CONTRACT OF SALE AND ITS ESSENTIALS

Published On : 2018-09-24

Study Online Notes for Contract of Sale and its Essentials

Define Contract of Sale? What are its essentials?
According to Section 4 of the Sale of Goods Act, "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"

A Contract of sale may be absolute or conditional according to the desire of the contracting parties. The term 'contract of sale' is a generic term and, therefore, broader than 'sale'. It includes 'sale proper' and 'an agreement to sell'. Where under a contract of sale, the property in goods has passed from the seller to the buyer, it is called a 'sale', but where the transfer of property in goods is to take place at a future time or subject to some conditions thereafter to be fulfilled, it is an 'agreement to sell'.

A contract of sale is regulated by the general law of contract. Accordingly, there must be an offer to buy or sell goods and an acceptance of that offer, parties must be competent to contract and there should be free consent. The subject matter of such contract is goods the property in which is transferred or is to be transferred for a money consideration called the price-paid or promised to be paid. 

Essentials For A Valid Contract Of Sale
There must be two parties: There must be two parties, one seller and the other buyer. A person cannot be a seller as well as a buyer. A person cannot buy his own goods. In case of State of Gujarat Vs. Raman Lal and Co. a partnership firm was dissolved and the surplus assets including stock in trade were divided among the partners. It was held that it was not the contract of sale as the partners were the joint owners of the goods and they could not be both seller and buyer.  

Subject matter of sale must be 'goods': The subject matter of a contract of sale must be goods and the goods must be movable. Sale and purchase of immovable property is not covered by this Act, but is regulated by the Transfer of Property Act. Similarly, contracts relating to services are not treated as contract of sale. 

Consideration in Price: Consideration in a contract of sale has necessarily to be money. Thus, if for instance, goods arc offered as consideration for goods, it will not amount to sale, but it will be called ’barter’. Similarly, in case there is no consideration, it amounts to gift and not sale. However the consideration may be partly in money and partly in goods. In case of Aldridge Vs. Johnson A agreed to exchange with B 100 quarters of barley at ₤2 per quarter for 52 bullocks at ₤6 per bullock and pay the difference in cash. It was held that this was a contract of sale.

Transfer of Property in the goods: In every contract of sale, it is the ownership that is transferred and in an agreement to sell the ownership is agreed to be transferred as in case of pledge. According to Section 2 (11) of the Act, property means the general property in the goods and not merely a special property. In a contract of sale the general property is transferred from seller to the buyer. On the other hand, when the goods are pledged, it is only the special property which is transferred i.e., possession of the goods is transferred to the pledgee while the ownership rights remain with the pledger.

Essential elements of a Valid Contract: All the essential elements of a valid contract must be present in the contract of sale.

What do you understand by agreement to sell and how is it different from contract of sale?
In a sale the buyer becomes the owner of the goods as soon as the contract of sale is made, whereas in an agreement to sell, the seller continues to be the owner of the goods agreed to be sold, till it becomes a sale. An agreement to sell becomes a sale on the expiry of the stipulated time or when the conditions are fulfilled subject to which the property in goods is to be transferred.

 

SALE

AGREEMENT TO SELL

On the basis of execution

It is an executed contract
 

An agreement to sell is always an executory contract.
 

Transfer of property

The property in the goods passes from the seller to the buyer immediately and the seller is not more owner of the goods.
 

Transfer of property in the goods is to take place at a future time or is subject to certain conditions to be fulfilled.

Consequences of Breach

If the buyer wrongfully refuses to accept the goods, and pay the price, the seller can sue for the price, even if the gods are in his possession and he can exercise the right of stoppage of goods in transit and of resale.
 

In an agreement to sell only remedy available to the seller is to sue for damages if buyer fails to accept and, pay for the goods.
 

Risk of loss

If the goods are destroyed the loss falls on the buyer even though the goods are in the possession of the seller

If the goods are destroyed the loss falls on the seller even though buyer may be in possession of goods.
 

Types of goods

It can only be for only existing and specific goods only

Mostly for the future and contingent goods and may even refer for unascertained goods.
 

Insolvency of buyer

If the buyer becomes insolvent before paying the price, the ownership having passed to the buyer, the seller shall have to deliver the goods to the Official Assignee or Receiver.

Where the seller continues to be the owner of the goods, the seller can refuse to deliver the goods to the Official Assignee or Receiver unless he is paid full price of the goods.
 

Insolvency of seller

If the seller becomes insolvent while the goods are still in his possession, the buyer shall have a right to claim the goods from the official Receiver or Assignee because the ownership of goods has passed to the buyer.

The buyer cannot claim the goods even when he has paid the price. Buyer's only remedy in this case is to claim rate able dividend for the money paid from the estate of the insolvent seller.
 



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