Commercial Sales Contracts: A Comprehensive Guide
1. Introduction to Contracts
A contract is an agreement between two or more parties (individuals or entities) to fulfill specific conditions during a defined period. Contracts create legally binding obligations. Key aspects of contracts include:
- Contracts are binding only on the involved parties.
- Contracts are formed through mutual consent.
- Contracts require adherence to both explicit and implicit terms.
- Unauthorized representation of another party in a contract is prohibited.
2. Contract of Sale
A contract of sale involves one party (seller) transferring ownership of an item to another party (buyer) in exchange for an agreed-upon price. There are two main types:
- Commercial Sales Contract: Governed by the Code of Commerce.
- Civil Sales Contract: Governed by the Civil Code.
2.1 Distinguishing Between Civil and Commercial Sales Contracts
Civil Sales Contracts are typically non-profit and involve purchases for personal use, not resale. Commercial Sales Contracts are profit-driven and involve purchasing goods for resale. The nature of a sale (civil or commercial) may not be immediately apparent and might depend on whether the purchased item is resold. Generally, sales contracts made by businesses to further their objectives are considered commercial.
The following are generally not considered commercial:
- Land purchased for the buyer’s use.
- Sales of handcrafted items directly from the artisan.
- Resale of goods purchased for personal consumption.
2.2 Defining Commercial Sales Contracts
A commercial sales contract involves selling personal property for resale, either in its original form or after modification, with the intention of making a profit. While the Commercial Code governs these contracts, it may not address every aspect, requiring reference to the Civil Code for matters like capacity to contract, termination, interpretation, modification, and requirements.
3. Key Aspects of Commercial Sales Contracts
3.1 Characteristics
- Intent to Resell: Goods are acquired for resale, not personal consumption.
- Profit Motive: The primary goal is to profit from the resale.
3.2 Validity
A valid commercial sales contract requires:
- Consent: Mutual agreement on the goods, price, delivery details, etc. Minors and incapacitated individuals cannot give consent.
- Object: The goods or services being exchanged must be legal and available for trade.
- Cause: The reason for the contract (the exchange of goods/services for payment) must be lawful and not contrary to morals.
3.3 Form
Commercial sales contracts can be oral, written, or formalized by deed. While generally flexible, written contracts are required for international transactions if mandated by the foreign country’s laws.
3.4 Elements
Personal Elements:
- Seller: The individual or entity providing the goods or services.
- Buyer: The individual or entity receiving the goods or services and paying the price.
Certain individuals are restricted from entering into commercial sales contracts, including:
- Guardians, regarding assets under their guardianship.
- Agents, regarding assets they manage.
- Executors, regarding assets under their care.
- Public employees, regarding assets under their administration.
- Judicial officials, regarding goods under dispute in their court.
Real Elements:
- Subject Matter: The goods being sold, which can be movable or immovable property, including merchandise or even intangible assets like energy.
- Price: The payment amount, expressed in currency or an equivalent. The price must be determinable, either through explicit agreement, reference to external benchmarks, or delegation to a third party (not one of the contracting parties).
3.5 Effects and Obligations
The contract creates obligations for both parties:
Seller’s Obligations:
- Deliver the goods, transferring possession and control to the buyer.
- Guarantee clear title and peaceful possession, free from hidden defects.
Buyer’s Obligations:
- Pay the agreed-upon price at the specified time and place.
- Accept delivery of the goods.
3.6 Breach of Contract and Consequences
Failure to fulfill contractual obligations leads to consequences:
- Seller’s Failure to Deliver: The buyer can demand performance or terminate the contract.
- Seller’s Breach of Warranty: In case of eviction (loss of possession due to a third party’s claim), the buyer can seek restitution of the price. For hidden defects, the buyer can rescind the contract or request a price reduction.
- Buyer’s Failure to Pay: The buyer must pay interest on the overdue amount.
- Buyer’s Failure to Accept Delivery: The seller can demand performance (by depositing the goods with the court) or terminate the contract.