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Performance of Contract of Sale
Lesson: Performance of Contract of Sale
Course Developer : Rajat Jain
Metas Adventist College, Surat : NEHU University
Introduction
The term 'performance of the contract of sale' may be defined as the performance of the
respective duties of the seller and the buyer as per the terms of the contract. Thus, the
performance of the contract of sale comprises two parts, namely:
Seller's duty to deliver the goods. Buyer's duty to accept the goods and pay the price.
It is important to note that the delivery of the goods and the payment of their price are
concurrent conditions, i.e., both these conditions should be performed at the same time. This
provision is included in Section 32 of the Sale of Goods Act, which provides that the seller
should be ready and willing to deliver the goods to the buyer, in exchange for the actual
possession of the goods. However, the parties may also agree otherwise, i.e., they may enter
into an agreement as to when the goods are to be delivered, and as to when the price is to
be paid.
Illustration: Amita agreed to deliver certain goods to Bunty. The
price was to be paid by Bunty on the delivery of the goods. In this
case, Amita need not deliver the goods, unless Bunty is ready and
willing to pay the price of the goods on delivery. In fact Bunty
need not pay for goods, unless Amita is ready and willing to deliver
them on the payment of the price. This is because each of the
parties in the transaction must be willing to perform their
respective part of the sale .
Thus, each party should be ready and willing to perform his or her part of the promise before
one can call upon the other to act on his or her promise.
Seller's Duty to Deliver the
The seller should be willing to deliver the goods to the buyer as per the terms of the contract.
The term 'delivery of goods' may be defined as the voluntary and lawful transfer of the
possession of goods from one person to another. In the case of sale of goods, the delivery
should be voluntary and it should have the effect of putting the goods in the possession of
the buyer. Thus, where a person steals the goods of another or takes the goods by force or
misrepresentation or any unlawful manner, there is no delivery of goods to such person.
MODES OF EFFECTIVE DELIVERY OF GOODS
The delivery of the goods may be made by doing anything, which results in putting the goods
in the possession of the buyer or his authorized agent. It may be noted that the parties (i.e.,
the seller and the buyer) may agree to treat any act as amounting to delivery. The different
modes of effective delivery may be discussed under the following heads:
1 Actual Delivery: The term 'actual delivery' may be defined as the delivery where the
goods are handed over by the seller to the buyer or his authorized agent. Thus, when the
goods are physically put in possession of the buyer, the delivery is said to be actual.
Illustration: Harnam sold to Billoo 20 tins of oil and delivered the
same to him. In this case, there is actual delivery of oil from
Harnam to Billoo.
2. Symbolic delivery: The term 'symbolic delivery' may be defined as the delivery by
doing some act, which has the effect of putting the goods in possession of the buyer. In other
words, when the goods are not physically delivered to the buyer but are delivered by merely
indicating or giving a signal, the delivery is said to be symbolic, e.g., the delivery of the keys
of the godown in which the goods are kept, the transfer of documents of title to the goods
(e.g., railway receipts, bill of lading, delivery orders, title deeds, etc.) are the Illustrations of
symbolic delivery. Such type of delivery is made when the goods are, bulky or when it is not
possible to actually deliver them.
Illustration: Anu sold to Bhaskar all the table fans lying in his
godown. Anu also handed over the keys of his godown to Bhaskar
so that he could get the fans from the godown. In this case, there
is a symbolic delivery of table fans from Anu to Bhaskar.
3. Constructive delivery: The term 'constructive delivery' may be defined as the delivery
when a third person, in possession of the goods, acknowledges to hold the goods on behalf
of the buyers. Sometimes, at the time of sale, the goods are in possession of a third person
(i.e., a bailee, such as godown keeper, delivery agent etc.), who informs the buyer that he
holds the goods on buyer's behalf. In such cases, the delivery of goods is said to be a
constructive delivery, e.g., where a warehouseman or a carrier, who holds the goods as bailee
for the seller, agrees and accepts holding the goods as a bailee for the buyer. It is also called
a delivery by the attornment.
Illustration: Anshu sold to Bablo 50 bags of rice, which were in
possession of Chunu, a warehouse incharge. Anshu ordered Chunu
to transfer the rice to Bablo. Accordingly, Chunu transferred the
rice, in his books, in Bablo's name. In this case, there is
constructive delivery of goods from Anshu to Bablo.
Rules Regarding Effective Delivery of Goods
he rules regarding the delivery of goods are provided in Sections 33 to 38 of the Sale of Goods
Act, which are given as under:
1. Possession of goods: The delivery of the goods may be made in any of the modes discussed
above. However, whichever method is used, it must have the effect of putting the goods in
the possession of the buyer or his authorized agent. [Section 33]. Thus, the delivery of goods
should be such which enables the buyer to exercise his control over the goods.
Illustration: Dravid sold 100 bags of wheat to Esh, and delivered
the same to railways for handing over to the buyer (Esh). Dravid
also took the railway receipt in Esh's name, and sent the same to
him to enable him to take the delivery of the wheat on its arrival
at the destination. In this case, there is an effective delivery of
wheat to Esh.
2. Demand for delivery of goods: As stated earlier, it is the seller's duty to be ready and
willing to deliver the goods to the buyer. However, the seller is not bound to deliver the goods
unless the buyer makes a demand for the delivery of the goods [Section 35]. It is thus
important that the buyer must make a demand to the seller for the delivery of the goods to
him. It is only then, the seller becomes liable to deliver the goods to the buyer. If the buyer
does not make a demand for the delivery, he has no reason to act against the seller, i.e., the
seller cannot be held liable for delay in the delivery of goods. Sometimes as per the contract,
the goods, to be delivered, are to be obtained later by the seller. In such cases also, it is the
buyer's duty to make a demand for the delivery of the goods. However, the seller should
intimate to the buyer that he has obtained the goods. The buyer's responsibility arises on
receiving the information about the goods from the seller. It may be noted that the buyer
should make a demand for the delivery of the goods at a reasonable hour [Section 36 (4)]
(i.e., during the working hours for conducting a particular business). The parties may,
however, agree otherwise, i.e., it may be agreed that the seller shall deliver the goods without
any demand by the buyer.
3. Place of delivery of goods: The place for the delivery of goods may be clearly stated in
the contract itself. If the place is so specified, the goods must be delivered at such place
during the business hours and on a working day. In case, no place is specified in the contract,
then the following rules, contained in Section 36(1), shall apply:
(a) If there is a sale, the goods sold are to be delivered at the place where they are, at
the time of sale;
(b) If there is only an agreement to sell, the goods are to be delivered at the place where
they are, at the time of agreement to sell;
(c) If at the time of agreement to sell, the goods are not in existence they are to be
delivered at a place where they are manufactured or produced.
4. Time for delivery of goods: The time for the delivery of goods may also be written in
the contract itself. When the time is so specified, the delivery is to be made by the seller
within the specified time. Where no time is mentioned in the contract then the delivery of
goods must be made within a reasonable time [Section 36(2)]. The term 'reasonable
time' can be different for different cases depending upon the specific facts and circumstances
of each particular case.
Case Law 1:
Philips Vs Blair & Martin[1]:
A sold to B some quantity of spirit made from molasses. One-third
of the quantity sold was delivered to B. B pressed for the delivery
of the remainder spirit also. However, the seller delayed it and in
the meantime, an Act of Parliament was passed which prohibited
the distillation of spirit from molasses, and cancelled all the
contracts for the sale of such spirit. It was held the seller was
liable to pay damages to the buyer as he had failed to deliver the
goods sold within a reasonable time.
Sometimes, the contract of sale uses words, such as, 'directly', without loss of time', or
'forthwith'. In such cases, quick and immediate delivery is expected.
It may, however, be noted that where the buyer accepts the delivery after the passing of
reasonable time, without any problem, or without reserving the right to sue, then he would
be deemed to have waived his right to claim compensation. [Hind Techno Machines (P) Ltd.,
Vs Jaipur Wire Industries (P) Ltd. (1988) 2 Raj LR 56].
5. Time for the demand of actual delivery: The buyer must demand the delivery of goods
at a reasonable hour. It is the responsibility of the seller to deliver them at a reasonable hour.
Thus, the demand or tender of delivery must be made at a reasonable hour. The term
'reasonable hour' is a question of fact [Section 36(4)]. It is different for different cases
depending upon the working hours of a particular business.
6. Goods in the possession of a third party: Sometimes, at the time of sale, the goods
are in the possession of a third party. “In such cases, the effective delivery takes place when
such person acknowledges to the buyer, that he holds the goods on his (buyer's) behalf
“[Section 36(3)]. It may be noted that effective delivery to take place, the third person must
inform the buyer that he holds the goods on his behalf.
Illustration: Akash sold certain goods to Bharat, which were
lying in Chunnu's warehouse. In this case, the delivery of goods
will take place as soon as Chunnu informs the buyer (Bharat) that
he holds the goods on his behalf.
However, where the goods are sold by the transfer of documents of title, e.g., railway
documents, bill of lading, etc., then the acknowledgement of the third party having the
possession of the goods (e.g., carrier, etc.) is not required. In such cases, the effective
delivery of goods takes place on the transfer of documents of title.
7. Expenses of delivery of goods: The expenses of putting the goods into a deliverable
state are borne by the seller. Also, expenses of receiving the goods are borne by the buyer.
However, the seller and the buyer may also agree otherwise, depending on the circumstances.
[Section 36(5)].
8. Part delivery of goods: Sometimes, during the process of delivering the whole lot of
goods, the seller makes only a part of the delivery. This is usually done when a huge quantity
of goods is to be delivered. In such cases, the following rules, as contained in Section 34,
shall apply:
Where the part delivery is made in progress of the whole delivery, then it is treated as
a delivery of the whole. Here, the ownership of the whole quantity is transferred to the
buyer. Where the part delivery is made under the contract, to keep it separate from the whole,
then it is not treated as a delivery of the whole. In this case, then the ownership of the whole quantity is not transferred to the buyer.
Case Law 2:
Hammond Vs Anderson[2]:
A sold certain goods to B, which were lying in his (A's) warehouse.
A ordered his warehouse-keeper to deliver those goods to B. B
weighed all the goods and took away a part of them. It was held
that this amounted to a delivery of the whole of the goods. In this
case, A's act of ordering his warehouseman to deliver the goods to
the buyer, and buyer's act of weighing all the goods shows that
the delivery of the whole of the goods was contemplated by the
parties.
Illustration: A sold 100 quintals of wheat to B, lying in his (A's)
godown. Afterwards, B sold 50 quintals of wheat to C, and
requested A to deliver these 50 quintals of wheat to C.
Accordingly; A delivered the 50 quintals of wheat to C. In this
case, the part delivery of the wheat cannot be treated as the
delivery of whole wheat sold. The intention of separating the
wheat is clear from B's act of selling and delivering 50 quintals of
wheat to C.
Thus, the effects of part delivery of the goods are important for
knowing whether the ownership of the whole goods or only a part
of it is transferred to the buyer. It is also important for the
purpose of knowing whether the seller can exercise his rights of
'lien' and of 'stoppage in transit' on the whole goods or only on
part of it.
9. Delivery of wrong quantity: The term 'wrong delivery' may include short supply or
excess supply or delivery of goods more than the agreed quantity. It also includes the delivery
of agreed quality goods mixed with a poor quality goods. The rules dealing with the effect of
delivery of wrong quantity may be discussed under the following heads:
(a) Short delivery: Sometimes, the seller delivers a less quantity of goods than he
contracted to sell. In such cases, the buyer may reject the goods. Sometimes, the buyer may
also accept the short quantity. In such a case, i.e. if the buyer accepts it, he shall have to pay
at the contract price for the goods actually delivered to him [Section 37(1)]. However, in such
a case, the buyer may claim damages for short delivery of the goods.
Illustration: Bhawna agreed to sell and deliver to Bittoo, 100
bags of wheat at the rate of Rs.400 per bag. But Bhawna delivered
only 80 bags to Bittoo, who accepted these 80 bags of wheat. In
this case, Bittoo shall have to pay for 80 bags of wheat at the rate
of Rs.400 per bag. However, he may claim the damages from
Bhawana for the remaining 20 bags of wheat.
(b) Excess delivery: Sometimes, the seller delivers a larger (i.e., excess) quantity of
goods than he was to sell. In such cases, the buyer may accept the contracted quantity of
goods, or accept or reject the whole quantity. Thus, the buyer may exercise any of the
following options (Section 37 (2)]:
(i) He may accept the contract quantity and reject the excess.
(ii) He may accept the whole of the goods and then he shall have to pay for all the goods
at the contract rate.
(iii) He may reject the entire quantity of goods.
Illustration 1: Kirin agreed to sell and deliver to Mayank
500 cycles at the rate of Rs.450 per piece. However, Kirin
delivered 520 cycles to Mayank, who accepted 500 cycles and
rejected the 20, which were delivered in excess of the required
quantity. In this case, Mayank is justified in doing so. Kirin cannot
compel him to accept the 20 cycles also. This is because Mayank is
not bound to accept more than what he had ordered and this is a
case of excess delivery.
Illustration 2: Ravi agreed to sell 100 H.M.T. watches to
Rajesh at the rate of Rs.500 per piece. Ravi delivered 110 watches
to Rajesh, who accepted all the watches. In this case, Rajesh is
liable to pay for all the 110 watches at the rate of Rs.500 per
piece.If the buyer accepts the excess quantity that has been
delivered to him, then he shall be liable to pay for the excess
quantity that he has kept.
It may be noted that in case of excess delivery, the buyer is free to exercise any of the above
options. He cannot be compelled to accept the contract quantity and reject the excess.
However, if the excess is so small as to be negligible, the buyer may not reject the goods.
This is based on the maximum 'de minimis non curatlex', i.e., the law does not take account
of trifles. On the same principle, the buyer may also not be allowed to reject the goods in
case of negligible deficiency.
Case Law 4:
Shipton Anderson & Co. Vs. Weil Bros. & Co. Ltd.[3]:
A contracted to supply 4950 tons of wheat to B. But A delivered
4950 tons and 55 lb. However, the seller (A) made no attempt to
charge the buyer (B) with excess quantity. B rejected whole
quantity of wheat. A filed a suit against B for the same. It was held
that the buyer (B) was not entitled to reject the whole quantity of
wheat. In this case, the excess delivery of 55 lb. was so trivial as
to be wholly insignificant.
On the same principle, the buyer could not refuse to take delivery of the goods, where out of
the agreed quantity of 16,000 kg. of rice, there was a shortage of 522 kg. only. It was held
to be a slight deficiency, which fell within the 'de minimis non curatlex' rule. [Suresh K.
Rajendra K. Vs. K. Assan Koya & Sons AIR 1990 AP 20].
In the case of short delivery or excess delivery of goods, the buyer may reject the whole
quantity of goods. It may, however, be noted that if the buyer does so, the contract is not
treated as cancelled. The seller still has the right to tender again the contract quantity of
goods, and the buyer is bound to accept the same. [Vilas Udyog Ltd. Vs. Prag Vanaspati
Products, AIR 1975 Gujrat 112].
Illustration: Rajeev agreed to sell and delivery to Rathi 100 tins
of coconut oil at the rate of Rs.500 per tin. However, Rajeev
delivered 125 tins. Rathi rejected the entire quantity of coconut oil.
Immediately thereafter, Rajeev delivered the 100 tins of coconut
oil of the contract quality. Rathi again rejected the same on the
ground that he had already cancelled the contract by rejecting the
tins. In this case, Rathi is not justified in rejecting the tins, at the
second time as the contract was not cancelled by Rathi’s earlier
rejection of the tins on the ground of excess quantity.
(c) Mixed delivery: Sometimes, the seller delivers the goods mixed with the goods of a
different description. In such cases, the buyer may accept the contracted goods or reject the
whole quantity of goods. Thus, the buyer may exercise any of the following options [Section
37 (3)].
(i) He may accept the goods, which are in accordance with the contract and reject the
rest.
(ii) He may reject the whole.
Illustration: Rita agreed to sell and deliver to Rajni 100 tins of
'Dalda' ghee at the rate of Rs.350 per tin. Rita delivered 80 tins of
'Dalda' ghee and 20 tins of 'Rath' ghee. In this case, Rajni may
accept 80 tins of 'Dalda' ghee and reject 20 tins of 'Rath' ghee. If '
Rajni ' does so then she will have to pay for 80 tins of 'Dalda' ghee
at the rate of Rs.350 per tin. Or she may reject the whole
quantity of ghee. This is regarding the rule of wrong delivery of
goods. Rita had agreed to deliver Dalda ghee and not any other
brand of ghee to Rajni.
The above rules, regarding the delivery of wrong quantity of goods, are subject to any usage
of trade, special agreement, or course or course of dealing between the parties [Section 37
(4)]. Thus, where such usage or special agreement, etc. provides that the goods shall be
accepted or rejected in whole, then the above rules shall not apply.
10. Delivery of goods in installments: As a matter of fact, the delivery of goods by installments
is not considered as a goods delivery. And the buyer is not bound to accept the goods
delivered to him in installments, unless other wise agreed [Section 38(1)].
Illustration: Ranju bought from Girish 100 tons of coal to be
delivered in January. However, Girish delivered 50 tons of coal in
January and agreed to deliver the remaining 50 tons in February.
In this case, as the contract did not provide the delivery by
installments, Ranju is not bound to accept the coal delivered by
installments. She may reject the coal delivered to her.
By mutual consent, the parties may agree that the goods shall be delivered and accepted in
installments. Thus, the delivery of goods in installments may be made and demanded only if
the contract of sale provides for the same. The contract to make delivery by installments may
be express or implied. Where the seller starts delivering the goods in installments, and the
buyer accepts the same without any objection, then he should accept the remaining
installments also, as he has impliedly consented to delivery by installments.
Case Law 5:
Richardson Vs. Dunn[4]:
A contracted to sell to B, 200 tons of coal. A shipped only 152
tons, and informed B about the same. But B made no reply. It was
held that the buyer (B) had consented to delivery of coal in
installments.
Sometimes, there is a contract for delivering the goods in installments, and for each
installment of goods the payment is to be paid separately. In such cases, the following
problems may arise:
The seller may fail to deliver an installment, or he may deliver defective goods in one
or more installments. Or The buyer may refuse to take the delivery of an installment, or he may refuse to pay
for an installment.
In such cases, it is a question of fact whether the whole contract is treated as cancelled, or
only one installment is cancelled for which the party may claim compensation, and the rest is
to be performed [Section 38 (2)]. In this context, the following points are important in order
to consider whether the whole contract may be rejected or not:
The extent of breach as a ratio of the entire contract. This implies, the ratio of defective or unpaid installments to the whole contract. If the circumstances show that there is a breach of a major portion of the contract, then the whole contract may be cancelled. Degree of probability of breach of the contract being repeated. If the circumstances show that similar defaults shall be repeated in future also, the whole contract may be cancelled.
Case Law 6:
Maple Flock Co. Ltd. Vs. Universal Furniture Pdts.
(Wembley) Ltd.[5]:
A contracted to sell to B, 100 tons of flock in 20 installments. The
first fifteen installments were satisfactorily delivered. But the
sixteenth installment was defective. However, the subsequent four
installments were again satisfactory. The buyer (B) wanted to
repudiate the contract, but the whole contract could not be rejected.
In this case, the circumstances of the case showed that there was
no possibility of the default being repeated.
11. Delivery to a carrier or wharfinger: Where in a contract of sale, the sold goods are
delivered to a carrier for the purpose of transmission to the buyer, the delivery of goods to
the carrier for the purpose of transmission to the buyer. Similarly, “where the sold goods are
delivered to a wharfinger[6] for the purpose of safe custody, the delivery of goods to the
wharfinger is also treated as delivery to the buyer”[Section 39(1)]. However, where it is
agreed that the goods are to be delivered at a particular place (e.g., at the buyer's factory)
then the delivery of goods to a carrier does not amount to a delivery to the buyer. [Jagdish
Pd. v. Produce Exchange Corpn. AIR 1946 Cal. 245][7].
It may, however be noted that the seller's duty is not over only by delivering the goods
to the carries or wharfinger. The seller is further required the perform the following duties:
To make a reasonable contract with the carrier or wharfinger:The seller has to make
a reasonable contract, with the carrier or wharfinger for the safe transmission or
custody of the goods. This will have to take into consideration the nature of the goods
and other circumstances of the case. If the seller fails to make a contract, the buyer
may refuse to treat the delivery to himself. Or he may hold the seller liable for damages
[Section 39 (2)]. To give notice to the buyer to enable him to insure the goods: Sometimes, the goods
are to be sent by a route that is by sea or land transit, and it is usual to insure the
goods. Here, the seller must give to the buyer such notice as will enable him to insure
the goods during their sea or land transit. If the seller does not do so, the goods shall
be at his risk during the transit. However, these duties can be excluded by a contract which specifies the liability.[Section 39(3)].
Case Law 7:
Thomas Young and Sons v. Hobson and Partners[8]:
A sold 14 electric machines to B. A agreed to send the goods
(electric machine) to B by rail. A delivered the goods to the
Railway Company for the purpose of transmission to the buyer (B).
However, the goods were delivered to the Railway Company "at
owner's risk" and not "at Railway Company's risk". There was no
difference in freight in both the cases. The only difference was that
before accepting "at Railway Company's risk", the Railway
Company would have carefully inspected their packing, and
ensured that the machines were properly secured in the wagons.
Being "at owner's risk", the Railway Company did not take much
care in handling them. The machines were lying loose in the
wagons, and the shunting of train damaged them. It was held that
the buyer could reject the machines, and would not be liable to
pay the price. The reason for the same is that, the seller had failed
to make a reasonable contract with the railway company for safe
transmission of the machines. In this case, the nature of the goods
(i.e., machines) required the seller to deliver them "at Railway
Company's risk".
Case Law 8:
Cooke v. Ludlow[9]:
A, a buyer, living in Bristol, ordered certain goods from B, a seller
of London. According to the contract, the goods were to be sent by
any conveyance from London to Bristol. B sent the goods to a
wharf, where he was informed that the goods would be sent to
Bristol by the ship named 'Commerce'. Accordingly, B notified the
buyer A that the goods would be sent by the ship 'Commerce'.
However, the ship 'Commerce' was fully laden, as such the goods
were sent by another ship. However, the seller did not know this
fact. The ship conveying the buyer's goods was lost in the sea. It
was held that the buyer A was liable to pay the price of the goods,
as the seller B had given a reasonable notice to the buyer. In this
case, the seller has discharged his duty by giving a notice to the
buyer that the goods are being sent by ship 'Commerce', as he
never knew about the change of ship.
12. Deterioration of goods during transit: Sometimes, the seller agrees to deliver the goods,
at his own risk, at a place other than that where the goods are lying at the time of contract
of sale. In such cases, the buyer shall bear the loss of deterioration of goods, which is
incidental or could take place in transit. [Section 40].
[1] [1801] 4 Paton, Scotch AC 256
[2] . [1803] 1 B & P.N.R. 69, R.R. 763
[3] [1912] 106 LT 372.
[4] [1841] 2 Q.B. 218.
[5] [ 1943] 1 K.B. 148.
[6] A person who takes care of the wharf, is called a wharfinger. A wharf is a place where the
goods are stored before shipment or after unloading from the ship.
[7] See also Fertilizer Corpn. of India v. Tata Iron & Steel Co. Ltd. AIR 1965 Punjab 148.
[8] [1949] 65 TLR 365.
[9] [1806] 2 B & P.N.R. 119.
Buyer's Duty to accept the Goods and pay the Price
The duty of a buyer, in the performance of the contract of sale, is to accept the goods
and pay the price. When the seller delivers the goods, according to the contract, then it
becomes the buyer's duty to accept them and pay the price. When the goods are accepted
and paid for, the contract of sale is completed.
The term 'acceptance of goods' may be defined as the final assent of the buyer that
he has accepted the goods. It needs to be understood that when the buyer receives the goods
and takes possession of them, it does not mean that he has accepted the goods. Acceptance
is when the buyer after receiving the goods, has sufficient opportunity of examining them as
well. [Section 41]. Thus, in the following circumstances, the buyer is considered to have
accepted the goods:
When the buyer informs the seller that he has accepted the goods. When the buyer does any act, which is inconsistent with the ownership of the seller,
i.e., when the buyer uses the goods as an owner, e.g., where he mortgages or resells
the goods, or makes changes in the goods. However, merely dealing with the
documents of title does not amount to acceptance. [Chao v. British Traders & Shippers
Ltd. (1954) 1 All ER 779] When after the expiry of a reasonable time, the buyer keeps the goods without
informing the seller that he has rejected the goods and thus fails to return the goods
within a reasonable time.
Illustration: Amar sold certain quantity of rice to Bal Kishan, and
shipped the same for the purpose of transmission to Bal Kishan.
On the arrival of the ship, Bal Kishan took delivery of the rice, and
on the same day resold a part of the rice to Chaman. After three
days, Bal Kishan discovered that the rice was not in accordance
with the contract, and he gave a notice to the seller Amar that he
has rejected the rice. This notice of rejection was given within a
reasonable time. It was held that the buyer Bal Kishan had
accepted the rice and the notice of rejection was ineffective. In this
case, the buyer has accepted the rice, as he had resold a part of
the same.
Buyer's right of Examination
The opportunity of examining the goods is given to the buyer to enable him to ensure
that the goods are in accordance with the contract and thus the buyer should examine the
goods carefully. In fact, the buyer is not considered to have accepted the goods unless and
until such an opportunity is given to him. Sometimes, the buyer seeks an opportunity of
examining the goods. Here then, the seller is expected to give such an opportunity. If the
seller refuses to allow this opportunity, the buyer may reject the goods [Section 41]. Where
the buyer rightfully rejects the goods, it becomes his duty to inform the seller of his decision.
Then the buyer is not bound to return the goods to the seller. It is the duty of the seller to
take back the goods at his own expenses [Section 43]. However, in case the buyer fails to
inform the seller about the rejection of the goods, and if he fails to return them within a
reasonable time, it can be assumed that the goods have been accepted.
Liability of the Buyer for Refusing to take delivery of the Goods
Sometimes, the seller is ready and willing to deliver the goods, and requests the buyer to
take the delivery. However, “the buyer defaults and does not take the delivery of the goods
within a reasonable time.” In such cases, the buyer is liable to the seller for the following
[Section 44]:
Any loss which arises due to buyer's neglect or refusal to take delivery of the goods,
and Reasonable charges for keeping the custody of the goods.
Where the neglect or refusal of the buyer amounts to the cancellation of the contract, the
seller may also claim damages for breach of contract.
Contracts Involving Sea Transit
Sometimes, the goods are to be delivered to the buyer through sea routes. In all such cases,
the parties may enter into certain contracts, which are meant for the delivery of the goods
through sea routes. Following are the three important forms of contracts of sale which involve
the carriage of goods by sea:
1. C.I.F., 2. F.O.B, 3. Ex-Ship.
Under these contracts, the parties may vary or add some other terms in the usual terms of
such contracts.
C.I.F Contacts
The term 'C.I.F.' implies 'cost, insurance and freight', and such a contract is for the sale of
goods at a price, which includes the cost of goods, insurance and freight charges. Thus, in
such contracts, the charges of insurance during transit and the freight charges are paid by
the buyer. Where the buyer orders the goods from a seller, residing in another country, under
a C.I.F. contract, the seller will insure the goods and deliver them to a shipping company for
shipping to the buyer. It is important that the insurance policy regarding the goods and the
bill of lading also be delivered to the buyer along with the invoice of the goods. In C.I.F.
contracts, the seller is bound to perform the following duties:
To give the invoice of the goods sold. To ship the goods at the port of shipment. To get a contract of affreightment with the shipping company under which the goods
will be delivered at a destination decided under the contract, for the transportation of
the goods and obtain a bill of lading. To insure the goods and obtain an insurance policy. The insurance should be arranged
in a manner that would suit buyer.
To deliver all these shipping documents (i.e., the invoice, bill of lading and the policy
of insurance) to the buyer within a reasonable time. These documents should be
delivered to the buyer at the place decided under the contract.
Thus, the essential part of a C.I.F. contract is that the seller must offer to deliver the shipping
documents to the buyer. If the seller fails to deliver these documents within a reasonable
time, then he is guilty of breach of contract.[1] However, when the documentation is
complete in all aspects of the contract, then it is the duty of the buyer to take the documents
and pay the price without waiting for the arrival of the goods have been lost.[2]
Under the following circumstances the buyer may refuse to take the shipping documents:
When the documents are invalid, e.g., that the bill of lading is not correctly written. When the goods are of a different quality than stated in the contract. When the quantity is different from that written in the contract
Sometimes, the buyer accepts the documents and also makes the payment for the goods.
Later, on the arrival of the goods, he finds that the goods are not in accordance with the
contract. In such cases, the buyer can reject the goods and recover back the price.
Illustration: Nawal, a trader of Bombay, purchased 100 bags of
almonds from Chary of Cochin, under a C.I.F. contract. Chary
insured 100 bags of almonds and delivered them to a shipping
company for the purpose of transmission to Nawal at Bombay and
obtained a bill of lading in the name of Nawal. Chary sent all the
shipping documents (i.e., invoice of cashew nuts, insurance policy
and bill of lading) to his agent in Bombay for the purpose of
delivering them to Nawal and receive the payment from him.
Accordingly, B's agent delivered the shipping documents to Nawal
who paid the price in terms of the contract. On receipt of the
almonds at Bombay, Nawal found that these were of inferior
quality. In this case, Nawal may reject the almonds and claim the
refund of the price.
The important points regarding the C.I.F. contracts, may be summed up as under:
In case of C.I.F. contracts, the ownership of the goods is transferred to the buyer when
the shipping documents are delivered to the buyer and he receives them by paying
price of the goods. On the buyer's refusal to take the shipping documents, the seller
can claim the damages for the breach of contract, and not the price of the goods.
However, the parties may change the terms of a C.I.F. contract, and in that case, the
ownership will be transferred to the buyer when it is meant to be transferred.Transfer
of ownership:[3][4][5] Protection of parties' interest: The C.I.F. contract takes into consideration the interest
of both, the seller and the buyer. It protects the seller in a way that the goods continue
to be in his ownership until the buyer pays for the goods and obtains the documents.
It also protects the buyer in a way that he is required to pay the price only when the
documents are delivered to him. These documents enable the buyer to obtain the
goods, as soon as they arrive at the final destination. If the goods are lost during sea
transit, neither party will be put to loss. The reason for the same is that the goods
being insured, the owner of the goods (whether the seller or the buyer as the case
may be) can claim the loss from the insurance company. Nature of contract : The C.I.F. contract is at times, described as a contract for the sale
of the documents as the buyer has to pay the price and receive the documents without
waiting for the arrival of the goods. However, this does not mean that a C.I.F. contract
is a sale of document and not of goods. In fact, a C.I.F. contract is a sale contract, to
be performed by the delivery of documents, which are meant for the goods. Thus, a
C.I.F. contract implies the transfer of actual goods in the normal course of business,
and in case the goods are lost, the buyer gets his rights on the basis of the documents
that have been prepared i.e., insurance policy and bill of lading. A C.I.F. contract may,
therefore, be described as a contract for the sale of goods through documents.
Chalmer, an authority on the subject has observed in this context: "a C.I.F. contract is a contract for the sale of insured goods, lost or not lost."
[1] N. Swami Chetti V. Soundarajan AIR 1958 Madras 43.
[2] Mohanlal Kashinath v. K. Premji & Co. (1928) 30 Bom. L.R. 415; AIR 1928 Bombay 170.
[3] The Miramichi (1915) p. 71; T.R. Smith & Co. v T.D.B. & Co. (1940) 2 All England Reporter
60.
[4] Stein F. & Co. v Country Tailoring Co. 115 LT 215; see also AIR 1937 Lahore 566.
[5] Mahabir Commercial Co. Ltd. v. Cit AIR 1973 SC 430
F.O.B. Contracts
The term 'F.O.B.' means 'free on board' and is a contract for the sale of goods where, for the
purpose of transmission to the buyer, the seller has to load the goods on the ship at his own
cost. Once the goods are loaded on board the ship, they are at buyer's risk, and he is
responsible for freight, insurance and subsequent expenses. In a F.O.B. contract, the seller
has to perform the following duties:
To load the sold goods safely on the ship as stated by the buyer. To undertake to pay the expenses of loading the goods. To enter into a contract with the shipping company or ship owners for the
transportation of goods and obtain a bill of lading. Such a contract should be made in
the best interest of the buyer and the seller. To convey the bill of lading to the buyer. To give notice of shipment to the buyer so that he can get the goods insured for the
sea transit.
On the performance of the above duties, the contractual liability of the seller ends, and the
delivery of goods from the seller to the buyer is complete. Then, the buyer is bound to pay
the price of the goods when the shipping documents are presented to him even if the goods
have been lost by that time[1]. This is substantiated as the Supreme Court has also held that
the buyer is liable to pay the full price of the goods on delivery of dispatch documents even
though the goods arrived were short by a few items. [Marwar Tent Factory v. Union of
India, AIR 1990 SC 1753].
It is also the buyer's duty to name a ship upon which the goods are to be delivered. If the
buyer fails to name a ship, he is guilty of breach of contract, and the seller can file a suit
against him for the recovery of the damages. However, in such a case, the seller cannot file
a suit for the recovery of the price of the goods. [Colley v. Overseas Export (1921) 3 K.B.
302].
The important points in connection with F.O.B. contracts are summed up as under:
In case of F.O.B. contracts, the ownership of the goods is transferred to the buyer as soon as the goods are loaded on board the ship. The ownership of is so transferred even if the goods are not specific or ascertained. However, the ownership of the goods will not be transferred to the buyer, if, by the shipping documents, the seller has reserved his right of disposal. Thus, if seller does not reserve his right of disposal, the goods are at buyer's risk after they are loaded on the
ship.Transfer of ownership:
Illustration: Anthony of Goa, purchased certain goods from
Biswajit of Kolkata, under a F.O.B. contract. Biswajit delivered the
goods to a shipping company for the purpose of transmission to
Anthony at Goa, and obtained a bill of lading in the name of
Anthony. The goods were loaded on a ship named by the buyer
Anthony, and Biswajit paid the expenses for loading the goods.
Biswajit sent the bill of lading to his agent in Goa for the purpose
of delivering them to Anthony. The ship carrying the goods was
sunk. However, Biswajit's agent presented the bill of loading to
Anthony and demanded the price of the goods. But Anthony
refused to pay the price on the ground that the ship carrying the
goods had already been sunk. In this case, Anthony is liable to pay
the price of the goods as the ownership of the same was
transferred to him as soon as the goods were loaded on a ship
named by him.
In most cases, insurance of the goods is required. In such cases, the seller should give to the buyer such notice as will enable him to insure the goods the goods. If the seller fails to give such notice, the goods shall be at his risk during the transit [Section 25(3)]. In some situations, the buyer has enough information about the shipment of the goods so as to enable him to insure them, then he cannot insist on a particular notice from the seller, i.e., in such cases, the goods shall be at the risk of the buyer, even if no notice is given by the seller, i.e. in such a case, the goods shall be at the
risk of the buyer, even if no notice is given by the seller.Insurance of Goods:
Note: In F.O.B. contracts, the buyer cannot unilaterally ask for the delivery of the goods
before they are loaded as per the terms of the contract.
Ex-Ships Contracts
An Ex-Ship Contract is a contract for the sale of goods in which the seller has to deliver the
goods to the buyer at the port of destination. The freight charges are to be borne by the
seller. It may be noted that during the voyage (sea route) the goods are at the risk of the
seller. Thus, to protect his own interest, the seller may insure the goods, if he so wishes, at
his own expenses. In an Ex-Ship Contract, the seller has to perform the following duties:
To deliver the goods to the buyer at the port of destination, i.e., to make the goods
physically available at the port of destination to enable the buyer to take their delivery. To pay the freight charges. To hand over the proper delivery orders to the buyer to enable him to obtain the
delivery of the goods from the ship owner.
On the performance of the above duties, the contractual liability of the seller ends. Thereafter,
the buyer becomes bound to pay the price of the goods.
The important points in connection with Ex-Ship contracts may be summed up as under:
(a) Transfer of ownership: In case of Ex-ship contracts, the ownership of the goods is
transferred to the buyer only when the goods are actually delivered at the port of destination
to enable the buyer to take their delivery.
(b) Insurance of goods: In Ex-ship contracts, the seller is not bound to insure the goods on
behalf of the buyer. Since the goods are at seller's risk during sea transit, he may insure the
goods for his own assurance.
(c) The Contract, whether C.I.F. or Ex-ship: In case of sea transit, whether a particular
contract is C.I.F. contract or an Ex-ship contract, does not depend merely upon the word (i.e.,
C.I.F. or Ex-ship) used by the parties in their contract. But it depends upon the essence of
the contract, i.e., upon the effect of the contract, e.g., a contract referred as C.I.F. contract
may not be so if by the other terms of the contract the goods are actually to be delivered at
the port of destination. [The Prachim (1918) AC 157 PC].
Illustration: Amar and Bhandari entered into a contract for the
sale of 'rye' by Amar to Bhandari. The contract was expressed to be
on C.I.F. terms. According to the terms of the contract, the goods
were to be delivered by Amar at a port called Antwerp, and the price
was payable on the presentation of delivery orders to Bhandari. A
shipped the goods. However, the ship carrying the goods was sunk.
Bhandari brought an action against Amar for the refund of the price
paid by him. It was held that Bhandari was entitled to the refund of
the price. In this case, though the contract was expressed to be a
C.I.F. contract, but in fact it was not so. The contract was an Ex-
ship contract as the goods were to be delivered to Bhandari, the
buyer, at his port. And the ownership of the goods would have been
transferred to Bhandari only on the delivery of the goods at the port.
Thus, at the time of loss of the goods, the seller was their owner
and not the buyer.
Comparison Between C.I.F, F.O.B. and Ex-Ship Contracts
The following table gives the comparison between C.I.F., F.O.B and Ex-ship contracts:
S.No. C.I.F. Contract F.O.B. Contract Ex-ship Contract
1. In such a contract,
the price of the
goods includes the
cost of the goods,
insurance and freight
charges.
In this contract, the
price of the goods
does not include the
insurance and freight
charges.
In this case also, the
final price of the
goods does not
include the insurance
and freight charges.
2. In C.I.F. the
ownership of the
In F.O.B. the
ownership of the
In the Ex-ship
contract, the
goods is transferred
to the buyer when
the shipping
documents are
delivered to the
buyer, and he
receives them by
paying the price of
the goods.
goods is transferred
to the buyer as soon
as the goods are
loaded on the ship
named by the buyer.
ownership of the
goods is transferred
to the buyer only
when the goods are
actually delivered at
the port of
destination so that
the buyer can take
their delivery.
3. In this case, the
insurance of the
goods sold is
compulsory. And the
seller is bound to
insure the goods.
In the F.O.B.
contract, the
insurance of the
goods sold is not
compulsory. The
buyer may insure the
goods to protect his
interest as during
transit by sea the
goods are at his risk.
In the Ex-ship
contract also, the
insurance of the
goods sold is not
compulsory. The
seller may insure the
goods to protect his
interest as during the
sea transit the goods
are at his risk.
4. In the C.I.F. contract,
the seller's duty is to
deliver the goods to a
shipping company for
the purpose of being
delivered to the
buyer.
In F.O.B. contract,
the seller's duty is to
load the goods in a
ship decided by the
buyer.
In the Ex-ship
contract, the seller's
duty is to deliver the
goods at the port of
destination to enable
the buyer to take
their delivery.
[1] Stock v. Inglis (1889) 12 QBD 564; affirmed 10 App Cas 263.
Points to Remember
Introduction
The Performance of Contract of Sale implies the delivery of goods
by the seller and acceptance of the delivery of goods and payment
for them by the buyer as per the terms of the contract.
Delivery of goods and Rules regarding delivery.
Delivery means transfer of possession from one person to
another. This may be actual delivery, symbolic delivery or constructive delivery.
Rules regarding delivery:
Possession of goods Demand for delivery of goods Place of delivery of goods Time for delivery of goods Time for the demand of actual delivery Goods in the possession of a third party Expenses of delivery of goods Part delivery of goods Delivery of wrong quantity Delivery of goods by instalments Delivery to a carrier or wharfinger Deterioration of goods during transit
Buyer: Duties, Rights and Liabilities:
The buyer has the right to examine the goods and to make sure
that they are in accordance with the contract. The buyer is not bound to return the reject goods. The buyer is deemed to have the accepted goods, if he does not
act otherwise or after the lapse of reasonable time. The buyer is liable for refusing delivery of goods, when the seller
has done everything according to the contract.
Contract involving passage by sea.
There are three forms of Contract of Sale which involve the carriage of
goods by sea:
C.I.F., which is Cost Insurance Freight. F.O.B.. This is Free On Board contract. Ex-Ship Contract, in this the seller has to deliver the goods to the
buyer at the port of destination and the transport charges are to be borne by the seller.
