[FAQs] Essentials of Contract of Sale Under the Sale of Goods Act

According to Section 4(1) of the Sale of Goods Act, 1930,

“a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.”

The following are the essentials of valid contract of sale —

(i) Presence of two parties, i.e. buyer & seller, is required.

(ii) Transfer of property in goods i.e. ownership, is required in a contract of sale. Transfer of ownership must take place or must be agreed to take place from the seller to the buyer. Thus it includes both sale and agreement to sell.

(iii) The subject matter of a contract of sale must always be goods. Goods mean every kind of movable property other than money and actionable claims.

(iv) The transfer of property in goods must take place from the seller to the buyer for a price.

(v) The contract of sale may be absolute or conditional.

(vi) All the essentials of a valid contract must be present.

Section 9 of the Sale of Goods Act, 1930, provides 4 modes of ascertainment of price. The price in a contract of sale may be —

(a) fixed by the contract.

(b) may be left to be fixed in an agreed manner (such as market price or fixation of price by a third party).

(c) may be determined by the course of dealings between parties (such as manufacturing cost, market price).

(d) a reasonable price (if price cannot be fixed in accordance with the above provisions. What is a reasonable price is a question of fact dependent on the circumstances of each particular case?

Further —

(a) The parties may agree to sell and buy goods on the terms that the price is to be fixed by the valuation of a third party and if such third party fails to make the valuation the contract becomes void.

(b) However, if the buyer has received and appropriated the goods or any part thereof, he becomes bound to pay reasonable price.

(c) If the third party is prevented from making the valuation by the fault of the seller or the buyer, the innocent party may maintain suit for damages against the party in fault.

Goods means —

Every kind of movable property other than actionable claims and money and includes – stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Section 2(7).

Actionable claim means a right to a debt or to any beneficial interest in movable property not in the possession of the claimant, which can be recovered by a suit or legal action. Money means the legal tender or currency of the country and it does not include old coins and foreign currency.

Even Fixed Deposit Receipts are considered as goods under Sale of Goods Act, 1930.

The following are the types of goods —

(1) Existing goods – The goods which are in existence at the time of contract of sale i.e.are either owned or possessed by seller at the time of contract of sale are said to be existing goods. The existing goods may be further classified as follows —

(A) Specific goods – The goods which are identified and agreed upon at the time when the contract of sale is made, are called ‘specific goods’.

(B) Ascertained goods – Ascertained goods are those goods which are identified in accordance with the agreement after the contract of sale is made. When out of a large number or large quantity of unascertained goods, the number or quantity contracted for is identified and set aside for such contract, such number or quantity is said to be ‘ascertained goods’.

Thus ascertained goods, are identified after the making but before the performance of the contract, the process being conducted in conformity with the agreement.

(C) Unascertained goods – The goods which are not specifically identified and agreed upon at the time when the contract of sale is made, are called ‘unascertained goods’. They are defined by way of description or sample only the time of creation of contact. On appropriation the goods become ascertained. If the identity of contract goods is not established by appropriating them towards the contract, the contract remains in respect of unascertained goods.

(2) Future goods – Those goods which are yet to be manufactured or produced or acquiredby the seller after the making of the contract of sale, are called ‘future goods’. A contract for the sale of future goods is always an agreement to sell. It is never actual sale because a man cannot transfer what is not in existence.

(3) Contingent goods – As per section 6(2) of the Act, contingent goods are those goods the acquisition of which by the seller depends upon a contingency (uncertain event) which may or may not happen. It may be noted that although the contingent goods are a type of future goods but they are different from future goods in the sense that the procurement of contingent goods is dependent upon an uncertain event or uncertainty of occurrence, whereas the obtaining of future goods does not depend upon any uncertainty of occurrence.

According to the provision of the Sale of Goods Act, 1930, delivery means voluntary transfer of possession from one person to another. To effect delivery of goods any act may be performed by one party in favour of the other party which has the effect of putting the goods into the possession or control of that other party. Delivery can be effected by any of the following ways –

(i) Actual Delivery – It is effected when the goods are physically delivered to the buyer or his agent.

(ii) Constructive delivery –It is used as a method of transferring possession when the goods are in the custody of a third person. When the seller gives such directions to a third party, who has the physical custody of the goods, which has the effect of transferring the goods into the possession of the buyer, without the actual movement or delivery of goods, it amounts to constructive delivery. It is also known as delivery by attornment (acknow­ledgement).

(iii) Symbolic Delivery – When there is a delivery of a thing in token of transfer of something else, such as a key of godown or warehouse where the goods are stored or documents of title, then it amounts to symbolic delivery.

Goods perishing before sale but after agreement to sell [Section 8]

• where specific goods had perished or became damaged.
• without the fault of seller or buyer.
• after the agreement to sell is made and before the risk passes to the buyer.
• the contract becomes void.

Thus, the agreement to sell becomes void in the following circumstances —

(a) The contract of sale must be an agreement to sale and not an actual sale.

(b) The agreement to sale must be for specific goods.

(c) The goods must perish or become damaged after agreement to sale but before sale.

(d) The goods get perished or damaged without any wrongful act or default on the part of the seller or the buyer.

For example, an agreement to sell a car after a certain period becomes void, if the car is destroyed or damaged in the intervening period.

Stipulations as to the time for payment of price is not of essence; A cannot avoid the contract on the grounds of the breach of stipulation as to time of payment of price.

The buyer B shall pay a reasonable price to A for the car already taken. As regards the second car, the contract becomes void.

(i) The goods are ascertained goods, in this case, ascertained goods are those which are identified in accordance with the agreement after the contract of sale are known as ascertained goods.

(ii) The goods which are not specifically identified & agreed upon at the time when the contract of sale is made, are called unascertained goods. The packet of salt is unascertained goods in the given case.

(iii) The goods which are yet to be manufactured or produced or acquired by seller after making the contract of sale are called future goods. A contract for the sale of future goods is always an agreement to sell. In the given cases oranges are future goods.

According to the provisions of the Sale of Goods Act, 1930, the price in a contract of sale may be either fixed by the contract or may be left to be fixed in a manner thereby agreed or may be determined by the course of dealings between the parties. The Act further provides that where the price is not determined by the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

In the given case, Mr A contracted to sell his swift car to Mr B, but both of them miss to discuss the price and Mr A subsequently refuses to sell the car on the grounds that the agreement was void on account of uncertainty of price.

Thus applying the above stated provisions to the given case it can be concluded that contention of Mr A is invalid. The contract is valid and enforceable and Mr B has a right to demand the sale and delivery of the car and is bound to pay the reasonable price of the car to Mr A.

According to section 9 of the Sale of Goods Act, 1930, the price in a contract of sale may be –

• fixed by the contact or
• maybe left to be fixed in a manner agreed (such as market price or fixation of price by a third party) or
• it may be determined by the course of dealings between the parties.

Further the parties may agree to sell and buy goods on the terms that the price is to be fixed by the valuation of a third party and if such a party fails to make the valuation the contract becomes void. However, if the buyer has received an appropriated the goods or any part thereof, he becomes bound to pay the reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of particulars of each case.

In the given case, Priya agreed to sell her two-wheeler to Sony for a price to be fixed by Priya’s father. Priya immediately handed over the keys to Sony. However later Priya’s father refused to fix the price.

Thus, applying the above stated provisions to the given case, it can be concluded that –

1. Priya cannot take back the two-wheeler from Sony, since the delivery of goods has been completed. Now Sony is bound to pay the reasonable price for the same.
2. In case Priya had not handed over the vehicle to Sony, then the failure of part of Priya’s father to fix the price would result in the contract of sale becoming void and both the parties would be relieved from giving any performance under the contract.

According to the provisions of Section 9 of the Sale of Goods Act, 1930, the price in the contract of sale may be fixed by the contract, or agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or determined by the course of dealings between the parties. Further, section 10 provides for the determination of price by a third party in the following manner –

(a) Where there is an agreement to sell goods on the terms that price has to be fixed by the third party and he either does not or cannot make such valuation, the agreement will be void.

(b) In case the third party is prevented by the default of either party from fixing the price, the party at fault will be liable to the damages to the other party who is not at fault.

(c) However, a buyer who has received and appropriated the goods must pay a reasonable price for them in any eventuality.

In the given case, Kapil contracted with Rahul to purchase 1000 litres of mustard oil at the price fixed by Akhilesh. After, Rahul delivered 600 litres, Akhilesh denied fixing the price of mustard oil. Rahul demanded back the oil already delivered and cancel the delivery of 400 litres. Kapil sued Rahul for non-delivery of remaining 400 litres mustard oil.

Thus, applying the above stated provisions it can be concluded that, Kapil is liable to pay a reasonable price of 600 litres already delivered, while for the remaining 400 litres, contract may be avoided.

According to provisions of section 10 of the Sale of Goods Act, 1930, where there is an agreement to sell goods on the terms that the price has to be fixed by a third party and either he does not or cannot make such evaluation, the agreement shall be treated as void. Further, in case the third party is prevented by the default of either party from fixing the price, the defaulting party will be liable to pay damages to the other party (aggrieved party). However, a buyer who has received and appropriated the goods is bound to pay a reasonable price for them in any eventuality.

In the given case Kartik agreed to sell his laptop to Vasant for a price to be fixed by Kusum. However, Kartik did not share the particulars of the laptop with Kusum which made her unable to do the valuation.

Thus applying the above stated provisions to the given case it can be concluded that since the price remains undetermined, Kartik is not bound to sell his laptop to Vasant, even though he may have promised to supply the same at a reasonable price. Further in this case since Kusum was prevented by Karthik from determining the price, the only remedy that is available to Vasant is to claim damages from Kartik which he has sustained due to non-delivery of laptop.