B.Com 1st Year Sale Of Goods Act 1930 Long Question Answer Notes
B.Com 1st Year Sale Of Goods Act 1930 Long Question Answer Notes :- In this post is very useful for BCOM Students you will get full information related to Formation of contracts of Sale; Goods and their classification, price; Conditions, and warranties; Transfer of property in goods; Performance of the contract of sales; Unpaid seller and his rights, sale by auction; Hire purchase agreement. Notes Study Material Unit Wise Chapter Wise All the Content available in over site parultech.com.
LONG ANSWER QUESTIONS
B.Com 1st Year Sale Of Goods Act 1930 Long Question Answer Notes
Q.1. What do you understand by ‘Contract of sale’? How ‘agreement to sale’ is different from ‘sale’? Explain clearly.
Or What is contract of sale? Give its main characteristics. Distinguish between sale and agreement to sell. (2016)
Ans. Contract of Sale: Section 4 of the Sale of Goods Act, 1930 defines ‘contract of sale of goods’. According to this, ‘a contract of sale of goods is a contract, whereby the seller transfers or agrees to transfer the property (ownership) in goods to the buyer, for a money consideration called the price’.
From the above, it implies that the expression contract of sale’ includes both a sale, where the seller transfers the ownership of the goods to buyer and an agreement to sell, where the ownership of goods is to be transferred at a future time or subject to some conditions to be fulfilled later on.
Thus, ‘buyer’ means a person who buys or agrees to buy goods. Similarly, ‘seller’ means a person who sells or agrees to sell goods.
Essentials/Characteristics of a Contract of Sale of Goods
The following are the essentials of a contract of sale of goods:
1. Bilateral Contract: It is a bilateral contract because the property in goods has to pass from one party to another. A person cannot buy the goods himself.
2. Transfer of Ownership: The object of a contract of sale must be the transfer of ownership in goods from one person to another.
3. Goods: The subject matter of the contract of sale must be so
4. Price: The goods must be sold for some price, where the goods are exchanged for goods, it is goods. better and not a sale.
Essentials: All essential elements of a valid contract must be present in a contract of sale.
5. Other Essentials: All essential elements of a valid contract must be present in a contract of sale.
Distinction between sale and Agreement to sell
|S.No.||Basis of Difference||Sale||Agreement of sell|
|Transfer of ownership||Transfer of ownership of goods take place immediately at the time of making the contract.||Transfer of ownership take place at a future time or-subject to fulfilment of certain conditions.|
|Types of contract||Executed contract.||Executory contract.|
|Nature of right||Jus in rem.||Jus in personnam.|
|Risk of loss||Risk of loss or damage of goods is transferred to the buyer immediately-||Risk of loss or damage of goods is not transferred to the buyer immediately as ownership has not transferred.|
|Right of seller against buyer’s breach||Buyer can sue the seller for damages and also the third party who bought the goods.||Buyer can sou the seller for damages only.|
|Right of buyer against seller’s breach||Buyer can sue the seller for damages and also the third party who bought the goods.||Buyer can sue the seller for damages only.|
Q.2. Discuss contract of sale vs other contracts.
Ans. A contract of sale have all the basic elements listed in section 4 of the Sale of Goods Act. The following types of contracts are deemed to be different from a contract of sale:
1. Sale vs Barter: When goods are exchanged for goods, it is termed to be a barter deed. The cost of goods in a contract of sale needs to be in money whereas in a barter contract, goods are paid for in kind and not in cash.
2. Sale vs Gift: In a contract of sale, the seller transfers the ownership of something to the buyer for consideration in terms of money whereas in the case of a gift, one person transfers the ownership of something to another without there being any consideration for such transfer.
3. Sale vs Bailment: In a contract of sale, the buyer acquires the possession of goods from the seller in return for a consideration in money and becomes lawful owner of the goods. While in a contract of bailment, one person hands over the possession of goods to another for a specific objective and on realisation of such objectives, the bailee has the boundation to return goods to bailor.
4. Sale vs Pledge: A pledge is a security to the lender in the form of goods or valuables for a loan given to a party and does not transfer ownership of the goods while a sale implies the transfer of ownership of the goods.
5. Contract of Sale vs Contract of Work and Labour: When there is a transfer of goods to the buver even though the seller has to do some work or labour to make such transfer, it is a contract of sale but if the work or labour involved is excessively dominant, it is contract of work and labour In contract of work or labour, a person has to use his skill and labour to modify or enhance some object that is given to him by the other party.
6. Sale vs Hire-Purchase: When the seller in case of a default on the part of the buyer can end the contract and is not bound to return the amount of money received in instalments, the contract is of hire purchase but if no instalments are to be paid and it is on outright purchase of goods by the buyer with immediate transfer of ownership to him, then, it is a contract of sale. In case of hire-purchase, the buyer does not have the right to terminate the contract and is liable to pay the instalments due from him.
Q.3. State the conditions implied in a contract for the sale of goods.
Ans. Implied Conditions: The implied conditions are those which are presumed by law to pre However, and implied condition may be negated or waived by an express agreement lions are implied in a contract of sale of goods unless the circumstances of the contract show a different intention:
1. Implied Condition as to Title: In every con contrary, the first implied condition on the part of seller is that:
(a) In case of sale, he has a right to sell goods, and
(b) In case of agreement to sell, he will have a right to sell the goods, at the time when the property is to pass.
Thus, if the title of the seller of goods turns out to be defective, the buyer is entitled to reject the goods and can recover the full price paid by him.
In Rowland V. Divall. A had bought a motor-car of B and later on due to DSV return it to true owner. It was held that A was entitled to recover the full price, though he had used the car for sometime.
2. Implied Conditions under a Sale by Description: In a sale by description, following are the implied conditions:
(a) Goods must correspond with description, and
(b) Goods must be of merchantable quality.
For instance, A buys a ‘new Fiat car’, which he has not seen from B. The car turns out to be old, A can reject the car as the old car cannot correspond with the description of new car.
The expression ‘merchantable quality’ means goods of such a quality and in such a condition that a man of ordinary prudence would accept them as a good of that description. Thus, if a person orders motor horns from a manufacturer of horns and the horns supplied are switched and damaged owing bad packing, he is entitled to reject them, as unmerchantable.
3. Implied Conditions Under a Sale by Sample: In a sale by sample, following are the implied conditions:
(a) Bulk Goods must correspond with the sample in quality,
(b) Buyer shall have a reasonable opportunity of comparing the bulk with the sample, and
(c) Goods shall be free from any defects, not apparent on a reasonable examination of sample, which render the goods unmerchantable.
In a sale by sample, if the buyer is not afforded a reasonable opportunity of comparing the bulk goods with the sample, he may refuse to take the goods. For instance, in a case of sale by sample of two parcels of wheat, the seller allowed the buyer to inspect the smaller parcel but not the larger parcel. It was held that the buyer was entitled to refuse to take any of the parcels of wheat.
4. Implied Condition as to Wholesomeness: In case of sale of eatables and provisions, there is an implied condition that the goods shall be
wholesome and fit for human consumption.
5. Implied Condition as to Quality or Fitness: There is no implied condition as to the quality for any particular purpose of goods supplied under a contract of sale. In other words, the buyer must satisfy himself about the quality as well as the suitability of the goods. This is expressed by the maxim caveat emptor (let the buyer beware)
Exception to this Rule
There is an implied condition that the goods shall be reasonably fit for a particular purpose described if the following three conditions are satisfied:
1 The particular purpose for which goods are required must have been disclosed (expressly or impliedly) by the buyer to the seller.
2. The buyer must have relied upon the seller’s skill or judgement.
3. The seller’s business must be to sell such goods.
For example; X purchased a hot water bottle from Y, retail chemist. X asked Y if it would stand boiling water was poured into it and injured his wife. The chemist is liable to refund the price and pay damages because bottle was unfit for the purpose for which it was purchased.
It may be noted that there is no such implied condition, if the goods are brought under the patent or trade name.
Q.4. Define Doctrine of Caveat emptor. (2014)
Ans. Doctrine of Caveat Emptor: The term ‘Caveat is a word which means ‘let the buyer beware’. This principle states that it is for the buyer to satisfy himself that the goods, which he is purchasing are of the quality, which he requires. If he buys goods for a particular purpose, he must satisfy himself that they are fit for that purpose. It is not the seller’s duty to give to the buyer the goods, which are fit for a particular purpose of the buyer. If the buyer makes a wrong selection, he cannot blame the seller, if the goods turn out to be defective or do not serve his purpose
In Ward V. Hobbs, certain pigs were sold by auction. The buyer paid the price for healthy pigs, but they were ill and all except one died of typhoid fever. It was held that there was no implied condi o Wallanly that the pigs were of good health. It was the buyer’s duty to satisfy himself regarding the health of pigs.
Exceptions to the Doctrine of Caveat Emptor
The doctrine of caveat emptor is subject to the following exceptions:
1. In Case of Misrepresentation by the Seller: Where the seller makes a misrepresentation and the buyer relies on that representation.
2. In Case of Concealment of Latent Defect: Where the seller knowingly conceals a defect which would not be discovered on a reasonable examination.
3. In Case of Sale by Description: Where the goods are sold by description and the goods supplied by the seller do not correspond to the description.
4. In Case of Sale by Sample: Where the goods are sold by sample and are supplied by the seller do not correspond with the sample.
5. Fitness for a particular Purpose: Where the seller or a manufacturer is a dealer of the type of goods sold by him and the buyer has disclosed the purpose for which goods are required and rely upon the seller’s skill or judgement.
6. Merchant Quality: Where the goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that goods shall be of merchantable quality.
Relevance of Caveat Emptor: The rule of caveat emptor appeared to play an im the past when trade was conducted on local scale and the buyer had every opportunity to examine the goods before buying. However, in the modern context, the rigours of the rule have been mitigated because of global dimensions of trade, government legislations on consumer protection, professional management, and instance competition and consumer awareness. In fact, the rule of caveat emptor should be replaced by the rule of caveat vendor.
Q.5. Define transfer of property.
Ans. Transfer or Passing of Property: Sale is primarily the transfer of property in goods by the seller to the buyer. The phrase ‘transfer of property in goods’ means transfer of ownership of goods. ‘Property in goods’ is different from possession of goods. Possession refers to the custody over the goods. So, the property in goods may pass from the seller to the buyer but the goods may be in possession of the seller either as unpaid seller or as a bailee for the buyer. In other cases, the property in goods may still be with the seller although the goods may be in possession of the buyer or his agent or a carrier for transmission to the buyer.
Rules Regarding Transfer of Property
We shall be studying the rules regarding transfer of property under the following two heads:
1. Transfer of Property in Specific or Ascertained Goods: Where there is a contact for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. For the purpose of ascertaining the intention of the parties regard ‘shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case [Section 19(1)(2)]. Thus, in the case of specific goods, the transfer of property takes place when the parties intend to pass it. The parties may intend to pass the property at once at the time of making of the contract or when the goods are delivered or when the goods are paid for
(a) When Goods are in a Deliverable State (Section 20]: Where there is an unconditional contract for the sale of specific goods in deliverable state, the property in the goods passes to the buyer as soon as the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both are postponed.
(b) When Goods have to be put into a Deliverable State (Section 21]: Where there is a contract for the sale of specific goods and the seller is bound to do ‘something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. The word ‘something’ here means an act like packing the goods, or loading them on rail or ship, or filling them in containers or polishing them in order to give a finished share etc. It is to be noted that merely putting the things in a deliverable state would not result in the transfer of property in the goods from the seller to the buyer. It is further necessary that the buyer must have notice thereof, i.e. the fact that the goods have been put in a deliverable state must come to the knowledge of the buyer in some way or the other.
(c) When the Goods have to be Measured, etc. to Ascertain Price Section 221: Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weight, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.
(d) When Goods are Delivered on Approval [Section 24]: When goods are delivered to the buyer on approval or ‘on sale or return’ or on other similar terms, the property therein passes to the buyer:
(i) When he signifies his approval or acceptance to the seller or does any other act…
transaction, e.g. uses the goods, pledges the goods or resells them.
(ii) If he does not signify his approval or acceptance to the seller but retains the goods, without giving notice of rejection, beyond the time fixed for the return of goods, or if no time has been fixed, beyond a reasonable time.
2. Transfer of Property in Unascertained and Future Goods: The rule relating to transfer of property in unascertained and future goods is contained in Sections 18 and 23. These sections provided that where goods contracted to be sold are not ascertained or where they are future goods, the property in goods does not pass to the buyer unless and until the goods are ascertained or unconditionally appropriated to the contract so as to bring them in a deliverable state, either by the seller with the assent of the buyer or by the buyer with the assent of the seller. Such assent may be expressed or implied and may be given either before or after the appropriation is made.
Q.6. Define the term ‘Delivery’ as used in a contract of sale and discuss the rights and duties of the buyers in respect of the sale of goods.
Ans. Delivery of Goods or Delivery: Delivery means a voluntary transfer of possession from one person to another. Delivery of goods sold may be made by doing anything, which the parties agree to treat as a delivery or by doing something, which has the effect of putting the goods into the buyer’s or his authorised agent’s possession.
Types of Delivery or Delivery of Goods
The delivery or delivery of goods may be of the following three types:
1. Actual Delivery: Delivery is said to be actual where the goods are physically handed over to the buyer or his authorised agent.
For example; X sells to Y 100 bags of wheat lying in Z’S warehouse. X orders Z to deliver the wheat to Y.Z deliver to Y, in this case there is and actual delivery of goods.
2. Symbolic Delivery: Delivery is said to be symbolic w control over the goods is handed over to the buyer.
For example; X sells to Y 100 bags of wheat lying in ZS W warehouse to Y, in this case, there is symbolic delivery of goods.
3. Constructive Delivery: Delivery is said to be constructive where a person who is in P of the goods, acknowledges holding of the goods on behalf of the buyer.
For example; X sells to Y 100 bags of wheat lying in Z’s warehouse and orders Z to deliver the wheat to Y. Z agrees to hold the 100 bags of wheat on behalf of Y and makes the necessary entry in his books. In this case, there is constructive delivery of goods.
Rights and Duties of Buyer
The following rules shall apply regarding delivery of goods:
1. The seller is to deliver the goods when the buyer applies for delivery, it is the duty of the buyer to claim the delivery.
2. Where the goods at the time of the sale are in the possession of a third person, there will be delivery only when the person acknowledges to the buyer that he holds the goods on his behalf.
3. It is not the duty of the seller to send or carry the goods to the buyer, unless the contract so provides. But the goods must be in a deliverable state at the time of delivery.
4. If, by the contract, the seller is bound to send the goods to the buyer, but no time is fixed, the seller is bound to send them within a reasonable time.
5. The place of delivery is usually stated in the contract. Where it is so stated, the goods must be delivered at the specified place during working hours on a working day. Where no place is mentioned, the goods are to be delivered at a place at which they happen to be at the time of contract of sale and if not in existence, then they are to be delivered at the place where they are to be produced or manufactured.
6. In the absence of an agreement to the contrary, the expenses of making delivery of the goods must be borne by the seller, and the expenses of receiving delivery must be borne by the buyer.
7. If the seller sends to the buyer a larger or a smaller quantity of goods than the ordered quantity, then the buyer may:
(a) reject the whole,
(b) accept the whole or
(c) accept the quantity he ordered and reject the rest.
8. If the seller delivers with the goods ordered, goods of a wrong description, then the buyer may:
(a) accept the goods ordered and reject the rest, or
(b) reject the whole.
Q.7. Who is an unpaid seller? Explain the nature of the right of lien and the right of stoppage-in-transit of an unpaid seller.
Ans Unpaid Seller: The seller of goods is deemed to be an ‘unpaid seller’ (a) when the whole of the price has not been paid or tendered or, (b) where a bill of exchange or other negotiable instrument has been received as a conditional payment, i.e. subject to the realisation thereof, and the same has been dishonoured.
The term ‘seller’ here includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading had been endorsed, or a consignor or agent who has himself paid, or is directly responsible for the price [Section 45).
This definition emphasises the following characteristics of an ‘unpaid seller.
1. He must sell goods on cash terms and not on credit and he must be unpaid.
2. He must be unpaid either wholly or partly. Even if only a portion of the price, however s remains unpaid, he is deemed to be unpaid seller. Where the price is paid through a billa
exchange or other negotiable instrument, the same must be dishonoured.
3. He must not refuse to accept payment when tendered. If the price has been tendered by the buyer but the seller wrongfully refuses to take the same, he ceases to be an unpaid seller.
Right of Lien [Section 47]
“Lien’ is the right to retain possession of goods and refuse to deliver them to the buyer until the price due in respect to them is paid or tendered. An unpaid seller in possession of goods sold is entitled to exercise his lien on the goods in the following cases:
1. Where the goods have been sold without any stipulation as to credit. 2. Where the goods have been sold on credit, but the term of credit has expired.
3. Where the buyer becomes insolvent, even though the period of credit may not have yet expired.
Right of Stoppage of Goods-in-transit: The right of stoppage-in-transit means the right of stopping further transit of the goods while they are with a carrier for the purpose of transmission to the buyer resuming possession of them and retaining possession until payment or tender of the price.
Thus, in a sense this right is an extension of the right of lien because it entitles the seller to regain possession even when the seller has parted with the possession of the goods.
When can this right be exercised? [Section 50]
An unpaid seller can exercise this right only when:
1. The Buyer becomes Insolvent: The buyer is said to be insolvent when he has ceased to pay his in the ordinary course of business, or cannot pay his debts as on date, whether he is declared an insolvent or not [Section 2(8)],
2. The Property has passed to the Buyer: If property has not passed to the buyer then this right is termed as ‘right of withholding delivery [Section 46(2)], and
3. The Goods are in the Course of Transit: This means that goods must be neither with the seller nor with the buyer nor with their agent. They should be in the custody of a carrier as independent middleman, e.g. railways and common carrier whose business is to transport goods of others. The carrier must not be either seller’s agent or buyer’s agent. Because if he is seller’s agent, the goods are still in the hands of seller in the eye of law and hence there is no transit and if he is buyer’s agent, the buyer gets delivery in the eye of law and hence question of stoppage does not arise.
Q.8. Who is ‘Unpaid seller’? What are his rights against the goods and the buyer personally? (2015)
Or When is a seller of the goods deemed to be an unpaid seller? What are the rights against the goods and the buyer?
Or What is an unpaid seller? What are his rights against the goods?
Ans. Unpaid Seller: Refer to Section-B, Q.7.
1. Rights of an Unpaid Seller Against the Goods: An unpaid seller has the following rights against the goods:
(a) Right to Lien: Refer to Section-B, Q.7.
(b) Right to Stoppage-in-Transit: Refer to Section-B, 0.7.
(c) Right to Re-sale: An unpaid seller may re-sell the goods in the following cases:
(i) Where the goods are perishable.
(ii) Where the right of re-sale is expressly reserved in the contract.
(iii) Where in exercise of right of hen or stoppage-in-transit, the unpaid seller gives notice to the buyer of his intention to re-sell and the buyer does does not pay the price within a reasonable time.
If on a re-sale, there is a deficiency between the price and the amount realised, the seller is entitled to recover it from the original buyer. If there is a surplus, he can keep it. The seller will have these rights, only if he has given notice to the original buyer. Thus, if notice of re-sale has not been given to the original buyer, then seller can neither ask for the eficit amount nor is he entited to keep the surplus.
(d) Right to Withhold Delivery: Where the property in goods has not passed to the buyer an unpaid seller has a right of withholding delivery of goods similar to and co-extensive with his rights of lien and stoppage-in-transit, where the property in goods has passed to the buyer.
2. Rights of an Unpaid Seller Against the Buyer: An unpaid Seller has the following rights against buyer:
(a) Suit for price: According to Section 55, the seller has the right to file a suit against the buyer if the ownership of goods has been transferred to him.
(b) Suit for Damages: According to Section 56, if the buyer refuses to accept the goods or defaults in making the payment for them the seller has the right to file a suit for damages.
(C) Suit for Interest: The unpaid seller has the right to be paid interest by the buyer for any delay in making the payment.
(d) Repudiation of Contract before Due Date: The seller has the right to sue the buyer for repudiation of contract if the buyer repudiates the contract before the due date for the delivery of goods and the seller does not accept it.
Q.9. State the circumstances when a buyer gets a better title on goods than seller.
Ans. Buyer’s Rights Against the Seller: The buyer has the following rights against the seller for breach of contract:
1. Suit for Damages for Non-delivery (Section 57]: Where the seller wrongfully neglects or refuse to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
The damages are assessed in accordance with the rules contained in Section 73 of the Indian Contract Act, that is, the measures of damages shall be the estimated loss directly and naturally resulting in the ordinary course of events, from the seller’s breach of contract. If the goods in question have a ready market the measure of damages is prima facie to be ascertained by the difference between the contract price and market price on the date of breach. Section 61 entitles the buyer to sue the seller for ‘special damages’ also for such loss which the seller knew when they made the contract to be likely to result from the breach of it.
2. Suit for Specific Performance [Section 58]: Where there is breach of a contract for the sale of specific or ascertained goods, the buyer may file a suit for the specific performance of the contract. The remedy is discretionary and will only be granted when damages would not be an adequate remedy, for instance, the subject matter of the contract is rare goods, say, a picture by a dead painter.
3. Suit for Damages for Breach of Warranty (Section 59]: Where there is a breach of warranty by the seller or where the buyer elects or is compelled to treat breach of condition as breach of warranty, the buyer is entitled to file a suit for damages if the price has already been paid. But if the buyer has not yet paid the price he may ask the seller for a reasonable reduction in price.
Here also damages are to be ascertained in accordance with the provisions of Section 73 of the Indian Contract Act. Thus, the loss arising directly and naturally from the breach, i.e. the difference between the value of goods as delivered, and the value they would have had if the goods answered to the warranty, can be recovered.
4. Suit for Rescission of Contract and for Damages for Breach of ‘Condition’: The breach of “condition’ entitles the buyer to treat the contract as repudiated [Section 12(2)]. Accordingly, where there is a breach of ‘condition’ by the seller, the buyer is entitled to file a suit for rescission of the contract Also, he may claim damages for loss suffered on the footing that the whole contract is broken and the seller is guilty of non-delivery.
5. Suit for Recovery of the Price Together with Interest (Section 61): If the buyer has already paid the price of the goods to the seller and the goods are not delivered or they are stolen one, he can
sue the seller for the refund of the price and also for the interest at reasonable rate from the date of payment to the date of relund.
Q.10. What is breach of contract? Discuss the various remedies related to it.
Ans. Breach of Contract: When any of the parties of the contract fails or refuses to perform his part on the promise in the contract then such a situation amounts to a breach of contract of sale. A condition when any party by his acts renders the performance of the contract of sale impossible may also result in breach of contract. The seller’s rights against the buyer in case of the breach of contract and the buyer’s rights against the seller in case of breach of contract are dealt with, in detail.
Remedies for Breach of Contract
The seller has the following remedies against the buyer personally.
1. Seller’s Suits: The seller’s suits against the buyer in case of breach of contract are as follows:
(a) Suit for Price: 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.
(b) Suit for Damages for Non-acceptance: 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 full price of the goods. The damages are calculated in accordance with the rules contained in Section 73 of the Indian Contract Act.
(C) Suit for Special Damages and Interest: Where there is a specific agreement between the seller and the buyer as to interest on the price of the goods from the date on which payment becomes due, the seller may recover interest from the buyer. If however, there is no specific agreement to this effect, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer.
2. Buyer’s Suits: Refer to Section-B, Q.9.
Q.11. Write a note on “Hire-Purchase agreement’.
Ans. Hire Purchase Agreement: A hire-purchase agreement is one in which the price of goods is agreed to be paid in instalments and the buyer buys a part of the price to the seller at the time of making the contract. He takes possession of the goods and promises to pay the rest in agreed instalments. The seller promises to transfer the ownership of the goods to the buyer on the completion of the payment. The instalments till that time if are not paid are deemed to be the hire charges for the goods. If the buyer defaults in the payment of instalments the seller can take back the goods and is not bound to return the amount of instalments that are already paid to him. This is so because the ownership of goods is the seller’s. The buyer is entitled to use the goods so long as he continues to pay the instalments and becomes the owner when he has paid all the instalments. But before such payment is made, the answer of ownership from the seller to the buyer does not take place.
The contract is of hire purchase when the seller in case of a default on the part of the buyer can end the contract and is not bound to return the amount of money which is received in instalments. In such a case, the buyer does not have the right to terminate the contract and is liable to pay the instalments due from him.
In hire purchase agreement, the ownership of goods is not transferred to the buyer till such time that he pays the final instalment. The seller has the right to take back the goods if the buyer defaults in making payment of an instalment. Here, the buyer is the bailee of the goods till he has paid the final instalment. So, the ownership is that of seller’s till then. If the buyer fails to pay the instalment, he can’t pledge or sell the goods to pay the remaining instalments. If the buyer fails to pay an instalment paid by him, they are forfeited and the goods are taken back by the seller.