Distinguish Between Hire Purchase, Sale and Agreement to Sale, Sale of Goods Act' 1930

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

Hire Purchase Meaning

A trader could sell goods either for cash or for credit. For goods sold on credit, the payments may be made by the buyer in lump sum on a future date, or in installments spread over for a specified period of time. When goods are sold on credit, for which payment is made by the buyer in installments over a period of time, it is called purchase system or installment system.

Hire Purchase System defers to the system wherein, the seller of goods transfers the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in installments. If the buyer pays all the installments, the ownership of the goods will be transferred, on payment of the last installment. However, if the buyer does not pay for any installment, the goods will be repossessed by the seller and the money paid on earlier installments will be treated as hire charges for using the goods. So, under this system, the transaction may result in purchasing of goods by the buyer or in hiring the goods. Hence, the system is called Hire Purchase System.

Contract of Sale and Its essentials

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. 

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.

Difference between Hire Purchase system and Sale

Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between Hire Purchase and Sale.

Hire Purchase

Sale

Hire purchase is governed by the Hire Purchase Act, 1972.

A ‘sale’ is governed by the sale of Goods Act, 1930.

In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments.

In case of sale, the ownership of the goods is transferred to the buyer immediately.

In case of hire purchase, the payment is made in installments.

In case of sale, the buyer makes payment in lump sum.

The hire purchaser pays for the price of goods and also some amount of interest.

The buyer pays only for the price of goods.

On non-payment of any installment, the seller can re-possess the goods.

On non-payment of the consideration the seller cannot take back the goods, but can only take legal action on buyer.

Either the buyer or the seller can terminate the contract at any point of time, until the payments of last installment.

Once a sale has taken place, neither the seller, nor the buyer can terminate the contract (unless it is for genuine reason like damage of goods etc.)

When the hire purchaser becomes insolvent, the seller can reposes the goods, and hence need not undertake the risk of loss.

When the buyer becomes insolvent, the seller has to undertake the risk of loss.

In this case, the sales tax will be leviable at the time of ownership (i.e. on payment of last installment). 

A sale is subject to levy of sales tax at the time of contract of sale.

Difference between Hire Purchase and Agreement to Sale

Although hire purchase system could ultimately result in sale of goods, the agreement to sale in normal sense and sale under hire purchase system are not the same. The following are the differences between Hire Purchase and Agreement to Sale:

Hire Purchase

Agreement to Sale

Hire purchase is governed by the Hire Purchase Act, 1972.

A ‘sale’ is governed by the sale of Goods Act, 1930.

Hire purchase is bailment plus agreement to Sale.

Contract of Sale includes both sale and agreement to sale.

Hire purchase agreement becomes a sale only after full payment.

Agreement to sale is a step, to the contract of sale.

In Hire purchase, the buyer cannot sell or pledge the goods.

In an agreement to sale, the buyer can sell or pledge the goods.

The hire purchaser pays for the price of goods and also some amount of interest.

The buyer pays only for the price of goods.

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