Contract of Sale: Meaning, Sale and Agreement to Sell

Buying and selling goods is the single most common commercial transaction in everyday business — a shop selling cloth, a wholesaler supplying stationery, a factory delivering machine parts, are all, in law, a contract of sale of goods. The special law that governs these transactions in India is the Sale of Goods Act, 1930, which was originally part of the Indian Contract Act, 1872 and was later separated into its own Act because sale transactions are so frequent and specialised that they needed detailed rules of their own. The Sale of Goods Act, 1930 is a national (central) statute — it applies uniformly across every Indian state, so this is the same law that a Tamil Nadu trader, a Delhi trader, or a Chennai exporter is equally bound by; it is studied across Indian commerce and business-law curricula generally, not the property of any one board's syllabus.

Definition of a Contract of Sale — Section 4: the Act 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 price. Three ideas sit inside this one definition:

• There must be two distinct parties — a seller and a buyer.
• The subject matter must be goods.
• The transfer must be made for a price (a money consideration) — an exchange of goods for goods alone is barter, not a sale, and a gift of goods (no price at all) is not a sale either.

The words "transfers, or agrees to transfer" are deliberate — they cover two different situations within the single term "contract of sale": one where ownership passes immediately, and one where it is only promised for later. This distinction is developed fully in the next section.

A contract of sale can be absolute (unconditional) or conditional (subject to some condition being fulfilled, e.g. "sale on approval"), and it can be made by word of mouth, in writing, partly oral and partly written, or even implied from the conduct of the parties (e.g. picking goods off a supermarket shelf and paying at the counter) — the Act does not generally insist on any written form for a contract of sale to be valid.