Define a contract of sale and distinguish between Sale and Agreement to Sell.
Contract of Sale:
Section 4 (1) of the Sale of Goods Act defines contract of sales as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.
Essentials of a contract of sale of goods : The analysis of the definition of a contract of sale reveals the following essential features :
Two parties : Being a contract, there must be two parties-the seller and the buyer. A person cannot buy the goods from himself.
Transfer of property : Property here means ownership. The seller must transfer or agree to transfer the property in goods to the buyer. The object of a contract of sale must be the transfer of ownership in goods from one party to another.
Goods : The subject-matter of the contract of sale must be goods. The term goods means every kind of movable property (other than actionable claims and money) including stock and shares, growing crops, grass and things attached to or forming part of the land but agreed to be severed from land before sale or under the contract of sale. ‘Actionable claims’ are the claims enforceable by a legal action e.g. a book debt. ‘Money’ means current money.
Price : Price means the money consideration for the sale of goods. The goods must be sold for some price. Where goods are exchanged for goods, it is barter and not a sale. However, there is nothing to prevent the consideration being partly in money and partly in goods.
Essential elements of a valid contract : All essential elements of a valid contract like, agreement, free consent, competence of parties, consideration, etc., must be present in a contract of sale because a contract of sale is just like any other contract.
Includes both “Sale and Agreement to Sell” : A contract of sale may be absolute or conditional.
Where the contract of sale is executed i.e., the property in goods has passed from the seller to the buyer, it is called sale but where the contract is executory, therefor the transfer of the property in goods is to take place at a future date or subject to some condition thereafter to be fulfilled, it is an agreement to sell.
Distinction between Sale and an Agreement to Sell:
Transfer of ownership : In case of sale, the transfer of ownership from the seller to the buyer takes place at the time of the contract. in case of an agreement to sell, the transfer of ownership takes place at a future time or subject to the fulfillment of a condition.
Risk ; In a sale, the buyer is responsible for any loss or destruction of the goods even if the goods are in the possession of the seller. In an agreement to sell, the seller is responsible for the loss even if the goods are in the possession of the buyer because the seller remains the owner until the agreement to sell becomes a sale.
Right of resale : In case of sale, the seller cannot sell the goods even if the goods are in his possession. If he does so, he is guilty of breach of contract and buyer can claim damages from the seller. In case of an agreement to sell, the seller continues to be the owner. If he sells the goods, he is guilty of breach of contract and the original buyer can claim only damages from him.
Insolvency of the buyer : If the goods are in the possession of the seller and buyer becomes insolvent, then, in case of sale, in the absence of a right of lien, the seller must deliver the goods to the official receiver or assignee of the buyer.
The seller will be entitled for rate able dividend for the price due. But in case of an agreement to sell, if buyer becomes insolvent before paying the price of the goods, the. seller may refuse to deliver the goods to the official receiver because the ownership of the goods still rests with the seller.
Insolvency of the seller : In case of sale, if the seller, who is in possession of the goods, becomes insolvent, the official receiver / assignee of the seller has to give goods to the buyer because he is the owner of the goods. But in case of an agreement to sell; if the seller becomes insolvent/the buyer cannot recover the goods from the official receiver even if the price has been paid by him. This is because he is not the owner.