Discuss in detail, the definition and essentials of a contract of sale of goods

Discuss in detail, the definition and essentials of a contract of sale of goods. Distinguish between a sale and an agreement to sell.

Ans.-Definition of Contract of Sale of Goods –According” to 5.4(I) of 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 goods to the buyer for a price.” Such contract of sale may be absolute or conditional. S.4 (2) says that “there may be a contract of sale between one part owner and another.” S.4 (3) provides that when under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale.

Essentials of a Contract of Sale— These are four in numbers as under-

1. There must be two distinct and competent parties)—According to Pothier the contract ofsalc is “consensual, bilateral and commutative”. A sale is bilateral because the property in goods has to pass from one person to another. Its first essential, therefore, is that the seller and the buyer must be two different and competent persons. For, a person cannot buy his own goods.

For Example—State of Gujrat Vs. Raman Lal & Co. A I.R. 1965 a partnership firm was dissolved and the surplus assets, including some goods, were divided among the partners in specie. Sales tax officer sought to tax this. Rejecting the contention of the State, Bhagwat Ji said “They (partners) were themselves the joint owners of the goods and they could not be both sellers and buyers. Moreover, no money consideration was promised or paid by any partner to the firm as consideration for the goods allotted to him.” A sale is said to be consensual because it is necessary that the parties should agree with their free consent. A forced purchase or procurement is an acquisition and not a sale. Where the control order leaves some scope for “consent” it may be a sale. Thus, where a sugar manufacturer is told to sell at stated prices and to stated customers, it is a sale, because the buyers, to whom this privilege is given are still free to buy or not. Where property is compulsorily acquired in pursuant to an authority conferred by statute there is no “sale” of the property, even though compensation is payable and its amount may be fixed by negotiation between the parties. 

2. There must be the transfer or goods for money consideration —The consideration for a sale of goods must be money, called the price. Where the property in goods is transferred for any consideration other than money that will not be a sale, but an exchange or barter. In other words, where goods are exchanged for goods, that is not a sale. But where goods are sold for a definite sum and the price is paid partly in terms of valued up goods and partly in cash, that is sale. For Example-in Aldridge Vs. Johnson (1857) Q.B. 296. fifty-two bullocks, valued at 6 a piece, were exchanged for 100 quarters of barley at 2 per quarter, the difference to be made, up in cash, the contract was treated as one of sale. A gift is not a sale, it is distinguishable from a sale because gift is without consideration whereas sale requires a money consideration.

3. The subject-matter, of the contract of sale must be goods —According to S.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”. Thus, goods include every kind of movable property other than actionable claims or money. Things like goodwill, copyright, trade mark, patent, water, oil, air, gas, electricity, motor vehicles and ships are all goods and may be the subject of a contract of sale. Things attached to or forming part of land may be sold as goods provided they arc agreed to be severed under, the contract. Thus, standing trees may be sold as goods if they are to be removed within a reasonable time. A decree can also be sold as goods.’ “Goods” also include shares and stock. In this respect our definition is wider than the one given in the Sale of Goods Act, 1893, of England which does not expressly include shares and stock.

4. There must be the transfer of absolute ownership of movable property—The transfer or “passing of the property in goods” is, in fact the essence of a contract, of sale. The transfer of “passing” of the property is the test to determine whether there was a sale or an agreement to sell. As. S.4(3) says that “where under a contract of sale the property in goods Is transferred from the seller to the buyer, the contract is called 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 thereafter to be fulfilled, the contract is called an agreement to sell”, it must, further, be noted that if under a contract of sale merely the the delivery of possession is made instead of ownership then it will not be a valid contract of sale, in fact, is essential for the sale that ownership to goods must be transferred from the seller to the buyer.

No particular form is necessary to constitute a contract of Sale— It must, however, be noted that no particular form is necessary to constitute a valid contract of sale unless specially required by some law. A contract of sale may be made by mere proposal and acceptance. Neither payment nor delivery is necessary

The agreement may be express or implied from the conduct of the parties. Even in case of express agreement the proposal or acceptance, may be made by words of mouth or in writing or partly in writing and partly by words of mouth.

Agreement to sell -S. 4 (3) says “where the transfer of the property in the goods is to take palce at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell”.

According to S.4(4) “An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred”. So also, where, by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods: S. 6(3).

Agreement to Sell– An agreement to sell does not involve any transfer of the property in the goods. In an agreement to sell the arrangement is that the transfer of property in the goods is—(i) to take place, at some future date, or (ii) subject to some condition to be fulfilled thereafter.

An agreement to sell become a sale when— (i) the time on which the futurity depended elapses, or (ii) the conditions are fulfilled. As a contract of sale includes both sale and agreement to sell, it follows that a Sale as well as an agreement to sell may be either absolute or conditional. :

Distinction between a sale and an agreement to sell—There is a difference between the two on the following points.

1. Nature of Contract-A sale is an executed cpntract whereas an agreement to sell is an executory contract It follows, therfore that a sale is a contract plus conveyance whereas an agreement tb sell is a contract pure and simple.

2. Nature of Rights-A sale effects a transfer of the general property in the goods to the buyer, in other words, it creates a right rem. Anagreement to sell gives, to either party a remedy against the person and general estate of the buyer for any default in fulfilling his part of the in other words, it creates right-in-personam.

3. Right to re-sell- In an agreement to sell, since ownership has not passes to the buyer, the seller is at liberty to sell the goods to third parties and the buyer can only claim damages from the seller. In a sale, since ownership has passed to the buyer, the seller will be guilty of conversion if he sell the goods to third parties and the buyer can sue and recover the identical goods as owner even from a third person.

4. Risk of loss – In an agreement to sell since ownership does not pass to the buyer, if goods are destroyed by an accident, the loss will be the seller’s, even though the goods happen to be in the buyer’s possession. In a sale, since ownership has passed to the buyer, even though the goods are lost by an accident, while in the seller’s possession, the loss wall be the buyer’s.

5. Remedy – If there is an agreement to sell, and the seller commits a breach, the buyer has only a personal remedy against the seller, namely, a claim for damages. The goods are still the property of the seller and he can dispose of them as he likes. If there is a sale, and the seller commits a breach, the buyer has not only a personal, remedy agains the seller, but also the remedies which an owner has in respect of the goods themselves, such as a suit for conversion or detinue. He can follow the goods in the hands of third persons.

6. Effect of insolvency of the seller – In an agreement to sell, if the buyer who has paid for the goods in which ownership has not passed to the buyer, finds that the seller has become insolvent, the buyer’s right would be to prove the amount he has paid, in the seller’s insolvency in a sale, since ownership has passed to the buyer, if the seller becomes insolvent, the buyer is entitled to recover the goods from the official Assignee or Receiver.

7. Effect of insolvency of the buyer- In a agreement to sell, if the buyer becomes insolvent without paying for the goods, since ownership has not passed to the buyer, the seller may refuse to deliver the goods unless paid for In a sale, since ownership has passed to the buyer, if the buyer becomes insolvent wihout having paid for the goods, the seller, if he is not entitled to the right of lien or stoppage in transit over the goods, must deliver them and will be entitled only to a rateable dividend for the price due.

8. Transfer of ownership— In case of sale the ownership of the property transferred immediately whereas in case of agreement to sell it is transferred at some future date or on the happening of some special condition.