Introduction

Section 4 –

(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

 

–The essence of sale is the transfer of the general property in the goods from the seller to the buyer for a price.

–When under a contract of sale, the property in the goods is transferred from the seller to the buyer, so that the seller ceases to be the owner of the goods and the buyer becomes the owner, the contract of sale is called a “Sale.”

–But where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an “agreement to sale.”

–An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled.

–A ‘Sale’ is sometimes described as an executed contract of sale. An ‘agreement to sell’ is sometimes described as executory contract of sale.

–If merely title to the goods passes but not as a result of any contract between the parties, express or implied, there is no sale.

–The words “for a price” are intended to refer to a consideration in money or legal tender. So it exclude barters. Exchange of one form of legal tender for another is not a sale as it is not possible to say that one is the price for another.

–The second part of the definition permits a person who owns the goods partially to sell goods and transfer the ownership to that extent.

Absolute and conditional contracts of sale : A contract of sale may be absolute or conditional. It is absolute when it is a pure and simple, transferring the property absolutely to the buyer.

It is conditional if there are conditions annexed to the contract by the parties. These conditions may be conditions precedent or conditions subsequent.

Sale and agreement to sell : Where property in goods is transferred from the seller to the buyer, the transaction is one of sale. But when transaction is to take place in future time or it is to take place subject to some conditions thereafter to be fulfilled, the transaction is an agreement to sell. e.g. if the goods are delivered to the buyer on approval i.e “on sale or return” basis, the transaction is an agreement to sell, but it becomes a sale and the property in the goods passes to the buyer where the buyer signifies his approval or acceptance to the seller.

Contract of sale and an agreement of sale : The essential feature that distinguishes the contract of sale from an agreement to sell is that in a contract of sale the property in the goods is transferred from seller to buyer immediately whereas in an agreement to sell property is transferred on a future date. An agreement to sell becomes a sale on fulfilment of the conditions or when the time provided in the agreement elapses. (State of Uttaranchal & Ors. V. Khurana Brothers)  

Contract of sale and contract of work : If a contract involves the sale of movable property as movable property, it would constitute a contract for sale. On the other hand, if the contract primarily involves carrying on of work involving lbour and service and use of materials is incidental to the execution of the work, the contract would constitute a contract of work and labour. (The article to be delivered should have an identifiable existence prior to its delivery to the purchaser then we can say that the contract is a contract for sale.)

Illustration : ‘A’promises to paint a picture for ‘B’. ‘A’ uses the paint and canvas which are of very small value and ‘B’ promises to pay for the picture as a work of Art. This is a contract for work and labour and not the sale of goods.

Points of distinction between a sale and an agreement to sale.

SALE	AGREEMENT TO SELL
In the contract of sale, the exchange of goods takes place immediately.	In the agreement to sell the parties agree to exchange the goods for a price depending on the fulfilment of certain conditions at a future specified date.
The nature in the sale is absolute.	The nature of the agreement to sell is conditional.
It is an executed contract.	It is an executory contract.
Transfer of risk takes place immediately.	Transfer of risk doesn’t take place, until and unless the goods are transferred.
The right to sell remains with the buyer	The right to sell remains with the seller.
Here the seller has the right to sue for the price.	Here the seller has the right to sue for damages.
It creates a right in rem. ( It is a right available against persons generally. Examples are rights of possession and ownership.)	It creates a right in personam. (Rights under a contract are rights in personam for only the parties thereto are bound.)
The seller has no right to resell.	The seller has the right to resell the same goods if the conditions are not fulfilled.
If the goods are destroyed, the loss falls upon the buyer, though the goods may never have come into his possession.	If the goods are destroyed, the loss falls on the seller.

 The provisions of this Act relating to contract of sale do not apply to any transaction in the form of of sale which is intended to operate by way of  mortgage, pledge, charge or other security.

What are not sales :

For sale there must be two parties i.e. buyer and seller and transfer from firm (of whom a partner is a constituent) to partner does not qualify for the same. (Synthetic Suppliers v. The Commissioner of Sales Tax)

A hire-purchase agreement is not a sale, as no property passes in such a transaction until the option to purchase is exercised and the other terms of the agreement are fulfilled. (e.g. The lessee will pay the rent for a property or a vehicle over a period of time. If the lessee pays the actual sale price of the property or vehicle, he will have the option to own the property or vehicle at any time.)

A building contract involves a composite transaction of supply of goods and services. It is indivisible and there involves no sale of goods

(Gannon Dunkerley & Co v. State of Rajasthan)

Supply of electricity to a consumer by a statutory board is not sale.

(Karnataka Power Transmission Corp v. Ashok Iron Works(P) Ltd.)

Goods provided in rendering medical services do not qualify as ‘sale’. A transaction of supply of medicines, surgical items, x-ray films and plates etc. for thetreatment of the indoor patients does not come under the purview of ‘sale’ because the hospital is not selling those items but are incidental and essentially required for their treatment.

(Tata Main Hospital v. The State of Jharkhand.)

The SC in Asst. Sales Tax Officer v. B.C.Kame, held that where a photographer undertake to take photograph, develop negative, or do other photographic work and thereafter supplies the prints to the customers, he cannot be said to enter into a contract for sale of goods. It is a contract for use of skill and labour by the photographer.

Formalities of the Contract

Sec 5 Contract of sale, how made :

(1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by installments, or that the delivery or payment or both shall be postponed.

(2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties.

So, in contract of sale three emportant elements are there (1) Offer & Acceptance (2) Goods to be bought or sold (3) Price.

In addition, all the requirements of a valid contract must be fulfilled.

Subject-matter of Contract

Sec 6 Existing or future goods :

(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods.

(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

(3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

Illustration : (1) ‘A’ contracts on 1^st Jan 2020 to sell ‘B’ products of a certain company, to be delivered and paid for on 1^st Apr 2020. ‘A’ at the time of making the contract, is not in possession of any products of that company. This is a valid contract, in spite of the fact that, ‘A’ can acquire the products only by purchase.

(2) ‘A’ agrees to sell jute to ‘B’ to be delivered on arrival of ‘jute’ through a particular ship. A is not liable if jute is not arrived.

‘A’ agrees to sell jute to ‘B’ to be delivered on arrival of a particular ship safely. Ship arrives safely but no jute on board, ‘A’ is liable for damages

If the seller purport to effect a present sale of future goods, the transaction is not a sale, but an agreement to sell. The reason is that, a man cannot assign (give out) what has no existence. But a man can agree to assign property which is to come into existence in the future.