Page 116 - DMGT407Corporate and Business Laws

Unit 5: Law of Sale of Goods

as the consideration for goods, it will not amount to sale. It will be called a ‘barter’. Notes
Further, in case there is no consideration, it amounts to gift and not sale. Similarly, the Act
is not applicable where the buyer has to perform some act in order to purchase the goods.
For example, he has to buy one dozen shirts to obtain a ‘free’ necktie. Here the buyer’s
consideration for the necktie is not the payment of cash; it is the act of buying the shirts.
Where, however, goods are sold for a definite sum and the price is paid partly in terms of
valued up of goods and partly in cash, that is sale. These are known as part-exchange
contracts. To sum up: the Act applies only when the buyer pays by cash (or by cheque,
credit card, etc.)

Examples:
(a) Fifty chairs, valued at ` 300 each, were exchanged for 1000 kilogram of wheat @ ` 10
per kilo, the difference to be made up in cash, the contract would be treated as one of
sale.
(b) Corn was delivered on the terms that on demand either the agreed price would be
paid or an equal quantity of corn, at the agreed price, would be returned, that was
held to be a sale.
Payment by installments. In the case of sale of goods, the parties may agree that the price
will be payable by installments. Also, the terms may stipulate some amount by way of
down payment and the balance by installments. In any case, the ownership in the goods
passes to the buyer. In case the possession is handed over to the buyer and he makes a
default in payment of any instalment, the seller cannot take back the goods; he can only
file a suit for the recovery of the instalment.
5. A contract of sale may be absolute or conditional [s.4(2)].
6. All other essentials of a valid contract as per the Indian Contract Act, 1872 must be
present. Being a specie of contract, sale must conform to all other essentials of a valid
contract. Thus, the parties to the contract must be competent to contract, the consent of the
parties must be free, the object of the contract must not be unlawful and so on.

Caselet Sale or Not?

ommodity taxation laws cover only “sale” transactions. The following have not
been regarded as “sale” by various courts: (i) Transfer to branches in other States;
C(ii) transfer of property in goods by way of execution of a works contract; (iii)
delivery of goods under hire purchase/instalment schemes; (iv) transfer of right to use
any goods, for example, lease/hire-purchase transactions; (v) supply of goods, refreshments
and so on, by, among others, clubs to members; and (vi) supply of food, drink and
refreshments by hotels, and so on.

Source: thehindubusinessline.com
5.1.1 Sale and Agreement to Sell

Where under a contract of sale, the property (ownership) in the goods is transferred from the
seller to the buyer, it is called a sale [s. 4(3)]. Thus, sale takes place when there is a transfer of
ownership in goods from the seller to the buyer. A sale is an executed contract.

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