Page 158 - DMGT102_MERCANTILE_LAWS_I

Mercantile Laws-I

Notes 12.1 Contract of Sale

Sec.4 defines a contract of sale as ‘a contract whereby the seller transfers or agrees to transfer the

property in goods to the buyer for a price’. From the definition, the following essentials of the
contract emerge:
1. There must be at least two parties. A sale has to be bilateral because the property in goods
has to pass from one person to another. The seller and the buyer must be different persons.
A person cannot buy his own goods. However, a part-owner may sell to another part-
owner.

Example: A partnership firm was dissolved and the surplus assets, including some goods,
were divided among the partners in specie. The sales-tax officer sought to tax this transaction.

Held, this transaction did not amount to sale. The 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.
2. Transfer or agreement to transfer the ownership of goods. In a contract of sale, it is the
ownership that is transferred (in the case of sale), or agreed to be transferred (in the case of
agreement to sell), as against transfer of mere possession or limited interest (as in the case
of bailment or pledge).
3. The subject matter of the contract must necessarily be goods. The sale of immovable
property is not covered under Sale of Goods Act. The expression ‘goods’ is defi ned in
Sec.2(7).
4. Price is the consideration of the contract of sale. The consideration in a contract of sale has
necessarily to be ‘money’, (i.e., the legal tender money). If for instance, goods are offered as
the consideration for goods, it will not amount to sale. It will be called‘barter’.
Payment by installments. In the case of sale of goods, the parties may agree that the price
will be payable by installments. Also, the terms may stipulate some amount by way of
down payment and the balance by installments.

Sale and Agreement to Sell

Where under a contract of sale, the property (ownership) in the goods is transferred from the
seller to the buyer, it is called a sale [Sec.4(3)]. Thus, sale takes place when there is a transfer of
ownership in goods from the seller to the buyer. A sale is an executed contract.

Example: Ramanathan sells his car to Bhim for ` 1 lakhs. If all essential elements of a
valid contract are present, it is a sale and therefore the ownership of the car stands transferred
from Ramanathan to Bhim. This is so even where the payment of the price or the delivery of the
car or both have been postponed.

Agreement to sell means a contract of sale under which the transfer of property in goods is to
take place at a future date or subject to some conditions thereafter to be fulfi lled.

Distinction between Sale and Agreement to Sell

The distinction between the two is of prime importance as they have different legal repercussions.
The rights and duties of the parties vary with the fact whether the contract of sale is an actual
sale or an agreement to sell. In a sale, the seller transfers the ownership in the goods at the time
of entering into the contract; in the agreement to sell, the ownership is agreed to be transferred
later.

152 LOVELY PROFESSIONAL UNIVERSITY