Formation of Contract under Sales of Good Act, 1930
πΉ Formation of Contract under Sale of Goods Act, 1930
1. Meaning of Contract of Sale of Goods
Section 4 of the Sale of Goods Act, 1930 (SOGA):
βA 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.β
Key points:
Seller β person who sells or agrees to sell goods.
Buyer β person who buys or agrees to buy goods.
Goods β movable property (excluding actionable claims and money) per Section 2(7).
Price β money consideration agreed by parties.
Types of Sale Contract:
Sale: Transfer of ownership immediately.
Agreement to sell: Ownership transfers at future date or on fulfillment of condition.
2. Essentials for Formation of Contract (SOGA + General Contract Law)
The contract must satisfy general principles of contract formation under the Indian Contract Act, 1872:
Offer and Acceptance (Sections 5β7, Contract Act)
Seller makes an offer to sell goods.
Buyer accepts the offer.
Acceptance must be absolute and unqualified.
Consideration (Section 2(d), Contract Act)
Price paid or promised for goods.
Can be money, or exchange of goods.
Intention to Create Legal Relationship
Parties intend legal enforceability of the contract.
Capacity of Parties (Section 11, Contract Act)
Both buyer and seller must be competent to contract (i.e., major, sound mind, not disqualified by law).
Free Consent (Sections 13β19, Contract Act)
Consent must not be coerced, under undue influence, misrepresentation, fraud, or mistake.
Lawful Object (Section 23, Contract Act)
Object of contract must be lawful and not forbidden by law.
Certainty of Terms
Quantity, price, description of goods, and delivery terms must be clear.
3. How Contract is Formed under SOGA
(a) Steps for Formation
Negotiation / Offer
Seller offers to sell goods.
Example: βI will sell 100 chairs at βΉ5,000 each.β
Acceptance by Buyer
Must be clear, unconditional, and communicated.
Consideration / Price
Agreed amount must be fixed or determinable.
Agreement to Sell or Sale
Sale β transfer of ownership immediately.
Agreement to sell β transfer is conditional or at future date.
Delivery
Goods delivered as per contract terms.
(b) Example
A agrees to sell 50 bags of rice to B at βΉ2,000 per bag.
Ownership transfers immediately β Sale.
Ownership transfers after payment or delivery β Agreement to Sell.
4. Legal Provisions for Formation
Section 4 SOGA: Definition of contract of sale.
Section 5 SOGA: Distinction between sale and agreement to sell.
Section 6 SOGA: Contract of sale may be absolute or conditional.
Section 7 SOGA: Sale may be made by description, sample, or name.
Section 8 SOGA: Implied conditions regarding title.
5. Case Laws on Formation of Sale Contract
(a) Mohori Bibee v. Dharmodas Ghose, AIR 1903 PC 149
Facts: Minor entered into a contract of sale.
Held: Contract void due to incapacity.
Principle: Capacity is essential for valid sale contract.
(b) Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781
Facts: Dispute over terms of sale of goods.
Held: Contract enforceable once offer, acceptance, and consideration established.
Principle: Clear terms and consent required.
(c) Karuppan Chetty v. Ramakrishna Chetty, AIR 1938 Mad 315
Facts: Goods agreed for future sale.
Held: Agreement to sell is enforceable as contract, but transfer occurs later.
Principle: Sale and agreement to sell are distinct but both enforceable.
(d) Lallu Lal v. Hiralal, AIR 1947 Cal 201
Facts: Sale by sample; goods did not match sample.
Held: Contract valid if buyer accepted with knowledge.
Principle: Contract formation may include conditions by description or sample.
6. Distinction: Sale vs. Agreement to Sell
| Feature | Sale | Agreement to Sell |
|---|---|---|
| Transfer of ownership | Immediate | Future or conditional |
| Right to goods | Buyer gets ownership | Only promise; no ownership yet |
| Remedies | Breach β damages | Breach β can sue for damages or specific performance |
| Risk | Passes to buyer | Remains with seller until transfer |
| Legal Sections | Section 4β6 SOGA | Section 5 SOGA |
7. Doctrine of Caveat Emptor
Buyer must examine goods before purchase.
Seller liable for misrepresentation or fraud, otherwise contract valid.
Relevant in formation stage, especially sale by description or sample.
8. Summary
Contract under SOGA = agreement where seller transfers or promises to transfer property in goods for price.
Essentials of formation: Offer, acceptance, consideration, lawful object, capacity, free consent, certainty of terms.
Legal provisions: Sections 4β8 SOGA.
Distinction: Sale vs agreement to sell (ownership transfer now or later).
Key Cases:
Mohori Bibee v. Dharmodas Ghose β capacity essential.
Gherulal Parakh v. Mahadeodas Maiya β offer, acceptance, consideration.
Karuppan Chetty v. Ramakrishna Chetty β agreement to sell enforceable.
Lallu Lal v. Hiralal β sale by sample, formation valid if buyer accepts.
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