Formation of Contract under Sales of Good Act

Introduction

The Indian Sale of Goods Act, 1930, stands as a pivotal piece of Mercantile Law, enacted on 1 July 1930 during the British era. This Act, heavily influenced by the 1893 Sale of Goods Act, governs the creation of contracts where a seller transfers or agrees to transfer ownership of goods to a buyer in exchange for a price.

What is a Contract of Sale?

A contract of sale is an agreement between a seller and a buyer. For a specified price, the seller agrees to deliver or sell something to the buyer, who agrees to pay for it. Upon payment and delivery, ownership of the goods is transferred from the seller to the buyer.

Essentials of a Contract of Sale

According to Section 4(1) of the Sale of Goods Act, 1930, a contract of sale involves the following key elements:

1. Parties: There must be at least two parties – a buyer and a seller.
2. Goods: The contract must pertain to goods.
3. Price: The consideration for the sale must be a price.
4. Transfer of Ownership: Ownership of the goods must be transferred from the seller to the buyer.
5. Absolute or Conditional: The transfer can be either absolute or subject to conditions.

These components are crucial for the formation of a valid contract, covered from Section 4 to Section 17 of the Act.

Also Read: Rights and Duties of Buyer and Seller

Sale and Agreement to Sell

The distinction between a sale and an agreement to sell is fundamental under the Act:

• Sale (Section 4(1)): An immediate transfer of ownership from the seller to the buyer for a price.
• Agreement to Sell (Section 4(3)): A future transfer of ownership subject to certain conditions or at a future date.

An agreement to sell becomes a sale upon the fulfilment of the agreed conditions or the passage of time.

Formalities of a Contract of Sale

Per Section 5, a contract of sale is formed when:

• There is an offer to buy or sell goods for a price.
• The offer is accepted.

The contract can provide for immediate or future delivery and payment.

Subject Matter of Contract of Sale

Section 6 specifies that the subject matter of a contract must be goods, which can be either existing or future goods. A contract involving non-existent or perished goods at the time of the contract is void.

Price Determination

The price, as defined in Section 2(10), is the monetary consideration for the sale of goods. Under Section 9, the contract can fix the price, leave it to be agreed upon later, or allow a third party to determine it as stipulated in Section 10.

Conditions and Warranties

The Act distinguishes between conditions and warranties:

Condition: A fundamental term of the contract, breach of which allows the aggrieved party to repudiate the contract (Sections 14-17).

Warranty: A collateral term, breach of which entitles the aggrieved party to claim damages but not repudiate the contract.

Implied Conditions and Warranties

Several implied conditions and warranties ensure the buyer’s rights:

• Title: The seller must have the right to sell the goods (Section 14).
• Description: Goods must match the description (Section 15).
• Quality: Goods must be of merchantable quality (Section 16).
• Sample: Goods must match the sample (Section 17).

Case Laws Illustrating the Principles

• Rowland v. Divall: Highlighted the importance of the seller’s right to sell, allowing the buyer to recover the paid price if the seller lacked this right.
• Nichol v. Godts: Emphasized that goods must match both the sample and the description, reinforcing the buyer’s right to reject goods that do not conform.

Conclusion

The formation of a contract under the Sale of Goods Act, of 1930, involves multiple steps and conditions to ensure fairness and legality. Understanding these elements helps both buyers and sellers navigate their rights and obligations, ensuring that all transactions are conducted smoothly and lawfully.

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FAQ’s About Contract Of Sale

What are the essential elements for the formation of a contract of sale under the Sale of Goods Act, 1930?

Answer: Essential elements include two parties (buyer and seller), goods as the subject matter, an agreed price, and the transfer of ownership. The contract can be either absolute or conditional.

What is the difference between a sale and an agreement to sell?

Answer: In a sale, ownership transfers immediately from seller to buyer. In an agreement to sell, the transfer occurs at a future date or upon fulfilling certain conditions.

What are the implied conditions in a contract of sale?

Answer: Implied conditions include:

• Seller’s right to sell (title)
• Goods matching the description
• Goods being of merchantable quality and fit for purpose
• Goods matching the sample in quality (if sold by sample).

Also Read: Rights of Unpaid Seller

Reference: blog.ipleaders.in