Brief Notes on Different Types of Contracts (Sale, Hire, Purchase, Installment, Bailment)

Sale and Hire-Purchase:

In a sale, the property is transferred to the buyer; he can deal with the property as he likes and the transferee of the purchase gets a good title even if the price is unpaid. But in a hire-purchase agreement, the purchaser does not become owner till the full price is paid and therefore, a person who has not paid the full price, gets no title.

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In a Bombay case it has been laid down that (i) if the purchaser has no option of terminating the agreement by returning the goods, the transaction is a sale and not hire-purchase agreement and (ii) the transaction is hire-purchase agreement only if the buyer has the option of returning the goods.

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Hire-purchase and Installment Sale:


There are differences between a hire-purchase agreement and an installment sale. In the former, a sale is concluded after the total price and the hire charges are completely paid. The purchaser is not entitled to transfer the goods until the terms of the agreement are fully carried out. In the latter, (installment sale) the purchaser becomes the owner of specific goods immediately, although the total price is to be paid in a number of installments.

Sale and Bailment:

Bailment does not change the ownership of the goods. A sale involves transfer of ownership.

In a bailment, the party delivering the goods is entitled to get back what he has delivered. In a sale the seller gets the price and there is no question of returning of goods.

Sale and Contract for Work and Labour:

A contract of sale may be distinguished from a contract for work and labour. A contract of sale of goods contemplates the delivery of movable goods; but if in substance the contract is one for the exercise of skill, it is a contract for work and labour.


“A contract of sale is a contract whose main object is the transfer of the property in and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour.”

The distinction between the two types of contracts is of importance in England but not in India, except for taxation purposes.


(i) A dentist agreed to make a set of artificial teeth to fit the mouth of a customer. Held, it is contract for the sale of goods.


(ii) G engaged an artist to paint a portrait and supplied the canvas and paint. Held, it is a contract for work and labour and not one for the sale of goods.

(iii) V entered into three contracts with Western Railway for construction of railway coaches on the under-frames supplied by the Railway. Labour and materials were supplied by V. Held, under the Bombay Sales Tax Act of 1953; the contracts were works contracts and not a sale.

(iv) The Railway Board entered into a contract with a company for the manufacture and sale of wagons to the Union of India by the company. Even though some advance was taken from the Railway Board, the bulk of the material used in the construction belonged to the manufacturer who sold the end product for a price. Held, the contract was not one for work and labour but one for sale. Union of India v. The Central India Machinery Manufacturing Co. Ltd and others.


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