Building on what we learned about the Sale of Goods Act (SGA) and the Consumer Rights Act (CRA), it’s important to realize that not all contracts involving goods are straightforward sales. The law recognizes several types of transactions that deal with goods but work differently from a simple sale.
What kinds of contracts are NOT sales?
These include:
Understanding the differences is vital because the rights, duties, and risks involved vary greatly, affecting what you can expect or enforce in real life.
Bailment — Holding goods for safekeeping
A bailment happens when you deliver goods to someone else temporarily, expecting them to take care of the goods and return them to you or handle them according to your instructions.
Example scenarios:
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Leaving your car at a valet or repair shop
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Giving your watch to a jeweler for cleaning
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Depositing luggage at a hotel’s storage room
Even though the bailee physically holds the goods, ownership remains with you. The bailee must take reasonable care, and if your goods are damaged or lost due to their negligence, you may be entitled to compensation.
Gifts and Barter: When the deal isn’t a sale
Gifts
A gift is the transfer of ownership of goods without receiving anything in return — no payment, no exchange. This means the giver (donor) transfers the property (ownership) to the receiver (donee) voluntarily.
Key points:
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For a gift to be legally effective, there must be a clear intention to give and actual delivery or transfer of possession.
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A promise to give a gift in the future is generally not enforceable unless it’s made formally, such as through a deed (a special legal document).
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Because no money or consideration is involved, gifts fall outside the Sale of Goods Act.
Practical example:
If you promise your friend that you will give them your bike next year, but later change your mind, your friend usually can’t force you to hand it over. However, if you hand over the bike now with the intention of gifting it, the gift is complete.
Barter
Barter is a contract where goods or services are exchanged for other goods or services, not money. Since the Sale of Goods Act requires a monetary price, barter transactions do not qualify as sales under the SGA.
Practical example:
Imagine you own a guitar and want a camera. You agree to swap your guitar with someone else’s camera. This is a barter. In some cases, courts treat a barter as two separate sales (each party sells their goods to the other for an agreed value), but legally it’s distinct from a sale involving money.
Why does this matter?
Understanding whether your transaction is a sale, a gift, or barter affects your legal rights and protections. For example, many protections under the SGA or CRA won’t apply to gifts or barter deals, which can lead to surprises if something goes wrong.
Security Interests: When goods are collateral for a loan
Sometimes, a business owner or individual needs to borrow money and offers goods they own as security for the loan. This means:
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The borrower (called the chargor) keeps ownership of the goods but grants an interest in them to the lender (called the chargee) as collateral.
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The lender gains certain rights over the goods until the loan is paid back.
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If the borrower fails to repay, the lender can usually sell the goods to recover the debt.
This is not a sale under the Sale of Goods Act. Instead, it’s a type of secured loan agreement involving goods as security interests.
Types of security interests in goods:
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Pledge: The owner physically hands over the goods or documents proving ownership to the lender until the debt is repaid. Example: pawning a watch.
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Charge: The owner keeps possession of the goods but grants a legal interest to the lender. The lender may have the right to sell the goods if the loan defaults, but the owner still holds possession.
The key point: ownership remains with the borrower, but the lender has a legal claim on the goods until the debt is cleared.
Contract for Work and Materials: When goods and services mix
This contract involves both supplying goods and performing work or labor on them.
Example:
The legal challenge:
What if the work is defective, but the goods themselves are fine? For example, the boiler works perfectly, but the installation was poor and causes damage.
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Under the Sale of Goods Act, the buyer can reject goods if they are defective. But if the defect is in the service/work and not the goods, rejection may not be allowed.
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The buyer might only have a claim for breach of contract relating to the service, not the goods.
How do courts decide?
They look at the substance of the contract:
Example:
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Dentures are usually considered goods because they have a physical form, even if skill is involved in making them.
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A painting is often treated as a service contract because the artist’s skill is the main focus.
Why is this practical?
If you’re buying something that involves both goods and services, it’s important to know what rights you have if something goes wrong. For instance, you might be able to reject faulty goods but not poor workmanship, or vice versa.
Agency contracts: When someone buys or sells on your behalf
In business, sometimes a person (the agent) buys or sells goods for someone else (the principal).
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If A buys goods from T on behalf of P, and P has authorized or later approves the purchase, then:
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However, if A acts as principal (for themselves), then there are two sales contracts:
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One between T and A.
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Another between A and P.
How do courts decide if someone is an agent or principal?
It depends on the substance of the transaction — what the parties intended — not just on the words or labels used.
Why does this matter?
Because it affects who holds the rights and obligations under the sale contract, such as who can enforce the contract or who bears the risk if the goods are damaged.
Option to buy: Not a sale until the option is exercised
An option to buy is a contract where one party (X) grants another (Y) the right to buy goods in the future.
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The option itself is enforceable only if supported by consideration (something of value exchanged).
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But it is not a sale until Y exercises the option and agrees to buy.
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During the option period, if goods are delivered but not yet accepted, this is often treated as a bailment — goods held for possible sale, not a completed sale.
Example:
You pay for an option to buy a car within 30 days. If you decide to buy, the sale contract happens then. If not, no sale occurs.
Sale-or-return contracts: The buyer can choose to accept or reject
A sale-or-return contract lets the buyer take goods but decide within a certain period whether to keep or return them.
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Until the buyer accepts, there is no sale.
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The goods are held on a bailment basis while the buyer decides.
Conditional contracts: Sales that depend on conditions
The Sale of Goods Act covers conditional contracts, where the sale depends on certain facts or events happening.
Promissory vs. non-promissory conditions
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Promissory condition: If the condition isn’t met, one party can sue for damages (they promised the condition would happen).
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Non-promissory condition: No party guarantees the condition will happen, but both agree the contract depends on it.
Important practical point:
Parties must not obstruct the possibility of fulfilling the condition.
Example: If a seller refuses to let a car be tested, that may be a breach of contract.
Contract of hire-purchase: buying through installments, not immediate ownership
A hire-purchase contract lets someone use goods by making payments over time, with the option—but not the obligation—to own the goods at the end.
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Unlike a straightforward sale, the property (ownership) only passes if the buyer exercises the option to buy after all payments.
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If the buyer decides not to buy, they can return the goods without completing the purchase.
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This is different from a sale or agreement to sell, where ownership passes immediately or at a specified future time.
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Hire-purchase contracts are regulated by laws like the Hire-Purchase Act 1965 and the Consumer Credit Act 1974.
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They include some of the same implied terms as sales contracts but have important differences in rights and responsibilities.
Why does all this matter in real business?
Understanding the distinctions between types of contracts—sale, conditional sale, agency, bailment, hire-purchase—is essential for managing risk, liability, and ownership in commercial transactions.
Real Business Example: Tech Startup and Equipment Purchase
Scenario:
A tech startup, InnovateX Ltd, needs new high-end computer servers to launch their cloud services.
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Agency Contract
They appoint an IT procurement specialist, Alex, to buy the servers on their behalf from TechSupplies Ltd. Alex acts as an agent, authorized to negotiate and finalize the purchase.
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Conditional Contract
The purchase agreement states the sale is conditional on the servers passing performance testing within 10 days after delivery.
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Option to Buy / Sale-or-Return
TechSupplies delivers the servers with an option for InnovateX to return them if they fail tests, meaning a sale-or-return arrangement applies until InnovateX accepts the goods.
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Hire-Purchase
Because InnovateX is a startup with limited funds, they arrange a hire-purchase contract with TechSupplies, paying monthly installments over 12 months, with ownership passing only after the final payment.
What can go wrong and how does the law protect?
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If the servers fail the tests, InnovateX can reject them without being forced to buy, due to the conditional contract and sale-or-return terms.
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If Alex acted beyond his authority and made the purchase as principal, InnovateX could avoid liability for the purchase, but this depends on whether Alex was truly an agent.
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If InnovateX misses payments on the hire-purchase contract, TechSupplies retains ownership and can repossess the servers.
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If servers were damaged during delivery, the timing of property passing (ownership) is crucial to know who bears the risk (buyer or seller).
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The hire-purchase arrangement gives InnovateX flexibility to test and finance the purchase without immediate full payment, but also requires careful management of payments to gain ownership.
Practical takeaways for business:
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Clearly define roles: Who is agent, who is principal? This affects legal liability.
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Specify conditions clearly: What must happen for the sale to complete? Testing? Approval?
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Understand the type of contract you are entering: Sale, hire-purchase, bailment, option to buy—all have different rights and risks.
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Plan payment terms and ownership transfer carefully to protect your business assets.
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Know your legal rights if things go wrong (e.g., product defects, payment defaults, contract breaches).
By understanding these aspects of commercial law in sale of goods, businesses can structure deals that fit their financial and operational needs while minimizing risks and protecting their interests.
Which of the following is NOT considered a sale under the Sale of Goods Act?
Transaction involving immediate ownership transfer
