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.
Sales Agreement
| State of _________________ | Rev. 133EF4E |
|
SALES AGREEMENT |
|
This Sales Agreement (this “Agreement”) is entered into as of the _____ day of _______________, 20_____, by and among/between:
Seller(s): ________________________________________________ [Name], located at _______________________________________________________ [Address] (collectively “Seller”) and
Buyer(s): ________________________________________________ [Name], located at _______________________________________________________ [Address] (collectively “Buyer”).
Each Seller and Buyer may be referred to in this Agreement individually as a “Party” and collectively as the “Parties.”
- Sale of Goods. Seller agrees to sell, and Buyer agrees to purchase the following items in the following quantities and at the prices (the “Goods”):
| Description of Goods | Quantity | Price Per Unit |
| _______________________________________________________ | ___________ | $______________ |
| _______________________________________________________ | ___________ | $______________ |
| _______________________________________________________ | ___________ | $______________ |
| _______________________________________________________ | ___________ | $______________ |
| _______________________________________________________ | ___________ | $______________ |
| _______________________________________________________ | ___________ | $______________ |
Other Details: ________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
- Purchase Price. Buyer will pay to Seller for the Goods and for all obligations specified in this Agreement, if any, as the full and complete purchase price, the sum of $______________. Unless otherwise stated, (Check one) ☐ Seller ☐ Buyer shall be responsible for all taxes in connection with the purchase of Goods in this Agreement.
- Payment. (Check one)
☐ Send an invoice. Seller shall invoice Buyer upon the shipment of the Goods. Unless otherwise stated, payment for the Goods is due within __________ days of the date of Seller’s invoice, which date will not be before the date of Seller’s delivery of the Goods.
Late Fee (Check one)
☐ A late payment fee will NOT be charged.
☐ If Buyer fails to make a payment due under this Agreement within __________ days after the payment’s due date, Buyer agrees to pay to Seller a late payment fee of
(Check one) ☐ $______________ ☐ __________% of the amount due.
☐ According to a schedule. Payment for the Goods will be by (Check one) ☐ cash ☐ credit or debit card ☐ personal check ☐ cashier’s check ☐ money order ☐ credit or debit card ☐ wire transfer ☐ other: ________________________________, according to the following schedule: (Check all that apply)
☐ Amount previously paid by the Buyer. $______________ previously paid by Buyer.
☐ Down payment. $______________ upon the execution of this Agreement.
☐ Payment for the Goods.
Full payment: $______________ upon Buyer’s acceptance of the Goods.
Installments: $______________ on _____________________________ [Due day of installment payments], until the purchase price has been paid in full.
- Delivery. (Check one)
☐ Seller will make the Goods available for Buyer pick-up on or before ____________________, 20_____ at the following address: ________________________________________.
☐ Seller shall ship the Goods to Buyer on or before ____________________, 20_____ to the following address: ________________________________________.
Shipping Cost (Check one)
☐ Seller will pay for any shipping costs.
☐ Buyer will pay for any shipping costs.
Right of Inspection (Check one)
☐ It shall constitute an acceptance of delivery of the Goods once Buyer has picked up the Goods at the specified location.
☐ It shall constitute an acceptance of delivery of the Goods once Buyer has received the Goods at the specified location.
- Risk of Loss. Title to and risk of loss of the Goods shall pass to Buyer upon: (Check one)
☐ Shipment of the Goods in accordance with this Agreement.
☐ Delivery of the Goods to Buyer in accordance with this Agreement.
- Right of Inspection. (Check one)
☐ NO right to inspection. It shall constitute an acceptance of delivery of the Goods once Buyer has received/picked up the Goods at the specified location.
☐ Buyer shall be allowed to examine the Goods once received and shall do so within __________ days after the receipt of the Goods. In the event that Buyer discovers any damages, shortages or other nonconformance of the Goods, Buyer shall notify Seller within __________ days after receipt of the Goods, specifying the basis for its claim. Failure to notify Seller by such date shall constitute an acceptance of delivery of the Goods as is. In the event the Goods are non-conforming, Buyer may at its option: (Check all that apply)
☐ Return the Goods for a replacement, at Seller’s expense
☐ Return the Goods at Seller’s expense for a credit of the full purchase price on future transactions with Seller
☐ Return the Goods at Seller’s expense for a full refund of the purchase price
The above shall be the sole remedy of Buyer and only obligation of Seller with respect to any non-conforming Goods.
- Warranties. (Check one)
☐ NO warranties, selling the goods “as is.” Buyer acknowledges that it has not relied on, and Seller has not made, any representations or warranties with respect to the quality or condition of the Goods, and it is purchasing the Goods on an “as is” basis. Seller expressly disclaims all warranties, whether express or implied, including any implied warranty of merchantability or fitness.
☐ YES, the seller provides warranties. Seller gives a __________ day limited warranty from the date of delivery that the Goods are in good condition and shall be free from substantive defects. The warranty does not apply to any Goods that are damaged due to the misuse, abuse or negligence of any party other than Seller.
☐ Other type of warranty: _______________________________________________________________
____________________________________________________________________________________
- Security Interest. Buyer hereby grants to Seller a security interest in the Goods, until Buyer has paid Seller in full for the Goods. Buyer shall sign and deliver to Seller any document needed to perfect the security interest in the Goods that Seller reasonably requests.
- Seller Representations and Warranties. Seller warrants that the goods are free, and at the time of delivery will be free, from any security interest or other lien or encumbrance. Seller warrants that there are no outstanding titles or claims of title hostile to the rights of Seller in the Goods.
- Force Majeure. Seller shall not be responsible for any claims or damages resulting from any delays in performance or for non-performance due to unforeseen circumstances or causes beyond Seller’s reasonable control.
- Limitation of Liability. Seller will not be liable for any indirect, special, consequential, or punitive damages (including lost profits) arising out of or relating to this Agreement or the transactions it contemplates (whether for breach of contract, tort, negligence, or other form of action) and irrespective of whether Seller has been advised of the possibility of any such damage. In no event will Seller’s liability exceed the price paid by Buyer to Seller for the Goods giving rise to the claim or cause of action.
- Assignment. (Check one)
☐ SELLER needs permission to assign to a third party. Seller may not assign any of its rights under this Agreement or delegate any performance under this Agreement, except with the prior written consent of the Buyer. Any purported assignment of rights or delegation of performance in violation of this section is void.
☐ BUYER needs permission to assign to a third party. Buyer may not assign any of its rights under this Agreement or delegate any performance under this Agreement, except with the prior written consent of the Seller. Any purported assignment of rights or delegation of performance in violation of this section is void.
☐ BOTH Seller and Buyer need permission to assign to a third party. Either Party may not assign any of its rights under this Agreement or delegate any performance under this Agreement, except with the prior written consent of the other Party. Any purported assignment of rights or delegation of performance in violation of this section is void.
☐ Either Party do NOT need permission to assign its rights to a third party.
- Amendments. No amendment to this Agreement will be effective unless it is in writing and signed by both Parties.
- Governing Law. The terms of this Agreement shall be governed by and construed in accordance with the laws of the State of _________________, not including its conflicts of law provisions.
- Disputes. Any dispute arising from this Agreement shall be resolved through: (Check one)
☐ Court litigation. Disputes shall be resolved in the courts of the State of ______________.
(Check if applicable)
☐ If either Party brings legal action to enforce its rights under this Agreement, the prevailing party will be entitled to recover from the other Party its expenses (including reasonable attorneys’ fees and costs) incurred in connection with the action and any appeal.
☐ Binding arbitration. Binding arbitration shall be conducted in accordance with the rules of the American Arbitration Association.
☐ Mediation.
☐ Mediation, then binding arbitration. If the dispute cannot be resolved through mediation, then the dispute will be resolved through binding arbitration conducted in accordance with the rules of the American Arbitration Association.
- 16. Entire Agreement. This Agreement contains the entire understanding between the Parties and supersedes and cancels all prior agreements of the Parties, whether oral or written, with respect to such subject matter.
- 17. Notices. Any notice or other communication given or made to any Party under this Agreement shall be in writing and delivered by hand, sent by overnight courier service or sent by certified or registered mail, return receipt requested, to the address stated above or to another address as that Party may subsequently designate by notice and shall be deemed given on the date of delivery.
- 18. Waiver. No Party shall be deemed to have waived any provision of this Agreement or the exercise of any rights held under this Agreement unless such waiver is made expressly and in writing. Waiver by any Party of a breach or violation of any provision of this Agreement shall not constitute a waiver of any other subsequent breach or violation.
- 19. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors and assigns. The provisions of this Agreement are severable. If any provision is held to be invalid or unenforceable, it shall not affect the validity or enforceability of any other provision. The section headings herein are for reference purposes only and shall not otherwise affect the meaning, construction or interpretation of any provision of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together, shall constitute one and the same document.
- 20. Other. ___________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
RIGHT TO CANCEL (Check one)
☐ YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION.
☐ THE BUYER DOES NOT HAVE THE STATUTORY RIGHT TO CANCEL THIS TRANSACTION.
IN WITNESS WHEREOF, the Parties have executed this agreement as of the date first written above.
| ________________________ | ||
| Buyer Signature | Buyer Full Name |
| ________________________ | ||
| Buyer Signature | Buyer Full Name |
| ________________________ | ||
| Seller Signature | Seller Full Name |
| ________________________ | ||
| Seller Signature | Seller Full Name |
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.