2. Defination
"Contract of sale is a wide term, and includes a 'sale' and an 'agreement to
sell'.
According to Section 4(1): "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 certain price."
According to Blackstone, “when one person transfers the ownership of goods
to another for the consideration of a price, a sale is said to have been made.
3. A contract of sale can be absolute or conditional. When a person buys
something outright, it is an *absolute' sale, but if he takes it for
approval or trial, the sale contract is conditional.
"Contract of sale is a wide term, and includes a 'sale' and an
'agreement to sell'. According to Section 4(3), when the right of
ownership of goods is transferred from the seller to the buyer under a
contract, the transaction is called a sale; but when the transfer of
ownership is to be made at some future date, or is to be made on the
fulfillment of some condition, the contract is called an 'agreement to
sell'. When the condition in such agreement has been fulfilled, or the
transfer of ownership of goods has occurred, the agreement to sell
becomes a sale,
4. Features of sale
(1) Buyer and Seller: Like in other contracts, a contract of sale also has two
parties who make the contract. The parties in a contract of sale are the
buyer and the seller., The person who buys the goods or makes an
agreement to buy is called the buyer, and the person who sells goods or
makes an agreement to sell is called the seller. The two parties, i.e., the
buyer and the seller, are two different persons.
(2) Goods: The subject-matter of the contract of sale is essentially the
goods. Goods, as per the Sale of Goods Act, are movable property other
than actionable claims and money. Under the definition of goods laid
down in the Act, stocks and shares, growing crops, grass or other things
attached to, or being a part of, land which are separated from land before
the sale, or have been agreed to be separated under the contract of sale
are classified as goods. Ancient and rare coins are also classified as
goods.
5. (3) Price: Goods are always sold for a price. Price is a consideration in
terms of money. There must be a consideration for the sale of goods,
and the consideration must be in terms of money. Money is the
prevalent legal tender of the country, In other words, in a valid contract
of sale, the goods must be exchanged for money. Exchange of goods
for goods-i.e., a barter-is not deemed to be a sale. But, in the case of
Aldridge vs. Johnson, it was held that a transaction partly for money
and partly for goods was a sale.
(4) Transfer of Ownership: In a contract of sale, it is essential that the
ownership of goods is transferred from the seller to the buyer. The
transfer of ownership can be at the time of making the contract, or if
can be at a future date. When the transfer fakes place at the time of
the contract, it is called a sale'. If the transfer is to take place at a
future date, it is called an 'agreement to sell.
6. (5) Elements of a Valid Contract: A contract of sale is a distinct type of
contract, and must essentially have, the basic elements of a valid
contract. A contract of sale can be 'express or it can be implied, An
express contract may be made by word of mouth, or it may be in a
written form. There are no specific formalities to be observed in a
contract of sale. When one party makes an offer to sell some goods
that he owns to another, and the other party accepts the offer, a
contract is made, It is also not essential that the price of goods is paid
immediately. The price can also be paid later.
7. Goods
According to Section 2(7). "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 a
part of the land which are agreed to be severed before sale or under
the contract of sale,"
8. Types Of Goods
Goods
Existing Goods
Ascertained or Specific
Goods
Unascertained or
Generic Goods
Future Goods Contingent Goods
9. Section 6 of the Sale of Goods Acts describes the various types of
goods as under.
(1) Existing goods: Existing goods are the goods that are owned by
or possessed by the seller at the time of making the contract, and
the seller has the right to sell the goods. If the seller is the owner
of the goods, he has the lawful right to sell the goods. If the seller
is an agent, then he has the authority of the principal to sell the
goods. Existing goods may further be classified as under:
(a) Ascertained goods: Existing goods that have been specified
and identified by both parties to a contract of sale are called
ascertained goods. For example, A has a stock of 100 bags of
sugar and makes a contract to sell 10 bags to B. With the
consent of B, he separates 10 bags of sugar. The goods, in
this case, are deemed to be ascertained existing goods.
10. (b) Unascertained goods: Such existing goods that have not been
specifically identified by the parties to be the subject matter of a
contract of sale are called unascertained goods. Such goods are
defined and sold by description or sample. For example, in the
above example, if the 10 bags of sugar are not identified by A
and B Le., It Is not made specific which 10 bags are contracted to
be sold goods will be classified as unascertained existing goods.
Another example will clarify the distinction between ascertained and
unascertained goods: - Suppose A has 20 cows, and he
promises to sell one cow to B, and identifies the particular co Bat
the time of making the contract. The contract, in this case, is for
the sale of a specific cow and is ascertained goods. If, on the
other hand, A merely promises to sell one of the cows to B, the
contra would be for unascertained goods.
11. (2) Future goods: Future goods refer to such goods that are not in the
possession of the seller at the time of the contract, i.e, the seller has
to procure the goods from somewhere or manufacture them to be
delivered to the seller at a later date. For example, A makes a
contract with B to sell some electronic equipment which he will
receive from Japan after two weeks. The contract, in such case, will
be for future goods.
(3) Contingent goods: Contingent goods are a type of future goods, the
acquisition of which by the seller is dependent on a contingency
which may or may not happen. For example, if the seller promises
to the buyer that he will sell him the goods on a certain date if he
receives the goods from the manufacturer before that date, the
agreement is conditional and can only be practical on the
happening or non-happening of an event. The goods, in this case,
are called contingent goods' because the sale of goods depends on
the seller receiving the goods by a certain date, A contract to sell
such goods is not a sale; it is an agreement to sell.
12. Sale and Agreement to Sell
Sale: According to Section 4(3), when the ownership of goods is
transferred from the seller to the buyer under a contract of sale, a
sale is said to have been made.
Examples: (a) Ashok pays Rs. 900 to Rajesh and buys a watch, or he
promises to pay Rajesh Rs. 500 and buys a watch.
(b) Ashok pays Rs. 500 to Rajesh and buys a watch. He does not take the
watch then and says he will take it later.
All these are contracts of sale. The transfer of ownership of goods
becomes effective when the contract is made. For the transfer of
ownership of goods, it is not essential that the price of goods be paid, or
the goods be delivered to the buyer, at the time of making the contract.
13. Agreement to Sell: When the transfer of ownership of goods under
the contract of sale is to take place at a future date or on the
fulfillment of a condition, it is called an agreement to sell. At the
agreed time, or when the agreed condition is fulfilled, where the
transfer of ownership of goods takes place, the agreement to sell
becomes a sale.
Example: Armit makes agreement with Rajan to buy his watch for Rs.
500 after 15 days. In this contract, it has been agreed that the transfer
of ownership is to take place in future. The price of goods is to be
paid, and the transfer of ownership is to be effective in 15 days time
Or Rajan might give his watch to Amit for approval or trial for 15 days
and, if the latter likes it, he might pay the amount agreed Business
Regulatory Framework to Rajani after that time. Both are examples of
an agreement to sell and are not a sale.
14. Differences between Sale and
Agreement to Sell
Basis of
Difference
Sale Agreement of Sell
Nature The execution is complete in a
sale, i.e. the contract is
executed.
The execution is yet to take
place, i.e the contract is
executory.
Transfer of
Ownership
The ownership of goods is
transferred to the buyer at the
time the contract is made, i.e.
the buyer becomes the owner
when a sale is made.
The ownership of goods is not
transferred at the time of
contract . The transfer takes
place at a later date or on the
fulfillment a condition.
15. Right of Usage The buyer has the right to use
the goods he buys, i.e. he
becomes the sole owner of
goods and can use them in
any manner.
It is only a contract between
the buyer and the seller, and
does not give the buyer the
right to use the goods till the
ownership of good is
transferred to the buyer.
Consequence of
Breach
If the buyer defaults in making
the payment for goods, the
seller can sue the buyer for
such payment.
If the buyer fails to take delivery
of goods and pay for the same,
the seller is entitled to sue the
buyer for damages only-and not
the cost of goods.
Risk of Loss Unless there is a contract to
the contrary, any loss or
damage to the goods is the
buyer's, even if he has not yet
received the delivery of the
goods.
Unless there is a contract to
the contrary, any damage or
loss to goods is the seller's.
16. Insolvency
of seller
If the seller is declared insolvent
before the delivery of goods, the
buyer can claim the goods from the
official receiver of the seller
because he (the buyer) is the legal
owner of the goods.
The buyer has no right to claim
the goods in the event of
insolvency of the seller.
Insolvency
by seller
The seller is required to deliver the
goods to official receiver of the
buyer in case of the latter's
insolvency.
If the buyer is declared
insolvent before making the
payment for goods, the seller
the right to refuse to deliver
the goods.
Default by
Seller
If the seller defaults in delivering
the goods to the buyer, the latter
can not only claim damages from
the seller but can also file a suit
against a third party as the owner of
goods.
The buyer can sue for
damages only in case the
seller defaults in delivering the
goods because the owner of
goods is the seller.