Contract of Sale


Sale and Agreement to sell [Sec 4 – Indian Contracts Act]

A contract of sale of goods is a contract where by the seller transfers or agrees to transfer the property in goods to the buyer for a price. Such a contract of sale may be absolute or conditional. Absolute contract is without any conditions. Conditional contract may be a contract with condition precedent or condition subsequent. When a condition is to be first performed before an agreement to sell would become a sale, the condition is a condition precedent. Where there is sale but subject to performance or non-performance of a condition, the condition is a condition subsequent. The conditions may have to be fulfilled by the seller or by the buyer.

There may be a contract of sale between one part owner and another. A contract of sale of goods may be either a ‘sale’ or an ‘agreement to sell’. Contract of sale includes sale and an agreement to sell. Though section 4 groups both sale and agreement to sell under single generic name of contracts of sale, it treats them as separate categories, vital point of distinction between them being that whereas in sale there is transfer of property in goods from seller to buyer, there is none in agreements to sell.

Sale:

Where under a contract of sale the property in the goods is transferred from seller to the buyer, the contract is called a ‘sale’. In a sale, immediate payment or delivery is not necessary. Payment and delivery may be done at a future date. But the ownership of goods, for example, the property in the goods must be transferred immediately from the seller to the buyer.

Essentials of Valid sale:

1) Property: There must be a transfer of general property in the goods, for example, transfer of ownership in the goods, and not merely special property or special interest, from the seller to the buyer.
2) Movable goods; Transfer of goods must be that of movable goods only.
3) Price: Price means the money consideration for sale of goods [Sec 2 (10)]. The price or consideration of goods must be money. Where goods are exchanged for goods, it is not a sale.
4) Parties: There must be two parties, for example, buyer and seller. The parties must be competent to contract as under the Indian Contract Act, 1872. The seller and buyer must be two different persons.
5) Form: No particular form is necessary to constitute a contract of sale. A contract of sale may be made in writing or by word of mouth, for example may be express or it may be implied from the conduct of the parties, or from the course of dealings between the parties [sec 5 (20]. It may also be made partly in writing or partly by word of mouth. Proposal and acceptance must be made.

Agreement to sell:

Where the transfer of the property, for example ownership in the goods is to take place at a future date or subject to some condition to be fulfilled, the contract is called an agreement to sell. Where by a contract of sale the seller purports to affect the present sale of future goods, the agreement operates as an agreement to sell.

When agreement to sell becomes agreement of sale?

An agreement to sell does not involve any immediate transfer of property in the goods, an agreement to sell becomes a sale when the time lapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Agreement deferring payment of part of price and also deferring delivery till the payment of balance amount held was nevertheless an agreement of sale.


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