A Sales Agreement, also known as a Sale of Goods Agreement, is a written document between a buyer who wants to purchase goods and a seller who owns those goods and wants to sell them. In general, goods are something that you can use or consume that are moveable at the time of the sale, including watches, clothing, books, toys, furniture, and cars.
A simple document will identify the following basic elements:
- Seller: The full name and contact information of the party selling the goods
- Buyer: The full name and contact information of the party purchasing the goods.
- Goods: A detailed description of the goods being purchased, including the amount being purchased.
- Price: The total price to be paid for the goods, including any deposits or adjustments.
- Payment: How the seller will invoice the buyer and how and when the buyer will pay for the goods.
- Delivery: When the goods will be delivered from the seller to buyer, and where they will be delivered to.
- Warranties: Whether the seller is selling the goods “as is” or will provide a warranty on the condition of the goods.
- Inspection: Whether the buyer has the right to inspect the goods within a specified period of time.
- Risk of loss: Which party will be responsible for the costs if there is damage between the time the goods are shipped and the time the goods are delivered.
These additional elements can also be included:
- Dispute resolution: Whether disputes regarding the agreement will be resolved through mediation, arbitration, or through the courts.
- Governing law: Which state’s laws will control the enforcement and interpretation of the agreement.
- Amendments: How to formally change the terms and provisions of the agreement.
- Assignment: Whether a party needs written permission to transfer its rights under the agreement to another party.
- Notices: How the parties will communicate and send notices to each other.
- Severability: The remainder of the agreement will still be valid in the event that part of the agreement is unenforceable.
- Entire agreement: Both parties’ intentions that the agreement is complete and final.
A Sales Agreement may also be called:
- Agreement for Sale of Goods
- Agreement to Sell
- Sales Contract
The Statute of Frauds requires that contracts for the sale of goods priced at $500 or more must be in writing in order to be enforceable. The sale of goods is also governed by Article 2 of the Uniform Commercial Code and has been adopted by nearly every U.S. jurisdiction.
When Do I Need a Sales Agreement?
You need a sales agreement if your business sells goods or services to other parties or businesses. A professional sales agreement will help keep things clear and understood by both parties by detailing the terms of the sale.
You’ll want to make sure that you have an agreement in writing to ensure that it’s smooth sailing until the money and goods have been exchanged, and both you and the other party will want to know what to do if there are any issues along the way. This agreement can be used for a range of sales of goods, from small-scale purchases to large-scale contracts.
For certain sales contracts, namely those that are entered into at a location that is NOT the seller’s permanent place of business, the buyer has a statutory right to cancel the contract until midnight of the third business day after the sale. For more information on this “cooling-off” period, check your state laws and the Federal Trade Commission.
Here are some examples of potential sellers and buyers who would need to use this agreement.
| POTENTIAL SELLER | POTENTIAL BUYER |
|---|---|
| Party supply store | Professional party planner |
| Clockmaker | Collector of specialty clocks |
| Office supply store | Start-up company |
| Car dealership | Rental car company |
| Winery | Wedding planner |
Use a Sales Agreement to Prepare for Success
If you don’t have a Sales Agreement, you risk failing to understand your contractual rights and obligations, the economic consequences of the risks, and the legal remedies and protections available to you at law. This agreement lays a strong foundation and framework for all steps in an otherwise complicated process and provides how to address and remedy them should something go wrong.
A successful individual or business relies on being able to maximize profits by anticipating the largest sales periods and knowing how much inventory is needed to meet the demand. Without a sales agreement, you or your business may not be able to sell or secure inventory at the best prices, failing to maximize profits.
Your buyer may suddenly decide not to buy from you, in which case you would be left with unexpected inventory and no recourse. Or your seller may find a buyer willing to pay more, leaving you with no inventory and angry customers.
A simple Sale of Goods Agreement can help guarantee the following:
| SELLER | Buyer |
|---|---|
| Guarantees the buyer will purchase a specific amount of goods | Guarantees the seller will supply a specific amount of goods |
| Guarantees the buyer will purchase the goods at a specific time | Guarantees the seller will supply the goods at a specific time |
| Guarantees the buyer will purchase the goods for a specific price | Guarantees the seller will supply the goods for a specific price |
| Guarantees the buyer will not back out of a promise after seller has devoted capital to produce the goods | Guarantees the buyer will be unaffected by market changes |
| Guarantees the buyer certain remedies should the seller breach | Guarantees the seller certain remedies should the buyer breach |
Sales Agreement Sample
The sample sales agreement below details an agreement between a seller and a buyer. Under the terms specified, the buyer agrees to purchase items from the seller.
Warranties in Sales Agreements
Without a written sales agreement, certain warranties regarding the goods may either automatically apply or may not apply at all. Warranties are legally enforceable promises or guarantees assuring the buyer that certain facts or conditions about the goods are true. Under the Uniform Commercial Code (UCC) there are two kinds of warranties – express warranties and implied warranties.
Express warranties: An express warranty is an affirmative statement by the seller about the quality and characteristics of goods. An example of an express warranty is an electronics retailer telling a customer, “We guarantee your newly purchased television against defects for three years. When you bring a defect to our attention, we will replace or repair it.” However, an express warranty can be created even when the seller did not intend to create one. If the Sales Agreement has a description of the goods that the buyer relies upon in making the purchase, an express warranty is created that the goods will conform to that description. Similarly, if the seller provides a sample of the goods to the buyer, an express warranty is created that the goods will conform to the sample. Having a written agreement allows both the seller and buyer to clearly state what, if any, express warranties will apply to the goods.
Implied warranties: An implied warranty is an unwritten promise that the goods being purchased will meet a minimum level of quality. Essentially, these are automatic warranties buyers receive when they purchase goods from a merchant. There are two implied warranties arising under the UCC.
1. Warranty of merchantability: A merchantable good is one that is “fit for the ordinary purposes” for which goods of that type are used. An example is when a buyer purchases a bicycle intended for road cycling. There is an implied warranty that the bicycle is suitable for road cycling. However, if the buyer uses it for mountain biking, the buyer is not using the bicycle for its intended purpose, and there is no warranty of merchantability. Nonetheless, if the buyer is able to show that even under ordinary road cycling circumstances the bicycle is defective, then there would be a violation of the warranty of merchantability.
2. Warranty of fitness for a particular purpose: If the seller knows or should know that (1) the buyer intends to use the goods for a particular purpose and (2) the buyer is relying on the seller’s skill or judgment to select the appropriate goods, an implied warranty that the goods will fit that purpose if created. An example is a homeowner purchasing paint to paint a house. If the seller recommends a certain paint, but that paint is not suited for painting houses, then the seller has breached this implied warranty of fitness for a particular purpose.
Implied warranties do not automatically apply if sellers clearly and conspicuously exclude or modify them in a written record, such as a Sales Agreement. Therefore, without a written agreement clearly disclaiming these implied warranties, the seller may unknowingly be providing certain warranties to the buyer.
What is risk of loss?
Risk of loss is a term that determines which party should carry the risk for damage to the goods after the sale has been completed but before delivery. If the seller carries the risk of loss, he or she will have to send the buyer another shipment of goods or pay the buyer damages in the event the goods are damaged before delivery. If the buyer carries the risk of loss, the buyer will have to pay for the goods, even if they are damaged during shipment. Furthermore, a seller can expressly disclaim or modify implied warranties under the UCC.
Under Article 2 of the Uniform Commercial Code, there are four risk of loss rules you should be aware of.
- The terms of the agreement between the parties will control the risk of loss.
- If there is a breach or wrongdoing by a party, then that party is liable for risk of loss.
- Where the seller needs to transfer the goods to the buyer through a common carrier (a transportation service such as a ship, truck, plane, etc), then the risk of loss will transfer to the buyer only when the seller completes its delivery obligations. This is called a Free on board (FOB) term. There are two types of FOB shipments; a FOB shipping contract, and a FOB destination contract.
- A FOB shipping contract transfers the risk of loss from the seller to the buyer once the seller drops the goods off with the common carrier.
- A FOB destination contract transfers the risk of loss from the seller to the buyer only when the goods arrive at the buyer’s destination.
- Where the seller is a merchant, the risk of loss will shift to the buyer only when the buyer receives the goods. If the buyer never receives the goods, then the seller still carries the risk of loss.
If you know you want to buy or sell certain goods, but haven’t agreed on all of the details or aren’t ready to sign a Sales Agreement, you can first sign a Letter of Intent to outline the terms and your agreement to negotiate.