Sale of Goods Act- Destruction of Goods

Destruction of Goods

When goods have perished or have deteriorated to an extent that they can not be put to the use they were meant for, they are considered to be destroyed. The causes include: a) physical destruction of good; b) damage of good, for example, perishing of vegetables or spoiling of juices etc; c) loss of goods by theft; and d) acquisition of goods by the government.

 Effect of Destruction of Goods before contract of sale is made

 In such a situation the contract is void ab-initio because the contract is impossible to be performed.

Illustration : Seema sold a container to Savita which was on its way from Thailand to India. At the time of the contract the ship had already sunk.  The contract of sale is void, even though both Seema and Savita were not aware of it.

In this context, it is important to consider the following:

• The good must be a specific good.
• When the subject matter has entirely been destroyed, the contract is void. However, where the contract is divisible, the parties will be bound to honour that part of the contract, which can be fulfilled.

Case Law 7: Barrow Lane & Ballard Ltd. Vs. Phillips & Co.: A agreed to sell to B a parcel of 700 bags of groundnut lying at a particular place. It was discovered later that at the date of the contract, there were only 591 bags in the parcel, 109 bags having been stolen before the contract was made. The court held that the contract was not divisible because the buyer wanted to buy a specific quantity, and to ask him to take less would be compelling him to do what he had not contracted for. The contract is void.

A        The seller should not have the information of the destruction of the goods.

In such a situation the seller would liable to pay compensation to the buyer, when the buyer is unaware. However, if the buyer has the information regarding the destruction of the goods and he still enters into a contract, the seller would not be held liable for any compensation.

B        The goods must have been destroyed before the contract was entered into.

Effect of Destruction of Goods after agreement of Sale

When an agreement is made for the sale of some specific goods but the goods are destroyed before the final sale, the contract of sale becomes void and both sides are not liable. Here, the following points are important:

1. There must be an agreement to sell and not an actual sale.
2. There must not be any fault of either party, i.e, the buyer or the seller.
3. The goods must be specific goods, and
4. If only the part of goods have been destroyed and contract is indivisible then the whole contract is void. However, in case the contract is divisible then the part of the contract which applies to the goods that are in usable condition can be implemented.

Illustration 1: Chander agreed to sell to Ramesh 100 bags of cement lying in his godown. In fact, that cement had already been destroyed by leakage of water and has been converted into stone. But this fact was not known to the seller (A) In this case, the contract of sale is valid.

Illustration 2: Arun sold to Manish a speicific cargo of goods which was on its way from America to Bombay. The ship conveying the goods had been sunk before the day of the barging. The parties were not aware of this fact. In this case, the contract of sale is void. It will be interesting to know, that the contract will also be void where only a part of the goods are perished which makes the rest of the goods useless for the buyer.

Case Law 8: Appleby Vs. Myers: A agreed to erect a machinery on the premises of M, where the price was agreed to be paid on completion of the work. While the work was in progress, a fire broke out, and whatever machinery was erected by then, got destroyed. The court held that the contract was indivisible because price was to be paid on completion of the work, and hence void. Thus, A could not recover the price of the work already done before the fire.

Effect of Destruction of future goods 

When the goods are future goods because they have not been acquired by the seller then the destruction of such goods will result in the contract becoming void. When specific goods perished then Section 8 will apply to the contract.

Case Law 9: Howell Vs Coupland: C agreed to sell H 200 tonnes of regent potatoes to be grown on C’s land. C cultivated sufficient land to grow more than 200 tonnes of potatoes, but a disease attacked the crop with the result that he got only about 10 tonnes from the land. The court held that the contract could be avoided.

PRICE OF GOODS 

Section 2(10) of the Act defines price as the money consideration for the sale of goods. Thus, price has to be in terms of money.

The price may be fixed in the following ways:

a)       The price may be fixed in contract [Section 9], this is the usual way of fixing the price.

• The way the prices fixed may have been agreed upon in the contract of sale [Section 9(1)].
• The price may be decided by a course of dealings between the parties [Section 9(1)].
• When the price is not fixed by any of the above ways. [Section 9 (2)]. When the price is not being fixed through an agreement of both the parties then a reasonable price is taken as the price of the contract, depending upon the prevailing circumstances of the case.

Illustration: Amita orders Bhawna to supply 100 Pounds to her without discussing the exchange rate of a Pound in terms of Rupee. Here Bhawna would pay Amita according to the prevailing market exchange rate for a Pound.

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  Price to be fixed by a third party [Section 10(1)].  When a third party is brought in to fix the price and such a third party is not able to do so, then the situation will be handled depending on the reasons for which the third party has not been able to fix the price. The contract can be avoided when the third party is not willing to fix the price or is unable to do so due to any other reason. However, where the third party is stopped from valuing the goods due to the fault of the buyer or the seller then the one who is in fault will be liable to pay damages to the other party. The party that is not at fault has the right to sue the other for damages.

Illustration: Vikram agrees to sell 50 tonnes of steel to Ramesh at a price to be fixed by Amar and to be delivered in 4 equal installments. Ramesh receives a delivery of 20 tonnes of steel.  State the legal position (a) if Amar refuses to value the goods and fix the price; (b) if Amar is prevented from fixing the price by the fault of Vikram; (c) if Amar is prevented for fixing the price by the fault of Ramesh. Solution: Case (a): The agreement to sell becomes void. But Ramesh must pay a reasonable price for 20 tonnes of steel. Case (b): The agreement to sell becomes void. But Ramesh must pay a reasonable price for 20 tonnes of steel.  However, Ramesh may maintain a suit for damages against Vikram. Case (c): The agreement to sell becomes void. But Ramesh must pay a reasonable price for 20 tonnes of steel. However, Vikram may maintain a suit for damages against Ramesh.