Short notes on the Essentials of a Contract of Sale

Section 4(1) of the Sale of Goods Act defines a contract of sale of goods as – “a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.”

This definition reveals the following essential characteristics of contract of sale of goods :

1. Two parties:

The first essential is that there must be two distinct parties to a contract of sale, viz.., a buyer and a seller, as a person cannot buy his own goods. Thus, for example, when students of a hostel take meals with a mess run by themselves on cooperative lines, there is no contract of sale. The students are ‘undivided joint owners’ of the meals they are consuming. As a matter of fact, every member of the mess is consuming his own goods on the basis of understanding that he must restore to the mess what he consumed so that the mess continues to provide meals for its members.

An ‘undivided joint owner’ must be distinguished from a ‘part owner’ who is a joint owner with divisible share. 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 the sole owner of the goods. Similarly, a partner may buy the goods from the firm in which he is a partner and vice-versa. There is, however, one exceptional case when a person may buy his own goods. Where a person’s goods are sold in execution of a decree, he may himself buy them, so as to save them from a transfer of ownership to someone else (Moore vs Singer Manufacturing Co.)

2. Transfer of property:

‘Property’ here means ownership. Transfer of property in the goods is another essential of a contract of sale of goods. 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. Further, the term ‘property’, as used in the Sale of Goods Act, means ‘general property’ in goods as distinguished from ‘special property’ [Sec. 2(11)]. If P who owns certain goods, pledges them to R, he has general property in the goods, whereas R (the Pawnee) has special property or interest in the goods to the extent of the amount of advance he has made to the pawnor. Similarly, in the case of bailment of goods for the purpose of repair, the bailee has special interest in goods bailed to the extent of his labour charges.

3. Goods:

The subject-matter of the contract of sale must be ‘goods’, According to Section 2(7), “goods means every kind of movable property other than actionable claim 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.”

Thus every kind of movable property except actionable claim and money is regarded as ‘goods’. Goodwill, trade marks, copyrights, patents right, water, gas, electricity, decree of a court of law, are all regarded as goods. Shares and stock are also included in goods. With regard to growing crops, grass and things attached to or forming part of the land, such things are regarded as goods as soon as they are agreed to be separated from the land.

Thus where trees were sold so that they could be cut out and separated from the land and then taken away by the buyer, it was held that there was a contract for sale of movable property or goods (Kursell vs. Timber Operators & Contractors Ltd.). But contracts for sale of things ‘forming part of the land itself are not contracts for sale of goods. For example, a contract for the sale of the coal mine or building stone quarry is not a contract of sale of goods.

‘Actionable claims’ means claims which can be enforced by a legal action or a suit, e.g., a book debt (i.e., a debt evidence by an entry by the creditor in his Account Book or Bahi). A book debt is not goods because it can only be assigned as per the Transfer of Property Act but cannot be sold. Similarly, a bill of exchange or a promissory note represents a debt, i.e., an actionable claim and implies the right of the creditor to recover its amount from the debtor. But since these can be transferred under Negotiable Instruments Act by mere delivery or endorsement and delivery, such instruments cannot be sold.

‘Money’ means current money. It is not regarded as 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.

It may be mentioned that sale of immovable property is governed by the Transfer of Property Act,

Price:

The consideration for a contract of sale must be money consideration called the price. If goods are sold or exchanged for other goods, the transaction is barter, governed by the Transfer of Property Act and not a sale of goods under this Act. But if goods are sold partly for goods and partly for money, the contract is one of sale (Aldridge vs Johnson).

4. Includes both a ‘sale’ and ‘an agreement to sell:

‘The term contract of sale is a generic term and includes both a sale and an agreement to sell [as is clear from the definition of the term as per Section 4(1) given earlier.

Sale :

Where under a contract of sale, the property in the goods is immediately transferred at the time of making the contract from the seller to the buyer, the contract is called a ‘sale’ [Sec. 4(3)]. It refers to an absolute sale, e.g., an outright sale on a counter in a shop. There is immediate conveyance of the ownership and mostly of the subject-matter of the sale as well (delivery may also be given in future). It is an executed contract.

An agreement to sell:

Where under a contract of sale, the transfer of property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called ‘an agreement to sell’ [Sec. 4(3)]. It is an executory contract and refers to a conditional sale.

Illustration :

(a) On 1st January, A agrees with B that he will sell B his scooter on 15 January for a sum of Rs. 3,000. It is an agreement to sell, since A agrees to transfer the ownership of the scooter to B at a future time.

(b) A agrees to purchase B’s car for Rs. 50000, provided B stands surety for him with C. It is an agreement to sell for B. It becomes a sale when the condition is fulfilled by B.

(c) B agrees to buy A’s car for Rs. 30,000 and pay for it, if his solicitor approves. It is an agreement to sell for A and an agreement to buy for B.

(d) A buys some furniture for Rs. 2,000 and agrees to pay for that in two monthly installments, the ownership to pass to him on the payment of second installment. There is an agreement to sell for the furniture dealer.

‘An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled, subject to which the property in the goods is to be transferred [Sec. 4 (4)].

6. No formalities to be observed (Sec. 5):

The sale of Goods Act does not prescribe any particular form to constitute a valid contract of sale. A contract of sale of goods can be made by mere offer and acceptance. The offer may be made either by the seller or the buyer and the same must be accepted by the other. Neither payment nor delivery is necessary at the time of making the contract of sale. Further, such a contract may be made either orally or in writing or partly orally and partly in writing or may be even implied from the conduct of the parties. Where articles are exhibited for sale and a customer picks up one and the sales assistant packs the same for him, there has resulted a contract of sale of goods by the conduct of the parties.