Contract of Sale of Goods: Meaning, Definition and Essentials

Almost every type of business somewhere or the other involves the sale and purchase of goods as part of its business operation. In some cases, sales and purchases are made to support the main business framework, and in some cases, sales and purchases are the main business. Businesses often enter into a contract of sale to sell their commodities to other parties. The Sale of Goods Act, 1930 is an umbrella act that governs all forms of sales. A sale is a general contract wherein the seller or owner of particular goods transfers or agrees to transfer the goods to a buyer at an agreed price. The Sale of Goods Act has been codified and made as a separate enactment to contain the provisions relating to the sale of goods, as this was earlier contained under the provisions of Sections 76 to 123 of the Indian Contract Act, 1872. As per Section 2 of the Sale of Goods Act, 1930 “A contract of sale is a term that includes both sale and agreement to sell and is characterized by an offer to buy goods for a price or an offer to sell goods for a price, and acceptance of the offer.”

Geeky Takeaways:

• Every individual, whether a businessman or a common man, who deals in the transaction of goods regularly, must understand the important terms of the Sale of Goods Act, 1930.
• India is one of the largest economies that has adequate measures to ensure the safety of its business.
• The sale of commodities is one of the most important types of contract under the law in India.
• This act was passed because the provisions of the contract act were found to be inadequate to deal with new situations that were arising due to an increase in mercantile situations.

What is a Contract of Sale of Goods?

According to the provision of Section 4(1) of the Sale of Goods Act, 1930, a Contract of Sale of Goods is “A contract where the seller transfers or agrees to transfer the property in goods to the buyer for a price.” A contract of sale can also be established between one part-owner and another. Sales of Goods Act, 1930 also specifies that a contract of sale may be either absolute or conditional.

According to the provisions of Section 4(3) of the Sale of Goods Act, 1930; Sale means “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.” It refers to an Absolute Sale.

According to the provisions of Section 4(3) of the Sale of Goods Act, 1930 “An agreement to sell is when the transfer of the property in the goods is agreed to take place at a future time, or it is to take place with subject to fulfillment of some condition.”

Essentials of a Contract of Sale

1. Two Parties: There must be at least two parties to constitute a valid contract of sale, where the seller and the buyer must be different persons. In a contract of sale, one person can’t hold the identity of both the seller and the buyer and in no condition shall sell his goods to himself.

2. Contract of Movable Goods: The subject matter of the contract of sale must be a movable property. Goods can either be existing goods, owned or possessed by the seller, or future goods. For immovable goods, provisions of the Transfer of Property Act are to be followed.

3. Contract for a Price: A price is the consideration that is being paid in exchange for the goods. Price in money should be paid or promised in a contract of sale. The price can’t be in kind in full. However, there is no restriction under the act for consideration being partly in money and partly in kind.

4. Transfer of Goods: Under a valid contract of sale, the transfer of property in goods from the seller to the buyer must necessarily take place. The goods that are to be transacted are required to be clearly defined and mentioned in the sale contract as per the act.

5. Offer and Acceptance: The contract of sale is made by an offer to buy or sell goods for a price by one of the parties; either buyer or seller, and the acceptance of such offer by the other party. A contract of sale can be either absolute or conditional.

6. Elements of a Valid Contract shall be Present: Under a sale contract all other essential elements of a valid contract shall be present; i.e., free consent of buyer and seller, competency of buyer and seller, legality of subject matter, etc.

For example, Vipin enquires with Raghav about purchasing 100 kg of tomatoes. Raghav stated the price of tomatoes at the rate of ₹15 per kg. Vipin enters into a contract with Raghav to purchase 100 kg of tomatoes at a price ₹15 per kg. Both agreed to the price and quantity. According to the contract, the tomatoes shall be delivered by Raghav to the warehouse of Vipin located in Rampur.

• Here, the contract is between two parties Raghav and Vipin. Both are two different parties.
• The offer is given by one party and acceptance is given by the other.
• The contract is for a movable good; i.e., tomatoes in this case.
• Contract is made for a price; i.e., ₹15 per kg in this case.
• Transfer of goods will take place as goods will be delivered from the place of Raghav to Vipin’s warehouse.

The above example is a valid contract of sale between Raghav and Vipin, as it fulfills all the essentials of a Contract of Sale.

Conclusion

Sale of Goods Act, 1930 is one of the specific laws formed to regulate the sale contracts and is recognized and regulated by law in India. A sale is a typical bargain between the buyer and the seller. The contracts related to the sale of goods only govern the movable properties. The act does not deal with the sale of immovable properties like land, fields, houses, etc. For immovable properties, provisions of the Transfer of Property Act, 1882 are applicable. Sale of Goods Act, 1930 deals only with movable properties. Sale of Goods Act, 1930 defines all the rights and duties of a seller and buyer and also discusses the concept of unpaid seller, types of goods, delivery, etc., which gives the stakeholder the understanding of the law and to understand their right and duties as per the act which makes sure that the contract they enter turns out to be beneficial for them.

Frequently Asked Questions (FAQs)

1. What is a Contract of Sale of Goods?

Answer:

A Contract of Sale of Goods is a contract where the seller transfers or agrees to transfer the goods to the buyer at an agreed price. A contract of sale can also be established between one part-owner and another.

2. What is an Agreement to Sell?

Answer:

According to Section 4(3) of the act, “An agreement to sell is when the transfer of the property in the goods is agreed to take place at a future time or it is to take place with subject to fulfilment of some condition.”

3. What are the essentials of the Sales of Goods Act?

Answer:

The essentials of the Sales of Goods Act include:

• Contract should be between two parties.
• There should be an offer and acceptance.
• Contract should be only for movable goods.
• Contract shall be made for a price.
• All elements of valid contract shall be present.
• Transfer of goods must take place.

4. Why Sale of Goods Act is important?

Answer:

The Sale of Goods Act is important as it helps to ensure that parties are aware of their duties and rights which gives them protection from any breach of contract or damage borne by him.

5. Give an example of a Contract of Sale in simple words.

Answer:

Aman purchases a table from Raman at a price of ₹5,000 after both agrees to the contract. After paying the price, Raman delivered the table to Aman. This is an example of a Contract of Sale.