Make Your Own Sales Agreement

A sales agreement, or 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.

Table of Contents

• What Is a Sales Agreement?
• Rights and Duties of Buyer and Seller
• When To Use a Sales Agreement
• How to Write a Sales Agreement
• Sales Agreement Sample
• Why is a Sales Agreement Important?
• Sales Agreement Frequently Asked Questions

What Is a Sales Agreement?

A sales agreement is a legally binding contract that outlines the terms of a sale where there is an exchange of goods and services. It involves two or more parties, including the seller and buyer, and identifies the items to be sold, the selling price, and all other relevant details of the transaction. Sales agreements may be limited to isolated transactions for specific goods or may be used to create an ongoing sales relationship between parties.

Without a sales agreement, you may not be able to enforce the deal you made with the other party. Courts prefer a written agreement when choosing whether to enforce it against a person or business. A written agreement also helps you know all your obligations and benefits as part of the transaction.

A sales agreement may also be called:

• An agreement for the sale of goods
• A sale of goods agreement
• An agreement to sell
• A sales contract

Types of Goods in a Contract of Sale

Goods are movable property that can be sold in a sales agreement. This includes things like crops or stocks, for example. Different categories of goods can significantly impact the nature of the contract:

Existing Goods

These goods physically exist when the seller and buyer sign the contract. They can be split into two subcategories:

• Specific goods – also known as ascertained goods, are specific items agreed by both parties at the time of the sale. For example, the buyer may agree to buy specific equipment with a serial number.
• Unascertained goods – goods with no specific distinction. For example, a company may buy goods of the same type, such as chairs, without defining the exact style or make of the chair in the contract.

Future goods don’t exist at the time the contract is signed. Instead, the goods must be manufactured or grown before they’re supplied to the buyer. A common example is crops that aren’t yet grown. If a company wishes to buy corn from a farmer, it can purchase the right to the future product.

Contingent goods are a type of future goods but are based on a contingency. If those conditions are met, the buyer must purchase the goods listed in the agreement. If the conditions aren’t met, the buyer isn’t required to pay for the goods.

Warranties in Sales Agreements

Warranties are legally enforceable guarantees assuring the buyer that specific facts or conditions about the goods are true. Without a sales agreement, warranties may either apply automatically or not apply at all. Under the Uniform Commercial Code (UCC), there are two kinds of warranties — express and implied.

Express Warranties

A seller creates an express warranty when they agree to replace or repair an item if its quality or performance isn’t as promised [1] .

An example is an electronics manufacturer guaranteeing a television against defects for three years. The manufacturer must replace or repair the TV when a customer discovers and reports a defect.

Although a seller can create an express warranty, even when they didn’t intend to create one, if the sales agreement has a description of the goods, the customer expects the goods will match that description. In this case, an express warranty is automatically created.

Similarly, if the seller provides the buyer with a sample of the goods, an express warranty is created – 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 will meet a minimum level of quality [2] . Buyers receive automatic warranties when they buy goods from a merchant. There are two implied warranties arising under the UCC:

Warranty of merchantability

A warranty of merchantability is created based on the agreement that the goods will work as expected.

For example, when a buyer purchases a bicycle for road cycling, there’s an implied warranty that the bicycle is suitable for road cycling.

But if the buyer uses it for mountain biking, they aren’t using the bicycle for its intended purpose, and there’s no warranty of merchantability.

Warranty of fitness for a particular purpose 

This particular warranty is created when:

• The seller knows what the buyer intends to use the goods for

AND

• The buyer depends on the seller to select an appropriate item.

An example is a homeowner buying paint to paint a house. Suppose a seller recommends a specific type of paint. But it turns out that paint isn’t suited for houses. In this case, the seller breached the implied fitness warranty for a particular purpose.

Implied warranties don’t automatically apply if sellers exclude or modify them in a sales agreement.

What Is Risk of Loss?

Risk of loss describes which party should carry the risk for damage to the goods after the completed sale but before delivery. If the seller carries the risk of loss, they’ll have to send the buyer another shipment of goods. Or they can pay the buyer damages if the goods are damaged before delivery.

If the buyer carries the risk of loss, they will have to pay for the goods even if they’re damaged during shipment.

Under Article 2 of the UCC, there is four risk-of-loss rules you should be aware of:

1. The agreement terms between the parties will control the risk of loss.
2. If there’s a breach or wrongdoing by a party, that party is liable for the risk of loss.
3. 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.), 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.
   1. 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.
   2. 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.
4. Where the seller is a merchant [3] , the risk of loss will shift to the buyer only when the buyer receives the goods. If the buyer never receives the goods, 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 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.

Rights and Duties of Buyer and Seller

It’s essential to know the rights and duties of the buyer and seller when creating a sales agreement.

Buyer Rights and Duties

The buyer’s rights and duties include the following:

• Duty to pay for goods when properly tendered by the seller
• Duty to follow the terms of the contract
• Right to on-time tender of the goods
• Right to applicable warranties that weren’t disclaimed
• Right to the goods identified in the sales agreement

Seller Rights and Duties

The seller’s rights and duties include:

• Duty to tender correct goods identified in the contract
• Duty to tender goods at the correct time
• Duty to tender goods in appropriate condition
• Right to timely payment for goods tendered to buyer
• Right to payment in the proper amount

When To Use 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 a written agreement to ensure smooth sailing until the exchange of money and goods. You and the other party will want to know what to do if there are any issues. This agreement can be used for various sales types, from small-scale purchases to large-scale contracts.

For specific sales contracts, the buyer has a statutory right to cancel the contract until midnight of the third business day after the sale. But this can only apply if the sale location is NOT the seller’s permanent place of business [4] .

Here are some examples of potential sellers and buyers who would need to use this agreement.

What Happens if I Don’t Use a Sales Agreement?

If you don’t have a sales agreement, you risk failing to understand:

• Your contractual rights and obligations
• The economic consequences of the risks
• The legal remedies and protections available to you at law.

This agreement lays a strong foundation and framework for a sale and details how to address and remedy them should something go wrong.

Suppose you’re a successful individual or business. You want to maximize profits by anticipating large sales periods and purchasing the inventory needed to meet the demand.  Without a sales agreement, you or your business may be unable to sell or secure inventory at the best prices, failing to maximize profits.

Your buyer may suddenly decide not to buy from you, leaving you 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:

How to Write a Sales Agreement

When writing a sales agreement, you can follow these steps to help you create an enforceable contract:

Step 1 – Identify Party Information

Include the full name of the seller and buyer, their addresses, and other contact information. For businesses, this should include service of process information and the contact information of the officers or agents who will sign the contract. Be sure to include any additional buyers or sellers.

Step 2 – Provide a Description of the Goods

The contract should describe the goods sold. This should include:

• The type and quantity of goods
• Whether specific goods or unspecified goods are identified
• Whether they are existing or future goods

Step 3 – Include the Purchase Price and Payment Information

The contract for the sale of goods should include the price the buyer must pay for them. This includes the flat rate for the goods or the cost per item outlined in the contract. Any conditions or terms that affect the purchase price should be clear. This includes information on who will pay taxes on the goods and how the buyer will make payment.

Step 4 – Determine the Delivery Method

The contract should include how the seller will deliver the goods. Will they be shipped by the seller or picked up by the buyer? When are the goods to be delivered? These important questions require a clear answer.

Step 5 – Allocate Risk of Loss

The contract should state when the risk of loss of the goods shifts from the seller to the buyer. This may be upon shipment of the goods or delivery.

Step 6 – Include a Right of Inspection Provision

The contract should include a provision as to whether the buyer can inspect the goods before delivery.

Step 7 – Establish Warranties

The warranties section should state what warranties cover the goods and disclaim any warranties the seller doesn’t wish to provide in the transaction.

Step 8 – Add Assignment Information

Either the buyer or the seller “assigns” or transfers its rights, obligations, or any benefits they will receive under this contract to a 3rd party. For example, if the seller is a company that another company has bought, the seller may assign its rights under this contract to the new company. The new company would then be obligated to provide the goods to the buyer and receive payment.

Step 9 – Provide a Right to Cancel

Many federal and state laws require a three-day cooling-off period for certain types of sales. [5] If this applies to your transaction, include the required right to cancel language in the agreement.

Step 10 – Address Potential Breach of Contract

The contract should address what will happen if there’s a dispute over the sales agreement. This should determine whether it will go to court, arbitration, mediation, or other potential resolution. It should also address the governing law of the contract and any venue provisions if necessary.

The dispute resolution options available are:

Court litigation – when a party files an action or claim in court, and each side presents its case or defense in a trial for a judge or jury to determine a final outcome on the claim. The decision by the judge or jury is final and binding.

Arbitration – when an arbitrator, a neutral third party selected by the parties, evaluates the dispute and determines a settlement. The decision by the arbitrator is final and binding.

Mediation – when a mediator, a neutral third party selected by the parties, tries to facilitate a compromise and agreement. The decision by the mediator is nonbinding.

Step 11 – Add Signatures of Both Parties

Finally, add the signatures of the seller and buyer so the sales agreement can become a legally binding contract.

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. You can also use our template builder to create your sales agreement step-by-step.

Why is a Sales Agreement Important?

A sales agreement is an important document that does more than record a transfer of ownership.

A sales agreement means you will document the purchase price and payment information. Details such as a payment plan, down payment, closing costs, and late fees will all be included, and both parties will be contractually obliged to stick to the payment terms.

If the sale isn’t immediate, a sales agreement will hold both parties to their responsibilities to complete the sale at a later date, ensuring the sale goes through as planned. It also documents what should happen if the sale falls through.

Having the above written down in a legally binding contract means any miscommunication can be prevented, and any disputes can be resolved. If neither party upholds the agreement, then the document provides the buyer and seller with legal protection.

Sales Agreement Frequently Asked Questions