Instructors note

The distinction between sale and agreement to sell is important for the following primary
reasons:

1. The legal consequences of these two contracts for buyer and seller are different
2. Business managers must know the distinction as it impacts their organisation

Review the following in conjunction with your text book, and do the take-home
assignment highlighted with yellow colour below:

SALE (Executed Contract of Sale)
AND
AGREEMENT TO SELL (Executory Contract to Sell)

These two types of contracts create DIFFERENT legal consequences under each one of
the following situations:


1. Transfer of property

-- Sale
Ownership or title or property in goods passes to buyer immediately

Buyer becomes owner and gets rights against the whole world



-- Agreement to sell
Ownership or title or property in goods does not pass to buyer at time of contract, but
will pass at a future date subject to conditions such as acquisition of goods, payment

until then:
seller remains the owner
buyer does not become owner and does not get rights against the whole world
buyer and seller get rights only against each other for any breach on their part


2. Right of resale

-- Sale
Seller in possession of goods does not have right to resell (except under certain
circumstances discussed below) because buyer has become owner

If seller resells, then:

1. Second buyer will not get a good title if:
* second buyer has knowledge of previous sale

First buyer can:
4 sue seller either for breach of executed sale, or for tort of conversion
4 sue second buyer to recover goods

2. Second buyer will get a good title if:
* seller is in possession
* second buyer has no knowledge of previous sale
* second buyer buys in good faith (believing the seller to be the owner)

Note

The general principle of law is that one must have a good title to pass on a good
title

Nemo dat quod non habet (Latin for No one gives what he does not have)

This general principle applies under all laws in this country, including the Sale of Goods
Act 1930

S 27 of the Act affirms the principle, and protects the interests of the real owner

seller must have a good title before he can pass on a good title




However the Act contains Exceptions to this principle

The Act has exceptions that allow transfer of title by seller (non-owner) so the
innocent buyer may get better title than the sellers (non-owners)

These exceptions apply only to transfer of title by non-owners under certain
circumstances

Your take home assignment

The Exceptions

i. Title by estoppel (s 27)

(Estoppel is a rule of evidence under s 115 of the Indian Evidence Act 1872 that stops a
person from denying the truth of some statement he made earlier doctrine of estoppel
)

Illustration

A sells Bs goods to C in Bs presence. B does not object. C gets a better title as the
doctrine of estoppel stops B from denying As authority later on

Your task here is to research and write on the following topics ii vii:

ii. Sale by mercantile agent (s 27(2))
iii. Sale by joint owner (s 28)
iv. Sale by person in possession under voidable contract (s 29)
v. Sale by seller in possession of goods after sale (s 30(1))
vi. Sale by buyer in possession of goods after sale (s 30(2))
vii. Sale by an unpaid seller (s 54 (3))

Caution

These exceptions do not apply to:

Contract for sale of stolen goods under the Sale of Goods Act 1930
Contract for sale of stolen or legitimate goods under the Indian Contract Act 1872
Contract for sale stolen or legitimate goods under any other business law

Other Acts also have exceptions that allow the innocent buyer to get better title than the
sellers:

i. Indian Contract Act 1872
-- S 169 quasi contract finder of lost goods
-- S 176 pledge pledger and pledgee

ii. Companys Act 1956
Assignee or receiver or liquidator sells off an insolvent persons property

iii. Negotiable Instruments Act 1881
Holder in due course sells off a negotiable instrument



-- Agreement to sell
Seller remains the owner. Seller can sell the goods

Second buyer will get good title whether or not he had knowledge of agreement to sell

First buyer can:
4 sue the seller for breach of agreement to sell
4 cannot sue the second buyer to recover goods


3. Risk of loss

Rest perit domino (Latin for loss falls on the owner)

-- Sale
Risk of loss passes with ownership

Risk of loss is with buyer even if goods are in possession of seller

Q. What will happen if the buyer (owner) leaves goods at sellers premises after
purchase, and an earthquake destroys goods, or thieves steal goods?

Q. What will happen if seller says to buyer (owner) to collect goods next week, and an
earthquake destroys goods, or thieves steal goods?


-- Agreement to sell
Risk of loss is with seller even if goods are in possession of buyer


4. Consequences of breach

-- Sale
Buyers breach, i.e. refusal to accept goods or pay the price then seller can sue for price +
damages


-- Agreement to sell
Buyers breach, i.e. refusal to accept goods or pay the price, seller cannot sue for price
but only for damages for breach of agreement to sell

Q. Why cant seller sue for price?

A.


5. Buyers insolvency before he pays

-- Sale
Buyer files for insolvency in court after becoming owner but before paying the price;
adjudged insolvent; seller must deliver goods to court appointed receivers or assignees (in
the absence of his right of lien over the goods); seller can claim dividend from sale of
goods

(Indian laws use the term insolvency whereas some legal jurisdictions such as the US,
the Canadian use the expression bankruptcy)

-- Agreement to sell
Seller can refuse to deliver goods to receivers unless buyer first pays the price


6. Sellers insolvency

-- Sale
If buyer has paid the price and has become the owner, he can claim goods from receivers


-- Agreement to sell
If buyer has paid the price, but is not yet the owner; he cannot claim goods from
receivers; he can claim dividend for the price he has paid