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Contract II

Pledge brief notes

Pawn or Pledge is a special kind of bailment where a movable thing is bailed as security for the repayment of a debt or for the performance of a promise. As per section 172 of the Indian Contract Act, 1872, a Pledge is a contract where a person deposits an article or good with a lender of money as security for the repayment of a loan or performance of a promise. Pledge is also known as a pawn. The depositor or the bailor is the Pawnor and the bailee or the depositee is the Pawnee. The Pawnee is under the duty to take reasonable care of the goods pledged to him. Let us learn about the Rights of the Pawnee and Pawnor.

Ownership of the pledged goods does not pass to the pledgee. The general property remains with the pledger but a “special property” in it passes to the pledgee. The special property is a right to the possession of the articles along with the power of sale on default. Delivery of the goods pawned is a necessary element in the making of a pawn. The property pledged should be delivered to the Pawnee.

Essential Features of a Pledge

Since a Pledge is a special kind of bailment, all the essentials of bailment are also the essentials of the pledge. Apart from that, the other essentials of the pledge are:

• There shall be a bailment for security against payment or performance of the promise.

• The subject matter of the pledge is goods, • Goods pledged for shall be in existence.

• There shall be the delivery of goods from pledger to pledgee.

• There is no transfer of ownership in the case of the pledge.

Exception: In exceptional circumstances, the pledgee has the right to sell the movable goods or property that have been pledged.

Who may pledge?

Any of the following persons may make a valid pledge:

i. The owner, or his authorized agent, or

ii. One of the several co-owners, who is in the sole possession of goods with the consent of other owners, or

iii. A mercantile agent, who is in possession of the goods with the consent of the real owner, or

iv. A person in possession under a voidable contract before the contract is rescinded, or

v. A seller who is in possession of goods after the sale or a buyer who has obtained possession of the goods before the sale, or

vi. A person who has a limited interest in the property. In such a case, the pawn is valid only to the extent of such interest.

Rights of Pawnor and Pawnee:

I. Rights of Pawnor

The following are the rights of Pawnor:

1. Right to receive back the goods: The pawnor has the right to receive the goods back after he has paid the loan or interest or performed his promise.

2. Right to the redemption of debt: If the pawnor fails to perform the promise of repayment of time, debt within the time, the pawnor still has the right to redeem his goods before their sale. However, he needs to pay the expenses that arise due to him.

3. Right to maintenance and preservation of goods: The pledgor has the right to see whether the pawnee is preserving and maintaining the goods properly or not.

4. Rights of the ordinary debtor. He will have all the rights similar to those of the ordinary debtor provided by various Indian laws.

II. Rights of Pawnee:

The following are the rights of the Pawnee, to whom the goods are pledged.

1. Right to Retain Goods: According to Section 173, he has a right to retain the goods pledged until the loan is repaid. He can also retain them for the interest of the debt and all expenses incurred while preserving the goods. He has only the right to a particular lien on goods.

2. Right to retain subsequent advance: The Pawnee has the right to retain the pledged goods, including money lent by him, after the date of the pledge if there is no agreement contrary to it.

3. Right to Unordinary Expense: According to section 175, the pawnee has a right to claim the extraordinary expenses incurred by him in preserving the goods. He does not have the right to lien over these goods but can approach the court for recovery.

4. Right against true owner: According to Section 178A, if there is any defect in the title of pledgor to the pledged goods that makes the contract voidable, the pawnor still has the right to acquire good title to the goods if it is in good faith.

Duties Of the Pawnor

The duties of a pawnor in the case of the contract for the pledge are explained below.

  • To compensate for the expenses, – The pawnor must compensate all the ordinary and extraordinary expenses incurred by the pawnee for maintaining the well-being of the pledged goods.
  • To repay the entire amount along with interest, – It is the responsibility of the pawnor to repay the amount due to the pawnee. This amount could be the principal amount or the interest that has occurred during the contract.
  • To disclose the faults in the goods: Before entering into the contract, the pawnor must state all the material facts and faults in the goods to the pawnee. If the pawnor does not disclose the faults and the pawnee suffers losses, the pawnor must cover all the damages.

Duties of the Pawnee

A few of the important duties of the pawnee are stated below.

  • To take reasonable care of the goods under consideration, the pawnee must take reasonable care of them and pledge them as his own. He should take care of the goods as his personal belongings. If any losses are incurred due to irresponsibility or negligence in the case of the pawnee, then he is liable to cover all the damages.
  • To use the goods only for the authorized purpose, the pawnee must use the goods only for the purpose that has been stated in the contract. If the pawnee uses the goods for unauthorized purposes, the pawnee must compensate for the damages.
  • Return the goods: When the purpose of the contract of the pledge is fulfilled, the pawnee must return the goods to the pawnor. The goods should be returned to the pawner as per his instructions.
  • Return the profits arising from the goods. During the contract of pledge, if any profits have been incurred on the pledged goods, then the pawnee must return the profits to the pawner.
  • To keep the goods separate, the pawnee must keep the pledged goods separate from the pawnor’s goods. If the pawnee mixes his goods with the pawnor’s goods, then the pawnee is liable for the expenses of the separation of goods.

PLEDGE BY NON-OWNERS 

  1. Pledge by a Mercantile Agent: A mercantile agent is one who, in the usual course of business, has the authority as such an agent either to sell or consign goods for the purpose of sale, to buy goods, or to raise money on the security of the goods. A mercantile agent can create a valid pledge of the goods if such goods are already in his possession (that too with the consent of the real owner) or even by the endorsement of the relative document to the title to the goods, but only while acting as a mercantile agent in the ordinary course of business, despite the fact that he is not the true owner of the business. Pledgee accepts the pledge in good faith, having no knowledge about the agent and having no authority of the real owner. 
  2. Pledge by seller or buyer in possession of the goods after the sale: A seller who has possession of the goods after the sale and a buyer who obtains possession of the goods with the consent of the seller before the sale thereof can create a valid charge of pledge on such goods.
  3. Pledge by a person in possession of the goods under a voidable contract: A person who has obtained possession of the goods under a voidable contract can also create a valid pledge, provided the following two conditions are fulfilled: 1. The contract had not been rescinded by the person who had the option to do so before the creation of such a pledge; and 2. The pledgee had acted in good faith and without notice of any defect in the title of the pledgor in respect of the pledged goods.
  4. Pledge by a co-owner in possession of the goods: Even one of the co-owners of the goods, by virtue of being in sole possession thereof, can create a valid pledge of these goods, but only with the consent of all the remaining co-owners. 
  5. Pledge by a person having limited interest (sec. 179): in case a person having only limited interest in the goods pledges them, such a pledge is valid, though only to the extent of his own interest therein. Accordingly, a pledgee may create a further charge of pledge in regard to the same goods to the extent of the amount he has advanced against them. Example: A finds a cycle on the road, gets it repaired for Rs. 500, and pledges it with B for Rs. 1000. The real owner can get the cycle with a payment of Rs. 500

Difference Between The Contract Of Bailment And Pledge

A few of the common differences between the bailment contract and the pledge are discussed below.

BasisContract of BailmentContract of pledge
MeaningWhen goods are transferred from one party to the other for a specific purpose, this is regarded as a contract of bailment.When goods are transferred from the pawnor to the pawnee as a security against a debt, this is called a contract of pledge.
PurposeThe main purpose of transferring the goods is to keep them in safe custody and for repairs.The purpose is to create security against a claim.
PartiesThe party who transfers the goods is the bailor. The party who receives the goods is the bailee.The pawnor is the party who pledges the goods. The pawnee is the party who receives the goods.
ConsiderationConsideration is mandatory in the case of a contract of bailment.The presence of consideration is mandatory.
Right to sellThe bailee cannot sell the pledged goods.The pawnee has the right to sell the goods.
Right to UseThe goods can only be used by the parties for the purposes mentioned in the contract.The goods cannot be used by the pawnee.
SectionsThe Indian Contract Act 1872 covers the contract of bailment in sections 148–171.Sections 172 to 179 cover the contract of pledge.
 BASIS OF DISTINCTION, PLEDGE AND MORTGAGE 

1. Subject matter Movable property is the subject matter. Immovable property is the subject matter. 

2. Use of goods A pledgee is not allowed to use the goods pledged. The mortgagee has the right to use the property.

 3. Delivery of possession Delivery of possession is essential. The property in goods passes to the mortgagee, though possession remains with the mortgagor.

 4.loan Only one loan can be taken at a time on the pledge of the same goods. On a mortgage of an asset, more than one loan can be taken.

5. Right of foreclosure A pledgee cannot impose the right of foreclosure on the goods pledged, with the exception of exercising his right to sell upon giving notice to the pledgor. In mortgages, that can happen under certain circumstances

Partnership Deed

What is a Partnership Deed?

The smooth and successful running of a partnership firm requires a clear understanding among its partners regarding the various policies governing their partnership. The partnership deed serves this purpose. The partnership deed contains various terms such as profit/loss sharing, salary, interest on capital, drawings, admission of a new partner, etc. in order to bring clarity to the partners.

A deed of partnership also known as a partnership agreement is a legal document signed by two or more partners who come together and decide to run a business for profit. The partnership deed helps to resolve any disagreement or conflict which arises between the partners regarding the partnership norms. The purpose of a partnership deed is to give a clear understanding of the roles of all partners, ensuring the smooth running of the operations of the partnership firm.

Importance of a Partnership Deed

A partnership deed defines the position of the partners of the firm. Below is the importance of a partnership deed:

  • It helps partners to define the terms of their relationship.
  • It regulates the nature of business and liabilities, rights and duties of all partners.
  • It helps to avoid misunderstandings between the partners since all of the terms and conditions of the partnership are specified in the deed. 
  • In the case of a dispute amongst the partners, it will be settled as per the terms of the partnership deed.
  • There will be no confusion between the partners regarding the profit and loss sharing ratio amongst them.  
  • It mentions the role of each individual partner.
  • It contains the remuneration that is to be paid to partners, thereby avoiding any dispute or confusion. 
  • It ensure smooth functioning of the firm as the terms and liabilities between partners are in a written form.

What are the characteristics of partnership deed?

A well-crafted partnership deed should also include provisions for profit sharing, decision-making processes, and dispute resolution. It’s crucial to carefully consider the features of partnership deed to ensure a smooth partnership. Here are some key aspects to consider when drafting a partnership deed:

  1. Profit Sharing: The partnership deed should clearly specify how profits and losses will be shared between partners. This could be based on a pre-agreed percentage or on the amount of capital each partner has invested in the business.
  2. Decision-Making Processes: The partnership deed should outline how decisions will be made in the business. This could include a simple majority vote or a more complex decision-making process that involves all partners.
  3. Dispute Resolution: Disputes are inevitable in any business partnership. A partnership deed should include provisions for how disputes will be resolved in a fair and efficient manner. This could involve mediation, arbitration, or even legal proceedings.
  4. Duration of Partnership: The partnership deed should specify the duration of the partnership. This could be an open-ended arrangement or a fixed-term partnership with a specific end date.
  5. Roles and Responsibilities: The partnership deed should outline the roles and responsibilities of each partner. This could include specific tasks or responsibilities that each partner has agreed to undertake.
  6. Termination of Partnership: The partnership deed should specify the circumstances under which the partnership can be terminated, and what will happen to the business assets and liabilities in the event of termination.

Types of Partnership Deeds 

  • General Partnership Deed: The general partnership deed contains the terms and conditions of a general partnership, where each partner shares equal responsibility for the management of the firm business and are jointly liable for debts or obligations.
  • Limited Partnership Deed: The limited partnership deed establishes a limited partnership, which includes general and limited partners. The general partners have unlimited liability for the debts of the partnership firm, while the limited partners have limited liability and do not participate actively in the management of the business.

Contents of a Partnership Deed

The partnership deed contains the following details:

1. Name of the firm and Its Address : The deed should contain of the firm and place of its business.

2. Name and Address of Partners : The deed should also contains the names and address of all partners.

3. Nature of Firm’s Business : The nature of business proposed to be carried and its limitation should be included in it.

4. Duration of Partnership : It the partnership is established for a fixed duration or for a fixed work, it should be stated in it.

5. Partners’ Capitals : The deed should contain the total amount of capital and contributions by each partner.

6. Interest on Capital : If the partners decide to change interest on their capitals, the rate should be mentioned in the deed.

7. Drawing and Interest on Them : The deed should contain the limit of drawings by every partner and the rate of interest to be charged.

8. Division of Profit : Profit and loss sharing ratio should be stated in the deed. If it is not mentioned partners are authorized to share equally according to Partnership Act.

9. Partners’ Salary and Commission : If the partners decide to pay salary and commission to the partners, the deed should contain the amount of salary or commission payable to any partner for the services rendered to the business.

10. Rights and Duties of Partners : If any partner has some special rights and duties regarding to conducts of business or if the liability of any partner is limited to the capital invested by him, these facts should also be mentioned in it.

11. Admission and Retirement of Partners : After the establishment of partnership some new partners may be admitted and some may retire from the business. If any definite procedure is to be adopted at the time of admission or retirement of partner, it should be stated in it.

12. Death of a Partner : The procedure of calculating the amount due to a deceased partner and the method of its payment to his successors, should also be decided and stated in the deed.

13. Valuation of Goodwill : The method of valuation of goodwill at the time of admission, retirement or death of a partner should be also be clearly stated in it.

14. Revaluation of Assets and Liabilities : The method of revaluation of assets and liabilities on admission, retirement or death of a partner should also be clearly stated in it.

15. Accounts and Audit : The procedure of keeping accounts and their audit should also be stated in it.

16. Dissolution of Partnership : The deed should contain the firm and the method of the final settlement of accounts.

17. Arbitration Clause : In case of disputes the method of appointing arbitrators and their rights should be clearly mentioned.

Note: The above contents/clauses are general clauses and there may be some other clauses that can be added to the partnership deed.

How to Draft a Partnership Deed?

The partnership deed can be oral or written. However, it is better when the partnership deed is written since it helps to avoid any future conflict and is also useful for tax purposes and registration of the partnership firm. The partnership deed can be drafted by all the partners after coming to a mutual agreement regarding the clauses of the deed. It can also be drafted by a  legal professional. 

Below are the points to be kept in mind while drafting the partnership deed:

  • The deed should contain the clauses as mentioned above.
  • It must be executed by at least two or more partners.
  • It should be drafted by mutual agreement between the partners.
  • Ambiguous clauses and sentences must be avoided. The clauses must clearly state the details/description.
  • It should be printed on an e-stamp paper of a value of Rs.200 or more.
  • It should be signed by all the partners on all pages of the deed.

Modifying a Partnership Deed

A Deed can be modified at any time given the affirmation of all the partners involved. A new Deed has to be drafted and signed by all the partners under the aegis of the Stamp Act and a fresh Deed must be drawn up. To Legally validate it further, the Deed must be registered with the Registrar of Firms.

Partnership Deed Registration

The partnership deed is registered under the Indian Registration Act, 1908. It must be printed on non-judicial stamp paper with a value of Rs.200 or more based on the capital of the partnership firm. It has to be signed by all the partners and each partner should have a copy of the partnership deed.

After the deed is signed by the partners, it must be registered with the Sub-Registrar/ Registrar Office of the jurisdiction where the partnership firm is located. The stamp duty for registering the partnership deed varies from state to state. The respective states’ Stamp Act prescribes the stamp duty to be paid to the Sub-Registrar at the time of registration. The notarization of the partnership deed is required along with its registration. The registration of the partnership deed makes it legally valid.

Documents Required for Partnership Deed Registration 

The documents required for registration of a partnership deed are as follows:

  • PAN card of all the partners.
  • Address proof of all the partners, such as voter ID, Aadhar card, driving licence, etc.
  • Address proof of the firm

Major Benefits of Partnership Deed

A proper Deed establishes Legal obligations amongst the firm’s partners. It is not, however, required to be registered. This means that you will also be able to operate an unregistered Partnership firm.

The following are some examples Partnership Deed: It specifies who is responsible for what as this means that the roles of each partner are outlined.Because all of the terms and conditions of the Partnership have been written out in advance in the Deed, it helps to avoid any misunderstanding between the partners.Any disagreement between the partners can be easily resolved by referring to the Partnership agreement.It establishes each partner’s rights, responsibilities, and obligations.A Partnership Deed might also include sections that define what partners should be paid in terms of pay (salary). Working partners are typically compensated. However, interest is paid to all partners who have contributed capital to the company.

What are the top considerations when starting a project on partnership deed

When embarking on a new business partnership, it’s essential to take the time to “project on partnership deed.” A well-thought-out partnership deed can help ensure the success of the partnership and minimize the risk of conflict. Here are the top considerations to keep in mind when “projecting on partnership deed” and starting a new business partnership:

  1. Define the Business Purpose: Clearly define the purpose of the partnership, including the products and services to be offered and the target market. This will help both partners understand their roles and responsibilities and ensure everyone is on the same page.
  2. Distribution of Profits and Losses: Decide how profits and losses will be distributed among the partners. This can include a profit-sharing agreement, a salary for each partner, or a combination of both.
  3. Decision-Making Authority: Determine who has the final say in important business decisions. This could be one partner, a majority vote among partners, or a specific decision-making process agreed upon by all partners.
  4. Duration of the Partnership: Specify the length of the partnership. This can be an indefinite partnership or a partnership with a set end date.
  5. Dispute Resolution: Establish a process for resolving disputes between partners. This can include mediation, arbitration, or legal action.
  6. Partnership Termination: Define the circumstances under which the partnership can be terminated, such as the death or resignation of a partner, or a disagreement between partners.
  7. Capital Contributions: Specify the amount of capital each partner will contribute to the partnership and the conditions under which additional capital can be contributed.
  8. Partner Responsibilities: Clearly outline the responsibilities of each partner, including the tasks they will be responsible for and the amount of time they will spend on the partnership.
  9. Record Keeping: Establish a system for keeping records of the partnership’s finances, including receipts, invoices, and bank statements.

Partnership and its kinds

“Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are called individually, “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm-name”

Illustrations

  • X and Y purchase 100 bales of cotton that they agree to sell on their shared account. For the sale of such cotton, X and Y are partners. X and Y purchase 100 bales of cotton and agree to share. X and Y are not partners.
  • X agrees with Y, a goldsmith, to purchase and furnish gold to Y, to be processed, sold, and to share the profit or losses that result. X and Y are partners.

ESSENTIAL ELEMENTS TO CONSTITUTE PARTNERSHIP FIRM

  • Atleast 2 parties. Persons must be competent to enter into a contract. Parties may be natural or
    Artificial.
     Agreement between the parties. Agreement may be oral or in writing. It may be express or implied.
     Agreement must be to share the profits of the business;
     Business must be carried on by all or any of them acting for all.

Kinds of Partners

(i) Actual, Active or Ostensible Partner:

These are the ordinary types of partners who invest money into the business of the firm, actively participate in the functioning and management of the business and share its profits or losses. Section 12(a) lays down that “Subject to contract between the partners, every partner is entitled to take part in the conduct of the business of the firm”.Any partner who actively contributes to the operation of the company binds himself and the other partners with all actions taken in the normal course of partnership activity. Such a partner must publicly announce his departure from the company in order to release himself from responsibility for the actions of the other partners after his departure.

(ii) Sleeping or Dormant Partner

These partners contribute capital to the company’s operations and receive a cut of the earnings, but they are not involved in its operation or management. However, even then, they are still completely liable. The Act specifically states that every partner is responsible for any acts that the firm is bound by.
A sleeping partner may leave the company without disclosing their departure to the public. His responsibility for the firm’s actions is over shortly after retirement. Such a partner has no obligations, but he is allowed access to and a copy of the company’s books and financial records.

(iii) Nominal Partner

Some people simply lend their name to the company or business rather than making an investment or taking part in management. Though they are merely nominal partners, they are nevertheless responsible for all business decisions and actions. In contrast to a bed partner, they are perceived by outsiders as partners in the business even though they are not.

(iv) Partner in Profits Only

A partner who is entitled to a portion of a partnership firm’s earnings but is not required to contribute to its losses is referred to as a partner in profits only. Thus, the other partners may decide to admit someone to the partnership who has enough wealth but is unwilling to take risks. Despite his particular status, he is nonetheless accountable to third parties for all company actions, just like other parties.

(v) Sub-Partner

A subpartner is a third party with whom a partner has made a profit-sharing agreement in the business. Such a sub-partner is not liable for the firm’s debts and has no obligations or rights towards the business. He cannot use his actions to obligate the company or the other partners.

(vi) Partner by Estoppel or Holding Out

A person is prevented from later rejecting responsibility for the firm’s actions if their behavior leads others to believe they are partners in the business when they are not. Such a person is liable to all third parties and is referred to as a partner by estoppel.

Holding Out means “to represent”. Strangers, who hold themselves out or represent themselves to be partners in a firm, whereby they induce others to give credit to the partnership are called “Partners by Holding Out”.
In case of “Partnership by Estoppel”, the representation is made by partners about a stranger within his knowledge and hearing and he does not contradict it. He is then held liable as a partner.
Effects of Holding out
The Holding Out partner is now held individually and personally accountable for the firm’s actions. However, he does not join the company as a partner and has no claims or rights against it. He may be held accountable just like a partner in that firm if someone outside the company gave the impression that he was a partner. He could be held accountable for the full sum because the partners’ culpability is joint and several. However, he can collect the sum so paid from the firm’s partners, if they are solvent, under the subrogation doctrine as well as on the basis of a quasi-contract.

Difference Between Sub Agent and Substituted Agent

Meaning

When a person employs another person to do any act for himself or to represent him in dealing with third persons, it is called a ‘Contract of Agency’. The person who is so represented is called the ‘principal’ and the representative so employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into legal relations on behalf of the principal with third parties. But, by doing so he himself does not become a party to the contract to the contract not does he incur any liability under that contract. Principal shall be responsible for all the acts of his agent provided they are not outside the scope of his authority.

Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and purchasing goods from C for the purpose of the shop. The goods purchased were being regularly paid for but of the funds provided by A. B shall be considered to be an agent of A by his conduct.

Sub-Agent

A sub-agent is defined under Section 191 of the Indian Contract Act as an individual who is employed by and acts under the control of the original agent in the agency’s business. The original agent hires the sub-agent to work under their control and authority. The relationship between the original agent and the sub-agent is that of the principal and agent. The regulations governing the agency automatically apply to the relationship between the sub-agent and the agent. The sub-agent can create the same rights and liabilities for the original agent as the agent can create for the principal.

Substituted Agent

A substituted agent, as defined in Section 194 of the Indian Contract Act, 1872, refers to a person appointed by the original agent with the principal’s knowledge and consent to handle a specific part of the agency’s business. Two conditions must be met by the agent before appointing a substituted agent. 

Firstly, the principal must have given the original agent the authority, either explicitly or implicitly, to make such an appointment. Secondly, the original agent must have designated a person to act on behalf of the principal in that particular aspect of the agency’s business.

The appointment of a substituted agent by the original agent does not constitute a delegation of the principal’s duties by the original agent. Instead, it establishes a direct relationship between the principal and the person named by the original agent. In this case, privity is established between the principal and the person named by the original agent. 

Section 195 of the Indian Contract Act, 1872 addresses the agent’s duty in naming a substitute agent. This Section imposes a duty on the agent to exercise the same level of care that an ordinary reasonable person would exercise in a similar situation when selecting a substitute agent. If the agent exercises such care, they will not be held responsible to the principal for any negligence or actions of the substituted agent.

A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be seaworthy and is lost. B is not, but the surveyor is, responsible to A. (a) A instructs B, a merchant, to buy a ship for him, B employs a ship –surveyor of good reputation to choose a ship for A. The surveyor makes the choice a negligently and the ship turns out to be seaworthy and is lost. B is not,
but the surveyor is, responsible to A.

DifferencesSub-AgentSubstituted Agent
Control & DirectionControlled by original agentControlled by principal directly
ResponsibilityResponsible to original agentResponsible directly to principal
Privity of ContractPrivity with original agentPrivity with principal
AppointmentAppointed by original agent based on business needs or trade customsAppointed by original agent with explicit or implied authority from principal
LiabilityLiable to original agent for acts or misconductControlled by the original agent
RemunerationPaid by original agentLiable to the principal for acts or breaches
Responsibility towards Third PartiesNo direct contractual relationship with principalDirect contractual relationship with principal

Nemo Dat Quod Non Habet

The process by which ownership goes from one party to the other is referred to as “Transfer of property as between seller and buyer” and is covered in Sections 16 through 19 of the Sale of Goods Act of 1979. Nemo dat quod non habet, literally meaning “no one can give what they do not have”, is a legal rule, sometimes called the nemo dat rule, that states that the purchase of a possession from someone who has no ownership right to it also . denies the purchaser any ownership title. The term “Transfer of Title” refers to a variety of circumstances in which a seller who lacks ownership or who has a faulty title grants good title to his buyer and so defeats the claim of the genuine owner or the holder of a superior title. This only occurs under unusual situations.

A transfer his property to B, further, A transfer the same property to C, following the rule of Nemo Dat Quod Non Habet, B will get the right from A , thus, currently , B has the rights and A has none, so A cannot transfer property to C. The current owner should be able to trace his rights back in time to prove his legitimate acquisition. In Nitin Gupta vs. State of Meghalaya and others, Supreme Court has set aside the release of the stolen vehicle to the buyer on the principle of Nemo dat quod non-habet.

Exceptions

The above stated general rule contained in section 27, as stated in the opening words of the section itself, is “subject to the provisions of this Act and of any other law for the time being in force.” Various exceptions to this rule have been mentioned in this Act and the Indian Contract Act and in those exceptional situations, the seller of the goods may not be having a good title to the goods, yet the buyer of the goods gets a good title to them. The exceptions are as follows:

  1. Sale under the implied authority of the owner, or transfer of title by estoppel (S. 27)
  2. Sale by a mercantile agent (proviso to S. 27)
  3. Sale by one of joint owners (S. 28)
  4. Sale by a person in possession under a voidable contract (S. 29)
  5. Sale by the seller in possession of goods, the property in which has passed to the buyer (S. 30(1))
  6. Sale by the buyer in possession of the goods before the property in them has passed to him (S. 30(2))
  7. Re-sale of the goods by an unpaid seller after he has exercised the right of lien or stoppage in transit (S. 54(3))
  8. Sale by finder of goods (S. 169, Indian Contract Act)
  9. Sale by a pawnee when the pawner makes a default in payment (S. 176, Indian Contract Act)
  1. Sale under the implied authority of the owner, or transfer of title by estoppel (S. 27)

Estoppel by representation happens when the true owner of the good gives the impression that the seller is the rightful owner of the goods, or at the very least has the authority to sell them, through his words or actions. Owner cannot later claim the item. In estoppel situations, the buyer receives a greater title than the seller. If the owner is present at the sale or helps with the transaction, the estoppel may be established in a number of ways: a)The owner is present during the sale; b) He assists the sale process. c) He allows the transfer of possession goods to another person; or d) He has participated or acted in inducing the buyer

2. Sale by a mercantile agent (proviso to S. 27)

For the application of this provision, the following conditions are to be satisfied.

    a)Seller is mercantile agent

    b) He got possession of goods or documents of title to the goods with the consent of the owner, and in his capacity as a mercantile agent

    c) While selling the goods he must have been acting the ordinary course of his business of a mercantile agent

    D) The buyer of the goods must have acted in good faith without having any notice that such mercantile agent did not have an authority to sell

    3. Sale by one of joint owners (S. 28)

    If one of many joint owners of goods has sole possession of them with the consent of the other joint owners, the property in the goods passes to anybody who purchases them in good faith from that joint owner without being informed of the fact that the seller lacks the right to sell. It should be noted that without this clause, the buyer would simply have received the co-owners’ titles and would have remained merely a co-owner with them. Therefore, the clause is an exception to the maxim that “no one can give what he has not got.” For example, the three brothers A, B, and C. They share ownership of a cow. B and C give A the task of taking care of the cow and depart with the cow. A gives D the cow. D buys honestly and for a fair price. D is given a respectable title.

      4. Sale by a person in possession under a voidable contract (S. 29)

      Sections 19 and 19-A of the Contract Act state that if a party’s assent was obtained through coercion, fraud, deception, or undue influence, that party has the right to dissolve the contract at their discretion. According to Section 29, if a person sells goods that they have obtained possession of as a result of a contract that is voidable under Sections 19 or 19-A of the Contract Act before the contract has been avoided by the party entitled to do so, the buyer of those goods will acquire a good title to them. However, it is important that such a buyer have done so in good faith and without knowledge of the seller’s title deficiency. Through false representation, A persuades B to sell and deliver a cow to him. Before B cancels the contract, A sells the cow to C. C buys the cow in good faith without being aware of the seller’s faulty title. C gains a respectable title.

      5. Sale by the seller in possession of goods, the property in which has passed to the buyer (S. 30(1))

      If a seller has sold the goods and the property in the goods has passed to the buyer, the seller cannot deal with such goods. The buyer may bring a conversion tort claim against him if he is still in possession of the goods and deals with them. However, according to Section 30 (1), if a seller who has sold the goods is still in possession of the goods or of the documents of title to them, the delivery or transfer of the goods or of the documents of title under any sale, pledge, or other disposition thereof by the seller or by a mercantile agent on his behalf will convey a good title to the buyer, provided the buyer has been acting in good faith and he is unaware of the prior sale.

      6. Sale by the buyer in possession of the goods before the property in them has passed to him (S. 30(2))

      a) The buyer must be in the possession of the goods.

      b) But the ownership is still with the seller

      c) The goods purchased by the second buyer must be done in a good faith.

      these conditions are to be fulfilled then

      7. Re-sale of the goods by an unpaid seller after he has exercised the right of lien or stoppage in transit (S. 54(3))

      Section 54 (2) states that a seller who has not been paid may resale the goods after giving notice to the buyer if he has used his right of lien or halt in transport and the buyer has not paid him. If such a notice is not provided, the seller will not be able to hold the buyer liable for any losses incurred should the products sell for less than the agreed-upon price or benefit from a higher price. However, the new buyer’s title is unaffected by the lack of such a notice. According to section 54 (3), when an unpaid seller has exercised his right of lien or stoppage in transit and resells the goods, the buyer acquires a good title
      thereto as against the original buyer, notwithstanding that no notice of the resale has been given to the original buyer.

      1. Sale by Finder of Goods-

      Indian Contract Act, Section 169 The Indian Contract’s section 71 states that the finder of the items is accountable in the same ways as the bailee. When the things are in his custody, he must take proper care of them and return them when the owner is located. However, in accordance with section 169 of the Indian Contract Act, the finder may sell the items if the owner cannot be located with reasonable diligence or if he refuses to pay the finder’s legal fees upon demand:

      a) When the thing is in danger of perishing or of losing the greater part of its value, or,
      b) When the lawful charges of the finder, in respect of the thing found, amount to two-thirds of its value.
      When the finder of goods sells them under the circumstances stated above, the buyer of such goods gets a good title to them.

      9. Sale by a pawnee when the pawner makes a default in payment (S. 176, Indian Contract Act)

      If the loan guaranteed by the commodities is repaid to the pawnee, he is typically required to return the goods. He may keep those items until the obligation, interest on the debt, and other required costs he spent for custody or preservation of the pledged items are paid to him. According to section 176, the pawnee may sell the goods pledged after giving the pawnor sufficient notice of the sale or sue the pawnor for the debt if the pawnor defaults on making the payment. The buyer of such things obtains a fair title to them upon such a sale being made by the pawnee.

      1. Sale in Market Overt
        English law recognizes an exception to the norm that states that when commodities are sold in an open market in accordance with custom, the buyer receives a good title to the items so long as he purchases them in good faith and without knowledge of any flaws or lack of title on the seller’s part.10 Such a sale refers to a public sale made by a person who frequently deals in such things. In such a deal, the buyer’s title is safeguarded even if the seller could be held accountable for the tort of conversion.

       Del Credere Agency/Agent

       A del credere agent only becomes liable to pay the principal after the buyer defaults on payment. If the principal (seller) is unable to collect for some other reason. A del credere agent is an agent who in consideration of an extra remuneration guarantees to his principal the performance of the contract by th other party. This commission is called del credere commission. He occupies the position of a guarantor as well as of an agent. A Del credere agent is appointed generally when the principal deals with person about whom he knows nothing.

      Example: A company hires a del credere agent to sell their products to retailers. The agent guarantees that the retailers will pay for the products on time, even if they sell them on credit to their customers. If a retailer fails to pay, the del credere agent is responsible for the payment. In return for this guarantee, the agent receives a higher commission for sales.

      Mr. X appoints Y to sell the goods in the market on the terms that Y has to undertake the guarantee of the credit, which is extended to the buyer, i.e., if the buyer makes any default in the payment of the money. The Y would be liable to the extent of that amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment.

      In the present case, there is the principal-agent relationship between Mr. X and Y as Mr. X appoints Y to sell the goods in the market on the condition that if any credit is extended to the buyer, then Y has to take responsibility for the same. If the buyer cannot repay the amount, then Y has to correct the default and pay the amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment. So, this is the case of the Del Credere Agency.

      Advantages of Del Credere Agency

      The different advantages related to the del credere agency are as follows:

      • From the seller’s perspective, the agent would be responsible for the seller up to the amount of the default amount if the buyer were to default in making a payment. Therefore, in the event of a buyer default payment, the seller will receive payment from the agent..
      • In the Del Credere agency, the agent is only responsible for the payment to the principal if the buyer fails to make the required payment; other problems that can develop between the buyer and seller are not covered by this responsibility. Therefore, the agent benefits from this.
      • In exchange for taking on the additional risk, the agent will receive additional compensation from the seller on top of the standard sum he would have received had he not taken on the additional risk. The del credere commission, which is the additional sales commission that makes up this additional payment, is often how it is received..

      Disadvantages of Del Credere Agency

      The disadvantages related to the del credere agency are as follows:

      • According to the seller, a Del Credere agency only makes the agent responsible for the payment to the principal if the buyer fails to make the required payment; any other problems between the buyer and seller are not covered by this responsibility. Therefore, the seller won’t be able to reclaim the money from the agent in the event that a dispute emerges between the buyer and seller.
      • Additionally, the seller must pay the agent an additional sum in addition to the standard fee, which he could have done if the agent hadn’t taken on the additional risk. Therefore, in situations where there hasn’t been a default, the seller is required to give the agent the additional commission

      Case Laws:

      In P. Krishna Bhatta v Mundila Ganpathi Bhatta AIR 1955 Mad 648, J. Ramaswami explained the concept as “where he said that in legal terms and phraseology, any person who acts for another cannot be called an agent. If such a thing happens, a servant rendering his services to his master; or a person tilling anothers field or a person working in somebody elses shop or factory would be considered as their agent.”

      In Syed Abdul Khader v Rami Reddy (1979) 2 SCC 601 the Supreme Court held that “the expression agency is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and a third party”.

      Important Points about Del Credere Agency

      The different important points related to the del credere agency are as follows:

      In a Del Credere agency, the agent is only held responsible for the principal’s payment if the buyer fails to do so. In the event that any other problems develop between the buyer and the vendor, the same is not liable. Conflicts between the buyer and the seller are among the matters for which the agent will not be held responsible.

      The seller must pay the agent extra for taking on the extra risk in the form of insurance services; hence, the agent will get both the regular commission for sales and the additional commission for providing the insurance services. This additional payment typically takes the form of the Del Credere commission, which is an additional sales commission.

      The nature of the Del Credere agency is such that it puts the agent in the agency in the situation wherein he has the responsibility in connection with the seller and the buyer and of product or service under consideration.

      Conclusion

      As a result, in the case of the Del Credere Agency, there is a principal-agent relationship between the seller and the agent under the transaction, wherein the agent, in addition to acting as a salesperson on the seller’s behalf, also fulfills the role of an insurance company by taking on an additional risk in the event that the buyer defaults on the payment of the purchase price. To the extent of that sum, the agent would be accountable to the seller.

      The agent, however, is not responsible for any other problems that can emerge between the buyer and the seller and only becomes responsible for the payment to the principal if the buyer misses a payment deadline. Conflicts between the buyer and the seller are among the matters for which the agent will not be held responsible. Additionally, the seller must pay the agent an additional fee known as the Del Credere commission in exchange for the agent taking on the additional risk in the form of insurance services.

      Rights and Duties of an Agent

      In an agency agreement, the principal appoints an agent to carry out a particular duty or conduct business on his behalf. The principle is liable for the actions of his agent toward third parties because he is bound by such actions. Let’s now examine the obligations and rights of agents.

      Rights of Agents

      1. Right to Remuneration

      As per section 219, the associate agent incorporates a right to receive the in agreement remuneration or absence of agreement, an affordable remuneration for rendering the services to the principal that aren’t voluntary or gratuitous. He becomes eligible to receive the remuneration as shortly as he completes the work that he undertook.

      2. Lien on Goods

      Some agents who have the possession of products, securities, or properties of their principal even have a lien on this merchandise, securities, or properties relating to their remuneration and conjointly for any expenses or liabilities that they once associate unpaid merchant, he incorporates a right to prevent the products in transit.

      3. Right to be Indemnified

      An agent represents his principal to third parties. As per sections 222 and 223, the associate agent incorporates a right to be indemnified by his principal for all charges, expenses, and liabilities that he incurs throughout the agency.

      4. Right to Compensation

      In line with section 225 of the aforementioned Act, the associate agent is entitled to say compensation for the injuries suffered as a consequence or wish of the ability of the principal. The principal should create compensation to his agent in respect of injury caused to such agent by the principal’s neglect or wish of ability.

      Duties of Agents

      A principal incorporates a right to sue his agent for damages just in case of breach of duty by the agent. The duties of agents are:

      1. Duty to follow the directions of the Principal [S.211]- Regarding this duty of Agent S. 211 provides: An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it.

      For Example in Pannalal Jankidas v. Mohanlal, AIR [1951] Agent purchased some goods for his principal and stored the goods in a godwon. Agent was also under the instructions to insure the goods. But he failed to insure the goods. The goods were destroyed by fire. It was held that Agent was liable to compensate.

      1. To carry out his work with reasonable care and skills [S.212] – Regarding this duty of agent S.212 provides –An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of his want of skill. The agents always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.
        In State Bank of Indore v. National Textiles Corporation [2004] certain cheques were presented to Bank by customer Bank sent to the drawee for collection. The cheques were lost in transit. It was held that Bank was liable to the customer for the lost cheques.
      2. To render proper accounts to his principal [S.213]- Regarding this duty of Agent S. 213 provides that an agent is bound to render proper accounts to his principal on demand. In State of Tamilnadu v. S.A Chettiar (1988) the agent filed suit against
        principal for rendition of accounts the Madras High Court observed that u/s 213 of contract Act it is provided that the agent is bound to render proper accounts to his principal on demand but there is no provision in the contract Act which empower the agent to file a suit for accounts against the principal.
      3. To communicate with principal [S. 214]-Regarding this duty of agent S.214 provides that an agent is bound to render proper accounts to his principal on demand It is the duty of an agent, in cases of difficulty to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.
        Thus agent is bound his principal’s directions when he faces difficulty although agent may at in good faith without communicating the principal in cases of emergency.
        For Example: Principal consigned hundred boxes of grapes to his agent at Allahabad and directed to send grapes immediately to Mrs. Sohan at Mumbai. When agent received the grapes in Mumbai he found that grapes could not bear
        the journey to Mumbai without spoiling. He sold grapes in Allahabad it was held that agent was not liable because he acted in good faith.
      4. Not to deal on his own accounts [S. 215 & S. 216]– Regarding this duty of agent S. 215 provides that an agent is bound to render proper accounts to his principal on demand If an agent deals on his own account in the business of the agency,
        without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed from his by the agent, or that the dealings of the agent have been disadvantageous to him.
        Example: A directs B to sell A’s estate for himself in the name of C, A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been
        disadvantageous to him.
      5. Duty to pay sum received for principal [S. 218]– Regarding this duty of agent S. 218 provides that an agent is bound to render proper accounts to his principal on demand.
      6. To protect the interest of principal [S.209]- Regarding this duty of agent S. 209 provides that when an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.
      7. Not to delegate authority – In respect of this duty of agent an agent S. 190 provides that an agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed.

      CONTRACT OF AGENCY

      When a person employs another person to do any act for himself or to represent him in dealing with third persons, it is called a ‘Contract of Agency’. The person who is so represented is called the ‘principal’ and the representative so employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into legal relations on behalf of the principal with third parties. But, by doing so he himself does not become a party to the contract to the contract not does he incur any liability under that contract. Principal shall be responsible for all the acts of his agent provided they are not outside the scope of his authority.

      Competence of the parties to enter into a contract of agency

      The person employing the agent must himself have the legal capacity or be competent to do the act for which he employ the agent. A minor or a person with unsound mind cannot appoint an agent so as to be legally represented by him (Sec. 183). But an agent so appointed need not necessarily be competent to contact (Sec: 184) and hence minor or an insane can be appointed as an agent he can bring about legal relations between the principal and the third party but such an incompetent agent cannot personally be held liable to the principal.

      Creation of Agency: Agency may be created by any of the following ways:

      1. Expressly (Sec. 187)
        When an agent is appointed by words spoken or written, his authority is said to be express.
      2. Impliedly (Sec. 187)
        When agency arises from the conduct of the parties or inferred from the circumstances of the case, it is called implied agency.
        Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and purchasing goods from C for the purpose of the shop. The goods purchased were being regularly paid for but of the funds provided by A. B shall be considered to be an agent of A by his conduct.

      CLASSIFICATION OF AGENTS

      A general classification of agents from the point of view of the extent of their authority is as follows
      1) Special agent. A special agent is one who is appointed to perform a particular act or to represent his principal in some particular transaction as, for example, an agent employed to sell a house or an agent employed to bid at an auction. Such an agent has a limited authority and as soon as the act is performed, his authority comes to an end. He cannot bind his principal in any matter other than that for which he is employed. The persons who deal with him are bound to ascertain the extent of his authority.
      2) General agent. A general agent is one who has authority to do all acts connected with a particular trade, business or employment. For example, the manager (general agent) of a firm has an implied authority to bind his principal by doing anything necessary for carrying on the business of the firm or which falls within the ordinary scope of the business. Such authority of the agent is continuous until it is put to an end. If the principal, by secret instructions, limits the authority of the general agent, and the agent exceeds the authority, the principal is bound by the agent’s acts done within the scope of his authority, unless the third parties dealing with the agent have a notice of the curtailment of the authority of the agent.
      3) Universal agent. A universal agent is one whose authority to act for the principal is unlimited. He has authority to bind his principal by any act which he does, provided that act (i) is legal, and (ii) is agreeable to the law of the land.,


      4)Another classification of agents from the point of view of the nature of work performed by them is as follows :

      1. Commercial or mercantile agent. A ‘mercantile agent’, according to Sec. 2 (9) of the Sale of Goods Act, 1930, means “a mercantile agent having in the customary course of business as such agent, authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods.” This definition does not cover all kinds of mercantile agents which are as follows:
        (1) Factor. A factor is a mercantile agent entrusted with the possession of goods for the purpose of selling them. He has ostensible authority to do such things as are usual in the conduct of business [Pickering v. Busk, (1812) 15 East 38). He sells the goods in his own name as an apparent owner upon such terms as he thinks fit. He can sell them on credit as well. He has also the authority to receive the price and give a good discharge to the purchaser.

      Example. P owned a motor car and delivered it to A, a mercantile agent, for sale at not less than £ 575. A sold the car for £ 340 to T, who bought it in good faith and without notice of any fraud. A misappropriated the £ 340 and F sued to recover the car from T. Held. as A was in possession of the car with P’s consent for the purposes of sale, T got a good title [Fakes v. King, (1923) 1 K.B. 2821.

      (2)Auctioneer. An auctioneer is an agent appointed by a seller to sell his goods by auction for a reward generally in the form of a commission. He is primarily the agent of the seller but after the sale has taken place. he becomes the agent of the purchaser also. He resembles factor in all respects except that he has only a particular lien on the goods for his charges. He has authority
      to receive the price of the goods sold. He can also sue for the price in his own name. The principal is liable to the third parties for the acts of the auctioneer if the auctioneer acts within the scope of his apparent authority even though he disobeys instructions privately given to him.
      Example. P instructed A to sell a pony by auction, subject to a reserve price of £ 25, A. at the time of sale inadvertently stated that there was no reserve price and knocked the pony down to T at £ 16. Held, the sale was binding on P [Rainbow v. Hawkins, (1904) 2 K.B. 322)

      (3)Broker. A broker is an agent who is employed to buy or sell goods on behalf of another. He is employed primarily to bring about a contractual relation between the principal and the third parties. He is not entrusted with the possession of the goods in which he deals. He, cannot act or sue in his own name. And as he has no possession, he has no right of lien.

      (4) Commission agent. A commission agent belongs to a somewhat indefinite class of agents. He is employed to buy and sell goods, or transact business generally for other persons receiving for his labour and trouble a money payment, called commission.
      (5) Del credere agent. A del credere agent is one who, in consideration of an extra commission, guarantees his principal that the person with whom he enters into contract on behalf of the principal, shall perform their obligations. He occupies the position of both a guarantor and an agent.
      Banker. The relationship between a banker and his customer is really that of debtor and creditor. But there is a super-added obligation on the part of the banker to pay when called upon to do so by the draft or order (in the form of a cheque) of the customer. To this extent, a banker is the agent of his customer.
      Non-mercantile agents. These include attorneys, solicitors, insurance agents, clearing and forwarding agents and wife, etc.

      SALE and AGREEMENT TO SELL

      Sale

      A contract of sale is a generic term and includes both an actual sale and an agreement to sell. Section 4 provides that if the property in goods is transferred from the seller to the buyer under a contract, the contract is called a sale.

      Agreement to sell

      Where the transfer of the property in the goods will take place at a future time or is subject to some condition that has to be fulfilled, the contract is called an agreement to sell. Such an agreement to sell becomes a sale when the prescribed time lapses or the conditions are fulfilled. An agreement to sell can be described as the transfer of ownership of items that will happen in the future or that may happen if certain requirements are met. Section 4 (3) When the allotted time has passed or the requirements for the transfer are met, an agreement to sell also becomes a sale. The terms and circumstances of the offer of a property by the seller to the buyer are therefore established through an agreement to sell.

      The price at which it will be sold and the expected payment date are included in these terms and conditions. It can also incorporate the idea of a contingent contract as defined by Section 31 of the Indian Contract Act of 1872. As a result, a contract to sell is a promise to act or not act in response to the occurrence or non-occurrence of a contingent event.

      Both parties must act together and abide by all the terms and conditions outlined in the sale agreement throughout the whole deal process, up until the creation or completion of the sale deed. As a result, the sale deed is written using an agreement to sell as its foundation. In other words, a sale agreement is a confirmation of a potential future development that could happen if the terms and conditions stipulated in the present are met.

      S.No.BasisSaleAgreement to Sell
      1.DefinitionIt can be defined as the transfer of ownership of the goods by the seller to the buyer in exchange for the monetary consideration paid or promised, or partly paid and partly promised.It can be defined as the transfer of title of ownership on a future date after satisfying certain conditions or contingent clauses.
      2.MeaningIn sale, the goods are transferred from the seller to the buyer immediately.In the agreement to sell, the property in the goods does not transfer immediately but at a future date specified in the agreement.
      3.Executed contract/Executory contractBoth the sale and the agreement to sell are contracts. A contract of sale is an executed contract, which means both parties have fully performed their obligations.An agreement to sell is an executed contract where the parties have not fully performed their obligations.
      4.Liable to sueIn both the sale and the agreement to sell, the seller can sue the buyer. In a contract of sale, the seller can sue the buyer for breaching the contract of sale.The seller can sue the buyer only for the damages, not the price.
      5.Sale taxSales are liable for the sales tax.An agreement to sell is not liable for the sales tax.
      6.Right to resaleIn a contract of sale, the seller has no right to resell the goods.In an agreement to sell, the seller has the right to resale the goods.
      7.Liability for damageIn both the sale and the agreement to sell, there is a liability for damages to goods. If the goods are destroyed, the loss should be borne by the buyer even though the goods are in the possession of the seller.If the goods are destroyed, the loss should be borne by the seller even though the goods are in the possession of the buyer.
      8.Right in rem/Right in personamThe Sale gives the right in rem, i.e. against the whole world.An agreement to sell gives the right in personam i.e., between the parties only.
      9.Right to recover the moneyIf the buyer refuses to pay, the unpaid seller may have the right to recover the money as provided under Section 46 of the Sale of Goods Act of 1930.If the buyer refuses to accept and pay, the seller may claim non-acceptance damages.
      10.ExamplesExample: Ram sold 12 bags of sugar to Ravi for a payment of Rs. 7,000.Example: Ram agrees to sell 12 bags of sugar to Ravi against a payment of Rs. 7,000 after getting the stock.

      Conclusion

      Hence, we conclude that when the seller agrees to sell the goods to the buyer at a future specified date or after the necessary conditions are fulfilled, then it is known as an agreement to sell, whereas when the seller sells goods to the customer for a price and the transfer of goods from the vendor to the customer takes place at the same time, then it is known as a sale. Also, we have seen various points of difference between the sale and the agreement to sell, apart from the period when the goods are delivered.

      Unpaid seller and his rights

      Meaning of an Unpaid Seller [Sec 45(1)(2)]
      The seller of goods is deemed to be an ‘unpaid seller’- When the whole of the price has not been paid or tendered
      When a bill of exchange or other negotiable instrument(such as cheque) has been received as conditional payment,and it has been dishonored[Section 45(1)]. The term ‘seller’includes any person who is in the position of a seller(for instance,an agent of the seller to whom the bill of lading has been endorsed,or a consignor or agent who has himself paid,or is directly responsible for the price)

      Rights of an Unpaid Seller [Section 46-52,54-56,60-61]
      The rights of an unpaid seller can broadly be classified under the following two categories:
      1. Rights against the goods
      2. Rights against the buyer personally
      I Rights against the goods where the property in the goods has passed to the buyer
      a) Right of Lien [Section 47,48 and 49]
      Meaning of Right of Lein:
      The right of lien means the right to retain the possession of the goods until the full price is received.
      Three circumstance under which right of lien can be exercised[Section 47(1)]
      1.Where the goods have been sold without any stipulation to credit;
      2.Where the goods have been sold on credit,but the term of credit has expired;
      3.Where the buyer becomes insolvent.
      Other provisions regarding right of lien[Sections 47(2),48,49(2)]
      1.The seller may exercise his right of lien,even if he possesses the goods as agent or bailee for buyer[Section 47(2)]
      2.Where an unpaid seller has made part delivery of the goods,he may exercise his right of lien on the remainder,unless such part delivery has been made under such circumstances as to show agreement to waive the lien[Section 48].
      3.The seller may exercise his right of lien even though he has obtained a decree for the price of the goods[Section 49(2)].
      Circumstances under which right of lien in the following cases:
      1.When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods[Section 49(1)(a)].
      2.When the buyer or his agent lawfully obtains possession of the goods [Section 49(1)(b)]
      3.When the seller waives his right of lien[Section 49(1)(c)].
      4.When the buyer disposes of the goods by sale or in any other manner with the consent of the seller[Section 53(1)].
      5.Where document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods and that person transfers the document by way of sale,to a person who takes the document in good faith and for consideration.[Proviso to Section 53(1)].
      b) Right of Stoppage of Goods in Transit
      The right of stoppage of goods means the right of stopping the goods while they are in transit,to regain possession and to retain them till the full price is paid. Conditions under which right of stoppage in transit can be exercised[Section 50]
      The unpaid seller can exercise the right of stoppage in transit only if the following conditions are fulfilled:
      1.The seller must have parted with the possession of goods,i.e. the goods must not be in the possession of seller.
      2.The goods must be in the course of transit.
      3.The buyer must have become insolvent.
      c)Right of Resale[Section 46(1) and 54]
      An unpaid seller can resell the goods under the following three circumstance:
      1.Where the goods are of a perishable nature 2.Where the seller expressly reserves
      a right of resale if the buyer commits a default in making payment.3.Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the buyer about his intention to resell an buyer does not pay or tender within a reasonable time.

      Rights against the goods where the property in the goods has not passed to the buyer
      Right of withholding delivery[Section 46(2)]
      Where the property in the goods has not been passed to the buyer, the unpaid seller, cannot exercise right of lien, but get a right of withholding the delivery of goods, similar to and co-extensive with lien and stoppage in transit where the property has passed to the buyer.


      Rights of Unpaid Seller against the Buyer Personally
      The unpaid seller, in addition to his rights against the goods as discussed above, has the following three rights of action against the buyer personally:

      1. Suit for price (Sec. 55). Where property in goods has passed to the buyer; or where the sale price is payable ‘on a day certain’, although the property in goods has not passed; and the buyer wrongfully neglects or refuses to pay the price
        according to the terms of the contract, the seller is entitled to sue the buyer for price, irrespective of the delivery of goods. Where the goods have not been delivered, the seller would file a suit for price normally when the goods have been
        manufactured to some special order and thus are unsaleable otherwise.
      2. 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 damages for non-acceptance. The seller’s remedy in this case is a suit for damages
        rather than an action for the full price of the goods.
      3. Suit for Interest[Section 61(2)]
        In case of breach of the contract on the part of seller,the buyer may sue the seller for interest from the date on which the payment was made.