CONTRACT OF SALE OF GOODS

Sale of Goods Act

The law relating to the sale of goods is contained in the Sale of Goods Act, 1930. The Act came into force
on 1st July, 1930. The Act contains 66 sections and extends to the whole of Pakistan.

Contract of Sale of Goods

A contract of sale of goods is a contract by which the ownership of movable goods is transferred from a
seller to a buyer.

Section 4(1) defines a contract of sale of goods as, "a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a

Essentials

The following are essentials of a contract of sale of goods:

1. Contract

A contract of sale of goods relates to movable goods. All essentials of a valid contract must be present in
a contract of sale of goods like capacity of parties, free consent, legality of object, etc. It may be verbal or
in writing. It may be express or implied.

EXAMPLE

C promises to sell his radio to B. It is a contract of sale if parties are competent to contract, consent is
free and all essentials of a contract are fulfilled.

2. Seller and Buyer

A contract of sale of goods must have a seller and a buyer. A buyer means a person who buys or agrees
to buy goods. A seller means a person who sells or agrees to sell goods. When there are joint owners of
a particular good, the owner of one part can sell his share to the owner of other part of the good.

EXAMPLES

a. A sells his computer to B for Rs. 40,000. A is the seller and B is the buyer.

 b. A and B jointly own a computer. A sells his share to B. B becomes the sole owner of the
computer.

3. Transfer of Property

Transfer of property is an essential of the contract of sale of goods. Here, property means the ownership
of goods. A mere transfer of possession of goods cannot be termed as a sale. In a contract of sale, a
seller transfers or agrees to

transfer the property in goods to the buyer.

122

A sells his car to B for Rs. 4 Lac. The ownership and possession of the car transfer from A to B.

4. Goods

The subject matter of a contract of sale of goods must be a movable good.

Section 2(7) states, "Goods means every kind of movable property other than actionable claims and
money; and includes electricity, water, gas, stock and shares, growing crops, grass and things attached to
or forming part of the land which are agreed to be severed before sale or under the contract of sale."

An actionable claim means a claim which can be enforced by court e.g. debt due from one person to
another. Money is not regarded as goods. However, old coins are treated as goods.

EXAMPLE

N sells his car to M for Rs, 3 Lac. It is a contract of sale of goods because the subject matter of contract
i.e. car is a moveable good.

5. Price

The consideration in a contract of sale must be the price. When goods are sold or exchanged for other
goods, the transaction is barter and not a contract of sale of goods are sold partly for goods and partly
for a price, it is a contract of sale. [Sec. 2(10)]

EXAMPLES

A sells his chair to B for Rs. 2,000. It is a contract of sale. a.

b.

C sells his horse to B against B's promise to give 10 tons of wheat. It is not a

6. Sale and Agreement to Sell

A contract of sale of goods includes both sale and an agreement to sell. When ownership in goods is
transferred from a seller to a buyer at the time of When S... of the contract, the contract is called a sale.
When the transfer of fermans. ownership in goods will take place at a future date, the contract is called
an

EXAMPLES

a.

 B buys a book from C and pays the whole price on a counter. It is a sale. A agrees to buy B's car
for Rs. 8' Lac if his mechanic approves. It is an b.

difference between sale and agreement to sell

tract of Sale of Goods . SALE cransfer of Property and wherehin in 00005 is a more The ownership in
goods transfers to the a found to the nivel as the form i buyer at the time of the contract. date. . Type of
Goods A sale takes place if goods are in An agreement to sell takes place in ovisience. there are future
goods. 3. Recovery of Goods If the seller refuses to deliver goods, If the seller refuses to deliver goods,
the buyer may sue for the recovery of the buyer cannot recover the goods but SDOOD may sue for
damages. 4. Risk of Loss If goods are destroyed, the buyer If goods are destroyed, the seller suffers loss
even though goods are in suffers loss even though goods are in possession of the seller. possession of
the buyer. 5. Consequences of Breach If the buyer fails to pay the price of If the buyer fails to pay the
price, the goods, the seller can sue for the price. seller can-sue for damages and not for the price. 6.
Right of Resale A seller cannot resell goods even A seller can resell goods to a new though goods are in
his possession. buyer. The new buyer gets a good title to the goods. 7. Insolvency of Buyer If the buyer
becomes insolvent before If the buyer becomes insolvent before payment, the official receiver shall have
payment, the official receiver shall have the right over the goods. no right over the goods. 8. Insolvency
of Seller If the seller becomes insolvent, the If the seller becomes insolvent, the buyer can recover goods
from the buyer can recover the price from the official receiver. official receiver. 9. Nature of Contract It is
an executed contract so the buyer IIt is an executory contract so the buyer will become the owner in the
future. becomes the owner immediately. Types of Goods The following are the types of goods. [Sec. 6] 1.
Existing Goods

The goods which are owned or possessed by the seller at the of contract of sale are called existing goods.
The goods are physically in existence

and in the seller's ownership at the time of contract. These goods may be of the following types:

a. Specific Goods

The goods which are identified and agreed upon at the time of contract of sale are called specific goods.
In other words, these goods can be cleanly identified and recognized as separate things at the time of
contract. [Sec. 2(14)]

EXAMPLE

B owns many cows and promises to sell one of them. If one cow is singled out, the contract is for specific
goods.

Ascertained Goods

The goods which are identified after the formation of a contract of sale are called ascertained goods.
When a part of the goods lying in bulk are identified and earmarked for sale, such goods are termed as
ascertained goods.

EXAMPLE

A makes a contract with B to sell 10 bags of sugar. Later, A separates 10 bags from his stock of sugar for
B. These bags are ascertained goods.

Unascertained Goods
The goods which are not identified and agreed upon at the time of a contract of sale are called
unascertained goods e.g. good in stock or lying in lots. These goods are described by description or
sample only.

EXAMPLE

A has 100 bags of sugar. A promises to sell 10 bags of sugar out of them. It is a contract for unascertained
goods.

2. Future and Contingent Goods

The goods which are manufactured, produced or acquired by the seller after making a contract of sale
are called future goods. These goods do not exist at the time of contract of sale. The seller can only make
an agreement to sell

The goods whose acquisition by the seller depends on an uncertain event that may or may not happen
are called contingent goods. They are a kind of

EXAMPLES

 X agrees to sell Y all mangoes which will be produced on his farm next year a.

 A agrees to sell a rare painting to B if he will be able to purchase it from the b. current owner. It
is an agreement to sell contingent goods.

Perishing of Goods

The effect of perishing of goods is as follows:

Perishing before Contract 4.

A contract for sale of specific goods is void if goods have perished without the knowledge of the seller
before the formation of a contract. However, if the seller has knowledge of the perishing of goods and he
enters into a contract of sale, the seller is bound to compensate the buyer. [Sec. 7]

EXAMPLE

B agrees to sell 100 bags of sugar that are in transit by ship. On arrival of the ship, B discovers that the
sugar is spoiled. The contract becomes void.

2. Perishing after Agreement to Sell

When there is an agreement to sell specific goods and goods perish without any fault of the seller or
buyer, the contract becomes void. [Sec. 8]

EXAMPLES

 A agrees to sell B rice which is to be produced in his field. The crop of rice a. nerishes: The
contract becomes void.
  B took a horse for 8 days on the condition that if found suitable the bargain b. would be
complete. The horse died on the third day. Held, the contract became void. (Elphick vs. Barnes)

Fixation of Price

A price is an essential of a contract of sale of goods. A valid sale cannot take place without a price. The
price may be fixed in the following ways: [Sec. 9]

1. Parties

Generally, the parties fix the price. The parties mention the price of goods to be paid in a contract.

EXAMPLE

A agrees to sell his car to B for Rs. 5 Lac. The price is fixed by parties to the contract.

2. Agreed Method

The price may be determined as per the method agreed. The parties mav decide the method of
determining the price. It may be the price prevailing on anv particular date.

EXAMPLE

A agrees to sell 100 bags of sugar to B at the market rate prevailing on the 20th day after the contract. It
is a valid contract of sale.

3. Course of Dealings

Sometimes, the price is determined during the course of dealings between the parties. The price may be
determined in accordance with the custom and usage of trade. This method is applicable if parties
regularly trade.

126 A agrees to buy 100 shares of W company from B. The price of shares t it EXAMPLE shall be the price
shares of the s 4. Third Party The parties may agree to sell goods on the condition that the price shall t h
be fixed by a third party. EXAMPLE A agrees to sell 10 bags of rice to B at a price to be fixed by C. The
price is a price in Courin fixed by C will be the price of goods.

5. Reasonable Price

pay a reasonable price to the seller. The amount of reasonable price depends upon the circumstances of
each case.

If the price is not fixed by any of the above ways, the buyer is bound to

EXAMPLE

A orders B to supply 100 kg of sugar without fixing the price. The price of sugar in the market on the day
of the order will be considered as a reasonable price. B must supply sugar to A at that market rate.