Essential Elements of Valid Contract of Sales: The Sale of Goods Act, 1930 Notes

The following are the essentials of valid contract of sale:

• There must be two parties, one seller and other buyer.
  • Seller and buyer must be different.
  • Part owner can sell goods to another part owner.
  • Partners are not regarded as separate persons for the purpose of sale of the partnership property. They are the joint owners of the goods and as such they cannot be both sellers and buyers [State of Gujarat v. Ramanlal S & W. (1965)]. But, a partner may buy goods from the firm or sell goods to the firm.
• There must be movable goods as subject matter of contract.
• There must be a transfer of property in goods. It means general property. (i.e. ownership)
• There must be price involved. Price means money consideration for sale of goods.
  • Exchange of goods for goods is barter.
  • If Exchange is for partly goods and partly for money it is sale.
• All essential elements of valid contract must be observed.
• The contract of sale can be entered into, expressly or impliedly.

Formation. The contract of sale may provide for any of the following methods.

• Immediate delivery of goods.
• Immediate payment of price but delivery at some future date.
• Immediate payment of price and immediate delivery of goods.
• Delivery or payment or both made in installments.
• Delivery or payment or both will be made at future date.

TRANSFER OF “PROPERTY IN GOODS”

• Property means general property in goods and not merely special property in goods. It means ownership of goods. Special property in goods means possession of goods.
• Cases where property in goods is not transferred:
  • Bailment
  • Creating charge or pledge

Difference Between Sale and Agreement to Sell

• Sale:
  • Immediate transfer of ownership to buyer
  • It is executed contract
  • It creates right in rem for buyer
  • Seller can use for price – if not buyer
  • Risk passes to buyer
  • Buyer can get goods even if seller has becomes insolvent
  • Delivery to receiver if buyer becomes insolvent before the payment of price

• Agreement to Sell:
  • Ownership remains with the seller
  • It is an executory contract
  • It provides right in personam for buyer and seller
  • Seller can sue for damages
  • Risk doesn’t passes to buyer
  • Buyer can get proportionate share in money but can’t get goods
  • Delivery can be refused by seller if buyer becomes insolvent.

Difference between Sale and Hire Purchase

 

Metter	Sale	Hire Purchase
Meaninng Applicable Act Parties How it made Transfer of ownership Risk of loss Return of goods Legal        effect       of Installment Sale tax	Property in goods is transferred from seller to buyer immediately Sale of goods Act, 1930 Buyer and seller Orally or in writing Immediately     buyer     becomes owner of goods Risk of loss passes to buyer Buyer can’t return goods Buyer    remain    liable    to    pay unpaid installment only Payable immediately	Agreement where hirer uses goods by paying regular installment and having option to purchase goods on payment of last installment   Hire Purchase Act, 1972 Hirer and Hire vendor Only in writing – Valid When hirer paid last installment   Ownership    not    transferred    hire vendor is liable Anytime terminate agreement and return Each installment paid is treated as hire charges When all installment is paid

Difference between Sale and Bailment

Sale	Bailment
Transfer of property in goods for price     Property is transferred Consideration is in form of price, i.e., money Goods not returned to seller	Delivery of goods for specific purpose that it will be returned to bailor or disposed of as per his direction It remains with bailor. Gratuitous bailment is possible Goods returned to bailor purpose of bailment  is over

CONTRACT FOR WORK AND SKILL

• Some contract involves use of both service and goods. This type of contract is considered as contract for work and skill.
• This kind of contract involves exercise of skill and labour by one party on some goods or materials supplied by other party or supplied by party who exercise skill and labour for price. It is immaterial who supply material. Alternatively, it can be said that in this kind of contract, main purpose is to exercise work and skill. Supply of own goods is only subsidiary. Intension of parties is to transfer goods only after exercise of some skill and labour.
• As it is not falling within categories of contract for Sale no sales tax is payable.

Example:

• A dentist agreed to supply a set of artificial teeth to a patient. The material was wholly found by the dentist. Held, it was a contract for the sale of goods.
• An artist was asked to paint a portrait. The material was supplied by the party and not by the painter. It was held to be a contract for work and labour and not of sale.