by Asok Nadhani
Performance of
Contract of Sale
4.1 Introduction
The term
performance of contract of sale refers to the performance of the respective
duties by the seller and the buyer after formation of a valid contract.
According to sec.31, in accordance with the terms of the contract of sale, it
is the duty of the seller to give delivery of goods and it is the duty of buyer
to tender due payment and accept delivery of goods from the seller. The parties
can freely determine the terms and conditions of performance in the contract,
but if the contract is silent, the provisions of Sale of Goods Act will be
applied to the contract.
4.2 Delivery of Goods
According to
sec. 2(2) of the act, delivery means voluntary transfer of possession from one
person to other person. Goods can be delivered by doing anything which the
parties agree or which has the effect of putting the goods in the possession of
the buyer or his agent (sec.33). Mere delivery of physical possession of goods
does not amount to delivery of goods but the buyer should be placed in a
position so that he can exercise his rights over the goods.
4.2.1 Modes of Delivery (Sec. 33)
The delivery of goods can
be made in any of the following ways:
4.2.1.1 Actual Delivery
Where the goods are physically transferred by the
seller to the buyer or his duly authorized agent, it is termed as Actual Delivery
which can be made by doing anything which has the effect of putting the goods
in the possession of the buyer.
Example:
Karan purchased a refrigerator from Kumar. Kumar
handed over the refrigerator to him. It is a case of Actual Delivery of goods.
4.2.1.2 Symbolic
Delivery
Where the seller does not physically transfer the
goods to the buyer, but does something which has the effect of delivery of
goods to the buyer, it is called as Symbolic Delivery of goods. Such type of
delivery is adopted where the goods are bulky and their physical transfer
becomes impossible due to waste of time and money. For example, delivery of
keys of a car amounts to Symbolic Delivery. In case of symbolic delivery, the
goods remain in the same place but the ownership of goods is delivered to the
buyer.
Example:
Mr. Tiwari sells his entire stock which are kept in
the godown to Mr. Khan and handed over him key of the godown. It amounts to
Symbolic Delivery.
4.2.1.3 Constructive
Delivery
Constructive delivery takes place with the transfer
of possession of goods without any change in the actual and visible custody of
goods. In such type of delivery, the goods can remain in the possession of the
third party (e.g., a bailee) who can possess the goods of the seller at the
time of the sale and acknowledges to the buyer that he holds the goods on his
behalf. The constructive delivery may take place in any of the following ways:
i.
Where the seller holds the goods as a bailee of the
buyer without being owner of goods.
ii.
Where the buyer already holds the goods on ‘sale or
return basis’, and the seller agrees to buyer’s holding the goods as owner.
iii.
Where a third person having possession of the goods
of the seller, acknowledges to the buyer that he holds them on his behalf.
Example:
X sells 100 bags of sugar to Y lying in Z’s godown.
X gives an order to Z to deliver the goods to Y. Z transfers the goods in his
books to Y which amounts to Constructive Delivery.
4.2.2 Rules relating to effective Delivery of Goods
4.2.2.1 Delivery and Price-concurrent conditions
(Sec. 32)
The delivery of
goods shall be accompanied by payment of price. Hence, the seller should be
ready and willing to give possession of the goods to the buyer, in exchange for
the price, and the buyer should be ready and willing to pay the price to the
seller in exchange for the possession of goods.
According to
sec. 32, delivery of goods and payment of price are reciprocal promises to be
performed simultaneously. Accordingly, no promisor shall perform his promise
unless the promisee is ready and willing to perform his reciprocal promise.
In the contract
of sale of goods, the parties to the contract can freely determine the time for
payment of price and delivery of goods. Therefore, the parties can agree with
the term that goods shall be delivered to the buyer immediately at the time of
sale, but price shall be paid after certain days, such a contract amounts to a
valid contract.
4.2.2.2 Buyer’s duty to demand for Delivery of Goods
(Sec. 35)
According to
sec.35, when there is no express contract between the concerned parties, the
seller of goods is not bound to deliver them until the buyer asks for delivery.
So, it is the buyer’s duty to demand for the delivery of goods within a
reasonable time and then the seller has to deliver the goods immediately. But,
when the buyer fails to demand for the delivery of goods, non-delivery of goods
by the seller does not amount to any breach of contract and the buyer cannot
take any legal action against the seller.
4.2.2.3 Seller’s duty to Deliver the Goods (Sec.
33)
It is the duty
of the seller to deliver the goods in such a manner having the effect of
putting the goods in the possession of the buyer so that the buyer becomes
enable to exercise his control over the goods.
4.2.2.4 Delivery to Carrier or Wharfinger (Sec. 39)
Where in a
contract of sale, goods are delivered to a carrier for the purpose of
transmission to the buyer or to a wharfinger for safe custody of goods,
delivery of goods to them is deemed to be a delivery of the goods to the buyer
[sec.39(1)]. In this case, if the seller does not contract with the carrier or
wharfinger for safe custody of goods and the goods are destroyed, the seller
becomes liable for such damages or the buyer may repudiate the delivery to the
carrier or wharfinger as a delivery to himself [sec.39(2)]. Where goods are
sent by sea route by the seller, he should give a notice to the buyer to get
the goods insured otherwise the goods shall remain at the seller’s risk during sea
transit [sec.39(3)].
4.2.2.5 Deterioration of Goods during transit (Sec. 40)
When the seller
aggress to deliver the goods at his own risk, at a place other than where they
are lying at the time of contract of sale, the buyer shall bear the risk of
deterioration of goods incidental to the course of transit.
4.2.2.6 Place of Delivery [Sec. 36(1)]
Where the place for delivery of goods has been specified in the contract
of sale, the goods must be delivered at such specified place during business
hours on a working day.
Whereas, if no place has been specified in the contract of sale, the
delivery should be made as follows:
i.
In case of sale, the goods shall be delivered at
the place where they are present at the time of sale.
ii.
In case of agreement to sell, the goods shall be
delivered at the place where they are present at the time of agreement to sell.
iii.
In case of future goods, the goods shall be
delivered at the place where they will be produced or manufactured.
4.2.2.7 Time of Delivery (Sec. 36)
If a certain
time for delivery of goods has been specified in the contract of sale, the
delivery must be made at such specified time. But, when there is no specified
time for delivery of goods, the delivery should be made within a reasonable
time [sec. 36(2)]. But, the question what is reasonable time is a question of
fact (sec. 63). Sometimes, few words like ‘directly’, ‘without loss of time’ or
‘forthwith’ are used in the contract of sales which required an immediate
delivery of goods. In that case, demand or tender of delivery should be made at
a reasonable hour. But, what is a reasonable hour that is the question of fact.
[Sec. 36(4)]
4.2.2.8 Expenses of Delivery [Sec. 36(5)]
The seller shall
be liable to bear all the expenses required to put the goods in a deliverable
state. Whereas, all the expenses for obtaining the delivery of the goods (i.e.,
the expenses of transportation) shall be borne by the buyer.
4.2.2.9 Part Delivery of Goods (sec. 34)
A delivery of
part of the goods in progress of the delivery of the whole, has the same
effect, for the purpose of transfer of ownership in such goods, as a delivery
of the whole. Whereas, if the goods are delivered with an intention of serving
it from the whole, does not operate as delivery of the remainder.
4.2.2.10 Delivery of Wrong Quantity (Sec. 37)
The seller is
bound to deliver the goods in accordance with the terms of the contract of
sale. Where the quantity delivered by seller is more or less than the goods
contracted for or mixes with the goods of different description, the following
provisions shall apply:
(a)
Where the seller delivers excess quantity of goods
contracted for, the buyer may, accept the whole quantity of the goods delivered
to him or reject the whole quantity of the goods delivered to him or accept the
contracted quantity and reject the excess quantity. If he accepts the whole
quantity of the goods so delivered, he has to pay for them at the contract rate
[sec.37(2)].
(b)
Where the seller delivers short quantity of goods
contracted for, the buyer can accept the goods delivered to him or reject the
whole of the goods delivered to him. If he accepts them, he shall pay for them
at the contract rate [sec.37(1)].
(c)
In case the quality of goods delivered by the
seller is of different description from that specified in the contract or if
the goods of contracted quality are mixed with the goods of some other quality,
the buyer may reject the whole of the goods delivered to him or accept the
contracted quality of goods, and reject the goods of the different quality.
[sec.37(3)]
4.2.2.11 Goods in possession of a Third Party [Sec.36(3)]
If the goods are
in the possession of a third party during sale of goods, the seller cannot
deliver them to the buyer until such third party acknowledgers to the buyer
that he holds them on his behalf. But the consent of third party is not
required, if the goods are sold by the issue or transfer of any document of
title to goods (e.g., railway receipt, bill of lading etc.).
4.2.2.12 Delivery by Installments (Sec. 38)
The seller is
not entitled to deliver the goods by instalments, if it is not provided in the
contract of sale and still if he does so, the buyer is not bound to accept the
goods [sec.38(1)].
The contract of
sale may provide that the goods can be delivered in installments. It may be
expressed or implied. Where the contract of sale is silent regarding delivery
by installments, but the buyer accepts the delivery made to him in first
instalment, he cannot afterwards refuse to accept the balance quantity of goods
and has to accept subsequent instalments of goods. If there is breach of any
condition under the contract, the whole contract cannot be repudiated.
4.3 Acceptance of Delivery of Goods
The term
‘Acceptance of Goods’ may be defined as the final assent of the buyer that he
has accepted the goods. When the buyer receives the goods and takes possession
of them, it does not imply that he has accepted the goods. Acceptance is
something more than mere possession.
When the seller
delivers the goods according to the contract, then it becomes the duty of the
buyer to accept them and pay the price and when the goods are accepted and
payment is made, the contract of sale is completed.
4.3.1 Rules regarding Acceptance of Delivery
4.3.1.1 Manner of
Acceptance of Goods (Sec. 42)
The buyer is duty bound to accept the delivery of goods if it is made in
accordance with the contract of sale. In the following cases, the buyer is
deemed to have acceptance the delivery of goods made to him:
(a)
Where certain time has been fixed in the contract
for return of goods, the ownership shall pass to the buyer on the expiry of
such specified time if the buyer retains those goods even after the expiry of
such time.
(b)
Where no time has been fixed in the contract for
return of goods, the ownership shall pass to the buyer if he fails to return
the goods to the seller within a reasonable time.
(c)
When the buyer intimates to the seller that he has
accepted the goods.
(d)
When the buyer does anything inconsistent with the
ownership rights of seller in relation to such goods, the buyer shall be deemed
to have impliedly accepted the goods (e.g., where the buyer pledges, lends or
uses the goods).
4.3.1.2 Buyer’s right to
examine (Sec. 41)
The buyer has the right to examine the delivered goods which are not
previously examined by him [sec.41(1)]. The
seller must give reasonable opportunity to the buyer to make inspection of the
goods whether they are similar or distinction from the description of the
contract [sec.41(2)]. Otherwise, the buyer may refuse to accept the goods delivered.
If the buyer refuses to examine the goods, even if the seller gives him a
reasonable opportunity, the buyer cannot make the seller liable if it is found
that the goods are of different description and therefore, cannot repudiate the
contract. If the buyer repudiates the contract, the seller can claim damages
from the buyer. In some cases, the parties to the contract of sale may make
their own provisions regarding the examination of goods.
4.3.1.3 Retention of Goods
by the Buyer for a reasonable time
When the buyer retains the goods delivered to him by the seller, for a
reasonable time without intimating the seller that he has rejected the goods,
the delivery is deemed to have been accepted by the buyer.
4.3.1.4 Buyer’s duty to
give Notice of Refusal to Seller (Sec. 43)
Where the buyer lawfully rejects the goods, he has to give a notice of
refusal to the seller within a reasonable time. If the buyer fails to give due
notice to the seller, he shall be deemed to have accepted the goods. But, if he
gives the due notice as required, he is not bound to redeliver the goods to the
seller. It is the duty of the seller to take back the goods incurring all the
expenses of redelivery. Until the seller takes back the goods, the goods shall
be at the risk of the seller even though the possession of goods lies with the
buyer, since the buyer holds the goods of the seller in the capacity of bailee.
4.3.1.5 Wrongful refusal to
take Delivery (Sec. 44)
It is the duty of the buyer to accept the delivery of goods in accordance
with the contract of sale. In case of wrongful refusal to accept the goods, the
buyer shall be liable for damages for non-acceptance of goods and loss of such
goods, even though the ownership of goods has not been passed to the buyer. So,
the goods remain at the risk of the defaulting party.
The buyer shall also be liable for the expenses incurred on account of
safe custody and transportation of goods.
Example:
Akash agrees to sell to Ajit 50 litres of fresh juice packed in bottles
to be supplied by Ajit. The bottles were to be supplied by 10 A.M. and juice
was to be supplied in packed bottles by 11 A.M. Ajit neglects to supply the
bottles and take delivery of juice because of which 50 litres of juice
extracted by Akash becomes inconsumable. Held, Ajit shall be liable for loss
even though ownership would have passed to him only if the juice was filled in
the bottles supplied by him (Ajit).
4.4 Rights and Duties of Buyer
4.4.1 Rights of the Buyer
1.
Right to have delivery of the goods as per the
terms and conditions of the contract [Secs. 31 and 32].
2.
Where the goods delivered to the buyer are in
excess or less than the quantity contracted for, the buyer can
(a) accept the
whole, or
(b) reject the
whole, or
(c) accept the
quantity ordered and reject the rest [Sec.37].
3.
Unless there is a contract to the contrary, the
buyer is not required to accept delivery by installments [Sec. 38(1)].
4.
Where goods are sent to the buyer by a route
involving sea transit, the buyer has a right to be informed of the same by the
seller so as to enable him to insure the goods [Sec. 39(3)].
5.
The buyer has the right to examine the goods before
he accepts them [Sec. 41(1)].
6.
The buyer has the following rights in case of a
breach of contract by the seller:
(a)
Suit for damages [Sec. 57],
(b)
Suit for price,
(c)
Suit for specific performance [Sec. 58],
(d)
Suit for breach of warranty [Sec. 59],
(e)
Repudiation of the contract before the due date
[Sec. 60],
(f)
Suit for interest [Sec. 61(2)(b)].
4.4.2 Duties of the Buyer
1.
The buyer is required to take delivery of the goods
and make payment according to the terms and conditions of the contract (Sec.
31). Hence, the buyer must be ready and willing to pay the price in exchange
for possession of the goods (Sec. 32).
2.
Apart from any express contract, it is the duty of
the buyer to apply for delivery (Sec. 35).
3.
The buyer’s duty includes a demand to make delivery
at a reasonable hour [Sec. 34(4)].
4.
The buyer shall take any risk of deterioration in
the goods necessarily incident to the course of transit, where the seller
agrees to deliver the goods at his own risk at a place other than where they
are sold (Sec. 40).
5.
It is the duty of the buyer to give notice of
rejection of goods to the seller (Sec. 43).
6.
The buyer should take delivery of the goods within
a reasonable time after the tender of delivery (Sec. 44).
7.
Where the property in the goods passes to the
buyer, it is his duty to pay the price according to the terms of the contract
(Sec. 55).
8.
Where the buyer wrongfully neglects or refuses to
accept and pay for the goods, he will have to compensate the seller, in a suit
by him, for damages for non-acceptance (Sec. 56).
4.5 Contracts through Sea Routes
There are four types of contracts involving sea routes, like-
a. CIF Contracts,
b. FOB Contracts,
c. Ex-Ship
Contracts,
d. FAS Contracts.
4.5.1 CIF Contracts
CIF stands for Cost, Insurance and Freight. Under this contract the
price charged by the seller covers cost, insurance and freight. This type of
contract is formed to protect the rights of the seller and buyer engaged in
export and import trade. CIF contract is performed by the delivery of documents
representing the goods to the buyer (through a Bank). By delivery of shipping
documents to the buyer not only property in goods is transferred but also the
possession is transferred. The bank delivers these documents only when the
buyer makes the payment of price or against acceptance of a draft. The seller
remains the owner of the goods until the buyer pays for the goods. If the goods
are lost at sea, the buyer or the seller, whoever was the owner when the goods
were lost, can recover the amount from the insurer. The buyer can reject the
goods and recover the price paid by him if the goods are not in accordance to
the contract.
Duties of Seller
The duties of seller are enumerated as follows:
-
To make out an invoice of the goods sold.
-
To ship at the port of shipment goods of the
description contained in the contract.
-
To procure a contract of affreightment under which
the goods will be delivered at the destination contemplated by the contract.
-
To arrange for insurance upon the terms current in
the trade which will be available for the benefit of the buyer. If the seller
does not arrange for insurance, the buyer can reject to accept and pay for
goods, even if the goods arrive safely at destination.
-
To dispatch the goods and send the shipping
documents to the buyer within a reasonable time.
Duties of Buyer
The following duties are attached to the buyer under the CIF Contracts.
-
To receive the documents and pay price on receipts
of the documents irrespective of the fact whether the goods have arrived or
not.
-
To pay unloading charges, wharfage charges, customs
and import duties, if any, at the port of destination.
-
If the contract provides for the payment of price
after expiry of period of time, the buyer can accept the bill drawn upon him by
the seller and then only take the delivery of documents.
Hence, it can be said that, CIF contract is a
contract for the sale of insured goods, lost or not lost, to be implemented by
transfer of proper documents.
4.5.2 FOB Contracts
FOB stands for ‘Free on Board’. In this type of contract, the property
in the good does not pass to the buyer until the goods are delivered on board
the ship. If the buyer fails to indicate the name of the ship and consequently
the seller cannot put the goods on board the ship, he (the seller) can sue for
damages for non-acceptance, but not for the price.
Duties of Seller
-
It is the duty of the seller to place the goods on
board a ship and incur the expenses incidental thereto. The price is exclusive of
freights and insurance. Such delivery transfers the property and risk to the
buyer on shipment.
-
According to sec. 39(3) of the Act, the seller has
to give notice of the fact that the goods are placed on board the ship to
enable the buyer to insure the goods against loss during sea transit. If he
fails to give such notice, the goods will be at his own risk.
-
His duty includes making invoice, obtain a bill of
lading and place the goods on board a ship.
Duties of Buyer
-
The buyer has to pay the price when the documents
are tendered to him even if the goods are sold in transit.
-
He can demand delivery of goods only when they are
delivered to the carrier.
-
To arrange for the contract of affreightment.
-
To pay all charges and bear all risks subsequent to
delivery of the goods on board the ship.
-
To name the ship to which the goods are to be
delivered or to authorize the seller to select the ship.
4.5.3 Ex-ship Contracts
Under this contract the seller has to deliver the goods to the buyer at
the port of destination and the property in goods does not pass on to the buyer
until the goods are delivered at the port of destination. Here the seller pays
for the freight of the goods. The property in goods and the attending risk also
passes on to the buyer immediately when the documents or goods are delivered at
the port of destination.
Duties of Seller
-
To deliver the goods to the buyer from a ship which
has arrived at the port of destination at a place from which it is usual for
goods of that kind to be delivered.
-
To pay the freight or otherwise release the
ship-owners lien.
-
To furnish the buyer with a delivery order or some
other effectual direction to the ship owner to deliver.
Under this type
of contract, the goods are at the sellers risk during the voyage and there is
no obligation on him to affect an insurance on behalf of the buyer.
4.5.4 FAS Contracts
FAS contracts
stand for ‘Free Alongside’. The property in goods sold under such type of
contract passes from the seller to the buyer immediately when the goods are
delivered alongside the ship named by the buyer under a contract of carriage.
Duties of Seller
-
To deliver the goods alongside the ship.
-
To notify the buyer immediately that the goods have
been delivered alongside the ship.
Duties of Buyer
-
To arrange for the contract of affreightment.
-
To give the seller sufficient notice about the name
of the ship and time for delivery alongside the ship.
-
To pay all charges and to bear all risks from the
time the goods are delivered alongside the ship.
For more details, refer to Mercantile law, by Asok Nadhani,
BPB Publications,www.bpbonline.com, bpbpublications@gmail.com
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