I. About This Article
A sale and purchase agreement is one of the most common and important contracts in business relations. It is used for the purchase of goods, real estate, production equipment, machinery, shares, raw materials, finished products or other commercial assets.
A sale and purchase agreement defines the main obligations of the seller and the buyer, the procedure for transfer of ownership, preconditions for payment of price, quality of the item, procedure for detecting defects and submitting claims, the possibility of withdrawal from contract and the burden of proof in case of a dispute.
The central provision regulating sale and purchase agreements is Article 477 of the Civil Code of Georgia. Under this provision, the seller is obliged to transfer ownership of property to the buyer, deliver related documents and supply the goods, while the buyer is obliged to pay the agreed price and accept the purchased property.
In practice, disputes related to sale and purchase agreements often begin because the parties do not define in advance the quality, quantity, licences and documentation of the item, the acceptance-handover procedure, the procedure for identifying defects, the claim period and the consequences of withdrawal from contract.
This article will help you understand what a sale and purchase agreement means, what main obligations the seller and buyer have, when the obligation to pay the price arises and what risks may arise in case of defective goods, non-delivered goods or improper performance.
The article discusses the meaning of material defects and legal defects, the buyer’s secondary claims, the priority of remedying defects or replacing the item, the entrepreneur buyer’s obligation to inspect the item immediately, the preconditions for withdrawal from a sale and purchase agreement and recent practice of the Supreme Court of Georgia.
It also explains how sale and purchase differs from a works contract, why a defect in the item does not automatically release the buyer from paying the full price and what businesses should consider before entering into a sale and purchase agreement.
II. What Is a Sale and Purchase Agreement?
Under Article 477 of the Civil Code of Georgia, by a sale and purchase agreement, the seller is obliged to transfer ownership of property to the buyer, deliver related documents and supply the goods. The buyer is obliged to pay the agreed price to the seller and accept the purchased property.
According to the interpretation of the Supreme Court of Georgia, sale and purchase is a bilateral and consensual transaction. This means that a sale and purchase agreement arises through agreement of the parties and imposes reciprocal obligations on both parties.
The seller’s main obligation is to transfer ownership of property to the buyer, while the buyer’s main obligation is to pay the agreed price and accept the purchased property. This balance of reciprocal obligations forms the legal basis of a sale and purchase agreement.
In business relations, sale and purchase agreements are often used not only for simple goods, but also for technically complex equipment, production machinery, company shares, land plots, real estate or other high-value assets. In such cases, precision of contractual terms is especially important.
III. What Obligations Does the Seller Have?
The seller’s main obligation is to transfer the subject of sale, ownership of that subject and related documentation to the buyer.
This obligation may be performed in different ways. In some cases, the seller directly transfers the item to the buyer. In other cases, the seller may transfer a right that enables the buyer to claim the item or acquire ownership of it. The practice of the Supreme Court indicates that the law does not require one specific form for validity of sale where, by agreement of the parties, ownership or the relevant right may be transferred.
In addition to transferring ownership, the seller must deliver the item free from material and legal defects. This means that the item must correspond to the agreed quality, quantity and purpose, and must not be burdened by a legal problem that prevents the buyer from using it.
If the subject of sale is connected with a licence, certificate, technical documentation or another necessary document, the seller’s obligation may also include delivery of such documentation. These details should be clearly defined in the agreement.
IV. What Obligations Does the Buyer Have?
The buyer’s main obligation is to pay the agreed price and accept the purchased property.
The buyer, especially in a business relationship, also has an obligation to inspect the item. If the buyer is an entrepreneur or purchases the item for entrepreneurial purposes, the law imposes a higher standard of diligence. Such buyer must inspect the subject of sale immediately and, if a defect is discovered, submit a claim to the seller in time.
If the buyer refuses to pay the price on the ground that the item is defective, the buyer bears the burden of proving the relevant circumstances. The buyer must prove that the subject of sale was not received, or that the item received differed from the agreed quality, quantity or conditions.
In practice, the buyer’s position in sale and purchase disputes is often weakened where, after receiving the goods, the buyer does not inspect the item, does not record the defect, does not send a timely written claim and only later, after receiving a demand for payment, starts referring to defects in the item.
V. When Does the Obligation to Pay the Price Arise?
In a sale and purchase agreement, the obligation to pay the price usually arises when the seller performs its main obligation – transferring ownership, the subject of sale or the relevant right agreed by the parties to the buyer.
According to the interpretation of the Supreme Court of Georgia, after performance of the seller’s synallagmatic obligation, the seller obtains the right to demand counter-performance from the buyer – payment of the price and acceptance of the goods.
Article 369 of the Civil Code of Georgia allows a party to a bilateral contract to refuse its own performance until the counter-performance is made, except where that party was obliged to perform first.
Therefore, if the subject of sale has been transferred and the buyer does not prove circumstances that release it from counter-performance, the obligation to pay the price remains in force. A general reference to defects in the item is usually not sufficient for complete refusal to pay the price.
VI. What Are Material and Legal Defects?
Article 487 of the Civil Code of Georgia imposes an obligation on the seller to transfer an item free from material and legal defects.
An item is materially defect-free if it has the agreed quality. If quality was not agreed in advance, the item is considered defect-free if it is suitable for the use provided by the contract or for ordinary use.
A defect may also include delivery of another item, delivery of only part of the item, delivery of a quantity smaller than agreed or a situation where part of the item is defective and this defect substantially affects performance.
A legal defect exists where a third-party right, legal restriction or another legal problem prevents the buyer from fully exercising ownership or use of the item.
In practice, clear distinction between material and legal defects is important because different types of defects may lead to different legal consequences – remedy of defect, replacement of item, reduction of price, withdrawal from contract or damages.
VII. What Rights Does the Buyer Have When Receiving Defective Goods?
If the seller transfers an item with a material or legal defect to the buyer, the buyer may have several types of secondary claims.
The buyer may request remedy of the defect. If the matter concerns fungible goods, the buyer may have the right to request replacement of the defective item with a new one. In certain cases, the buyer may request reduction of price, withdrawal from contract or damages.
However, these rights do not apply automatically and simultaneously. The practice of the Supreme Court emphasizes that there is a certain hierarchy and sequence among the buyer’s secondary claims.
Receiving defective goods does not by itself mean that the buyer may always refuse to pay the entire price or immediately withdraw from the contract. First, the nature of the defect, the possibility of remedying it, the buyer’s timely reaction and whether the buyer gave the seller an opportunity to remedy the defect or replace the item must be assessed.
VIII. Why Is Remedying the Defect or Replacing the Item a Priority Claim?
According to the practice of the Supreme Court of Georgia, in a sale and purchase agreement, remedying the defect or replacing the defective item is generally a priority among secondary claims.
The purpose of this approach is to preserve the contract and protect the parties’ interest in performance. The parties enter into a sale and purchase agreement so that the buyer receives the relevant item and the seller receives the price. Therefore, the law first seeks to achieve the purpose of the contract — delivery of a defect-free item.
Only where remedying the defect or replacing the item is impossible, unsuccessful or the granted period expires without result may withdrawal from contract, reduction of price or damages become relevant.
This approach is especially important for businesses. If the buyer, immediately after discovering a defect, directly requests withdrawal from contract or refund of the full amount without giving the seller an opportunity to remedy the defect, the buyer’s claim may be legally weak.
IX. What Obligation Does an Entrepreneur Buyer Have When Inspecting the Item?
Article 495 of the Civil Code of Georgia imposes a special obligation on an entrepreneur buyer. If the buyer is an entrepreneur, the buyer is obliged to inspect the item immediately. If the buyer does not submit a claim to the seller within the relevant period after discovering a defect, or within the period during which the defect should have become known, the buyer may lose the right to make claims based on the defect.
According to the practice of the Supreme Court of Georgia, this rule applies not only where the buyer is formally registered as an entrepreneur, but also where the item is purchased for entrepreneurial purposes.
The Court’s logic is that an entrepreneur better understands the risks characteristic of private-law relations and is required to exercise greater diligence compared to an ordinary buyer.
In practice, businesses often lose a strong legal position only because, after discovering a defect, they do not send a written claim in time, do not record evidence, do not preserve correspondence and continue using the item in a way that later makes it difficult to prove the existence of the defect and timely reaction.
X. When Is Withdrawal from a Sale and Purchase Agreement Possible?
Withdrawal from a sale and purchase agreement is possible where there is a ground provided by law or the contract. In case of a defect in the item, the buyer’s right to withdraw from contract is connected with Articles 491, 352 and 405 of the Civil Code of Georgia.
It is important that Article 491 does not independently create a complete legal mechanism. It refers to Article 405, and Article 405 is connected with general rules and consequences of withdrawal from contract.
As a rule, withdrawal from contract requires a material breach, giving the seller an opportunity to remedy the defect or replace the item, granting an additional period or giving a warning where this is not excluded in the specific case, and a clear notice of withdrawal from contract.
Breach of contractual obligation alone is not sufficient for withdrawal from contract. The breach should be assessed objectively: how material it is, whether the buyer has lost interest in performance, whether the defect can be remedied and whether the buyer complied with its own procedural obligations.
Withdrawal from a sale and purchase agreement substantially differs from termination of a long-term contractual relationship, such as lease, rental and similar contracts.
For more information about this issue, see our blog: Termination of a Long-Term Contract in Georgia – What You Should Know About Article 399 of the Civil Code.
XI. What Are the Consequences of Withdrawal from a Sale and Purchase Agreement?
In case of withdrawal from a sale and purchase agreement, the parties are generally released from further performance of primary contractual obligations and a restitution relationship arises.
Under Article 352 of the Civil Code of Georgia, in case of withdrawal from contract, received performance and benefits must be returned by the parties. In practice, this means that the seller must return the amount received, while the buyer must return the received item or its relevant value, depending on the specific circumstances.
The practice of the Supreme Court emphasizes that withdrawal from contract is a unilateral declaration of will that must be received by the other party. It becomes valid when the relevant notice reaches the other party and that party has a real opportunity to become familiar with its content.
It is also important that partial withdrawal from a sale and purchase agreement is generally legally impermissible. If a party seeks only to change or adjust a certain part, this is more likely an issue of contract amendment or price reduction, not withdrawal from contract.
If the issue concerns invalidity of a transaction and not withdrawal from contract, a different legal regime applies.
For more information about this topic, see our blog: Unlawful Transaction – When Can a Contract Be Declared Void?
XII. When Can Price Reduction or Damages Be Requested?
If the subject of sale is defective, but the buyer does not request remedy of the defect or replacement of the item, or if the period granted for such request expires without result and the buyer does not withdraw from the contract, the buyer may have the right to request reduction of price.
Price reduction practically means that the buyer keeps the item but requests reduction of the price in an amount corresponding to the defect or the cost necessary for remedying it.
Damages are an independent claim and generally require substantiation of damage, breach of obligation, causal link and fault.
The practice of the Supreme Court indicates that defective performance does not automatically create the right to demand return of the full contractual amount and does not automatically release the buyer from paying the price agreed under the contract.
When claiming damages, a business should assess what damage actually occurred, whether it is documented, whether the damage was foreseeable for the other party and how it is connected with the specific contractual breach.
XIII. How Does Sale and Purchase Differ from a Works Contract?
Distinguishing sale and purchase from a works contract is not always simple in practice. This is especially true where the contract includes both delivery of goods and installation, assembly, adaptation or other additional work.
As a general principle, the main element of a sale and purchase agreement is transfer of ownership of an item or goods. The main element of a works contract is performance of specific work and creation of the result of that work.
If the main purpose of the contract is supply of goods and installation is only an accompanying element of that supply, the relationship may be assessed as sale and purchase. If the main purpose is performance of individual work, creation of a specific result or manufacturing of an item based on the client’s specific order, the logic of a works contract may be more relevant.
In such cases, the practice of the Supreme Court pays attention to the contract terms, the parties’ real purpose, the nature of the supplied goods, the importance of the work and the claims raised by the parties in the dispute.
For more information about works contracts, see our blog: Works Contract – What Businesses Should Know About Performance of Work, Remuneration and Termination.
XIV. What Should a Business Consider Before Signing a Sale and Purchase Agreement?
Before signing a sale and purchase agreement, a business should assess not only the price and delivery term, but the entire contractual risk structure.
The agreement should clearly define the subject of sale, quantity, quality, technical characteristics, documentation, licences, certificates, delivery place and deadline, acceptance-handover procedure, inspection procedure, form and deadline for claims in case of defects, preconditions for payment of price, contractual penalty, grounds for withdrawal from contract and rules for compensation of damages.
For more information about proper determination of contractual penalties, see our blog: Contractual Penalty in a Contract – What Businesses Should Know About Penalties, Default Interest and Court Reduction.
If the agreement concerns technically complex goods, production equipment, software products, licensed goods or high-value assets, it is especially important to describe in detail what qualifies as proper performance and by what evidence acceptance will be confirmed.
In practice, the greatest risk in a sale and purchase agreement often lies in the fact that parties describe delivery of goods and payment of price too generally, but do not define the details that become decisive in a dispute – quality, documentation, licence, inspection, claim and evidence.
For assistance with sale and purchase, supply and other business contracts, see our service page: Contract Law Services in Georgia.
At the same time, the contract should not include provisions that contradict mandatory legal requirements. Otherwise, instead of a valid sale and purchase agreement, the parties may face an invalid transaction that does not produce legal effects.
For more information about this issue, see our blog: Unlawful Transaction – When a Contract Does Not Produce Legal Effects.
XV. What Common Dispute Risks Arise in Sale and Purchase Agreements?
Sale and purchase disputes often arise because the parties focus on the commercial result but do not sufficiently regulate the legal details of performance.
Common dispute risks include uncertainty about the exact subject of sale, disagreement over quality, incomplete or delayed delivery, missing documents or certificates, unclear acceptance-handover procedure, late inspection of the item, failure to send a timely defect claim, refusal to pay the price, disputed withdrawal from contract and claims for damages.
In business transactions, these risks may become especially significant where the purchased item is necessary for the buyer’s operational process, resale, production, construction or fulfilment of obligations toward third parties.
A properly drafted agreement should reduce these risks by defining the parties’ expectations in advance and creating a clear evidentiary framework for performance.
XVI. How TB Legal Can Help
Within our contract law services, TB Legal assists businesses with preparing sale and purchase agreements, legal assessment of existing agreements and analysis of risks related to defective goods, payment of price, acceptance-handover, contractual penalties, withdrawal from contract and damages.
Our approach is based not only on formal analysis of the contract text, but also on assessment of the parties’ real commercial interests, court practice, evidence and possible dispute risks.
If you plan to enter into a sale and purchase agreement, assess an existing contract, prepare a claim related to defective goods or develop a legal strategy for a sale and purchase dispute, it is important to obtain legal advice before making a decision.
XVII. Conclusion
A sale and purchase agreement is not only a document for purchasing goods or property by a business. It defines the legal framework for transfer of ownership, payment of price, quality of the item, detection of defects, the buyer’s inspection obligation, withdrawal from contract and compensation of damages.
A properly drafted sale and purchase agreement reduces dispute risk and gives the parties answers in advance to the key questions: what must be transferred to the buyer, in what quality, with what documentation, when the price must be paid, how the item must be inspected and what happens if a defect is discovered.
The practice of the Supreme Court of Georgia shows that, in sale and purchase disputes, decisive importance is attached not only to the text of the contract, but also to the fact of acceptance-handover, timely claim, evidence and properly selected legal remedy.
Contact TB Legal if you plan to enter into a sale and purchase agreement, assess an existing contract, prepare a claim related to defective goods or develop a legal strategy for a sale and purchase dispute. We will help you analyse legal risks, choose the right approach and protect your business interests.
XVIII. Supreme Court Decisions Used
This article is based on the following decisions and rulings of the Supreme Court of Georgia:
- Supreme Court of Georgia, case No. AS-437-2022, 2 May 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-1193-2023, 5 December 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-700-2023, 3 April 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-1408-2022, 17 July 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-1003-2020, 23 April 2021, Tbilisi.
- Supreme Court of Georgia, case No. AS-1268-2025, 28 January 2026, Tbilisi.
- Supreme Court of Georgia, case No. AS-885-2023, 3 October 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-883-2021, 9 December 2021, Tbilisi.
- Supreme Court of Georgia, case No. AS-362-2021, 25 June 2021, Tbilisi.
- Supreme Court of Georgia, case No. AS-222-2021, 4 June 2021, Tbilisi.
- Supreme Court of Georgia, case No. AS-1178-1098-2017, 26 March 2019, Tbilisi.
- Supreme Court of Georgia, case No. AS-168-158-2017, 20 July 2018, Tbilisi.
Disclaimer
This article has been prepared for general informational purposes only and does not constitute individual legal advice or a legal opinion. The issues discussed in this article may be assessed differently depending on the specific factual circumstances, contract terms, conduct of the parties and relevant evidence.
Before making a decision in a specific matter, it is recommended to obtain individual legal advice from a qualified lawyer.
