Lecture 07

Added: 2026-05-07

[00:00:14]Dear learners, in this lecture we shall be examining the definition as well as essentials of sale. So we would be breaking down the various ingredients of sale from its definition and trying to understand them with the help of examples, illustrations as well as various case laws. Now sale as we ordinarily understand as a common man a lot of law goes into it and so the usual sale that we do in terms of as a consumer or retailer we'll be breaking down into small legal parts. So first up we shall be taking up what is the definition of sale. So a sale is defined under section 4 clause one of the sale of goods act. This provision defines a sale in the following words. A 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.

[00:01:32]Now as you would have noticed that some of the key expressions that we shall be examining in detail I have colored them here for your benefit. So for example firstly sale is a subset of a contract. So we have had a very extensive discussion on how contract law influences the business law as well as the sale of goods act. Then uh the parties to a contract of sale. So we have a seller and along with that we have the obligations of a seller that is to transfer or to agree to transfer.

[00:02:13]Then we have the other stakeholder that is a buyer. Along with that there is an obligation of a buyer that is to pay the price. And then we have uh the subject matter of a contract of sale which is goods.

[00:02:29]Now we shall be breaking down this definition into smaller parts and then we shall be examining each of these parts in more detail. So breaking down the essentials from this definition of sale. So firstly sale is a contract.

[00:02:48]Secondly, who are the parties in this contract? The buyer and the seller.

[00:02:54]Thirdly, the obligation of a seller that is to transfer or to agree to transfer the goods. Goods are a subject matter of the contract. So there is a transfer from one party to the other party that is from seller to the buyer. So the goods move in this direction. Whereas the consideration that is the price it moves in the opposite direction that is from a buyer to a seller. Now what is the consideration for getting into the contract for the seller? It is the price of the goods. So this is something that has to be bought by the buyer of the goods. Now we shall be examining each of these essentials in some detail.

[00:03:45]So firstly sale is a contract.

[00:03:50]So when we say that it is a contract then uh the general principles of contract law as are enshrined under the Indian contract act 1872 they apply to a contract of sale. Now contract of sale is a special contract meaning thereby the general principles of law of contract they apply to certain special situations which make it a sale of goods. So apart from the general principles of contract there are certain provisions that are provided under the sale of goods act which have to be read conjoinly. So general principles of contract as well as a contract of sale makes a sale of goods. Now as certain general principles of contract they apply to a contract of sale. For example, the parties they must be competent to contract. Now what is a competence? This is something that we have already discussed under the law of contract.

[00:04:56]Then the will of the parties to enter into the contract it should be accompanied by a free consent. Meaning thereby there should not be presence of any element such as fraud, misrepresentation, coercion, mistake so on and so forth.

[00:05:17]Then the nature of the contract should not be illegal and should not be declared void by any law. for the time being in force. So the sale cannot be of any goods which are prohibited by any law for the time being in force. So for example, if a particular jurisdiction prohibits the selling of let's say liquor or cigarettes. So there cannot be a legally binding contract of sale of goods for buying and purchase of such liquor or cigarettes. So contract uh is commutative. A commutative contract in legal terms it refers to an agreement in which the obligations and benefits of both parties they are clearly defined and of equivalent value.

[00:06:13]So the key characteristics of a commutative contract are equivalent exchange which is a core principle that what one party provides it gets something else of equal value. The second characteristic is of fairness and balance.

[00:06:35]So commutative contract is rooted in fairness where each party's obligation is directly proportional to the benefit that they receive which accords balance to the contract.

[00:06:48]And thirdly that there should be some predictable outcome while entering into the contract.

[00:06:55]So we have certain contracts where the outcome may be unpredictable. For example, contracts of insurance. In contracts of insurance, uh you get to have the benefit of insurance only when a certain unforeseen event such as accident or any health problem it takes place. But whether you get a health problem or not, whether you meet with an unfortunate accident or not, this is something that is unpredictable. So an example of a commutative contract can be a buyer pays a specific price for the goods and the seller provides the goods.

[00:07:37]So the value of the goods and the price they are considered to be equivalent to each other. Therefore in contractual terms sale is referred to as consensual.

[00:07:51]It is bilateral and it is commutative.

[00:07:56]So it has to be with the consent of both the parties. Now because there can be at least two parties. So therefore it is bilateral and what is commutative. The key characteristics is something that we have already discussed.

[00:08:15]The second essential that we will be discussing is that a sale is bilateral.

[00:08:23]Meaning thereby there are at least two parties. One is the buyer and the other is the seller. So by bilateral we mean that both parties have certain rights under the contract and both parties have certain duties and obligations under the contract. So the buyer has an obligation to pay for the goods. The seller has an obligation to supply the goods. In the same way, a buyer has a right to get the goods and the seller has a right to receive payment of the goods. So this bilateralism is bilateralism for the rights as well as obligations.

[00:09:06]However, on the question of consent, there have been some disputes which have shaped the legal discourse on contract of sale of goods that relate to the question of consent in certain statutory contracts.

[00:09:25]So statutory contracts as the name suggests are contracts which have to be performed in compliance with a statute or a legislation.

[00:09:37]So if you perform them then you are doing a statutory duty. If you don't perform them it could be a breach of a statutory duty.

[00:09:48]Now we will be discussing some cases on which there has been an interplay between statutory contracts and a questionable consent of the parties. So one case we have is New India sugar mills versus commissioner of sales tax a 1963 case.

[00:10:08]Now in this case uh the facts and the issue are that the government had complete control over acquisition of sugar from private mill owners.

[00:10:21]So the question was that whether supply of sugar by a sugar factory which is owned by a private mill owner in compliance.

[00:10:33]So I'm highlighting this key word in compliance with the orders of the sugar controller of India. So somebody who represents the government. So sugar controller of India is an authority.

[00:10:48]So whether this results in a contract of sale. So here the key words that I have highlighted here is one is the order and the other is the compliance of the order. So private mill owners as private businessmen they were regulated to certain government restrictions, regulations and control over their sugar business. So the government could uh compulsorily acquire their produce or could order them to sell their produce to the sugar factories.

[00:11:29]So whether the word order and the word compliance they are very strong words.

[00:11:35]So whether they in any way visiate the free will vition or consent of the parties to enter into a contract or not.

[00:11:48]So the decision in this case was that uh it will not result in a contract. So the court ruled that compelled sale is not a sale.

[00:12:09]Now because whatever sale was being done, it was being done in compliance with the orders of the government authority.

[00:12:17]So the parties that is the seller, they had no option but to comply with the orders of the government. If they wouldn't apply, if they wouldn't comply with the orders of the government, it would be a breach of statutory duty and certain penalty or sanctions could be imposed upon them. So the question that arose in this case was with reference to the sales tax whether a sales tax could be imposed on such transactions. So the court said that because it is not a sale, it is a compelled sale because it does not originate from the free will and valition of the parties. So therefore it would not be subjected to sales tax.

[00:13:04]The same question also arose in a later case that is Vishnu agencies versus commercial tax officer a case of 1978.

[00:13:17]The facts of this case are that under the essential commodities act, West Bengal regulated the production, supply and distribution of cement through a license.

[00:13:32]Under the conditions of license, a named permit holder that is the buyer was to be supplied the quantity and price mentioned in the permit by the license holder.

[00:13:45]So the question was that whether the sale of cement under the license from seller to the buyer whether it amounts to a transaction of sale and connected with this question whether it is to be subjected to sales tax. So the decision of this court was that yes the transaction will be a sale and therefore in that sense the decision of the court in this case was different from the decision of the court in the earlier case and the reasoning which was given by the court was very interesting reasoning. So what the court said was that whether a particular license holder should apply for a license or not this is something that depends upon his free will and consent. So there is no obligation on any person to apply for a license.

[00:14:52]But once he applies for the license, he has to abide by the terms and conditions of this license. And the terms and conditions was that he has to supply a certain quantity of cement as per the orders of the government. So the court ruled that if he applies for the license and gets a license then he has to abide by the terms and conditions of the license. So therefore merely abiding by the terms and conditions of the license which is to sell the cement.

[00:15:31]The consent is not viated. So the consent has to be examined from the point of view of the voluntariness and free will to apply for the license or not.

[00:15:47]So the decision in this case still holds the law of the land and uh the sale that is done under statutory contracts is considered to be a transaction of sale and subject to relevant taxation.

[00:16:07]So this is how the question of consent in statutory contracts has been settled.

[00:16:15]Now the third ingredient that we are going to discuss is the subject matter of the contract of sale which is goods.

[00:16:24]So what is meant by goods? It is defined under section 2 subclause 7 which defines a goods as goods means every kind of movable property.

[00:16:38]So we have the word here movable which is important.

[00:16:43]So the law relating to movable property is sale of goods. So sale of goods is essentially the sale of movable goods.

[00:16:53]The law relating to immovable property is contained in another legislation that is the transfer of property act or TPA.

[00:17:01]But uh movable goods does not include actionable claims and money.

[00:17:10]So the sale of goods act 1930 explicitly excludes an actionable claims from its definition of goods. So actionable claims can be any other interest in the goods such as that relating to mortgage hypothecation bailment or some other securities.

[00:17:35]Then it also excludes money or cash from the definition of sale of goods. But it includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before the sale or under a contract of sale.

[00:17:58]So actionable claim refers to a right to a debt or beneficial interest in movable property that is not in the claimment's possession and can be enforced in a court.

[00:18:14]Now further we shall be doing a classification of goods. The goods can be classified under two heads. Firstly on the basis of existence we have existing goods, future goods and contingent goods. On the basis of identification we have specific goods and unspecific goods. Now let us examine the meaning of various different kinds of goods as per this classification.

[00:18:49]So we have uh future goods which are defined under section 2 subclass 6. We have existing goods, contingent goods section 6 subclass 2, specific goods under section 2 sub clause 14 and unspecific goods.

[00:19:09]So future goods they refer to those goods which are to be manufactured or produced or acquired by the seller after making the contract of sale. So when the agreement is being made such goods are not in existence with the seller. So he either has to produce them or he has to acquire them from a third party.

[00:19:37]So goods which exist and which are available with the seller at the time of making of a contract of sale they are known as existing goods.

[00:19:49]Then contingent goods are those goods the acquisition of which by the seller depends upon a contingency which may or may not happen. So a situation that may or may not happen. So the seller cannot be absolutely sure whether he's going to get access to the goods.

[00:20:13]Then specific goods means those goods which are identified and agreed upon at the time a contract of sale is made. So here the buyer and the seller specifically attribute upon the particular goods identify them and agree them which have to become a subject matter of sale. On the other hand unspecific goods are those goods which are neither identified nor agreed upon at the time a contract of sale is made.

[00:20:57]Now let us further examine these kinds of goods with the help of some examples in order to clear your concept.

[00:21:09]So we have uh existing goods for example if you buy a smartphone or any accessory from uh a shop. So here we have an example of a consumer buying an iPhone from an Apple store. So we call them as existing goods because they exist at the time when the contract of sale has to be made. So the manufacturer or the seller he does not have to produce them or does not have to acquire them. So over-the-counter sale or a retail sale of the goods which are already there in store we call them as existing goods.

[00:21:54]But if you make a contract with the tailor and if a tailor takes your dimensions you select a cloth. So then the seller that is the tailor he has to produce the goods according to your dimension make them ready and only after that the goods will transfer from the seller to the buyer. So an example of a tailor making the clothes as per the dimensions of the buyer is an example of future goods because when this contract is made the goods are not into existence.

[00:22:34]So the existence of goods at the time of making of the sale distinguishes existing goods with future goods.

[00:22:45]Now contingent goods are those goods whose acquisition by the seller depends upon a contingency which may or may not happen. So contingency has two elements that certain eventuality may happen a certain eventuality may not happen. So if certain eventuality happens and the seller gets the goods only then he can sell them. So to take an illustration of a contingent goods supposing there is a person X the owner of a precious stone he invites bids for the stones auction.

[00:23:23]Now there is a person Y who proposes to make a bid for the stone and he also agrees to sell the auctioned stone to Zed that is a buyer in case if Y's bid for the stone is successful. So therefore whether wise bid will be successful or not this is something that may happen and this is something that may not happen. So if there are other biders of the stone and y does not make a successful bid. So in that case Y is not going to get ownership of the goods and because he's not going to get ownership of the goods he will not be able to transfer the ownership of something which does not belong to him. So here we have the contingency which is making a successful bid at the auction of the goods which are to be a subject matter of the contract.

[00:24:30]Then the next is uh specific and unspecific goods. So we have already discussed specific goods are those which are identified and agreed upon.

[00:24:41]Unspecific are those which are not identified and agreed upon at the time of sale. So for example, if you go to a fruit vendor and you have to buy the apples. So if let's say that there is a lot of 100 apples you propose to buy 10 apples then you have to do the exercise of selecting 10 apples from the lot of 100 apples. So by selecting those 10 apples you will be identifying the goods and aortioning them to the contract or to the contract of sale of apples. So when you select those goods, when you select the apples and you segregate them from the rest of the lot, you are doing an exercise of making the goods specific goods. So only after the goods have been made specific can there be a sale.

[00:25:40]Unspecific goods are those which have not been identified or agreed upon from the rest of the lot. So if you have to buy 10 apples from a lot of 100 then they are unspecific goods because you've not selected 10 apples from the lot of 100.

[00:26:02]Now the law commission of India in its 8th report of 1958 made certain suggestions in view of evolving technology to make new additions to the definition of goods so as to include more and more goods which are subject matter of transaction of sale. So the additions that were made to the definition of goods over a period of time for example electrical energy in the case of commissioner of sales tax MP versus MP electricity board in the same way software in the case of TCS versus state of Andhra Pradesh 2005 and electric television signals Jabalpur cable network private limited versus ESP and Software India Private Limited 1999.

[00:27:03]So the one thing that is common in these three goods is that they form an intangible property or something that does not exist in physical form.

[00:27:16]So goods may include tangible goods and they may also include certain intangible goods such as those relating to it and if they are subjected to sales tax therefore they will be considered as goods. Then the fourth essential is that there has to be a transfer of property.

[00:27:41]So the seller transfers the property in goods to the buyer.

[00:27:49]Now property is defined under section 2 sub clause 11 of the sale of goods act.

[00:27:57]So property means general property in goods and not merely a special property.

[00:28:04]Now what is general property? What is special property? So general property means complete rights over the property which come with the status of ownership.

[00:28:18]So the owner can use them, owner can alienate them, owner can sell them, owner can authorize somebody else to use them. So on and so forth. Then special property means only limited rights such as possession and use and not ownership.

[00:28:36]So who can transfer the property? The property can be transferred by somebody who has property in a general form that is all the rights that are associated with the property. So if you have limited rights like say if you have borrowed somebody's bicycle and have possession of it and are using it as a kind of a rented property then obviously it cannot be a subject matter of sale because somebody who has special rights and is merely using so because they themselves are not the owners. So therefore they cannot transfer any title to somebody else. So the property should include general property and not merely a special property.

[00:29:29]Then the next essential is consideration.

[00:29:34]So consideration as we know it, it is a incentive for the seller to enter into a contract.

[00:29:46]As you know the contract of sale of goods has to have a certain incentive or a benefit for both the parties. So the consideration for the buyer is that he gets the goods and consideration for the seller is that he gets the price for the goods. So consideration is defined under section 2 sub clause 10 of the sale of goods act which provides that consideration has been in terms of money meaning thereby there cannot be a transaction of sale of goods like a barter or an exchange. So there cannot be an exchange of goods for a goods. it will be regarded as a barter or an exchange and not a sale of goods. So what is required for a sale of goods is that consideration has to be in terms of money and this is something that distinguishes a contract of sale of goods with an ordinary contract. So if there is a barter or an exchange of goods with goods, it will be a contract. But it will not be a contract of sale of goods because sale of goods is a special category of a contract which has a special requirement of consideration only being in the form of money.

[00:31:12]So with this we come towards the closure of our discussion on the definition and essentials of sale. We have discussed how sale is defined under the sale of goods act. We have taken a conceptual overview and the features of sale such as being bilateral, consensual and commutative.

[00:31:38]Then we take a detailed examination of its essentials such as it is a subset of a contract.

[00:31:49]Special contract the parties are the buyer and seller. There is a transfer of the subject matter of contract which is goods. The contract or goods it flows from seller to the buyer. money it flows from the buyer to the seller. There has to be a special kind of a consideration that is for price of the goods in terms of money. So with this we close this lecture on the definition and essentials of sale. Thank you very much. [music]