Contract of Sale of Goods
Sale of Goods Act
Definition of Contract of Sale
Section 4(1) of the Sale of Goods Act defines a contract of sale of
goods as “A contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price”.
In other words, a contract to transfer the ownership of goods from
the seller to the buyer is know as contract of sale.
Essentials of Contract of Sale
The following are essentials of contract of sale of goods:
1.
Contract
The word contract means an agreement enforceable by law. All
the essentials of a valid contract like capacity of parties, free
consent, legality of object, etc; should be present in a contract
of sale. It may be verbal or in writing. It may be expressed or
implied.
Conti…
2.
Two Parties
There should be two parties to a contract of sale, i.e. a buyer
and a seller. One person cannot act as a buyer and seller
because a person cannot buy his own goods and similarly a
person cannot sell his goods to himself.
However, an owner of one part can sell his share to the owner
of other part. Similarly, a partner may buy the goods from the
firm in which he is a partner and vice-versa.
Conti…
Examples:
a.
b.
A sells his computer to B for 40,000 AFN. A is the seller
and B is a buyer.
A and B jointly own a car. A sells his share to B. B will
become sole owner of the car.
Conti…
3.
Transfer of Property
Transfer of property is another essential of contract of sale.
Property here means ownership. A mere transfer of possession
of the goods cannot be termed as sale. To constitute (create) a
contract of sale the seller must either transfer or agree to
transfer the property (ownership) in the goods to the buyer.
Example:
A sells his car to B for 500,000 AFN. The ownership and the
possession of the car will transfer from A to B.
Conti…
4.
Goods
The subject matter of the contract of sale must be goods.
According to section 2(7), “Goods means every kind of
moveable property other than money and immoveable
property like land, mountains and sea etc ”
Every movable property is regarded as goods. The trees, fruit,
etc. are regarded as goods because they can be separated from
land.
Conti…
Example:
A sells his car to M for 300,000 AFN. It is a contract of sale
because here the subject matter i.e. a car is a moveable thing.
Conti…
5.
Price
The consideration in a contract of sale must be the price. When
goods are sold or exchanged for other goods, the transaction is
barter, and not a contract of sale of goods. If goods are sold
partly for goods and partly for money, the contract is sale.
(Sec. 2 (10))
Examples:
a.
A sells his laptop to B for 20,000 AFN. It is a contract of
sale.
b.
X sells his cycle to B against B’s promise to give one ton
of wheat. It is not a contract of sale.
Conti…
6.
Sale and Agreement of Sell
The term contract of sale includes both sale and an agreement
to sell. When the property in the goods is transferred from the
seller to the buyer at the time of formation of contract, the
contract is called sale.
Where under a contract of sale the transfer of ownership in the
goods is to be transferred from seller to buyer at some future
date, the contract is called an agreement to sell.
Conti…
Examples:
a.
A buys a book from S and pays the whole price on a
counter. It is a sale.
b.
A agree to buy B’s car for 200,000 AFN if his mechanic
approves the car, it is an agreement to sell.
Conti…
7.
Other Formalities
There is no specific procedure to make a contract. Apart from
the above, all other essentials of a valid contract like capacity of
the parties, free consent, legality of object etc. should also be
there in a contract of sale. It may be oral or in writing. (Sec. 5)
Example:
A verbally promises to sell his car to B. It is a contract of sale if
both the parties are competent to contract and have given their
consent freely.
Difference between sale &
agreement to sell
Following are the points of the difference between the two.
Sale
Agreement to Sell
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1.
Transfer of Property
In sale, the ownership passes to
the buyer immediately at the
time of contact. The seller
ceases to be the owner and the
buyer becomes the owner
immediately.
In agreement to sell, the
ownership does not pass to the
buyer at the time of contract. The
ownership transfers at a certain
date later.
Conti…
2.
Transfer of goods
A sale can only be in case of
existing and specific goods.
3.
An agreement to sell is mostly in
case of future and contingent (not
existed) goods.
Nature of Rights
In sale, the buyer becomes the
owner of the goods and gets the
rights against the goods. If the
seller refuses to deliver the
goods, the buyer may sue for
recovery of goods.
In an agreement to sell, the buyer
does not get the rights against the
goods. He gets the rights against
the seller. He can sue for damages
and not for recovery of goods.
Conti…
4.
Risk of Loss
In sale, the ownership in the
goods passes from seller to
buyer. If the goods destroy, the
buyer suffers the loss even
though the goods are in the
possession of seller.
In an agreement to sell the
ownership in the goods does not
pass from seller to the buyer. If
the goods destroy the seller
suffers a loss even though the
goods are in the possession of the
buyer.
Conti…
5.
Consequences of Breach
In sale, if the buyer fails to pay
the price of the goods, the seller
can sue for the price, even
though the goods are in the
possession of seller
In agreement to sell if the buyer
fails to pay the price the seller
can sue for damages and not for
price, even though the goods are
in the possession of buyer.
Conti…
6.
Right of Resale
In sale, the ownership transfers
to the buyer so the seller cannot
resell the goods, even though
the goods are in the possession
of seller. If the seller sells the
goods, the new buyer having
knowledge of the previous sale
does not get a title to the goods.
In an agreement to sell, the
ownership remains with the
seller so he can resell those goods
to the new buyer. The new buyer
gets a good title to the goods,
despite the knowledge of
previous sale. The original buyer
can sue for breach of contract
only.
Conti…
7.
Insolvency of Buyer
In sale, if the buyer becomes
insolvent before payment, his
legal representatives can
demand delivery of the goods
from the seller. If the price of
the goods is still unpaid, the
seller can claim the price of the
goods proportionately.
In an agreement to sell, if the
buyer becomes insolvent, before
payment, the seller can refuse to
sell the goods until the price is
paid by the legal representative
of the buyer.
Conti…
8. Insolvency of Seller
In sale, if the seller becomes
insolvent, the buyer can recover
the goods from Official Receiver
because the ownership of goods
is with the buyer.
9.
Nature of Contract
A sale is an executed contract
because the ownership passes
from seller to the buyer.
In an agreement to sell, if the
buyer has paid the price and the
seller becomes insolvent, he can
recover the price proportionately.
He cannot get the goods as the
ownership of the goods is with
the seller.
An agreement to sell is an
executory contract because the
ownership is to pass in future.
Kinds of Goods
The following are the kinds of goods.
1.
Existing Goods
The goods which are owned or possessed by the seller at the
time of contract of sale are called existing goods. In other
words the goods which are physically in existence and in seller’s
possession, at the time of contract are called existing goods.
(Sec. 6 (1))
These goods can be divided into following kinds:
Conti…
a.
Specific Goods
The goods identified and agreed upon at the time of contract of
sale are called specific goods. In other words there are the
goods which can be clearly identified and recognized as
separate things at the time of contract. These may be called
ascertained goods.
Example:
X owns some cars and motorcycles to sell one of them. If one
specific car is sold out, the contract is for specific goods.
Conti…
b.
Unascertained Goods
The goods which are not identified and agreed upon at the
time when a contract of sale is made are called unascertained
goods. These goods are not definite and specific. The seller in
case of contract of the sale of unascertained goods has the
option to supply any goods for which the contract is made.
Example:
A has 100 bags of sugar. A promises to sell 10 bags of sugar out
of them. It is a contract of unascertained goods.
Conti…
2.
Future Goods
The goods which a seller does not possess at the time of
contract but when it will be manufactured, produced or
acquired by the seller after making the contract of sale are
called future goods. The seller can just make an agreement sell
about future goods.
Example:
M agreed to sell N all the oranges which will be produced in his
farm next year. It is a contract of future goods.
Conti…
3.
Contingent (conditional) Goods
The goods which are not in existence at the time of contract of
sale are called contingent goods. The contact of contingent
goods is enforceable when the event happens on which its
performance depends. If the event does not happen if becomes
void. (Sec.2(6))
Example:
A agrees to sell to B a bike if he (A) is able to purchase it from
its present owner. This is a contract for the sale of contingent
goods.