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 price [Section 4].

(a) Existence of minimum two parties: buyer and seller. However, a part-owner may sell to another person who also happens to be a part-owner of the same property. For example, a partner of a partnership firm may sell goods to his own firm, and again, even his own firm may sell goods to a partner of the firm [Section 4]. But, the joint owners of certain goods cannot sell it to the joint owners of the property, as the joint owners of a property will be considered to be one and the same person, and one single person cannot be both the buyer and the seller of the property at the same time.

(b) Here, in the case of a sale or an agreement to sell, both the ownership and the possession of goods are transferred, as against in the case of pledge, wherein only the possession of the goods pledged is transferred, and not its ownership. (c) Here, the subject matter of the contract must necessarily be some goods. The term goods as defined under Section 2 (7), pertains to only movable property, and not to any immovable property like land, building, immovable items of machinery, and so on. Further, the term property in goods, used in Section 4, connotes the title or ownership of goods, and that too, of movable items of goods only. Moreover, the term property should not be confused with house property or such other immovable items of immovable property. The sales of immovable property are, however, covered under the Transfer of Property Act.

(d) Consideration has to be in price, i.e. in terms of money only. Accordingly, a certain quantity of wheat exchanged for a certain quantity of rice, will not constitute a sale. It will, instead, be deemed as barter. Similarly, as in the case of a gift there is no consideration in terms of money, as it is given for free, it will not amount to a sale, either. But then, in the case of a sale of any (property in) goods, in consideration of a certain amount of money (cash or cheque or bank draft), and such settled price is paid partly in terms of money and partly by way of some goods (i.e. in kind), such transaction will also be deemed to be a sale in the eye of law.

(e) Contract of sale may be absolute or conditional. (f) All other elements of a valid contract must be present. For example, the parties to the contract muse be competent to enter into a contract (i.e. none of them should be a minor, lunatic or insolvent), there must be free consent, the object and consideration of the agreement must be legal, and so on.

A sale takes place where, under a contract of sale of goods, the property (title or ownership) in the goods in question is transferred from the seller to the buyer [Section 4 (3)]. Thus, a sale is an executed contract. But, in case the delivery of the goods or the payment of their price, or even both, is postponed to some later date, the transaction will still be deemed to be a valid sale and not an agreement to sell.

As against sale, an agreement to sell means that under such contract of sale, the transfer of the property (title or ownership) in the goods itself will take place at some future date or that it (i.e. the transfer of the property in the goods itself) will depend on some condition which could be fulfilled only thereafter [Section 4 (3)]. We may thus observe that, in the case of an actual sale there is an actual transfer of the property (title/ownership) in the goods in question from the buyer to the seller, whereas in the case of an agreement to sell there is only an agreement to transfer (and not an actual transfer of) the property in the goods in question from the buyer to the seller, and that too, at a later date.

In the case of sale, the ownership of the goods passes on to the buyer immediately when the actual sale is completed, irrespective of the fact whether the price of the goods involved has been paid by the buyer in full or not. But in the case of hire purchase (where there is only an agreement for hire, and only an option with the hirer to purchase the goods, and not a purchase as such), the price is required to be paid by the hire purchaser in monthly installments, and the ownership of the goods involved passes on to the hire purchaser only if he has been paying the monthly installments regularly, and only after he has paid the last installment in full and final payment of the price of the goods involved, and not earlier. And, till the last installment is paid in full, and final payment of the price of the goods involved, it constitutes only a bailment of the goods, and not a sale thereof. Thus we may say that a hire purchase agreement is in the nature of bailment coupled with an agreement to sell. Further, in case the hirer (hire purchaser) fails to pay any of the monthly installments, the owner of the goods (hiree) has the option to terminate the contract and take away the goods, given on hire purchase terms. This is so because the ownership of the goods continues to remain with the (initial) owner (hiree) himself, till every installment, including the last installment, is finally and fully paid.

In the case of a contract for the sale of goods, the delivery of the goods involved is a primary condition. But, in the case of a contract for the work, labour and materials, the primary condition of the contract is the application of the labour or skill, i.e. the delivery of the goods involved is just a secondary condition. For example painting work by a specific painter, or delivery of gold biscuits to a goldsmith to make some ornaments. But, in the case where a dentist enters into an agreement with a person to prepare a set of dentures (artificial teeth) to fit into his (customers) mouth, this contract will be deemed to be a contract for the sale of goods, and not a contract for work and labour.

In the case of a contract for the sale of goods, the delivery of the goods involved is made against a price, (i.e. in terms of money, either in cash or by way of cheque/bank draft). But, in the case of a barter, the transfer of ownership of one thing (i.e. of a commodity, like rice, pulse, spice, and so on) takes place by way of the transfer of ownership of something else (i.e. some other commodity, like wheat or sugar, and so on).