Contract of Sale

Contract of Sale

A sale is one of the nominate contracts under civil law through which one person transfers a property to another in exchange for consideration. In practice, the seller transfers ownership of the property to the buyer in return for payment, and the buyer pays the agreed price to the seller in exchange for receiving the property.

Definition of the Contract of Sale Under the Civil Code

Essential Elements of a Sale Contract

A valid sale contract is formed based on the following essential elements:

• Offer and Acceptance: The seller’s declaration establishing the transaction constitutes the offer, and the buyer’s expression of agreement constitutes acceptance. For example, if the seller states, “I sold this automobile for 25 million,” and the buyer responds, “I accept,” the first element of a sale is satisfied. Offer and acceptance confirm the parties’ mutual agreement on the sale and purchase, with the seller taking the initial step.
• The Contracting Parties: The parties to a sale are the seller and the buyer. Because a sale allows the parties to dispose of their assets and property, legal capacity, including adulthood, sound mind, and sufficient maturity, as well as genuine intention and consent, is required. A transaction entered into by a person who lacks intention, such as an unconscious or intoxicated individual, is void.
• The Price: Another essential element is the price the buyer pays the seller for the subject matter of the sale. The price is the consideration agreed in the contract, to be paid by the buyer to the seller upon delivery of the property by the seller.
• The Subject Matter of the Sale: The property the seller transfers to the buyer. It must have economic value and be capable of lawful sale and purchase.

Characteristics of the Subject Matter of the Sale

For a sale contract to be valid, the subject matter must have the following characteristics:

• Existence at the Time of Contract: If the subject matter is a specific identified asset, it must exist at the time of contracting. A sale of a specified asset that does not exist is void. For example, if a livestock owner sells ten sheep, the sale is valid only if those sheep exist at the time of the contract. Otherwise, the contract is void for lack of subject matter.
• Economic Value: The contract is valid only if the subject matter has economic value. In this context, the relevant criterion is whether the asset is valuable to the contracting parties, not necessarily to the general public. For example, family heirlooms may have limited market value for others but be highly valuable to the seller.
• Capability of Lawful Sale and Purchase: A sale is void if the law prohibits the sale of the subject matter. This may occur for several reasons, including the following:

• • Certain property is public property and cannot be privately owned, including roads, national parks, bridges, and similar assets.
  • The owner may restrict the sale of the property by means of an endowment, because endowed property cannot be validly sold.
  • The government may prohibit the sale of certain items to protect the public interest, such as weapons, narcotics, and antiquities.
• Certainty and Determinacy: The subject matter must be sufficiently known and determined so that both parties understand what is being transferred. The subject matter must not be uncertain or left ambiguous. The asset must also be deliverable, as it must be placed at the buyer’s disposal.

Legal Effects of a Sale Contract

Pursuant to Article 326 of the Civil Code, the legal effects of a sale contract include the following:

Upon conclusion of the sale, the buyer becomes the owner of the subject matter, and the seller becomes the owner of the price. The primary effect, therefore, is the transfer of ownership. The buyer gains the right to dispose of the property, and the seller gains the right to dispose of the price, including through subsequent transactions.

A sale also creates obligations relating to title and lawful ownership. The seller is responsible for ensuring a valid title to the subject matter, and the buyer is responsible for lawful payment of the price. If it is established that the property belonged to another person, the buyer may reclaim the price from the seller. If the buyer was unaware of the invalidity of the sale, the seller is liable for all losses incurred by the buyer. The same principles apply, by analogy, to defects in the price.

Another effect of the sale is the seller’s obligation to deliver the subject matter to the buyer.

The sale also obliges the buyer to pay the price.

Frequently Asked Questions About the Contract of Sale