Summary of Contract of Sale

Summary of Contract Of Sale

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.

The essentials to constitute such a contract are:

  • It is a contract between the two parties, one known as the seller and the other the buyer.
  • The Subject-matter of a contract is “goods”.
  • The seller should transfer or agree to transfer the property (ownership) in the goods to the buyer.
  • The transfer of property (ownership) in the goods from the seller to the buyer is for consideration known as “price”.

1. Contract Between The Seller And The Buyer:

It is a contract between a seller and a buyer. The Seller means a person who sells or agrees to sell and the buyer means a person who buys or agrees to buy the goods.

The seller and the buyer should be two different persons. Therefore, if a person purchases his own goods, it is not sale and another.

Contract Under Statutory Compulsion:

Sometimes a contract may not be entered into by the normal process of negotiation, but under a statutory compulsion. When the goods are supplied under a statutory compulsion whether that results in sale or not, is the question which has arisen in a number of cases.

2. Goods:

The subject-matter of a contract of sale of goods: Sec. 2(7) of the Act defines the same as under:

Goods means every kind of movable property other than actionable claims and money; and includes stock and share, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale of under the contract of sale.

Stock and Shares and growing crops, etc. Are goods

Certain things have been specifically included in the term “goods” by the Act. In includes

Stock and shares, growing crops, grass

Things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

In M/s Mukesh Kumar Aggrawal & Co. v. State of M.P., it has been held by the Supreme Court that the word timber should be understood in its common parlance, wood meant for building or carpentry, and therefore, stock of “Eucalyptus-wood” after separating “Ballies” and “Poles” is not timber for the purpose of levying Sales-tax.

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According to that provision, “immovable” property shall include land, benefits to arise out of land, and things attached to the earth, or permanently, fastened to anything attached to the earth. Section 3 of the Transfer of Property Act defines “attached to the earth”, which means

  • Rooted in the earth, as in the case of trees and shrubs
  • Imbedded in the earth, as in case of walls or buildings
  • Attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.

Electronic T.V. Signals are goods

It has been held in Jabalpur Cable Network Pvt.Ltd.v. E.S.P.N Software India Pvt.Ltd., electronic T.V. signals are in the form of energy just like electricity and are “goods” which can be the subject-matter of sale.

Supplying T.V. signals is sale of goods as defined in Section 2(7) of the sale of Goods Act. Such signals constitute movable property.

Railway Receipts:

Railway receipt issued to the consignor of goods is held to be a document of title to goods within the meaning of Section 2(4) of Sale of Goods Act, 1930.

As a result, the consignee or an endorsee of consignment was held entitled to action for delivery of consignment as also for damages occasioned on account of failure to perform the contract.

Lottery Tickets:

In H. Anraj v. Government of Tamil Nadu, it has been held by the Supreme Court that lottery tickets are goods (and no actionable claim) and, therefore, the levying of tax on the sale of lottery tickets would be valid as falling within the legislative competence of the concerned State Legislature.

In this case, it was observed that a sale of a lottery ticket confers two rights on the purchaser:

Firstly, a right to participate in the draw

Secondly, a right to claim the prize, if successful in the draw.

Fixed Deposit Receipt is goods

In State Bank of India

v. Smt. Neela Ashok Naik, it has been held that fixed deposit receipt is “goods”. It may be pledged as collateral security. If the bank loan is not repaid, the bank may retain it as a collateral security and file suit for recovery of loan.

Actionable Claims:

The transfer of actionable claims has been dealt with by Chapter VIII (sections 130 to 137) of the Transfer of Property Act, 1882, and, therefore, the transfer of the same has been specifically excluded by the sale of Goods Act.

Section 3 of the Transfer of Property Act defines actionable claim as under

“Actionable claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

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An actionable claim, therefore, means

  • Either,
  • Any unsecured debt
  • Any beneficial interest in  movable property, not in the possession of the claimant.

The transfer of “actionable claim” is to be made by “Assignment” under the Transfer of Property Act, 1882.

Money:

Money means the recognised currency in circulation, and for obvious reasons it is not subject-matter of sale of goods. Money constitutes consideration for the sale of goods, rather than itself being goods. Old and rare coins, however, are goods, and they can be sold or purchased  as such.

Different Kinds Of Goods:

Goods which form the subject-matter of any contract of sale can be classified into various catagories.

Existing or Future Goods:

According to Section 6(1), the goods may be either existing goods or future goods.

Existing goods are such goods as are owned or possessed by the seller at the time of making of contract.

According to Section 2(6), “future goods” means goods to be manufactured or produced or acquired by the seller after making of the contract of sale. An agreement to supply wheat which has yet to be grown, or watches which have yet to be manufactured or machinery which has to be imported, or cloth which has to be purchased from the market is a contract in respect of future goods.

Specific or Unascertained Goods:

According to Section 2(14), “Specific Goods” means those goods which have been identified and agreed upon at the time of contract of sale; if the exact thing which is the subject-matter of the contract is known to the parties, it is known as specific goods.

If the goods are not identified and agreed upon at the time of making of the contract, they are known as unascertained goods.

3. Transfer of Property (Ownership) in the Goods:

In every contract of sale there is  to be transfer of property in the goods from the seller to the buyer. According to the Sale of Goods Act, “property” means ‘general property’ in the goods rather than mere ‘special property’

4 Price:

Consideration for the contract of sale has to be ‘price’ According to Section 2(10), ‘price’ means the money consideration for a sale of goods. If the consideration is not in terms of money, it may be a contract other than that of sale.

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When goods are exchanged for goods, it is a contract of barter or exchange.

Modes Of Determination Of Price:

The Price is an essential element in every contract of sale of goods. The same may be fixed by one or the other of the following mode

  • It may be fixed by the contract itself. This is the most usual way of fixing the price.
  • When the parties make a contract of sale, they generally also make a mention of the price which has to be paid for the goods.
  • It may be fixed in accordance with an agreed manner. The parties may not themselves fix the price but may leave it to be determined according to the manner agreed.

Valuation by a third party:

It has been noted above that one of the modes of determination of the price may be by the valuation being made by a third party.

Section 10(1) provides that if a third party who is supposed to make valuation cannot or does not make such valuation, the agreement is thereby avoided.

However, in such a case, if the buyer has already received the goods or part thereof and appropriated them, he is bound to pay reasonable price for the same.

Difference between Sale and Agreement to Sell:

SALE AGREEMENT TO SALE
In the contract of sale, the exchange of goods takes place immediately. In the agreement to sale the parties agree to exchange the goods for a price depending on the fulfilment of certain conditions at a future specified date.
The nature in the sale is absolute. The nature of the agreement to sale is conditional.
It is an executed contract. It is an executory contract.
Transfer of risk takes place immediately. Transfer of risk doesn’t take place, until and unless the goods are transferred.
The right to sell remains with the buyer The right to sale remains with the seller.
Here the seller has the right to sue for the price. Here the seller has the right to sue for damages.
It creates a right in rem. It creates a right in personam.
The seller has no right to resell. The seller has the right to resell the same goods if the conditions are not fulfilled.
On the off chance that the products are annihilated, the misfortune is borne by the buyer despite the fact that the merchandise is in the ownership of the seller. The loss falls on the seller despite the fact that the merchandise is in the ownership of the buyer.

 

Author: R. Shanmuga Sundaram,
Student - Chettinad School of Law

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