LAW OF CONTRACTS II

CONCEPT OF SALE AND AGREEMENT TO SELL:

DIFFERENCES AND SIMILARITIES

Submitted by

P.Mohandas
Reg. No. BA0150026

Under the Guidance of

Mrs. Deepika
Assistant Professor

TAMIL NADU NATIONAL LAW SCHOOL

(A State University established by Act No. 9 of 2012)
Tiruchirappalli
Tamil Nadu 620 009 MARCH 2017
Mrs.S. Deepika
Assistant Professor in contract law
Tamil Nadu National Law School
Tiruchirappalli
Tamil Nadu 620 009

CERTIFICATE

This is to certify that the project work entitled CONCEPT OF SALE AND AGREEMENT
TO SELL: DIFFERENCES AND SIMILRITIES is a bonafide record of the research work
done by P.Mohandas, under my supervision and guidance. It has not been submitted by any
other University for the award of any degree, diploma, associate ship, fellowship or for any other
similar recognition.

Place: Tiruchirappalli

Signature of the Guide

P.Mohandas
Reg. No. BA0150026 II Year B.A. LLB.(Hons.)
Tamil Nadu National Law School
Tiruchirappalli
Tamil Nadu 620 009

DECLARATION

I, P.Mohandas, do hereby declare that the project entitled CONCEPT OF SALE

AND AGREEMENT TO SELL: DIFFERENCES AND SIMILRITIES submitted to Tamil

Nadu National Law School in partial fulfillment of requirement for award of degree in

Under Graduate in Law to Tamil Nadu National Law School, Tiruchirappalli, is my

original research work. It and has not been formed basis for award of any degree or

diploma or fellowship or any other title to any other candidate of any university.

Counter Signed Signature of the Candidate

Project Guide
 ACKNOWLEDGEMENT
At the outset, I take this opportunity to thank my Professor Mrs. S.Deepika from the

bottom of my heart who has been of immense help during moments of anxiety and torpidity

while the project was taking its crucial shape.

Secondly, I convey my deepest regards to the Vice Chancellor Dr.KAMALA

SANKARAN and the administrative staff of TNNLS who held the project in high esteem by

providing reliable information in the form of library infrastructure and database connections in

times of need.

Thirdly, the contribution made by my parents and friends by foregoing their precious

time is unforgettable and highly solicited. Their valuable advice and timely supervision paved

the way for the successful completion of this project.

Finally, I thank the Almighty who gave me the courage and stamina to confront all

hurdles during the making of this project. Words arent sufficient to acknowledge the

tremendous contributions of various people involved in this project, as I know Words are Poor

Comforters. I once again wholeheartedly and earnestly thank all the people who were involved

directly or indirectly during this project making which helped me to come out with flying colors.
 SALE AND AGREEMENT TO SELL: DIFFERENCES AND
SIMILARITIES

INTRODUCTION

Till 1930, transactions relating to sale and purchase of goods were regulated by the Indian
Contract Act, 1872. In 1930, section 76 to 123 of the Indian contract Act, 1872 was repealed and
a separate Act called The Indian sales of goods Act, 1930 was passed. It came into force on 1st
July 1930. It came into force on 1st July 1930. With effect from 22nd September 1963, the word
Indian was also removed. Now, the present Act is called The sales of goods Act, 1930. This
Act extends to whole of India except the state of Jammu and Kashmir.

According to section 3, the provisions of the Indian contract Act, 18721 still continue to apply to
contracts for the sale of goods except where The sale of goods Act, 1930 provides for the
contrary.

CONTRACT OF SALE

Section 4 of The Sale of Goods Act, 19302

(1) 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. 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

1
Indian contract Act, 1872
2
The sale of Goods Act,1930.
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.

Examples

1. A agrees to buy a haystack from B on Bs land, with liberty to come on Bs land to take it
away. This is a sale B cannot revoke the license given to A to go on to his land.3

2. Agreement to A to buy 20 tons of the oil from the sellers cisterns. The seller has many
cisterns, with more than 20 tons in them. This is merely an agreement to sell. 4

LEGAL PROCEEDINGS

In State of Uttaranchal v. khurana Brothers, JT 2010 (12) SC 323 5 :(i) an agreement to sell
becomes a sale on fulfillment of the conditions or when the time provided in the agreement
elapses.

(ii) Essential features that distinguishes the contract of sale from an agreement to sell is that in a
contract of sale in the property in the goods is transferred from the seller to the buyer
immediately whereas in an agreement to sell property is transferred on a future date.

(iii) In Jay Bharat Credit and investment Co Ltd v. Commissioner of sales tax, (2000) 7 SCC
1656, the definition of sale under section 2(g) of Bengal Finance (sales tax) Act,1941,the first
part of which is in pari material with the sale of goods Act, is extended so as to include a transfer
of goods on hire purpose or other system of payment by installments

3
Wood v. Manley(1839) 11 A&E 34, 52 RR 271
4
White v. wilks (1813) 5 taunt 176,14 RR 735
5
State of Uttaranchal v. khurana Brothers, JT 2010 (12) SC 323
6
Jay Bharat Credit and investment Co Ltd v. Commissioner of sales tax, (2000) 7 SCC 165
MEANING OF THE WORD SALE

According to Blackstone, sale or exchange in an transmutation of property from one man to

another, in consideration of some price and recompose in value.

In chalmers Sale of Goods Act,1893 7 ,12th edition, it says that, the essence of sale is the
transfer of property in a thing from one person to another for a price, and at page 6 it is pointed
out that , where the consideration for the transfer consists of the delivery of goods,the contract
is not a contract of sale but is contract of exchange of barter.

In Halsburys law of England8, we have sale is the transfer of the ownership of a thing for one
person to another for a money price where the consideration for the transfer consists of other
goods, or some other valuable consideration, not being money, the transaction is called exchange
or barter, but in certain circumstances it may be treated as one of sale.

The law relating to contract of exchange or barter is undeveloped, but the court seem inclined to
follow the maxim of civil law, permutation vinicia est emptioni, and to deal with such contracts
as analogous contract of sale. It is clear however the statuses relating to sale would have no
application to transactions by the way of barter.

7
Chalmers Sale of Goods Act,1893.
8
Halsburys law of England, Third edition, editor Lord Simonds, Lexis Nexis, published 1952
ESSENTIAL ELEMENTS OF CONTRACT OF SALE

ESSENTIAL ELEMENTS OF CONTRACT OF SALE

TRANSFER
BILATERAL GOODS PRICE OF ESSENTIAL
OWNERSHIP ELEMENTS
OF A VALID
COTRACT

1. Bilateral contract:

A contract of sale of goods is bilateral in nature wherein property in the goods has to pass from
one party to another. One cannot buy ones own goods.

For example, A is the owner of a grocery shop. If he supplies the goods (from the stock meant
for sale) to his family, it does not amount to a sale and there is no contract of sale. This is so
because the seller and buyer must be two different parties, as one person cannot be both a seller
as well as a buyer. However, there shall be a contract of sale between part owners.

Suppose A and B jointly own a television set, A may transfer his ownership in the television set
to B, thereby making B the sole owner of the goods. In the same way, a partner may buy goods
from the firm in which he is a partner, and vice-versa.

However, there is an exception against the general rule that no person can buy his own goods.
Where a Pawnee sells the goods pledged with him/her on non-payment of his/her money, the
pawnor may buy them in execution of a decree.
State of Gujarat v Ramanlal9: a partnership firm was dissolved and the surplus assets including
some stock were divided among the partners in specie. The sale tax officer was interested in
taxing this as a sale. The court held that the property distributed among the partners was their
own. They could not sell this property to themselves. Not being a there could be no levying of
sales tax.

2. Goods:

The expression goods are thus defined in section 2(7) of the Act: goods means every kind of
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 include every kind of movable property other than actionable claims and money.10
Things like goodwill, copyright, trademark, patents, water, oil, air 11 , gas, electricity, motor
vehicles and ships are all goods and may be the subject of the contract of sale. Money is
specifically excluded from the definition of goods under S.2 (7) of the Act, because it is the
medium of exchange used at the time of sale of goods.12

Types of goods

1. Existing goods (a)specific goods (b) ascertained (c) unascertained

2. Future goods

3. Contingent goods

1. Existing goods

These are the goods which are owned or possessed by the seller at the time of sale. Only
existing goods can be the subject of sale. The existing goods may be

9
State of Gujarat v Ramanlal sons and Co. AIR 1965 Guj. 60
10
R.D.Goyal v Reliance Industries Ltd,(2003) 1 SCC 81
11
Ferens v O Brien, (1883) 11 QBD 21
12
Pollock & Mulla, The Sale of Goods Act, 40 (Satish J Shah ed., 8th ed., 2011).
 (a)Specific goods: goods identified and agreed upon at the time making of contract of sale of
goods.

(b) Ascertained goods: goods identified subsequent to the formation of the contract of sale.
The terms ascertained and specified, are commonly used for same kind of goods.

(c) Unascertained good: goods not identified or agreed upon at the time of making of
contract of sale.

2. Future goods: Goods to be manufactured produced or acquired after making of the

contract of sale.

3. Contingent goods: Goods, the acquisition of by which the seller depends upon an
uncertain contingency are called contingent goods.

Software programs One of the landmark cases in this regard was the case of St Albans City and
District Council v. International Computers Ltd 13 where Sir Iain Glidewell observed that a
hardware device has no use of its own unless it is supplemented with a software and it was only
because of necessity that software was contained in a physical medium like a disk or a floppy
furthermore, in case the disk is sold and there is a defect with the program, then there would be
a prima facie liability against the disk manufacturer as well. Thus, he held that the tangible disk
and the software program both will be included within the definition of goods.

Exclusion of Lottery tickets from the definition of goods In the Supreme Court case of H.
Anraj v. Government of T.N.14 it was held that a lottery ticket primarily involved two rights: (1)
the right to participate in the draw and (2) the right to win the prize, depending on chance.
Supreme Court verdict of Sunrise Associates v. Government of NCT of Delhi.15 It was held that
sale of a lottery ticket amount to a sale of an actionable claim. The conclusion of the Court was
based on the reasoning that there was no difference between right to win and right to participate
in a lottery draw, as no purchaser pays the consideration for a right to participate in the draw,
instead he pays it for the right to win.

13
St Albans City and District Council v. International Computers Ltd [1995] FSR 686.
14
H. Anraj v. Government of T.N., (1986) 1 SCC 414
15
Supreme Court verdict of Sunrise Associates v. Government of NCT of Delhi (2006) 5 SCC 603
Actionable claims and money are not regarded as goods. Contracts relating to services are not
considered as contract of sale. Immovable property is governed by a separate statute, Transfer of
Property Act, 1882.

Kuresell v. timber operators and contractors Ltd16, some trees were sold so that they could be
cut down and separated from the land and then taken away by the buyer. The court held that it
was sale of goods.

3.Price:

Section 2(10) of the sale of goods Act defines price as meaning the money consideration for a
sale of goods. The presence of money consideration is therefore an essential element in a
transaction of sale. If the consideration is not money but some other consideration it may be an
exchange or barter but not sale. The difference between a sale and an exchange is this that in the
former the price is paid in money, whilst in the latter it is paid in goods by way of barter.17
The buyer must pay some price for goods. The term price is the money consideration for a sale
of goods. Accordingly, consideration in a contract of sale has necessarily to be in money. Where
goods are offered as consideration for goods, it will not amount to sale, but it will be called
barter or exchange, which was prevalent in ancient times. However, the consideration may he
partly in money and partly in goods because the law does not prohibit as such.18

Similarly, if a person offers the goods to somebody else without consideration, it amounts to a
gift or charity and not sale. In explicit terms, goods must be sold for a definite amount of money,
called the price. However, the consideration can be partly in money and partly in valued up
goods. Furthermore, payment is not necessary at the time of making the contract of sale.

16
Kuresell v. timber operators and contractors Ltd, [1927] 1 K.B. 298
17
I.T. Commissioner, A.P. vs. M &G Stores. AIR 1968 SC 200
18
Sheldon v.Cox, 3 B. & C. 420
4. Transfer of ownership:

Transfer of property in goods is also integral to a contract of sale. The term property in goods
means the ownership of the goods. In every contract of sale, there should be an agreement
between the buyer and the seller for transfer of ownership. Here property means the general
property in goods, and not merely a special property.
Thus, it is the general property, which is transferred under a contract of sale as distinguished
from special property, which is transferred in case of pledge of goods, i.e., possession of goods is
transferred to the pledgee or pawnee while the ownership rights remain with the pledger. Thus,
in a contract of sale there must be an absolute transfer of the ownership. It must be noted that the
physical delivery of goods is not essential for transferring the ownership.

IMPORTANCE OF TRANSFER OF OWNERSHIP

It is important to know the precise moment oftime at which the property in goods passes from
the seller to the buyer for the following reasons:-

1. Risk prima facie passes with ownership: In case of destruction of or damage to the goods, it is
the owner who has to bear the loss because the general rule is res perit domino risk follows
ownership or whosoever is the owner must bear the loss. The payment of the price or possession
of goods is immaterial. 18

EXAMPLE:A contracts to purchase 30 tons of apple juice from B.B crushes the apple, puts
juice incasks and keeps them ready for delivery. A, however, delays to take the delivery and the
juice goes putrid and has to be thrown away. A is liable to pay the price [Demy Hamilton & Co.
Ltd. v. Barden, (1949) All E R. 435]

2. Action against third parties: In case the goods have damaged by a third party, it is the only the
owner who can take action against him

.3. Insolvency of the seller or the buyer: In the event of insolvency of the seller or the buyer, the
question whether the Official Receiver or Assignee can take over the goods or not depends on
whether the property in the goods has passed from the seller to the buyer.

Passing of property at the time of contract (Sec.20)

Where there is an unconditional contract for the sale of specific goods in a deliverable state, the
property in the goods passes to the buyer when the contract is made. EXAMPLE: B offers A for
his horse a sum of Rs.1000.The horse is to be delivered to B on a fixed day and the price is to be
paid on another fixed day. A accepts the offer. The horse becomes Bs property as soon as the
offer is accepted. 20 For Specific goods (Sec. 20 to 22) Property passes when intended to
pass. Goods must be ascertained

RULES REGARDING TRANSFER OF OWNERSHIP

When the price of goods is to be ascertained by weighing (Sec. 22) Where there is a contract for
sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do
some other act or thing with reference to the goods for the purpose of ascertaining the price, the
property does not pass until such act or Goods not in a deliverable state(Sec.21) Where there is a
contract for sale of specific goods not in a deliverable state, i.e., the seller has to do something to
the goods to put them into the deliverable state, the property does not pass until such thing is
done and the buyer has notice of it. Passing of property delayed beyond the date of the contract

The buyer retains the goods without giving notice of rejection beyond the period fixed or
reasonable period if no time is fixed. The buyer does something which is similar to his act of
accepting the goods, e.g., pledges the goods or sells away the goods, or The buyer accepts the
goods, or Goods sent on approval or sale or return Sec.24 When the goods are delivered to the
buyer on approval or on sale or return basis, the property in the goods will pass from seller to
the buyer, when any of the following conditions are satisfied.

For unascertained/ future goods Sec.23

In the case of a contract for a sale of unascertained or future goods by description, property will
pass from the seller to the buyer when the goods of the same description, in a deliverable state,
are unconditionally appropriated to the contract by one party with the consent of the other.
5. Essential elements of a valid contract:

In addition to the aforesaid specific essential elements, all the essential elements of a valid
contract as specified under section 10 of the Indian contract Act, 1872 must also be present since
the contract of sale is a special type of contract. For example, an agreement to sell smuggled gold
is not valid because its object is unlawful.

ABSOLUTE OR CONDITIONAL SALE

A contract of sale may be absolute or conditional according to the desire of buyer and seller.

FORMALITIES OF A CONTRACT OF SALE (SECTION 5)

In connection with the formalities of a contract of a sale, the provisions of section 5 provide only
for the three matters.

(a) Offer and acceptance

(b) Delivery and payment

(c) Express or implied

 CONTRACT OF SALE MAY BE:

CONTRACT OF
SALE MAY BE

EXPRESS IMPLIED

PARTLY IN
BY WORD OF WRITING AND
IN WRITING
MOUTH BY WORD
OFMOUTH

SALE AGREEMENT:

An agreement of sale constitutes the terms and conditions of sale of a property by the seller to
the buyer. These terms and conditions include the amount at which it is to be sold and the future
date of full payment.

Being an important document in the sale transaction, it enables the process of sale to go through
without any hurdles. All the terms and conditions included in the agreement of sale must be
understood thoroughly by both the parties and obeyed throughout the sale process till the time
the sale deed is made. Agreement of sale is the base document on which the sale deed is drafted.

Sale deed is the document prepared at the time of full payment made by the buyer and when the
actual transfer of the property takes place.
DISTINCTION DETWEEN SALE AND AGREEMENT:

CONTRACT OF SALE
INCLUDES[SECTION4(3)]

AGREEMENT TO
SALE SELL

i.e.,WHERE THE TRANSFER OF

i.e.,WHERE THE OWNERSHIP IN GOODS IS TO
OWNERSHIP IN GOODS IS TAKE PLACE AT A FUTURE
TRANSFERRED TIME OR SUBJECT TO
FULFILLMENT OF SOME
CONDITION

When does agreement to sell become sale [section 4(4)]

An agreement to sell becomes sale when the time elapses or the condition is fulfilled subject to
which the ownership in the goods is to be transferred.

Distinction between sale and agreement to sell

S.No. Basis of distinction sale Agreement to sell

1. Transfer of ownership Transfer of ownership takes Transfer of ownership

place immediately at the time of goods takes place
of contract. at a figure time or

2. Taking of risk In section 26 it says in sale the
ownership in the goods has
passed to the buyer, the loss to
the goods has to be borne by
the buyer.
3. Executed or Executory It is an executed contract
contract because nothing remains to be
done.
4. conveyance of property Buyer gets the right to enjoy
the goods against the whole
world including seller.
Therefore a sale creates jus in
rem
5. Rights of seller against the Seller can sue the buyer for the
buyers breach price even though the goods
are in his possession.
6. Rights of the buyer against Buyer can sue the seller for
the sellers breach damages and can sue the third
party who bought those goods,
for goods.
7. Effect of insolvency of seller Buyer can claim the goods
having possession of goods. from the official receiver or
assignee because the
subject of fulfillment
of some condition.
In this case, while the
seller still the owner
of the goods, the loss
has to be borne by
him.
It is an excecutory
contract because
something needs to be
done.
Buyer does not get
such right to enjoy the
goods. It only creates
fits in personam.
Seller can sue the
buyer for damages
even though the goods
are in the possession
of the buyer.
Buyer can sue the
seller for damages
only.
Buyer cannot claim
the goods even when
he has paid the price
 ownership of goods has because the ownership
transferred to the buyer. has not transferred to
the buyer. The buyer
who has paid the price
can only claim ratable
dividend.

8. Effect of insolvency of the
buyer before paying the price.
Seller must deliver the goods
to the official receiver or
assignee because the
ownership of the goods has
transferred to the buyer.
Seller can refuse to
deliver the goods
unless he is paid full
price of the goods
because the ownership
has not transferred to
the buyer.

9. Nature Absolute Conditional

10. Tax VAT is charged at the time of No tax is levied.

sale

In union of india v. tarachand

The defendents contracted to sell to the plaintiff all the coal ash that might accumulate at a
certain pump house for a period of one year, it was found that the defendents unilaterally
cancelled the contract and instead of allowing the plaintiff to remove the coal ash, themselves
consumed a part of it and issued the remainder to third parties.

The plaintiff sued the defendents not only for the breach of contract, but also for the tort of
conversion. It was held by the Madhya Pradesh high court that because the contract was for the
sale of future goods, it wasmerely an agreement to sell and since the buyer had not yet become
the owner of the goods, the seller did not commit nay tort of conversion. The only remedy
recognized in this case was an action for breach of contrat and refund of price which the buyer
had paid to the seller.

CONCLUSION

Under Indian Sale of Goods Act 1930, section 4 (3) deals with the contract of sale and agreement
to sell, where it has been clarified that the agreement to sell also come under sale. However,
there is a distinction between these two terms which we discussed above. Both buyer and the
seller has the rights over the their opponents breach.section 4(1) of the saleof goods Act defines a
contract of sale of goods Act a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. The definition of the cobntract of sale goods reveals
that either actuall sale or an agreement to sell, both are covered under the Act. But there are
certain differences between the two,where in the contract of sale the property iin the goods is
immediately transferred from the buyer to the sellerit is called sale.

Where under a contract of sale, the transfer of property in the goods is totakes place in the future
orafter the fulfillement of certain conditions it is called agreement to sell.

BIBLIOGRAPHY

1.Akhileshwar pathak, law of sale of goods, oxford publications.

2..Mulla, the sale of goods Act and The Indian partnership Act, lexis Nexis.

3.Avatar Singh, law of sale of goods,Eastern book company.