Important clauses in a contract of sale

The contract of the sale of goods is governed by The Sale of Goods Act, 1930. The Act extends to the whole of India except the state of Jammu & Kashmir. Till 1930, all the transactions related to the sale of goods was regulated by The Indian Contract Act, 1872. In 1930, Sections 76-123 were replaced by the Act of 1930. A contract for the sale of goods has certain unusual features such as transfer of ownership of the goods, delivery of goods, rights and duties of the buyer and seller, remedies for breach of contract, conditions and warranties implied under a contract for the sale of goods, etc. These unusualities are subjected to the provisions of the Sale of Goods Act, 1930.

The Act deals with the subject-matter of movable property. This Act does not deal with the sale of immovable property. The transaction relating to immovable properties, e.g., the sale, lease, gifts, etc., are governed by a separate Act known as the Transfer of Property Act, 1882 .

What is Contract of Sale: meaning & concept

Contract of the sale is an agreement between the buyer and the seller intending to exchange property. Section 4(1) defines the contract of the sale as – a contract of the sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to a buyer for a price.

In other words, the essentials to constitute a contract of the sale are as follows:

Two parties

There must be 2 distinct parties i.e. a buyer and a seller, to effect a contract of the sale and they must be competent to contract. ‘Buyer’ as defined under Section 2(1) means a person who buys or agrees to buy goods. ‘Seller’ has been defined under Section 13 which states that a person who sells or agrees to sell goods.

Goods

There must be some goods, the property which is or is to be transferred from the seller to the buyer. The subject-matter as to the goods under the Contract of Sale must be movable property. This Act does not concern the immovable property as its subject-matter.

Price

The most important essential for the enforceability of the Contract of Sale of goods is the price. The price can be termed equivalent to the consideration. In the absence of such price or consideration, the transfer cannot be termed as a sale. The transfer by way of the sale must be in exchange for a price. The payment of the price can be made in two modes:

1. Paid fully in cash; or
2. Paid partly and rest promised to be paid partly in future.

The price can be determined through an instrument of agreement between the parties before the conveyance (transfer) of the property.

Transfer of general property

There are two types of property on the basis of its nature, i.e., general property and special property. The subject-matter of the contract of Sale of Goods deals with the special property. For the enforceability of such a contract, there must be a transfer of special property from the seller to the buyer. For e.g., if A owns certain goods he has general property in the goods. If he pledges them with B, B has a special property in the goods.

Essential elements of a valid contract

All essential elements of a valid contract must be present in the contract of the sale, i.e.,

• An offer,
• An acceptance,
• An intention to create a legal relationship, and
• A consideration

Formalities of the contract of sale of goods

Except where specifically mentioned by the law, there is no prescribed form required to draft a contract of the sale of goods. The agreement between the parties, i.e., the buyer and the seller may be implied or may be expressed acknowledged by the conduct of the parties. Section 5 of the Sale of Goods Act, 1930 describes as to how the contract of the sale of goods can be framed. Therefore, the contract of the sale of goods can be made-

1. By an offer from the buyer to buy and seller to sell goods for a fixed consideration mentioned in the agreement. Such an offer of buying or selling must have an acceptance of the opposite party. The delivery of the goods can be executed in the following manner:

• immediate delivery of the goods; or
• immediate payment of the price or both; or
• by delivery or payment in instalments; or
• the delivery or payment or both to be postponed.

2. Subject to the provisions of any law for the time being in force, a contract of the sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied by the conduct of the parties.

In nutshell, a contract of the sale may be made in any of the following modes:

1. There may be an immediate delivery of the goods; or
2. There may be an immediate payment of a price, but it may be agreed that the delivery is to be made at some future date; or
3. There may be an immediate delivery of the goods and an immediate payment of the price; or
4. It may be agreed that the delivery or the payment or both are to be made in instalments; or
5. It may be agreed that the delivery or the payment or both are to be made at some future date.

Important clauses in a contract of sale of goods

There are some important clauses that are pre-requisite conditions to constitute an agreement for the contract of the sale of goods. These are as follows:

Title of documents

Title to a document differentiates it from the other documents. It makes it more specific as to what and which subject-matter it deals with. It gives an identity to a document. Title the document as ‘ Contract for the Sales of Goods ’. Titling the document proves as to whom the document belongs to and who owns it or has the right to take control over it.

Name the parties to the contract

The name of the buyer and seller must be mentioned in the contract. Besides to this, the addresses of the parties must be mentioned therein to have the accountability and transparency for future contingencies. For example, “This contract of the sale of goods made and entered into (date) between (name of the seller) located at (address of the seller) and (name of the buyer) located at (address of the buyer).

Include the recitals

We generally came across the ‘Whereas’ clauses in almost every contract. These are known as ‘recitals’. The whereas clauses are added to define the party’s purpose for entering into the contract. Recitals act as elementary statements for the effective enforceability of the written agreement or deed. They customarily appear at the beginning, and acts similar to the preamble, i.e., setting out the aims and objectives. They set out the party’s intention; what the contract is for, who the parties are and so on. Recitals are the clauses states after the words “whereas” introducing the main conditions and compliances to be fulfilled for the enforceability of the contract.

Describe the goods

The Sale of Goods Act,1930 only deals with the movable property. The goods must be described clearly and definite. It must be defined as in quality and quantity both. Goods are defined under the Section 2(7 ) of the said Act. Thus, to call an element to be goods, it must have the following essentials:

1. it must be a movable property;
2. it includes stock, shares, growing crops, grass, things attached to or forming part of the land;
3. Such a good must be agreed to be severed before the sale or under the contract of sale;
4. It does not include actionable claims and money.

State the time of delivery

There must be certain specific attributes as to the time and date of the delivery of the goods in the contract of the sale of goods. Such a clause in the contract must be provided with a deadline as to change in the delivery date or change of address.

For example, Seller shall deliver the goods to the buyer by (date) at location (address of delivery). Buyer shall have the right to change the delivery date by providing written notice within 10 days in advance.

Insert Warranties and Conditions

Section 12 of The Sale of Goods Act,1930 defines condition and warranty. A stipulation in a contract of the sale with reference to goods may be a condition or a warranty. A condition is an arrangement which is essential to achieve the main purpose of the contract. The breach of a condition must give the right to abandon the contract which results in claiming the damages.

Contrarily, a warranty is an arrangement which is corroborative to the main purpose of the contract. The breach of such a warranty must give rise to a claim for damages but such warranty can not take away the right from the parties to reject and deny the acceptance of the goods. Warranties and Conditions can either be expressed or implied.

Explain Buyer’s Obligations

The obligations of the buyer must be specified in the contract of the sale of goods as to the payment, mode of payment, and provisions as to when goods are received. The provisions as to the mode of payment can be:

• The buyer can pay in full upon receipt.
• The buyer can pay in instalments.
• The buyer can pay half upon receipt and the rest within 30 days of receiving the goods.

Sometimes disputes may arise related to the receiving of the goods. The contract of the sale of goods must specify that what qualifies as the ‘ receipt ’ of the delivery of goods.

Include Boilerplate Provisions

The provisions or the clauses customarily added at the end of a contract are known as boilerplates. They are also known as miscellaneous provisions. These provisions play a vital role because they affect the legal rights under the contract as well as all other clauses.

These boilerplate provisions include:

• Rules on how the agreement will be interpreted
• Law governing the subject-matter of the contract
• The consequences of the invalid provisions in the contract
• Whether third parties are deemed to be third party beneficiaries of the agreement
• It includes notice provisions, merger provisions, severability clause, waiver provision, and so on.

Add an arbitration clause

Arbitration is outside court dispute resolving resolution. In the case of differences in opinion or disputes, one must have an arbitration clause intacted to its contract of sale of goods as a solution to resolve the future contingencies. Arbitration is cheaper and requires less red-tapism. The arbitration clause might read “All disputes arising under this Contract shall be settled by binding arbitration in the state of (name of state) or another location agreeable to both parties. An Arbitration award may be confirmed in a court of competent jurisdiction”.

Finalizing of the agreement

Finalization of the agreement results in the enforceability of the clauses of the agreement. Once an agreement is final, it becomes a contract. It binds the buyer and seller. An agreement is finalized when signed by the parties to the contract. An agreement is finalized by signing the authorized signatures of both the parties. For this purpose, an agreement must have lines on either side of the last page of the document for the official and dated signature of the parties.

Conclusion

• The agreement of the sale of goods must undergo certain stages and procedure to become a valid contract.
• Before entering into the contract or finalizing the contract, the parties must check the credibility of the document and finalize it then.
• There is no strict format as to the drafting of the contract of sale, it can be moulded as per the needs and requirements of the parties.
• But there are certain clauses mentioned in this article which lays down paramount structure for the important clauses of the contract of sale of goods.
• There is no legal framework as to the contents of a contract of sale of goods but the mentioning of certain clauses makes the contract stronger.

SAMPLE SALES AGREEMENT

This Sales Agreement (this “Agreement”) is entered into as of the ____ day of _______________, 20___, by and between __________________________, an individual located at ______________________ (“Seller”) and ______________, an individual located at ____________________ (“Buyer”). Each Seller and Buyer may be referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

WHEREAS, Seller owns certain Goods, as defined below, and Seller desires to sell such Goods under the terms and conditions set forth in this Agreement; and

WHEREAS, Buyer desires to purchase the Goods offered for sale by Seller under the terms and conditions set forth in this Agreement.

NOW THEREFORE, in consideration of the mutual promises and for other good and valuable consideration exchanged by the Parties as set forth in this Agreement, the Parties, intending to be legally bound, hereby mutually agrees as follows:

1. Sale of Goods. Seller agrees to sell, transport and deliver to Buyer, and Buyer agrees to purchase the following items in the following quantities and at the prices (the “Goods”):

The Goods _____________________________________________________________________.

1. Purchase Price. Buyer will pay to Seller for the Goods and for all obligations specified in this Agreement, if any, as the full and complete purchase price, the sum of INR ______.

Unless otherwise stated, Seller shall be responsible for all taxes in connection with the purchase of Goods in this Agreement.

1. Payment.Seller shall invoice Buyer upon the shipment of the Goods. Unless otherwise stated, payment for the Goods is due within ____ days of the date of Seller’s invoice, which date will not be before the date of Seller’s delivery of the Goods.

1. Delivery. Seller shall ship the Goods to Buyer on or before __________ at the following address: ________________________. Seller will pay for any shipping costs.
2. Risk of Loss. Title to and risk of loss of the Goods shall pass to Buyer [upon shipment of the Goods in accordance with this Agreement.
3. Right of Inspection. Buyer shall be allowed to examine the Goods once received and shall do so within ___ days after the receipt of the Goods. In the event that Buyer discovers any damages, shortages or other nonconformance of the Goods, Buyer shall notify Seller within __ days after receipt of the Goods, specifying the basis for its claim. Failure to notify Seller by such date shall constitute an acceptance of delivery of the Goods as is. In the event the Goods are non-conforming, Buyer may at its option:

– return the Goods for a replacement, at Seller’s expense

– return the Goods at Seller’s expense for a credit of the full purchase price on future transactions with Seller

– return the Goods at Seller’s expense for a full refund of the purchase price

The above shall be the sole remedy of Buyer and only obligation of Seller with respect to any non-conforming Goods.

1. Warranties. Buyer acknowledges that it has not relied on, and Seller has not made, any representations or warranties with respect to the quality or condition of the Goods, and it is purchasing the Goods on an “as is” basis. Seller expressly disclaims all warranties, whether express or implied, including any implied warranty of merchantability or fitness.
2. Security Interest. Buyer hereby grants to Seller a security interest in the Goods, until Buyer has paid Seller in full for the Goods. Buyer shall sign and deliver to Seller any document needed to perfect the security interest in the Goods that Seller reasonably requests.

1. Seller Representations and Warranties. Seller warrants that the goods are free, and at the time of delivery will be free, from any security interest or other lien or encumbrance. Seller warrants that there are no outstanding titles or claims of title hostile to the rights of Seller in the Goods.
2. Force Majeure. Seller shall not be responsible for any claims or damages resulting from any delays in performance or for non-performance due to unforeseen circumstances or causes beyond Seller’s reasonable control.
3. Limitation of Liability. Seller will not be liable for any indirect, special, consequential, or punitive damages (including lost profits) arising out of or relating to this Agreement or the transactions it contemplates (whether for breach of contract, tort, negligence, or other form of action) and irrespective of whether Seller has been advised of the possibility of any such damage. In no event will Seller’s liability exceed the price paid by Buyer to Seller for the Goods giving rise to the claim or cause of action.
4. Assignment. Neither Party may not assign any of its rights under this Agreement or delegate any performance under this Agreement, except with the prior written consent of the other Party. Any purported assignment of rights or delegation of performance in violation of this section is void.
5. Amendments. No amendment to this Agreement will be effective unless it is in writing and signed by both Parties.
6. Governing Law. The terms of this Agreement shall be governed by and construed in accordance with the laws of _______________, not including its conflicts of law provisions.
7. Disputes. Any dispute arising from this Agreement shall be resolved in the courts of __________.
8. Entire Agreement. This Agreement contains the entire understanding between the Parties and supersedes and cancels all prior agreements of the Parties, whether oral or written, with respect to such subject matter.
9. Notices. Any notice or other communication given or made to any Party under this Agreement shall be in writing and delivered by hand, sent by overnight courier service or sent by certified or registered mail, return receipt requested, to the address stated above or to another address as that Party may subsequently designate by notice and shall be deemed given on the date of delivery.
10. Waiver. No Party shall be deemed to have waived any provision of this Agreement or the exercise of any rights held under this Agreement unless such waiver is made expressly and in writing. Waiver by any Party of a breach or violation of any provision of this Agreement shall not constitute a waiver of any other subsequent breach or violation.
11. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors and assigns. The provisions of this Agreement are severable. If any provision is held to be invalid or unenforceable, it shall not affect the validity or enforceability of any other provision. The section headings herein are for reference purposes only and shall not otherwise affect the meaning, construction or interpretation of any provision of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together, shall constitute one and the same document.

You, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached cancellation form for an explanation of this right.

IN WITNESS WHEREOF, the Parties have executed this agreement as of the date first written above.