A contract of sale is an agreement whereby a seller transfers or agrees to transfer the ownership (property) in goods to a buyer for a price; when property passes immediately it is a sale, and when transfer is deferred or conditional it is an agreement to sell. This framework underpins trade and inventory finance, receivables purchase, and vendor-buyer arrangements across industries.
Important terms defined
- Seller and buyer: The seller sells or agrees to sell; the buyer buys or agrees to buy; both must be distinct legal persons and competent to contract.
- Goods: Every kind of movable property other than money and actionable claims; includes specific goods (identified), ascertained/unascertained goods, existing and future goods.
- Price: Money consideration for the transfer of property; it may be fixed by contract, determined by an agreed method, by course of dealings, or default to a reasonable price.
- Property and title: “Property in goods” means ownership, not mere possession; passing of property determines risk, rights against third parties, and remedies.
- Delivery: Voluntary transfer of possession; may be actual, symbolic, or constructive, and can be concurrent with payment or per agreed terms.
- Conditions and warranties: A condition goes to the root of the contract and allows repudiation for breach; a warranty is collateral and sounds in damages.
Features
- Two parties: There must be a distinct buyer and seller; one cannot buy own goods except through recognized legal forms (e.g., different legal capacity/entities).
- Transfer or agreement to transfer property: Ownership must pass now (sale) or be agreed to pass later or on a condition (agreement to sell).
- Goods as subject matter: Only movables are covered; sales of immovables are governed by property law, not the sale of goods regime.
- Price in money: Consideration must be money; barter is not a sale of goods though it is still a valid contract.
- Freedom of form: May be written, oral, or implied by conduct; terms may allow immediate or deferred delivery/payment, or instalments.
- Compliance with general contract law: Free consent, capacity, lawful object, and certainty must be present for enforceability.
Sale vs agreement to sell
- Timing of transfer: In a sale, property passes immediately; in an agreement to sell, property passes in future or upon fulfillment of conditions.
- Risk allocation: Typically, risk follows property; hence risk usually passes with ownership unless otherwise agreed.
- Remedies: In a sale, the seller can sue for the price upon buyer’s wrongful non-payment because property has passed; in an agreement to sell, the remedy is generally damages until property passes.
- Nature of rights: A sale creates rights in rem for the buyer against the world; an agreement to sell creates rights in personam, becoming a sale when conditions/time complete.
Distinction and related comparisons
- Sale vs hire-purchase: Sale transfers ownership; hire-purchase transfers possession initially with ownership passing on payment of all instalments—until then, it is not a sale.
- Sale vs bailment: Sale transfers ownership; bailment transfers possession for a purpose with an obligation to redeliver, ownership remaining with the bailor.
- Sale vs pledge: Sale transfers full property for price; pledge creates a limited, possessory security interest with a right of sale on default, ownership staying with the pledgor.
- Sale vs barter/exchange: Sale requires money consideration; barter is goods-for-goods and does not constitute a sale of goods though still enforceable as a contract.
- Sale vs consignment/agency: In sale, title passes to buyer; in consignment, title remains with consignor, and consignee acts as agent to sell on principal’s account.
Practical notes for drafting and operations
- Define goods precisely: Quantity, quality, description, grade/standards, and identification of specific lots to clarify when property passes.
- Price and valuation: State price or mechanism (indices, market price, third-party valuer) and outcomes if mechanism fails; include taxes, surcharges, and adjustments.
- Passing of property and risk: Explicitly state when each passes; align with delivery terms (e.g., Incoterms in cross-border trade) and insurance responsibilities.
- Delivery terms: Mode, place, and time of delivery; partial deliveries and instalments; inspection and rejection rights; documents of title handling.
- Conditions and warranties: Conformity to description/sample, merchantable/fitness warranties (express or implied), and remedy ladder for breach.
- Payment protections: Retention of title, lien, stoppage in transit, set-off limits, and default/interest clauses; dispute resolution and governing law.
This guide clarifies the meaning, essentials, and core distinctions of contracts of sale to help structure enforceable, risk-aware commercial transactions.
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