Sales of goods act - Agreement to sellLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

Kindly restrict the use of slides for personal purpose.Please seek permission to reproduce the same in public forms and presentations.

Contents

1. Sales and types of sales.

2. Contract of sales and agreement of sales.

3. Essential elements of a contract of sale.

4. Good and types of goods.

5. Perishing of goods.

6. Price and fixation of price.

Sales

• Where the right of

ownership in the goods

is transferred from the

seller to the buyer, the

contract is called a sale.

Example

• On 1st August, X sells 5

bags of cement to Y for a

sum of Rs 1500. This

transaction is called sale

since the ownership of 5

bags of cement is

transferred from X to Y.

Types of sales

Absolute sales

Conditional sales

Absolute sale

• The property in the

goods passes from the

seller to the buyer

immediately and noting

remains to be done by

the seller. A sale on a

counter in a shop is an

absolute sales.

Conditional sale

• The property in the

goods do not pass to the

buyer absolutely until a

certain condition is

fulfilled.

Contract of sale

• A contract of sale ofgoods is a contractwhereby the sellertransfers or agrees totransfer the property ofgoods to the buyer for aprice. Property meansthe right of ownership.

Agreement to sale

• Where the transfer ofownership in the goodsis to take place at afuture time or subject tosome conditionsthereafter to be fulfilled,the contract is calledagreement to sell.

Example

• On 1st May, A and B agreethat A should sell 5 bagsof cement to B on 15th

June for a sum of Rs.1500. It is an agreementto sell since A agrees totransfer ownership in thefuture. Date of agreementis 1st May but actual salewould take place only on15th June.

Essential elements of a contract of sale

1. Contract.

2. Existence of two parties namely buyer and seller.

3. Transfer of ownership.

4. Subject matter of sale of goods.

5. Price.

Essential elements of sale

• Contract – All theessential elements of acontract must bepresent in a contractsale.

Essential elements of sale

• Existence of two partiesnamely buyer and seller– The seller is the personwho sells and the buyeris the person who buys.Both buyer and sellershould be competent toenter into a contract. Aperson cannot buy hisown goods or cannotsell his goods to himself.

Example• C M Transport company Vs.

ITO (1966) – In this case, acompany resolved to transfersome buses to a partnershipfirm consisting of certainpersons who were also themembers of the company.Income tax officer consideredit as transfer as sale becausethe company has a legalentity and can be a seller.This decision was upheld bythe court.

Essential elements of sale

• Transfer of ownership -Transfer of ownershipfrom seller to buyer is themost importantingredient in a contract ofsale.

Example

• A borrows a sum of Rs10000 from B and pledgeshis property against thisloan to B. In this case, Atransfers a special propertyto B, by handing overpossession, but retains hisownership. Thus it is not acontract of sales.

Essential elements of sale

• Subject matter of sale ofgoods – The subjectmatter of sale must bethe goods, the property inwhich, is transferred.

• Price – The considerationfor sales of goods must bemoney called price. Theprice has been defined asmoney consideration forsales of goods.

Goods

• The goods include every

kind of movable

property other than

actionable claim or

money.

Types of Goods

• Existing goods.

– Special goods.

– Ascertained goods.

– Unascertained goods.

• Future goods.

• Contingent goods.

Existing good

• Goods owned and

possessed by the seller

at the time of making of

the contract of sales are

called existing goods.

Example

• If A sells his horse to B,

believing it to be in

existence but in fact the

horse is dead, no

contract will arise.

Specific goods

• These are goods

identified and agreed

upon at the time a

contract of sales is

made.

Example• A has two horses, one black

and one white. He agrees to sell

white horse to B. In this case,

the subject matter is specific.

But if A has two white horse,

unless that particular horse is

identified and individualized

from the remaining horses, it

will not become specific one.

Ascertained goods

• it means goods

identified in accordance

with the agreement

after the contract of sale

is made.

Example

• If A had 30 chairs of the

same kind and offers to

sell 15, the goods are

ascertained only when

15 particular chairs be

appropriated towards

the contract.

Difference

• The only point of difference

is that specific goods are

ascertained before or at the

time of making a contract,

but ascertained goods are

identified and individualized

after the formation of a

contract of sales.

Unascertained goods

• It means generic goods,

good defined by

description or even

samples.

Example

• Where a dealer has only

one car and he makes a

sale of it, the sale is

complete because there

is no uncertainty about

the subject matter of

sales.

Future goods

• It means goods to be

manufactured or

produced or acquired by

the seller after making

of the contract of sale.

Example

• A contract to sell oil not

yet pressed from seeds,

in his possession, is a

contract for the sale of

future goods.

Contingent goods

• These are types of

future goods, the

acquisition of which by

the seller depends upon

a contingency which

may or may not happen.

Example

• Future crops, eggs etc. A

agrees to sell 100 bags

of cement provided the

lorry carrying the

cement reaches safely.

Perishing of goods

• Perishing of specificgoods before making ofthe contract – Wherethere is a contract for thesale of specific goods andif they perish without theknowledge of the seller,even before the contractis made, the contractbecomes void.

Example

• X agrees to sell a cow to Y.

The cow is ill at the time

of the agreement and

subsequently dies. Both X

and Y are ignorant of this

fact. The agreement is

void.

Perishing of goods

• Goods perishing beforesales but after agreementto sell – Where contract isonly an agreement to selland goods without anyfault of either the seller orthe buyer perishsubsequent to thecontract, then also theagreement becomes void.

Example

• Example: In one case, A hadagreed to erect machinery onB’s premises. The price was tobe paid on completion. Duringthe course of the work , thepremises and machinery werecompletely destroyed by fire. Itwas held that both partieswere excused from furtherperformance and A was notentitled to the price ofmachinery as the specific sumwas payable only on thecompletion of the entire work.

Perishing of goods

• Perishing ofunascertained goods:Where the contract is forunascertained goods, theperishing of the good willnot avoids the contractand the seller will beliable for damages for thebreach of contract.

Example

• Example: X agrees to sell toY 10 bags of grain from 50bags stored in his godown.The godown had beendestroyed by fire at thetime of the contract. X isunaware of this fact. But inthis case, the contract is notvoid as the sale is not ofspecific goods but of acertain quantity ofunascertained goods.Hence X must supply 10bags of rice or pay damagesfor the breach of contract.

Price

• Price is the money

consideration of the sales

of goods. It is a

fundamental principle

that no sales can take

place without a price.

Fixation of price

The price must be fixed by

both parties at the time of

contract itself.

Both the parties may enter

into an agreement

regarding the manner in

which the price may be

fixed.

Fixation of price

Where the price is not fixed,

it can be determined in the

course of dealings between

the parties or as it is called

market price of goods.

Where the price has not

been fixed by the parties, the

buyer should pay a

reasonable price.

Mode of payment

In the absence of agreement

to the contrary, the seller is

not bound to accept any kind

of payment other than the

currency of the country. By

common consent, the seller

may accept payment by a

cheque or a draft, bank

guarantee, a letter of credit

or by any other mode.

Mode of payment

In the absence of agreement

to the contrary, the seller is

not bound to accept any kind

of payment other than the

currency of the country. By

common consent, the seller

may accept payment by a

cheque or a draft, bank

guarantee, a letter of credit

or by any other mode.

Examples

Team 1

• A agrees to sell a Maruti car to B for Rs. 1.5lacs. Before making agreement, the car wasstolen and it was in the knowledge of theparties. Is A bound to deliver Maruti Car to B?

No

Team 2

• Ritesh makes contract sales for selling heavymachine costing Rs. 2 Lacs to Hitesh on acondition that Hitesh will pay Rs. One lac incahs and will deliver a second hand car valuedat Rs 1 lac. Is contract of sale valid?

Yes. Payment of price is made partly in cash and partly in goods.

Team 3

• Ram enters into a contract of sales with shyam forselling Photostat machine to him for Rs 30,000.Invoice of the machine has been made in favor ofshyam, payment has not been made. The machineis lying in the godown of the seller. Meanwhile,his godown sets on fire and machine is destroyed.Can shyam claim loss of machine from ram?

No. Ownership of machine has been transferred to Shyam and machine get destroyed without any fault

of ram.

Team 4

• A transport company has resolved andtransferred 10 buses to a partnership firm,which consists of certain people who areowners of the company. Transfer was made ata particular price. Is it a contract of sale?

No person can sell his goods to himself.

Team 5

• A is an agent of foreign currency. B makes anagreement with him for purchasing 100pounds for Rs 7500. is contract of sales valid?

No. Currency cannot be sold or purchased.

Team 6

• Mohan and sohan agree that Mohan will sell hissecond hand car to Sohan at a price which willdetermined by a particular car mechanic. But thecar mechanic refused to do the job of pricefixation. On such refusal, can sohan compelMohan to sell that car for any other price?

No.

Team 7

• A purchased a machine for Rs. 50,000 from Bon installment payment basis. The payment isto be made in five equal monthly installments.A defaults in making the 3rd installment. Is Bentitled to get back the machine from A?

No.

Team 8

• X agrees to sell a horse to B on a conditionthat, B will keep it for six days on trail basis andhave the option to return on the expiry of 6 dayperiod, if he does not find it suitable. Threedays after, the horse dies due to illness withoutthe fault of A or B. Can this agreement beavoided.

yes