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Home Contract CONTRACT OF SALE AND ITS ESSENTIAL CONDITIONS

CONTRACT OF SALE

Contract of sale is simply an agreement between a buyer and a seller for the exchange of goods or property. Section 4(1) defines a contract of sale as- A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.

ESSENTIAL CONDITIONS

There are basically 5 essential conditions:

  • Two parties
  • Goods
  • Price
  • Transfer of ownership
  • Essential elements of a valid contract

TWO PARTIES

There must be 2 parties for carrying out an agreement that is buyer and seller to effect a contract and they must be competent enough to make contract. ‘Buyer’ according to section 2(1) is a person who buys or agrees to buy goods. ‘Seller’ according to Section 13 is a person who sells or agrees to sell goods.In a contract of sale, the ownership of goods has to pass from one person to another. Hence the seller and the buyer must be different persons because one person cannot be both the buyer and the seller.

For example, Ram and sham were partners. After some years, the firm was dissolved. On the dissolution, some goods were divided among all the partners. Such a distribution of goods among the partners was not a sale.

GOODS

There must be some goods to agree upon to conclude the agreement which needs to be transferred from seller to buyer to constitute a valid contract.Goods must be one which is defined as goods in Sec. 2(7) of the Sale of Goods Act. As per the definition given in Sec. 2(7) of the Act, goods means every kind of movable property.

For e.g., Ram agreed to sell to Sham, wheat crops which is grown in his field. Ram and Sham agreed that Sham may cut the crop and take it away upon the payment of the price. As the growing crop is included in the term “goods”, this is a valid contract of sale

PRICE

There must be some price to conclude the agreement. According to Sec. 2(10) of the Sale of Goods Act, the term price means “the money consideration for a sale of goods“. The most important essential for the enforceability of the Contract of Sale of goods is the price. The price can be termed equivalent to the consideration. In the absence of such price or consideration, the transfer cannot be termed as a sale. The transfer by way of the sale must be in exchange for a price. The payment of the price can be made in two modes:

  1. Paid fully in cash; or
  2. Paid partly and rest promised to be paid partly in future.

The price can be determined through an instrument of agreement between the parties before the conveyance (transfer) of the property. or e.g., A delivered to B  10 cows valued at Rs.2,000 per cow. B delivered to A 20 bags of rice at Rs.750 per bag and paid the balance of Rs.5,000 in cash in exchange of the cows. This is a valid contract of sale.

TRANSFER OF OWNERSHIP

In a contract of sale, ownership over goods has to be transferred to the buyer by the seller or there should be an agreement to transfer the ownership by the seller to the buyer. There are two types of property on the basis of its nature, i.e., general property and special property. The subject-matter of the contract of Sale of Goods deals with the special property. For the enforceability of such a contract, there must be a transfer of special property from the seller to the buyer.

For e.g., if A owns certain goods he has general property in the goods. If he pledges them with B, B has a special property in the goods.

ESSENTIALS OF VALID CONTRACT

All essential elements of a valid contract must be present in the contract of the sale, i.e.,

  • An offer,
  • An acceptance,
  • An intention to create a legal relationship, and
  • A consideration

REFERENCES

Elements of a Valid Sale or a Contract of Sale

Important clauses in a contract of sale

Conditions and Warranties under the Sale of Goods Act

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