Contract of sale
A contract of sale, also known as sale and purchase agreement, is an agreement for the purchase by one party, known as the buyer or purchaser, of goods or services from another party, the seller, for an agreed consideration or price. In other words the buyer offers to buy the subject matter of the contract and the seller accepts the offer and sells the goods or services at the agreed price.
Common examples of this type of contract include agreement of sale for immovable properties and motor vehicles.
Most contracts are governed by common law. For a contract to be comprehensive and valid certain aspects or key provisions have to be covered. These include:
- Legal capacity or competence of the parties to act, transact or contract,
- Consensus by the parties to act through offer and acceptance. Consensus is also known as consensus ad idem,
- The agreement must legal or lawful. It must not be against public policy or contract to good morals, also known as contra bonos mores,
- The parties must have the intention to contract,
- The contract must be free from mistakes or errors, not induced by misrepresentation, duress or undue influence,
- It must be possible to perform the contract,
- Any formalities required by law must be complied with,
These days generic provisions may also include the following parts for clarity:
- Preamble to the contract. This gives the background to the contract and is couched with words such as “whereas”,
- Definitions. This part defines key terms used in the contract to minimise disputes arising from different interpretations.
In addition to the above generic requirements there are some additional substantive requirements specific to a type of contract. These are called essentialia or essential elements. They are incorporated in the generic structure of a contractual document. In a contract of sale these include:
- The subject matter of the sale, the res or merx, and its essential characteristics. The thing has to be defined and ascertainable, and exiting at the time of contract or having a potential existence,
- The price to be paid i.e. the purchase consideration. The price must be serious, fixed or capable of ascertainment and sounding in money. Whether the price includes or excludes taxes such as Value Added Tax (“VAT”).
Additional terms and conditions
A contract of sale may also include the following additional terms and conditions:
- Payment terms and details
- Delivery instructions,
- Insurance during delivery
- Inspection of the goods
- Conditions for accepting delivery or rejecting the goods,
- Warranties
- Breach
- Dispute resolution
- Transfer of risks and profits. As a general rule risk passes to the buyer when the sale is perfecta, that is, as soon as the agreement of sale is concluded and before delivery or payment of the price.
- Governing laws
- Physical addresses of the parties, also known as domicilium.
Disputes in contracts
Disputes in contracts are quite common. These include interpretation of contracts, performance of contracts, rights and obligations, breach and consequences of breach. In inflationary periods pricing is a serious issue. A contract should therefore have safeguards to cover all possible situations, if possible. A contract should also provide clear dispute resolution mechanisms such as mediation, arbitration or litigation. I have seen many people drafting their own contracts of sale, some poorly drafted or leaving important provisions. Some people have lost value by failing to safeguard their interests. This is why it is advisable to consult your financial advisor and legal practitioner before signing a contract, especially significant contracts. Remember a stitch in time saves nine. Do not expose yourself to risk in a quest to save fees.
Consumer Protection Act (Chapter XX)
Parties or their financial and legal advisors are advised to read and understand the Consumer Protection Act (Chapter XX) of 2019.
Godknows Hofisi is a lawyer, chartered accountant and business rescue practitioner. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
