Last Updated on: 13th March 2024, 01:03 pm
Performance of Sales Contract
Performance of Sales Contract under Sale of Goods Act
A contract of Sale is a contract of reciprocal promise. Both parties have to perform their respective duties.
Performance of Contract of sale refers to the performance of the respective duties by the seller and the buyer, after formation of a valid contract.
Parties to the Contract of Sale, must perform their respective duties, as per Contract (s.31)
It is the duty of the seller to give delivery of goods and it is the duty of buyer to tender due payment and accept delivery of goods from the seller, in accordance with the terms of the contract of sale (s.31).
The Parties can freely determine the terms and conditions of performance in the contract, but if the contract is silent, the provisions of Sale of Goods Act 1930 will be applied to the contract.
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Delivery means voluntary transfer of possession from one person to other person (s. 2(2)).
Goods can be delivered by doing anything which the parties agree or which has the effect of putting the goods in the possession of the buyer or his agent (s.33).
Mere delivery of physical possession of goods does not amount to delivery of goods but the buyer should be placed in a position so that he can exercise his rights over the goods.
Modes of Delivery of Goods under Sale of Goods Act
The Delivery of Goods can be made in any of the following ways (s.33):
Actual Delivery of Goods
Actual Delivery means physical transfer of goods by the seller to the buyer. Actual Delivery can be made by doing anything which has the effect of putting the goods in the possession of the buyer.
Ex: Karan purchased a refrigerator from Kumar. Kumar handed over the refrigerator to him. It is a case of Actual Delivery of goods.
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Symbolic Delivery of Goods
Where the seller does not physically transfer the goods to the buyer, but does something which has the effect of delivery of goods to the buyer, it is called as Symbolic Delivery of goods.
Symbolic delivery is normally adopted where the goods are bulky and their physical transfer may be inconvenient (for example, delivery of keys and documents related to car). In case of symbolic delivery, the control of the goods passes to the buyer, even the goods may remain in the same place.
Delivery of Document of Title (like Transport Receipt) to the buyer, without any condition (without right to disposal of goods), is symbolic delivery.
Ex: Mr. Tiwari sells his entire stock which are kept in the godown, to Mr. Khan and handed over him key of the godown to take out the goods as per his convenience. It amounts to Symbolic Delivery.
Ex. X writes a note instructing his godown keeper to deliver the goods to Y. Handing over this note by X to Y is symbolic delivery of the goods, by X to Y. Y can take possession of the goods from X’s Godown at usual business hours.
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Constructive Delivery of Goods
Constructive delivery takes place with the transfer of possession of goods, without any change in the actual and visible custody of goods.
In Constructive Delivery, the goods can remain in the possession of the third party (e.g., a Bailee) who can possess the goods of the seller at the time of the sale, and acknowledges to the buyer that he holds the goods on his behalf.
Modes of Constructive Delivery of Goods
- Bailee : Where the seller holds the goods as a Bailee of the buyer, without being owner of goods. (e.g.,the buyer, on buying the goods, leaves the goods with seller for sometime, to be taken later on). This is constructive delivery to the Buyer, though the goods are still lying with seller, and ownership passes to buyer.
- Sale or Return : Where the buyer already holds the goods on ‘sale or return basis’, and the seller agrees to buyer’s holding the goods as owner.
- Acknowledgement: Where a third person having possession of the goods of the seller, acknowledges to the buyer that he holds them on his behalf.
Ex: X sells 100 bags of sugar to Y lying in Z’s godown. X gives an order to Z to deliver the goods to Y. Z transfers the goods in his books to Y, informing Y, which amounts to Constructive Delivery.
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Delivery of Goods & Payment of Price
Sometimes, Contract specifies Delivery of Goods and Payment of Price as reciprocal promises to be performed simultaneously (s.32).
- Willingness of Performance : The seller should be ready and willing to give possession of the goods to the buyer, in exchange for the price, and the buyer should be ready and willing to pay the price to the seller in exchange for the possession of goods.
- Reciprocal Promise : No promisor shall perform his promise unless the promisee is ready and willing to perform his reciprocal promise.
- Terms : The parties to the contract can freely determine the time for payment of price and delivery of goods. Therefore, the parties can agree with the term that goods shall be delivered to the buyer immediately at the time of sale, but price shall be paid after certain days, such a contract amounts to a valid contract.
Buyer’s duty to demand for Delivery of Goods
When there is no express contract between the concerned parties regarding delivery, the seller of goods is not bound to deliver them until the buyer asks for delivery (s.35).
Rules of Buyer’s demand for delivery of Goods
- It is the buyer’s duty to demand for the delivery of goods within a reasonable time
- On demanded by seller to deliver, seller has to deliver the goods immediately.
- If buyer fails to demand for the delivery of goods, non-delivery of goods by the seller does not amount to any breach of contract and the buyer cannot take any legal action against the seller.
Seller’s duty for Delivery of Goods
It is the duty of the seller to deliver the goods in such a manner having the effect of putting the goods in the possession of the buyer, so that the buyer becomes enable to exercise his control over the goods (s.33).
Quantity & Description of Goods Delivered
The seller is bound to deliver the quantity of goods in accordance with the terms of the contract of sale. Where the quantity delivered by seller is more or less than the goods contracted for, or mixes with the goods of different description, the following provisions shall apply:
Quantity of goods delivered
Where the quantity delivered by seller is more or less than the goods contracted for, following provisions apply :
- Excess Delivery of Goods : Where the seller delivers excess quantity of goods contracted for, the buyer may, accept the whole quantity of the goods delivered to him or reject the whole quantity of the goods delivered to him or accept the contracted quantity and reject the excess quantity. If he accepts the whole quantity of the goods so delivered, he has to pay for them at the contract rate [s.37(2)].
- Short Delivery of Goods : Where the seller delivers short quantity of goods contracted for, the buyer can accept the goods delivered to him or reject the whole of the goods delivered to him. If he accepts them, he shall pay for them at the contract rate [s.37(1)].
However, delivery of trifling difference (difference of quantity within reasonable limit), is considered as good and valid delivery, depending on circumstances or usual trade practices (e.g Delivery of 998 books by the printer, in case of order of 1000 copies of Books).
Description of goods delivered
Where the quality of goods delivered by the seller is of different description from that specified in the contract or if the goods of contracted quality are mixed with the goods of some other quality, the buyer may reject the whole of the goods delivered to him or accept the contracted quality of goods, and reject the goods of different quality. [s.37(3)]
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Goods Delivery Rules under Sale of Goods Act
Goods Delivery to Carrier or Wharfinger (s.39)
Where goods are delivered to a carrier for the purpose of transmission to the buyer or to a wharfinger for safe custody of goods, delivery of goods to them is deemed to be a delivery of the goods to the buyer [s.39(1)].
Rules of Goods delivery to carrier
- If the seller does not contract with the carrier or wharfinger for safe custody of goods and the goods are destroyed, the seller becomes liable for such damages or the buyer may repudiate the delivery to the carrier or wharfinger as a delivery to himself [s.39(2)].
- Where goods are sent by sea route by the seller, he should give a notice to the buyer to get the goods insured otherwise the goods shall remain at the seller’s risk during sea transit [s.39(3)].
When the seller aggress to deliver the goods at his own risk, at a place other than where they are lying at the time of contract of sale, the buyer shall bear the risk of goods incidental to the course of transit (s.40)
Delivery of Goods in possession of a Third Party
If the goods are in the possession of a third party during sale of goods, the seller cannot deliver them to the buyer until such third party acknowledges to the buyer that he holds them on his behalf [s.36(3)]
The consent of third party is not required, if the goods are sold by the issue or transfer of any document of title to goods (e.g., railway receipt, bill of lading etc.).
Place of Delivery of Goods
Where the place for delivery of goods has been specified in the contract of sale, the goods must be delivered at such specified place during business hours on a working day [s. 36(1)]
If no place has been specified in the contract of sale, the delivery should be made as follows:
- Sale : In case of ‘Sale’, the goods shall be delivered at the place where they are present at the time of sale.
- Agreement to sell : In case of ‘Agreement to Sell’, the goods shall be delivered at the place where they are present at the time of agreement to sell.
- Future goods : In case of ‘Future Goods’, the goods shall be delivered at the place where they will be produced or manufactured.
Time of Delivery of Goods
If a certain time for delivery of goods has been specified in the contract of sale, the delivery must be made at such specified time (s.36)
When there is no specified time for delivery of goods, the delivery should be made within Reasonable time [s. 36(2)].
Reasonable Time of Delivery of Goods
What is reasonable time is a question of fact [s. 36(3)].
- Unless specified or inferred otherwise, Reasonable Time means usual business hours.
- Sometimes, few words like ‘directly’, ‘without loss of time’ or ‘forthwith’ are used in the contract of sales, indicating immediate delivery of goods. In that case, demand or tender of delivery should be made at a reasonable hour. However, what is a reasonable hour again a question of fact. [s. 36(4)].
Rules of Bearing of Delivery Expenses under Sale of Goods Act
Unless specifically agreed otherwise, the Seller is to bear expenses required to put the goods in a deliverable state and all the expenses for obtaining the delivery of the goods (i.e., the expenses of transportation) shall be borne by the Buyer (s.36(5)).
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Part or Instalment Delivery of Goods
Part Delivery of Goods
In absence of any specific terms, A delivery of part of the goods in progress of the delivery of the whole, has the same effect, for the purpose of transfer of ownership in such goods, as a delivery of the whole (s.34)
Ex. X sells 10 Pcs of sofa to B. B could take delivery of 2 Pcs as his vehicle was small. The ownership of all the 10 sofas passes to B, as soon as B takes delivery of 2 Pcs of sofa.
If the goods are delivered with an intention of severing it from the whole, it does not operate as delivery of the remainder.
Ex. X sells 10 Pcs of sofa to B. X takes out only 2 Pcs of sofa and asks him to take delivery of 2 sofas (there are only 2 sofas of his selected colour in the showroom), the balance would be given next day (X would bring it from his godown). The ownership of 2 sofas only passes from X to B.
Installment Delivery of Goods
Unless Installment Delivery is specifically provided in the contract of sale (express or implied), the seller is not entitled to deliver the goods by instalments, and still if he does so, the buyer is not bound to accept the goods [s.38(1)].
However, if the buyer accepts the delivery made to him in first instalment, he cannot afterwards refuse to accept the balance quantity of goods and subsequent instalments of goods.
If there is breach of any condition under the contract, the whole contract cannot be repudiated.
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Acceptance of Delivery of Goods
‘Acceptance of Goods’ means final assent of the buyer that he has accepted the goods.
When the buyer receives the goods and takes possession of them, it does not imply that he has accepted the goods. Acceptance is something more than mere possession.
Rules of Acceptance of Delivery of Goods
The Buyer must accept the delivery of goods if it is made in accordance with the contract of sale (s.42).
- Delivery Time: Where certain time has been fixed in the contract for return of goods, the ownership shall pass to the buyer on the expiry of such specified time, if the buyer retains those goods even after the expiry of such time.
Where no time has been fixed in the contract for return of goods, the ownership shall pass to the buyer if he fails to return the goods to the seller within a reasonable time.
- Intimation of Acceptance: When the buyer intimates to the seller that he has accepted the goods, the ownership shall pass to the buyer.
- Implied Acceptance : If the buyer does anything inconsistent with the ownership rights of seller in relation to such goods (e.g., where the buyer pledges, lends or uses the goods), or when the buyer retains the goods delivered to him for a reasonable time without intimating the seller about rejection of goods, the delivery is deemed to have been accepted by the buyer and the ownership shall pass to the buyer
Rules of Examination of Goods
In absence of any specific agreement regarding inspection of goods,the buyer has the right to examine the delivered goods which are not previously been examined by him, and the seller must give reasonable opportunity to the buyer to make inspection of the goods [s.41].
If reasonable opportunity of examination of goods is not given to Buyer, the buyer may refuse to accept the goods delivered.
If the seller gives the buyer a reasonable opportunity of examination of goods and the buyer refuses to examine the goods, the buyer cannot make the seller liable. Even if it is found that the goods are of different description and therefore, the buyer cannot repudiate the contract. If the buyer repudiates the contract, the seller can claim damages from the buyer.
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Refusal of Acceptance of Goods
Lawful Refusal to take Delivery under Sale of Goods Act
The Buyer may refuse to accept the goods on valid reasons (Seller in default) .
Where the Buyer lawfully rejects the goods, he has to give a notice of refusal to the seller within a reasonable time. (s.43)
On giving a notice of refusal to the seller, it is the duty of the seller to take back the goods incurring all the expenses of redelivery. Until the seller takes back the goods, the Goods shall be at the risk of the seller even though the possession of goods lies with the buyer (as the buyer holds the goods of the seller in the capacity of bailee).
If the Buyer fails to give due notice to the seller, the Buyer shall be deemed to have accepted the goods.
Wrongful Refusal to take Delivery under Sale of Goods Act
Sometimes Buyer wrongfully refuses to accept the goods (Seller not in default)
Where the buyer wrongfully rejects the goods, the buyer shall be liable for damages for non-acceptance of goods and loss of such goods, even though the ownership of goods has not been passed to the buyer (as the goods remain at the risk of the defaulting party).
Apart from Damages, buyer shall also be liable for the expenses incurred on account of safe custody and transportation of goods.
Ex: Akash agrees to sell to Ajit 50 litres of fresh juice packed in bottles to be supplied by Ajit. The bottles were to be supplied by 10 A.M. and juice was to be supplied in packed bottles by 11 A.M. Ajit neglects to supply the bottles and take delivery of juice. Consequently, 50 litres of juice extracted by Akash becomes inconsumable. Held, Ajit shall be liable for loss even though ownership would have passed to him only if the juice was filled in the bottles supplied by Ajit.
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Rights of Buyer to take delivery of Goods under Sale of Goods Act
Buyer has right to have delivery of the goods as per the terms and conditions of the contract [s.31 & 32].
- Demand for Delivery : In absence of any express contract, it is the duty of the buyer to apply for delivery (s. 35).
- Reasonable Hour : The buyer may demand to make delivery at a reasonable hour [s 34(4)].
- Quantity Accepted : Where the goods delivered to the buyer is different than contracted for (excess or less), the buyer can accept the whole, or reject the whole, or accept the quantity ordered and reject the rest [s.37].
- Examination of Goods :The buyer has the right to examine the goods before he accepts them [s. 41(1)].
- Installment Delivery : Unless agreed, the Buyer is not bound to accept delivery by installments [s. 38(1)].
- Delivery by sea route : Where goods are sent to the buyer by a route involving sea transit, seller must inform buyer to enable him to insure the goods [s. 39(3)].
- Notice of Rejection : On rejection of goods, Buyer must give notice of rejection, to the Seller (s. 43).
- Breach of contract : In case of a breach of contract by the Seller, the buyer has rights of
Suit for damages [s. 57], Suit for price, Suit for specific performance [s. 58], Suit for breach of warranty [s. 59], Repudiation of the contract before the due date [s. 60], Suit for interest [s. 61(2)(b)].
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Duties of Buyer to take delivery of Goods under Sale of Goods Act
It is duty of buyer to take delivery of the goods and make payment according to the terms of contract (s.31, s.32).
- Delivery at Other Place : Where the seller agrees to deliver the goods at his own risk at a place other than where they are sold, buyer shall take risk of deterioration in the goods necessarily incidental to the course of transit (s. 40).
- Time of Delivery : The buyer should take delivery of the goods within a reasonable time after the tender of delivery (s. 44).
- Payment of Price : Where the property in the goods passes to the buyer, it is buyer’s duty to pay the price according to the terms of the contract (s. 55).
- Wrongful Refusal : Where the buyer wrongfully neglects or refuses to accept and pay for the goods, seller may claim damages from Buyer (s. 56).
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Shipment Contracts in International Sale
Maritime Contracts of Sale means Contract of Sale related to carriage of Goods by Sea route. There are special trade practices, customs and legal provisions of Contract of Sale in International Trade.
Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery, payment, time of transfer of ownership & risk from the seller to the buyer, bearing of costs of freight and insurance and other expenses. The most commonly known trade terms are Incoterms, published by the International Chamber of Commerce (ICC).
Terms of contract of Sale in International Trade
- CIF Contract : CIF stands for Cost, Insurance and Freight. The seller has to bear Freight & Insurance Cost
- FOB Contract : FOB stands for ‘Free on Board’. Seller has to deliver goods on board the ship. The buyer has to pay Freight & Insurance.
- DES Contract : DES means Delivered Ex Ship (also referred as Ex-Ship). In DES contract, the seller has to deliver the goods to the buyer at the port of Destination.
- FAS Contract : FAS means ‘Free Alongside Ship’. The seller has to deliver goods at port of despatch. Buyer has to pay Freight & Insurance Charges.
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CIF Shipment Contracts
CIF stands for Cost, Insurance and Freight. Under this contract the price charged by the seller covers cost, insurance and freight.
Rules of CIF Shipment Contract
- Delivery of Documents : Documents of Title representing the goods are delivered by seller to the buyer (through a Bank). The bank delivers these documents only when the buyer makes the payment of price or against acceptance of a draft.
- Ownership : By delivery of shipping documents to the buyer, the possession and property in goods is transferred. The seller remains the owner of the goods until the buyer pays for the goods.
- Risk : If the goods are lost at sea, the buyer or the seller, whoever was the owner when the goods were lost, can recover the amount from the insurer.
- Expenses: Seller has to arrange for shipment of goods & insurance at his own cost. If seller does not arrange for insurance, the buyer can reject to accept and pay for goods, even if the goods arrive safely at destination. The Buyer has to pay unloading charges, wharfage charges, customs and import duties, if any, at the port of destination.
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FOB Shipment Contracts
FOB stands for ‘Free on Board’. In FOB contract, the Property in the good does not pass to the buyer until the goods are delivered on board the ship, specified by Buyer. If seller cannot put the goods on board the ship, due to failure of Buyer to indicate the name of the ship, the seller can sue the buyer for damages but not for the price.
Duties of Seller under FOB Shipment Contracts
- Shipment : The Seller is to place the goods on board a ship and incur the expenses incidental thereto to put the goods on board. The price is exclusive of freight and insurance. Such delivery transfers the property and risk to the buyer on shipment.
- Notice of Shipment : The seller has to give notice of the fact that the goods are placed on board the ship If he fails to give such notice, the goods will be at seller’s risk (s.39(3)).
Duties of Buyer under FOB Shipment Contracts
- Ship : The Buyer has to name the ship to which the goods are to be delivered. Buyer may authorize the seller to select the ship and to arrange for contract of shipment.
- Cost : Buyer has to pay all charges and bear all risks subsequent to delivery of the goods on board the ship.
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DES Shipment Contracts
DES means Delivered Ex Ship (also referred as Ex-Ship). In DES contract, the seller has to deliver the goods to the buyer at the port of Destination. The property in goods does not pass to buyer
until the goods are delivered at the port of destination.
The goods are at the sellers risk during voyage and Buyer is under no obligation to affect an insurance. The seller pays for the freight (and insurance, if any) of the goods. The property in goods and the attending risk also passes on to the buyer immediately when the documents or goods are delivered at the port of destination.
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FAS Shipment Contracts
FAS means ‘Free Alongside Ship’. In FAS contract, the property in goods passes from the seller to the buyer immediately when the goods are delivered at Port named by the buyer, for shipment.
The Buyer is to name the ship and arrange for the contract of affreightment at specified Port for shipment. Buyer has to pay all charges and to bear all risks from the time the goods are delivered alongside Ship.
Accordingly, the Seller is to deliver the goods alongside the ship and immediately notify the buyer of delivery of goods alongside ship (alongside means Goods within reach of Ship’s Lifting Tackle).
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| Terms | CIF | FOB | FAS | DES |
| Meaning | CIF means Cost Insurance & Freight | FOB means Free on Board | FAS means Free Alongside Ship | DES means Delivered Ex Ship |
| Freight Insurance | In CIF Contract, Seller to pay Freight & Insurance | In FOB Contract, Buyer to pay for freight & insurance. | In FAS Contract, Buyer is to pay Freight and insurance | In DES Contract, the Seller to pay freight insurance |
| Passing of Property | IN CIF Contract, property passes to buyer on the delivery of documents. | IN FOB Contract, property passes to buyer when seller puts goods on board ship | IN FAS Contract, property passes to buyer when seller delivers goods alongside the ship. | IN DES Contract, property passes to buyer on Delivery of goods at destination port |
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Sale by Auction under Sale of Goods Act
An auction sale means a public sale, where many intending buyers are invited to participate in the process of bidding, for sale of goods. The goods are ultimately sold to the successful bidder.
Procedure of Auction Sales
Nature of Auction Sale
Normally, an auction sale is notified to the public. It does not amount to an offer but is merely to an invitation to offer. An auction is normally announced by issue of an advertisement given in the newspaper and a printed catalogue of the goods together with the terms of sale by the auctioneer. If the auction sale is not held on the appointed day, bidder cannot sue the auctioneer for breach of contract.
Putting Goods on Auction Sale
The goods are put on auction on behalf of seller. An auctioneer may be appointed who shall make all the necessary arrangements for organizing an auction sale.
Inspection of Goods in Auction Sale
The goods under auction, may be inspected by intending bidder, before or during the sale, as announced by the auctioneer.
Auctioneer in Auction Sale
Auctioneer is an agent of the seller, i.e., there is a relationship of principal and agent between the seller and the auctioneer. The auctioneer may sell his own goods on auction, without disclosing the fact of his ownership.
Reserve Price in Auction Sale
Auctioneer is to notify the auction sale subject to reserve price (also known as Upset Price, or Minimum Price) [s.64(5)].
Reserve price means the minimum price fixed by Seller for a specific Item, below which the bidders are not allowed to place their bids. Hence, a bid below the Reserve Price shall not be valid. Where the highest bid falls short of the reserve price, such a bid is not binding on the auctioneer, and the auctioneer may lawfully refuse to accept the same. Even if the auctioneer mistakenly accepts a bid below Reserve Price, such acceptance will be invalid.
Bid in Auction Sale
The intending buyers are asked to make bids (make offer to buy). The bidder is allowed to withdraw his bid before falling of hammer (final acceptance of bid). Normally bid of highest bidder is accepted.
Acceptance of Bid in Auction Sale
The property in goods is transferred to buyer on acceptance of Bid. Acceptance of Bid is indicated by the auctioneer by some customary method, like, fall of hammer, speaking loudly the words ‘going going gone’ or ‘one, two, three’, called knocking down the bid
If there is no reserve price stipulated for the Item, the goods will normally be sold to the highest bidder, even if the Bid is below the real value of the Item.
Risk of Goods in Auction sale
If the goods are destroyed or damaged before completion of sale, the loss shall be borne by the seller.
Ex: A bids Rs.3,000 for a costly flower vase at an auction sale. The auctioneer purports to accept the bid by striking his hammer, but accidentally strikes the vase which is broken into pieces. The sale in this case is not complete and the seller will have to bear the loss.
Defect in Seller’s Title in Auction sale
If seller had no good title to the goods, the sale becomes void. The auctioneer may hold the seller liable for damages.
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Legal provisions of Auction Sale
According to s.64 of Sale of Goods Act, the following rules apply for Sale by Auction:
Goods put up in lots for Auction sale
Where goods are put up for sale in lots, each lot is prima facie deemed to be subject of a separate contract of sale [s.64(1)]
Time of completion of Auction Sale
The auction sale starts with placing of bids. A valid contract is formed immediately on acceptance of a bid by the auctioneer.
Withdrawal of Bid in Auction Sale
Every bid constitutes only an offer to buy. A bid can be withdrawn before it is accepted by the auctioneer (akin to revocation of offer) [s.64(2)]. If before the fall of the hammer, any bidder revokes his bid, the security amount may not be forfeited.
Ex: At an auction sale, one of the conditions of sale was: “Bid once made shall not be withdrawn.” C made the highest bid for an article of P, but he withdrew his bid before the fall of the hammer. P contended that there was a completed sale and C was bound by it. Held, C’s bid was an offer and it could be revoked before the fall of the hammer (even though there was a rule to the contrary)
Transfer of Ownership in Auction Sale
If the auction is of specific goods in a deliverable state, the ownership is transferred to Buyer, immediately on acceptance of Bid. If the goods are not specific goods or goods are not in deliverable state, the ownership of goods shall pass to the buyer when the goods are ascertained or made in deliverable state.
Implied Warranties in an Auction Sale
In a sale by auction, there is an implied warranty that the auctioneer has authority to sell and he guarantees quite possession of the goods by the buyer.
He is not aware of any defect in the title of the principal, if any,
He undertakes to transfer the possession of the goods sold by auction against payment made by the highest bidder;
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Fraudulent Bid in Auction Sale
The seller can appoint one Bidder, to Bid on his behalf, giving prior notice of such fact. [s.64(3)].
Pretended Bidding in Auction sale
A bid made by any person on behalf of the auctioneer, without due notice is called pretended bidding. It amounts to fraudulent sale (s. 64(4))
The bidder, whose bid was accepted by the auctioneer by fraudulent means, may avoid the contract of sale after coming to know about the fact of fraudulent sale [s.64(6)].
Only one person can be appointed to bid on the seller’s behalf. Any sale contravening this rule may be treated as fraudulent by the buyer
Puffers in Auction Sale
Puffer is a person appointed by the seller to bid, solely for the purpose of stimulating genuine buyers at an auction sale. The puffer attends an auction by arrangement with the vendor to bid and raise the price. Where an auctioneer makes use of pretended bidding for the purpose of raising the price, the sale is voidable at the option of the buyer. The persons who are used by the seller to make pretended bids are called ‘puffers’, ‘white bonnets’ or ‘decoy ducks’.
Knock out Agreements in Auction Sale
These are agreements made bya group of persons to prevent competition. Knockout is otherwise legal, but becomes illegal when its intention is to commit fraud against a third Party.
In Knock Out agreement, the persons mutually arrange that only one of them will bid at the auction and that they will dispose of anything purchased at the auction among themselves, sharing profit between themselves
Damping in Auction Sale
Damping is an illegal act dissuading a person from bidding or from raising the price by fraudulent means. The auctioneer can withdraw the goods from auction in such case.
Damping is resorted to by fraudulent means like pointing out defects in the goods, falsifying intending bidder so that he cannot properly estimate the price of the goods, by scaring him away by some coercive manner.
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