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ESSENTIALS AND MODE OF MAKING A CONTRACT FOR SALE

Updated: Nov 10, 2020

By Sandeep Harish B, III year B.A.,LL.B.


Introduction

Most of the commercial contracts involve the sale of goods from one person called the seller to another person called a buyer or purchaser. The law regulating the sale of goods is contained in the sale of goods act, 1930. Section 4 of the Sale of Goods Act, 1930 provides a contract of sale of goods. It is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. In the term contract of the sale includes both a sale and an agreement to sell.

Essentials of a contract of sale

The following are the essential elements to constitute a contract for the sale of goods these are

1. A contract

2. Two parties

3. Goods

4. Transfer of property in goods

5. Price

A contract

A contract of sale is a different type of contract. All the essentials of a valid contract must be present in a contract for sale. As per section 10 of the Contract Act, a contract of sale must also have free consent, the capacity of the parties, lawful consideration, and lawful object not declared as void by law, etc. Thus, if there is no consideration in a contract of sale, then it is treated as not a contract of sale but as a gift.

Two parties

The seller and the buyer must be two different persons. This is based on the principle that a person cannot be the buyer of his own goods. There are however certain exceptions to the general rule that a person cannot be the buyer of his own goods. A person may buy his own goods in the following circumstances

· Auction sale

· Execution of a decree

· Between part owners

State of Gujarat vs. Ramanlal S and Co.[i], on the dissolution of a firm, the assets of the firm was divided among the partners. The court held that it was not a sale as the partners being the joint owners of those assets cannot be both sellers and buyers.

Goods

The subject matter of the contract of sale must always be ‘goods’ as defined in section 2(7) of the act. The goods may either be existing or future goods and must be movable.

Transfer of property in goods

The transfer of property in goods is, in fact, the essence of a contract of sale. Thus, a mere transfer of goods by the owner from one place to another cannot amount to sale. The transfer of passing of the property is a test to determine whether there was a sale or an agreement to sell between the seller and the buyer.

Price

It is a general rule that an agreement without consideration is void. In a contract of sale, the consideration is in terms of money. This consideration of money in a contract of sale distinguishes it from bailment. U.P. Co-operative Cane Unions Federation vs. West U.P. Sugar Mills Association[ii] the sugar factories in U.P. were compelled to enter into sale agreements for prices fixed by the state government which were above the minimum prices fixed by the central government under the regulation of Quota – U.P. Act, which was not acceptable to them. The Supreme Court held that compulsory sale under a legislative act does not lose the character of a sale.

Modes of making a contract of sale

A contract of sale must follow the followings modes:

· For a contract of sale. No particular form is necessary.

· Like any other contract, a contract if the sale is made by an offer (to buy or sell goods) by one party and its acceptance (to sell or buy goods respectively) by the other party.

· The contract of sale was made by word of mouth or by writing or partly in writing and partly by word of mouth.

· The contract of sale may also be implied from the conduct of the parties or the dealings between the parties.

· There may be immediate delivery of the goods.

· There may be immediate payment of the price, but it may be agreed that the delivery is to be made at some future date.

· There may be immediate delivery of the goods and also immediate payment of the price.

· It may agree the payment or delivery or both are to be made in particular instalments.

· It may be agreed that the delivery or payment or both be made on some future agreed date.

Conclusion

Every contract of sale of goods must be followed by the sale of goods act, 1930. This Act is clearly a list of the essentials and modes of making a contract of sale. It is necessary to use the sale of goods.

[i] AIR 1965 Guj 60 [ii] (2003) 9 SCC 168