Business Law Unit 1 Business Law Complete Notes Essentials of a Valid Contract of Sale

Essentials of a Valid Contract of Sale

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TOPIC- Essentials 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 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. There is an 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 are 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.

Business Law Unit 1 Business Law Complete Notes Essentials of a Valid Contract of Sale Performance of Contract

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