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Published : April 04, 2012 | Author : pratiknliu@legalserviceindia.com
Category : Consumer laws | Total Views : 7485 | Rating :

  
pratiknliu@legalserviceindia.com
pratik saraswat 1st year student at NLIU BHOPAL
 

"Statutory transaction and contract of sale" An Analysis

Section 4 defines contract of sale as: “A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.”

The definition above lays down four essentials which are:
1) There must be two parties:- There must be at least two parties, i.e. one buyer and the other seller. A person cannot buy his own goods. There is exemption in the case of a part owner. For the purpose of sale of partnership property, partners are not regarded as separate persons. They cannot be both seller and buyer. But a partner may sell goods to the firm or buy goods from the firm. However, a part owner can sell his ownership to another part owner.

A partnership firm was dissolved and the surplus assets, including some goods, were divided among the partners in specie. Sales tax office sought to tax this court held that they (partners) were themselves the joint owners of the goods and they could not be both buyers and sellers so it is not a sale

2) Subject matter of Sale must be "goods":- The subject matter of the contract must be goods. The expression “goods” is thus defined in section 2(7) of the act

" goods" means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

3) Transfer of property in the goods:- It is the ownership that is transferred in a Contract of sale. The general property is transferred from seller to the buyer in a contract of sale. When the goods are pledged, it is only the special property which is transferred i.e., possession of the goods is transferred to the pledgee while the ownership rights remain with the pledger. You should note that for transferring the ownership of goods, the physical delivery of the goods is not essential..

4) Consideration in Price:- Consideration in a contract of sale has necessarily to be money. Thus, if for instance, goods are offered as consideration for goods, it will not amount to sale, but it will be called’barter’. Similarly, in case there is no consideration, it amounts to gift and not sale. However the consideration may be partly in money and partly in goods.

For e.g.- fifty two bullocks, valued at $6 a piece were exchanged for 100 quarters of barley at $2 per quarter, the difference to be made up in cash ,the contract was treated as one of sale.

Statutory transaction and contractual liberty:-
According to Potheir the contract of sale is “consensual, bilateral and commutative”

So the first essential which we get from the definition given by Potheir is that the sale must be consensual that means parties must give their free consent because forced purchase and procurement is acquisition.

Statutory transactions are those transactions in which supply of goods is done by virtue of a statutory obligation. Statutory transaction would not be a sale of goods as the consensual element which forms the basis of contract is absent.

This statutory transaction directly places a danger on the principle of ‘contractual liberty’ which has been given in section 62 of the sale of goods act 1930.

Exclusion of implied terms and conditions.- Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.

The provision is merely an application of the general maxim “Expressam facit cessare tacitum” which means that “The express mention of one thing implies the exclusion of another” thus sanctifying the principle of contractual liberty which allows parties to the contract to add any number of conditions in their agreement.

Another legal maxim from which section 62 draws its legitimacy is “Modus et convenitio vincunt legem” which means that “The form of agreement and the convention of parties overrule the law” this maxim also strengthen the principle of contractual liberty by approving the principle of parties autonomy in making laws for themselves.

Statutory transaction is not in accordance with the principle of contractual liberty rather it is a antithesis of contractual liberty because one important factor of contract of sale is that parties must be free to set any number of terms and conditions for themselves but in statutory transaction this is not available to the parties.

Why Statutory Transaction Is Imposed:-
Statutory transaction is imposed when essential goods are in short supply or at the time of any social or other disturbance takes place which renders smooth supply of a commodity difficult if not impossible so government takes the initiative of directing those who are in possession of commodity to supply the commodity at a price which is decided by government. Various types of orders are issued under the essential commodities act 1955 with a view to making the goods available to the consumer at a fair price. Such orders may lay down the requirements of holding a license for dealing in the commodity and getting a permit for obtaining the commodity. The permit holder can obtain the supply of the essential goods, to the extent of quantity for which permit is granted, from the named dealer at a controlled price.

Statutory transaction and contract of sale :-
A sale is necessarily a consensual transaction and if the parties have no volition or option to bargain, there can be no sale, the limitations on the normal rights of dealers and consumers to supply and obtain the goods, the obligations imposed on the parties and the penalties prescribed by the control order did militate against the position that eventually the parties must be deemed to have completed the transaction under an agreement by which one party bound itself to supply the stated quantity of goods to the other at a price not higher than the notified price and the other party consented to accept goods on the terms and conditions mentioned in the permit or the order of in its favor by the concerned authority.

In order to see whether there was any agreement or consensuality between parties, regard must be had to their conduct at or about when the goods changed hands. Since it is not obligatory on a trader to deal in such essential commodity nor on any one to acquire it, the primary fact is that the decision of the tile trader to deal in the essential commodity strictly in the terms of the control orders is volitional and the consumer too on his own volition decides to obtain the commodity on the terms of the permit or the order of allotment issued in his favor. The parties enter into such transactions with their free consent.

So in instances like this it is contract of sale because parties are making contract by their own will and there is no forced consent but it is a free consent so it is a contract of sale.

In case of statutory transaction, this transaction is not necessarily a consensual transaction the limitations on the normal rights of dealers and consumers to supply and obtain the goods, the obligations imposed on the parties and the penalties prescribed by the control order converts the contract of sale in to statutory transaction thus leaving no scope for parties to make terms and conditions for themselves and thus eradicating the principle of contractual liberty.

The vexed question whether such a transaction amounts to a sale in the language of the law and the controversy whether what is conveniently though loosely called , a ‘Compulsory sale’ is eligible to sales tax ?

It has been held in many English cases that supply of goods by the virtue of a statutory obligation, would not be a sale of such goods as the consensual element which forms the basis of the contract is absent

Case of compulsory acquisition of property by the state stand on a different footing since there is no question in such cases neither of offer and acceptance nor of consent, either express or implied .

Though compulsory acquisition of property would exclude the element of mutual assent which is vital to a sale, so long as mutual assent, express or implied, is not totally excluded the transaction will amount to sale.

A transaction which is effected in compliance with the obligatory terms of a statue may nevertheless be a sale in eyes of law.

Statutory Transaction Indian scenario:- As a result of the regulations relating to the control of prices and control of movement and supply of goods, complicated questions arise as to whether in a given case it is a sale or not.

In such cases bargains are regulated and controlled and freedom of contract becomes a matter of Hobson’s choice

1) New India Sugar Mills Ltd. V. Commissioner of sales tax Bihar :-
The Supreme Court was considering a case under the sugar products control order 1946. The order prohibited the producers of sugar from disposing of or agreeing to dispose of or to make delivery to anyone except to or through a recognized dealer.

Under clause 5 of the said order, every purchaser or dealer was required to comply with directions regarding production, sales, stock or distribution as may be given from time to time by the controller.

The contravention of any provision s of the order was made penal . under the said order , the controller made allotments to the various states and addresses orders to factory owners to supply sugar to the states in accordance with the instructions received from the state government. New India sugar mills having supplied sugar under the said order to the state of madras , the state of Bihar attempted to tax the transaction as a sale.

The majority held that a contract of sale postulated the exercise to volition on the part of the contracting parties, and there was no such exercise of volition in complying with the orders passed by the controller. The court negated the view that such transactions amounts to sale.

Justice Hidaytullah’s dissenting view:- Judgment in this case was that this type of transaction can’t be taxed as they do amount to sale but HIDAYATULLAH J. in a dissenting opinion ‘ Struck the new path’

“So long as the parties trade under controls at affixed price and accept these as any other law of the the realm because they must, the contract is at the fixed price both sides having or deemed to have agreed to such a price. Consent under the law of contract need not be express, it can be implied … The present is just another example of an implied contract with an implied offer and implied acceptance by the parties.”

This dissenting opinion of justice Hidaytullah is very important in the field of statutory transaction as it is not the majority judgment which has been followed by cases which were decided after this but many judgment has taken as principle the minority view of justice Hidaytullah.

2) Andhra sugar ltd v. state of U.P. :-
In this case under A.P. sugarcane (Regulation of supply and purchase) Act 1961 the sugarcane grower was free to make or not to make an offer of sale of sugarcane to occupier of the factory but letter was bound to accept the offer, if made by sugarcane grower. In spite of such legal compulsion upon occupier of factory to enter in to an agreement, their agreement, according to the supreme court was valid and enforceable as the consent of occupier of factory is not vitiated by any of the vitiating elements .

To constitute a sale under the sale of goods act there must be an agreement for sale of goods for a price and the passing of property pursuant to agreement which conditions were satisfied in the facts of Andhra sugar case

The Supreme Court emphasized that unlike New India sugar mills case her the cane grower directly made an offer to director of factory directly and the latter accepted though under compulsion of law but a direct privity between parties was established.

Thus this case followed dissenting opinion of Hidaytullah J.

3) Vishnu agencies (pvt) Ltd V. commercial tax officers & ors. :-
In this case supreme court held that a transaction which is effected in compliance with the obligatory terms of statue may be sale if mutual assent, express or implied, is not totally excluded . so in that case an act of appellant to supply cement to various allotters in pursuance of allotment order issued by appropriate authority was held sale .

The principle laid down in this case was followed in “Indian steel and wire products Ltd V. State of Madras”.

4) Indian steel and wire products Ltd V. State of Madras:-
The supreme was concerned with the iron and steel ( control of production and distribution) order 1941. Under the said order, steel products were supplied to various persons iin the state of madras pursuant to the directions of the steel controller. The court there observed that although the area within which there could be bargaining between the prospective buyer and an intending seller was greatly reduced, the company could supply goods in question at its convenience . Audit was open to the company to agree with the customers as to the date on which the goods were to be supplied.

The orders booked were subject to the company’s terms of business and general understanding in force at the time of booking the orders and dispatch the goods . It was also open to the company to fix any mode of payment of the price.

The court held that due to change in political outlook and as a result of economic compulsions, the freedom of contract was being confined gradually to narrower and narrower limits .

So long as mutual assent was not completely excluded in any dealings in law ,it was a contract. The courts held that transaction was sale.

5) State of Rajsthan V. Karamchand thapar :-
In this case court was concerned with a transaction made under the colliery control order 1945. The court held that the control order superimposed upon the agreement between the parties the rate fixed under the order .

But on that account it could not be said that the relation between the supplier and the person to whom the coal was supplied was not contractual.

6) Chittermoi Naraian Das V. Commissioner of sales tax U.P . :-
In this case Supreme Court reviewed the earlier decision in a case arising under the Uttar Pradesh wheat procurement policy(Levy) order 1959. The court found that the obligation to deliver wheat of the quantity arose out of the statue, that the order took no account of the volition of the parties ,that the state govt was directed to pay for the wheat supplied at control rates, that the obligations arose not out of any contract, but from a statutory order and held that in such a situation the volition of the parties was most completely excluded and the transactions were therefore not sales.

The court found that the order made no provision in respect of of the place and manner of supply of wheat and payment at the controlled price. The decision is clearly distinguishable since the provision of the wheat procurement order were constructed by the courts as being in the nature of compulsory acquisition of property, obliging the dealer to supply the wheat from day to day.

However criticism made in Chitter Mal’s case of the decision of Allahbad high court which held that so long as there was freedom to bargain in some areas, the transaction could amount to sale though effected under a statue

Chitter Mal’s case was held no longer a good law in case of State of Punjab and Ors. V.Dewan’s breweries Ltd.

The true legal position is that so long as mutual assent, express or implied, is not totally excluded, the transaction will amount to sale. The court therefore held that majority decision in New India sugar mills is not good law.

7) State of Tamil Nadu V. Cement Distributors Pvt Ltd. :-
The principle question which arose for decision was whether who supplied cement to the state trading corporation or its agents in gunny bags in pursuance of the directions given by government were liable to pay sales tax on the turnover relating to the price of gunny bags .The decision proceede on a concession insofar as as the supplyof cement was concerned as can be seen from the statement that there was no dispute that the same can’t be considered as sales in view of the cement control order.

However the judgment partly rests on the decision in Chitter mal’s case and partly on New India sugar mill case which are to be no good law.

Conclusion
The conclusion which we get from studying above given cases is that offer and acceptance need not always be in elementary form , nor does the contract of sale of goods require that a consent to a contract must be expressed.

Offer and acceptance can be spelt out from the conduct of the parties which cover not only their acts but omission as well .

Now a days The limitations imposed by the control order on the normal rights of dealers and consumers to supply and obtain goods does not amount to statutory transaction .

If parties have given their mutual assent either by commission or omission than it does not amount to statutory transaction but a contract of sale .

Justice HIdaytullah’s dissenting opinion in New India Sugar Mill’s case has been upheld as good law in many other cases and his view has been vital in setting the principle relating to statutory transaction.

Case List
1 State of Gujarat vs Raman lal sons and & co. AIR 1965 Guj. 60
2 Aldridge vs Johnson
3 Appleby v. Sleep [1968] 2 All ER 265
4 Vishnu agency ltd v. commercial tax officer & ors AIR 1978 Sc 449, p 467
5 Indian steel & wire products v. state of Madras (1968) A.S.C. 478
6 New India Sugar Mills Ltd. V. Commissioner of sales tax Bihar
7 Andhra sugar Ltd. V. State of A.P. (1968) A.S.C. 599
8 Vishnu agencies (pvt) Ltd V. commercial tax officers & ors AIR 1978 SC 449 ,PP 468, 471
9 Indian steel and wire products Ltd V. State of Madras AIR 1978 SC 478
10 State of Rajsthan V. Karamchand thapar AIR 1969 SC 343
11 Chittermoi Naraian Das V. Commissioner of sales tax U.P AIR 1970 SC 2000
12 Commissioner of sales tax V. Ram Bilas Ram Gopal Air 1970ALL 518 (FB)
13 State of Punjab and Ors. V.Dewan’s breweries Ltd . AIR1979 SC 1158
14 State of Tamil Nadu V. Cement Distributors Pvt Ltd. AIR 1973 SC 668

Bibliography:-
Books
· Pollock & Mulla, The SALE OF GOODS ACT ,
· ATIYAH”S Sale of goods sixth edition
· Avtar singh on “Business law”
· Avtar singh on “sale of goods”

# Sale of Goods Act 1930 section 4
# State of Gujrat vs Raman lal sons and & co. AIR 1965 Guj. 60
# Aldridge vs Johnson
# Appleby v. Sleep [1968] 2 All ER 265
# Vishnu agency (pvt)ltd v. commercial tax officer & ors AIR 1978 Sc 449, p 467
# Indian steel & wire products v. state of Madras (1968) A.S.C. 478;
# AIR 1963 SC 1207, majority decicion held not good law and minority view of Hidaytullah J approved in Vishnu sgencies pvt Ltd v. commercial tax officer Eluru.
# Andhra sugar Ltd. V. State of A.P. (1968) A.S.C. 599
# AIR 1978 SC 449 ,PP 468, 471
# AIR 1978 SC 478
# AIR 1969 SC 343
# AIR 1970 SC 2000
# Commissioner of sales tax V. Ram Bilas Ram Gopal Air 1970ALL 518 (FB)
# AIR1979 SC 1158
# AIR 1973 SC 668

Authors contact info - articles The  author can be reached at: pratiknliu@legalserviceindia.com




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