Project Report ON: Sale and Agreement To Sell (Section 4-6) W.R.T. Sale Vis-À-Vis Hire Purchase

PROJECT REPORT
ON
Sale and Agreement to Sell (section 4-6)
w.r.t. Sale vis--vis Hire Purchase
SUBMITTED TO:
SUBMITTED BY:
Ms. Sugandha
Akhil Ahuja
UILS, P.U. Chandigarh.
124/13
B.com./LL.B.
7th semester
Acknowledgement
I feel acknowledged, first and foremost to Ms. Sugandha for providing me a chance to work on
this project. She has always been an inspiring star. She guided me through all the difficulties, I
faced while working. Secondly, I feel acknowledged to my seniors for their precious guidance.
Thirdly, I feel acknowledged to the library staff for their cooperation and assistance. Lastly, I feel
acknowledged to all those friends and well wishers who helped me for the data collection and
other purposes.
Akhil Ahuja
Table of Cases
A.
1.
2.
3.
4.
Agricultural Market Committee v. Shalimar Chemical Works Ltd.; (1997) 5 S.C.C. 516.
Aldridge v. Johnson ; (1857) 7 E & B 885.
Associated Hotels of India v. Excise and Taxation Officer, A.I.R. 1966 Punj 499
Asstt. Sales Tax Officer vs. B C Kame [AIR 1977 SC 1642]
C.
5.
6.
7.
8.
Chapman Bros. v. Verco Bros. & Co. Ltd.; (1933) 49 C.L.R. 306.
CIT v. Hind Construction Ltd.; (1972) 4 S.C.C. 460.
CIT v. M. & G. Stroes, A.I.R. 1968 S.C. 200.
Commissioner of Central Excise v. M/s. Accurate Meters Ltd.; 2009 (235) E.L.T. 581
(S.C.).
9. Commissioner, Customs & Central Excise v. M/S. Roofit Industries Ltd ; (2015) 319
E.L.T. 221.
L.
10. Lee v. Butler; [1893 2 QB 318].
11. Lee vs. Griffin [1861 30 LJ QB 252]
M.
12. M.S. Madhusoodhanan & Anr v. Kerala Kaumudi Pvt. Ltd. & Ors; (2004) 9 SCC 204.
13. M/s New India Sugar Mills Ltd. v. CST, Bihar; A.I.R. 1963 S.C. 1207.
14. M/s. Larsen & Toubro Limited & Anr v. State Of Karnataka & Anr; (2014) 1 SCC 708.
15. Marikar Motors Ltd. v. STO; (1996) 3 S.C.C. 263.
N.
16. New India Sugar Mills v. CST; A.I.R. 1963 S.C. 1207.
17. Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, (1978) 4 S.C.C. 36.
P.
18. Plasycoed Colliery Co. v. Patridge, Jones & Co.; [1912] 2 K.B. 325.
R.
19. Robinson vs. Graves [1935 1 KB 579]
S.
20. S. Australian Insurance Co. v. Randel; (1869) 3 P.C. 101.
21. St. Albans City & District Council v. International Computers Ltd., 1995 F.S.R. 686.
22. State of Punjab v. Associated Hotels of India, A.I.R. 1972 S.C. 1131.
U.
23. Union of India v. Central India Machinery Mfg. Company, (1977) 2 S.C.C. 847.
V.
24. VIP Industries Ltd. v. Commissioner of Customs & Central Excise; (2003) 5 SCC 507.
Table of Contents
Sr. No.
Particulars
1.
Introduction
2.
History and Importance of the Act
Page No.
1
1-2
3.
Meaning of Contract of Sale
4.
Essentials of Contract of Sale
3-7
5.
Formation of Contract of Sale
6.
Sale
7.
Agreement to Sell
8.
Comparison between Sale and Agreement to sell
9.
Hire Purchase
10.
Comparison between Sale and Hire Purchase
11.
Bailment
12.
Comparison between Sale and Bailment
13.
Contract of Barter or Exchange
15
14.
Contract of Work and Materials
16-18
15.
Classification of Goods
18-20
16.
Conclusion
21
17.
Bibliography
22
10-11
11
11-12
13
13-14
Introduction
The Indian Sale of Goods Act received its assent on 15/3/1930 It came into force on 1st July
1930. The word INDIAN was omitted by the Indian Sale of Goods (amendment) Act, 1963 and
it became The Sale of Goods Act, 1930. This act extends to whole of India, except the state of
Jammu and Kashmir
Originally, the transactions related to sale and purchase of goods was regulated by Chapter VII
(Sections 76 to 123) of Indian Contract Act, 1872 which was broadly based on English
common law. A need was felt to overhaul the law due to rapid growth of mercantile transactions
and various progressive English judgments being passed to meet the needs of the community.
Thus, the provisions of Chapter VII were repealed, suitably amended keeping in mind the
English Sales of Goods, 1893 and recent judicial decisions of the time. A separate act, the Sale of
Goods Act came into force on 1 July 1930.
It deals with all the contract of sale of goods but does not deal with contract of sale of service or
pledge of goods, mortgage of property or barter of goods. It does not affect rights, interests,
obligations and titles acquired before the commencement of the Act. The Act deals with sale but
not with mortgage or pledge of the goods.
History and Importance of the Act

The law as to the sale of goods was originally contained in sections 76 to 123 of the Indian
Contract Act, 1872. The development of modern business relations found the Indian Contract Act
inadequate to meet the complexities of growing mercantile transactions as Contract Act
contained only simple and elementary rules relating to the sale of goods. As a result sections 76
to 123 were separated from Contract Act and a separate Act, The Sale of Goods Act was formed
in the year 1930.
Basic requirements of contract i.e. offer and acceptance, mutual consent, parties competent to
contract; free consent, lawful object, consideration etc. apply to contract of Sale of Goods also.
In trade and commerce, sale and purchase of goods are very common transactions. These
Sale and Agreement to sell (section 4-6) w.r.t. Sale vis--vis Hire
PurchasePage 1
transactions may appear to be very simple, but the possibilities of complications are always
there. Therefore knowledge of basic principles of sale and purchase is very essential for all the
concerned parties as well as for the entire community. The Sale of Goods Act contains the basic
principles as well as the legal framework of transactions of sale and purchase.
Meaning of Contract of Sale

The term contract of sale is defined in Section 4(1) of the Sale of Goods Act, which reads as
under:
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in the goods to the buyer for a price. The analysis of this section reveals that a contract
to transfer property in the goods (i.e. legal ownership of the goods) is known as a contract of
sale. The ownership of the goods is transferred from the seller to the buyer for a price. The term
contract of sale is a generic term and it includes both sale as well as an agreement to sell
A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such
offer by the other party. The contract may be oral or in writing. A contract of sale may be
absolute or conditional.
Formalities of a contract of sale:
Section 5 of the Act specifically provides for the following three steps or formalities in a
contract of sale:
1) Offer and Acceptance: A contract of sale is made by an offer to buy or sell the goods for a
price and acceptance of such offer.
2) Delivery and Payment: It is not necessary that the payment for the goods to the seller and
delivery of goods to the buyer must be simultaneous. They can be made at different times or in
instalments as per the contract.
3) Express or Implied: The contract can be in writing, oral or implied. It can also be partly oral
and partly written.
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Essential elements of contract of sale

Essential elements of a valid contract: All the essential elements of a contract must be present
in the contract of sale. If any of the essential elements like free consent, consideration, lawful
object etc. is missing, then the contract of sale will not be valid.
Example Anil agrees to sell his cycle to Sunil without consideration. This contract of sale is not
valid as it is made without consideration.
Time: Any stipulation with respect to time is not deemed to be of essence to a contract of sale
unless a different intention appears from the terms of the contract.
There must be two parties to the contract of sale:
There must be two distinct parties to the contract of sale. The reason for the same is that in a
contract of sale, the ownership is transferred from seller to buyer, thus the seller and buyer must
be two different people. The two parties to contract of sale are:
Seller: A Person who sells or agrees to sell the goods
Buyer: A person who buys or agrees to buy the goods
A sale has to be bilateral because the goods have to pass from one person to another. The seller
and the buyer must be different persons. A part owner can sell to another part owner. A partner
may, therefore, sell to his firm or a firm may sell to a partner. But if joint owners distribute
property among themselves as per mutual agreement, it is not sale.
The Supreme Court has observed that a contract of sale, like any other contract, is a consensual
act inasmuch as the parties are at liberty to settle for themselves the term of their bargain. 1 A sale
has to be bilateral because the property in goods has to pass from one person to another. In M/s
1 Agricultural Market Committee v. Shalimar Chemical Works Ltd.; (1997) 5 S.C.C. 516.
PurchasePage 3
New India Sugar Mills Ltd. v. CST, Bihar,2 the government had complete control over the
acquisition of the sugar from the mill owners. The Supreme Court ruled that the procurement
was not a sale.A person cannot be the seller of his own goods as well as the buyers of them.
However, when a bankrupt persons goods are sold under an execution of decree, the person may
buy back his own goods from his trustee..3
No person can sell his goods to himself. A sale contemplates a seller and a buyer. If a person
revalues his goods and shows a higher value for them in his books, he cannot be considered as
having sold these goods and made profits therefrom.4
There must be some goods as a subject matter:
The term subject matter means the things for which a contract of sale can be made. Only goods
can be the subject matter of contract of sale. Goods have been defined under Sec. 2(7) as:Every
kind of a movable property other than actionable claims and money; and includes stocks 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. On analysing the above definition it is
found that: Every movable property is a good.
Stocks and shares are goods. Growing crops and grass are goods because they can be severed
from land and can be sold and purchased. Any other type of tangible or non tangible assets like
goodwill, trademarks, copyrights etc.
Actionable claims are not goods because such a claim can only be enforced by action in a Court
of Law. E.g. debt due from one person to another is an actionable claim, and cannot be the
subject matter of contract of sale.
2 M/s New India Sugar Mills Ltd. v. CST, Bihar; A.I.R. 1963 S.C. 1207.
3 Plasycoed Colliery Co. v. Patridge, Jones & Co.; [1912] 2 K.B. 325.
4 CIT v. Hind Construction Ltd.; (1972) 4 S.C.C. 460.
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Actionable claim means that the person has a right to recover a thing by suit but does not have
the enjoyment of the thing. Actionable claim has been explained in Sec 3 of transfer of property
act 1882. Actionable claim means:
Any unsecured debt. Any beneficial interest in moveable property not in the possession of the
person claiming it. A claim for the arrears in rent or a claim in respect of salary or a claim on
insurance are examples of actionable claims. Such actionable claims can be transferred by an
assignment under the transfer of property act 1882.
Example B owes 50,000 to A. A sells this debt to C for 45,000. This is an unsecured debt and it
can be assigned and not sold.
Money is not a good as money means current money and not old coins or paper money which
can be sold or purchased for collection purposes
Sale of immovable property is not covered under this Act. As per Section 3 of the Transfer of
Property Act, 1882, immovable property does not include standing timber, growing crops or
grass. They are considered movable property and thus goods. Standing timber is taken as
movable property while trees are immovable property.
Things like goodwill, copyright, trademark, patents, water, gas, electricity are all goods. In the
case of Commissioner of Sales Tax vs. Madhya Pradesh Electricity Board [AIR 1970 SC 732],
the Supreme Court observed electricitycan be transmitted, transferred, delivered, stored,
possessed, etc., in the same way as any other movable propertyIf there can be sale and
purchase of electric energy like any other movable object, we see no difficulty in holding that
electric energy was intended to be covered by the definition of goods.
In the case of H. Anraj vs. Government of Tamil Nadu [AIR 1986 SC 63], it was held that lottery
tickets are goods and not actionable claims. Thus, sale of lottery tickets is sale of goods.
Sugarcane supplied to a sugar factory is goods within the meaning of Section 2(7) of the Act as
held in the case of UP Cooperative Cane Unions Federation vs. West UP Sugar Mills Assn. [AIR
2004 SC 3697]
PurchasePage 5
The Courts are edging towards a principle that a sale of software is a sale of goods. A contract to
supply a programme on a disk is a sale of goods if the supplier is selling the disk to the buyer.5
There must be some price for the goods:
Price is the value of the goods expressed in monetary terms. Price is the consideration in a
contract of sale, which is to be paid or promised to be paid in future, in terms of money sec
2(10). In the case of M.S. Madhusoodhanan & Anr v. Kerala Kaumudi Pvt. Ltd. & Ors,6 it was
held that Section 4 read with Section 2(10) of the Sale of Goods Act, 1930 require that the
contract of sale must provide for the payment of money as a consideration for the transfer of
goods, or to put it differently, that a price must be paid.
If a person has promised to give only the goods to another in return of some other goods, then,
this exchange will be called as barter and not a sale. If the price is not fixed, the contract is void
ab initio.
Section 9 lays down how the price may be fixed in a contract of sale:
a) It can be fixed by the contract itself; or
b) It can be fixed in a manner provided by the contract, such as appointment of a valuer; or
c) It can be determined by the course of dealings between the parties; or
d) If the price is not capable of being fixed in any of the ways mentioned ways, the buyer is
bound to pay reasonable price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case. It is not necessary that reasonable price should be equal to
the market price.
In the case of Commissioner, Customs & Central Excise v. M/S. Roofit Industries Ltd7 it was
observed by the Apex Court:
5 St. Albans City & District Council v. International Computers Ltd., 1995 F.S.R. 686.
6 M.S. Madhusoodhanan & Anr v. Kerala Kaumudi Pvt. Ltd. & Ors; (2004) 9 SCC 204.
7 Commissioner, Customs & Central Excise v. M/S. Roofit Industries Ltd ; (2015) 319 E.L.T. 221.
PurchasePage 6
Under Section 4(1)(a), the normal price is the price at which goods are ordinarily sold by the
assessee to a buyer in the course of wholesale trade for delivery at the time and place of
removal, where the buyer is not a related person and price is the sole consideration for sale. 8
Therefore, the normal price is the price at the "time of delivery" and "at the place of removal".9
Where the goods are sold for a definite sum and the price is paid partly in terms of valued up
goods and partly in case, that is a sale. In the case of Aldridge v. Johnson,10 52 bullocks valued at
6 a piece, were exchanged for 100 quarters of barley at 2 per quarter, the difference to be made
up in cash, the contract was treated as one of sale.
Similarly, in the case of S. Australian Insurance Co. v. Randell,11 corn was delivered on terms
that on demand either the price would be paid or an equal quantity of corn would be returned,
that was held to be a sale. In a case 12 where an old car is returned to the dealer for a new one and
the difference is paid in cash, that should also be a sale.
Section 10 makes it clear that if the third party appointed under the agreement to fix the price
cannot or does not make such valuation, then the agreement to sell goods will become void. If
the third party is prevented in his valuation due to the buyer or the seller, the party not at fault
can file a suit for damages against the party in fault.
The property in the goods must be transferred to the buyer:
The term property in the goods means the ownership of the goods. In every contract of sale,
the ownership of the goods must be transferred by the seller to the buyer, or there should be an
agreement by the seller to transfer the ownership to the buyer in future. The main purpose of
8 Commissioner of Central Excise v. M/s. Accurate Meters Ltd.; 2009 (235) E.L.T. 581 (S.C.).
9 VIP Industries Ltd. v. Commissioner of Customs & Central Excise; (2003) 5 SCC 507.
10 Aldridge v. Johnson ; (1857) 7 E & B 885.
11 S. Australian Insurance Co. v. Randel; (1869) 3 P.C. 101.
12 CIT v. M. & G. Stroes, A.I.R. 1968 S.C. 200.
PurchasePage 7
contract of sale is to make the buyer the owner of goods. There must be a transfer of general
property in the goods and not special property. If X owns certain goods, he has general property.
But if he holds certain goods, which is pledged with him then he holds special property.
Example X is the owner of a typewriter.
He entrusts his typewriter to Y for the purpose of repairs. Here X has the general property in the
goods, and Y has special property in the goods (i.e. interest in the goods to the extent of the
repair charges). This is a contract of bailment and not of sale of goods.
It may be expressed or implied: The contract of sale may be either expressed or implied. An
express contract of sale may be written or oral. Delivery of goods refers to a voluntary transfer of
possession of goods from one person to another. Delivery may be constructive or actual
depending upon the circumstances of each case. A contract may provide for the immediate
delivery of the goods or immediate payment of the price or both. Alternatively, the delivery or
payment may be made by installments or be postponed.
In the case of M/s. Larsen & Toubro Limited & Anr v. State Of Karnataka & Anr,13 it was held
that the Transfer of property in goods is the essence of definition of sale in Section 4 of the Sale
of Goods Act.
Formation of contract of sale

Section 5 of Sale of Goods Act lays down the rules as to how a contract of sale may be made and
has nothing to do with the transfer of property in goods. According to this section, a contract of
sale is made by an offer to buy or sell by one person, and the acceptance of such offer by another
person. And it may be made in any one of the following modes:
There may be immediate delivery of goods, but the price may be paid at some future date
There may be immediate payment of price, but the delivery may be made at some future
date
There may be immediate payment of price and the immediate delivery of goods
13 M/s. Larsen & Toubro Limited & Anr v. State Of Karnataka & Anr; (2014) 1 SCC
708.
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The price and delivery of the goods may be postponed
The price and delivery of the goods may be agreed to be made in installments. In the case of
New India Sugar Mills v. CST,14 it was observed that where a sugar manufacturer is told sell only
at stated prices and to stated customers, it is a sale, because buyers to whom this privilege is
given are still free to buy or not.
Sale
According to Section 4(3) of the Sale of Goods Act, 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. In
this case, the ownership of the goods is immediately transferred from a seller to a buyer and the
buyer becomes the owner of the goods.
Example Sharma sells his car to Verma for 50,000. It is a sale, as the ownership of the car has
been transferred from the seller Sharma to the buyer Verma for a price of 50,000.
Agreement to Sell
An agreement to sell is defined in Section 4(3) of the Sale of Goods Act as Where under a
contract of sale, the transfer of 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. In this case,
the ownership of goods is not immediately transferred from a seller to a buyer but it is agreed
upon to transfer it on a future date. Example On 1st March, Sagar agrees with Suraj that he will
sell his car for 50,000 on March 10th. It is an agreement to sell, since Sagar agrees to transfer the
ownership of the car to Suraj at a future date.
Example A buys some furniture from B and agrees to pay for the same in two monthly
installments. Here, the ownership of the furniture will pass to A only on the payment of the
second installment by A. so it is an agreement to sell.
14 New India Sugar Mills v. CST; A.I.R. 1963 S.C. 1207.
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Example A agreed to buy Bs car and pay for it, if his mechanic approves it. It is an agreement to
sell.
Note: When under an agreement to sell, the transfer of property in goods takes placein future or
subject to some condition, thereafter to be fulfilled. Therefore an agreement to sale becomes sale,
when the time expires or the condition, subject to which the property in goods is to be
transferred, is fulfilled.
Sec 4(4) An agreement to sell turns into an contract of sale when the ownership of goods is
transferred to the buyer.
Thus the ownership is transferred and turns an agreement to sell into sale when
The agreement to sell provides that the ownership of goods will be transferred at some future
date; it becomes sale when that date arrives.
The ownership of the goods is transferred on the fulfillment of some condition, when those
conditions are fulfilled.
Comparison between Sale and Agreement to Sell

1 Nature of Contract A sale is an executed contract. An agreement to sell is an executory
contract.
2 Transfer of Property In a sale, the property in goods are transferred from the seller to the
buyer when the contract is made. In an agreement to sell, transfer of property takes place at a
future date.
3 Nature of goods The contract is for existing and specific goods. The contract is mostly for
future and contingent goods.
4 Risk of loss In a sale, the risk passes to the buyer as the buyer becomes the owner when the
sale takes place. In an agreement to sell, the risk is with the seller as he remains the owner.
PurchasePage 10
5 Insolvency of the buyer In a sale, if the buyer is declared insolvent, before he pays for the
goods, the seller must deliver the goods to the Official Receiver or Assignee. In an agreement to
sell, when the buyer becomes insolvent before he pays for the goods, the seller may refuse to
deliver the goods to the Official Receiver or Assignee unless paid for, as ownership has not
passed to the buyers.
6 Insolvency of the seller In a sale, if the seller becomes insolvent, the buyer being owner of
goods is entitled to recover the goods from the Official Receiver or Assignee of the seller. In an
agreement to sell, if the seller has become insolvent and the buyer has paid the price for the
goods, then the buyer can only claim as a creditor and not the goods because property in goods
still rests with the seller.
7 Consequences of breach by buyer In a sale, in case of breach by the buyer, the seller can sue
for the price even though the goods are still in his possession.
In an agreement to sell, in case of breach by buyer, the seller can sue for damages only and not
for price.
8 Consequences of breach by seller
In a sale, in case of breach by seller, the buyer can compel the seller to deliver the goods to him
or pay the damages.
In an agreement to sell, in case of breach by seller, the buyer can sue for damages only and
cannot compel the seller to deliver the goods to him as ownership has not been transferred.
Hire Purchase
Hire purchase as the word signifies is an agreement to sell which has features of an agreement of
hire. In this agreement the goods are let out by the owner to a hire purchaser or hirer on payment
of rent to be made in installments upon an agreement that when a certain number of installments
are paid, the property in the goods will transfer to the hire purchaser. Hire purchase is not same
as installment purchase/sale as one distinct feature of the hire purchase is that the hire purchaser
has an option to buy and not an obligation to buy. In other words the hirer can opt out from
PurchasePage 11
purchase of the goods by not paying any further installments. Here the installments paid will
operate as hire charges and he need not make any further payment neither he can be compelled to
purchase the goods.
Example X let a piano to Y on hire purchase terms. The terms were that, if Y regularly pays 24
installments then the piano will become his property. Y may terminate the hire purchase
agreement at any time by returning the piano to X and he need not pay any further installments.
Here Y has an option to buy and he is under no compulsion of making the purchase. Y can
neither pledge the goods with any third person as he becomes the owner of the piano only on the
payment of the last installment.
In the case of Marikar Motors Ltd. v. STO,15 the Apex Court held:
Coming into being of sale is a question of fact and it takes place when the hirer exercises the
option. It cannot be said that merely because the hire-purchase agreement stipulates a particular
period for the total payment of consideration and for the purchaser to exercise the option to
purchase at the end of the said period, the sale does take place at the end of that period willynilly. There may be cases where the hirer may default in paying the amount within the stipulated
period, he may ask for extension and the dealer may grant it. In such cases, the sale obviously
takes place only when the purchaser exercises the option to purchase after fully paying the
agreed amount.
Comparison between Sale and Hire Purchase

Agreement
1 Meaning
Under a contract of sale, if the property in the goods is immediately transferred from the seller to
the buyer; the contract is called a sale.
15 Marikar Motors Ltd. v. STO; (1996) 3 S.C.C. 263.
PurchasePage 12
It is an agreement under which the owner delivers his goods on hire basis to a person called
hirer, for his use. The hirer has an option to purchase the goods by paying the agreed amount in
specified installments.
2 Mode of Creation
It may be made either orally or in writing. It must be in writing.
3 Transfer of Ownership
The ownership of the goods is transferred from the seller to the buyer as soon as the contract is
made. The ownership of the goods is transferred from the seller to the hirer only when all
installments are paid as agreed.
4 Passing of Risk
Risk passes to the buyer as the buyer become the owner when the sale takes place. The risk is
with the seller as he remains the owner.
5 Termination of the contract
The buyer cannot terminate the contract and refuse to pay the price of the goods. The hirer can
discharge the contract at any time and he is not required to pay further. The test whether an
agreement is sale or hire purchase was given in the case of Lee v. Butler16 If a person taking the
goods has no option to terminate the agreement, is a contract of sale irrespective of where the
price is paid in instalments.
A lady hired certain furniture from the plaintiff, the price to be paid in 2 instalments, and the
plaintiff having the right to take back the furniture if an instalment was not paid. Before the last
instalment was paid, the lady sold the furniture to the defendant.
It was held that the defendant had acquired a good title, the lady being in possession of the
furniture under an agreement to buy. She did not have the option to return, but was compellable
to buy.
16 Lee v. Butler; [1893 2 QB 318].
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6 Position of buyer
The buyer becomes the owner and gets all the rights of an owner. Example, right to pledge,
resale etc. The hirer does not become the owner and his position is that of a bailee only.
He becomes owner only when all the installments are paid.
7 Resale
In case of resale by the buyer, the third party will get a better title of the goods against the
original seller. A third party would not get good title against the original seller since the hirer had
no title to goods.
8 Default
In case of default by the buyer, the seller can sue for price. Seller can take repossession of goods
as he is the real owner.
9 Governing Act
It is governed by Sales of Goods Act, 1930. It is governed by Hire Purchase Act, 1972.
Bailment
Bailment is covered under the Indian contract act under special contracts. Bailment refers to
when one party called the bailor hands over his goods to the other called the bailee for some
purpose and the goods are to be disposed by the balilee as per the instructions of the bailor. The
bailee does not become the owner of the goods rather he is in mere possession of the goods.
Example X gave a piece of cloths to Y, a tailor, for the purpose of stitching a shirt. The cloth
would be provided by the customer and the buttons would be provided by the tailor. X promises
to pay to Y a sum of 500. This is a contract of bailment and would not be covered by this act.
Comparison between Sale and Bailment

PurchasePage 14
1 Act
Sale is defined under Sec. 4(3) of the Sale of Goods Act, 1930.
Bailment is defined under Sec. 148 of the Indian Contract Act, 1872.
2 Ownership of the goods
The buyer becomes the owner of goods.
The bailee does not become the owner of goods.
3 Use of goods
In a sale, the buyer may use the goods in any way he likes. In bailment, the bailee can use the
goods only accordingly to the direction of the bailor.
4 Consideration
In a sale, the consideration is always in terms of money. In a Bailment, the consideration need
not be money as it may be the understanding to return the goods bailed on accomplishment of the
purpose.
5 Return of Goods
In a sale, there is no return of goods from the buyer to the seller, unless there is a breach. In a
bailment, the goods are necessarily returned after the specified time or accomplishment of the
purpose.
In the case of Chapman Bros. v. Verco Bros. & Co. Ltd.,17 farmers delivered bags of wheat to
company carrying on business as millers and wheat merchants. The wheat was delivered in
unidentified bags which were identical to those in which other farmers used to deliver wheat to
the company. The terms of transaction required the company to buy and pay for the wheat on
request by the farmer or failing such a request, on a specified date, to return an equal quantity of
wheat of the same type; but there was no obligation to return the same identical bags. Although
17 Chapman Bros. v. Verco Bros. & Co. Ltd.; (1933) 49 C.L.R. 306.
PurchasePage 15
the contract referred to the company as storers, it was held by the Australian High Court that
this transaction was necessarily one of sale as the property passed to the company on delivery.
Contract of Barter or Exchange

The fact that the consideration is to be paid in money serves to distinguish a sale from a contract
of barter or exchange of goods. But a coin which is a collectors item may be a goods even
though it is a legal tender and there may be a sale of such item. In such an event, the coin does
not possess the usual negotiable quantities of money, and if the sale is by a thief he cannot pass a
good title to it.
But where the goods are sold for a definite sum and the price is paid partly in terms of valued up
goods and partly in case, that is a sale. In the case of Aldridge v. Johnson,18 52 bullocks valued at
6 a piece, were exchanged for 100 quarters of barley at 2 per quarter, the difference to be made
up in cash, the contract was treated as one of sale.
Similarly, in the case of S. Australian Insurance Co. v. Randell,19 corn was delivered on terms
that on demand the price would be paid or an equal quantity of corn would be returned, that was
held to be a sale. In a case 20 where an old car is returned to the dealer for a new one and the
difference is paid in cash that should also be a sale.
Contract of work and materials

Contract of work and materials involves substantial exercise of skill and labour and if any goods
are supplied along with the same then it is incidental and subsidiary to such a contract. On the
other hand a contract of sale only contemplates delivery and transfer of property in the goods. In
cases like the repair of a car where the repairer supply parts along with supplying the necessary
labour are examples of contracts of work and labour.
18 Aldridge v. Johnson ; (1857) 7 E & B 885.
19 S. Australian Insurance Co. v. Randel; (1869) 3 P.C. 101.
20 CIT v. M. & G. Stroes, A.I.R. 1968 S.C. 200.
PurchasePage 16
Example A Promise to paint house of B for a sum of 50,000. The paint brush, colour and other
equipments to be supplied by A. the contract is one of work and materials and not of sale of
goods.The providing of material and colour is ancillary to the whole contract and would not
make the contract a contract of sale.
In a similar case of Robinson vs. Graves21, A, a painter was orally commissioned by B to paint
portrait of a lady. Later, B repudiated the contract before its completion. It was held that the
contract was of work and labour because the substance of the contract was the skill and
experience of the artist in producing the picture.
Example: A bought a portrait painted by B, a famous artist. It is a contract of sale and not a
contract for work and labour because the substance of the work is the delivery of the portrait.
In Lee vs. Griffin22, a dentist was engaged by a lady to make false teeth to be fitted into her
mouth. The lady died before the completion of work and a question arose as to the nature of the
contract. It was held that the contract was one of sale.
Where gold is given to a goldsmith for preparing ornament, it is a contract of work and labour.
When a photographer takes a photograph, develops the negative and does other photographic
work and then supplies the prints to his client, the contract is one of skill and labour and not that
of sale of goods as held in the case of Asstt. Sales Tax Officer vs. B C Kame23.
Traditionally, a contract involving the exercise of skill or labour on some material was
considered as a contract for supply of services. A contract of sale has to be distinguished from a
contract involving the exercise of skill or labour on some material or a contract for supply of
services. Apart from the question of liability to sales tax, the distinction is important because it is
only a sale that carries a number of implied conditions and warranties. The dividing line
between the two is not very clear. The only conclusion that can be drawn from English
21 Robinson vs. Graves [1935 1 KB 579]
22 Lee vs. Griffin [1861 30 LJ QB 252]
23 Asstt. Sales Tax Officer vs. B C Kame [AIR 1977 SC 1642]
PurchasePage 17
authorities is that every case must be adjudged by itself. There is no infallible test of universal
application for distinguishing between the two types of contracts namely a contract for the sale
of goods and the contract for work and services. Some of the tests are:
(a) If the thing to be delivered has individual existence before delivery as the sole
property of the party who is to deliver it, then it is a sale, otherwise not;
(b) If the main object of the contract is the transfer from A to B, for a price, of the
property in a thing in which it had no previous property, then it is a contract of sale;
(c) A contract of sale is contract whose main object is the transfer of the property in and
the delivery of the possession of a chattel, as the chattel to the buyer.
Where the main object of the work undertaken by the payee of the price is not the transfer of a
chattel qua chattel, the contract is one for work and labour. The test is whether or not the work
and labour bestowed end in anything that can properly become the subject of sale, neither the
ownership of materials nor the value of the skill and labour as compared with the value of the
materials is conclusive although such matters may be taken into consideration in determining , in
the circumstances of a particular case, whether the contract is in substance one for work and
labour or for the sale of a chattel.24
A hotel company which provides residence and food, making a consolidated charge for both the
services and makes no rebate if food is not taken by a particular customer, does not make a sale
of food.25 The position is akin to that of a steam ship or airline company which serves food to
passengers. This decision of the Punjab High Court as already approved the Supreme Court, has
now been extended to service of food in restaurants also. 26 The supply of meals, whether to
residents or stray customers, is essentially in the nature of service and not a transaction of sale.
24 Union of India v. Central India Machinery Mfg. Company, (1977) 2 S.C.C. 847.
25 Associated Hotels of India v. Excise and Taxation Officer, A.I.R. 1966 Punj 499 and
on appeal affirmed by the Supreme Court in State of Punjab v. Associated Hotels of
India, A.I.R. 1972 S.C. 1131.
26 Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, (1978) 4 S.C.C. 36.
PurchasePage 18
The customers come there not to buy food and drinks but to find bodily satisfaction that service
of food in the setting of a restaurant can afford to give.
Classification of Goods
As per Sec 2(7) Every kind of a movable property other than actionable claims and money; and
includes stocks 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.The goods forming
the subject matter of the contract of sale may be classified as under:
1. Existing goods
2. Future goods
3. Contingent goods
1. Existing goods
These are the goods which are in actual existence at the time of contract of sale. These goods are
owned or possessed by the seller at the time of sale. The existing goods may be of the following
three types:
a. Specific goods
b. Ascertained goods
c. Unascertained goods
a. Specific goods: As per Sec 2(14) These are the goods which have been actually identified and
agreed by the parties at the time of contract of sale.
Example
Dhoni has 5 bikes of different make. He agrees to sell his one particular Yamaha bike to Dravid
and Dravid agrees to purchase the same bike. This is sale of specific goods.
b. Unascertained Goods: The goods which are not specifically identified at the time of contract of
sale are known as unascertained goods. They are not definite and specific. At the time of
contract, such goods are described by description or sample only.
Example
PurchasePage 19
Inder has ten horses. He agrees to sell one horse to Sunder, and in this case the contract is for the
sale of an unascertained good as the horse has not been identified at the time of contract of sale.
The horse remains an unascertained good.
c. Ascertained goods: The goods which are identified only after the formation of the contract of
sale are known as ascertained goods. As a matter of fact, when the unascertained goods are
identified and agreed upon by the parties, the goods are called ascertained goods. Thus
ascertainment takes place when the goods were not identified at the time of contract of sale but
subsequently after the contract of sale.
Example Lucky had 100 bags of rice lying in his godown. He agreed to sell 40 bags of rice to
Ali, who agrees to purchase the same. After making the contract, the rice bags to be delivered to
Ali were identified and kept separate by Lucky and Ali agreed to take the delivery of the same.
In this case, the contract is for the sale of ascertained goods, as the rice bags to be sold are
identified and agreed after the formation of contract.
Note: When goods are not identified at the time of contract of sale then such goods are termed as
unascertained goods. The transfer of property in unascertained goods only happens after the
process of ascertainment. Thus after the process of ascertainment, the goods are termed as
ascertained goods.
2. Future Goods
These are the goods which are not in existence at the time of making the contract of sale sec 2(6).
The seller acquires such goods after the making of the contract of sale. Thus, the future goods are
those which are to be acquired or produced by the seller after the contract of sale is made. As per
sec 6(3) a sale initiated in case of future goods will operate as a contract of agreement to sell.
Note: A contract of future goods is always an agreement to sell, since the ownership of the goods
cannot be transferred before the goods come into existence.
Example Arvind, a manufacturer of computers, contracted to sell 100 computers to Kumar at the
rate of 8,000 per computer. Kumar agreed to purchase the computers. However, the computers
PurchasePage 20
were yet to be manufactured by Arvind. This is an agreement of sale of future goods not in the
possession of seller at the time of making the contract.
3. Contingent Goods
These are the goods which are also not in existence at the time of contract of sale. The contingent
goods are a type of future goods. In this case, the acquisition of goods by the seller depends upon
the uncertain contingencies, i.e., upon uncertain events which may or may not happen.
Example Paul agreed to sell to John certain goods, which are to be arrived by a ship. In this case,
the contract is for the sale of contingent goods as the availability of the goods depends upon the
arrival of the ship.
They may be in existence at the time of agreement to sell. They do not exist at the time of
agreement to sell
They would be acquired by the buyers on the happening of a given contingency They would
come into existence on a future date when the manufacturer will produce it.
Conclusion
The Indian Sale of Goods Act received its assent on 15/3/1930 and it came into force on
1/7/1930
The term contract of sale includes both sale as well as an agreement to sell
Only goods can be the subject matter of a contract of sale
PurchasePage 21
Every kind of movable property other than actionable claims and money are goods
The term property in the goods means the ownership of the goods
Sale creates jus in rem, whereas an agreement to sell creates jus in personam
Existing goods are the goods which are in actual existence at the time of contract of sale
A contract of future goods is always an agreement to sell
If the goods are damaged or lost after their property was passed on to the buyer, the contract
will remain unaffected and the buyer will bear the loss
In case of destruction of unascertained goods, the contract will not be void
If a third party fails to make the valuation of the price, the contract becomes void
Bibliography
Books
1. Avtar Singh, Law of Sale of Goods and Hire Purchase, 6th Ed. Eastern Book Company,
2005.
2. Akhileshwar Pathak, Law of Sale of Goods, 1st Ed., Oxford University Press, 2013.
3. P.S. Atiyah, J.N. Adams and Hector MacQueen, The Sale of Goods, 1st Ed., Pearson
Education, 2002.
4. Dr. R.K. Bangia, Sale of Goods Act, Allahabad Law Agency, Faridabad, 2012 edition.
5. GC Bharuka, Mulaa- The Sale of Goods Act, Lexis Nexis Butterworths, Gurgaon, 7th
edition.
6. P. Ramanatha Aiyar, Law of Sale of Goods, Universal Law Publishing, Delhi, 10th
edition, 2016.
PurchasePage 22
Websites
1. http://www.advocatekhoj.com/library/bareacts/saleofgoods/index.php?Title=Sale%20of
%20Goods%20Act,%201930.
2. https://kanwarn.wordpress.com/2015/06/20/sale-of-goods-act-1930-part-i-introduction/.
PurchasePage 23

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19. Robinson vs. Graves [1935 1 KB 579]

History and Importance of the Act

Meaning of Contract of Sale

Essentials of Contract of Sale

Formation of Contract of Sale

Comparison between Sale and Agreement to sell

Comparison between Sale and Hire Purchase

Comparison between Sale and Bailment

Contract of Barter or Exchange

Contract of Work and Materials

History and Importance of the Act

Meaning of Contract of Sale

Essential elements of contract of sale

Formation of contract of sale

The price and delivery of the goods may be postponed

14 New India Sugar Mills v. CST; A.I.R. 1963 S.C. 1207.

Comparison between Sale and Agreement to Sell

Comparison between Sale and Hire Purchase

15 Marikar Motors Ltd. v. STO; (1996) 3 S.C.C. 263.

Comparison between Sale and Bailment

Contract of Barter or Exchange

Contract of work and materials

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