Commercial Contracts in GMC: The Sale of Goods Act 2026 and the Unfair Contract Terms Act 2026

Summary

• The Sale of Goods Act 2026 (Law No. 5 of 2026) came into operation on 15 June 2026 (s. 63) and applies only to contracts of sale made on or after that date (s. 1(1)).
• Every sale carries implied conditions that the seller has the right to sell (s. 12(1)), that goods match their description (s. 13(1)), and, where the seller sells in the course of a business, that they are of "satisfactory quality" (s. 14(2)) and fit for any purpose the buyer makes known (s. 14(3)).
• Property passes when the parties intend (s. 17), by default under the five rules in s. 18, and risk follows property unless otherwise agreed (s. 20(1)). A seller may reserve title until payment (s. 19).
• Implied terms can be excluded by express agreement, "subject to the Unfair Contract Terms Act 2026" (s. 55(1)).
• Under the Unfair Contract Terms Act 2026 (Law No. 6 of 2026), also in force from 15 June 2026 (s. 30), the implied term as to title can never be excluded, the description, quality, fitness and sample terms cannot be excluded against a consumer, and against a business buyer only where "reasonable" (s. 6).
• International supply contracts (s. 26) and arbitration agreements (s. 13) are outside UCTA, and contracts for interests in land, insurance, securities and employment are exempt (First Schedule).

Two Acts, one commencement date

Until June 2026, sale of goods questions in the Gelephu Mindfulness City (GMC) fell to the common law and equity received under s. 3 of the Application of Laws Act 2024. On 15 June 2026 GMC's own Sale of Goods Act 2026 ("SoGA") and Unfair Contract Terms Act 2026 ("UCTA") came into operation. Both are made under Article 4(2) of the Royal Charter with the assent of the Druk Gyalpo.

The two Acts are drafted to work together. SoGA s. 55(1) allows implied rights, duties and liabilities to be "negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties", but only "subject to the Unfair Contract Terms Act 2026". SoGA also borrows UCTA's concept of "dealing as consumer" (s. 1A(4A)), and it is for the seller who says the buyer is not a consumer to prove it (s. 1A(4B)).

Timing matters. SoGA applies to contracts made on or after commencement "but not to those made before" (s. 1(1)). UCTA likewise does not apply to contracts made before 15 June 2026. A long-term supply agreement signed in 2025 is governed by the pre-existing law unless it is renewed or replaced.

What is a contract of sale of goods?

A contract of sale of goods is one "by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price" (s. 2(1)). If property passes at once it is a "sale"; if it passes later or on a condition it is an "agreement to sell" (s. 2(4), (5)). "Goods" means all personal chattels other than things in action and money, including industrial growing crops and things attached to land that are to be severed (s. 1A(1)). Software licences, shares, receivables and land are not goods. A transaction dressed as a sale but intended as a mortgage, pledge or charge is excluded (s. 62(4)).

No formality is required: a contract may be written, oral, partly both, or implied from conduct (s. 4(1)). If no price is fixed or agreed mechanism exists, the buyer must pay a reasonable price, a question of fact (s. 8). Time of payment is not of the essence unless the contract says so; whether any other time stipulation is of the essence depends on the contract (s. 10).

Conditions, warranties and the right to reject

The Act distinguishes a "condition", breach of which allows the buyer to treat the contract as repudiated and reject the goods, from a "warranty", which is "collateral to the main purpose" and gives rise only to damages (ss. 1A(1), 11(2)). Whether a term is one or the other "depends in each case on the construction of the contract; and a stipulation may be a condition, though called a warranty in the contract" (s. 11(2)). Once a buyer has accepted the goods in a non-severable contract, a breach of condition can only be treated as a breach of warranty unless the contract provides otherwise (s. 11(3)).

For business-to-business sales, s. 15A softens the right to reject: where the breach of the implied conditions in ss. 13, 14 or 15 "is so slight that it would be unreasonable for the buyer to reject", a buyer who does not deal as consumer may treat it only as a breach of warranty (s. 15A(1)). The seller must prove the breach was that slight (s. 15A(3)), and the parties may contract out (s. 15A(2)).

The implied terms

Title (s. 12)

The implied condition of a right to sell applies to every contract of sale except one where the parties intend that the seller "should transfer only such title as he or a third person may have" (s. 12(3)); in that case narrower warranties of disclosure and non-disturbance apply (s. 12(4), (5)). Where goods are sold by a non-owner without authority, the buyer "acquires no better title to the goods than the seller had" (s. 21(1)), subject to the exceptions for voidable title (s. 23), a seller left in possession (s. 24) and a buyer in possession (s. 25).

Description (s. 13)

A sale is by description even where the buyer selects goods exposed for sale (s. 13(3)). Where a sale is by sample and description, the goods must match both (s. 13(2)).

Satisfactory quality (s. 14(2)–(2C))

Section 14 begins with the default: apart from ss. 14 and 15 and any other enactment, "there is no implied condition or warranty about the quality or fitness" of goods (s. 14(1)). The condition in s. 14(2) applies only where the seller sells in the course of a business ("business" includes a profession and the activities of any GMCA department or public authority: s. 1A(1)). Goods are of satisfactory quality if they meet "the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances" (s. 14(2A)). Quality includes fitness for all common purposes, appearance and finish, freedom from minor defects, safety and durability (s. 14(2B)). The condition does not cover defects specifically drawn to the buyer's attention, defects a pre-contract examination ought to reveal, or defects apparent on reasonable examination of a sample (s. 14(2C)).

Fitness for purpose (s. 14(3))

Where the buyer "expressly or by implication" makes known a particular purpose, the goods must be reasonably fit for it, "whether or not that is a purpose for which such goods are commonly supplied", unless the buyer did not rely, or it was unreasonable to rely, on the seller's skill or judgment (s. 14(3)). Terms of quality or fitness may also be annexed by usage (s. 14(4)). The section applies to an agent selling in the course of a business for an undisclosed private principal (s. 14(5)).

Passing of property and risk

The commercial significance of property (ownership) is threefold: risk follows it (s. 20), an unpaid seller's action for the price generally depends on it (s. 49(1)), and it determines who loses the goods in an insolvency.

No property in unascertained goods passes until they are ascertained (s. 16), subject to the bulk rules. For specific or ascertained goods, property passes "at such time as the parties to the contract intend it to be transferred" (s. 17(1)), having regard to the terms, conduct and circumstances (s. 17(2)). Absent a contrary intention, s. 18 supplies five rules:

• Rule 1: an unconditional contract for specific goods in a deliverable state, property passes when the contract is made, whether or not payment or delivery is postponed.
• Rule 2: the seller must do something to put specific goods into a deliverable state, property passes when that is done and the buyer has notice.
• Rule 3: the seller must weigh, measure or test to fix the price, property passes when done and notified.
• Rule 4: goods on approval or sale or return, property passes on approval, on an act adopting the transaction, or on retention beyond the fixed or a reasonable time.
• Rule 5: unascertained or future goods by description, property passes on unconditional appropriation with the other party's assent; delivery to a carrier without reserving the right of disposal is appropriation; and where an identified bulk is reduced to the quantity due to a sole remaining buyer, the remainder is appropriated to that buyer.

Rule 1 is the trap for sellers. Under it, ownership of identified stock passes on signature, before payment and before delivery. The remedy is s. 19: the seller may "reserve the right of disposal of the goods until certain conditions are fulfilled", and then property does not pass, even after delivery, until those conditions are met (s. 19(1)). A bill of lading made out to the seller's order is prima facie such a reservation (s. 19(2)). A retention of title clause conditioned on payment is the standard way to displace Rule 1 in GMC supply contracts.

A buyer who has paid for a specified quantity of goods forming part of an identified bulk becomes an owner in common of the bulk in proportion to what it has paid for (s. 20A), and is deemed to consent to deliveries out of the bulk to other co-owners (s. 20B).

Risk: "Unless otherwise agreed, the goods remain at the seller's risk until the property in them is transferred to the buyer", and then pass to the buyer's risk "whether delivery has been made or not" (s. 20(1)). If delivery is delayed through either party's fault, that party bears risk of loss that would not otherwise have occurred (s. 20(2)). If specific goods perish without fault before risk passes, the agreement is avoided (s. 7). Contracts should therefore state expressly when risk passes, particularly where title is retained: without such a clause, a retention of title clause keeps risk with the seller too.

Delivery and acceptance

The seller must deliver and the buyer must accept and pay, in accordance with the contract (s. 27); unless otherwise agreed, delivery and payment are concurrent conditions (s. 28). By default the place of delivery is the seller's place of business, or the location of specific goods known to both parties (s. 29(2)); if no time is fixed, delivery must be within a reasonable time (s. 29(3)); the seller bears the cost of putting goods into a deliverable state (s. 29(6)). Delivery to a carrier is prima facie delivery to the buyer (s. 32(1)), but the seller must make a reasonable contract of carriage on the buyer's behalf, failing which the buyer may refuse to treat it as delivery (s. 32(2)), and must give the buyer notice enabling insurance on a sea transit (s. 32(3)).

Short delivery may be rejected or accepted at the contract rate; over-delivery may be accepted in part or rejected in whole (s. 30(1), (2)). A business buyer may not reject for a shortfall or excess "so slight that it would be unreasonable" to do so (s. 30(2A)), the seller bearing the burden (s. 30(2B)). A buyer is not bound to accept instalment deliveries unless agreed (s. 31(1)), and whether a defective instalment repudiates the whole contract depends on the terms and circumstances (s. 31(2)).

The buyer is entitled on request to a reasonable opportunity to examine the goods (s. 34) and is not deemed to have accepted them until it has had that opportunity (s. 35(2)); a consumer cannot lose this protection by agreement (s. 35(3)). Acceptance occurs by intimation, by an act inconsistent with the seller's ownership, or by retaining the goods beyond a reasonable time without rejecting (s. 35(1), (4)), but not merely by asking for repair or by sub-selling (s. 35(6)). A buyer may accept conforming goods and reject the rest (s. 35A). A rejecting buyer need not return the goods; notice of refusal suffices (s. 36).

Remedies

Seller's remedies. An unpaid seller (s. 38) has, by implication of law, a lien while in possession, a right of stoppage in transit if the buyer becomes insolvent, and a limited right of re-sale (s. 39(1)). The lien arises where the goods are sold without credit, credit has expired, or the buyer is insolvent (s. 41(1)), and is lost on delivery to a carrier without reserving disposal, on the buyer lawfully obtaining possession, or by waiver (s. 43(1)). Stoppage in transit is exercised by retaking possession or notifying the carrier (s. 46). A seller who re-sells after giving notice, or where the goods are perishable, may recover damages from the original buyer (s. 48(3)); an express right of re-sale on default rescinds the original contract (s. 48(4)). The seller may sue for the price once property has passed, or where the price is payable on a day certain irrespective of delivery (s. 49). Damages for non-acceptance are the loss "directly and naturally resulting" from the breach, prima facie the difference between contract and market price (s. 50).

Buyer's remedies. Damages for non-delivery follow the same measure (s. 51). The court may order specific performance of a contract for specific or ascertained goods "without giving the defendant the option of retaining the goods on payment of damages" (s. 52(1)). For breach of warranty the buyer may set the breach up in diminution of the price or sue for damages, prima facie the difference in value at delivery (s. 53). Interest and special damages remain recoverable where the law allows (s. 54). "Court" in the Act means the judicial body the Druk Gyalpo designates (s. 1A(1)) (see our guide to dispute resolution in GMC).

The common law, including the law merchant and the rules on fraud, misrepresentation, duress, mistake and agency, continues to apply so far as consistent with the Act (s. 62(2)).

The Unfair Contract Terms Act 2026: what survives

UCTA controls attempts to exclude or restrict "business liability" (s. 1). Its provisions bite hardest where one party "deals as consumer" (s. 12) or where the contract is on the other party's "written standard terms of business" (s. 3). Terms that fail the Act are ineffective; the rest of the contract stands. The Act also catches attempts to evade it by a secondary contract (s. 10).

The reasonableness test (s. 11)

The core test asks whether the term was "a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made" (s. 11). The burden is on the party claiming the term is reasonable. Where a term limits liability to a sum of money, the court also considers the resources available to meet the liability and the availability of insurance. The Second Schedule guidelines direct attention to the relative bargaining strength of the parties, whether the customer received an inducement or could have contracted elsewhere without the term, whether the customer knew or ought to have known of the term, whether compliance with any condition was practicable, and whether the goods were made to the customer's special order.

Clause-by-clause

Other contracts under which goods pass (hire, hire-purchase, work and materials) are treated similarly under s. 7. Section 9 addresses the effect of a breach on an exemption clause, and s. 29 saves terms authorised or required by other laws.

What is outside UCTA

Three exclusions matter for GMC's trading community. First, "international supply contracts" are excluded (s. 26); a GMC exporter selling to an overseas buyer, or a GMC importer buying from abroad, may find its standard terms are outside the Act entirely. Second, the First Schedule exempts contracts of insurance, contracts relating to interests in land, intellectual property, company formation and constitutions, securities, marine salvage, charterparties and carriage (save as against consumers), and employment contracts (save for employee protections). Third, choice of law does not help evade the Act: it applies despite a foreign governing law where the term "appears imposed wholly or mainly to evade the Act", or where a consumer habitually resident in GMC took the essential steps there (s. 27).

Drafting standard terms for GMC

For a supplier selling in GMC on standard terms to business customers, the following approach fits the two Acts:

1. State when property passes and reserve title until payment in full (SoGA s. 19), and state separately when risk passes (s. 20(1)).
2. Do not attempt to exclude the s. 12 title terms; the attempt is void (UCTA s. 6).
3. Rather than excluding the ss. 13–15 conditions outright, replace them with a defined warranty, a defects procedure and a capped remedy; a limitation calibrated to price and insurance is more likely to pass s. 11 than a blanket exclusion.
4. Contract out of s. 15A and s. 30(2A) only if you are the buyer and want an unqualified right to reject.
5. Keep the reasonable-examination window in s. 35 in mind when setting rejection deadlines; a consumer's right cannot be shortened (s. 35(3)).
6. Include an arbitration clause if desired; it is outside UCTA (s. 13), though the enforcement framework in GMC is still developing (see our guide to dispute resolution in GMC).
7. Date everything. Contracts made before 15 June 2026 are outside both Acts (SoGA s. 1(1); UCTA s. 30).

Frequently asked questions

Does the Sale of Goods Act 2026 apply to a contract signed before 15 June 2026?

No. Section 1(1) applies the Act to contracts made on or after commencement "but not to those made before". UCTA likewise excludes pre-commencement contracts. Renewals, extensions and new call-offs under a framework should be reviewed, because a new contract made after that date is caught.

Can I exclude the implied condition of satisfactory quality in my standard terms?

Against a consumer, no (UCTA s. 6). Against a business buyer, only if the exclusion satisfies the s. 11 reasonableness test, which you must prove. The Second Schedule factors, bargaining strength, alternatives, knowledge of the term, special orders, and your resources and insurance will all be weighed.

When does risk pass to the buyer?

Unless otherwise agreed, risk passes with property (SoGA s. 20(1)). Under Rule 1 of s. 18, property in specific goods in a deliverable state passes on contract, so risk can pass before delivery. Contracts should fix the point expressly, especially where the seller retains title.

Is a retention of title clause effective in GMC?

Section 19(1) expressly allows a seller to reserve the right of disposal until conditions such as payment are fulfilled, in which case property does not pass even after delivery. The clause should be paired with a risk clause and a right to enter and recover goods.

Are export and import contracts covered by UCTA?

International supply contracts are excluded by s. 26, so exclusion clauses in cross-border sales are not subject to the reasonableness test. The Sale of Goods Act still applies to such contracts where GMC law governs.

Does a "sold as seen" clause work?

Section 14(2C) already removes from the quality condition any defect specifically drawn to the buyer's attention or which a pre-contract examination ought to reveal. Beyond that, a clause excluding the condition is void against consumers and must be reasonable against businesses (UCTA s. 6).

Key takeaways

• SoGA and UCTA both commenced on 15 June 2026 and apply only to contracts made from that date.
• Implied conditions of title, description, quality, fitness and sample apply by default; business buyers lose the right to reject only for slight breaches (s. 15A).
• Property passes by intention, defaulting to the s. 18 rules; risk follows property; retention of title is available under s. 19.
• Title terms can never be excluded; description, quality and fitness terms cannot be excluded against consumers and must be reasonable against businesses (UCTA s. 6, s. 11).
• International supply contracts, arbitration agreements and land, insurance, securities and employment contracts sit outside UCTA.

This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.

You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.

References

• Sale of Goods Act 2026 (Law No. 5 of 2026), ss. 1, 1A, 2, 4, 7, 8, 10, 11, 12, 13, 14, 15, 15A, 16, 17, 18, 19, 20, 20A, 20B, 21, 23, 24, 25, 27, 28, 29, 30, 31, 32, 34, 35, 35A, 36, 38, 39, 41, 43, 46, 48, 49, 50, 51, 52, 53, 54, 55, 62, 63
• Unfair Contract Terms Act 2026 (Law No. 6 of 2026), ss. 1, 2, 3, 4, 5, 6, 7, 9, 10, 11, 12, 13, 26, 27, 29, 30; First Schedule; Second Schedule
• Application of Laws Act 2024 (Law No. 1 of 2024), s. 3