Definition:

• The Sale of Goods Act, 1930, governs the provisions related to the sale and agreement to sell
of goods in India.
• Section 4 of the Act defines a "contract of sale" as a contract in which the seller transfers or
agrees to transfer the ownership of goods to the buyer for a price.
• Section 2(10) defines an "agreement to sell" as a contract where the transfer of ownership of
goods is to take place at a future time or subject to certain conditions to be fulfilled.

SALE AND AGREEMENT TO SELL

The term ‘Contract of sale’ includes both a ‘sale’ and ‘agreement to sell’.

Distinction between Sale and Agreement to Sell

Basis of distinction Sale Agreement to sell

1 Transfer of ownership Transfer of Transfer of ownership
ownership of of goods is to take place
goods takes place at a future time or
immediately subject to fulfilment of
some condition
2 Executed contract or It is an executed It is an executor contract
Executory contract contract because because
nothing remains to something remains to be
be done done
3 Conveyance of property Buyer gets a right Buyer does not get such
to enjoy the goods right to enjoy the goods.
against the whole It only creates jus in
world including personam (Right against
seller. Therefore, a the person)
sale creates jus in
rem (Right against
property)
4 Transfer of risk Transfer of risk of Transfer of risk of loss
loss of goods takes of goods does not take
place immediately place because
because ownership ownership is not
is transferred. As a transferred. As a result,
result, in case of in case of destruction of
destruction of goods, the loss shall be
goods, the loss borne by the seller even
shall be borne by though the goods are in
the buyer even the possession of the
though the goods buyer.
are in the
possession of the
seller
5 Rights of seller against the Seller can sue the Seller can sue the buyer
buyer’s breach buyer for the price for damages even
even though the though the goods are in
goods are in his the possession of the
possession buyer.
 6 Rights of buyer against the Buyer can sue the Buyer can sue the seller
seller’s breach seller for damages for damages only.
and can sue the
third party who
bought those
goods, for goods
7 Effect of insolvency of Buyer can claim Buyer cannot claim the
seller having possession of the goods from the goods even when he has
goods official receiver or paid the price because
assignee because the ownership has not
the ownership of transferred to the buyer.
goods has The buyer who has paid
transferred to the the price can only claim
buyer rateable dividend
8 Effect of insolvency of the Seller must deliver Seller can refuse to
buyer before paying the the goods to the deliver the goods unless
price official receiver or he is paid full price of
assignee because the goods because the
the ownership of ownership has not
goods has transferred to the buyer.
transferred to the
buyer. He can only
claim rateable
dividend for the
unpaid price.

SALE AND HIRE PURCHASE AGREEMENT

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 the agreement under which:

i. Possession of goods is delivered by the owner thereof to a person on condition that

such person pays the agreed amount in periodical instalments;
ii. The property in the goods is to pass to such a person on the payment of the last
instalment; and
iii. Such a person has a right to terminate the agreement at any time before the
property so passes.
Distinction between a Sale and Hire-purchase agreement:

Basis of distinction Sale Hire-

purchase
agreement
1 Regulating law All contracts of sale are The Hire-purchase
governed by Sale of agreements are
Goods Act, 1930 governed by Hire
Purchase Act, 1972
2 Nature of contract It is a contract of sale It is an agreement of
hiring and hence an
agreement to sell
3 Possession of goods Possession of goods need Possession of goods
not necessarily be is necessarily
transferred immediately transferred
immediately
4 Transfer of ownership of Ownership of goods is Ownership of goods
goods transferred immediately is transferred on the
payment of the last
instalment when the
option to purchase is
exercised
5 Right to terminate The buyer has no right to The hirer has right to
terminate the contract of terminate the
sale agreement at any time
before the ownership
is transferred
6 Right to repossess the The seller has no right to The hire-vendor has a
goods repossess the goods. He right to repossess the
can sue for price goods if the hirer
defaults
7 Transfer of good title to The buyer can transfer a The hirer cannot
third party good title to third party transfer a good title to
because ownership of third party because
goods bas been ownership of goods
transferred has not been
transferred
8 Compulsion as to be in A contract of sale need The hire-purchase
writing not necessarily be in agreement must be in
writing. The benefits of writing.
implied conditions and
warranties are available
 9 Benefits of implied The benefits of implied The benefits of
conditions and warranties conditions and warranties implied conditions
under the Sale of Goods are available and warranties are not
Act available.
10 Sales Tax In case of sale of taxable In case of hire of even
goods, sales tax is levied taxable goods, sales
tax is not levied.
11 Treatment of payment The payment made by the The payment made by
made by instalment buyer is treated as the hire purchases is
payment towards theprice treated as hire charges
of goods for the use of goodstill
the option to purchase
the goods is
exercised.

If in an agreement, the person taking the goods has an option to terminate the
agreement at any time before the transfer of ownership of goods, it will be an
agreement of hire purchase. If, in an agreement, the person taking the goods has no
option to terminate the agreement, it will be a contract of sale even if the price is
payable in instalments.