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CSEET · Business Laws and Management · Elements of Law relating to Sale of Goods

Arvind transfers his scooter to Bhanu under a document in the form of a sale, but both intend it only to secure a loan of Rs 40,000 from Bhanu. Which statement is correct?

The Act's provisions on contracts of sale do not apply. A transaction that merely takes the form of a sale but is intended to operate as a mortgage, pledge, charge or other security is excluded, so the real intention governs, not the written form.

  1. AThe provisions of the Act relating to contracts of sale do not apply, as the transaction is intended to operate by way of securityCorrect
  2. BThe transaction is a contract of sale under the Act regardless of intention
  3. CThe transaction is a contract of sale only if the loan is repaid
  4. DThe transaction is a contract of sale because it is in written form

Explanation

Section 66(3) says the Act's provisions on contracts of sale do not apply to a transaction in the form of a sale that is intended to operate by way of mortgage, pledge, charge or other security. Form does not decide; intention does. Hence the written form and the intention-ignoring options are wrong.

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