payment of which he is
interested (Sec. 69):-
A person who has paid a sum of money which another
is obliged to pay, is entitled to be reimbursed by that
other person provided the payment has been made by
him to protect the interest.
For Example:- B holds land in Bangal, on a lease
granted by A, the zamidar. The revenue payable by A to
the government being arrear, his land is advertised or
sale by the Government. Under the revenue law, the
consequences of such sale will be the annulment of B’s
lease. B to prevent the sale and the consequence
annulment (withdrawn) of his own lease, pays to the
government the sum due from A. A is bound to make
good to B the amount so paid.
 Obligation to pay for Non gratuitous
Act ( Sec 70):-
When a person lawfully does anything for
another person or deliver anything to him,
not intending to do so gratuitously
(unreasonably) and such other person enjoys
the benefit thereof, later is bond to make
compensation to former.
• For Example:- A tradesman leaves goods at
B’s house by mistake. B treats the goods as
his own. He is bound to pay for them to A.
 Responsibility of Finder of goods ( Sec. 71):-
A person, who finds goods belonging to another and takes them
into his custody, is subject to same responsibility as a Baliee. He is
bond to necessary measures to trace it owner.
For Example:- A, guest found a diamond ring at a birthday party
of B. he told to B and other guest about it. He has performed his
duty to find the owner; if he is not able to find the owner he can
retain the ring as bailee.

The finder can sell the goods in the following cases:-

• Danger of Perishing
• Owner can not be traced out
• Where owner is found but he refuses to pay the lawful
charges of finder
• Lawful charges amounts to 2/3 of value of things find
 Right to recover from a person to whom money is paid or
things is delivered by mistake or under Coercion ( Sec 72):-

A person to whom money has been paid or anything delivered

by mistake or under coercion must repay or return it.

For Example:-
1) A pays some money to B by mistake. It is really due to C. B
must refund the money to A. C cannot recover the amount
from B as there is not contract between B & C.

2) A & B jointly own Rs 5000/- to C. A alone pay the amount to

C & B not knowing the fact pays Rs 5000/- over again to C. C
is bond to pay the amount to B
CONTRACT OF SALE OF GOODS ACT, 1930

Transactions relating to sale & purchase of goods

were regulated by Indian Contract Act 1872. In
1930, Section 76 to 123 of Indian Contract Act,
1872 was repealed and a separate act called
“Indian Sale of Goods Act, 1930” was passed. It
came into force on 1st July 1930 w.e.f 22/09/1963,
the word ‘Indian’ was also removed. Now, present
act is called “The sale of goods Act 1930”. It
extends to whole of India except the state of
Jammu & Kashmir.
 Meaning of Contract of Sale:-
• Acc. to Sec 4(1) of sale of goods act, 1930 “ 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”
• Contract of sale is a generic term includes both Sale as well
as on Agreement to Sell.
Sale:-
• Under a contract of sale, the property (Ownership) in the
goods is transferred from seller to buyer. It is called Sale. It
takes place only when there is a transfer of ownership in
goods from the seller to buyer. A sale is an executed contract.
For example:- A sell his car to B for Rs. 100000/-. Ownership
of the car stands transferred from A to B even if the payment
of price or delivery of car, both are pending.
 Essential Elements of Contract of Sale
• Meaning & Types of goods:-
• Goods mean every kind of movable property other than
actionable claims & Money. It includes the following:-
• Stock & Share
• Growing crops, grass & things attached to or part of land
which are agreed to be served before sale or under the
contract of sale.
• For Example:-Old rare coins, Stock, Shares, debenture,
Patent, Grass, trees to be cut & their wood delivered.
 Things excluded from the term goods:-
• Actionable Claim:- Claim to any debt or any
beneficial interest in movable property not in
possession. Such claims cannot be sold or
purchased like goods, they can only be
assigned. therefore, debt due from one person
to another.
• Money: Legal tender
• Immovable Property (Land & Building, Plant &
Machinery)
 Types of Goods
Goods

Existing Goods Future goods Contingent Goods

Unascertained
Specific Goods
Goods
Types of Goods
• Existing Goods:- Existing Goods are those goods which are either
owned or possessed by the seller at the time of contract of sale. It
is of 2 types:-
• Specific Goods:-are goods which are identified and agreed upon at
the time when the contract of sale is made?
For Eg. TV, DVD, Table, Scooter etc.
Unascertained goods:-
• When the goods are not separately identified or ascertained at the
time of making of contract are known as unascertained goods. It is
defined only be description.
• For Eg.
• A agrees to sell to B, one bag of sugar, out of 100 bags lying in
godown. It is unascertained goods because it is not known which
bag is to be delivered.
 Future Goods:-
• Means the goods to be manufactured or produced or acquired by
seller after making of the contract of sale. There can be only
agreement to sell only. There can be no sale because one cannot
sell what he does not possess.
For Example:-
• A enter into an agreement with B for the sale of those goods
which are to be manufactured in his factory after 2 months. This is
an agreement to sale of future goods
• A agrees to buy entire crop of wheat that would yield in B’s farm
@ 700 per quintal.
• Note:-The future goods are neither in existence nor in possession
of seller at the time of contract of sale whereas unascertained
goods are in the existence and in possession of the seller at the
time of contract of sale.
 Contingent goods:-
• Contingent goods are goods the acquisition of which by the seller depends
upon a contingency which may or may not happen.
• For Example:-
• A agrees to sell to B, a specific rare painting provided if he is able to
purchase it from present owner.
• A agrees to sell all his goods to B provided his ship arrives safely. Here the
goods are contingent goods where sale is dependent on safe arrival of a ship.
Transfer of Property in goods
• There are 3 stages in the performance of contract of Sale:-
• Transfer of property in the goods ( Ownership)
• Transfer of possession of goods ( Delivery, custody or control of goods)
• Passing of risk
• For Example
• An article may belong to A, although it may not be in his possession. B may
be in possession although he is not its Owner.
Rules Regarding Transfer of Property:-
• In case of Specific goods or ascertained goods
• Property in goods to be transferred at the intention of
parties. Intention of parties may be ascertained from
terms of contract, conduct or other circumstances. When
the intention cannot judge from conduct of parties,
following rules may be applicable:-
• When the goods are in a deliverable state (Sec 20)
• When the goods have to be put into a deliverable state (Sec 21)
• When the goods have to be measured to ascertain price (Sec
22)
• Where goods are delivered on approval or Sale on return basis
(Sec 24)
 When the goods are in a deliverable state
(Sec 20):-
• Where there is an unconditional contract for sale of specific goods
in a deliverable state, property in goods is to be pass at the time of
contract.
• For Example:-
• A buys a radio for Rs 300 on month’s credit and he take the
delivery of same.
• A buys a chair for Rs 500 on week’s credit and arranges to take
delivery on next day. A fire broke out in shop in the same evening
and chair is destroyed.
• A bought 1 quintal of rice from B @ 700 per quintal and agrees to
pay price on 1st of next month and rice is to be delivered on same
day. But before delivery, fire broke out and entire quantity of rice
was destroyed. In that case A is liable to pay the price because
ownership of goods is being transferred at the time of contract.
 When the goods have to be put into a deliverable state
(Sec 21):-
• Where there is a contract for sale of specific goods and
seller is bound to do something to goods for the purpose of
putting them into deliverable state, ownership does not
pass until such thing is done and buyer is having the notice.
Something means packaging, polishing, loading, filling etc.
• For Example:-
• A Bought 1 Quintal of rice from B @ 700 per quintal from B.
B had to put them in to bags. B filled some of bags in
presence of A and before remaining bags are fulfilled, a fire
broke out and entire quantity of rice is damaged. A is liable
to pay for price of only that goods which was put into bags
When the goods have to be measured to ascertain
price (Sec 22):-
• Where the seller has done the act to ascertain its
price and buyer is having the notice of that. Act in
the form of Weight, measure and test etc.
• For Example:-
• A Bought 1 Quintal of rice from B @ 700 per quintal
from B & B has to weigh that rice. But before
weighing was completed, a fire broke out and
entire quantity of rice was damage. In this case, A is
not liable to pay price as the rice was not measured
Where goods are delivered on approval or Sale on return basis (Sec 24)
In this transfer of property in goods is passed at the time of:-
• Where he signifies his approval or acceptance to the seller- At the time of
acceptance
• Does any act adopting the transaction like use the goods- At the time of adoption
• Where he does not signifies his approval or acceptance but retains the goods
beyond a reasonable time. If some time limit is fixed- at the expiry of time. If some
time limit is not fixed- After the expire of reasonable time
For Example:-
• A deliver some goods to B on sale on return for 7 days.
• B informs A on telephone on IIIrd day itself that he has accepted the goods and
immediately after putting the receiver, goods are destroyed ( B is Owner)
• Such goods are destroyed by fire without fault of B ( A shall bear the risk)
• Such goods are further delivered by B to C and By C to D on similar terms. The
goods are stolen in custody of D ( A can recover the loss from B because ownership
is transferred as B has adopted the goods by delivery it to C)
• B neither return the goods nor gives notice of rejection after the expiry of 7 days,
the goods are destroyed by fire on 8th day ( B can bear the loss)
• B retains the goods but gives notice of rejection on the expiry of 7th day. Goods are
destroyed by fire on 8th day ( A can bear the loss)
• In case of unascertained goods or future
goods
• Goods must be ascertained.
• Goods must have been unconditionally
appropriated by the seller or buyer with the
mutual consent of each other
• By the buyer with seller ascent
• By Seller with Buyer consent
• In case of Unascertained or Future goods (Sec 18)
Goods must be ascertained.
• Ascertainment means the process of identifying the goods sold
to buyer.
For example:-A agrees to sell 100 bags of rice to B out of his
stock of 500 bags of rice. A fire broke out and entire quantity of
rice is destroyed. If he has not selected the bags (Seller is
owner) , If he has selected 100 bags ( buyer must bear the loss)
Goods must have been unconditionally appropriated by the
seller or buyer with the mutual consent of each other.- (Sec19)
• Appropriation means Selection of goods with the mutual
consent of both the parties. Mutual consent may be either
Express or implied. A contract to sell the unascertained goods is
not a complete sale.
By the buyer with seller ascent (Sec-23)
For example:-
Where the goods are in the possession of buyer and
buyer is wareman house for the seller. Seller is having
500 bags of sugar and buyer agrees to buy 100 out of
500 bags with seller’s assent. When he has selected the
goods, goods must become appropriated and
ownership in them passed to him.
By Seller with Buyer consent
For example:-
If 500 bags of sugar were lying with the seller, he
selected 100 bags from lot with buyer’s assent, the
ownership of those 100 bags pass to buyer as soon as
this is done.
Condition & Warranty
 Meaning of Condition under Sec. 12 (2):-
• “A Condition is a stipulation which is essential to main
purpose of the contract. It goes to the root of contract.
Its non fulfillment upsets the very basis of contract.”
• In other words, it is so essential, that its nonperformance
may fairly be considered by other party as a substantial
failure to perform the contract at all. If there is a breach
of a condition, the aggrieved party can treat the contract
as repudiated.
For Eg.
• A man buys a particular horse which is warranted quiet
to ride & drive. If the horse turns out to be vicious, the
buyer’s only remedy is to claim damages. If instead of
buying a particular horse, a man asks a dealer to supply
him a quiet horse and horse turns out to be vicious, the
stipulation is a condition and buyer can reject the horse,
or keep the horse and claim damages.
 Meaning of Warranty under Sec. 12 (3):-
• A warranty is a stipulation which is collateral to main
purpose of contract. It is not of such vital importance
as a condition.
• Acc. to Wallis v/s Pratt.
• “Obligation which though it must be performed, is
not so vital that a failure to perform it goes to the
substance of the contract”
• If there is breach of warranty, the aggrieved party
can only claim damages & it has no right to treat the
contract as repudiated.
Difference between Condition & Warranty:-
Basis Condition Warranty
. .
Difference as to Value A Condition is a A warranty is a
stipulation which is stipulation which is
essential to main purpose collateral to main
of contract purpose of contract
Difference as to breach Aggrieved party can Aggrieved party can
repudiate the contract of only claim damages
sale or sue for damages

Treatment A breach of condition may A Breach of Warranty

be treated as Breach of cannot be treated as
Warranty Breach of Condition.
 Types of Condition & Warranty
• Express Condition & Warranty:- are those which are
agreed upon between the parties at the time of
contract
For Eg.
• Buyer will sell the goods below certain price or
Delivery should be made on or before certain date.

• Implied Condition & Warranty:-are those which are

implied by law whether these are specific in contract
or not, unless the parties stipulates to contrary
 Implied Conditions ( Sec 14 to 17):-

• Condition as to Title [ Sec 14 (a)]

• Sale by description (Sec 15)
• Sale by Sample (Sec 17)
• Condition as to Quality or fitness ( Sec 16)
• Condition as Merchantability [ Sec 16(2)]
• Condition as to wholesomeness
 Condition as to Title:-
• In a contract of sale, there is an implied condition on the part of
seller that
In case of sale, he has a right to sell the goods
• In case of agreement to sell- he will have right to sell the goods
at the time when the property is to pass. If the title turns out
to be defective, buyer is entitled to reject goods and claim
refund of prices as well as damages.

For Example:-
• A Purchases a Car from B and uses it for some time. After some
time, it turns out that car sold by B to A was a stolen one and
had to be returned to rightful owner. A brings action against B
for return of price.
• If the goods delivered can only be sold by infringing a
trademark, the seller had broken the condition that he has a
right to sell the goods.
 Sale by Description:-
Where there is a contract for the sale of goods by
description, there is an implied condition that the goods
shall correspond with the description. The rule of law
contained in Sec 15
For Example:
A agrees to sell & deliver 2 cases of luxury toilet soap to
B but delivers luxury washing soap. B can repudiate the
contract on the ground of breach of condition as to
description.
It may include following situations:-
1. Where the buyer has not seen the goods and relies
on their description given by seller.
2. Where the buyer has seen the goods but he relies
not on what he has seen but what was stated to
him.
 Sale by Sample:-
• There is an implied condition ,the bulk shall correspond with
the sample in quality
• That the buyer shall have a reasonably opportunity of
comparing the bulk with sample.
• That the goods shall be free from any defect.
• The defect should not however be apparent on a reasonable
examination of sample. This implied condition applies only to
latent defects means defects which are not discoverable on a
reasonable examination of sample. The seller is not responsible
for the defects which are patent i.e. visible or discoverable by
examination of goods
For Eg.
• Two parcels of wheat were sold by sample. The buyer went to
examine the bulk after a week. One parcel was shown to him
but the seller refused to show other parcel which were not in
warehouse. Held, the buyer was entitled to reject the contract.
 Condition as to Quality or fitness:-
• Normally in a contract of sale, there is no implied condition as to
quality or fitness. 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 is buying them. The
following points should be kept in mind:-
• When the buyer expressly makes known to the seller the
particular purpose for which he needs the goods, there is implied
condition that the goods shall be reasonable fit for that purpose.
• The Buyer relies on seller skill or judgment as to the fitness of
goods for any particular purpose.
• For Example:
• A told to B, a motorcar dealer, that he wanted a comfortable car
suitable for touring purpose. B recommended a Buggati car and A
thereupon bought one. The car was uncomfortable and
unsuitable for touring purpose. Held, A could reject the car and
recover the price.
 Condition as to Merchantability:-

• Where goods are bought by description from a seller,

there is implied condition that the goods are of
merchantable quality. It means goods should be such
are commercially saleable under the description by
which they are known in market at their full value. The
term, merchantable is not defined in sale of goods Act.
• In other words, Quality of article should be such that
reasonable man would accept the article as a
performance of a promise.
For Example:
• A purchases some chocolates from a shop. One of
chocolates contains a poisonous matter and as a result,
A’s wife who has eaten, falls seriously ill. A can
repudiate the contract and recover the damages.
 Condition as to wholesomeness
• This condition is implied only in a contract of
sale of eatables and provisions. In such cases
the goods supplied must not only answer to
description and be merchantable but also be
wholesomeness, i.e. free from any defect
which render them unfit for human
consumption.
 Implied Warranties:-

Warranty of quiet possession:-

In a contract of sale, there is an implied warranty that the buyer shall have and
enjoy the quiet possession of goods. If the buyer is in any way disturbed in the
enjoyment of goods, he can claim damages from the seller.
For Example:-
A sold a second had radio to B who spent Rs 100/- on repair of their radio. The
radio was seized by police as this is stolen one. B filed a suit against A for
recovery of damages including the cost of repairs.
Warranty to disclose dangerous nature of goods.
Where a person sells goods knowing that goods are dangerous and buyer is ignorant
of danger, he must warn the buyer of probable danger, otherwise he will be liable for
damages.
For Example:-
A sold to B a tin of chemical. He knew that it would be dangerous to open without
special care but he did not warn B, B without knowledge of danger open the Goods
and as a result got injured. A can take claim from B.
Warranty of freedom from encumbrances:-
Goods are free from the charge of third party. Buyer is not aware of such charge. In case
of Breach- buyer has a right to claim damages from seller.
For Example:-
A borrowed Rs 5000/- from B and hypothecate his watch with B as security. Later A sold
his watch to C who buys in good faith. C can claim the damages from A as the possession
is disturbed by B having a charge.
 The Law of Caveat Emptor ( Let the Buyer Beware):-
Let the buyer Beware means that in a contract of sale of goods, the seller is under no
duty to say unflattering truths about the goods sold. There when person buys some
goods, he must examine them thoroughly. If the goods turns out to be defective or do
not suit his purpose, he cannot blame anybody except himself.
For Example:-
A contract to sell B a piece of silk. B thinks that it is a Indian silk. A knows that B thinks
so, but knows that is not Indian silk. B afterwards discovers that is not a Indian silk.
• Exceptions of Caveat Emptor:-
• Misrepresentation by seller
• Concealment by seller
• Sale by description
• Sale by Sample
• Sale by Sample as well as by description
• Seller makes false representation and buyer relies on that
• Fitness for buyer purpose
• Sale under a patent or trademark
• Merchantable quality
Right of Unpaid Seller
 Meaning of Unpaid Seller (Sec 45):-
Seller of goods deemed to be an unpaid seller if:-
– When the whole of price has not been paid
– When a bill of exchange or other negotiable instrument has
been received as an conditional payment and it has been
dishonored
Seller includes any person who is in the position of seller.
Rules of unpaid seller:-
• The seller shall be called an unpaid seller even when only a small
portion of price remains to be paid
• It is for the non payment of price and not for other expenses
• Where the goods have been sold on credit, seller cannot be called
as an unpaid seller during the credit period unless buyer becomes
insolvent. On the expiry of credit period, if the price remains
unpaid only then seller is deemed to be an unpaid seller
• Where the full price has been tendered by buyer and seller is
refused to accept it, the seller cannot be treated as unpaid seller.
 Rights of Unpaid
Seller

Against Goods Against Buyer

•Suit for Price

•Suit for damages
Where the property in goods Where the property in goods has •Suit for Interest
has been transferred:- not been passed to buyer:-
•Right of Lien •Withholding Delivery
•Right of stoppage in transit •Lien
•Right of resale •Stoppage in transit
•Resale
 Right of Lien ( Sec 47 to 48):-

• Right to retain the possession of goods until the full price is

received.
Circumstances under which right is exercised:-
• Where the goods has been sold without any stipulation as to
credit
• Where the goods has been sold on credit & terms of credit
has been expired
• When the buyer becomes insolvent.
For Example:-
• A buys goods from B and agrees to pay them later. A leaves
some goods with B to be sent later. B shall have right of Lien,
if in mean time he learns of A’s solvency.
Other Provisions:-
• The Seller may exercise his right of lien even if he possesses the goods as
an agent or bailee for buyer
• Lien can be exercised only for non payment of price and not for other
charges due against buyer. For Example: Godown charges.
• The lien of unpaid seller is a particular lien; it is a personal right which can
be exercised only by him and not by his assignee.
• Where the part delivery has been made he may exercise his right on the
remainder, unless such part delivery has been made under such
circumstances as to show an agreement to waive the lien.
• Lien depends upon actual possession and not on title.

Where Lien is Lost:-

• As already observed lien depends on physical possession of goods. Once
the possession is lost, lien is also lost.
• When he delivers the goods to a carrier or other bailee for the purpose of
transmission to buyer without reserving the right of disposal of goods. For
taking Railway receipt or transport receipt in the name of buyer.
• Where the buyer or his agent obtains the possession of goods lawfully.
• Where the seller expressly or impliedly waives his right of lien.
 Right of stoppage of goods in Transit:-
Means the right of stopping further transit of goods while
they are with a carrier for the purpose of transmission to
the buyer, resuming and retaining the possession until
payment or tender of price. It means this is an extension of
right of lien because it entitles the seller to regain
possession even when the seller has parted with the
possession of goods
Conditions under which their right can be exercised:-
• The seller must have parted with the possession of goods
• The goods must be in course of transit
• The buyer have become insolvent
 Circumstances under which this right is lost:-
• If the buyer or his agent in that behalf obtains the delivery
of goods before reached at appointed destination
• if after arrival, the carrier acknowledges to buyer that he
hold the goods on his behalf and continuous in his
possession until further destination have been decided by
buyer
• whether carrier or bailee wrongfully refuses to deliver the
goods to buyer
• whether sub sale or other disposition by the buyer has
been done with seller’s consent
• In case of part delivery, this right can be exercised on
remainder.
 Right of Resale:-

• Where the goods are of Perishable nature

• Where he gives the notice to buyer of his intention to
resell the goods and buyer does not within the
reasonable time make the payment. If there is a loss,
claim it from buyer as damages for breach of
contract. If there is a profit, he is not bound to
handover to buyer.
• In case no notice has been given, unpaid seller is not
entitled to recover any loss on resale of goods and to
retain the surplus with himself.
 Rights against Buyer Personally:-
• Suit for Price:-
In case property in goods has passed & buyer
wrongfully refuses to pay for goods. Acc. to terms
of contract, seller may sue him for the price of
goods
In case property in goods has not been passed,
price is payable on a certain day irrespective of
delivery and buyer refuses to pay such price, seller
may sue him for the price although the goods have
not been appropriated to contract.
• Suit for damages for Non acceptance:-
Where the buyer wrongfully refuses or neglects
to accept the goods & pay for them, seller may
sue him for damages for non acceptance of goods
• Suit for damages for repudiation of contract:-
• Where the buyer repudiates the contract before
due date of delivery, seller may either treat the
contract as subsisting and wait till the due date of
delivery or he may treat as rescinded and sue for
damages
• Suit for Interest:- In case of breach by buyer,
while filing a suit for price, the seller may sue the
buyer for interest also from the date of tender of
goods or from date on which the price was
payable