Contract Of Sale

Contract of Sale refers to the agreement between the buyer and seller, where the former promises to offer goods for sale at a set price to the buyer. Its sole purpose is to enable the sale of goods with equal transfer of ownership.

The contract of sale agreement is widely used in various fields and industries. It allows parties to trade their goods in exchange for remuneration (price). However, it has some implications for both parties involved.

• A contract of sale is an agreement pertaining to the goods traded between buyer and seller. Here, the seller agrees to transfer the ownership of goods, and the buyer is willing to pay the price for it.
• This contract is a part of the Uniform Commercial Code (UCC) enacted in 1952. It establishes the terms while transacting goods of value of more than $500.
• The essential components of the agreement are the parties' name and address, title, payment, goods description, terms and conditions, remedies of breach, and acceptance.
• It differs from a contract to sell, as in the latter, the ownership is transferred only upon full payment.

A contract of sale is an agreement when two parties agree to exchange goods for a rate and promise to deliver the goods to the buyer. It acts as a crucial document for trading or transacting goods on a daily basis. Also, it leads to a transfer of ownership between parties. Thus, businesses and individuals include this agreement as proof of goods dealt with by other parties. However, the total value of goods must be above $500 for the agreement to exist. Only then can two parties enforce a written agreement.

The enforcement of the contract of sale of goods was first listed in the Uniform Commercial Code (UCC) enacted in 1952. Article 2 provides detailed provisions for the conditions under which such a contract can be formed. For instance, in situations where the buyer has yet to pay the full price or the seller cannot deliver the product, the seller must have the intention to sell the goods to the buyer. Additionally, if the seller doesn’t receive payment, they can enforce a resolutory condition and reclaim the item sold.

Under UCC, the section includes certain goods that are exchangeable for money or consideration, including physical goods, crops, livestock, and documented and fungible (explainable) products. However, if a seller deals with personal property, the sale value must be above $5000 in writing, such as a contract of sale for a vehicle. Or else, the parties can verbally communicate or enforce an oral contract in case of lesser-value goods. It is further explained in the Statute of Frauds, which states the need for a written agreement. Each state has its own rules for different types of sales contracts.

The UCC mentions certain essential components in Article 2 of the sale contract. It signifies the need and purpose of each element in the agreement. Let us look at the items that should be incorporated in such contracts for better understanding:

#1 - Sale of goods description

The initial segment of the agreement includes the party's information and description of the goods involved. It includes the following details:

1. Buyer and seller's name, address, and contact details.
2. Goods description, including weight, volume, and type.

#2 - Price and payment

This section mentions the price and rate of the goods sold. The seller may state the mode of payment and currency in which the transaction may occur. Also, it includes the payment terms and approach (installment or one-time payment) opted by the buyer.

#3 - Delivery

This section outlines the buyer's delivery location and date of delivery. Furthermore, the seller also lists the risks and terms associated with the final delivery of goods.

#4 - Title

It includes the transfer of title ownership from the seller to the buyer upon full payment of the goods price.

#5 - Warranty

Under this section, the agreement mentions the terms under which the buyer can claim a warranty for the goods purchased. It also includes the last warranty date.

#6 - Inspection

On receiving the goods, the buyer has a certain number of days to inspect the goods and apply for exchange or similar terms if available.

#7 - Terms and remedies for breach

The agreement also lists terms, governing rules and regulations, and obligations that parties must follow under certain conditions. Similarly, in case of breach, the non-breaching party will receive all the remedies and compensations mentioned in the contract.

#8 - Acceptance and signatures

In the end, both parties agree to the terms for the sale of goods, followed by signatures.

Let us look at some examples to understand the concept better:

Example #1

Suppose James is a businessman who manufactures and sells clothes to wholesalers and large firms. He receives a large order of 500 company t-shirts and 200 jerseys from Samuel, who owns a marketing firm. As a part of corporate culture, Samuel wants to distribute t-shirts with company logos to all employees.

James started preparing the order, but before that, he prepared the contract of sale agreement. It states all the terms and conditions, product description, and total value of the goods. However, on receiving the parcel, Samuel noticed that some t-shirts were missing. Therefore, as per the agreement, James was liable to send the missing items as per the agreement.

Example #2

According to a recent news update in September 2023, Rwanda, a South African country, joined the United Nations Convention for the Contract of International Sale of Goods (CISG). It is the 97th state to become a part of the convention that governs the sale contracts for goods sold globally. The CISG has enacted a uniform code of conduct that enables international trade for various countries worldwide. Moreover, this agreement has also brought a level of certainty to the transactions conducted.

Let us look at the differences between these two contracts:

The following are the differences between them:

This article has been a guide to what is Contract Of Sale. We explain it with its template, differences with contract to sale & agreement to sell, and examples. You may also find some useful articles here –

• Evergreen Contract
• Time And Materials Contract
• Unilateral Contract