Topic 1: ESSENTIAL OF CONTRACT OF SALE

ESSENTIALS OF VALID SALE

INTRODUCTION:

The Sale of Goods Act 1930 deals
with the law relating to sale of goods in India. The term ‘Goods means every
kind of movable property, other than money and actionable claims.

The Sale of Goods Act, 1930 is
mainly based on the English sale of goods Act, 1893. Earlier the Sale of Goods Act, 1930 was covered under the Chapter VII of Indian Contract Act, 1872, the provision of which were found to be inadequate. Therefore, a strong need was felt to have an independent Sale of Goods Act and consequently a new act called Sale of Goods Act 1930 was passed.

CONTRACT OF SALE:

According to Section 4 of the Sale
of Goods Act, “a contract of sale of goods is a contract whereby the seller
transfers t agrees to transfer the property in goods to buyer for a price.”

A contract of sale consists of the
following:
1. Sale or Absolute Sale
2. Agreement to sell or Conditional Sale.

1. Sale or Absolute sale: When the ownership rights of goods are immediately transferred by the seller t the buyer, it is a contract of sale or absolute sale.
2. Agreement to sell or conditional sale: When the seller agrees to transfer the property or ownership rights to buyer in FUTURE upon the fulfilment of certain conditions, it is an agreement to sale or conditional sale.
For example: A sale at the counter of a shop is an absolute sale or a contract of a sale as the property in goods transfers immediately upon the sale of goods.
A customer who picks up goods in a self-service shop is merely offering to buy them and the sale is not complete until they are paid for.

Essentials of Contract of Sale: To constitute a valid contract to
sale, the following essentials must be present:

1. A Valid Contract: A contract of sale is just like any other contract made under Indian Contract Act 1872. Therefore, to constitute a valid contract of sale, it should satisfy all the essentials of valid contract under section 10 of Indian Contract Act.

2. Two parties: To constitute a contract of sale, there must be a transfer or agreement to transfer the property in goods by the seller to the buyer. It means that there must be two persons, one the seller and the other is buyer. The seller and the buyer must be two different persons, for a man cannot purchase his own goods. (except in case of sale by auction).

For example: A partnership firm was dissolved and the surplus assets including some goods were divided among the partners. The Tax officer wanted to tax this as a sale. The court held that it was not a sale as the partners were themselves joint owners of the goods and they could not be both sellers and buyers. Moreover, no money consideration was passed. (state of Gujarat v. s Raman Lal & co. AIR 1965).

3. Agreement for the transfer of ownership: To constitute a valid contract of sale, there should be immediate transfer or an agreement to transfer the general property in goods from the seller to the buyer with or without physical possession of the goods.

4. Goods: The subject-matter of the contract of sale must be ‘goods’, the property in which is to be transferred from the seller to the buyer. According to Sec. 2(7), “Goods means every kind of immovable property other than actionable claims and money.” Money, actionable claims and immovable property are excluded from the definition of goods.

For example: Trees were sold so that they were to be cut out and separated from land and taken away by the buyer. The contract was of sale of tress as moveable goods.

5. Price: 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. 

For example: A refrigerator company supplies a new refrigerator of Rs. 9000 in exchange of old refrigerator and Rs 6000 in cash. It is a sale under the Sale of Goods Act.