A contract of sales of goods is a contract whereby the sellers transfers or agrees to transfer the property in goods to the buyer for a price. Under Section 4(1) of the Sale of Goods Act, 1930 a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. The essentials of contract of sale are as follows:
Two parties Buyer and Seller:
To constitute a contract there must be two parties, viz., a buyer and a seller, as a person cannot buy his own goods. According to Section 2(1) of the Act, “buyer” means a person who buys or agrees to buy goods and according to Section 2(13) of the Act, “seller” means a person who sells or agrees to sell goods.
According to Section 4(1), there may be a contract of sale between one part-owner and another, e.g., if A and B jointly own a typewriter, A may sell his ownership in the typewriter to B, thereby making B sole owner of the goods.
In State of Gujarat v Raman Lal S & Co, AIR 1965 Guj 60 case, where a partnership firm was dissolved and the surplus assets; including the stock in trade, were divided among the partners, in spite. The Court held that it was not a sale as the partners themselves were the joint owners of the goods and they could not be both sellers and buyers.
There are certain other exceptions to the rule that the same person cannot be both a purchaser and a seller. These are:
- A part owner can sell his share to the other part owner so as to make the other part owner the sole owner of the goods.
- A partner may also buy the goods from the firm in which he is a partner and vice versa.
- Where a pawnee sells the goods pledged with him on non-payment of bill money, the pawnor may himself buy such goods.
- In case there is a sale by auction, the seller may reserve right of making a bid at the auction and may thus purchase his own goods.
Goods:
According to Section 2(7) of the Act, “goods” means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
According to the definition the term “goods” includes:-
- All types of movable property except money and actionable claims
- All kinds of stocks, share, timber, grass, growing crops.
- It also includes things attached to the land or forming a part of the land subject to severed before its sale.
Thus every kind of movable property except actionable claim and money is regarded as goods. Goodwill, trade-marks, patents right, copyrights, electricity, water, gas, decree of a court of law, shares and stocks are all regarded as goods. Money is not regarded goods because it is the medium of exchange through which goods can be bought. Old and rare coins, however, may be treated as goods and sold as such.
Transfer of property:
According to Section 2(11) of the Act, “property” means the general property in goods, and not merely a special property.
A mere transfer of possession of the goods cannot be termed as sale. To constitute a contract of sale the seller must either transfer or agree to transfer the property in the goods to the buyer for price in money.
In Draper & Sons Ltd. v. Edward Turner & Sons Ltd., 1965 I QB 424 case, the Court held that the word “Sale” properly connotes the transfer of absolute or general property in a thing, for a price in money.
In Pharmaceutical Society of Great Britain v. Boots, 1952 ALL E.R. 456 case, the Court held that where a customer who picks up goods in self-service shop is merely offering to buy them, and the sale is not complete untill they are paid for.
Price:
According to Section 2(10) of the Act, “price” means the money consideration for a sale of goods.
To constitute a valid contract of sale, consideration for transfer must be money paid or promised. Where there is no money consideration the transaction is not a contract of sale, as for instance goods given in exchange for goods or as remuneration for work or labour.
Valid Contract:
All Essential elements of a valid contract must be fulfilled. It presumes free consent on the part of the parties who should be competent to contract. There should be consideration. The essentials of valid contract are
- Proposal and Acceptance
- Free consent
- Capacity to contract
- Intention to create legal relationship
- Intent of legal obligation
- Possibility of performance
- Legal consideration
Includes Both Sale and Agreement to Sale:
Where the seller transfer the property in the goods immediately to the buyer is a sale. But where the transfer of the property in the goods is to take place in a future time a subject to some conditions thereafter to be fulfilled, the contract is called an agreement to sell. An agreement to sell becomes a sale when the time passed as the conditions are fulfilled subject to which the property in the goods is to be transferred.
Distinguishing Sale and Agreement of Sale:
| Sale | Agreement to Sale |
| It is an executed contract. | It is an executory contract. |
| Property in goods are transferred from seller to buyer when the contract is made. | Transfer of property in goods takes place at some future date |
| Seller cannot resell the goods as the property is with the buyer | Seller can further resell the goods as the property in good remains with him. |
| Risks passes to the buyer, as he becomes the owner. | Risks is with the seller as he remains the owner. |
| Breach on part of buyer, seller can sue for the price and damages both. | Breach on part of buyer, seller can sue for damages only and not for the price. |
| In this, if goods are destroyed then loss will be of Buyer. | In this, if goods are destroyed by accident, loss will fall on seller. |
| Sale is contract plus conveyance. | It is pure and simple agreement. |
Conclusion:
A contract of sales of goods is a contract whereby the sellers transfers or agrees to transfer the property in goods to the buyer for a price. Where the seller transfer the property in the goods immediately to the buyer is a sale. But where the transfer of the property in the goods is to take place in a future time a subject to some conditions thereafter to be fulfilled, the contract is called an agreement to sell. A valid contract of sale must contain all its essential ingredients.