A Note pertaining to Sale of Goods Act, 1930
What is a Contract of Sale?
A Contract of Sale is a Contract whereby the seller transfers(sale) or agrees to transfer(agreement to sell)
the PROPERTY(ownership)in the goods to the buyer for a price.(Section 4)
What is definition of goods under the Sale of Goods Act, 1930?
“Goods” here, means every kind of moveable property other than actionable claims and money; and includes
stocks and shares, growing crops, grass and things attached to or forming part of the land which are
agreed to be severed(cut)before sale or under the contract of sale [Section 2(7)]
What are the essential elements of a Contract of Sale?
From the above definitions, the following essential elements may be noted, namely:1)THERE MUST BE ATLEAST TWO PARTIES:- A sale has to be bilateral because the property in the goods
has to pass from one person to another. Its first essential, therefore, is that the seller and buyer must be
DIFFERENT persons. A person cannot buy his own goods.
Examples:- Supposing “X” is the owner of certain goods, but he does not know. “A”, pretends to be the owner of the
Goods and sells them to X. There is no sale, for X cannot buy goods which are already his own(Bell v.Lever
Bros. Ltd.,1932, A.C.161)
- Thus, in a case before the Gujarat High Court,(State of Gujarat v.Ramanlal S & Co., AIR 1965 Guj.60), a
Partnership firm was dissolved and the surplus assets, including some goods, were divided among
the partners in specie(in kind.) The Sales Tax officer sought to tax this. Rejecting the contention of
the Government, Judge Bhagwati, said “They (partners) were themselves the joint owners of the goods
and they could not be both sellers and buyers. Moreover, no money consideration was promised
or paid by any partner to the firm as consideration for the goods allotted to him”
2) TRANSFER OR AGREEMENT TO TRANSFER THE OWNERSHIP OF GOODS:- In a contract of sale, it is the
ownership(property)that is transferred IN A SALE or agreed to be transferred, IN AN AGREEMENT TO
3) THE SUBJECT MATTER OF THE CONTRACT MUST NECESSARILY BE GOODS:- Sale of “immovable property”
is NOT covered under the Sale of Goods Act.
4) THE CONSIDERATION IS PRICE:- The consideration in a contract of sale has necessarily to be “money”. ie Legal
Tender. If, for instance, goods are offered as the consideration for goods it will not amount to sale. It will
be a “barter”. Similarly, in case there is no consideration, it amounts to gift and not sale. Where goods are
sold for a definite sum and the price is paid partly in terms of value of goods and partly in cash, that is
Examples:- In Aldridge v. Johnson, fifty bullocks, valued at Rs.5000/- per bullock, were exchanged for 2000 kilo grams
of rice at Rs.50 per kilo gram , the difference to be made up in cash. The contract was treated as one of sale.
5) A CONTRACT OF SALE MAY BE ABSOLUTE OR CONDITIONAL
6) ALL OTHER ESSENTIALS OF A VALID CONTRACT MUST BE PRESENT:- Being a type of contract, the contract
of Sale must conform to all other essential elements of a valid contract. For example, the parties to the
transaction must be competent of contracting, consent of the parties must be free; the objects must be legal
and so on.
In what way a “Hire Purchase Agreement”(HPA) is different from “ Installment Sale”?
A transaction of “Sale”(Installment sale is a sale) has to be distinguished from another apparently similar
but different transaction, called “Hire Purchase agreement”. A Hire Purchase agreement is an agreement for
hire, with an option to purchase. In a HPA, there are two parties, the Owner and the Hirer. The person who
gives the goods on hire is the Owner, and the person to whom goods are given on Hire or who takes the goods
on Hire is the “Hirer”. The Hirer, under this agreement, is required to pay every month, a particular sum of
money , and if he pays in that way for a fixed number of months, the hirer will become the OWNER of the
goods on the payment of the last instalment. But if the Hirer fails to pay any particular installment, the owner
can terminate the contract and take away the goods, because the OWNERSHIP continues to remain with the
A HPA is distinct from “Sale” in which price is payable by Installments. In case of sale the property(ownership)
passes as soon as sale is made though the price has not been fully paid. A HPA, on the other hand, does not result
in passing of the property(ownership)unless the option to purchase is exercised usually by payment of all the
installments. Till such time it constitutes bailment. Thus HPA is a bailment plus an agreement to sell.