BUSINESS LAWS

CA FOUNDATION - PAPER 2A - BUSINESS LAWS

In this capsule, we have summarized the important concepts of the Unit 3 and 4 of the Chapter 2: The Sale of Goods
Act, 1930. From Examination point of view, this chapter comprises of around 12 to 14 marks of the paper. In this
chapter, students are tested with conceptual understanding of the legal provisions, as well application of the important
concepts in the simple practical scenarios. This capsule will help the students to revise and retain essentials of some
of the important provisions related to transfer of ownership, delivery of goods and unpaid seller.

The Sale of Goods Act, 1930

(I) Provisions related to transfer of Ownership Different stages of Goods while passing of property under this
[Section 18-26] category:
Specific Goods in Property in goods passes to the buyer
(i) Stages involved in transfer of ownership:
Deliverable Stage when the contract is made

Passing of Delivery Passing of irrespective of time of the payment or

property of Goods Risk delivery or both.

Example: X buys a Washing Machine and asks for home delivery.

Passing of Property The washing machine immediately becomes the property of X.

• Passing of Ownership Specific Goods to be put in Deliverable Stage

• If the property has When there is a contract for the sale of specific
Passing of passed to the buyer, the
property goods;
implies- RISK in the goods sold
is that of the buyer and
NOT of the seller seller is bound to do something to the goods for
putting them into deliverable state;

the property does not pass until such thing is done

and buyer has notice thereof.
Rules regarding transfer of property in goods
Depends on two basic factors:

Identification of goods Intention of parties Example: X purchased a laptop and asks for home delivery but
that laptop does not have a Windows operating system installed.
The property transfers to X only after shopkeeper installed OS
Property in goods is making the laptop ready for delivery and intimated the buyer
Goods must be ascertained
transferred at the time- about it.
in order to pass the
• when parties intend it to
property in goods to buyer
be transferred

Specific Goods • Contract for sale of specific goods

Ascertaing of intention shall • seller is bound to weigh, measure,
Goods must be specific in a Deliverable
be on the basis of- test or do something for purpose of
and ascertained to acquire Stage when
• terms of contract ascertaining price
the ownership right on the seller has to do
• conduct of the parties, and • then the Property in goods passes to
goods by buyer anything to put
• circumstances of the case the buyer
it in deliverable
stage • only when such thing is done and
buyer has notice of it.
Primary Rules: For determination of passing of property from seller
to Buyer
1. Passing of Property in Case of Specific or Ascertained Goods Example: A sold carpets to the Company which were required
to be laid. The carpet was delivered to the company’s premises
Transferred at but was stolen before it could be laid. It was held that the carpet
such time as the was not in deliverable state as it was not laid, which was part of
parties intend it the contract and hence, the property had not passed to the buyer
to be transferred company.
Conduct of
Passing of the Parties
Property in case
of Specific or 2. Sale of Unascertained Goods
Circumstances
Ascertained Goods of the Case
Ascertainment of
intention depends on When there no property is unless the
is a sale of transferred to goods are
Unascertained the buyer ascertained
Goods,

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BUSINESS LAWS
Rules in respect of passing of property under this category

Sale of unascertained or
future goods by description

The goods to Goods Unconditionally The The assent The assent

match with must be in appropriated appropriation may be may be given
description deliverable (seller does not must be by express or before or
and quality state reserve the right seller with the implied after the
of disposal until assent of the appropriation
certain conditions buyer or vice
are fulfilled, like versa
payment of price)

Delivery to the Carrier Example: X sends furniture to a company by a truck and instructs
the driver not to deliver the furniture to the company until the
payment is made by company to him. The property passes only
Seller delivers the goods when the payment is made.
for the purpose of
to the buyer or carrier or
transmission and
other bailee
Risk Prima Facie passes with Property

the goods are does not reserve the right Until the property therein is transferred to the buyer
appropriated of disposal,
the goods remain at the seller’s risk

Example: A bill of lading of railway parcel is made out in the name

of the buyer and is sent to him, the ownership in the goods passes
from the seller to the buyer. In case the goods are subjected to when the property therein is transferred to the buyer
accidental loss or by theft, the seller will not be liable.
the goods are at the buyer’s risk whether delivery has
been made or not.
3. Goods sent on Approval or “Sale Or Return”

PASSING OF PROPERTY
If delivery is delayed by the fault of the seller or the buyer
When he signifies his approval or acceptance
Retains goods without giving notice of rejection the goods remain at the risk of the party in default
(seller or buyer as per the case)
Does something to the goods which is
equivalent to acceptance
The duties and liabilities of the seller or the buyer as bailee of
goods for other party

Example: A sends to B a water motor on approval or return in will not be affected even when risk has passed.
March, 2020. B to return it after trial in August, 2020. The water
motor has not been returned within a reasonable time, and
therefore, A is not bound to accept it and B must pay the price. Example: A bids for an antique painting at a sale by auction.
After the bid, when the auctioneer struck his hammer to signify
acceptance of the bid, he hit the antique which gets damaged. The
4. Reservation of Right of Disposal loss will have to be borne by the seller, because the ownership of
goods has not yet passed from the seller to the buyer.
the seller may by the terms of
the contract or appropriation,
Where there is a
contract for the sale
of specific goods
or where goods reserve the right of disposal of
are subsequently the goods
appropriated to the
contract
until certain conditions are
fulfilled

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 BUSINESS LAWS
(II) Transfer of Title by Non Owners (Section 27-30) Types of Delivery

Symbolic
delivery
Where goods are who does not have
buyer does not Actual Constructive
sold by a person the authority or
acquire a Delivery Delivery
who is not the with the consent of
good title
owner; and the owner
Types of
delivery

Example: P, the hirer of vehicle under a hire purchase agreement, Duties of seller and Buyer
sells them to Q. Q, though a bona fide purchaser, does not acquire
the ownership in the vehicle. At the most he acquires the same
right as that of the hirer. Duty of Duty of
the the
seller buyer to accept
to deliver the
and pay for
goods
NEMO DAT Sale by a Mercantile Agent them
QUOD NON
HABET – No one Sale by one of the joint owners
can give what he
has not got. Sale by a person in possession under voidable Rules regarding Delivery of Goods
contract
Exceptions:
Sale by a person who has already sold goods Delivery to
Part Instalment
but continues in possession thereof carrier/
delivery deliveries
wharfinger
Effect of Estoppel

Sale by an unpaid seller

Buyer to apply Delivery of Deterioration
Sale by a buyer obtaining possession before the for delivery wrong quantity during transit
property vested in him

Sale under provisions of other Acts Buyer's right

Expenses of
Place of delivery to examine
delivery
the goods
Examples: 1. A, B, and C are three brothers and joint owners of a
T.V and VCR and with the consent of B and C, the VCR was kept
in possession of A. A sells the T.V and VCR to P who buys it in
Goods in
good faith and without notice that A had no authority to sell. P Time for
possession of a
gets a good title to VCR and TV. delivery
third party
2. During IPL matches, P buys a TV set from R. R agrees to deliver
the same to P after some days. In meanwhile R sells the same to S,
at a higher price, who buys in good faith and without knowledge
about the previous sale. S gets a good title. Examples: 1. Certain goods lying at wharf were sold in a lot. The
seller instructed the wharfinger to deliver them to the buyer who
had paid for them and the buyer, thereafter, accepted them and
took away part. Held, there was delivery of the whole.
(III) Performance of the Contract of Sale (Section 2. A agrees to sell 100 quintals of wheat to B at ` 1,000 per quintal.
31-44) A delivers 1,100 quintals. B may reject the whole lot or accept only
Meaning of delivery 1,000 quintals and reject the rest or accept the whole lot and pay
for them at the contract of sale.

voluntary Rule Related to Acceptance of Delivery of Goods

transfer of
Definition of possession from
Delivery one person to Acceptance is deemed to take
another
place when the buyer-
intimates to the does any act to retains the goods
seller that he the goods, which after the lapse of
had accepted the is inconsistent a reasonable time,
goods; or with the without intimating
ownership of the to the seller that he
seller; or has rejected them.

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BUSINESS LAWS
(IV) Unpaid Seller (Section 45-61) Example: A sold certain goods to B for a price R50,000 and
allowed him to pay the price within one month. B becomes
insolvent during this period of credit. A, the unpaid seller, can
Unpaid Seller exercise his right of lien.
1. The Whole price has not been paid or tendered and the
seller has an immediate right of action for the price (ii)
2. When a bill or exchange or other negotiable instrument
has been received as conditional payment and it has been Buyer or agent
dishonoured. lawfully obtains By waiver
the goods

Example: P sold some goods to R for R60,000 and received

Delivers goods By Estoppel
a cheque for a full price. On presentment, the cheque was
to carrier (by conduct or
dishonoured by the bank. P is an unpaid seller.
or bailee Termination behaviour)
of Lien
Rights of an Unpaid Seller

Rights of an Example: A sold a car to B for R1,00,000 and delivered the same
unpaid Seller to the railways for the purpose of transmission to the buyer. The
railway receipt was taken in the name of B and sent to B. Now A
cannot exercise the right of lien.
Against Goods Against the Buyer

2. Right of stoppage in transit:

(i)
Property in Property in Goods
Suit for Price
Goods has passed has not passed to
Right of the right of
to the buyer the buyer stopping the to regain the to retain them
stoppage
goods while possession till the full
in transit they are in and price is paid
Suit for Damages means transit,
Lien Withholding
Delivery

Suit for Interest (ii)

Stoppage in Right of stoppage in
Lien transit is exercised only
transit
when the following
conditions are fulfilled
Resale Stoppage in
transit
The seller He must The The The
must be have goods are buyer has right is
Resale unpaid. parted in transit. become subject to
with the insolvent. provisions
possession of the Act.
of goods.
Right of Unpaid Seller against the Goods
1. Seller’s Lien
(iii) The goods are deemed to be in
(i) course of transit
RIGHT TO RETAIN
POSSESSION
UNTIL PAYMENT:
Goods in the course

from the time when they are

delivered to a carrier or other bailee
Where goods sold without stipulation
of transit

as to credit (Cash Sales) for the purpose of transmission

to the buyer,

Goods sold on credit, but terms

of credit expired until the buyer or his agent in
that behalf takes delivery of them

Buyer becomes insolvent

(ceases to pay debt in the ordinary from such carrier or other bailee.
course of business)

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 BUSINESS LAWS
(iv)
When does the transit come to an end?
When the buyer Buyer obtains Where the carrier If the carrier Where goods Where the part Where the
or other bailee delivery before or other bailee wrongfully are delivered delivery of the goods are
obtains delivery. the arrival acknowledges to the refuses to to the carrier goods has been delivered to a
of goods at buyer or his agent that deliver the hired by the made to the ship chartered
destination he holds the goods as goods to the buyer buyer, the transit by the buyer,
soon as the goods are buyer. will come to the transit
loaded on the ship, an end for the comes to an
unless the seller has remaining goods end.
reserved the right of which are yet
disposal of the goods. in the course of
transmission.

(v) Rights of Unpaid Seller against the Buyer

Stoppage in Rights of • Suit for price

transit unpaid seller • Suit for damages for non-acceptance
against the • Repudiation of contract before due date
By taking actual
buyer • Suit for interest
possession of goods
by giving notice to the
carrier not to deliver Breach of Contract by Seller
the goods.
Breach of contract by seller, where he-

(vi)
Fails to deliver the goods at the time or in manner prescribed
Exceptions When the seller has assented to the sale,
where unpaid mortgage or other disposition of the goods made
seller’s right by the buyer
of lien and Breach of contract by seller, where he-
stoppage in When a document of title to goods has been
transit are transferred to the buyer and the buyer transfers
defeated the documents to a person who has bought goods
in good faith and for value Repudiates the contract

Example: A entered into a contract to sell cartons in possession of

Breach of contract by seller, where he-
a wharfinger to B and agreed with B that the price will be paid to A
from the sale proceeds recovered from his customers. Now B sold
goods to C and C duly paid to B. But anyhow B failed to make the Deliver non-conforming goods and buyer rejects and
payment to A. A wanted to exercise his right of lien and ordered revokes acceptance
the wharfinger not to make delivery to C. Held that the seller had
assented to the resale of the goods by the buyer to the sub-buyers.
As a result, A’s right to lien is defeated.
Right of Buyer in case of breach of contract by seller

3. Right of re-sale
Damages for
non-delivery
Where an unpaid
Where he gives seller who has
Where the
notice to the buyer exercised his right Suit for specific
goods are of a
of his intention to of lien or stoppage performance
perishable nature
re-sell the goods in transit resells
the goods
Rights of Suit for breach
buyer of warranty
A re-sale by the
seller where a Where the
right of re-sale property in goods Repudiation of
is expressly has not passed to contract before
reserved in a the buyer due date
contract of sale

Suit for
interest

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BUSINESS LAWS
Legal Rules of Auction Sale
Example: A’ agreed to sell a rare painting of Mughal period to
‘B’. But on the due date of delivery, ‘A’ refused to sell the same. In
this case, ‘B’ may file a suit against ‘A’ for obtaining an order from • Where goods are sold in lots
the Court to compel ‘A’ to perform the contract (i.e. to deliver the • Completion of the contract of sale
painting to ‘B’ at the agreed price). • Right to bid may be reserved
Rules • Where the sale is not notified by the seller
(V) Auction Sale (Section 64) • Reserved price
Meaning • Pretended bidding

Example: P sold a car by auction. It was knocked down to Q who

the was only allowed to take it away on giving a cheque for the price
property and signing an agreement that ownership should not pass until the
mode of cheque was cleared. In the meanwhile till the cheque was cleared,
selling is sold to
the highest Q sold the car to R. It was held that the property was passed on
property by the fall of the hammer and therefore R had a good title to the car.
Auction inviting bids bidder
sale is Both sale and sub sale are valid in favour of Q and R respectively.
publicly and

economic UPDATES
• The Recent Monetary Policy on October 8th 2021 Tatas keeping 25 per cent and the public owning the
opined that based on an assessment of the evolving rest. In 1953, Air India was nationalise.
macroeconomic and financial conditions and the https://www.business-standard.com/article/economy-
outlook, the MPC voted unanimously to maintain policy/tata-sons-emerges-as-the-top-bidder-for-air-india-
status quo with regard to the policy repo rate and govt-121100800678_1.html
by a majority of 5 to 1 to retain the accommodative • Reliance acquires REC Solar Holdings for $771
policy stance million. The acquisition is key to RIL's new-energy
https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay. vision to become a global-scale photovoltaic (PV)
aspx?prid=52367 manufacturing player, which includes plans to build
• Moody's Investors Service had raised the rating solar capacity of at least 100 gigawatts (GW) by 2030.
outlook for 18 Indian corporates and banks, http s ://w w w.indi ato d ay.in/bu sine ss/stor y/
including Reliance Industries, Infosys, SBI and Axis reliance-acquires-rec-solar-holdings-green-
Bank, to 'stable' from 'negative. Stabilization in asset energy-1863177-2021-10-10
quality and improved capital are the main drivers of • South Asian Economies recover amidst uncertainties.
this rating action as per Moody’s. India’s economy, South Asia’s largest, is expected to
https://www.business-standard.com/article/companies/ grow by 8.3 percent in the fiscal year 2021-22, aided
moody-s-raises-rating-outlook-to-stable-for-18-indian- by an increase in public investment and incentives to
corporates-banks-121100600974_1.html boost manufacturing. Many countries experienced
• Tatas have won the bid to acquire debt-laden state- lower investment flows, disruptions in supply chains,
run Air India offering Rs 18,000 crore for acquiring and setbacks to human capital accumulation,
100 per cent shareholding, The international service h t t p s : / / w w w.w o r l db an k . o r g / e n / n e w s / p r e s s -
was among the first public-private partnerships in release/2021/10/07/south-asian-economies-recover-
India, with the government holding 49 per cent, the amidst-uncertainties

CROSSWORD SOLUTION – November 2021

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F Y O P 27
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C O M M I S S I O N

34 December 2021 The Chartered Accountant Student