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Sales Contract

A sales contract is also known as a sales agreement or a purchase agreement. In this article, we will be discussing what a sales contract is, its types, essentials of the contract, essential clauses and the procedure for the registration of a sales contract.

Its main objective is to ensure the agreed delivery of the product or the service that was promised to be sent in exchange for the payment. Sales contracts are common in particularly B2B transactions. It protects both parties in the event of something going wrong, which is why sales contracts are so valuable and of utter importance in today's business world.

What is a sale contract?

According to Section 4(1) of the Sales of Goods Act, 1930 "a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another."

A sales contract is a document that legally binds a buyer and the seller. The aforesaid document consists of the terms of the sales, the terms of the services, details of the exchange, and clea a mention of the product or service descriptions. In the case of Dhampur Sugar Mills Ltd. v. CTT, (2006), it was held that a contract of sale denotes a transfer of property in goods by mutual consent. Such a transfer of ownership must be about a transfer from one person to another. The consideration would be a price in the form of money. Only when the consideration for transfer consists of other goods, it may be an exchange or barter.

Before signing any sales contract and entering into a contract, both parties should seek legal advice. In the current scenario and the time in which most of the transactions which use sales contracts are B2B, the contract should be straightforward, easy to understand, to the point and with no hidden meaning.

Types of sales contract

Sales contracts are of different types depending on the purpose of those contracts. Different types of sales contracts have been discussed below.

Sales agreement

The most fundamental type of agreement between the buyer and the seller. This type of agreement is used in most industries explaining the product by the seller and the reason of the buyer buying it. These large-scale purchases require thorough contracts to ensure that buyers and sellers are protected from potential fraud. However, sales agreements can also be used to set up recurring sales, such as a janitorial contract in which the buyer arranges for regular cleaning services from the seller.

Order Form
These are a particular type of sales contract which is intended to simplify the purchase and agreement procedure. These are mostly used by companies that sell standardised types of goods or services. In this type of contract, the buyer simply identifies what they want to buy, how much of it they want, and potentially any minor variations the seller has added to the form.

Terms of Services
These sales contracts are the contracts that explain the terms of services that the buyer will receive in the long run after they buy any product from theservice Terms of services are provided as a separate document to the buyer along with the main document osale contract of sales.

Renewals and Upsell Agreements
These are a referencof e for a long time work and can be altered accordingly. A renewal contract is an order form in which a client chooses to renew a previous contract. These contracts are often nearly identical to the original because the services or products being ordeNon-Disclosureme.

Non Disclosure Agreement
As the namnon-disclosures a non disclosure agreement, the terms and conditions are known only to the parties of the contract. No other person other than the signing parties know about the agreement. If any information is told or leaked to the third person the agreement then and there becomes void.

Essentials of sales contract

Like any other contract or agreement, a sales contract also has some essential elements without which any sales contract will become null and void. Let's discuss the essentials of the sales contract.

The essentials of sales contract are as follows:
  1. The contract must not be in an oral form.
  2. The contract must be a written contract.
  3. It should be signed by both parties.
  4. It should have mentioned all the details discussed between the parties orally.
  5. It should be signed by the parties in person.
  6. There should be acceptance and consideration.
  7. Both the parties must be in legal capacity to enter into a contract.
  8. There should be a meeting of minds.
  9. There should be consent from both sides.
  10. There must be an intention to enter into a legal relationship.

Essential clauses in a Sale Contract

Description of Goods
Every sales contract is for the buying and selling of goods and services. Therefore, every sales contract must provide detailed description and information about the goods or services, otherwise, it will not be possible to distinguish between different sales contracts for different goods.

Delivery Details
Once the oral agreement is made between the buyer and the seller, a written document is left. All the things and points discussed orally should be included in the written contract including the delivery details, that is, how and by when the buyer will receive the goods purchased.

Payment Details
One of the most important clauses of a sales contract is about the payment details. This clause has to be added from the buyer's side. This clause in detail describes the mode of payment, the total amount of payment and the amount of part payments, if any.

Warranty clause as the name suggests tells about the type of warranty and the duration of the warranty that the buyer gets while buying the product. If something doesn't comply with the warranties, there are remedies that describe compensation for such situations. It may be a replacement of the item, a refund, or some special offer.

Inspection Period
The inspection period allows the buyer to inspect the goods once he receives them and he has the right to reject the goods if there are any damaged goods or they are of different quality from the quality promised by the seller. The inspection period clause must have a specified date and time in which the buyer can inspect the goods, if after receiving the goods the buyer did not inspect the goods and the inspection period lapses the buyer will have to make the payment of goods even if he is not satisfied with the goods he has received.

Procedure for Registration
There are several steps involved in the registration process of a sales contract. The steps are as follows:

When the buyer offers some consideration for the good he wants to buy it's the first step for the sales contract.

Stamp Duty Ascertainment
Stamp duty is necessary for a particular type of property that has been mentioned in the sales contract.

Payment of Stamp Duty and Stamp Papers
The Sales Contract is made on made stamp papers with ascertaining stamps. The payment for both these things have to be made when going to court to finalise the contract.

Sale Deed
When entering a sales contract, firstly a sale deed is made between both the parties. When the terms and conditions and clauses are agreed by both the parties on the deed it's converted into a sales contract.

Registration of the Sales Contract
When the final contract has been made after agreement from both the parties, the registration of the contract has to be done in the court with the name of both the parties and the details in a summary form of both products or goods agreed upon in the contract.

By following the above mentioned procedure one can register a sales contract.

Documents Required
There are several documents required to form a sales contract, if any one of the documents is missing or invalid or fake the sales contract will become void. The documents required for a valid sales contract are as follows:
  1. Aadhar Card of the buyer and the seller
  2. Pan card of both or all the parties
  3. Recent photographs of passport size of both the parties
  4. Date and the place of execution of the agreement
  5. Date and the place of signing of the contract by both parties
  6. Aadhar card of two witnesses (if possible, one from each side)
  7. The deal value and all the financial details
  8. Record of Rights and Tenancy Crops or 7/12 extract
  9. A copy of all registered last agreements (in case of resale of any property)
  10. Copy of No Objection Certificate under the Land Ceiling Act
  11. Certificate of construction completion
  12. Documents of loan, if any, on the property (Past/Current)
  13. Recorded agreements between the builder and landowner
  14. All title documents of the owner of land

Performance of Contract of Sale
The performance of the contract of sale comes under Chapter IV from Section 31 to Section 44 of the Sales of Goods Act 1930 describes how the goods are being dispatched and how their possessions are being voluntarily transferred from one person to another person. There are generally two parties for the agreement, one is the seller who sells the goods and the other one is the buyer, who buys the goods.

Essentials of Performance of Contract of Sale
Section 31 of the Sales of Goods Act, 1930 states that performance of contract of sales. In simple terms performance of Contract of Sales defines a simple transaction where the seller delivers goods to the buyer in exchange for some payment or consideration from the buyer.

Some essentials of the performance of contract of sales are as follows:
  • There must be two parties
  • There should be transfer of some payment
  • There must be voluntary transfer of goods
  • Transfer should not be due to theft, fraud, or force
  • Mere possession of goods does not constitute transfer of goods

Related Case Laws
Vijay v. Vardhman Spinning General Mills (2023)
Facts of the case
In this case, the plaintiff seeks cancellation of the sales deed executed in favour of the subsequent buyer, however, the plaintiff cannot be added in the deed as a co-buyer as he was not ready to perform a part of the agreement.

Issue before the Court
The issue that was raised before the court was whether the plaintiff was ready and willing to perform the part of the agreement to become a co-buyer.

The High Court of Himachal Pradesh gave the judgement that there was no need to set aside the sale deed and the appeal was allowed. As a result, the plaintiff was allowed to be a part of the sale deed without agreeing to perform the part of the sale deed which he was ot informed of being a party to the contract before the execution of the deed.

State Of Karnataka Etc vs M/S. Pro Lab & Ors. Etc (2015)
Facts of the Case
In this case, the constitutional validity of Entry 25 of Schedule VI to the Karnataka Sales Tax Act, 1957 was the subject matter in this appeal case. The reason for holding this entry as unconstitutional was that the contract of processing and supplying of photographs, photo frames and photo negatives was a service contract with negligible component of goods.

Issue before the court
The issue that was present before the court was that, it was beyond the competence of State Legislature given in Entry 25 of List II of Schedule VII of the Constitution to impose sales tax on such a contract. So, the court had to decide on the validity of the i'm;owed tax.

In the present case, the judgement of the High Court was set aside in the appeal by the Supreme Court, and the appeal was allowed. As a result, the judgement by the Supreme Court, Entry 25 of Schedule VI to the Karnataka Sales Tax Act, 1957 was held constitutional and it was also held that tax can be imposed on such goods as well.

Donoghue v. Stevenson (1932)
Facts of the case
In this particular case, the injuries that the plaintiff suffered from the defective products of the defendant were claimed on the basis of a sales contract between both the parties.

Issue before the Court
The issue that was raised before the court was whether the defendant owed a duty of care to the plaintiff or not.

In this case, the doctrine of negligence was laid down. In this case the court held, the neighbor principle will be applied and it rules out that the defendant owed a duty of care to the plaintiff.

Balfour v. Balfour (1919)
Facts of the case
This case was the foundation of contract law as it gave birth to the purpose of creation of a legal reaction theory in contract law. Legal reaction theory means that one lawful act will be responsible for the subsequent legal act that takes place.

Issue before the Court
The issue raised before the court was that, the parties to the agreement do not intend to enter into an agreement that should be attending legal ends. Therefore, to fulfil the agreement made between a husband and his wife, specifically personal family relationships, to provide maintenance costs, and other related capitals are generally not categorised as contracts, so should it be called a contract or not.

Therefore, Lord Justice Atkin observed that a contract cannot be enforceable by nature if the parties to the same do not intend to create legal relations with each other.

Mohiri Bibi v. Dharmodas Ghose (1903)
Facts of the case
In the present case, the parties have entered into a mortgage deed which was held void since the execution of mortgage was held by a minor.

Issue before the Court
The issue that was raised before the court was that, can a minor that is a person below 18 years of age enter into a contract or not.

This case was decided by the bench of Judges Lord Mcnaughton, Lord Davey, Lord Lindley, Sir Ford North, Sir Andrew Scoble, and Sir Andrew Wilson who considered the ambit of the minor's agreement. In this case, the Privy Council expressly barred any person below 18 years of age from entering into a contract, they were allowed to enter into any contract under the guidance of a legal guardian.

Felt House v. Bindley (1862)
Facts of the Case
In this case, the party had accepted the proposal of the other party but did not communicate it orally or in writing to the party making the proposal. The party accepting the proposal remained silent on the acceptance of the proposal and the proposee on the silence of that party made the same proposal to some other party.

Issue before the Court
The issue raised before the court was that acceptance of the proposal can be considered if the party remains silent on the acceptance of the proposal.

In this case, the concept of acceptance was taken up by the court. While accepting any offer proposed by a party, the party accepting it cannot remain silent. It was made clear by the court that there should be absolute clarity and proper communication between the parties proposing and accepting the offer respectively. If the person remains silent then it cannot be presumed as acceptance of the offer

A sales contract is a document that legally binds the buyer and the seller. Its main objective is to ensure the delivery of the agreed product or the service that was promised to be sent in the exchange for the payment. The document consists of the terms of the sales, the terms of the services, details of the exchange, clear mention of the product or service descriptions.

From the above mentioned points in the article we can conclude that a sales contract is the basic requirement of any business transaction in this world. Any sales contract must be in a written form, made between the parties who are in legal capacity to enter into a contract. At first to start with a sales contract there must be an offer from one side, then acceptance from the other side and with some consideration the deal must be made final.

Frequently Asked Questons (FAQs)
  • Between whom a sales contract is made?
    It's done between a buyer and the seller.
  • Is a sales contract between more two parties a valid contract?
    Yes, a sales contract between more two parties a valid contract.
  • How many essential clauses are there?
    There are 5 essential elements which are delivery details, description of goods, warranty, payment method and inspection period.
  • Can a sales contract be done with more than one party?
    Yes, a sales contract can be done between more than two parties.
  • Is there any provision for the sales contract?
    Yes, Section 2 of the Indian Contract Act, 1872 and Section 4(1) the Sales of Good Act, 1930 provides for the provision of sales contract.

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