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Formation of contract of sales

2.1.3. Formation of contract of sales

Having seen a general introduction to contract of sales and its definition, it is worthy discussing the formation of contract of sale. In discussing the formation of contract of sale a comparative analysis will be made between the elements in the general contract provisions and provisions in the law of sales. In addition, the peculiar elements of the formation of sales contract will be analyzed and discussed.

Contract of sale is, like any other contract, formed when the parties express their agreement on the subject matter of the contract and its price. That is to say, the contract of sale is completed when the parties have expressed their consent to the terms of the contract. Thus, to say there is consent an offer made by one of the parties must be accepted by the other in a way that fulfills the requirements provided under general contract provisions. The parties must define the subject of their dealing with precision and their agreement shall be in special form when such form is necessary.


As a contract, a sales contract is regulated by general contract provisions. The requirements for the formation of contract should be complied with. Generally for the formation of contract offer and acceptance are indispensably required. Either the buyer or the seller shall propose to enter into a contract with specified terms if accepted by the offeree. The buyer or seller to which proposal to enter into a contract has been made should also express his assent without reservation.


Even though contracting parties might make invitation to treat, no contract of sale can be formed by mere invitation to treat in the absence of offer and acceptance by which the consent of the buyer and seller is expressed. The pretence of the parties is not again a sufficient formation of the contract of sale. The consent shall be free from defect and the parties shall have intention to be bound.


The object of the contract shall also be sufficiently defined, lawful, moral and possible pursuant to Art.1714, 1715, 1716 provisions of the civil code. The object of the contract of sale is principally delivering the thing and paying the price. The thing can be an existing thing belonging to the seller or third party or it might be a future thing. What is mandatorily required is that the thing to be delivered shall be sufficiently defined, lawful moral and possible.


The corresponding obligation assumed by the buyer is payment of price. Price as a requirement of consideration has been put in a way that creates peculiarity in contract of sale. Sufficient definition of the price shall enable the courts ascertain the price. However, lack of sufficient definition to that effect does not make the contract subjected to invalidation as it is provided under Article 1714. Article 2271 of the civil code fills the possible gap. However, if the parties do not determine the price of the thing, and if the price not is determinable, there is no contract of sale. The parties shall make the price at least determinable by referring to the arbitration of the third party according to Art.2271.

Art. 2271.  Price estimated by third party

(1) The price may be referred to the arbitration of a third party.

(2) There shall be no sale where such third party refuses or is unable to make an estimate.


According to this Article, to say that a contract of sale is formed the party must specify the price in their contract or refer to the arbitration of the third party. And the price referred to the arbitration of the third party must be determined as agreed. Otherwise, there would not be formation of the contract of sale.


For example, Aden agreed to buy a used computer from Bushra. But they could not determine the price of the computer. Thus, Aden agreed to pay the price determined by Guled who is a mechanic. Aden has taken delivery of the computer. Unfortunately, Guled died in car accident before he determined the price. Thus, there is no contract of sale in this hypothetical example as the arbitrator is unable to determine the price of the used computer.


? Can the parties refer the determination of the price to the market force? For example, can the party agree that the price would be the market price to be determined at some future date?


In some jurisdictions, for example in India, the parties may refer the price to be determined by a magazine which contains a list of items and their price and which is published regularly. The same is true in Ethiopia. For example, in Ethiopia, Ethiopian Tea and Coffee Authority, announces the price of coffee through Ethiopian Radio. Thus the parties can agree that their price is the price to be announced by Ethiopian Tea and Coffee Authority. Still, there will be no contract of sale if the authority fails to announce the price on radio. It is not necessary that the third party be a natural person.


Price of the thing sold can also be determinable when the thing has a current price or market price or when the seller normally deals in the thing sold. In such situation, the price would be the market price or the price normally charged by the seller.


In addition to what has been said, formal requirement is also an intrinsic element of contract of sale when it is provided either by their agreement or by law. It can be inferred, therefore, that no special formal requirement is peculiar for contract of sale.

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