SALES OF GOODS ACT-1930

A contract of sale of goods is

one
whereby
the
seller
transfers or agrees to transfer
theproperty in goods to the
buyer for a price.

The subject matter of a contract of sale is essentially

movable property i.e.
GOODS

Goods means every kind of moveable property

other than actionable claims and money. It includes
stock and shares, growing crops, grass, and things
attached to, or forming part of the land, which are
agreed to be severed before sale or under the
contract of sale.
[Sec. 2 (7)]
Thus, Goods includes every kind of transportable property
i.e., the things, which can be carried from one place to
another. But money and actionable claims, although
moveable, have been expressly excluded from the scope of
goods. Money means legal tender i.e., the currency
which cannot legally be refused in payment of a debt.
Currency includes coins and bank notes as a medium of
exchange.

The various kinds of goods, relevant to the contract of

sale may broadly be classified into the following two
categories:
1. Existing Goods
2. Future Goods, and
Existing Goods
These are the goods, which are physically in existence at
the time of entering the contract of sale. As per Section 6
of the Sale of Goods Act existing goods are those goods,
which are owned and/or possessed by the seller at the
time of the contract of sale.
The existing goods may be further sub-divided as:
- Specific goods
- Ascertained goods, and
- Unascertained goods

Specific Goods. These mean goods identified and agreed upon

at the time of making the contract of sale
[Sec. 2(14)].
The goods are not considered to be specific merely because they
are identifiable; they must be actually identified.
Case: if A agrees to sell his car or watch to B, it shall be a
sale of specific goods if A has only one car, or one watch.
Ascertained Goods. These are the goods, which have been
ascertained or identified subsequent to the formation of the
contract of sale. Ascertainment basically involves unconditional
appropriation of the goods as the subject matter of a particular
contract.
Case: A who deals in Enfield Motor Bikes, has 100 bikes in
his showroom and agrees to sell 40 bikes to Delhi Police.
Suppose the buyer selects and sets aside 40 bikes out of
the mass of 100 for the given deal, the contract is for
ascertained goods as the quantity contracted has been
identified and appropriated towards the contract.

Unascertained
Goods
Contrary
to
ascertained goods these are the goods, which
are not specifically identified or ascertained at
the time of entering the contract of sale. They
are identified or defined only by description.
Case: Mohan, a timber merchant agrees to
supply 50 chairs to a school out of the lot
of 200 chairs lying in his Godown. It is a
sale of unascertained goods because
which of the chairs shall be delivered to
the buyer have not been identified at the
time of the contract of sale.

Future Goods:
Future goods refers to goods that have to be manufactured,
produced, or acquired by the seller after making of the
contract of sale.
[Sec. 2(6)]

Accordingly, future goods are goods, which may be either not

exist at the time of the contract or they exist but have to be
acquired by the seller at the time of the contract.
Case: A enters into a contract with B to buy all the
apples that would be produced in Bs orchard over the
next year. This is a contract for the sale of future
goods amounting to an agreement to sell.
Thus,
there cannot be a sale of future goods because
ownership cannot be transferred before the goods comes into
existence. Since future goods are not in the possession of the
seller at the time of contract, they can become the subject
matter of an agreement to sell and not the sale.

Price means the money consideration for the

sale of goods.
[Sec. 2 (10)]
Price is a prerequisite to constitute a valid contract of sale. No
sale of goods can take place without a price. Thus, if there is no
worthwhile consideration to support a voluntary surrender of
goods by the real owner to another person, the transaction is not
a sale but a gift, and is not governed by the Sale of Goods Act.
The price should be paid or promised to be paid in money, unless
otherwise agreed. The money here implies the legal tender i.e.,
the coins and bank notes in circulation (currency of the country).
Further the price may also be paid by means of a negotiable
instrument e.g., cheque etc. for it is not the mode of payment of
a price which is prerequisite for a sale of goods but the money
consideration that constitutes the essence for a valid contract of
sale.

CONTRACT OF SALE:

A contract of sale is a contract whereby the

seller transfers or agrees to transfer the
property in goods to the buyer for a price.
[Sec. 4 (1)

There can be a contract of sale between one

part-owner and another. A contract of sale
may be absolute or conditional depending
upon the desire of contracting parties.
[Sec. 4(2)]

Essentials of a Contract of Sale

Sec. 4-5 reveals that the following six features

are essential elements of any contract of sale of
goods.

1. Two parties
2. Goods
3. Transfer of ownership
4. Price
5. All essentials of a valid contract
6. Includes both a sale and an
agreement to sell.

SALE AND AGREEMENT TO SELL : DISTINGUISHED

A contract of sale includes both sale and an agreement to sell.
These two, however, are legally different. The fact, whether
the transaction is a sale or an agreement to sell determines
the rights and obligations of the parties to a contract of sale.
The distinction between the two is therefore, of principal
significance which can be discussed under the following heads:
1. Transfer of ownership
2. Nature of contract
3. Nature of rights of buyer
4. Consequence of breach by buyer
5. Risk of Loss
6. Insolvency of the seller
7. Insolvency of the buyer
8. Consequences in case of resale

Transfer of ownership (property in goods) is

the most significant point of distinction. All other
points of differentiation arise from this basic
difference.
In the case of sale, the title (ownership) in the
goods passes to the buyer immediately at the
time of making the contract.
sale is an executed contract because through
this all the formalities of the contract are said to
have been completed, and the ownership of the
goods is said to have passed to the buyer

In the case of an agreement to sell, the title passes

at a future time subject to the conditions to be fulfilled
thereafter. Therefore, in a sale the buyer becomes the
proprietor of the goods as soon as the contract is made
whereas in an agreement to sell, the seller continues to
be the proprietor of the goods agreed to be sold until it
becomes a sale.
Therefore, agreement to sell is an executory
contract, as all the formalities of the contract are not
completed but something vital remains to be done i.e.,
ownership shall pass on some future date. An agreement
to sell becomes a sale on the expiry of the stipulated
time or on the fulfillment of the conditions subject to
which the property in goods is to be transferred.

Rights of Buyer:
A sale creates jus in rem i.e., gives the right to
the buyers to claim the goods as against anybody
who disturbs their right to use the goods including
the seller.
However, an agreement to sell creates merely
jus in personam i.e., the right to either party
(buyer or seller) against each other for any default
in fulfilling its part of agreement. This means that
the buyer gets the rights against the seller and
vice-versa. In other words, an agreement to sell is
just a simple contract, but a sale is a full contract.

Consequence of Breach by Buyer

In case of a sale, if the buyer wrongly refuses to accept (the goods),

the seller may sue for the price, even though the goods are still in
his/her possession and have never been delivered to the buyer. But
in case of an agreement to sell if the buyer fails to accept the goods
the only remedy available to the seller is to sue for damages. He
cannot sue for price.
Case: X sells five quintals of potatoes to Y for Rs 1,000. If Y
refuses to accept the goods, X can sue him for the price (Rs
1000) despite the fact the goods are still in Xs possession.
But if it was an agreement to sell, X could, legally, only
claim damages (compensation, such as expenditure
incurred in delivering the goods, or the loss he suffered by
having to sell the goods to someone else at a cheaper rate)
from Y since the ownership has not yet been transferred to
Y.

Risk of Loss
In case of sale, if there is any loss or damage
to the goods, it falls on the buyer even if the
goods are with the seller. The general rule is
that unless otherwise agreed, risk follows
ownership, which implies whosoever is the
owner of the goods at the time of loss, will
bear the loss. But in an agreement to sell if
the goods are lost or destroyed by accident,
the loss falls on the seller. This is because till
delivery, the ownership of the goods remains
with the seller.

Insolvency of the Seller

In a sale, if the seller becomes insolvent while
the goods are with him/her, the buyer is
entitled to recover the goods from the Assignee
or the Official Receiver, as the property in the
goods has already passed on to the buyer.
However in case of an agreement to sell, if the
seller goes bankrupt, the buyer cannot claim
the goods even if he/she has paid the price.
The buyer can only claim the money which has
been paid from the estate of the insolvent
seller.

Insolvency of the Buyer

In case of a sale, if the buyer becomes insolvent
before paying the price, the seller must deliver
the goods to the Official Receiver or Assignee as
the ownership has already passed on to the buyer.
The seller (as an unsecured creditor) is entitled to
recover the unpaid price from his estate.
However, in an agreement to sell, where the
ownership in respect of goods continues to vest in
the seller, the seller may refuse to deliver the
goods to the Official Receiver or Assignee unless
he is paid the full price of the goods.

Consequences in Case of Re-sale

In a sale, the seller, if he is in possession of

goods after sale, cannot resell the goods for
want of ownership. If that is done, the
original buyer shall have a double remedy;
-a suit for damages against the seller and
-the right to recover the goods from the
subsequent purchaser.
In an agreement to sell, the seller (still being
the owner) can dispose of the goods as
he/she likes and the buyers (original one)
remedy against the sellers breach of
contract is only a suit for damages.