The Law Relating to Sale of Goods 1

P-10: Book II: Chapter-1: Definitions

Presented by Group-2

1) Md. Shihabul Islam; Roll-09

2) Md. Mahbubul Alam; Roll-44
3) Jahid Hasan; Roll-46
Buyer, Seller and Goods 2

 Buyer buys or agrees to buy goods; Sec. 2(1)

 Seller sells or agrees to sell goods; Sec. 2(13)
 The term “Goods” include every kind of movable property
except, 1) actionable claims and 2) money;
Classification of Goods 3

Goods

Contingent
Existing Goods Future Goods
Goods
Sale & Agreement to Sell 4

 A contractfor the sale of goods may be either a sale or an

agreement to sale; Sec. 4

When under a contract of sale, the When the transfer of ownership is to

property in the goods is transferred from take place at a future time or subject to
the seller to the buyer, the contract is some condition to be fulfilled later, the
called a sale. contract is called an agreement to sell.
Differences 5

In an agreement to sell, the goods remain with the seller until the agreement
Transfer of Ownership becomes a sale, whereas in case of sale, the product passes to the buyer and it
cannot be seized in execution of a decree against the seller.

Where the transaction amounts to a sale, the goods belong to the buyer and he
Transfer of Risk has to bear the loss if the goods are subsequently damaged or destroyed. –Sec.
26

In case of a sale, the unpaid seller has certain reliefs available, e.g., lien,
Remedial Measures stoppage in transit, resale etc.
In case of agreement to sell, the seller’s remedy for breach of contract by the
buyers is a suit for damages.

Nature of Contract ‘Sale’ is an ‘executed contract’, whereas an ‘agreement to sell’ is an ‘ executory

contract’.
The Essential Elements 6

 Movable Goods: The Sale of Goods Act deals only with movable goods, excepting actionable
claims and money (Sec. 2.7). This Act does not apply to immovable properties.
 Movable Goods for Money: A contract for the exchange of movable goods for money must be
made, which implies that there must be money consideration in a sale. An exchange of goods for
goods is not a sale. But it has been held that if an exchange is made partly for goods and partly for
money then the contract is one of a sale.

Aldridge v Johnson (1857) 7 E&B 885: Mr. A made a deal with Mr. K to
exchange 32 bullocks for 100 quarters of barley. They valued the bullocks at £6
each (i.e. £192 in all) and the barley at £215 and agreed that the difference of £23
would be paid in cash. The evidence seems to have pointed to an arrangement
under which there were reciprocal sales of the bullocks and the barley; the prices
of each were calculated and then set off against each other, and the balance of £23
was agreed to be paid in cash.
The Essential Elements (Contd.) 7

 Two Parties: The buyer and seller must be different persons since a sale is a bilateral contract. A
man cannot buy from or sell goods to himself. But there is an exception in terms of multiple
owners that, a part-owner may sell his part to another part owner, according to section 4(1).
 Formation of the Contract of Sale: A contract of sale is made by an offer to buy or sell goods
for a price and acceptance of such offer. The contract may provide for the immediate delivery of
goods or immediate payment of the price or both, or for the delivery and payment by instalments,
or that the delivery or payment or both shall be postponed. - Sec. 5(1)
 Method of Forming the Contract: Subject to the provision of any law for the time being in
force, a contract of sale may be in writing, or by word of mouth, or may be implied from conduct
of the parties. – Sec. 5(2)
The Essential Elements (Contd.) 8
 The Terms of Contract: The parties may agree upon any term concerning the time, place, and
mode of delivery. The terms may be of two types: essential and non-essential. Essential terms are
called conditions and non-essential terms are called warranties.
 Other Essential Elements: The parties must be competent to contract, there must be free consent
and consideration, the object must be lawful etc.
Price 9
 Price means the money consideration for a sale of goods, according to Sec. 2(10)
 In terms of ascertaining of price, the price in a contract of sale may be fixed by
the contract of sale or may be left to be fixed in a manner agreed between the
parties.
 Goods may be sold on a condition that the valuation is to be made by a third party.
In such cases if the third party cannot or does not make the valuation, the
agreement becomes void, Sec. 10(1)
 Where such third party is prevented from making the valuation by the fault of the
seller or buyer, the party not in fault is entitled to damages, Sec. 10(2)
Destruction of Goods 10
Goods perishing before making a contract

“Where there is a contract for the sale of specific goods, the contract is void if the goods without
the knowledge of the seller have, at the time when the contract was made, perished or become so
damaged as no longer to answer to their description in the contract.”- Sec. 7

Couturier v Hastie (1856) 5 HLC 673

A cargo of corn was in transit being shipped from the Mediterranean to England. The owner of
the cargo sold the corn to a buyer in London. The cargo had however, perished and been disposed of
before the contract was made. The seller sought to enforce payment for the goods on the grounds that
the purchaser had attained title to the goods and therefore bore the risk of the goods being damaged,
lost or stolen. The court held that the contract was void because the subject matter of the contract did
not exist at the time the contract was made.
Destruction of Goods 11

Goods perishing before sale but after agreement to sell

“Where there is an agreement to sell specific goods, and subsequently the goods without
any fault on the part of seller of buyer, perish or become so damaged as no longer to answer to
their description in the agreement before the risk passes to the buyer, the agreement is thereby
avoided.”- Sec. 8

Elphick v Barnes (1880)

The seller supplied a horse to the buyer on an eight-day trial. The horse subsequently
became ill on the third day and died. The horse’s death was the fault of neither party. However,
the question arose as to who owned the horse.

Held: this was a sale on approval and, therefore, property in the goods remained with the seller
who would have to bear the loss.
Earnest Money 12

Earnest money is a good-faith deposit that is made on a home to show the seller that the buyer is
serious about buying the good. A typical earnest money to 1% to 2% of the home price. After
accepting an offer, the seller takes the home off the market until the sale closes, which can take
several weeks. The earnest money helps assure the seller that a buyer is acting in good faith, and it
provides them with some compensation if the buyer backs out of the deal without a valid reason.

The payment of earnest money to mark the formation of an agreement for sale is a long standing
custom in India as well as in England. There is usually an understanding that if the contract is
broken by the buyer, the seller is to retain the money as compensation, whereas if the contract is
fulfilled, the amount is credited to the purchase price payable.

Earnest money is security for the fulfilment of agreement. A provision for the forfeiture of earnest
money is not consideration to be penalty clause. – Sec. 74
Earnest Money 13

Shree Hanuman Cotton Mills and Anr. v. Tata Aircraft Ltd.

The purchaser deposited Rs. 2,50,000 as earnest money, being 25% of the value of goods. He
agreed that the full value of goods will be paid, before taking delivery but he failed to pay it. It was
held- From a review of the decisions cited above, the following principles emerge regarding
“earnest”:
(1) It must be given at the moment at which the contract is concluded.
(2) It represents a guarantee that the contract will be fulfilled or, in other words, ‘earnest’ is
given to bind the contract.
(3) It is part of the purchase price when the transaction is carried out.
(4) It is forfeited when the transaction falls through by reason of the default or failure of the
purchaser.
(5) Unless there is anything to the contrary in the terms of the contract, on default committed by
the buyer, the seller is entitled to forfeit the earnest.