ESSENTIALS OF A CONTRACT OF SALE
A Contract of Sale is an agreement for the exchange of goods, services, or property, between the seller and the buyer, for a promised or paid value, usually money. For there to be a valid contract of sale, there are essential elements must be present and if these essential elements are not present in the contract of sale, it would render a contract of sale invalid.
Section 4(1) of the Sale of Goods Act defines the contract of the sale as – a contract of the sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to a buyer for a price.
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 can be a contract of sale between one part-owner and another.
In other words, under a contract of sale, a seller (or vendor) in the capacity of the owner, or part-owner of the goods, transfers or agrees to transfer the ownership in goods to the buyer (or purchaser) for an agreed upon value in money (or money equivalent), called the price, paid or the promise to pay same. For there to be a valid contract of sale, there are several essential elements which must be in place and these essential elements would be explained below.
In a contract for sale of goods, there must be two parties present; the buyer and the seller. The parties do not necessarily have to be two single individuals; it could be two corporations with one as the buyer and the other as the seller.
A contract of sale of goods is bilateral in nature wherein property in the goods has to pass from one party to another. One cannot buy one’s own goods. For example, X is the owner of a bakery. If she supplies the goods (from the stock meant for sale) to his family, it does not amount to a sale and there is no contract of sale. This is so because the seller and buyer must be two different parties, as one person cannot be both a seller as well as a buyer.
Another essential element in a contract of sale is the goods. The subject matter of a contract of sale must be goods. Every kind of movable property except actionable claims and money is regarded as ‘goods’. Contracts relating to services are not considered as contract of sale. Immovable property is governed by a separate statute, ‘Transfer of Property Act’.
Transfer of property in goods is also integral to a contract of sale. The term ‘property in goods’ means the ownership of the goods. In every contract of sale, there should be an agreement between the buyer and the seller for transfer of ownership. Here property means the general property in goods, and not merely a special property.
Thus, it is the general property, which is transferred under a contract of sale as distinguished from special property, which is transferred in case of pledge of goods, i.e., possession of goods is transferred to the pledgee or Pawnee while the ownership rights remain with the pledger. Thus, in a contract of sale there must be an absolute transfer of the ownership. It must be noted that the physical delivery of goods is not essential for transferring the ownership.
The buyer must pay some price for goods. The term ‘price’ is the money consideration for a sale of goods’. Accordingly, consideration in a contract of sale has necessarily to be in money. Where goods are offered as consideration for goods, it will not amount to sale, but it will be called barter or exchange, which was prevalent in ancient times.
Similarly, if a person offers the goods to somebody else without consideration, it amounts to a gift or charity and not sale. In explicit terms, goods must be sold for a definite amount of money, called the price. However, the consideration can be partly in money and partly in valued up goods. Furthermore, payment is not necessary at the time of making the contract of sale.
A contract of sale is a special type of contract, therefore, to be valid, it must have all the essential elements of a valid contract, that is, consent, consideration, competency of contracting parties, lawful object, legal formalities to be completed, etc. A contract of sale will be invalid if important elements are missing.
For instance, if X agreed to sell his house to Y because Y forced him to do so by means of undue influence, this contract of sale is not valid since there is no free consent on the part of the transferor. Therefore, where all the elements essential for a valid contract of sale have been met, a valid contract of sale has then come into being.
WRITTEN BY: CHAMAN LAW FIRM TEAM
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