CONTRACT OF SALE OF GOODS

Contract of sale of goods is a contract in which the seller transfers or agrees to transfer the property in goods to the buyer for a price.

According to Section 4 of the Sales of Goods Act, 1930

Contract of sale of goods means “a contract where by the seller transfers or agrees to transfer the property in goods to the buyer for a price.”

A contract of sale may be absolute or conditional depending upon the desire of contracting parties.

ESSENTIALS ELEMENTS OF A CONTRACT OF SALE

The following six features are essential elements of any contract of sale of goods.

  • Goods
  • Price
  • Two parties
  • Transfer of ownership
  • All Essentials of a Valid Contract of Sale
  • Includes both a ‘sale’ and ‘an agreement to sell’.

Two PartiesA contract of sale of goods is bilateral in nature wherein property in the goods has to pass from one party to another. One cannot buy one’s own goods.

For example, A is the owner of a grocery shop. If he supplies the goods to his family, it does not amount to a sale and there is no contract of sale. This is so because the seller and buyer must be two different parties, as one person cannot be both a seller as well as a buyer.

However, there shall be a contract of sale between part owners.

Suppose A and B jointly own a television set, A may transfer his ownership in the television set to B, thereby making B the sole owner of the goods. In the same way, a partner may buy goods from the firm in which he is a partner, and vice-versa.

GoodsThe subject matter of a contract of sale must be goods. Every kind of movable property except actionable claims and money is regarded as ‘goods’. Contracts relating to services are not considered as contract of sale. Immovable property is governed by a separate statute, ‘Transfer of Property Act’.

Transfer of ownershipTransfer of property in goods is also integral to a contract of sale. The term ‘property in goods’ means the ownership of the goods. In every contract of sale, there should be an agreement between the buyer and the seller for transfer of ownership. Here property means the general property in goods, and not merely a special property.

Thus, it is the general property, which is transferred under a contract of sale as distinguished from special property, which is transferred in case of pledge of goods, i.e., possession of goods is transferred to the pledgee or pawnee while the ownership rights remain with the pledger. Thus, in a contract of sale there must be an absolute transfer of the ownership. It must be noted that the physical delivery of goods is not essential for transferring the ownership.

PriceThe buyer must pay some price for goods. The term ‘price’ is ‘the money consideration for a sale of goods’. Accordingly, consideration in a contract of sale has necessarily to be in money. Where goods are offered as consideration for goods, it will not amount to sale, but it will be called barter or exchange, which was prevalent in ancient times.

Similarly, if a person offers the goods to somebody else without consideration, it amounts to a gift or charity and not sale. In explicit terms, goods must be sold for a definite amount of money, called the price. However, the consideration can be partly in money and partly in valued up goods. Furthermore, payment is not necessary at the time of making the contract of sale.

All essentials of a Valid contractA contract of sale is a special type of contract, therefore, to be valid, it must have all the essential elements of a valid contract, viz., free consent, consideration, competency of contracting parties, lawful object, legal formalities to be completed, etc. A contract of sale will be invalid if important elements are missing. For instance, if A agreed to sell his car to B because B forced him to do so by means of undue influence, this contract of sale is not valid since there is no free consent on the part of the transferor.

Includes both a ‘Sale’ and ‘An Agreement to Sell’The ‘contract of sale’ is a generic term and includes both sale and an agreement to sell. The sale is an executed or absolute contract whereas ‘an agreement to sell’ is an executory contract and implies a conditional sale.

Sale: Where under a contract of sale, the property in goods is immediately transferred from the seller to the buyer, the contract is called a sale. Thus, it is an executed contract.

Agreement to Sell: Where under a contract of sale, the transfer of property in goods is to take place at a future time or subject to the fulfillment of certain conditions, the contract is called an agreement to sell. It is an executory contract. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods was to be transferred.

DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL

BASIS FOR COMPARISONSALEAGREEMENT TO SELL
MEANINGWhen in a contract of sale, the exchange of goods for money consideration takes place immediately, it is known as Sale.When in a contract of sale the parties to contract agree to exchange the goods for a price at a future specified date is known as an Agreement to Sell.
NATUREIt is Absolute in nature.It is Conditional in nature.
TYPE OF CONTRACTIt is an Executed Contract.It is an Executory Contract.
TRANSFER OF RISKYesNo
TITLEIn sale, the title of goods transfers to the buyer with the transfer of goods.In an agreement to sell, the title of goods remains with the seller as there is no transfer of goods.
CONSEQUENCES OF SUBSEQUENT LOSS OR DAMAGE TO THE GOODSResponsibility of buyerResponsibility of seller
TAXGST is charged at the time of sale.No tax is levied.
SUIT FOR BREACH OF CONTRACT BY THE SELLERThe buyer can claim damages from the seller and proprietary remedy from the party to whom the goods are sold.Here the buyer has the right to claim damages only.
RIGHT OF UNPAID SELLERRight to sue for the price.Right to sue for damages.

Under Indian Sale of Goods Act 1930, section 4 (3) deals with the contract of sale and agreement to sell, where it has been clarified that the agreement to sell also come under sale. 

DIFFERENCE BETWEEN SALE AND HIRE PURCHASE

Hire Purchase system is a system in which the goods are delivered to the purchaser at the time of agreement before the payment of instalments. However, the title of the goods is transferred after the payment of all instalments as per the hire purchase agreement. It is a special system of purchase and sale of goods. Under this system the purchaser pay the price of goods in instalments.

Where under a contract of sale, the property in goods is immediately transferred from the seller to the buyer, the contract is called a sale. Thus, it is an executed contract.

BASIS OF DIFFERENCESALEHIRE PURCHASE
PARTIES INVOLVEDThe contract of sale involves two parties: buyer and seller.The contract of hire purchase involves hire purchaser and hire vendor.
GOVERNING ACTThe contract of sale is governed by Sale of Goods Act, 1930.The contract of hire purchase is governed under Hire Purchase Act, 1972.
TRANSFER OF OWNERSHIPIn a sale, property in the goods is transferred to the buyer immediately at the time of contract.In hire-purchase the property in the goods passes to the hirer upon payment of the last instalment.
POSITION OF PARTIESIn a sale the position of the buyer is that of the owner of the goods.In hire purchase the position of the hirer is that of a bailee till he pays the last instalment.
TERMINATION OF CONTRACTIn the case of a sale, the buyer cannot terminate the contract and is bound to pay the price of the goods. In the case of hire- purchase the hirer may, if he so likes, terminate the contract by returning the goods to its owner without any liability to pay the remaining instalments.
RISK OF INSOLVENCYIn the case of a sale, the seller takes the risk of any loss resulting from the insolvency of the buyer.In the case of hire purchase, the owner takes no such risk, for if the hirer fails to pay an instalment the owner has the right to take back the goods.
TRANSFER OF TITLE OF GOODSIn the case of a sale, the buyer can pass a good title to a bona fide purchaser from him.In a hire-purchase, the hirer cannot pass any title even to a bona fide purchaser.
PAYMENT OF PRICEThe price is paid in lumpsum.The price is paid in the instalments.

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