LAW_RIGHTS OF AN UNPAID SELLER, CONDTION AND WARRENTIES

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LAW_RIGHTS OF AN UNPAID SELLER, CONDTION AND WARRENTIES

  1. 1. ASIA PACIFIC INSTITUTE OF MANAGEMENT STUDIES Conditions and Warranties & Rights of an Unpaid Seller By— SECTION-H GROUP-4 Debojit-66 Abhisek-03 Niraj-30 Sritanu-57 Krishnakant-25 Biswajit-12
  2. 2. CONTENTS:  Conditions and Warranties.  Express and Implied conditions and warranties  Understanding the meaning of an Unpaid seller  Unpaid seller’s Rights Against the Goods  Unpaid seller’s Rights Against buyer personally  Remedies for breach of contract of sale
  3. 3. CONDITION AND WARRANTIES A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty[Sec. 12 (1)]. Condition: [Sec. 12 (2)]. A condition is a stipulation which is essential to the main purpose of contract. It goes to the root of the contract. Its non-fulfilment upsets the very basis of the contract. Example: By a charter party (a contract by which a ship is hired for the carriage of goods ), it is agreed that ship M “now in the port of Amsterdam” should proceed direct to Newport to load a cargo. In fact at the time of the contract the ship is not in the port of Amsterdam and when the ship reached Newport, the charterer refused to load. Held, the word “now at the port of Amsterdam” amounted to a condition, the breach of which entitled the charterer to repudiate the contract. Warranty: [Sec. 12 (3)]. A warranty is a stipulation which is collateral to the main purpose of the contract. It is not of such vital importance as a contract. A stipulation may be a condition though called a warranty in a contract[Sec.12(4)]. DISTINCTION BETWEEN A CONDITION AND A WARRANTY 1. Difference as to value: A condition is a stipulation which is essential to the main purpose of the contract. A warranty is a stipulation which is collateral to the main purpose. 2. Difference as to breach: If there is a breach of condition , he aggrieved party can repudiate the contract of sale ; in case of a breach of warranty, the aggrieved party can claim damages only. 3. Difference as to treatment: A breach of condition may be treated as a breach of a warranty. This would happen where the aggrieved party is contented with damages only. A breach of a warranty, however, cannot be treated as a breach of a condition. WHEN CONDITION TO BE TREATED AS WARRANTY [Sec. 13] 1. Voluntary waiver of condition: Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may
  4. 4. (a) waive the condition, or (b) elect to treat the breach of the condition as a breach of the warranty [Sec 13 (1)]. If the buyer once decides to waive the condition, he cannot afterwards insist on its fulfilment. 2. Acceptance of goods by buyer: Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as breach of warranty, unless there is a term of contract, express or implied, to the contrary [Sec 13 (2)]. The provision of Sec.13 do not affect the cases where the fulfilment of any condition, or warranty is excused by the law by reason of impossibility or otherwise [Sec.13 (3)]. EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES In a contract of sale of goods conditions and warranties may be express or implied. Express and warranties ( contained in Secs. 14 to 17) are those which the law implies into the contract unless the parties stipulate to the contrary. IMPLIED CONDITIONS 1. Condition as to title: [Sec. 14(a)]. In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that – a) In the case of a sale, he has a right to sale the goods, and b) In the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. 2. Sale by description: [ Sec. 15] Where there is a contract for the sale of the goods by description, there is an implied condition that the shall correspond with the description.
  5. 5. Example: A ship was contracted to be sold as a ‘copper- fastened vessel’ to be taken with all faults, without any allowance for any defect whatsoever. The ship turned out to be ‘partially copper-fastened. Held, the buyer was entitled to reject. 3. Condition as to quality or fitness: [ Sec. 16 (1)] Normally, in a contract of sale there is no implied condition as to quality or fitness of the goods for a particular purpose. The buyer must examine the goods thoroughly before he buys them in order to satisfy himself. Example: An order was placed for some lorries to be used “for heavy traffic in a hilly area”. The lorries supplied were unfit and breakdown. There is a breach of condition as to fitness. 4. Condition as to merchantability: [ Sec. 16 (2)]. This means goods should be such as are commercially saleable under the description by which they are known in the market at their full value. Example: A firm of Liverpool merchants contracted to buy from a London merchant a number of bales of Manilla hemp to arrive from Singapore. The hemp was damaged by sea water in such a way that it would not pass in the market as Manilla hemp. Held, the goods were not of merchantable quality. 5. Condition implied by custom: [ Sec. 16 (3)]. An implied condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. 6. Sale by sample (Sec 17): [Sec. 17 (1)] An implied condition in which the bulk shall correspond with the sample in quality and shall have a reasonable opportunity of comparing the bulk with the sample. By condition, [Sec. 17 (2)] The goods shall be free from any defect, rendering the unmerchantable. The defect should not however be apparent on a reasonable examination of the sample. Example: In a contract of sale of brandy by sample, brandy coloured with a dye was supplied. Held, the buyer was not bound to the contact even though the goods supplied are even to the samples, as the defects were not apparent on reasonable examination of the sample.
  6. 6. 7. Condition as to wholesomeness: In the case of eatables and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the good shall be wholesome. Example: A bought a bun containing a stone which broke one of A’s teeth. Held, he could recover damages. IMPLIED WARRANTIES 1. Warranty of quiet possession: [Sec. 14(b)]. In a contract of sale, unless there is a contrary intention, there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. If the buyer is in any way disturbed in the enjoyment of the goods in consequence of seller’s defective title to sell, he can claim damages from the seller. 2. Warranty of freedom from encumbrances: [Sec. 14 (c). The goods are not subject to any change or right in favour of a third party. 3. Warranty as to quality or fitness by usage of trade: [Sec. 16 (4)]. An implied warranty as to quality or fitness for a particular purpose may be annexed by the usage of trade. 4. Warranty to disclose dangerous nature of goods: Where a person sell goods, knowing that the goods are inherently dangerous or they are likely to be dangerous to the buyer and that the buyer is ignorant of the danger, he must warn the buyer of the probable danger, otherwise he will be liable in damages. Exclusion of implied conditions and warranties: Implied conditions and warranties in a contract of sale may be negative or varied by (a) express agreement between the parties; or (b) the course of dealing between them; or (c) the custom or usage of trade. CAVEAT EMPTOR This means ‘let the buyer beware’, i.e., in a contract of sale of goods the seller is under no duty to reveal unflattering truths about the goods sold.
  7. 7. MEANING OF UNPAID SELLER U/SEC. 45 "Unpaid seller" defined as (1) The seller of goods is deemed to be an "unpaid seller" within the meaning of this Act.- (a) Who has not been paid or tendered the whole of the price of the goods sold, or (b) Who had received a bill of exchange or other negotiable instrument has as a conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. (2) In this Chapter, the term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price. Example: A purchased some goods in his personal name on behalf of his principal B. B refuses to pay the price of the goods. Since A has incurred personal liability, the relationship between him and his principal will be taken as that of a seller and a buyer. A will be taken as unpaid seller under the provision of Sec. 45.  The unpaid seller has two types of rights under the Sale of Goods act. This includes the seller’s right against the goods and the seller’s right against the buyer personally.
  8. 8. Unpaid Seller’s Rights Against The Goods U/Sec. 46 Unpaid seller's rights Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law- a lien on the goods for the price while he is in possession of them; in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them; a right of re-sale as limited by this Act. Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer.  (I) when the property in the goods has been transferred: i) Right of Lien ii) Right of stoppage of goods in transit iii) Right of resale i) Right of lien [Sec. 46(1) (a) and 47 to 49] A lien is a right to retain possession of goods until payment of the price. Rules regarding lien Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:- a) where the goods have been sold without any stipulation as to credit;
  9. 9. b) where the goods have been sold on credit, but the term of credit has expired; c) where the buyer becomes insolvent. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien. Termination of lien The unpaid seller of goods loses his lien thereon- a) when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods; b) when the buyer or his agent lawfully obtains possession of the goods; by waiver thereof. c) when the seller expressly or implied waives his rights of lien. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of the goods. ii) Right of stoppage in transit [Sec. 50 to 52] Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price. An unpaid seller can exercise right of stoppage of goods in transit when each of the following conditions are satisfied: i) Seller had parted with the possession of the goods. ii) Goods are in the course of transmission to the buyer. iii) The buyer of the goods has become insolvent.
  10. 10. Duration of transit Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee. Following are the cases where transit is presumed to be an end the seller’s right of stopping the goods in transit terminates: i) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end. ii) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer. iii) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back. iv) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end. v) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods. How stoppage in transit is effected There are two modes of effecting stoppages of the delivery of the goods to the buyer which are in the course of transmission: a) by the seller taking actual possession of the goods, or b) by the seller giving notice of his claim to the carrier or other bailee who has the actual possession over the goods.
  11. 11. Where the goods are in the actual possession of a person (servant or agent) other than the principal carrier, notice to be effective must be given at such time and under such circumstances that the principal or the employer, by the exercise of reasonable diligence may communicate it to his servant or agent in time to prevent the delivery of the goods to the buyer. Effect of sub-sale or pledge by buyer [sec. 53] (1) Subject to the provisions of this Act, the unpaid seller's right of lien or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto: Provided that where a document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods, and that person transfers the documents to a person who takes the documents in good faith and for consideration, then, if such last mentioned transfer was by way of sale, the unpaid seller's right of lien or stoppage in transit is defeated, and if such last mentioned transfer was by way of pledge or other disposition for value, the unpaid seller's right of lien or stoppage in transit can only be exercised subject to the rights of the transferee. (2) Where the transfer is by way of pledge, the unpaid seller may require the pledge to have the amount secured by the pledge satisfied in the first instance, as far as possible, out of any other goods or securities of the buyer in the hands of the pledgee and available against the buyer. iii) Right of resale [Sec. 54] A unpaid seller who has the possession of goods can resell them under the following circumstances: (a) when the goods are of perishable in nature: goods are perishable in nature though has not been defined in the Act, but it means perishable not only physically but also commercially. (b) when he gives notice of his intension to resell: the unpaid may gives noyice to the buyer of his intension to re-sell the goods
  12. 12. and the buyer does not within a reasonable time pay or tender the price. (c) when he expressly reserves the right of resale: where the seller expressly reserves right of resale in case the buyer should make default, the seller may resell the goods in the event of such a default.  (II) When the property in the goods has not been transferred: Right of withholding delivery: if the property in the goods has not passed to the buyer, the unpaid seller cannot exercise right of lien, but gets a right of withholding the delivery of goods, similar to and co-extensive with lien.
  13. 13. Unpaid seller’s Rights Against buyer personally These are the rights which an unpaid seller may enforce against the buyer personally. These rights of the seller against the buyer are called rights in personam and are in addition to his rights against the goods. The rights in personam are as follows: 1) Suit for price: (sec. 55). (a) where property has passed : where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for the price of the goods [Sec. 55 (1)]. (b) where property has not been passed : where under a contract of sale the price is payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price. It makes no difference even if the property in the goods has not passed and the goods have not been appropriated to the contract [Sec. 55 (2)]. 2) Suit for damages for non-acceptance (Sec. 56). Where the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for the price of the goods. 3) Repudiation of contract before due date (Sec. 60) where the buyer repudiates the contract before the date of delivery, the seller may either treat the contract as subsisting and wait till the date of delivery or he may treat the contract as rescinded and sue for damages for the breach. This rule is known as “the rule of anticipatory breach of contract”. 4) Suit for interest [Sec. 61 (2) (a)]. Where there is a specific agreement between the seller and the buyer as to interest on the price of the goods from the date on which payment, becomes due, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer.
  14. 14. Remedies for breach of contract of sale Following rights have given to the aggrieved party by the Sale of goods Act, in addition to the rights to an unpaid seller as discussed above: 1) Suit for price: Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract. 2) Damages for non-acceptance: Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. 3) Damages for non-delivery: Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. 4) Specific performance: Subject to the provisions of Chapter II of the Specific Relief Act, 1877, in any suit for breach of contract to deliver specific or ascertained goods, the court may, if it thinks fit, on the application of the plaintiff, by its decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and conditions as to damages, payment of the price or otherwise, as the court may deem just, and the application of the plaintiff may be made at any time before the decree.
  15. 15. 5) Remedy for breach of warranty: Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may- set up against the seller the breach of warranty in diminution or extinction of the price, or sue the seller for damages for breach of warranty. The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage Repudiation of contract before due date Where either party to a contract of sale repudiates the contract before the date of delivery, the other may both treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach. 6) Interest by way of damages and special damages: Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages in any case whereby law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed. In the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of the price- to the seller in a suit by him for the amount of the price-from the date of the tender of the goods or from the date on which the price was payable; to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller-from the date on which the payment was made. END

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