50 International Business Law LESSON PERFORMANCE OF CONTRACT CONTENTS 4.0 Aims and Objectives 4.1 Introduction 4.2 Delivery of Goods 4.3 Rules as to Delivery of Goods 4.3.1 Mode of Delivery (sec 33) 4.3.2 Delivery and Payment-concurrent Conditions 4.3.3 Effect of Part Delivery 4.3.4 Buyer to Apply for Delivery 4.3.5 Time of Delivery 4.3.6 Goods in Possession of a Third Party 4.3.7 Cost of Delivery 4.3.8 Delivery of Wrong Quantity 4.3.9 Installment Deliveries 4.3.10 Delivery to a Carrier or Wharfinger (sec 39) 4.4 Duties of a Seller 4.5 Rights of a Seller (unpaid) 4.5.1 Rights of an unpaid Seller 4.6 Rights of a Buyer 4.7 Duties of a Buyer 4.8 Let us Sum up 4.9 Lesson End Activity 4.10 Keywords 4.11 Questions for Discussion 4.12 Suggested Readings 4.0 AIMS AND OBJECTIVES After studying this lesson, you should be able to: z Know the concept of performance of contract z Write a critical appreciation of the rules and duties of seller z Describe the duties and rights of a buyer 51 Performance of Contract 4.1 INTRODUCTION Performance of a contract of sale means as regards the seller, delivery of the goods to the buyer, and as regards the buyer, acceptance of the delivery of the goods and payment for them, in accordance with the terms of the contract of sale sec (31) A contract of sale always involves reciprocal promises, the seller promising to deliver the goods and the buyer promising to accept and pay for them In the absence of a contract to the contrary they are to be performed simultaneously and each party should be ready and willing to perform his promise before he can call upon the other to perform his promise If the contract contains any special terms as to delivery and acceptance, these must be complied with If there are no terms in the contract to this effect, delivery of the goods and payment of the price are concurrent conditions, that is, both these must take place at the same time as in, for instance, a cash sale over a shop counter Sec 32 4.2 DELIVERY OF GOODS Delivery means voluntary transfer of possession of goods from one person to another sec 2(2) Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or his agent sec 33 Delivery of goods may be actual, symbolic, or constructive Actual delivery: Where the goods are handed over by the seller to the buyer or his duly authorized agent, the delivery is said to be actual Delivery of goods may also be made by doing anything which has the effect of putting the goods in the possession to the buyer (sec 33) Symbolic delivery: Where goods are ponderous or bulky and incapable of actual delivery, e.g., haystack in a meadow, the delivery may be symbolic delivery Handing over of the key of a warehouse to the buyer is symbolic delivery of the goods to the buyer and is as effective as actual delivery, even though there is no change in the possession of the goods Constructive delivery or delivery by attornment: Where a third person who is in possession of the goods of the seller at the time of the sale acknowledges to the buyer that he holds the goods on his behalf, there takes place a delivery by attornment or constructive delivery sec 36 (3) This may happen in the following cases: i Where the seller in possession of the goods agrees to hold them on behalf of the buyer ii Where the buyer is in possession of the goods and the seller agrees to the buyer’s holding the goods as owner iii Where a third person in possession of the goods acknowledge to the buyer that he holds them on his behalf Check Your Progress Define the following: Performance of a contract ……………………………………………………………………………… ……………………………………………………………………………… Contd… 52 International Business Law Symbolic Delivery ……………………………………………………………………………… ……………………………………………………………………………… 4.3 RULES AS TO DELIVERY OF GOODS 4.3.1 Mode of Delivery (sec 33) Delivery should have the effect of putting the goods in the possession of the buyer or is duly authorized agent Delivery of goods may be actual, constructive, or symbolic 4.3.2 Delivery and Payment-concurrent Conditions Delivery of the goods and payment of the price must be according to the terms of the contract, unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer shall be ready and willing to pay the price in exchange for possession of the goods sec 32 4.3.3 Effect of Part Delivery A delivery of part of goods in progress of the delivery of the whole has the same effect, for the purpose of passing the property in such goods, as a delivery of the whole But a delivery of the goods, with an intention of serving it from the whole, does not operate as delivery of the remainder sec 34 For instance S sold bales of certain goods to B B received one bale, paid for it and refused to accept the other four Held this amounted to part delivery 4.3.4 Buyer to Apply for Delivery Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery (sec 35) Where the goods are subsequently acquired by the seller, he should intimate this to the buyer and the buyer should then apply for delivery Unless otherwise agreed, the buyer has no cause of action against the seller if he does not apply for delivery 4.3.5 Time of Delivery Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time sec 36 (2) 4.3.6 Goods in Possession of a Third Party When at the time of the sale the goods are with a third party, there is no delivery by the seller to the buyer until such third party acknowledges to the buyer that he holds them on his behalf But where the goods have been sold by the issue or transfer of any document of title of goods, e.g., a railway receipt or a bill of lading, such third party’s consent is not required 4.3.7 Cost of Delivery Unless otherwise agreed, all expenses of and incidental to making of delivery are borne by the seller, but all expenses of and incidental to obtaining of delivery are borne by the buyer sec 36(5) 4.3.8 Delivery of Wrong Quantity The delivery of the quantity of goods contracted for should be strictly according to the terms of the contract A defective delivery entitles the buyer to reject the goods The three different contingencies which may rise in case of a defective delivery or delivery of a wrong are delivery of goods less than contracted for, delivery of goods in excess of the quantity contracted for and delivery of goods contracted for mixed with other goods i.e., goods with different description 4.3.9 Installment Deliveries Unless otherwise agreed, the seller is not entitled to deliver the goods by installments and if he does so, the buyer is not bound to accept the goods The parties may, however, agree that the goods are to be or may be delivered by installments For instance X bought 25 tons of pepper from Y during October to November shipment Y shipped 20 tons in November and tons in December Held, the case was governed by sec 38 under which the buyer of goods in not bound to accept delivery thereof by installments, unless otherwise agreed X could, therefore, reject the entire lot 4.3.10 Delivery to a Carrier or Wharfinger (sec 39) Where, in pursuance of 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, delivery of goods to them is prima-facie deemed to be a delivery of the goods to the buyer sec 39(1) In such a case, the seller must enter into a reasonable contract with the carrier or wharfinger on behalf of the buyer for the safe transmission or custody of goods If the seller omits to so and if the goods are destroyed, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, the seller must inform the buyer in time to get the goods insured OTHERWISE the goods will at the sellers risk during such sea transit sec 39 (3) 4.4 DUTIES OF A SELLER When once the goods are sold, they are at the risk of the buyer The duty of seller ends when he delivers the goods at his own expense to the board or the place where the buyer demands to deliver Such delivery transfers the possession, property and risk to the buyer To give a notice to the buyer about the delivery of the goods through any way of the transportation, to protect him by insurance against loss during the sea transit, if the seller fails to this, the goods will be at his risk To deliver the goods along side the buyer’s godown or destination point if so requested by the buyer To notify the buyer immediately that the goods have been delivered according to his request To make out an invoice of goods sold 4.5 RIGHTS OF A SELLER (UNPAID) A seller of goods is deemed to be an unpaid seller when- (a) the whole of the price has not been paid or tendered; (b) a bill of exchange or other negotiable instrument has been received as a conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise 53 Performance of Contract 54 International Business Law (sec 45(1)) The following conditions must be fulfilled before a seller of goods can be deemed to be an unpaid seller: He must be unpaid and the price must be due He must have an immediate right of action for the price A bill of exchange or other negotiable instrument was received but the same had been dishonored When payment is made by a negotiable instrument it is usually a conditional payment, the condition being that the instrument shall be duly honored If the instrument is not honored, the seller is deemed to be an ‘unpaid seller’ A seller who has obtained a money decree for the price of the goods is still an unpaid seller if the decree has not been satisfied ‘Seller’ here means not only the actual seller, but also any person who is in the position of a seller, e.g., an agent who has him paid for the goods or is directly responsible for the price sec 45(2) 4.5.1 Rights of an Unpaid Seller The rights of a seller are divided into two main groups (a) against the goods and (b) against the buyer personality Against the goods Where the property has passed to the buyer, an unpaid seller has the following rights against the goods sec 46(1) a) Right to lien [sec 46(1) (a) and 47 to 49]: A lien is a right to retain possession of goods until payment of the price It is available to the unpaid seller of the goods who is in possession of them where the goods have been sold without any stipulation as to credit; the goods have been sold on credit, but the term of credit has expired; the buyer becomes insolvent; b) Right of stoppage in transit: The right of stoppage in transit is a right of stopping the goods in transit after the unpaid seller has parted with the possession of the goods He has the further right of resuming possession of the goods as ling as they are in the course of transit, and retaining possession until payment or tender of the price It is available to the unpaid seller: When the buyer becomes insolvent, and When the goods are in transit The buyer is said to be “insolvent” when he has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether he has committed an act of insolvency or not sec 2(8) The right of stoppage in transit is an extension of the right of lien, but it arises only on the insolvency of the buyer and when the goods are in transit sec 46 (1) (b) c) Right of re-sale: sec 46(1) and 54: The unpaid seller can re-sell the goods where the goods are of a perishable nature or where he gives notice to the buyer of his intention to resell the goods and the buyer does not within a reasonable time pay or tender the price If, on resale, there is no loss to the seller he can claim it from the buyer as damages for breach of contract If there is a surplus on the resale, he is not bound to hand it over to the buyer because the buyer cannot be allowed to take advantage of his own wrong In case notice is not given, the unpaid seller is not entitled to recover any loss on the resale of the goods and to retain any surplus arising on the resale of the goods The buyer is entitled to claim such surplus as his right sec 54(2) and, where the seller expressly reserves a right of resale in case the buyer should make default sec 54(4) d) Right of withholding delivery sec 46(2): where the property in goods has not passed to the buyer, an 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 Against the Buyer Personality 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 as against the rights in rem, and are in addition to his rights against the goods The rights in personam are as follows: a) Suit for price sec (55): Where under the 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) And 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 55(2) b) Suit for damages for non-acceptance sec 56: Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for non-acceptance As regards measure of damages, sec 73 of the Indian Contract Act, 1872 applies c) Repudiation of contract before the due date sec 60: Where the buyer repudiates the contract before the date of delivery, the seller may either treat the contract as subsisting or 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.’ d) 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 recover interest from the buyer If, however there is no specific agreement to this effect, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer In the absence of the contract to the contrary, the court may award interest to the seller in a suit by him at such rate as it thinks fit on the amount of the price from the date of the tender of the goods or form the date on which the price was payable 4.6 RIGHTS OF A BUYER Right to have delivery as per contract sec 31 and 32: The first right of the buyer is to have delivery of the goods as per contract Right to reject the goods sec 37: If the seller sends to the buyer a larger or smaller quantity of goods than he ordered, the buyer may reject the whole, accept the whole or accept the quantity he ordered and reject the rest Right to repudiate (reject) sec 38(1): Unless otherwise agreed, the buyer of goods has a right not to accept delivery thereof by installments This has been already been observed in the previous discussion Right to notice of insurance sec 39(3): Unless otherwise agreed, where goods are sent by the seller to the buyer by a sea route, the buyer has a right to be informed by the seller so that he may get the goods insured 55 Performance of Contract 56 International Business Law Right to examine sec 41: The buyer has a right to examine goods which he has not previously examined before he accepts them The seller is bound to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract Rights against the seller for breach of contract (a) Suit for damages sec 57: 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 The measure of damages is prima-facie the difference between the contract price and the market price at the time when they ought to have been delivered (b) Suit for price: If the buyer has paid the price and the goods are not delivered, he can recover the amount paid (c) Suit for specific performance sec 58: The buyer may sue the seller for specific performance of the contract to sell If the goods are specific or ascertained, the court may if it thinks fit order for the specific performance of the contract (d) Suit 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 condition on the part of the seller as a breach of warranty The buyer is not by reason only such breach of warranty entitled to reject the goods But he may setup against the seller the breach of warranty in diminution or extinction of the price (e) Repudiation of contract before due date (sec 60): When the seller repudiates the contract before the due date, the buyer 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 (f) Suit for interest sec 61(2)(b): Where there is a breach of contract on the part of the seller and as a result price has to be refunded to the buyer , the buyer has a right to claim interest on the amount of the price refunded to him form the date on which the payment was made The court may award the interest at such rate as it thinks fit Check Your Progress Fill in the blanks: Delivery means voluntary transfer of ………………… from one person to another A lien is a right to retain possession of goods until payment of the ………………… Handing over of the ………………… to the buyer is symbolic delivery of the goods 4.7 DUTIES OF A BUYER Duty to accept the goods and pay for them in exchange for possession sec 31 and 32: It is the duty of the buyer to accept the goods and pay for them in accordance with the terms of the contract of sale Further the buyer must be ready and willing to pay the price in exchange for possession of the goods Duty to apply for delivery: Apart form any express contract; it is the duty of the buyer to apply for delivery Duty to demand delivery at a reasonable hour: It is the duty of the buyer to demand delivery at a reasonable hour 4 Duty to accept installment delivery and pay for it: It is his duty to accept the installment and act according to the agreement entered there in at the time of the contract Duty to take risk of deterioration in the course of transit: Where the seller of goods agrees to deliver them at his own risk at a place other than where they are sold, the buyer shall take any risk of deterioration in the goods necessarily incident to the course of transit Duty to intimate the seller where he rejects the goods: Unless otherwise agreed, it is the duty of the buyer to inform the seller in case he refuses to accept the goods Duty to take delivery: It is the duty of the buyer to take delivery of the goods within a reasonable time after the tender of delivery He becomes liable to the seller for any loss occasioned by his neglect or refusal Duty to pay price: Where property in goods has passed to the buyer, it is his duty to pay the price according to the terms of the contract Duty to pay damages for non-acceptance: 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 4.8 LET US SUM UP Performance of a contract of sale means as regards the seller, delivery of the goods to the buyer, and as regards the buyer, acceptance of the delivery of the goods and payment for them, in accordance with the terms of the contract of sale sec (31) Delivery means voluntary transfer of possession of goods from one person to another sec 2(2) A seller of goods is deemed to be an unpaid seller when- (a) the whole of the price has not been paid or tendered; (b) a bill of exchange or other negotiable instrument has been received as a conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise (sec 45(1)) 4.9 LESSON END ACTIVITY Explain the following: Symbolic delivery Actual delivery Right of resale Suit for interest 4.10 KEYWORDS Delivery: Delivery means voluntary transfer of possession of goods from one person to another Performance of a contract of sale: It means as regards the seller, delivery of the goods to the buyer, and as regards the buyer, acceptance of the delivery of the goods and payment for them, in accordance with the terms of the contract of sale 57 Performance of Contract 58 International Business Law 4.11 QUESTIONS FOR DISCUSSION Explain the rights and duties of seller and buyer Explain the concept of delivery of goods and rules as to delivery of goods Check Your Progress: Model Answers CYP 1 Performance of a Contract: Performance of a contract of sale means as regards the seller, delivery of the goods to the buyer, and as regards the buyer, acceptance of the delivery of the goods and payment for them, in accordance with the terms of the contract of sale sec (31) Symbolic Delivery: Where goods are ponderous or bulky and incapable of actual delivery, e.g., haystack in a meadow, the delivery may be symbolic delivery Handing over of the key of a warehouse to the buyer is symbolic delivery of the goods to the buyer and is as effective as actual delivery, even though there is no change in the possession of the goods CYP possession of goods price key of a warehouse 4.12 SUGGESTED READINGS Herbert M Bohlman & Mary Jane Dundas, The Legal Ethical, and International Law Environment of Business, 4th Edition, South-Western College Publishing, 1999 Miller, Roger LeRoy; Cross, Frank B., Legal Environment Today: Businessmen Its Ethical, Regulatory & International Law Krishnaveni Muttai, Logistics Management Kapoor S K, International Law, Central Law Agency, 13th ed., Motilal Nehru Road, Allah bad, 2000 Kapoor N D, Elements of Mercantile Law, 26th ed., Sultan Chand & Sons, New Delhi, 2002 Gulshan S S, Business Law, Excel Books, New Delhi, 2002 Mithani D M, International Economics, 3rd ed., Himalaya Publishing House, Mumbai, 2000 ... Legal Ethical, and International Law Environment of Business, 4th Edition, South-Western College Publishing, 1999 Miller, Roger LeRoy; Cross, Frank B., Legal Environment Today: Businessmen Its Ethical,... fulfilled by reason of the dishonor of the instrument or otherwise 53 Performance of Contract 54 International Business Law (sec 45(1)) The following conditions must be fulfilled before a seller of goods... informed by the seller so that he may get the goods insured 55 Performance of Contract 56 International Business Law Right to examine sec 41: The buyer has a right to examine goods which he has