Introduction: Sale of Goods Act | Law of Contracts - CLAT PG PDF Download

Contract of Sale of Goods

• A contract of goods involves the transfer of property in goods from the seller to the buyer for a price. It can occur between part-owners as well.
• Contracts of sale can be absolute or conditional.

 Sale vs. Agreement to Sell 

• When the property in the goods is transferred immediately from the seller to the buyer, it is called a 'sale.'
• If the transfer is set for a future time or dependent on certain conditions, it is referred to as an 'agreement to sell.'

An agreement to sell transitions into a sale when the specified time passes or the conditions are met.

Definition of Sale 

According to Section 4 of the Sales of Goods Act, 1930, a sale of goods is defined as a contract where the seller transfers or agrees to transfer the ownership of goods to the buyer in exchange for a price. The term 'contract of sale' encompasses both a sale and an agreement to sell.

• A contract of sale is formed when one party makes an offer to buy or sell goods at a specified price, and the other party accepts that offer. This contract can be established either verbally or in writing. Additionally, a contract of sale can be unconditional or subject to certain conditions.

Formalities of a Contract of Sale 

Section 5 of the Sales of Goods Act outlines three essential steps or formalities involved in a contract of sale:

•  Offer and Acceptance:  A contract of sale is initiated through an offer to buy or sell goods at a specified price, followed by the acceptance of that offer.
•  Delivery and Payment:  It is not mandatory for the payment to the seller and the delivery of goods to the buyer to occur simultaneously. These actions can take place at different times or in installments, as stipulated in the contract.
•  Express or Implied:  The contract can be expressed in writing, orally, or implied. It may also consist of both written and oral elements.

Essential Features of a Contract of Sale 

A contract of sale is a legal agreement between a seller and a buyer for the transfer of goods. It is governed by specific features that ensure its validity and enforceability. Below are the essential features of a contract of sale:

1. Two Parties 

•  Buyer  : A person who buys or agrees to buy goods.
•  Seller  : A person who sells or agrees to sell goods.
• The contract must involve two distinct parties, each capable of entering into a contract.
•  Example  : A person purchasing a smartphone from a retail store.

2. Subject Matter to be Goods 

• The subject matter of the contract must be goods, which are defined as movable property.
• Immovable property cannot be the subject of a contract of sale.
•  Example  : Selling a car, which is a movable good.

3. Transfer of Ownership of Goods 

• The contract involves the transfer or agreement to transfer ownership (property) in the goods from the seller to the buyer.
•  Example  : When a customer buys a laptop, ownership of the laptop is transferred from the seller to the buyer.

4. Consideration is Price 

• The transfer of ownership in the goods is for consideration known as 'price'.
•  Example  : The price paid by the buyer for the goods, such as the cost of a television purchased from a store.

5. Essential Elements of a Valid Contract 

• The contract must include essential elements such as agreement between competent parties, free consent, and legal object.
•  Example  : Both parties must agree to the terms of the sale without any coercion or undue influence.

Compliance with the Sale of Goods Act 

The transfer of title in goods, such as a car, is governed by the  Sale of Goods Act  rather than the  Motor Vehicles Act, 1939  .

Transfer of General Property 

•  General Property  : When a person owns goods outright, they have general property in those goods. For example, if A owns a car, A has general property in the car.
•  Special Property  : Special property arises when goods are owned in a limited capacity. For instance, if A pledges the car to B as security for a loan, B has special property in the car, even though A remains the legal owner.

Understanding the distinction between general and special property is essential in legal transactions involving goods, as it determines the rights and responsibilities of the parties involved.

Valuation by a Third Party 

• One of the methods for determining the price in a contract may involve a  third-party valuation  .
• If the third party responsible for making the valuation  fails to do so  , the agreement is considered  void  .

Perishing of Goods

• Sections  7 and 8  of the Sale of Goods Act address the impact of the  perishing of goods  on the rights and obligations of parties involved in a contract of sale.
•  Perishing  is not limited to physical destruction; it also includes scenarios where goods lose their merchantable character, such as when goods are damaged and become unsaleable.

Examples of Perishing of Goods: 

• Goods damaged by water, rendering them unsaleable (e.g.,  wood  turning into  stone  ).
• Goods lost due to theft, as in the case of  Barrow Ltd. vs. Phillips Ltd. 
• Goods requisitioned by the government, as in the case of  Re Shipton, Anderson & Co. 

Effect of Perishing Goods on Contract of Sale 

•  Specific Goods:  When specific and identified goods perish, it affects the contract of sale. For example, if A agrees to sell B a specific car and that car is damaged beyond repair before the sale is completed, the contract is void.
•  Unascertained Goods:  If the goods in a contract are unascertained, their perishing does not impact the contract. The seller is still obligated to provide the goods, even if they have to source them from elsewhere.
• For instance, if A agrees to sell B ten bales of Egyptian cotton out of 100 bales stored in his godown, and all the bales in the godown are destroyed by fire, the contract remains valid.
• A is required to supply ten bales of cotton, either by purchasing them from the market or facing damages for breach of contract.