Contract of Sale of Goods

Sale of Goods ActDefinition 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 SaleThe 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 PartiesThere 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. A sells his computer to B for 40,000 AFN. A is the seller and B is a buyer.b. 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 PropertyTransfer 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____________________________________

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.

Agreement to Sell______________________________________

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. 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.

An agreement to sell is mostly in case of future and contingent (not existed) 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 SellerIn 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 GoodsThe following are the kinds of goods. 1. Existing GoodsThe 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 GoodsThe 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 GoodsThe 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 GoodsThe 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) GoodsThe 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.