Formation of Contract of Sale

Formation of Contract of Sale

Contract of Sale of Goods

Contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property (ownership) of the goods to the buyer for a price. The term ‘ownership’ is utmost importance in the sale of goods. Students have to understand that sale means selling the ownership of the goods to the buyer for a price besides transferring the physical possession of the goods. Mere possession of the goods does not entitle a person to ownership. Similarly purchase means buying the ownership of the goods from the seller for a price. The term ownership or property confers on the buyer an absolute freedom to dispose of the assets in any way as they like. Buyer has unlimited rights of the property purchased against the whole world. In this context, it is essential to learn the essential elements of a contract of sale.

Essential Elements of a Contract of Sale

Following essential elements are necessary for a contract of sale.

(1) Two Parties

A contract of sale involves two parties – the seller and the buyer. The buyer and the seller should be two different persons. If a person buys his own goods, there is no sale. On the dissolution of partnership when the surplus assets including goods were distributed among the partners, the court held that it was not a sale attracting sales tax. The partners were themselves joint owners of the goods and they could not be both sellers and buyers. However, there is one exception. When the goods of a person are sold in execution of a decree, he himself may buy the goods to retain their ownership.

(2) Transfer of Property

To constitute sale, the seller must transfer or agree to transfer the ownership in the good to the buyer. A mere transfer of possession does not amount to sale.

(3) Goods

The subject matter of contract of sale must be goods. It excludes money, actionable claims and immovable property. The term ‘goods’ includes every kind of movable property, stocks and shares, growing crops etc. Goodwill, trademarks, copy rights, patent rights etc., are all also regarded as goods.

(4) Price

The monetary consideration for the goods sold is called price. If goods are exchanged for goods, it is only barter and not a sale. But if goods are sold partly for goods and partly for money, the contract is one of sale.

(5) Includes both ‘Sale’ and ‘Agreement to Sell’

The term contract of sale includes both sale and agreement to sell. If the property in goods is transferred immediately to the buyer it is called a sale. On the other hand, if the transfer of property takes place at a future date or on fulfilment of certain conditions, it is called ‘an agreement to sell’.