What are essentials of a contract of sale of goods. Distinguish it from an agreement to sale.

Question: What are essentials of a contract of sale of goods. Distinguish it from an agreement to sale. [JJS 2018]

Find the answer to the Law of Sale of Goods only on Legal Bites. [What are essentials of a contract of sale of goods. Distinguish it from an agreement to sale.]

Answer

According to the Sale of Goods Act, 1930, certain criteria are essential to determine the legality of a contract of sale of goods. The same are briefly discussed below:-

1. Two Parties: There must be at least two parties involved i.e., a buyer and a seller.

2. Transfer of Property/Ownership: The seller must transfer or agree to transfer the property in goods to the buyer.

3. Existence of subject matter: As per Section 2(7) of the Act, the subject matter of the contract i.e., goods should be in existence i.e., present or future goods which include all movable property except actionable claims and money

4. Consideration: Section 2(10) states that the consideration for the sale shall be in monetary terms.

5. Essential Elements of a Valid Contract as per Section 10 of Indian Contract Act: The contract must satisfy all the essential elements of a valid contract, such as competency of parties, free consent, lawful object, and consideration as per Section 10 of ICA.

6. Absolute or Conditional: Section 4(2) clarified that the sale can be absolute or conditional.

Distinction between Sale and Agreement to Sale

(1) Definition:- Sale: Section 4(3) of the Act states that a sale is complete when the ownership of goods is immediately transferred from the seller to the buyer. A classic example is the case of Aldridge v. Johnson (1857) 7 E & B 885 wherein it was noted that the ownership of the goods gets transferred immediately upon the completion of the sale.

Agreement to Sale: As per Section 4(3), an agreement to sell is said to occur when the transfer of ownership is to take place at a future time or subject to some condition thereafter to be fulfilled. A classic example is Howe v. Smith, (1884) 27 Ch. D. 89 case in which the transfer of property was agreed by the parties to take place at a future date subject to fulfilment of certain conditions.

(2) Transfer of Ownership: In a sale, the ownership gets transferred immediately but in an agreement to sell, the transfer is to take place at a future time or upon the fulfilment of conditions.

(3) Nature of Contract: A sale is an executed contract, meaning the transaction is completed whereas an agreement to sell is an executory contract, indicating the transaction is yet to be completed.

(4) Risk: In the sale of goods since the transaction is already complete, the risk of loss is transferred to the buyer notwithstanding that the goods are still lying in the possession of the seller. However, in an agreement to sell, the risk remains with the seller until the transfer of ownership.

(5) Remedies for Breach: In a sale of goods, if the buyer defaults, the seller can sue for the price of the goods whereas in an agreement to sell, the remedy for breach is typically an action for damages.