Commercial Sales Contracts: Key Elements and Terms
The Contract
A contract requires three factors: There is an agreement between two or more parties. The agreement concerns a matter or thing, the obligation of which is determined. The contract generates a legally enforceable obligation between the parties.
Effects of Contracts
The contract requires contractors from the time of perfection. From the time of the agreement, it is due to be fulfilled. Contractors must act in good faith. If not fulfilled in all its terms, it is binding on the contractors and contractual obligations can only be waived by mutual agreement, with few exceptions.
Commercial Contracts
Commercial contracts involve commercial transactions, whether or not the parties are traders and whether or not specified in the commercial code.
Contract of Sale
A sale will be considered commercial if it involves movable property for resale, either in the same form it was purchased or in a different form, with the intention of making a profit on the sale. Commercial resale always involves merchants. For a sale to be considered mercantile, the following conditions are required:
- It must be made with the intention of reselling the purchased item.
- There must be an intent to profit from the sale.
Exceptions to Sales Transactions
- Purchases for the buyer’s consumption.
- Sales made by owners, farmers, and ranchers of the fruits or products of their herds or harvests, or species in which their income is paid.
- Sales made by artisans in their workshops of objects constructed or manufactured by them.
- Resale made by any non-merchant of stockpiles for consumption.
Incoterms
Here are some common Incoterms:
- EXW (Ex Works): The buyer assumes all costs.
- FAS (Free Alongside Ship): The price includes the cost of transport from the source to the dock or rail, but not the cargo. If cargo is included, the clause would be FOB.
- CFR (Cost and Freight): The cost of freight to the destination port is the responsibility of the seller.
- CIF (Cost, Insurance, and Freight): Same as CFR, but including the insurance of goods to the destination port.
- DES (Delivered Ex Ship): When the goods arrive at the port of destination, the financial responsibility shifts to the buyer, including unloading.
- DDP (Delivered Duty Paid): The seller bears all costs, from origin to destination.
Elements of a Commercial Sales Contract
- Personal Elements: Seller and buyer.
- Real Elements: The movable property (sometimes real estate) that is the object of the contract, which must be possible and lawful, and the price, which must be determined. Delivery must be made by the buyer, and the price must be in money or a sign representing it.
- Formal Elements: Although a commercial sales contract does not require a specific form, it should be in writing.
Content of the Contract
Buyer’s Obligations
- Reception of the goods: If the buyer, at the time of receiving the goods, is satisfied, they will not have the right to demand action against the seller, alleging a defect or deficiency in quantity or quality. The seller may avoid a claim by requiring, at the time of delivery, that the quantity and quality be identified to the buyer’s satisfaction.
- Payment of the price: Once the goods sold are made available to the buyer, and the buyer is satisfied, the buyer is obligated to pay the price in cash or within the time agreed upon with the seller.
Seller’s Obligations
- Delivery of the subject matter of the contract: Unless a certain quantity is agreed upon, the merchandise that is the object of the contract must be delivered in its entirety.
- Warranty for defects and latent defects: In any commercial sale, the seller is obligated to provide a warranty and sanitation for the buyer, unless otherwise agreed.
Termination of the Contract
- Expiration of time: If the buyer has not made any claim based on internal defects of the thing sold within thirty days following receipt.
- Agreement between the parties: At any time, the contracting parties can, by mutual agreement, terminate and suspend the operation of the sales contract.
- Breach of contract by one of the parties: If any of the parties breaches any provision reflected in the contract, it may lead the other party to withdraw from the contract and demand compensation.