The contract of sale of goods act is governed by the sales of goods act, of 1930. The act extends to the whole of India except the state of Jammu and Kashmir. Till 1930, all the transactions were governed by the Indian Contract Act, 1872. In 1930, Sections 76-123 were replaced by the Sale of Goods Act, 1930. This act deals with the subject matter of movable property and not with immovable property.
Definition of contract of sale
Section 4(1) defines the contract of sale as under:
“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 two parties, one known as the seller and the other known as a 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 consideration known as ‘price’.
To prove valid sale under the Sale of Goods Act, there must be cogent and convincing evidence of:
(i) Agreement between competent parties
(ii) The price of the goods and;
(iii) Passing of property in the goods.
A contract between the seller and 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 buyer should be two different persons. A partner and the firm may also sell goods to each other. In the same way, when a person’s goods are being sold in execution of a decree, he himself may purchase them.
A contract under statutory compulsion- Sometimes a contract may be entered into by the normal process of negotiation but under a statutory compulsion.
In New India Sugar Mills v. Commissioner of Sales Tax, Bihar, J.C. Shah and J.L. Kapur, JJ. in their majority held that supply of sugar by a sugar factory in compliance with the orders of the Sugar Controller of India under Sugar and Sugar Products Control order, 1946 did not result in a contract of sale of goods, and hence the transaction could not be subject to Sales Tax. Hidayatullah, J. in his dissenting opinion, however, observed that in such a case, there was an implied contract of sales between two parties.
In Vishnu Agencies v. Commercial tax officer, the Supreme Court overruled its earlier decision and gave judgment on the part of Hidayatullah, J.
Formalities for the sale of goods
The sale of Goods Act does not prescribe the observance of any formalities for creating a contract of sale. It rather expressly provides that such a contract may be either orally or in writing or partly orally and partly in writing or maybe even implied.
Compliance with the provisions of the sale of goods act
The transfer of title in any goods, e.g., a car depends on the fulfilment of the provision of the Sale of Goods Act, rather than the provision of the Motor Vehicle Act, 1939.
Performance- The parties are free to provide as to when the performance of the contract by each side will be made.
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 she or under the contract of sale.”
Certain things have been specifically included in the term ‘goods’ by the Act. It includes: (i) stocks and shares, growing crops, grass, and (ii) things attached to or forming part of the land which are agreed to be severed before sale or under a contract of sale.
Kinds of goods
There can be classified into various categories as to when the property in the Goods passes from the seller to the buyer.
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 the making of the contract. For example, the seller agrees to supply sugar which is lying in his godown.
According to Section 2(6), future goods mean goods to be manufactured or produced or acquired by the seller after making a contract of sale.
Specific or unascertained goods-
Existing goods may be further classified into specific goods or unascertained goods.
According to Section 2(14), specific goods mean 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 the making of a contract, they are known as unascertained goods
In Vijay Minerals Pvt. Ltd. v. Bikash Chandra Deb, there was a contract for the sale of manganese and iron ores which are excavated and raised for delivery from mines ex pitch mouth. It was held to be a sale of specific goods. In this case, the sale was of specific goods and specific performance of the contract could be granted.
Transfer of property (ownership) in the goods
In every contract of sale, there is to be a 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 ‘special property’. For example, if A owns certain goods, he has general property in the goods. If he pledges them with B, B has a special property in the goods. According to Section 4(4), an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be confirmed.
Price under the sale of goods
Consideration for a contract of sale has to be ‘price’. According to Section 2(10). ‘Price’ means the money consideration for a sale of goods.
For example – when the goods are exchanged for goods, it is a contract of barter or exchange.
When there is no consideration and the transfer is gratuitous, the transaction will be by way of a Gift.
Modes of determination of price-
The price is a very essential element in every contract of sale of goods. The same may be fixed by one or the other of the following modes-
I. It may be fixed by the contract itself.
II. It may be fixed in accordance with the agreed manner. The parties may not themselves fix the price but may leave it to be determined according to the manner agreed.
In Aluminium Industries Ltd. v. Minerals and metals trading corporation, it was held that if the seller was at fault in delaying the delivery of goods and, therefore, he could not compel the buyer to pay the increased price of goods.
III. It may be determined by the course of dealing with the parties. When the parties have neither fixed the price nor agreed upon some manner for determining the same, we have to look for their course of dealing.
“When the price is not determined according to any of the above-stated manners, the buyer shall pay a reasonable price to the seller. It is not necessary that the prevailing market price will always be considered to be a reasonable price. That may sometimes be unreasonable.”
Valuation by the third party
One of the modes of determination of 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 a valuation cannot or does not make such a valuation, the agreement is thereby avoided.
In case the third party, who is to make a valuation, is prevented from doing so by the fault of either the seller or the buyer, the party not in fault may maintain an action for damages against the party in fault.
Fixation of provisional price
Fixation of provisional price cannot be stated to be impermissible. Where the price was provisionally agreed, but changed subsequently, that itself, in no way created any right in favour of the petitioner to claim lastly announced provisional price as a final price. The term ‘provisional’ itself means it was never fixed and finalized.
Fixation of price
The price may be fixed by control orders issued by the government or the market authorities.
A Contract for the sale of immovable property is a contract laying down that the ‘Sale’ of such property shall take place on the terms settled between the parties in the said contract. Such a contract for sale does not create any interest in or charge on such immovable property. The contract for sale does not result in any transfer of ownership. However, a sort of obligation is created in respect of the ownership of the property.
1. The sales of Goods Act,1930,s.4(1)
2. A.I.R. 1963 S.C. 1207
3. A.I.R. 1978 S.C. 449
4. A.I.R. 1996 Cal. 67.
5. Commissioner of Income Tax v. General Store (P) Ltd., A.I.R. 1968 S.C. 200.
6. A.I.R. 1998 Mad. 239.
7. JCL International Ltd. v. Bharat Petroleum Corporation Ltd., A.I.R. 2013 BOM. 23.
8. Indian Steel and wire products Ltd. v. State of Madras, A.I.R. 1968 S.C. 478.
Puneet Chaudhary | Aligarh Muslim University