SECTION 1. Definition
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 in the form of money.
A contract of sale may be absolute or conditional. In an absolute sale the property in the goods passes from the seller to the buyer immediately and nothing remains to be done by the seller. Sale at a counter in the shop is an absolute sale. In a conditional contract of sale the property in the goods does not pass to the buyer absolutely until a certain condition is fulfilled.
The term contract of sale comprises two things:
- Sale, and
- Agreement to sell
Where the seller transfers the property in the goods immediately to the buyer there is a sale. But where the transfer of the property in the goods is to take place at a future time or subject to some condition(s) thereafter to be fulfilled, the contract is called an agreement for sale.
An agreement for sale becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Every sale originates in an agreement to sell. It is an agreement to sell which gives birth to a sale. On a sale, the agreement of sale is completely exhausted and ceases to exist.
SECTION 2. Essentials of contract of sale
- A contract
- Between two parties
- To transfer or agree to transfer the property/title in goods
- For a price, that is money consideration.
The word contract means an agreement enforceable at law. It presumes free consent on the part of the parties who should be competent to contract. A compulsory transfer of goods under any Nationalization Act is not a sale. The agreement must be made for a lawful consideration and with a lawful object. In other words all the essential elements of a valid contract must also be present in a contract of sale.
To constitute a contract of sale, there must be a transfer or agreement to transfer the property in the goods by the seller to the buyer. It means that there must be two persons one the seller and the other the buyer. The buyer and the seller must be two different persons, for a man cannot purchase his own goods. The parties must be competent to contract.
Example: A partnership firm was dissolved and the surplus assets including some goods were divided among the partners. The Tax Officer wanted to tax this as a sale.
The court held that this was not a sale as partners were themselves joint owners of the goods and they could not therefore be both sellers and buyers. Moreover there was no money consideration.
There are certain exceptions to the rule that the same person cannot be a purchaser and a seller. These are:
- Where person’s goods are sold in execution of a decree, he may himself buy them.
- A part owner can sell his share to the other part owner so as to make the other part owner the sole owner of the goods.
- Where a Pawnee sells the goods pledged with him on non-payment of bill money, the pawnor may himself buy such goods
- Transfer of property
In a contract of sale there should be a transfer or an agreement to transfer the absolute or general property in the goods sold. It contemplates the transfer of ownership in the goods. Though passing the title in the goods is an essential ingredient of sale, physical delivery of goods is not essential. The sale of goods contemplates the transfer of the general property or title in the goods from the seller to the buyer.
The subject matter of the contract of sale of goods must be the goods, the property in which is to be transferred from the seller to the buyer. Goods of any kind except immovable goods may be transferred. It does not include money and other actionable claims. The seller must be the owner of the goods the ownership of which is sought to be transferred.
To constitute a valid contract of sale, consideration for transfer must be money paid or promised. Where there is no money consideration the transaction is not a contract of sale as for instance goods given in exchange for goods as remuneration for work or labour. However, an existing debt due from the seller to the buyer is sufficient. Further there is nothing to prevent the consideration from being partly in money and partly in goods or some other articles of value. For example when an old car is returned to the dealer for a new one and the difference is paid in cash that would also be a sale
It may be noted no particular form is necessary to constitute a contract of sale. A contract of sale may be made in writing or by words of mouth or may be implied from the conduct of the parties.
SECTION 3. Distinction between a sale and an agreement for sale
The distinction between sale and an agreement for sale is very necessary to determine the rights and liabilities of the parties to a contract. The main points of distinction are:
- Transfer of property
In a sale the property in the goods passes from the seller to the buyer at the time the contract is made. But in an agreement for sale the transfer of property takes place at some future time or until some condition is fulfilled.
In other words in a sale the buyer becomes the owner of the goods immediately at the time of making the contract. In an agreement for sale the seller continues to be the owner until the agreement for sale becomes a sale.
- Nature of the contract
An agreement to sell as an executory contract, is a contract pure and simple and no property passes, whereas a sale is an executed contract plus a conveyance.
- Risk of loss
In a sale the buyer immediately becomes the owner of the goods and the risk as a rule passes to the buyer; under an agreement to sell, the seller remains the owner and the risk is with him. Thus under a sale if the goods are destroyed the loss falls to the buyer even though the goods are in the possession of the seller. But under an agreement to sell, the loss will fall on the seller even though the goods are in the possession of the buyer.
- Consequences of the breach
On breach of an agreement to sell by the seller, the buyer has only a personal remedy against the seller. But if after a sale, the buyer breaks the contract (e.g. resells the goods) the buyer may sue him for delivery of the goods or damages.
In an agreement to sell, if the buyer fails to accept the goods the seller may sue for damages only and not for the price. On a sale if the buyer does not pay the price, the seller may sue him for the price.
- Insolvency of the buyer
In a sale if the buyer is adjudged an insolvent, the seller in absence of lien over the goods is bound to deliver the goods to the official receiver or any government appointee for that purpose. The seller will however, be entitled to a rateable dividend for the price of the goods. In an agreement to sell, when the buyer becomes insolvent before he pays for the goods, the seller need not part with the goods.
- Insolvency of the seller
In a sale if the seller becomes insolvent the buyer is entitled to recover the goods from the official receiver or any government appointee for that purpose as the property of the goods is with the buyer. In an agreement to sell, if the buyer has already paid the price and the seller becomes insolvent, the buyer can claim only a rateable dividend and not the goods.
- General and particular property
An agreement to sell creates a right “in personam” while a sale creates a right “in rem”. In case of an agreement to sell the buyer and the seller get remedy against each other in case of a breach of an agreement. The agreement for sale creates a right with which only the contracting parties are concerned and not the whole world, whereas in case of a sale the buyer gets an absolute right of ownership and this right of the buyer is recognized by the entire world.
- Right of resale
In an agreement for sale, the property in the goods remains with the seller and he can dispose of the goods as he likes, although he may thereby commit a breach of his contract. In a sale, the property is with the buyer and as such the seller cannot resell the goods. If he does so, the buyer can recover the goods sometimes even from third parties