Asok Nadhani
5.1 Unpaid Seller
An unpaid seller
means a seller who has not been paid the whole price of the goods when it has
fallen due for payment, even though the possession as well as ownership of
goods has not[a1] been passed to
the buyer.
1.
The whole of the price has not been paid or
tendered,
2.
Where the payment has been made by a bill of
exchange or other negotiable instrument and the negotiable instrument is
dishonoured, the seller shall be called as an unpaid seller [Sec.45(1)].
3.
He has exercised an immediate right of action for
the price.
In the following situations, a seller may or may
not be considered as an unpaid seller:
(a)
If the seller allows some credit period to the
buyer, the seller shall not become an unpaid seller until the allowed credit
period has expired. Even, if he is not still paid the price after expiry of
such extended credit period, he shall become [a3] an unpaid
seller.
(b)
In case of cash sale, if the buyer refuses to pay
the price, the ownership is transferred to the buyer immediately, but the
seller shall be an unpaid seller.
(c)
If the buyer pays the price, but defaults in making
some other payment (e.g., custody charges of the goods), the seller is not an
unpaid seller.
(d)
If the buyer tenders or makes an offer to pay the
price, but the seller fails to accept the tender, the seller shall not be an
unpaid seller.
Here, ‘Seller’
means not only the actual seller, but also any person having the position of a
seller (e.g., an agent of the seller to whom a bill of lading has been
endorsed, a consignee or agent who has himself paid for the goods or is
responsible for the price). [Sec. 45(2)]
Rights of Unpaid Seller
Right of the
unpaid seller depends on the fact that the property in goods has been passed on
the buyer or not. There are two types of right of an unpaid seller, like,
1.
Right against the Goods,
2.
Right against the Buyer.
5.2 Rights of Unpaid Seller
against the Goods
An unpaid seller can exercise the following rights against the goods
irrespective of the fact that whether the property in goods to the buyer has
been transferred or not.
5.2.1 Property in Goods has been passed on the Buyer
(Sec. 47 to 54)
When the
property in the goods has passed to the buyer, an unpaid seller can exercise
the following rights against the goods [sec. 46(1)]:
5.1.1.1.1.1 Right of Lien [Sec.
46(1), 47, 48, 49]
Lien means the
right to retain the goods belonging to another until certain charges due from
its owner are recovered [sec. 46(1)(a)]. The unpaid seller can exercise particular
lien on the goods in respect of which the buyer has not been paid the price and
he has part with the ownership of the goods. In order to exercise this right
the following conditions are to be satisfied:
§ the property in
goods has been passed on the buyer.
§ the possession
of the good is still with the seller.
§ the seller is an
unpaid seller. Whereas, if some other charges, other than the price, becomes
due the seller cannot be said as an unpaid seller.
§ if he has made
part delivery of the goods he may exercise lien on the goods unless such a part
delivery has been made under such circumstances as to show an agreement to wave
off the lien.
§ the seller can
retain possession of the goods until the payment is made in the following
cases:
(a)
Where goods have been sold without any stipulation
as to credit.
(b)
Where the goods have been sold on credit but the
payment has not been made even after the expiry of credit term.
(c)
Where the buyer becomes insolvent [sec. 47(1)].
Rules regarding Lien
The rules
regarding lien are as follows:
1.
The seller can exercise his right of lien
irrespective of the fact that he has the possession of goods in the capacity of
bailee and not in the capacity of owner [sec.47(2)]. If he cannot acquire the
possession of the goods, he will lose the right of lien also.
2.
The lien depends on actual possession of goods but
not on mere possession of title and the possession of goods must not expressly
exclude the right of lien.
3.
The unpaid seller can exercise the right of lien
only to recover the price but not any other charges (like, warehouse or dock
charges etc.).
4.
In case of part delivery of goods, an unpaid seller
can exercise his right of lien on the remainder which can be delivered only on
recovery of price for the goods already delivered or yet to be delivered.
When a part of
the goods is delivered as to show an agreement to waive the lien, the seller
cannot retain the remainder (sec.48).
5.
When an unpaid seller, having a lien thereon, has
obtained a decree for the price of goods, does not lose his right of lien
[sec.49(2)].
Termination of Lien (sec.49)
The unpaid
seller loses his right of lien on the goods in the following cases:
1.
Payment of Price: If the buyer
makes the full payment of price of the goods and the ownership and possession
of goods has transferred to the buyer, then the seller cannot be treated as an
unpaid seller and the right of lien comes to an end as soon as the price is
paid.
2.
Delivery of
Goods to the Carrier: When the seller delivers the goods to carrier or
any other persons as a bailee without reserving the right of disposal of the
goods such delivery of goods amounts to a delivery of goods to the buyer. The
delivery of goods to a carrier for transmission to the buyer only puts an end to
the right of lien, but not to the right of stoppage in transit which is
available till the buyer gets possession. The right of lien revives on
exercising the right of stoppage in transit.
3.
Delivery of
Goods to the Buyer: When the buyer or his agent lawfully obtains
possession of the goods, the seller cannot regain the possession of the goods
any more whether they are delivered by mistake or otherwise and the right of
lien of the sellers ceases to exist. Where the buyer redelivers the goods to
the seller for any special purpose, the right of lien cannot be exercised.
Example: A refrigerator sold to the
buyer was delivered back to the seller for some repairs. As the refrigerator
was in the hands of a seller for a specific purpose, he was not entitled to the
right of lien.
4.
Waiver of Lien: Even if the
seller has not received price, he may decide not to exercise the right of lien,
i.e; the seller may waive his right of lien either in expressed or implied
manner without any consideration.
(i)
Express Waiver – It implies that the contract of
sale provides in express terms that the seller shall not retain possession of
goods even if the price has not paid.
(ii)
Implied Waiver – When the seller sells the goods on
credit or grants a fresh term of credit on the expiry of the original term,
lien is waived until the term has expired. But, the right of lien will be
activated after the expiry of such term of credit.
Example:
If the seller
takes a bill for the price payable at a future date, the lien is waived during
the currency of the bill. But, it revives on dishonour of bill.
5.
Where the buyer after having obtained the title of
goods lawfully transferred the documents to a person who takes the documents in
good faith and for consideration, the right of lien ceases to exist.
6.
Re-sell of Goods: If the buyer
has further sold the goods with the consent of the seller, the seller cannot
exercise his right of lien.
5.1.1.1.1.2
Right of Stoppage in Transit [sec.46(1)(b),
50, 51, 52, 54]
The unpaid seller can ask the carrier to not to carry the goods if he
remained unpaid. He may resume the possession of the goods and retain the same
until payment or tender of price either by taking actual possession of the
goods or by giving a notice of his claim to the carrier or other bailee or
principal in whose possession the goods are. However, this right can be
exercised subject to the following conditions:
§ the seller is
unpaid,
§ buyer has become
insolvent,
§ the property in
goods has passed on to the buyer,
§ the goods must
be in transit (sec. 50).
The right of stoppage of goods in transit, which is an extension of
right of lien, arises only on the insolvency of buyer and when the goods are in
transit [sec.46(1)(b)].
Duration of Transit (sec.
51)
According to sec. 51(1), goods are deemed to be in transit from the time
when they are delivered to a carrier or other bailee for the purpose of
transmission to the buyer until the buyer or his agent takes delivery of them.
The goods are still considered to be in transit, if they are rejected by the
buyer and the carrier or other bailee continues in possession of them, even if
the seller has refused to receive them back.
Termination of
Transit of Goods
The transit of goods is deemed to come to an end and the seller cannot
exercise his right of stoppage in the following cases:
§ When the buyer
or his agent takes delivery of goods after the goods have reached destination.
§ When the buyer
or his agent obtains delivery of the goods before their arrival at the
appointed destination [sec. 51(2)].
§ When after
arriving the goods at their destination, the carrier acknowledges to the buyer
or his agent that he holds the goods on his behalf [Sec. 51(3)].
§ When the carrier
or other bailee wrongfully refuses to deliver the goods to the buyer or his
agent in that behalf [sec. 51(6)].
§ When part
delivery has been made to the buyer or his agent in that behalf, transit will
be at the end for the remainder of the goods which are yet in the course of the
transit. Whereas, if part delivery is made with an intention of delivering the
whole of the goods, the goods cannot be stopped in transit [sec. 51(7)].
§ When the goods
have arrived at their destination but the buyer does not take delivery and
requests the carrier or other bailee to carry the goods to some further
destination and the carrier agrees to take them to the new destination.
However, if the buyer rejects in taking delivery of goods and the
carrier or other bailee continues to be in possession of them, the transit is
not deemed to come to an end [sec.51(4)].
Modes of
exercising the Right of Stoppage in Transit (sec.52)
The unpaid seller may exercise the right of stoppage in transit either
§ By taking actual
possession of the goods or
§ By giving notice
of claim to the carrier or other bailee in whose possession the goods are.
Such notice may be given to the person in actual possession of the goods
or to his principal. The notice which is given to the principal, to be
effectual, must be given at such time and in such circumstances that the
principal, by reasonable diligence, may communicate it to his servant or agent
in time to prevent a delivery to the buyer [sec. 52(1)].
But, if the notice is given by the seller to the carrier or other bailee
in possession of the goods, the carrier must re-deliver the goods to, or
according to the direction of the seller, the expense of which to be borne by
the seller [sec.52(2)].
If the carrier, inspite of getting proper notice from the seller to stop
the goods in transit, delivers them to the buyer or refuses to deliver them to
the seller, he is liable to the seller for wrongful appropriation of goods.
But, if after completion of transit, the carrier wrongfully returns the goods
to the seller, he is liable to the buyer for such conversion.
No contract can be rescinded by mere exercise by an unpaid seller of his
right of lien or stoppage in transit which is subject to provision as contained
in sec.54 [sec.54(1)].
5.1.1.1.1.3
Right of Resale [Secs. 46(1)(c), 54]
An unpaid seller has right to resell the goods in the following
circumstances:
(a)
In case of
Perishable Goods: If the subject matter of contract of sale is perishable
goods, the unpaid seller may sell the goods if the following conditions are
satisfied:
i.
The seller is an unpaid seller.
ii.
The buyer fails to pay the price to the seller
within a reasonable time. In this case, the seller is not required to give a
notice to the buyer of his intention to re-sell the goods.
(b)
In case of any
Other Goods: If the subject matter of the contract of sale is non-perishable goods,
the unpaid seller can re-sell the goods only if the following conditions are
satisfied:
i.
The seller is an unpaid seller.
ii.
The seller has exercised his right of lien or right
of stoppage of goods in transit.
iii.
The seller has given a notice of his intention to
re-sell goods to the buyer if he (buyer) does not make payment within a
reasonable time.
iv.
The buyer fails to pay the price to the seller
within a reasonable time.
If the seller
has given due notice to the buyer before resale, he can claim damages (i.e. the
difference amount between contract price and amount reaslised on re-sale) from
the buyer on arising a loss on re-sell. Whereas, on arising the surplus on
re-sale, the seller is not liable to surrender it to the buyer as the buyer
cannot be allowed to take advantage of his own mistake. Even, the new buyer
shall become the owner of such goods.
If the unpaid seller
cannot give any notice, he is not entitled to-
i.
recover any loss arising on re-sale of the goods,
ii.
retain any surplus arising on re-sale of the goods
and the buyer can claim such surplus as his right [sec.54(2)].
iii.
The new buyer shall become the owner of such goods.
However, no
notice is required to be given by the seller, if the seller expressly reserves
the right of re-sale in case the buyer should make default. [sec.54(4)]
5.1.1.1.2 Property in Goods
has not passed to the Buyer
Where the property in goods has not passed to the buyer, the seller has
in addition to other remedies a right of withholding delivery similar to and
co-extensive with his right of lien and stoppage in transit [sec.46(2)].
5.1.1.2 Rights
against the Buyer personally
An unpaid seller can enforce certain rights called as ‘rights in
personam’ as against the ‘rights in rem’ against the buyer personally, in
addition to his right against the goods. These rights are described as follows:
(a)
Sue for Price
When the
property in goods has passed on to the buyer, if the buyer wrongfully neglects
or refuses to make payment regarding delivery of goods the unpaid seller can
sue him for price even if the payment of price is not linked with the transfer
of property or delivery [sec.55 (1)].
When the property
in goods has not passed to the buyer, but the price is payable on a certain day
irrespective of delivery and the buyer wrongfully neglects or refuses to make
payment, the seller may sue him for price. [sec.55(2)]
(b)
Sue for Damages
for non-acceptance of Goods (Sec.56)
When the buyer
wrongfully neglects or refuses to accept and pay the price of the goods and the
refusal amounts to repudiation of the contract, the seller can sue him for
damages for non-acceptance. The damages should be measured in accordance with
the provision of sec.73 and 74 of Indian Contract Act, 1872.
Where refusal
does not amount to repudiation and the seller requests buyer to take delivery
of the goods but buyer does not take delivery of goods within reasonable time,
he is liable to the seller for reasonable charges for taking care and custody
of goods and for any loss occasioned by his refusal or neglect.
(c)
Sue for Damages
for Anticipatory Breach (sec. 60)
If the buyer
repudiates the contract before the date of delivery, the seller may either
treat the contract as subsisting and wait till the date of delivery or he may
treat the contract as rescinded and sue for damages for breach of contract
without waiting for the due date.
(d)
Sue for Interest
[sec.61(2)(a)]
If there is a
specific agreement between the parties to a contract regarding interest on
price of the goods from the date on which payment becomes due, the seller may
recover interest from the buyer. Whereas, if there is no specific agreement,
the seller can charge interest on the price when it becomes due from such day
as he may notify to the buyer. In the absence of any contract, the Court may
award interest at such rate as it thinks fit on the amount of the price from
the date of tender of price or from the date on which the price was payable.
5.1.1.2.1 Effect of Sub-sale or Pledge by Buyer
(Sec.53)
When the buyer
further sells the goods to a new buyer it is called as sub-sale. Generally,
unpaid seller’s right of lien and right of stoppage of goods in transit is not
affected by sub-sale or pledge of goods by the buyer in following situations:
1.
When the buyer exercises the right of sub-sale or
pledge of goods with the consent of the seller, the seller shall lose his right
of lien and right of stoppage of goods in transit.
2.
If the sub-sale or pledge of goods is made by the
buyer without the consent of the seller, the following consequences may arise-
(a)
If the sub-sale of goods is made by the buyer to
the new buyer by way of transfer of document of title to goods, the new buyer
shall become entitled to the goods represented by the document of title to
goods, provided the new buyer has bought the goods in good faith and for
consideration. In such a case, the unpaid seller shall lose his right to
exercise the right of lien and right to stop the goods in transit.
Example:
A bought from B
a shipment of certain goods. B sent the bill of landing to A. A handed over the
bill of landing to C in return for a loan. C took the bill of lading in good
faith. Subsequently, A became insolvent. B attempted to stop the goods in
transit but C claimed them. Held, C had a good title to the goods, which
defeated B’s right of stoppage in transit.
Example:
B sells and
consigns certain goods to A. B being still unpaid, A becomes insolvent and
while the goods are in transit, assigns the bill of lading for cash to C who
knows that A is insolvent. The assignment not being in good faith, B may stop
the goods in transit.
(b)
If the pledge of goods is made by the buyer by way
of transfer of document of title to goods, and the pawnee acts in good faith
and for consideration, then, the rights of unpaid seller to exercise right of
lien and right to stop the goods in transit shall become secondary.
However, if the
buyer has also pledged certain other goods with the same pawnee, then, the
unpaid seller can compel the pawnee to satisfy his claim out of other goods of
the buyer pledged with him. Thus, if the pawnee’s debt is satisfied out of the
other goods or securities of the buyer pledged with him, the unpaid seller can
demand the goods back from the pawnee. [sec.53(1),(2)]
Example:
A sells goods to
B of the value of Rs.10,000 and forwards a bill of lading to B who deposits it
with C to secure an advance of Rs.4,000. B becomes insolvent. A may exercise
his right of stoppage in transit, but subject to paying C the sum of Rs.4,000.
(c)
The unpaid seller’s right of lien and right of
stoppage of goods in transit are not affected by sub-sale or pledge by the
buyer made otherwise than by way of transfer of document of title to goods
(i.e., by way of transfer or delivery of actual goods).The new buyer or the
pawnee (as the case may be) shall not become entitled to the goods even though
he might have acted in good faith and had paid consideration.
5.1.1.3 Distinction between Right of Lien and Right
of Stoppage of Goods in transit
The difference
between right of lien and right of stoppage of goods in transit is as follows:
|
Basis of
distinction
|
Right of Lien
|
Right of
Stoppage of Goods in transit
|
|
1. Meaning
|
Lien means a right of a person to retain the possession of goods
belonging to some other person.
|
Stoppage of goods in transit means a right to regain or resume the
possession of goods belonging to some other person.
|
|
2. Insolvency of
Buyer
|
An unpaid seller can exercise the right of lien against any buyer,
when the buyer has become insolvent or he has the capacity to pay but does
not pay.
|
An unpaid seller can exercise the right of stoppage of goods in
transit only if the buyer has become insolvent.
|
|
3. Possession of
Goods
|
Right of lien can be exercised only if the goods are in actual or
constructive possession of the unpaid seller.
|
An unpaid seller can exercise the right of stoppage of goods in
transit only if he has delivered the possession of goods to a carrier for
transmission to the buyer; but the goods are yet to be delivered.
|
|
4. Period of
exercising the Right
|
Lien can be exercised until the goods are delivered to the buyer.
|
The right of stoppage of goods in transit can be exercised by
delivering the goods to the carrier and continues until the possession of
goods is acquired by the buyer. Hence, where the right of lien ends, the
right of stoppage of goods in transit starts.
|
|
5. Cessation of Right
|
Right of lien is lost if the seller delivers the goods to a carrier
without reserving his right of disposal of goods and the possession of goods
is transferred to the buyer.
|
The right is lost immediately on delivering the goods to the buyer by
the carrier.
|
5.2 Buyer’s remedies against the Seller
A buyer has the
following remedies against the unpaid seller for breach of a contract of sale:
1.
Suit for Damages
for Non-delivery of Goods (Sec. 57)
The buyer can sue the
seller for recovery of damages resulting from non-delivery of goods if the
following conditions are satisfied:
(a)
As per the terms of the contract, the seller is
bound to deliver the goods to the buyer.
(b)
The seller wrongfully neglects or refuses to
deliver the goods.
(c)
The buyer is ready and willing to take the delivery
of goods.
2.
Suit for Damages
for Repudiation of the contract before the due date of Delivery (Sec. 60)
If the seller expresses his
intention of non-delivery of goods to the buyer, before arriving the due date
of delivery of goods, the buyer may exercise any of the following two options:
(a)
The buyer may treat the contract as subsisting and
wait until the due date of delivery of goods has arrived. If on the due date
the seller does not deliver the goods, it would amount to a breach of contract,
for which the buyer shall have a right to sue the seller.
(b)
The buyer may immediately sue the seller for damages
without waiting for due date for delivery of goods to arrive.
3.
Suit for
Performance of Contract (Sec. 58)
The buyer may sue the seller
for specific performance (i.e., actual carrying out the contract of sale as
agreed to between the parties to a contract), if the seller wrongfully neglects
or refuses to deliver the goods. Even, the buyer may seek a Court order
directing the seller to deliver the goods as agreed to in the contract of sale.
Specific performance is
allowed in accordance with the provisions of the Specific Relief Act, 1963.
4.
Suit for Breach
of Warranty (Sec. 59)
A breach of warranty gives
a right to the buyer to claim damages from the seller in any of the following
ways:
(a)
If the price is payable by the buyer, the buyer may deduct the amount of
damages at the time of making the full payment. However, if the amount of
damages exceeds than the price payable, the buyer may sue the seller for
recovery of such excess damages.
(b)
If the price has already been paid by the buyer, the buyer may sue the seller for
recovery of damages.
The fact that a buyer has
set up a breach of warranty in diminution or extinction of price does not
prevent him from suing for the same breach of warranty, if he has suffered
further damage [sec.59(2)].
5.
Suit for Refund
of Price and Recovery of Interest [Sec. 61(2)(b)]
In case of wrongful neglect
or refusal by the seller to deliver the goods, the buyer has the right to
repudiate the contract of sale. When the contract of sale is repudiated, the
buyer can exercise the following rights:
(a)
If the price is already paid, the buyer may sue the
seller for refund of price.
(b)
The buyer may sue the seller for recovery of
interest, if he is entitled to refund of the price. Where the buyer has not
paid the price, he cannot claim any interest, but he shall have a right to
recover the damages from the seller for non-delivery of goods. The rate of
interest to be awarded is at the discretion of the Court.
5.3 Unpaid Seller’s remedies against the Buyer
An unpaid seller
has the following remedies against the buyer for breach of a contract of sale:
1.
Suit for price (Sec. 55),
2.
Suit for interest [Section 61(2)(a)],
3.
Suit for damages for non-acceptance of goods (sec.
56),
4.
Suit for damages for anticipatory breach, i.e.,
suit for damages for repudiation of contract before the due date of delivery of
goods (Sec. 60) and
5.
Wrongful refusal to take delivery (Sec. 44).
5.4 Sale
An auction sale
means a public sale, where different intending buyers are invited to
participate in the process of bidding for sale of goods. The goods are
ultimately sold to the highest bidder.
5.4.1 Procedure in Auction Sales
1.
Generally, an auction sale is notified to the
public by issue of an advertisement given in the newspaper and a printed
catalogue of the goods together with the terms of sale by the auctioneer. It
does not amount to an offer but merely to an invitation to offer. If the
auction sale is not held on the appointed day, bidder cannot sue the auctioneer
for breach of contract.
2.
The seller may organise an auction sale himself or
can appoint an auctioneer who shall make all the necessary arrangements for
organizing an auction sale.
3.
An auctioneer is an agent of the seller, i.e.,
there is a relationship of principal and agent between the seller and the
auctioneer. The auctioneer must comply with all the directions of the seller.
During sale of goods by the auctioneer, if it is afterwards discovered that
seller had no title to the goods (e.g., where the stolen goods were handed over
by the seller to the auctioneer), the auctioneer may hold the seller liable for
damages.
4.
The auctioneer can stipulate his own terms and
conditions regarding the auction sale.
5.
The bidders are asked to make bids. Every bid
amounts to an offer. The auction goes in favour of the highest bidder.
6.
Acceptance is given by the auctioneer by some
customary method, e.g., fall of hammer, speaking loudly the words ‘going going
gone’ or ‘one, two, three’. The auctioneer thus ‘knocks down’ the lot to the
highest bidder and contract of sale is completed.
7.
Sometimes, the auctioneer at his discretion,
reserves a right to refuse the highest bid. Similarly, the bidder is allowed to
withdraw his bid before falling of hammer or final acceptance of the bid.
5.4.2 Legal provisions of Auction Sale
According to
sec.64 of Sale of Goods Act, the following rules apply in case of an auction
sale:
1.
Goods put up for
sale in lots
Where goods are put up for
sale in lots, each lot is prima facie deemed to be subject of a separate
contract of sale [Sec.64(1)]
2.
Time of
completion of Auction Sale
The auction sale starts
with placing of bids. A bid means an offer by an intending buyer at the price
offered by him. The bidders present in the auction sale compete with each
other. Generally, the auctioneer accepts the highest bid. However, the
auctioneer is not bound to accept the highest bid. He may accept any lower bid
also, without assigning any reason. Even he can decide not to sell the goods at
the auction sale to any bidder. A valid contract is formed immediately on
acceptance of a bid by the auctioneer.
3.
Withdrawal of
Bid
Every bid constitutes only
an offer to buy. Like any other offer, a bid can also be withdrawn before it is
accepted by the auctioneer [sec.64(2)]. If before the fall of the hammer, any
bidder revokes his bid, the security amount may not be forfeited. Even where
the terms of auction sale expressly provide that a bid once made cannot be
withdrawn, any bidder may withdraw his bid before its acceptance.
Example:
At an auction sale, C made
the highest bid for an article of P, but he withdrew his bid before the fall of
the hammer. P contended that there was a completed sale and C was bound by it.
Held, C’s bid was an offer and it could be revoked before the fall of the
hammer. The withdrawal of the bid is valid even if one of the conditions of
sale was: “Bid once made shall not be withdrawn.”
If the goods are destroyed
or damaged before completion of sale, the loss shall be borne by the seller.
Example:
A bids Rs.3,000 for a
costly flower vase at an auction sale. The auctioneer purports to accept the
bid by striking his hammer, but accidentally strikes the vase which is broken into
pieces. The sale in this case is not complete and the seller will have to bear
the loss.
4.
Seller’s right
to Bid
A right to bid may be
expressly reserved by or on behalf of the seller. The seller can bid at the
auction sale only if the bidders are given due notice of the fact that seller
is also bidding. If the due notice is not given to the bidders, contract of
auction sale shall be voidable at the option of successful bidder. Only one
person can be appointed to bid on the seller’s behalf. Thus, where the right is
expressly reserved, either the seller or one bidder appointed by him can bid on
his behalf at the auction [sec.64(3)]. Any sale contravening this rule may be
treated as fraudulent by the buyer [sec. 64(4)]. Secret employment of even one
puffer is fraudulent unless a right to bid is expressly reserved. In such case,
employment of second puffer is fraudulent also.
5.
Pretended
Bidding
A bid made by any person on
behalf of the auctioneer without complying with the requirements in this behalf
is called pretended bidding. It amounts to a fraudulent sale since it is done
for an unlawful purpose (raising the price of the goods).
A fraudulent sale (Pretended
Bidding) is voidable at the option of the aggrieved party (the successful
bidder) [sec.64(6)]. However, the bidder whose bid was accepted by the
auctioneer, may avoid the contract of sale after coming to know about the fact
of fraudulent sale.
6.
Auction Sale
The Act permits an
auctioneer to notify the auction sale subject to reserve price or upset price
[sec.64(5)]. Reserve price or upset price means the minimum price fixed by the
auctioneer below which the bidders are not allowed to place their bids. Hence,
a bid shall not be valid unless it is equal to or more than such price. Where
the highest bid falls short of the reserve price, such a bid is not binding on
the auctioneer, and the auctioneer may lawfully refuse to accept the same. Even
if the auctioneer mistakenly accepts a bid which is below the reserve price,
such acceptance will be invalid, and the auctioneer cannot be compelled to
perform the contract of sale. When the sale is without reserve price, the goods
will be sold to the highest bidder irrespective of the fact whether the sum bid
is equal to the real value or not.
7.
Transfer of Ownership
On completion of auction
sale, the ownership of goods does not automatically pass to the successful
bidder. The rules contained in Sections 18 to 24 regarding transfer of
ownership in a contract of sale shall equally apply for determining the time of
transfer of ownership in case of an auction sale which are as follows-
(a)
if the auction is of specific goods in a
deliverable state, then, immediately on completion of auction sale, the
ownership of goods shall be transferred to the buyer.
(b)
if the goods are not specific goods or are not in
deliverable state, the ownership of goods shall not immediately pass to the
buyer.
8.
Knock out
Agreements
Where a group of persons
form a combination to prevent competition between themselves at an auction sale
and arrange that only one of them will bid at the auction and that they will
dispose of anything purchased at the auction among themselves, then such a combination
is called as ‘knock out’. Knockout
is legal but when its intention is to commit fraud against a third party, it
becomes illegal.
9.
Implied
Warranties in an Auction
In a sale by auction, the
auctioneer undertakes the following implied warranties:
i.
He warrants that he has authority to sell;
ii.
He also warrants that he is not aware of any defect
in the title of the principal;
iii.
He undertakes to transfer the possession of the
goods sold by auction against payment made by the highest bidder;
iv.
He has the authority to receive the price, i.e.,
highest bid sum;
v.
He guarantees quite possession of the goods by the
buyer.
10.
Damping
Damping is an illegal act
dissuading a person from bidding or from raising the price by following means:
i.
by pointing out defects in the goods, or
ii.
by doing some other act so that the intending
bidder cannot properly estimate the price of the goods, or
iii.
by scaring him away by some coercive manner.
As it is an illegal
activity, the auctioneer can withdraw the goods from auction.
11.
Puffers
Where an auctioneer makes
use of pretended bidding for the purpose of raising the price, the sale is
voidable at the option of the buyer. The persons who are used by the seller to
make pretended bids are called ‘puffers’, ‘white bonnets’ by-bidders or ‘decoy
ducks’.
For more details, refer to Mercantile law, by Asok Nadhani,
BPB Publications,www.bpbonline.com, bpbpublications@gmail.com
