Essentials of a valid Contract of Sale, Elements of a valid contract
87Essentials of a valid Contract of Sale
Some essential elements are to be present in a contract which makes the
contract of sale valid. If, the essential elements are missing, then
the contract of sale will not be valid. For example, Ram agrees to
sell his Car to Shyam without any consideration. This contract of sale
is not valid since there is no consideration.
From the Section 4 of the Sale of Good Act, we can understand that the
following essential elements must be present in the Contract of Sale.
1. There must be Two parties.
There must be at least two parties, i.e. one buyer and the other
seller. A person cannot buy his own goods. For example Shyam is the
owner of certain goods, but he is not aware of this fact. Ram pretends
to be the owner of the goods and sells them to Shyam. Since the goods
already belongs to Shyam, he cannot buy his own goods, hence there is
no sale and the contract is not valid. (Bell V. Lever Bros. Ltd.)
There is exemption in the case of a part owner. For the purpose of sale
of partnership property, partners are not regarded as separate
persons. They cannot be both seller and buyer. But a partner may sell
goods to the firm or buy goods from the firm. However, a part owner can
sell his ownership to another part owner.
2. Subject matter of Sale must be "goods"
The subject matter of contract of sale must be movable goods. Sale and
purchase of immovable property is regulated by the Transfer of Property
Act. Contracts relating to services are also not treated as contract
of sale. So the subject matter of contract must be goods which can be
movable.
3. Transfer of property in the goods: It is
the ownership that is transferred in a Contract of sale. The
ownership is agreed to be transferred in an agreement to sell as in
case of pledge. According
to Section 2 (II) of the Act, property means the general property in
the goods and not merely a special property. The general property is
transferred from seller to the buyer in a contract of sale. When the
goods are pledged, it is only the special property which is transferred
i.e., possession of the goods is transferred to the pledgee while the
ownership rights remain with the pledger. You should note that for
transferring the ownership of goods, the physical delivery of the goods
is not essential.
4. Consideration in Price:
Consideration in a contract of sale has necessarily to be money. Thus,
if for instance, goods are offered as consideration for goods, it will
not amount to sale, but it will be called a 'brater'. Similarly, in
case there is no consideration, it amounts to gift and not sale.
However the consideration may be partly in money and partly in goods.
Sale and Contract for Work and Labor
A Contract of sale of goods has to be distinguished from a contract for
work and labor, involving the exercise of skill or labor on some
material. The dividing line between the two is very minute. The
distinction essentially rests on whether the rendering of the service
and exercise of skill is the essence of the contract or the delivery of
the goods is the essence of the contract, although some labor on the
part of the seller might also have been out. In case of the former, it
is a contract of work while in the later case it will be a contract of
sale of goods. The distinction between the two may be understood by
referring to the case of Robinson V. Graves. In this case A engaged an
artist to paint a portrait. Canvas, paint and other necessary articles
were to be supplied by A to the painter. applying the above-mentioned
test that whether application of skill and labor in the production of
the portrait is the substance of the contract, it was held that it is a
contract for work and labor and not a contract of sale. On the other
hand, a contract for providing and fixing four different types of
windows of certain size according to specifications, designs, drawings
and instructions set out in the contract and a contract for making and
supplying of wagons or coaches on the under frame supplied by Railways
have been held by the Supreme Court to be contracts for work and labor
and not a contract of sale.
From the above it should become clear to you that in a contract of sale
ownership and possession of goods is transferred, while in a contract
for work and labour through there may be delivery of goods, yet the
emphasis is on the exercise of skill and labor upon the goods.
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In a contract of sale in which the person taking the goods does not have the option to return the goods, it will be an agreement to buy and not an agreement of hire-purchase, even though the price is payable in instalments and the seller has the power to take the goods back in case of default. In Les v. Butler, a lady hired certain furniture from the plaintiff. The contract provided that the hirer has no option to return the goods and owner can take the furniture back if any instalment was not paid. Before the last instalment was paid, the lady sold the furniture to the defendant. It was held, that the defendant had acquired a good title, the lady being possession of the furniture under an agreement to buy and not under an agreement of hire-purchase because the lady did not have the option to return, but was under compulsion to buy.
Thus, in case of sale by instalment, the buyer cannot terminate the contract and as such is bound to pay the price of the goods. The hire-purchaser, on the other hand has an option to terminate the contract at any stage and cannot be forced to pay the further installments. Furhter, if the agreement is an agreement to sell and under it if the buyer obtains possession of the goods, which the consent of the seller, he can validly sell or pledge the goods and thereby give the transferee or pledgee a good title on the goods provided they have acted in good faith. However, in a contract of hire purchase, the hirer cannot transfer ownership to such buyer even if the latter acts in good faith, because the position of the hirer is that of a bailee only. He becomes the owner when all the installments are paid.
1. A hirer cannot claim the benefit of implied conditions and warranties unless it becomes a sale. However, conditions implied under Hire-Purchase Act, 1972 do apply.
2. Sales-Tax is not leviable on a hire-purchase until it becomes a sale.
3. A contract of sale may be made orally or in writing, but the hire-purchase agreement must be in writing.
so I agree with you we must have proper documents before making a deal,thats in connection with the immovable property.
Thanks suny51 for your visit and leaving a comment.
It was really helpful. Thanks to You..
Iamsam thanx 4 this document.it has helped me a law student to understand more on sale of goods
was working on a school assignment en you have helped me a great deal.
KEEP ON GIVING ANSWERS LIKE THESE THATS IT
dis page realy helped, thanks alot.
really its too good to understand the sales of goods and specially for the students.....thanks
Thank you so much. Really enjoyed the article.
Thanks for the page. It has realy helped me,in getting a right agreemen.
The position in Lee v Griffins and that of Robinson v Graves as concerns the test for establishng a sale of Goods contracts really cannot be reconciled. This doc and the contributions therein are a job well done.
what is the rule in smith v farrell's trustee 1904 TS 696 relating to sale and pledges
Very helpful and interesting for us. Thanks
Very well written and a succint article. There is it seems , a little mix up or asort of "printer's devil" at work in one sentence of the text.
Para 3.
Transfer of property in "goods"
Line 2.
"The ownership is agreed to be transferred in an agreement to sell as "IN THE CASE OF PLEDGE" (???)
Is it not that in a case pf a pledge/pawn only the SPECIAL Property is transferred i.e the actual or constructive delivery of the goods is to be delivered to the pledgee whilst the general property remains with the Pawnor/Pledger
anand9873@yahoo.com
Thanks
A.P.Gupta New Delhi, India
nice article but its barter not brater
Thanks
2 years ago
Distinguish between Credit Sale and Hire-Purchase
A transaction of sale has to be distinguished from another apparently similar but different transaction, called hire-purchase agreement. A hire-purchase agreement is and agreement under which the owner delivers his goods on hire basis to a person called hirer and the hirer has the option to buy the goods by paying the agreed amount in specified installments.
A hire-purchase agreement, therefore, entitles the hirer only to possession of the goods. He cannot accordingly pass a good title to another buyer from him. A hire purchase agreement is distinct from sale in which price may be payable by installments. In case of sale, the property in goods passes on as soon as the contract is made, though price may not yet have been paid. A hire-purchase agreement, on the other hand, does not result in passing of the property unless the option to purchase is exercised, usually by payment of all the installments. Till such time, it continues to be a bailment. Thus, it is primarily the option on the part of the hirer to buy or to terminate the hiring that marks the distinction. In K. L. Johar & Co. v. Dy. commercial Tax Officer, the Supreme Court observed as follows:
The essence of a sale is that the property is transferred from the seller to the buyer for a price, whether paid at once or paid later in installments. On the other hand, a hire-purchase agreement has two aspects. There is first an aspect of bailment of goods subject to the hire-purchase agreement and there is next, an element of sale which fructifies when the option to purchase is exercised by the intending purchaser.