Formation of the Contract of Sale (Part - 2) CA Foundation Notes | EduRev

Business Laws for CA Foundation

Created by: Sushil Kumar

CA Foundation : Formation of the Contract of Sale (Part - 2) CA Foundation Notes | EduRev

The document Formation of the Contract of Sale (Part - 2) CA Foundation Notes | EduRev is a part of the CA Foundation Course Business Laws for CA Foundation.
All you need of CA Foundation at this link: CA Foundation

DISTINCTION BETWEEN SALE AND AN AGREEMENT TO SELL

The differences between the two are as follows:

Basis of differenceSale

Agreement to sell

Transfer of property

The property in the goods passes to the buyer immediately.

Property in the goods passes to the buyer on future date or on fulfilment of some condition.

Nature of contract

It is an executed contract. i.e. contract for which consideration has been paid.

It is an executory contract. i.e. contract for which consideration is to be paid at a future date.

Remedies for breach

The seller can sue the buyer for the price of the goods because of the passing of the property therein to the buyer.

The aggrieved party can sue fo damages only and not for the price unless the price was payable at a stated date.

Liability of parties

A subsequent loss or destruction of the goods is the liability of the buyer.

Such loss or destruction is the liability of the seller.

Burden of risk

Risk of loss is that of buyer since risk follows ownership.

Risk of loss is that of seller.

Nature of rights

Creates Jus in rem

Creates Jus in personam

Right of resale

The seller cannot resell the goods.

The seller may sell the goods since ownership is with the seller.


SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS

(i) Sale and Hire Purchase: Contract of sale resembles with contracts of hire purchase very closely, and indeed the real object of a contract of hire purchase is the sale of the goods ultimately.

Hire purchase agreements are governed by the Hire-purchase Act, 1972. Term “hire-purchase agreement” means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which-

(a) Possession of goods is delivered by the owner thereof to a person on condition that such person  pays the agreed amount in periodical instalments, and

(b)  The property in the goods is to pass to such person on the payment of the last of such instalments, and

(c) Such person has a right to terminate the agreement at any time before the property so passes; None the less a sale has to be distinguished from a hire purchase as their legal incidents are quite different.

The main points of distinction between the ‘sale’ and ‘hire-purchase’ are as follows:

Basis of difference

Sale

Hire- Purchase

Time of passing

property

Property in the goods is transferred to the buyer immediately at the time of contract.

The property in goods passes to the hirer upon payment of the last installment.

Position of the party


The position of the buyer is that of the owner of the goods.


The position of the hirer is that of a bailee till he pays the last installment.

Termination of contract


The buyer cannot terminate the contract and is bound to pay the price of the goods.


The hirer may, if he so likes, terminate the contract by returning the goods to its owner without any liability to pay the remaining installments.

Burden of Risk of insolvency of the buyer


The seller takes the risk of any loss resulting from the insolvency of the buyer.


The owner takes no such risk, for if the hirer fails to pay an installment, the owner has right to take back the goods.

Transfer of title


The buyer can pass a good title to a bona fide purchaser from him.

The hirer cannot pass any title even to a bona fide purchaser.

Resale


The buyer in sale can resell the goods

The hire purchaser cannot resell unless he has paid all the installments.


(ii) Sale and Bailment: A ‘bailment’ is the delivery of goods for some specific purpose under a contract on the condition that the same goods are to be returned to the bailor or are to be disposed off according to the directions of the bailor. Provisions related to bailment are regulated by the Indian Contract Act, 1872.

The difference between bailment and sale may be clearly understood by studying the following:

Basis of difference

Sale

Bailment

Transfer of property


The property in goods is transferred from the seller to the buyer.


There is only transfer of possession of goods from the bailor to the bailee for any of the reasons like safe custody, carriage etc.

Return of goods


The return of goods in contract of sale is not possible.


The bailee must return the goods to the bailor on the accomplishment of the purpose for which the bailment was made.

Consideration


The consideration is the price in terms of money.

The consideration may be gratuitous or non-gratuitous.


(iii) Sale and contract for work and labour: A contract of sale of goods is one in which some goods are sold or are to be sold for a price. But where no goods are sold, and there is only the doing or rendering of some work of labour, then the contract is only of work and labour and not of sale of goods.

Example: Where gold is supplied to a goldsmith for preparing an ornament or when an artist is asked to paint a picture.


CONTRACT OF SALE HOW MADE (SECTION 5)

According to section 5(1), A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed.

Further, as per sub-section (2) of section 5, subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties.

Analysis:

A contract of sale may be made in any of the following modes:

(i) Contract of sale is made by an offer to buy or sell goods for a price and acceptance of such offer.

(ii) There may be immediate delivery of the goods; or

(iii) There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date; or

(iv) There may be immediate delivery of the goods and an immediate payment of price; or

(v) It may be agreed that the delivery or payment or both are to be made in installments; or

(vi) It may be agreed that the delivery or payment or both are to be made at some future date.


SUBJECT MATTER OF CONTRACT OF SALE

Existing or future goods (section 6):

(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods.

(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

Example: A contract for sale of certain cloth to be manufactured by a certain mill is a valid contract. Such contacts are called contingent contracts.

(3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

Goods perishing before making of contract (Section 7): 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 contract.

Example: A agrees to sell B 50 bags of wheat stored in the A’s godown.  Due to water logging, all the goods stored in the godown were destroyed. At the time of agreement, neither parties were aware of the fact. The agreement is void.

Goods perishing before sale but after agreement to sell (Section 8): Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or 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.


ASCERTAINMENT OF PRICE (SECTION 9 & 10)

Ascertainment of price (Section 9):
(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

Analysis:

‘Price’ means the monetary consideration for sale of goods [Section 2 (10)]. By virtue of Section 9, the price in the contract of sale may be

(1) fixed by the contract, or

(2) agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or

(3) determined by the course of dealings between the parties.

Agreement to sell at valuation (Section 10):

(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of third party and such third party cannot or does not make such valuation, the agreements is thereby avoided: Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall pay a reasonable price therefore.

(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in default.

Analysis

Section 10 provides for the determination of price by a third party. Where there is an agreement to sell goods on the terms that price has to be fixed by the third party and he either does not or cannot make such valuation, the agreement will be void. In case the third party is prevented by the default of either party from fixing the price, the party at fault will be liable to the damages to the other party who is not at fault. However, a buyer who has received and appropriated the goods must pay a reasonable price for them in any eventuality.

Example: P is having two bikes. He agrees to sell both of the bikes to S at a price to be fixed by the Q. He gives delivery of one bike immediately. Q refuses to fix the price. As such P ask S to return the bike already delivered while S claims for the delivery of the second bike too. In the given instance buyer S shall pay reasonable price to P for the bike already taken. As regards the Second bike, the contract can be avoided.

Complete Syllabus of CA Foundation

Dynamic Test

Content Category

Related Searches

Summary

,

Sample Paper

,

pdf

,

past year papers

,

ppt

,

study material

,

practice quizzes

,

Viva Questions

,

Free

,

shortcuts and tricks

,

Semester Notes

,

video lectures

,

Extra Questions

,

mock tests for examination

,

Exam

,

Formation of the Contract of Sale (Part - 2) CA Foundation Notes | EduRev

,

Previous Year Questions with Solutions

,

Important questions

,

Objective type Questions

,

Formation of the Contract of Sale (Part - 2) CA Foundation Notes | EduRev

,

MCQs

,

Formation of the Contract of Sale (Part - 2) CA Foundation Notes | EduRev

;