Dr. Ram Manohar Lohiya National Law

University, Lucknow.

2015

"CONTRACTS”

FINAL DRAFT

"What Is The Relative Position Of Buyer And Sellers As Regards To Section 37 Of Sale

Of Goods Act 1930

Examine The Rationale Behind Conferring The Right To Reject The Whole

Consignment On The Buyer Under Section 37(3)Sale Of Goods Act 1930”

Submitted to, Submitted by,

Dr. VISALAKSHI Trivendra Kumar Singh

Asstt. Prof. (Law) Tejaswa Kumar Gupta

Roll On: 152,151

Dr. RMLNLU B.A. LL.B. (Hons.)

3rd Semester Section- B

ACKNOWLEDGEMENT

I express my gratitude and sincere thanks to Dr. VISALAKSHI, for his support throughout

the making of this project. He has provided valuable guidance as and when required without

which this project would not have been in this shape.

I would like to thank Dr. Ram Manohar Lohia National Law University for giving me this

opportunity to work on this project.

I would also like to thank my family for their endless support throughout the making of this

project.

Lastly, I thank my friends for their support, for their help in collecting the material and for

critically going through the project and correcting the mistakes

-Trivendra Kumar Singh

Tejaswa Gupta

Table of content

1) Introduction ..........................................................................................................1

2) Section 37 of sale of goods act...............................................................................2

a. Section 37(1) explained with the help of case laws....................................3

b. Section 37(2) explained with the help of case laws....................................

c. Section 37(3) explained with the help of case laws.....................................

d. Section 37(4) explained with the help of case laws.....................................

3) Relative position of the seller and buyer................................................................

4) Rationale behind Right to reject the whole consignment......................................

Introduction

In 1893, the British Parliament enacted the Sale of Goods Law after repealing part of its

Contract Law with the purpose of serving the new business realities.

In India by 1920 it was found that the law relating to sale of goods contained in chapter

VII(76-123) of Indian contract act and was not adequate to meet the needs of the community

and that some of the provisions of this branch of law required in light of new developments

in mercantile developments. To meet the new needs of growing economy, this chapter on

sale of goods was repealed to enact a new law on the same lines as the British Law. In 1929

a special committee consisting of eminent lawyers examined the draft bill made by

legislative department.

Section 119 of Indian contract act, since repealed dealt generally with the situation where

goods not ordered are sent with goods ordered but was not so comprehensive.

So the special committee suggested that” section 119 of Indian contract act provides for one

of the contingencies with regards to the quantity of goods. Section 30 of English sale of

goods act is comprehensive and deals with all possible contingencies which generally occur.

We therefore, adopt the provisions of English sections”.

Section 37, Sales Of Goods Act

Delivery of wrong quantity.—

(1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell,

the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for

them at the contract rate.

(2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to

sell, the buyer may accept the goods included in the contract and reject the rest, or he may

reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for

them at the contract rate.

(3) Where the seller delivers to the buyer the goods he contracted to sell mixed with goods

of a different description not included in the contract, the buyer may accept the goods which

are in accordance with the contract and reject the rest, or may reject the whole.

(4) The provisions of this section are subject to any usage of trade, special agreement or

course of dealing between the parties.

Basic definitions

Seller = Person who sells or agrees to sell.

Buyer = Person who buys or agrees to buy.

Goods = All kinds of movable property, except actionable claims.

Sale = Where under a contract of sale the property in the goods is transferred from

the seller to the buyer, the contract is called a sale

Explanation

Sub-section (1)-Delivery of less than contracted for:-

1. Subject to the rule de minimus non curat lex, a seller does not fulfill his contract by

tendering less than the quantity contracted for, and he cannot call upon the buyer to

accept it, and equally the buyer cannot call for delivery of anything short of the full

quantity, unless he is prepared to accept the whole.

Whether a particular term is warranty or not, must be determined on facts of each case. For

instance, estimate given of quantity of goods in printed leaflet distributed to bidders stating

that the quantity indicated therein is substantially true, will amount to warranty as the same

would have to be taken to have influenced bidders in making offer notwithstanding that heaps

were displayed at site in full view of bidders who must have examined them before they

made their offers. A shortage of 522 Kgs, out of a quantity of 16000 Kgs, contracted to be

supplied is only a slight deficiency which comes within the “de minimus rule” and the

defendant was not justified in rejecting the goods even under Section 37(1) of the Sales of

Goods Act1.

2. If the law were otherwise, either part could impose a new contract upon the other. The

tender of a lesser quantity than the one contracted for by the seller, in effect, amounts

to a new offer to this extent, that the buyer must accept or pay for or reject the whole

of the amount tendered. The buyer cannot accept part and reject the rest, unless indeed

the seller acquiesces in such a course, which would be an acceptance by him of a

counter offer by the buyer.

3. Therefore if a person orders several articles from a tradesman at the sometime, though

at distinct prices, he will not be obliged, unless all the rest are furnished according to

the terms agreed upon. But, if he accepts any one article, he may be precluded from

saying that the contract was entire, and he will be obliged to accept and pay for so

many as are individually furnished to the contract.2

4. Where the seller is under a contract to deliver a particular quantity of goods and

tenders a small quantity, as full performance of his obligation, the buyer may either-

a) Reject the tender, or

b) Accept the offer, through defective.

1 Suresh Kumar V K Assan Koya And Sons ; Air 1990 Ker 20(26)2 Champion v Short;170 ER 874

And, if the contract be an entire contract for a specified quantity deliverable in parcels from

time to time, the buyer may return the parcels first received, if the later deliveries be not

made, for the contract is not performed by the delivery of a part of the quantity only.

In case, the buyer accepts only a part of the whole quantity stipulated for, he becomes bound

to pay for that part.

In Oxendale vs Wetherell 3, Parke J. said:

“Where there is an entire contract to deliver a large quantity of goods, consisting of distinct

parcels, within a specified time, and the seller delivers part, he cannot, before the expiration

of that time, bring an action to recover the price of that part delivered, because the purchaser

may, it the vendor fail to complete his contract, return the part delivered. But, if he retains the

part delivered after the seller has failed in performing his contract, the latter may recover the

value of the goods which he has so delivered.”

5. By accepting the seller quantity, the buyer, although he must pay for it at the contract

rate, does not preclude himself from claiming damages for short delivery, and, if he

has already paid for the whole, recovering the amount apportionable to the part which

was not delivered.

6. The delivery of a less quantity of goods than contracted for under an entire contract

amounts to an offer by the seller of a new contract confined to that quantity. The

buyer, therefore, cannot divide his acceptance, unless the seller agrees thereto. The

new contract being entire, the buyer must either-

a) Reject all the quantity delivered, or

b) Accept all.

Waddington vs Oliver4: There was a contract to deliver 100 bags of hops on or before

January 1, and no time was mentioned for payment of the price. The seller delivered 12 bags

in part performance on December 12, and demanded immediate payment. On buyer’s refusal

he brought his action. It was held that the contract to deliver 100 bags by a certain date was

3 (1892) 9 B &C 3864 (1805) 2 Bos &P (NR)61

entire and could not be split up, and no such action could be maintained before the expiration

of the time fixed for the delivery of the remainder.

Harnarain v. Radhakishan5: It was said that every contract for a quantity of goods in prima

facie an entire contract. A breach of warranty in the matter of quantity may entitle the buyer

to reject the goods outright, or at any time, even after receipt of some of the goods. He is not

entitled to call for a partial delivery and is not bound to return that which he has received. If

he has received only a part of the goods, he is responsible for the payment of the price of the

part delivered to him at the contract rate. In this sense, the provisions of Section 37(1) seem

to supplement the provisions of Section 59(1) of the act.

It was held on the consideration of the contract in question that there was a breach both as to

quantity and quality, and that the buyer was entitled to reject the goods after accepting a part

for which he was bound to pay for at the contract rate.

Subsection 2

Delivery of quantity larger than that ordered or contracted for.

The right to reject the goods is not equivalent to right to cancel the contract. Even buyer

rejects the goods under clause (2) on the grounds that they were in excess in quantity , the

seller has the rights to tender again to the buyer the contract quantity subject to the terms and

conditions of the contract and the buyer is bound to accept the contract quantity if tendered

again if all other terms and conditions of the contract quantity if tendered again if all other

terms and conditions of the contract were satisfied.6 In stating this law , the high court of

Gujarat followed the English decision of court of appeal in Borrowman v tree7.,holding that

it was not open to the buyer to contend that merely because the first tender invalid, it was not

open to the seller to make the second tender

In Nagpur case, a buyer placed order for cloth with a travelling agent, but the principal, in

pursuance of such order dispatched cloth in excess quantity than ordered for. However, the

goods were delivered to the buyer. In a suit for price against the buyer, the buyer contended

that goods were not ascertained and not appropriated with his consent, since they could be

5 Air 1949 Nag 1786 Vilas Udyog Ltd.Jamnagar V. Prag Vanaspati Products, Air 1975guj 112(115)7 (1878) 4 Qbd 500

appropriated when they had reached him and when he could accept or reject them in exercise

of his rights of inspection which stage had never reached. The contention of buyer was

upheld8.

In Doraisami v. Subanna9, good were sent by seller in excess of those ordered for. Buyer

accepted them expressly subject to a certain condition. The condition was fulfilled. The

buyer was estopped from refusing the goods, or justifying the refusal on grounds that they

were in excess of the quantity contracted for. Rejection was proper if there was risk or

trouble in separating the goods ordered from the goods not ordered.

1) Qualifying words added to quantity stated

Although the general rule is that the buyer is entitled to refused the whole of the

goods tendered if they are in excess of the quantity ordered or contracted for , and the

seller has no right to insist upon the buyer acceptance at all, or upon the buyer

selecting out of a larger quantity delivered or offered to be delivered, yet the seller is

allowed a certain moderate and reasonable latitude in the performance ,if the quantity

ordered or contracted for is stated in the contract with addition of the words such as

“about” , or “ more or less”.

In Moore vs Campbell10 , there was a contract on selling and purchasing of 50 tons

of hemp in warehouse . the seller ordered two delivery orders about 30 tons and

20tons respectively. The buyers declined to accept them, unless the seller would

guarantee that the whole quantity amounted to 50 tons of goods. The seller refused to

give the guarantee. At trial, the seller wanted to adduce evidence of a usage of trade

to insert the word “about” in delivery orders of goods warehoused. It was held that,

that the evidence would be in admissible, if it was offered in reference to the

purchase of 50 tons of goods contracted to be sold and delivered simply.....

2) Qualifying words in instalment contracts

If qualifying words are used with respect to a specified quantity of goods agreed to

be delivered by stated instalments, it is a question of construction whether the words

qualify-8 Fattu Seth Vs. Firm Girdhari Lal, 1957 Nag Lj1499 Air 1927 Mad 88010 (1854) 10Ex 323

a) the whole amount contracted for

b) the amount of such instalments

In Societe Anonyme Industrielle Russo-Belge vs. Scholefield11

The defendants sold to the plaintiff “about” 18500 tons of coal under two contracts;

deliveries to be in as nearly equal monthly instalments as possible over a given period. The

defendant having so far made the deliveries in approximately equal quantity, delivered as

their last monthly instalment shipment of 455 tons short. In an action by the purchaser for

short delivery, it was held that there is a custom in Newcastle coal trade that word “about”

gives to the vendors a option up to 5 percent in either direction.

3) Qualifying words may be shown to be mere estimate

Qualifying words with regards to a specified quantity may, by the context of the

contract be shown to be a mere estimate of the quantity, and not the part of the

contract. This is so where other parts of the contracts containing a standard of quality

fixing the amount deliverable.

Gwillim v. Deniel12, An agreement was made, by which the plaintiff agreed to buy, and the

defendant to sell all the naphtha he might make during two years, say 1000 to 1200 gallons

per month. The plaintiff received 3000 gallons, being that entire defendant made. It was held

that there was no breach of agreement was there.

4) Quantity Mentioned May Not Be An Absolute Quantity

The quantity of goods mentioned in a contract may, without use of qualifying words ,

without the use of qualifying words , or words of estimate, be shown not to be an

absolute quantity but to be only the maximum deliverable.

In Beckh v. Page 13

11 Societe Anonyme Industrielle Russo-Belge vs. Scholefield 7 Com Cas 114(Ca)12 (1835) 2 CM & R 61:4LJ Ex 17413 5 CNBS 708: 141 ER 285

B contracted to pay p 115bales containing 18440 hides but by stress of weather only 97

arrived. B was held to have fulfilled the his contract by offering a less number ofbales

than what was ordered.

5) Sales of cargo

The meaning of the word cargo may vary in accordance with circumstances and so

many those of a wagon or a car load.

In Kreuge Vs. Blanck14

A ordered of B a small cargo of lath wood of certain length, in all about sixty cubic

fathoms. B, not being able to obtain a vessel loaded with 83 fathoms. On the arrival

of the vessel B’s agents unloaded, measured and set apart timber to answer the order

and tendered A, a bill-of-lading for that quantity, and a draft for acceptance; but he

declined to accept on ground that the cargo was in excess of order.

Sub-section (3)- The sub-section provides that, where the seller delivers to the buyer the

goods he contracted to sell mixed with goods of a different description not included in the

contract, the buyer may either-

a) Accept the goods which are in accordance with the contract and reject the rest, or

b) Reject the whole.

When part of goods supplied is not of description contracted for, the intimation of rejection

by buyer to the seller’s agent is due intimation to the principle.15

i. Delivery of Goods mixed with others- The seller may offer the goods ordered or

contracted for along with some other mixed with them for the price agreed. Such an

offer can only be rejected on the ground that the difficulty of separation would exceed

the value of the added goods. Thus, a contract for the sale of a quantity of wheat

would not be satisfied by a larger quantity of wheat mixed with other substances.

14 LR 5Ex 17915 Kulasekarapatnam Hand Match Workers Co-Operative Cottage Industrial Society Ltd V. Radhe Lal Lalloolal,1971 MPLJ 552

If the seller does not offer the whole lot of mixed goods for the price of the proper

goods, the buyer cannot be required to separate the two kind of goods. But, the buyer

may, if he wishes, assume the burden of separation, if the terms of the contract or the

circumstances of the case do not show unwillingness of the seller to permit a

severance. He is, however not bound, even though a separate price be fixed for each

article, to take a portion only of the goods which have been sent to him.

The right of a buyer to accept part of the goods without accepting the whole is not

from question in all cases.

Three kind of cases may come before the courts:-

a) Where the seller sends the goods contracted for long with some other goods of a

different description.

b) Where the seller makes up the quantity contracted for by sending a part of the

goods corresponding to the contracted description and the balance by those which

do not correspond to that description.

c) Where he sends the quantity contracted but for a part of them are defective or of

inferior quality.

Cases (1) and (2) fall within the sub-section and are governed by it. The sub-section requires

that the mixture must be with goods of a different kind. So, if a seller tenders goods some of

which are of inferior quality, or defective, the buyer cannot under the provisions of this sub-

section accept such part of them as are in accordance with the contract and good and reject

those which are of inferior quality or defective.

ii. Seller’s right to make a second tender- In the case of a tender of quantity where the

goods are rejected on the ground that they are in excess of or less in the quantity

ordered or contracted for, or mixed with other goods, the seller has always the right to

tender within the time limited by the contract, a second delivery in conformity with

the contract.

iii. Waiver- Before concluding the subject, it may not be cut of place to bring into relief

certain aspects of the matter by referring to the case of List & Son v. Chase, decided

by the Supreme Court of Ohio. That was action for damages failing to take and pay

for 195 cases of eggs. Although 75 cases of eggs were to be shipped on June 6 over

the big four Railroad. 195 cases were shipped on June 9th over another line. On arrival

the buyer objected to the quality. On the trial the buyer offered evidence of defects in

performance as to quantity shipped and method of shipment. The Judgement of the

Court was delivered by Davis J., who said:

“A waiver is a voluntary relinquishment of a known right. It may be made by express

words or by conduct which renders impossible a performance by other party, or which

seems to dispense with complete performance at a time when the obliger might fully

perform. Mere silence will not amount to waiver whre one is not bound to speak. In

this case the goods were perishable and exceedingly liable to be damaged by heat.

The shipment was in month of June, and therefore shortest and speediest route was a

material condition. It is true that, if the contract bound the plaintiff to ship by such a

route, the defendant might have rescinded the contract on receiving the bill of lading

showing a shipment on another and more hazardous route; but he was not bound to do

so then. He might wait until inspection might show that the goods were not damaged,

and then he could not accept them or if damaged reject them. The purchaser therefore

waived no right by waiting and the seller lost none, because the latter had already

made a breach of his contract and could not remedy it. The same was true as to the

eggs purchased. The purchaser was at the liberty to accept all the eggs shipped to it,

although in excess of the amount which it agreed to buy, or it might have accepted out

of the excessive shipment the quantity to which it agreed to buy; but it was not bound

to either; and when it rejected the whole shipment, it did not put the plaintiff in any

worse position, for upon the hypothesis that the contract was as defendant claims the

plaintiff had already failed to perform his part of the contract.”

Relative position of buyer and seller

In order for the property to pass, however the seller has to act in conformity with the

authority given to him by the buyer. If therefore, the goods which he sends are not of the

kind or quality ordered, the property does not pass. For similar reasons the goods do not pass

if it do not correspond with the similar quantity ordered.

The seller has the duty to comply with the order of the buyer in kind, quality and quantity.

He does comply with his contract by tender or delivery of goods different, more or less, in

kind, quality or quantity of either more or less than the exact quantity ordered.

In practise contracts involving large quantity of goods, sometimes, contain words to the

effect that the goods are “about” or “more or less” a certain quantity or similar expression.

Where the words are held to be mere words of expectation the buyer must accept delivery of

the bulk whatever the quantity it may contain.

On the other hand, where the words under the circumstances are found to be words of

contract the ordinary rule that delivery must be made of the exact quantity contracted for is

subject to the qualification that there may be a reasonable deviation between the quantities

contracted for; but the deviation must never be large.

The question thus resolves whether the deviation is “reasonable”

Williston says that “a difference in quantity from that ordered or contracted for by the buyer

may become important in several ways, which it is desirable to distinguish. In first place, the

buyer may have ordered a specified quantity of goods. Such an order is in legal effect, an

offer, and a shipment of a different quantity cannot be an acceptance of that offer, for the

rule in regard to the formation of contracts not only of sale, but of all kinds, is that the terms

of an offer must be strictly complied with in order to form a contract.

Secondly if a contract has been formed for a specified quantity of goods, defects in quantity

are vital in considering the seller’s liability to the failure to perform his promise. Any

decision however, to the effect that delivery of the wrong quantity would not satisfy the

seller’s obligation under a contract a fortiori shows that such defective performance would

not amount to an acceptance of an offer.

It is a third and entirely different question, however, what rights, if any the buyer has besides

suing the seller for breach of the contracts, and especially whether defective performance of

his contract by the seller justifies the buyer in terminating it altogether. It might be urged as

to this question that if the defect was slight in comparison with the amount involved in the

contract the buyer should be compelled to accept the defective performance and rely on his

claims for damages, under the rule of contracts that where a breach does not go the essence,

the injured party cannot refuse to go with the contract but must seek redress via damages.

Rationale behind the right of rejection given to buyer

The seller may offer the goods ordered or contracted for along with some other mixed

with them for the price agreed. Such an offer can only be rejected on the ground that

the difficulty of separation would exceed the value of the added goods. Thus, a

contract for the sale of a quantity of wheat would not be satisfied by a larger quantity

of wheat mixed with other substances. If the seller does not offer the whole lot of

mixed goods for the price of the proper goods, the buyer cannot be required to

separate the two kind of goods. But, the buyer may, if he wishes, assume the burden

of separation, if the terms of the contract or the circumstances of the case do not show

unwillingness of the seller to permit a severance. He is, however not bound, even

though a separate price be fixed for each article, to take a portion only of the goods

which have been sent to him.