CONTRACT OF SALE DEFINED

A contract of sale is ‘a contract whereby the

seller transfers or agrees to transfer the
property in goods to the buyer for a price.’

There can be a contract of sale between one

part-owner and another. A contract of sale
may be absolute or conditional depending
upon the desire of contracting parties.
 Essentials of a Contract of Sale

A close examination of Sections 4-5 reveals that

the following six features are essential elements
of any contract of sale of goods.
1. Two parties
2. Goods
3. Transfer of ownership
4. Price
5. All essentials of a valid contract
6. Includes both a ‘sale’ and ‘an agreement to sell’.
 SALE AND AGREEMENT TO SELL DISTINGUISHED

A contract of sale includes both sale and an agreement to sell.

These two, however, are legally different. And the fact whether the
transaction is a sale or an agreement to sell determines the rights
and obligations of the parties to a contract of sale. The distinction
between the two is therefore, of principal significance which can
be discussed under the following heads:
1. Transfer of ownership immediately, future time
2. Nature of contract Executed, executory of formalities

3. Nature of rights of buyer

4. Consequence of breach by buyer
5. Risk of Loss
6. Insolvency of the seller
7. Insolvency of the buyer
8. Consequences in case of resale
 Transfer of Ownership

Transfer of ownership (property in goods) is the most

significant point of distinction. All other points of
differentiation arise from this basic difference.
In the case of sale, the title (ownership) in the goods passes to
the buyer immediately at the time of making the contract
but in the case of an agreement to sell, the title passes at a
future time subject to the conditions to be fulfilled
thereafter.
Therefore, in a sale the buyer becomes the proprietor of the
goods as soon as the contract is made whereas in an
agreement to sell, the seller continues to be the proprietor
of the goods agreed to be sold until it becomes a sale.
 Nature of Contract
A ‘sale’ is an executed contract because through
this all the formalities of the contract are said to
have been completed, and the ownership of the
goods is said to have passed to the buyer.
An agreement to sell on the other hand is an
executory contract, as all the formalities of the
contract are not completed but something vital
remains to be done i.e., ownership shall pass on
some future date. An agreement to sell becomes a
sale on the expiry of the stipulated time or on the
fulfillment of the conditions subject to which the
property in goods is to be transferred.
 Nature of Rights of Buyer

A ‘sale’ gives the right to the buyers to claim the

goods as against anybody who disturbs their right
to use the goods including the seller.
An agreement to sell creates merely the right to
either party (buyer or seller) against each other
for any default in fulfilling its part of agreement.
This means that the buyer gets the rights against
the seller and vice-versa. In other words, an
agreement to sell is a contract, pure and simple,
but a sale is a contract plus conveyance or a
fulfilled contract.
 Consequence of Breach by Buyer

In case of a sale, if the buyer wrongly refuses to

accept (the goods) and pay the price, the seller
may sue for the price, even though the goods are
still in his/her possession and have never been
delivered to the buyer.
But in case of an agreement to sell if the buyer fails
to accept the goods and pay for them, the only
remedy available to the seller is to sue for
damages. He cannot sue for price, even though
the goods are in the possession of buyer.
 Risk of Loss

In case of sale, if there is any loss or damage to

the goods, it falls on the buyer even if the goods
are with the seller.
The general rule is that unless otherwise agreed, risk
follows ownership, which implies whosoever is the
owner of the goods at the time of loss, will bear
the loss.
But in an agreement to sell if the goods are lost or
destroyed by accident, the loss falls on the seller.
This is because till delivery, the ownership of the
goods remains with the seller.
 Insolvency of the Seller

In a sale, if the seller becomes insolvent while the

goods are with him/her, the buyer is entitled to
recover the goods from the Assignee or the
Official Receiver, as the property in the goods has
already passed on to the buyer.
However in case of an agreement to sell, if the seller
goes bankrupt, the buyer cannot claim the goods
even if s/he has paid the price. The buyer can only
claim ratable dividend for the money paid from
the estate of the insolvent seller(through Court).
The official receiver of the seller will
SALE: The official receiver of the seller not deliver the goods to the buyer
will be liable to handover the because the goods were under the
goods to the buyer because buyer ownership of seller when he was
has already become the owner of declared insolvent. Even if the buyer
the goods before insolvency. has paid the full price already , he
will only be entitled to recover the
amount proportionately.
Sale becomes nullified
SALE: If the buyer becomes insolvent and is therefore unable to pay the full price , still the seller will have to give the goods to the official
receiver of the buyer,

Insolvency of the Buyer

In case of a sale, if the buyer is adjudicated
insolvent before paying the price, the seller must
deliver the goods to the Official Receiver or
Assignee as the ownership has already passed on
to the buyer.
The seller (as an unsecured creditor) is entitled
only to a ratable dividend for the unpaid price.
But in an agreement to sell, where the ownership in
respect of goods continues to vest in the seller,
the seller may refuse to deliver the goods to the
Official Receiver or Assignee unless he is paid the
full price of the goods.
If the buyer becomes insolvent and is therefore unable to pay the full price , the seller can refuse to give the goods to the official
receiver of the buyer,
 Consequences in Case of Resale
In a sale, the seller, if he is in possession of goods
after sale, cannot resell the goods for want of
ownership.
If that is done, the original buyer shall have a double
remedy; a suit for damages against the seller and the
right to recover the goods from the subsequent
purchaser.
In an agreement to sell, the seller (still being the
owner) can dispose of the goods as s/he likes and the
buyer’s (original one) remedy against the seller’s
breach of contract is only a suit for damages.
Contd.
 GOODS: MEANING
The subject matter of a contract of sale is essentially movable
property i.e., goods.
‘Goods’ means every kind of moveable property other than
actionable claims and money. It includes:
1)stock and shares,
2)growing crops, grass, and things attached to, or forming part
of the land, which are agreed to be severed before sale
Thus, Goods includes every kind of transportable property i.e.,
the things, which can be carried from one place to another.
Excluded : But ‘money’ and ‘actionable claims’, although
moveable, have been expressly excluded from the scope of
‘goods.’ ‘Money’ means legal tender i.e., the currency which
cannot legally be refused in payment of a debt. Currency
includes coins and bank notes as a medium of exchange.
Contd.
 GOODS: CLASSIFICATION

The various kinds of goods, relevant to the contract of sale may

broadly be classified into the following three categories:
1. Existing Goods
2. Future Goods, and
3. Contingent Goods
Existing Goods
These are the goods, which are physically in existence at the time
of entering the contract of sale. Existing goods are those goods,
which are owned and/or possessed by the seller at the time of the
contract of sale.
The existing goods may be further sub-divided as:
• Specific goods
• Ascertained goods, and
• Unascertained goods Contd.
 ………GOODS: CLASSIFICATION
The goods which are specifically identified at the time of formation of the contract for sale of goods are called specific goods. In case of specific
goods the contract of sale is in respect of only those goods and the same goods are to be delivered by the seller to the buyer and not the similar
one. • Specific Goods. These mean goods identified and agreed
upon at the time of making the contract of sale. It is worth
noting that the goods are not considered to be specific merely
because they are identifiable; they must be actually identified.
For example, if A agrees to sell his car or watch to B, it shall be
a sale of specific goods if A has only one car, or one watch.
• Ascertained Goods. These are the goods, which have been
ascertained or identified subsequent to the formation of the
contract of sale. Ascertainment basically involves
identification of the goods as the subject matter of a
particular contract The goods which are identified and agreed upon after the formation of contract of sale of goods
• Unascertained Goods Contrary to ascertained goods these
are the goods, which are not specifically identified or
ascertained at the time of entering the contract of sale. They
are identified or defined only by description.
 Future Goods
‘Future goods’ refers to goods that have to be manufactured,
produced, or acquired by the seller after making of the contract of
sale.
Accordingly, future goods are goods, which may be either not exist
at the time of the contract or they exist but have to be acquired by
the seller at the time of the contract.
Example: A enters into a contract with B to buy all the apples that
would be produced in B’s orchard over the next year. This is a
contract for the sale of future goods amounting to ‘an agreement
to sell’.
Thus, there cannot be a sale of future goods because ownership
cannot be transferred before the goods comes into existence.
Since future goods are not in the possession of the seller at the
time of contract, they can become the subject matter of an
agreement to sell and not the sale. Contd.
 Contingent Goods

Contingent goods are those whose acquisition by the seller

depends upon a contingency, which may or may not happen.
dependent upon happening or non-happening of some future event

The above definition indicates that contingent goods are a type of

future goods with a minor difference that the future goods are
more certain to come into existence whereas contingent goods are
less certain to come into existence. Hence, a contract of sale of
contingent goods also operates as ‘an agreement to sell’ and not a
sale, as regards transfer of ownership from the seller to buyer. Such
a contract is enforceable only at the occurrence of the contingency,
otherwise the contract becomes void.
A agrees to sell to B a vintage car only if C, its present owner, sells it
to him. This is a contract for the sale of contingent goods as the
availability of the car to A, depends on its sale by C to A.
 PRICE
‘Price’ means the money consideration for the sale of goods.

Price is a prerequisite to constitute a valid contract of sale. No

sale of goods can take place without a price. Thus, if there is
no worthwhile consideration to support a voluntary surrender
of goods by the real owner to another person, the transaction
is not a sale but a gift, and is not governed by the Sale of
Goods Act.
The price should be paid or promised to be paid in money,
unless otherwise agreed. The money here implies the legal
tender i.e., the coins and bank notes in circulation (currency
of the country). Further the price may also be paid by means
of a negotiable instrument e.g., cheque etc. for it is not the
mode of payment of a price which is prerequisite for a sale of
goods but the money consideration that constitutes the
essence for a valid contract of sale.