Sale and Agreement to Sale - Meaning and Difference, Sale of Goods Act' 1930

Sale of Goods Act' 1930 Notes
Business Laws Notes B.Com 1st & 2nd Sem CBCS Pattern

Introduction of Sale of Goods Act

Sale of Goods Act was passed in 1930 and came into force from 01.07.1930 to deal the sales of goods which was previously dealt by the Indian Contract Act 1872. The Sale of Goods Act, 1930 lays down the special provisions governing the contract of sales of goods. The provisions of the Indian Contract Act are also applicable to the contracts for the sale of goods unless they are inconsistent with the express provisions of the Sale of Goods Act.

Contract of Sale and Its essentials

Contract of Sale Meaning

According to Section 4 of the Sale of Goods Act, 1930, ‘A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.’

The term ‘Contract of sale’ is a generic term and includes both a sale and an agreement to sell. Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once), the contract is called a ‘sale’ but where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’. [Section 4(3)].

An agreement to sell becomes a sale when the time elapses or the condition, subject to which the property in the goods is to be transferred, is fulfilled. [Section 4(4)].

The essentials of a contract of sale are

1. Numbers of parties: Since a contract of sale involves a change of ownership, it follows that the buyer and the seller must be different persons. A sale is a bilateral contract. A man cannot buy from or sell goods to himself. To this rule there is one exception provided for in section 4(1) of the Sale of Goods Act. A part-owner can sell goods to another part-owner. Therefore a partner may sell goods to his firm and the firm may sell goods to a partner.

2. Goods: The subject-matter of the contract of sale must be ‘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 part of the land which are agreed to be severed before sale or under the contract of sale.” Goodwill, trademarks, copyrights, patents right, water, gas, electricity,, decree of a court of law, are all regarded as goods. In the case of land the grass which forms part of land have to be separated from the land. Thus where trees sold so that they could be cut out and separated from the land and then taken away by the buyer, it was held that there was a contract for sale of movable property or goods (Kursell vs Timber Operators & Contractors Ltd.). But contracts for sale of things ‘forming part of the land itself’ are not contracts for sale of goods. 

3. Price: The consideration for a contract of sale is price. Price means money consideration. If it is anything other than money, it will not be sale. But if the exchange is made partly for goods and partly for price, it will still amount to sale. However, the price may be paid or promises to be paid.

4. Transfer of property: 'Property' here means ownership. Transfer of property in the goods is another essential of a contract of sale of goods. A mere transfer of possession of the goods cannot be termed as sale. To constitute a contract of sale the seller must either transfer or agree to transfer the property in the goods to the buyer. Further, the term 'property', as used in the Sale of Goods Act, means 'general property' in goods as distinguished from 'special property' [Sec. 2(11)]. If P, who owns certain goods, pledges them to R, he has general property in the goods, whereas R (the Pawnee) has special property or interest in the goods to the extent of the amount of advance he has made to the Pawnor. Similarly, in the case of bailment of goods for the purpose of repair, the bailee has special interest in goods bailed to the extent of his labour charges.

5. No formalities to be observed (Sec. 5): The sale of Goods Act does not prescribe any particular form to constitute a valid contract of sale. A contract of sale of goods can be made by mere offer and acceptance. The offer may be made either by the seller or the buyer and the same must be accepted by the other. Neither payment nor delivery is necessary at the time of making the contract of sale. Further, such a contract may be made either orally or in writing or partly orally and partly in writing or may be even implied from the conduct of the parties. Where articles are exhibited for sale and a customer picks up one and the sales assistant packs the same for him, there has resulted a contract of sale of goods by the conduct of the parties.

6. Includes both a ‘sale’ and ‘an agreement to sell’: The term ‘contract of sale’ is a generic term and includes both a ‘sale’ and an ‘agreement to sell’.

Sale: Where under a contract of sale, the property in the goods is immediately transferred at the time of making the contract from the seller to the buyer; the contract is called a 'sale' [Sec. 4(3)]. It refers to an absolute sale, e.g., an outright sale on a counter in a shop. There is immediate conveyance of the ownership and mostly of the subject-matter of the sale as well (delivery may also be given in future). It is an executed contract.

An agreement to sell: Where under a contract of sale, the transfer of property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called 'an agreement to sell' [Sec. 4(3)]. It is an Executory contract and refers to a conditional sale.

7. Other essential elements: A contract for the sale of goods must satisfy all the essential elements necessary for the formation of a valid contract, e.g., the parties must be component to contract, there must be free consent, there must be consideration, the object must be lawful etc.

Difference between ‘Sale’ and ‘agreement to sell’

Basis

Sale

Agreement to Sell

Definition

Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once); the contract is called a ‘sale’.

where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’

Transfer of ownership

Transfer of ownership of goods takes place immediately.

Transfer of ownership of goods is to take place at a future time or subject to fulfillment of some condition.

Executed contract or Executory contract

It is an executed contract.

It is an Executory contract.

Conveyance of property

Buyer gets a right to enjoy the goods against the whole world including seller.

Buyer does not get such right.

Transfer of risk

Transfer of risk of loss of goods takes place immediately because ownership is transferred.

Transfer of risk of loss of goods does not take place because ownership is not transferred.

Right of seller against the buyer’s breach

Seller can sue the buyer for the price, even though the goods are in his possession.

Buyer can sue the seller for damages only.

Rights of buyer against the seller’s breach

Buyer can sue the seller for damages and can sue the third party who bought those goods for goods.

Buyer can sue the seller for damages only.

Effect of insolvency of seller having possession of goods.

Buyer can claim the goods from the official receiver or assignee because the ownership of goods has transferred to the buyer.

Buyer cannot claim the goods, even when he has paid the price because the ownership has not transferred to the buyer. The buyer who has paid the price can only claim rateable dividend.

Effect of insolvency of the buyer before paying the price.

Seller must deliver the goods to the official receiver or assignee because the ownership of goods has transferred to the buyer. He can only claim rateable dividend for the unpaid price.

Seller can refuse to deliver the goods unless he is paid full price of the goods because the ownership has not transferred to the buyer.

Right in rem / personam

It is a right in rem i.e. right against the whole world.

It creates a right in personam i.e. right against a person.

In risk of destruction of goods.

Buyer has to bear the risk even if possession is with the seller as ownership has passed.

Seller has to bear the risk, even if possession is with the buyer, as ownership has not passed.

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