Human civilization is a society where rational species exist. The rational civilization of humans is run on a system of trade or exchange of goods, services, and property from one person to another. This exchange of goods and services is permanent as well as temporary in nature. Properties are transferred from one person to another person through contracts. Sale and bailment are the contracts to transfer the possession and ownership of goods, services, and property from buyer to seller and from bailer to bailee. Today’s article is on the difference between a contract of sale and a contract of bailment.
Contract of Sale
The contract of sale is regulated by the Sale of Goods Act, 1930. The subject matter of the Sale of Goods Act is the buying and selling of movable goods. Section 4(1) of the Sale of Goods Act, 1930 defines a contract of sale. A contract of sale is an agreement between two or more parties enforceable by law where one person buy goods, services, or properties from another person in exchange for money or monetary benefits. A person who purchases or agreed to purchase the goods, services, or properties is known as a buyer under Section 2(1) of the Sale of Goods Act, 1930. A person who sells goods, services, and properties is known as a seller under Section 2(13) of the Sale of Goods Act, 1930. The price of goods, services, and properties to be sold or purchased are decided by the buyer and the seller. The price for the goods is paid in 2 ways:
- Payment of the whole amount at once.
- Payment in installment.
The seller agrees to deliver or sell something to the buyer for a certain price. The buyer has agreed to pay for that commodity. The subject matter of the contract of sale is special property. Therefore, the enforceability of the contract of sale is required to transfer the ownership and possession of special property from seller to buyer. In the contract of sale, the ownership of property transfers from one person to another. A sale is an act of transferring ownership and possession of a commodity from one person to another. A product can be sold at a reduced price and subjected to discounts and offers.
A buyer has full control over a purchased commodity and is entitled to use it in any way he likes. There is no clause to return the goods from the buyer to the seller except for breach of contract. The buyer can keep the goods till the time he decided to sell them to another person.
Essential Elements of A Contract of Sale
A contract of sale is required to be valid similar to the contracts under Indian Contract Act, 1872. A contract of sale becomes void in case of failure to cope with the provision required to form a valid contract. Ingredients required for a valid contract:
- An offer.
- Intention to enter into a legal relationship
- A consideration.
Illustration of Contract of Sale
1) Anuj enters into a contract with Manoj to sell his car at Rs 20 lakh. Manoj purchased the car and went to his home. After 3 days, Anuj went to Manoj’s garage and unlock his sold car with a second key and escape with the car. Anuj believes that he can use his car after selling it.
Explanation: The seller losses his right to use his property after selling it.
2) Chetan enters into a contract of sell to sell his 20-acre land to Shiv under the Sales of Goods Act, 1930.
Explanation: The Sale of Goods Act, 1930 deals with the sale and purchase of movable properties. A contract for the sale and purchase of immovable property is regulated under the Transfer of Property Act, 1882.
3) Arjun enters into a contract of sale with Kabir to purchase Kabir’s PlayStation at Rs 40,000. 2 days before the contract was executed, Kabir broke his PlayStation while playing games.
Explanation: A contract of sale is void when it is not a valid contract. The object of the contract was destroyed and ceased to exist. Therefore, the contract of sale is void.
Contract of bailment
The contract of bailment is defined under Section 148 of the Indian Contract Act, 1872. A contract of bailment is a delivery of goods from one person to another for a specific purpose, as soon as the purpose is achieved the goods need to be returned to the owner. The person who delivers property for bailment is known as bailer and the person to whom property is delivered is known as bailee. In the contract of bailment, the possession of the property changes from one person to another but the ownership is vested to the owner of the property. Sometimes, the bailer needs to pay nominal charges to the bailee for keeping the bailer’s property and ensuring the safety of the goods in the possession of the bailee.
In the contract of bailment, the bailer loses control over the property for a specific period when the property is under the possession of the bailee. The owner of the property shall not be entitled to use his property which is delivered to another person for the bailment. The bailee has the right to use the bailer’s property according to the instructions given by the bailer.
Bailer and bailee are bound by certain rights and duties toward each other under the contract of bailment. These rights and duties ensure the safety of the goods subject to bailment and safeguard the interest of the bailee.
Rights and Duties of Bailer
- The bailer is bound to disclose the facts about the property which subjected to bailment. It includes disclosing faults in the goods and instructions to use the goods.
- The bailer has the right to reclaim his property after accomplishing the purpose for which the property is bailed.
- The bailer is responsible for all the losses that occurred to the bailee which might be sustained by the bailee if the bailer discloses the facts about the property.
Rights and duties of bailee
- Bailee must treat the bailed property with reasonable care.
- Bailee is bound to return the goods after accomplishing the purpose of bailment.
1) Arnav went to a watch repair shop and gave his watch to B for repair. After a few days, Arnav returns and asks for his watch. The watch got repaired and checked by A but A declined to pay the repairing charges. B kept A’s watch and ask him to pay the money. A steal the watch from the shop. A is liable for theft as he stole the watch from the authorized possession of B without paying his dues.
Explanation: Possession and ownership are different. In the above illustration, the owner of the property is liable for theft because the possession was given to B for repair and A is not authorized to use the property. Therefore, an owner of a property is liable for theft if they stole their property from the possession of others.
2) Aman delivers his car to Vinod for 2 months and borrowed Rs 1 lakh from Vinod. Aman gave one key to Vinod and kept the second key with him. After 2 days, Aman came to Vinod’s house and without informing Vinod took his car. Aman is liable for breach of contract of bailment.
Explanation: Aman is the owner of the car but he is not entitled to use the bailed property.
Essential ingredients required for the contract of bailment
- A valid contract.
- Delivery of property for a specific purpose.
- The possession of the goods changes but ownership remains the same.
- The delivered property needs to be returned to the owner.
Types of a contract of bailment
There are three types of bailment in Indian Contract Act, 1872 namely deposit, hire, and pledge.
1. Deposit: It is a contract of bailment when one person delivers property to another person for a specific time for specific use.
2. Hire: It is a contract of bailment when goods and services were hired from one person to another at a certain price for a specific period.
3. Pledge: It is a contract of bailment when property delivers from one person to another in the form of security for money borrowed. In case of insolvency of the person who borrowed money, the pledged property acts as a security and recovered the borrowed money by selling it. It is also known as a pawn.
Difference Between Sale And bailment
As we have discussed the contract of sale and the contract of bailment above, there are some difference between sale and bailment. The most common differences between sale and bailment are as follows:
|Contract of sale||Contract of bailment|
|Transfer of ownership and possession.||Transfer of possession|
|The buyer has complete control over the use of the purchased property||Bailee needs to use the property according to the instructions given by the bailer.|
|The buyer pays the price for the goods||The goods are required to return to the bailer after the specified period after accomplishing the purpose of bailment.|
|The buyer holds the ownership of the property until he sells the property to another person.||The bailer is not entitled to use the bailed property until the purpose of bailment is achieved.|
The objective of today’s article is to offer better insight into the contract of sale and the contract of bailment. We have seen the legal definition of sale and bailment, essential conditions to form a valid contract for sale and bailment with illustration, type of bailment, and the difference between the contract of sale and bailment. It is important to note that both contracts deal with the transfer of properties. One deals with the transfer of ownership, whereas the other deal with the change of possession, but the ownership remains with the actual owner of the property.
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