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Tag: Sale of Goods Act

SALE and AGREEMENT TO SELL

Sale

A contract of sale is a generic term and includes both an actual sale and an agreement to sell. Section 4 provides that if the property in goods is transferred from the seller to the buyer under a contract, the contract is called a sale.

Agreement to sell

Where the transfer of the property in the goods will take place at a future time or is subject to some condition that has to be fulfilled, the contract is called an agreement to sell. Such an agreement to sell becomes a sale when the prescribed time lapses or the conditions are fulfilled. An agreement to sell can be described as the transfer of ownership of items that will happen in the future or that may happen if certain requirements are met. Section 4 (3) When the allotted time has passed or the requirements for the transfer are met, an agreement to sell also becomes a sale. The terms and circumstances of the offer of a property by the seller to the buyer are therefore established through an agreement to sell.

The price at which it will be sold and the expected payment date are included in these terms and conditions. It can also incorporate the idea of a contingent contract as defined by Section 31 of the Indian Contract Act of 1872. As a result, a contract to sell is a promise to act or not act in response to the occurrence or non-occurrence of a contingent event.

Both parties must act together and abide by all the terms and conditions outlined in the sale agreement throughout the whole deal process, up until the creation or completion of the sale deed. As a result, the sale deed is written using an agreement to sell as its foundation. In other words, a sale agreement is a confirmation of a potential future development that could happen if the terms and conditions stipulated in the present are met.

S.No.BasisSaleAgreement to Sell
1.DefinitionIt can be defined as the transfer of ownership of the goods by the seller to the buyer in exchange for the monetary consideration paid or promised, or partly paid and partly promised.It can be defined as the transfer of title of ownership on a future date after satisfying certain conditions or contingent clauses.
2.MeaningIn sale, the goods are transferred from the seller to the buyer immediately.In the agreement to sell, the property in the goods does not transfer immediately but at a future date specified in the agreement.
3.Executed contract/Executory contractBoth the sale and the agreement to sell are contracts. A contract of sale is an executed contract, which means both parties have fully performed their obligations.An agreement to sell is an executed contract where the parties have not fully performed their obligations.
4.Liable to sueIn both the sale and the agreement to sell, the seller can sue the buyer. In a contract of sale, the seller can sue the buyer for breaching the contract of sale.The seller can sue the buyer only for the damages, not the price.
5.Sale taxSales are liable for the sales tax.An agreement to sell is not liable for the sales tax.
6.Right to resaleIn a contract of sale, the seller has no right to resell the goods.In an agreement to sell, the seller has the right to resale the goods.
7.Liability for damageIn both the sale and the agreement to sell, there is a liability for damages to goods. If the goods are destroyed, the loss should be borne by the buyer even though the goods are in the possession of the seller.If the goods are destroyed, the loss should be borne by the seller even though the goods are in the possession of the buyer.
8.Right in rem/Right in personamThe Sale gives the right in rem, i.e. against the whole world.An agreement to sell gives the right in personam i.e., between the parties only.
9.Right to recover the moneyIf the buyer refuses to pay, the unpaid seller may have the right to recover the money as provided under Section 46 of the Sale of Goods Act of 1930.If the buyer refuses to accept and pay, the seller may claim non-acceptance damages.
10.ExamplesExample: Ram sold 12 bags of sugar to Ravi for a payment of Rs. 7,000.Example: Ram agrees to sell 12 bags of sugar to Ravi against a payment of Rs. 7,000 after getting the stock.

Conclusion

Hence, we conclude that when the seller agrees to sell the goods to the buyer at a future specified date or after the necessary conditions are fulfilled, then it is known as an agreement to sell, whereas when the seller sells goods to the customer for a price and the transfer of goods from the vendor to the customer takes place at the same time, then it is known as a sale. Also, we have seen various points of difference between the sale and the agreement to sell, apart from the period when the goods are delivered.

Performance of contract of Sale

The Sale of Goods Act 1930 states under Sec 31 that, “It is the duty of the seller to deliver the goods and the buyer to accept and pay for them, in accordance with the terms of the Contract of Sale.” The performance of a Contract of Sale defines a simple transaction where the seller delivers the goods in exchange for a payment made by the buyer. Sections 31 to 40 of the Sale of Goods Act, 1930 state the rules and regulations that govern the Sale of goods and their delivery. Let’s define delivery, buyer, seller and their duties

According to Section 2 (2) of the Sale of Goods Act, 1930, delivery means voluntary transfer of possession of goods from one person to another. Hence, if a person takes possession of goods by unfair means, then there is no delivery of goods. Having understood delivery, let’s look at the law on sales.

“voluntary transfer of possession of goods from one person to another.” The transfer of goods from one person to another will be considered a delivery under a Sale of goods act only when:

The transfer of goods is voluntary.

The transfer is not done using theft, fraud or force.

Mere possession of good does not constitute a valid delivery of goods.

Law on Sales

1] The Duty of the Buyer and Seller (Section 31)

It is the duty of the seller to deliver the goods and the buyer to pay for them and accept them, as per the terms of the contract and the law on sales.

2] Concurrency of Payment and Delivery (Section 32)

The delivery of goods and payment of the price are concurrent conditions as per the law on sales unless the parties agree otherwise. So, the seller has to be willing to give possession of the goods to the buyer in exchange for the price. On the other hand, the buyer has to be ready to pay the price in exchange for possession of the goods.

Rules Pertaining to the Delivery of Goods

The Sale of Goods Act, 1930 prescribes the following rules regarding delivery of goods:

a. Delivery (Section 33)

The delivery of goods can be made either by putting the goods in the possession of the buyer or any person authorized by him to hold them on his behalf or by doing anything else that the parties agree to.

b. Effect of part-delivery (Section 34)

If a part-delivery of the goods is made in progress of the delivery of the whole, then it has the same effect for the purpose of passing the property in such goods as the delivery of the whole. However, a part-delivery with an intention of severing it from the whole does not operate as a delivery of the remainder.

c. Buyer to apply for delivery (Section 35)

A seller is not bound to deliver the goods until the buyer applies for delivery unless the parties have agreed to other terms in the contract.

d. Place of delivery [Section 36 (1)]

When a sale contract is made, the parties might agree to certain terms for delivery, express or implied. Depending on the agreement, the buyer might take possession of the goods from the seller or the seller might send them to the buyer.

If no such terms are specified in the contract, then as per law on sales

  • The goods sold are delivered at the place at which they are at the time of the sale
  • The goods to be sold are delivered at the place at which they are at the time of the agreement to sell. However, if the goods are not in existence at such time, then they are delivered to the place where they are manufactured or produced.

e. Time of Delivery [Section 36 (2)]

Consider a contract of sale where the seller agrees to send the goods to the buyer, but not time of delivery is specified. In such cases, the seller is expected to deliver the goods within a reasonable time.

f. Goods in possession of a third party [Section 36 (3)]

If at the time of sale, the goods are in possession of a third party. Then there is no delivery unless the third party acknowledges to the buyer that the goods are being held on his behalf. It is important to note that nothing in this section shall affect the operation of the issue or transfer of any document of title to the goods.

g. Time for tender of delivery [Section 36 (4)]

It is important that the demand or tender of delivery is made at a reasonable hour. If not, then it is rendered ineffectual. The reasonable hour will depend on the case.

h. Expenses for delivery [Section 36 (5)]

The seller will bear all expenses pertaining to putting the goods in a deliverable state unless the parties agree to some other terms in the contract.

i. Delivery of wrong quantity (Section 37)

  • Sub-section 1 – If the seller delivers a lesser quantity of goods as compared to the contracted quantity, then the buyer may reject the delivery. If he accepts it, then he shall pay for them at the contracted rate.
  • Sub-section 2 – If the seller delivers a larger quantity of goods as compared to the contracted quantity, then the buyer may accept the quantity included in the contract and reject the rest. The buyer can also reject the entire delivery. If he wants to accept the increased quantity, then he needs to pay at the contract rate.
  • Sub-section 3 – If the seller delivers a mix of goods where some part of the goods are mentioned in the contract and some are not, then the buyer may accept the goods which are in accordance with the contract and reject the rest. He may also reject the entire delivery.
  • Sub-section 4 – The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties.

j. Installment deliveries (Section 38)

The buyer does not have to accept delivery in installments unless he has agreed to do so in the contract. If such an agreement exists, then the parties are required to determine the rights and liabilities and payments themselves.

k. Delivery to carrier [Section 36 (1)]

The delivery of goods to the carrier for transmission to the buyer is prima facie deemed to be ‘delivery to the buyer’ unless contrary terms exist in the contract.

l. Deterioration during transit (Section 40)

If the goods are to be delivered at a distant place, then the liability of deterioration incidental to the course of the transit lies with the buyer even though the seller agrees to deliver at his own risk.

m. Buyers right to examine the goods (Section 41)

If the buyer did not get a chance to examine the goods, then he is entitled to a reasonable opportunity of examining them. The buyer has the right to ascertain that the goods delivered to him are in conformity with the contract. The seller is bound to honor the buyer’s request for a reasonable opportunity of examining the goods unless the contrary is specified in the contract.

Acceptance of Delivery of Goods (Section 42)

A buyer is deemed to have accepted the delivery of goods when:

  • He informs the seller that he has accepted the goods; or
  • Does something to the goods which is inconsistent with the ownership of the seller; or
  • Retains the goods beyond a reasonable time, without informing the seller that he has rejected them.

Return of Rejected Goods (Section 43)

If a buyer, within his right, refuses to accept the delivery of goods, then he is not bound to return the rejected goods to the seller. He needs to inform the seller of his refusal though. This is true unless the parties agree to other terms in the contract.

Refusing Delivery of Goods (Section 44)

If the seller is willing to deliver the goods and requests the buyer to take delivery, but the buyer fails to do so within a reasonable time after receiving the request, then he is liable to the seller for any loss occasioned by his refusal to take delivery. He is also liable to pay a reasonable charge for the care and custody of goods.

The Doctrine of Caveat Emptor

The Latin phrase ‘Caveat Emptor’ means let the buyer beware. The doctrine of Caveat Emptor under the Sale of Goods Act talks about the onus of the buyer in ascertaining the risks in a contract.

The Doctrine of Caveat Emptor means that the responsibility lies on the buyer of goods and he must perform due diligence before the purchase of the goods. It is expected from the buyer to be alert in a contract of sale. He cannot hold the seller responsible for inferior goods unless the contact is based on fraud. The Doctrine of Caveat Emptor is generally applicable in the case of property transactions but it can also be applied in the sale of goods and other services. Section 16 of the Sale of Goods Act, defines it as ‘“there is no implied warranty or condition as to the quality or the fitness for any particular purpose of goods supplied under such a contract of sale“. example. The seller makes the goods available in the market and it is the responsibility of the buyer to inspect them well before buying. If the buyer later discovers a defect in the goods that could have been detected earlier by him, he cannot sue the seller for inferior quality.

Though the responsibility lies with the buyer, he can shift it to the seller under the given conditions:

  1. If the buyer has informed the seller about the purpose of the purchase, before making the purchase.

2. If the buyer relies on the technical expertise and experience of the seller.

3. If the goods are of a description that the seller supplies in his normal course of business.

Exceptions to the Doctrine of Caveat Emptor

The Doctrine of Caveat Emptor and its exceptions will help us understand the situations in which the responsibility is not put only on the buyer.

  1. Fitness of the Product for the Buyer’s Purpose of Purchase- Section 16 (1)

If the buyer informs the seller about his purpose behind purchasing the goods and the seller does not sell the goods according to that knowingly, it relieves the buyer from the responsibility. In this case, it becomes the duty of the seller to supply the right goods to the buyer. For example, A informs B, who is a shoe seller, that he wishes to purchase shoes for running. If B still sells him shoes that are not for running, then B can be held responsible.

2. Sale of Goods Under the Trade Name:

 If the buyer purchases a branded product or a product sold under a trading name, then he is assured of the quality that is associated with that brand name. The seller in this case cannot be held responsible. In this case, the buyer is not relying on the skill or judgment of the seller but on the implied quality standard that the brand offers. 

3. Goods Sold by Description:

If the buyer purchases the goods based on their description which matches the product, then the seller cannot be held liable. The seller will be held liable only if he provides an incorrect description of the goods.

4. Merchantable Quality of Goods- Section 16(2):

The seller must provide goods of merchantable quality to the buyer. This means that the goods must be fit for resale in the market and must pass the market standards. When the buyer purchases the goods from a seller based on a description and the seller deals in the goods of that description, then the goods must be of merchantable quality. If the goods are not of merchantable quality, then the seller can be held liable for the same.

5. Sale by Sample Inspection:

The Doctrine of Caveat Emptor does not apply if the buyer purchases the goods after careful inspection of a sample of the goods that he intends to buy and the seller supplies goods different from that sample. For example, A inspects a sample carpet manufactured by B. He gives an order of 100 carpets of the same quality as that of the sample. If B supplies carpets that do not match the sample carpet in quality, then he will be held liable. If the sale is made based on a description as well as a sample and the goods do not match both, then the buyer is not held responsible. 

6. Sale by Description and Sample

If the sale is done via a sample as well as a description of the product, the buyer will not be responsible if the goods do not resemble the sample and/or the description. Then the responsibility will fall squarely on the seller.

7. Usage of Trade

There is an implied condition or warranty about the quality or the fitness of goods/products. But if a seller deviated from this then the rules of caveat emptor cease to apply. For example, A bought goods from B in an auction of the contents of a ship. But B did not inform A the contents were sea damaged, and so the rules of the doctrine will not apply here.

8. Fraud or Misrepresentation by the Seller

This is another important exception. If the seller obtains the consent of the buyer by fraud then caveat emptor will not apply. Also if the seller conceals any material defects of the goods which are later discovered on closer examination then again the buyer will not be responsible. In both cases, the seller will be the guilty party.