Lecture No.

9
Contract of Sale of goods
What is Contract of Sale of goods?

 Contract of sale of goods is a contract, whereby, the seller transfers or agrees to

transfer the property in goods to the buyer for a price. There can be a contract of
sale between one part-owner and another.

 In other words, under a contract of sale, a seller (or vendor) in the capacity of
the owner, or part-owner of the goods, transfers or agrees to transfer the
ownership in goods to the buyer (or purchaser) for an agreed upon value in
money (or money equivalent), called the price, paid or the promise to pay same.
Sale of Goods Act

This law came force on 1st July 1930. The Act contains 66 sections and extends to the whole
of Pakistan.

Sale of Goods Act defines a contract of sale of goods as;

“A contract whereby the seller transfer or agrees to transfer the property in goods to the buyer for a
price”.
In the other words, a contract to transfer the ownership of goods from the seller to the buyer is known
as contract of sale.
Essentials elements of a Contract of Sale

The following six features are essential elements of any contract of sale of goods.

 Goods
 Price
 Two parties
 Transfer of ownership
 All Essentials of a Valid Contract of Sale
 Includes both a ‘sale‘ and ‘an agreement to sell‘
Goods

The subject matter of a contract of sale must be goods. Every kind of

movable property except money is regarded as ‘goods’.

Contracts relating to services are not considered as contract of sale.

Immovable property is governed by a separate statute, ‘Transfer of

Property Act’.
Price

 The buyer must pay some price for goods. The term ‘price’ is ‘the money
consideration for a sale of goods’. Accordingly, consideration in a contract of sale has
necessarily to be in money. Where goods are offered as consideration for goods, it
will not amount to sale, but it will be called barter or exchange, which was prevalent
in ancient times.

 Similarly, if a person offers the goods to somebody else without consideration, it

amounts to a gift or charity and not sale.
 In explicit terms, goods must be sold for a definite amount of money, called the price.
 However, the consideration can be partly in money and partly in valued up goods. Furthermore,
payment is not necessary at the time of making the contract of sale.
Two Parties

 A contract of sale of goods is bilateral in nature wherein property in

the goods has to pass from one party to another. One cannot buy
one’s own goods.

For example, A is the owner of a grocery shop. If he supplies the goods (from the
stock meant for sale) to his family, it does not amount to a sale and there is no
contract of sale. This is so because the seller and buyer must be two different
parties, as one person cannot be both a seller as well as a buyer. However, there
shall be a contract of sale between part owners.
Conti…

Suppose
A and B jointly own a television set, A may transfer his ownership in
the television set to B, thereby making B the sole owner of the goods.

In the same way, a partner may buy goods from the firm in which he is
a partner, and vice-versa.
Transfer of ownership

 Transfer of property in goods is also integral to a contract of sale. The term

‘property in goods’ means the ownership of the goods. In every contract of sale,
there should be an agreement between the buyer and the seller for transfer of
ownership. Here property means the general property in goods, and not merely
a special property.

 Thus, it is the general property, which is transferred under a contract of sale as

distinguished from special property, which is transferred in case of pledge of
goods,
i.e., possession of goods is transferred to the pledgee or Pawnee while the ownership
rights remain with the pledger. Thus, in a contract of sale there must be an absolute
transfer of the ownership. It must be noted that the physical delivery of goods is not
essential for transferring the ownership.
All essentials of a Valid contract
A contract of sale is a special type of contract, therefore, to be valid, it must have all the
essential elements of a valid contract,
 free consent,
 consideration,
 competency of contracting parties,
 lawful object,
 legal formalities to be completed, etc.

A contract of sale will be invalid if important elements are missing.

For instance,
if A agreed to sell his car to B because B forced him to do so by means of undue influence, this
contract of sale is not valid since there is no free consent on the part of the transferor.
Includes both a ‘Sale’ and ‘An Agreement to Sell’

The ‘contract of sale’ is a generic term and includes both sale and an agreement to sell.
The sale is an executed or absolute contract whereas ‘an agreement to sell’ is an executory
contract and implies a conditional sale.

A contract of sale can be made merely by an offer, to buy or sell goods for a price, followed
by acceptance of such an offer. Interestingly, neither the payment of price nor the delivery
of goods is essential at the time of making the contract of sale unless otherwise agreed.

Subject to the provisions of the law for time being in force, a contract of sale may be made
either orally or in writing, or partly orally and partly in writing, or may even be implied
from the conduct of the parties.
Difference Between Sale And Agreement To Sell
 Under Sale, ownership passes immediately at the time when the contract is made whereas
under Agreement to Sell, passing of ownership is postponed i.e the transfer takes place at
a future time or transfer is subject to some conditions.
 
 In case of sale, the buyer becomes the owner immediately whereas, in case of
an agreement to sell, the seller remains the owner until that agreement is not converted
into a sale.
 
 Sale is executed contact i.e when both the parties perform their part whereas agreement
to sell is an executory contract i.e which is to perform in the future.
 
 Sale gives right in rem i.e against the whole world whereas in agreement to sell it gives
right in personal i.e between the parties only.
 
 Conti…
 Sale is always of existing property whereas agreement to sell can be of existing
property or future property.
 
 In sale, if after the contract of sale any loss is caused to the goods then the risk is to be
borne by the buyer. whereas in case of an agreement to sell, the seller is still the
owner of goods so if there is any loss then that loss is to be borne by the seller only.
 
 In case of sale, if the buyer refuses to pay the money then the unpaid seller may have
the right to recover money whereas in case of an agreement to sell, if the buyer
refuses to accept and pay then the seller may sue him for damages for non -
acceptance.
Kinds of Goods
The following are the kinds of goods.
1. Existing Goods: The good which are owned or possessed by the seller at the time
of contract of sale are called existing goods.
In other words the goods which are physically in existence and in seller’s
possession, at the time of contract are called existing goods.

These goods can be divided into following kinds

1. Specific Goods: The goods identified and agreed upon at the time of the
contract of sale are called specific goods. In other words these are the goods
which can be clearly identified and recognized as separate things at the time
of contract.
2. Unascertained Goods: The goods which are not identified and agreed upon at
the time when a contract of sale is made are called unascertained goods.
Example: A has 100 bags of sugar. A promise to sell 10 bags of sugar out of
them, it is a contract of unascertained goods.
Conti…

Future Goods:
The goods which a seller does not possess at the time of contract but will be
manufactured, produced or acquired by the seller after making the contract of sale
are called future goods. The seller can just make an agreement sell about future
goods.

Example:
“A” agrees to sell to “B” all the wheat which will be produced in his farm next year,
it is a contract of future goods.
Conti…

Contingent Goods:
Though a type of future goods, these are the goods the acquisition of which by the
seller depends upon a contingency, which may or may not happen

Example:
1. “X agrees to sell to Y 25 bales of Egyptian cotton, provided the ship which is
bringing them reaches the port safely. It is a contract for the sale of contingent
goods. If the ship in sunk, the contract becomes void and the seller is not liable.
2. A agrees to sell specific goods in a particular ship to B to be delivered on the
arrival of the ship. If the ship arrives but with no such goods on board, the seller
is not liable, for the contract is to deliver the goods should they arrive.
Fixation of Price

The money consideration for sale of goods is known as price.

Price is an essential element in every contract of sale of goods, a valid sale cannot
take place without a price.
The price should be paid or promised to be paid.
Modes of Fixing Price:
 Parties:
This is most usual mode of fixing the price. The parties are free to fix any price.
The price may be stated in a contract by the parties of the contract.
Example: “Y” agrees to sell his car to “Z” for Rs 5 lac, Here the price is fixed in
the contract it self.
 Conti…
 Agreed Manner:
The price is fixed in a manner agreed upon in a contract it may be the price prevailing on
any particular date.
Example:
“A” agrees to sell 1,000 share of PIAA to “B” at the rate prevailing on the 20th day after
the deal.
 Course of Dealings:
Where price is neither expressed in the contract nor any manner of fixing the price is
agreed, the price would be determined by the course of dealings between the parties.
Example:
“A” agrees with “B” to buy 100 shares of XYZ company, In general course of dealings
the accepted price of shares is the price prevailing on date of contract, it is the price
prevailing in the marker on date of sale.
Conti…
 Reasonable Price:

If the price is not capable of being fixed in by any of the above modes, the buyer is

bound to pay to the seller a reasonable price, what is the reasonable price depends

upon the circumstances of each case.

Example:

“B” orders “C” to supply 1500 kg of Sugar without fixing the price. Price of sugar in

the market on day of order would be considered as reasonable price “C” must

supply sugar to “A” at this market rate.

 Effects of destruction of goods
If the goods are damaged or lost after their property was passed on to the buyer,
the contract will remain unaffected and the buyer will bear the loss.
Where the goods are yet to become the buyer’s goods, any damage or loss will have
an effect on the contract.

The destruction of goods may take place in various situations as under the following
heads: 
EFFECT OF PERISHING OF SPECIFIC GOODS
The effect of perishing of specific goods can be understood under the following heads in
order to have a clear understanding of the effect of such destruction on the contract and
its effect on the burden of liability.
 Conti…
 Goods perishing before making of Contract:
When in case of sale or agreement to sell, the perishing of specific goods at or before the time of
making the contract would render the contract void.
The term ‘perishing of goods’ does not only mean physical destruction but also includes the cases
in which the goods have lost their commercial value
e.g. when sugar has been converted into liquid by mixing of water, etc.
As the transfer of property has not taken place the risk remains with the seller. When only a part of
the goods have perished, the contract as a whole will be void if it was an indivisible contract
requiring total performance by the seller.
If the contract can be seen as a divisible contract, the contract for the goods which are intact shall
remain valid. However, if the seller has knowledge about the destruction of the goods, and in spite
of it, he enters into a Contract of Sale with the buyer, then the seller is bound to compensate the
buyer.
Example: A sold specific goods to B which were lying in A’s go down. Unknown to both the parties
the goods got destroyed due to fire. Such contract is void.
 Conti…
 Goods perishing before sale but after agreement to sale:
“Where there is an agreement to sell specific goods and the goods subsequently without any fault of
seller or buyer perish or suffer such damages as not to answer to description in an agreement before
the risk passes to the buyer, the agreement becomes void.”
The Contract of Sale becomes void on the ground of supervising impossibility of performance.

However, the following conditions must be satisfied:

1. The contract of sale must be an ‘agreement to sell’ and not ‘actual sale’.
2. The agreement to sell must be for the sale of specific goods.
3. The goods must have perished before the agreement to sell becomes sale i.e. before the buyer becomes
the owner of goods.
4. The goods must have perished without the fault of the buyer or the seller.
EFFECT OF PERISHING OF UNASCERTAINED GOODS

 In cases of destruction of unascertained goods, as the goods have not been identified at the time of
formation of the contract of sale, the seller would not be discharged on the grounds of impossibility of
performance.
In such cases,
the contract is subsisting and the seller needs to perform the contract or pay damages for the breach in
case if he fails to perform the same.
However, in case of unascertained goods, the contract will not be void.
Example:
X agreed to sell to Y 10 bales of Egyptian cotton out of 100 bales lying in his go down. The goods were
already destroyed by fire before the Contract of Sale. But both X and Y did not know about the fire. In
this case, the contract is not void as it was not for the sale of specified goods, but for the sale of certain
quantity of unascertained goods. And thus, X is liable to supply 10 bales of Egyptian cotton to Y, or to
pay him the damages for breach of contract. 
EFFECT OF DESTRUCTION OF FUTURE GOODS

 EFFECT OF DESTRUCTION OF FUTURE GOODS

If the future goods are specific, the destruction of such goods will amount to
supervening impossibility and the contract shall be void. In all the cases where the
goods are unascertained goods at the time of destruction, the contract shall remain
unaffected and will have to be performed by the seller.
Example:
Mohan agreed to sell 200 tons of potatoes, to be grown on his land, to Sohan. The
crop was almost totally damaged because of a disease. The contract was said to
have become void because it was a case of destruction of specific future goods
identified as the crop from a particular land.
Thankyou
