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Contract of Sale in UAE

Contract of Sale in UAE

The exchange of goods and services is an integral part of our day to day life. In legal parlance, it is known as contract of sale. It involves the transfer of ownership or any other right in consideration of a predetermined price.  In UAE, the contract of sale are mainly governed by three legislations, which are as follows-

  • ‌Federal Law No. 18 of 1993 on Commercial Transactions (as amended) (CTL).
  • ‌Federal Law No. 5 of 1985 on Civil Transactions (as amended) (Civil Code).
  • ‌Federal Law No. 15 of 2020 on Consumer Protection (Consumer Protection Law).

Essential Ingredients of a Contract of Sale

A contract of sale must satisfy the following conditions in order to become a valid and legally binding one-

  • ‌The contract shall involve an offer from one party and unconditional acceptance from the other. (Article 130 of UAE Civil Code)
  • ‌The parties must agree on the essential terms of a contract (Article 141 of UAE Civil Code)
  • ‌The terms of the contract shall be clear and bereft of ambiguity.
  • ‌The contract must be for a lawful purpose.
  • ‌The parties shall enter into the contract with good faith. It is a mandatory condition for a valid contract. In the UAE, a very broad interpretation is given to this term. (Article 246(1), Civil Code)

A contract of sale can also take place through an electronic platform.  As per the Federal Law No. 1 of 2006 on Electronic Commerce and Transactions, the basic Ingredients of a contract (offer, acceptance, etc) can be performed through electronic medium. However, one of the essential conditions of an electronic contract is that it must bear digital signatures of the parties.

Language of Contract

As per Article 26 of UAE Contract Law, the Contract of sale must be in Arabic language. However, in addition to Arabic, the parties are allowed to use any other language as per their business convenience. In common practice, English language is used in tandem with Arabic in such contracts.

Price and Payment

There are no special provisions governing the price of the goods. The goods can be sold at profit, at discount, and even at losses. However, if any conflict emerges with regards to price of the goods, then the price initially agreed between the parties shall be considered valid. (Article 505, Civil Code).

In case, the parties are dealing first time with each other, the prevailing market price of that good can be considered as the “price” between the parties. Generally, the price is paid after the completion of the contract, but the parties are free to schedule the payment in installment during the course of contract. If the contract is silent about the payment of taxes, it shall be presumed that the price of the goods is inclusive of Value Added Tax (VAT).

Physical and Constructive Delivery

If the contract doesn’t include a specific delivery clause, the provisions of UAE Civil Code will come into picture. The delivery of the good can be done through-

  1. Actual, physical delivery
  2. The seller gives permission to the buyer to take possession of the goods.

If the law requires that the transfer shall be registered, the constructive delivery will take place when the goods will be registered in the name of the buyer. Further, in the following conditions, it will also be presumed that the Constructive Delivery has taken place

  • The seller has retained the goods at the request of the buyer
  • The seller has given a notice to the buyer to pay the price and take delivery of the goods within a fixed period, and the buyer has failed to do so.

Obligation of the Buyer and Seller

As a buyer, it is essential to make timely payment of the goods purchased. If the buyer fails to do so, the seller can  charge late payment interest. It is important to note that the rate of interest can’t exceed 12% per annum. Alternatively, in extreme conditions, the seller can also terminate the contract.

On the other hand, the seller needs to ensure that the goods intended to be sold shall be free from all kind of defects. Further, the goods shall be free from any third party rights. At the time of payment, the seller shall give the original bill to the buyer and make him aware about the provisions of warranty and guarantee attached to the concerned product.

Remedy for breach of contract

The term “breach of contract” refers to a situation in which either of the parties fails to fulfill its contractual obligations. When the contract is breached, the following remedies can be availed by the aggrieved party-

  • Specific performance of Contract
  • Cancellation of the Contract
  • Compensation for damage

In Short

The contract of sale is one of the most integral elements of commercial dealings. The contract must fulfil some basic requirements such as offer, acceptance, valid objective, etc. There are numerous obligations of the buyer and the seller attached thereto. If you are planning to enter into such a contract involving substantial interest and money, it is strongly advisable to take legal assistance of a specialised legal attorney to avoid future litigation.

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