In India’s dynamic business environment, contracts of sale are more than just formalities—they are the backbone of secure and efficient transactions. Governed by the Indian Contract Act of 1872, a contract of sale ensures legal clarity and enforceability. Also, this contract is governed by the Sale of Goods Act, of 1930.
With India’s ranking at 63rd in the World Bank’s Ease of Doing Business 2023 report, and a 12% rise in registered businesses in 2022, understanding the essentials of a contract of sale is more important than ever.
Whether you’re navigating the complexities of the Indian Contract Act, or simply ensuring that your business deals are secure, this blog guide is your help! This guide covers key elements and clauses to help you craft legally sound sales agreements.
What Is a Contract Of Sale?
According to Section 4(1), a contract of sale of goods is a legal agreement in which a seller agrees to sell the property in goods to a buyer in exchange for a fee.
A contract of sale is the cornerstone of commercial transactions, providing clarity, security, and protection for both parties involved. The contract specifies what is being sold, the price, the terms of delivery, and any other conditions pertinent to the transaction.
Contracts of sale can take various forms, including simple sales agreement templates for straightforward deals or more complex asset purchase agreements for significant transactions involving large assets or entire businesses.
The core purpose is:
- To formalize the mutual obligations of the buyer and seller.
Moveable property is the subject of this specific Act. It does not cover the selling of real estate. Hence, the Transfer of Property Act, of 1882 is a distinct Act that governs transactions involving immovable assets, such as sales, leases, donations, etc.
What Are The Essentials Of A Contract Of Sale?
To be considered valid and enforceable, a purchase and sale agreement must include elements that establish the rights and obligations of the parties involved.
Two Parties:
To execute a sales agreement template, there must be two separate parties, a seller and a buyer, and they both need to be of legal age. A “buyer” is defined in Section 2(1) as an individual who purchases goods or consents to purchase them. According to Section 13, “seller” means “a person who sells or agrees to sell goods.” These individuals or entities must be legally capable mentally sound, and free from any legal restrictions.
Goods:
The next important element in the sales contract template is the goods. This section should provide a detailed description of the goods, including quantity, quality, and any specific features. Moveable property must be the subject matter as it relates to the commodities under the Sale Contract.
Price:
The price is the most crucial need for the Contract of Sale of Goods to be enforceable. Sale transfers must be exchanged for payment. Two methods are available for paying the price:
- paid in full with cash; or
- partially paid now with the remaining amount to be paid in the future.
By signing an agreement document, the parties can agree on a price before conveyance (transfer) takes place.
Transfer Of Ownership:
The contract must specify when and how the ownership of the goods will transfer from the seller to the buyer. This section, often called “Transfer of Title,” will explain whether ownership passes at the time of delivery, upon full payment, or at another agreed-upon moment.
Registration:
Sometimes, the contract of sale may need to be registered with a government authority to be legally enforceable, especially for high-value goods or certain types of property. This section will outline any registration requirements, including where and how the contract should be registered.
Warranty:
The warranty section of the contract will detail any guarantees provided by the seller, including what the warranty covers, how long it lasts, and what remedies are available to the buyer if the goods don’t meet the promised standards.
All Essentials Of A Valid Contract
- Offer and Acceptance: The contract must clearly state the offer made by the seller and its acceptance by the buyer.
- Consideration: In the context of business, the term “consideration” refers to the value exchanged between the parties. It could be monetary or involve the exchange of goods or services.
- Legal Capacity: Both parties involved in the contract must have the legal capacity to agree. This means they should be of legal age, mentally sound, and not under any legal constraints.
- Lawful Purpose: Contracts must have a legal purpose. The goods or services being exchanged should comply with local, state, and federal laws.
- Certainty of Terms: This includes the description of the goods or services, the price, the delivery terms, and any other pertinent details.
- Free Consent: Both parties must enter into the contract of their own free will, without any coercion, undue influence, fraud, or misrepresentation.
How To Create The Contract Of Sale Of Goods?
The Sale of Goods Act, 1930, Section 5, outlines the format for the goods sale contract. As a result, the sale of goods contract may be made:
- By an offer made in writing by the vendor to sell items for the agreed-upon set price and the buyer to purchase them. Such an offer to purchase or sell needs to be accepted by the other party. The delivery of the goods may be carried out in one of the following ways:
- the goods may be delivered immediately;
- the money may be paid immediately;
- the products may be delivered or paid for in installments;
- the delivery or payment may be delayed.
- A contract for the sale may be made in writing, verbally, partially verbally, or implicitly by the parties’ actions, according to the restrictions of any applicable laws now in effect.
What Clauses Include In The Contract Of Sale?
Title Of Documents
Document titles provide an identity and serve to distinguish it from other documents. Calling a document “Contract for the Sales of Goods” establishes its ownership and authority.
Name The Parties
The contract must include the buyer’s and seller’s names. In addition, the parties’ addresses should be there for responsibility in case of future emergencies.
Add Recitals
It should contain recitals- “whereas” statements. It serves as a fundamental declaration of the written agreement’s actual enforceability including goals & objectives. They outline the purpose of the contract, the identities of the parties, and other details.
The clauses that follow “whereas” and introduce the primary requirements that must be met for the contract to be enforceable are known as recitals.
Address The Goods
According to the said Act’s Section 2(7), goods are defined. It is important to address the goods in the clause-
- It must be mobile property, which includes shares, stocks, vegetation, growing crops, and anything that is affixed to;
- Such goods do not involve money or actionable claims; instead, they must be agreed to be severed before the sale or under the terms of the sale contract.
Address Time Of Delivery
The contract for the sale of goods must specify some particulars on the day and time of the products’ delivery. A deadline for changing the delivery date or address must be included in such a contract condition.
Add Warranty & Conditions
Condition and warranty are defined under The Sale of Goods Act, 1930, Section 12. A clause about products in a contract of sale might be a condition or a warranty. A condition is an arrangement that is necessary to fulfill the contract’s primary goal.
On the other hand, a warranty is a clause that supports the primary objective of the agreement.
Address Obligations
The terms of the sale of goods contract must outline the buyer’s responsibilities concerning payment, form of payment, and receipt dates. The following are some examples of payment method provisions:
- Upon delivery, the customer may make a complete payment.
- Installments are accepted from the customer.
- Payment can be made in full within 30 days of receiving the items, with half due at the time of receipt.
Disputes might occasionally come up, that constitute a “receipt” of the delivery of goods. It must be specified in the contract for the sale of products.
Address Boilerplate Provisions
Boilerplates are the terms or clauses that are typically included after a contract. Another name for them is miscellaneous supplies.
Boilerplate clauses are:
- Guidelines for the interpretation of the agreement
- The law about the contract’s subject matter
- The effects of the contract’s invalid provisions
- If other parties are considered third-party beneficiaries under the terms of the agreement
- It contains clauses about notification, mergers, severability, waivers, and more
Add Arbitration Clause
Arbitration is an extrajudicial means of settling disputes. An arbitration provision must be included in the contract of sale of products to settle any disagreements or disputes that may arise in the future. Arbitration is less expensive and involves less red tape. “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,” might be the language of the arbitration provision.
Final Agreement
Enforceability of the agreement’s terms follows agreement finalization. An agreement turns into a contract after it is finalized. Signing the duly authorized signatures of both parties completes an agreement.
Conclusion
A well-drafted contract of sale is essential for any business transaction, providing a clear framework for the exchange of goods or services. Whether you’re using a sales contract template, or crafting a custom purchase and sale agreement, it’s crucial to consider all aspects of the transaction.
At LegalJini, our team of legal experts specializes in creating customized sales agreement templates that meet your specific needs. Whether you’re a startup or an established enterprise, we can help you navigate the legal landscape with confidence. Contact us today to learn more.
