It is important to understand the essentials of contract of sale in business law before you create any contract. Being familiar with the terms used in a contract and knowing what to look for will help you avoid problems in the future and ensure that your best interests are protected.

Essential Elements in a Contract of Sale

  • Two parties: A contract of sale is between two parties, where one party transfers goods to another party.
  • Goods: The subject of the contract must be goods. This is usually the most important element in a contract of sale because if the goods are not described precisely, confusion could result.
  • Transfer of ownership: Ownership of the goods must be moved from the seller to the buyer, or there should be an agreement in which the transfer of ownership is made.
  • Price: The buyer in the contract must pay a price for the goods.
  • A sales contract is a special type of contract. In order for it to be valid, it must contain clauses about free consent and the competency of the signing parties.
  • A sale and an agreement to sell are part of a sales contract.
  • No formalities. There is no particular form to define a valid contract of sale. A contract of sale can be made simply by offering and accepting.

Two Different Parties

The ownership of the goods is transferred from one of the two parties to the other. The buyer and the seller have to be different people. Otherwise, it's not possible to create a contract.

For example, Parties A and B both own a TV. Party A can transfer complete ownership to Party B because they are partners in business, and Party B becomes the sole owner of the TV.

Goods

Goods are defined as any type of movable property such as crops, stocks, and things attached to the land that can be separated from it. While writing a contract, make sure to describe the goods for purchase exactly, including details such as weight, color, size, type, and model number. You can avoid future problems by writing a detailed goods description so that buyer gets what he or she wants.

For example, Party A agrees to sell wheat crops to Party B. Both parties agree that Party B can cut the crops and take them, once he pays the agreed price. Since wheat crops are considered a good, this is a valid contract of sale. Every kind of movable property is a good except for cash and actionable claims. Contracts for services are not contracts of sale. Sale of immovable property and book debt are dealt with differently.

Transfer of Ownership

In every contract of sale, the transfer of ownership has to be agreed upon. General property is transferred in a contract of sale. Special property is transferred in a pledge of goods. In a contract of sale, the transfer of ownership is final.

Price

Price is the money consideration for a sale of goods. Consideration in a contract of sale has to be in the form of money. Barter of exchange is used when the consideration is in the form of goods. This method was used before the prevalence of currency.

For a sale to exist, goods have to be sold for a given amount of money, or price. The consideration can consist partly of money and partly of goods that have been assigned a value. Payment is not needed at the time of creating the sales contract.

Other Contract Essentials

If any elements are not met, the sales contract is not valid. For example, Party A agreed to sell her car to Party B. Party B forced Party A to sell her car through excessive persuasion. Therefore, the contract is invalid because there is no free consent by the transferor.

Contract Sale

A sale is an absolute contract, while an agreement to sell is an executory contract that suggests a conditional sale. A sales contract consists of an offer to sell or buy goods for a price and acceptance of that offer. The payment or delivery of goods is not necessary at the time of creating the sales contract unless it's agreed to.

A contract can be made in the following ways:

  • Orally
  • In writing
  • Partly in writing and partly orally
  • Through actions, and implied by those actions

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