Sales Agreement Basics
When a seller and a buyer want to exchange goods, they often use a document called a sales agreement to outline the terms of the exchange. The agreement details the goods being sold and the obligations of either party to complete the sale. The kinds of goods sold are consumable or usable items, and they can include objects such as watches, clothing, books, toys, furniture, and cars.
Sales agreements can also be used in real estate transactions when someone wants to sell their house to a buyer. Although in that case, you would use a particular kind of sales agreement called a real estate purchase agreement. The agreement is naturally more elaborate due to the nature of the property being sold.
Types of Goods in Sales Agreements
There is often reference to the term ‘goods’ in business law, which can sometimes be difficult to classify. Put simply, ‘goods’ can be defined as movable property. It includes any kind of property other than real estate, actionable claims (e.g., debts), and money.
As a seller, there are three main types of goods you should be aware of:
Existing Goods
Existing goods are physical items in the seller’s possession at the beginning of the sales agreement. There are two subcategories within this group:
Specific Goods: The buyer has agreed to sell particular items, e.g., a chair with a particular design.
Unascertained Goods: The buyer has agreed to sell items, but they have no specific description in the contract. For example, a buyer may want to buy bags of sugar. But without a detailed description, the seller may deliver any kind of sugar.
Future Goods
Future goods are items that don’t exist yet, or the seller won’t immediately become the item’s owner once the contract of sale has been made. These items often still need to be manufactured or require time before the seller can acquire them.
It isn’t uncommon for a farmer to agree to sell crops to a buyer at a future date. Technically, the crops don’t exist yet, so they’re future goods. This type of arrangement is called an “agreement to sell”.
Contingent Goods
Contingent goods are a particular type of future goods. The seller can only sell an item once a certain contingency has been fulfilled. For example, a farmer can agree to sell crops to a buyer but have a contingency where the sale can only occur if they can grow them. In this case, the crops are contingent goods.
The Different Types of Sales Agreements
While a sale agreement details the terms of a sale made between a buyer and seller, there are different types of sales agreements that are more appropriate for a set of given circumstances.
General Sales Contract Agreement
A General Sales Contract Agreement is a standard sales agreement between a buyer and a seller. It has the essential and relevant information necessary to create a legally binding contract, such as the terms of the sale, delivery information, buyer and seller details, and anything else pertinent to the sale.
Conditional Sales Agreement
Conditional sales agreements are frequently made where a buyer has to pay for the goods or property in installments. In this arrangement, a buyer can take possession of goods or property, but there is a condition they have to meet before they become the legal owner. The seller will not transfer the ownership rights until the buyer has paid for the item in full.
Agreement of Sale
Agreement of Sale contracts are commonly used in real estate. For transactions that don’t occur immediately, a seller may create an agreement with the buyer that legally binds the seller to sell the property at the specified date in the future. This is the main difference between a contract of sale and an agreement to sell document. The terms and conditions of the property’s sale will also be detailed in the agreement.
Contract of Sale of Business
This document is used in circumstances where a seller wants to sell a business. It contains the necessary details to transfer ownership of the company to the buyer. A contract of sale of business is also known as a business purchase agreement.
Sales Contract Addendum
A Sales Contract Addendum is a document added to an existing sales contract. It contains additional terms the two parties agreed to after the initial contract. Using an addendum is simpler than creating an entirely new contract with the new terms.
Vehicle Sales Agreement
A Vehicle Sale Agreement is an agreement detailing the sale of a vehicle such as a car, van, motorcycle, or boat. The contract contains a description of the vehicle being sold, the price of the vehicle, and logistics details such as how the vehicle is going to be delivered.
What are the elements of a valid contract of sale?
Before entering any sales agreement, you should understand the basic elements of a sales contract. Having this knowledge will protect you from encountering problems in the future and ensure your best interests are kept at heart.
Two Parties
One essential element of a contract of sale is that it’s a requirement for there to be two parties in the agreement, i.e., the buyer and seller.
In a sales agreement, goods or services are exchanged from one party to another. For this reason, the buyer and seller have to be two different people. The buyer and seller can’t be the same person in a sales contract.
Description of Goods
When creating your sales agreement, you need to describe the goods and services adequately. In the case of goods, you should include relevant details such as the item’s weight, color, size, type, model number, etc. For services, you should include information describing the complete scope of work. A thorough description ensures the buyer gets exactly what they want and protects the seller from claims that they did not provide the items/services as requested.
Delivery of Goods
Include details about the dates and times of delivery if the item’s physical location is meant to be transported to the buyer’s. You should also mention which party has responsibility for the goods while it’s in transit. This is otherwise known as the risk of loss.
Inspection
The contract should allow a period of time to inspect the goods being sold. This allows the buyer to evaluate the quality of the goods. They can then reject any that fail to meet their standards.
The inspection period will vary depending on the goods being sold, but including this period is generally good practice. It builds trust between the parties and could lead to a continued business relationship.
Warranties/Guarantees
Have clear definitions and terms about the buyer’s eligibility for a warranty in the contract. You should include any warranties or guarantees promised during the selling process. As there can be many variations between industries and companies regarding their warranties or guarantees, either party cannot make assumptions regarding this aspect of the agreement.
Payment Details
As well as including the price, you need to include the terms and conditions of the payment. Mention whether the borrower will make payment in full or in installments. If it’s the latter, include whether installments will be paid monthly, quarterly, or annually. Provide details about when payment is expected, whether accommodations can be made, and other relevant considerations.
Where can I get a sales contract sample?
You can visit our sales agreement template page to learn how to write a sales contract and view an example of a contract of sale of goods.
The Limitations of Sales Agreements
You Need To Have Clear Language
One of the aims of a sales agreement is to make the terms and conditions clear for the buyer and seller. This is so that both parties don’t have unclear expectations. It also reduces the opportunity for fraud and misunderstandings. If a sales agreement fails to outline the sale’s terms and conditions effectively, such as the warranties, delivery, or payment methods, one or both parties may not have legal protection.
For example, if a seller isn’t clear about a product’s warranty period, the buyer may be able to get the product replaced whenever it breaks down. It may be past a typical warranty period; the seller would nonetheless have no legal standing to refuse the buyer’s request.
You Might Be In It For The Long Term
Depending on the sales agreement, you may be signing yourself into a long-term contract. While it may have made sense to you at the time, your circumstances may change, and you might find yourself no longer needing the products or services mentioned in the sales agreement.
Many sales contracts can include terms that make it difficult to get out of before the agreed termination date. In some cases, the seller may claim a breach of contract. In other situations, sales agreements may just contain a contract end date, with no mention of cancellation or termination details.
You Might Have To Get Into The Specifics
Selling basic items/services such as office supplies to a buyer would only require a simple sales agreement. But if the item/service is more complex, such as computer network servers, then as a seller, you will have to think more carefully about the terms and conditions of the sales agreement. You will have to include provisions that address any potential concerns and issues the customer may have, which means the sales agreement will become a more complex document.
Can Sales Agreements be canceled?
Whether or not a sales agreement can be canceled primarily depends on the terms mentioned in the agreement. In general, there has to be a cancellation or termination clause in the contract for you to cancel the sale.
If there isn’t one, the seller has the right to sue you for breach of contract if you suddenly decide to cancel the agreement. If you’ve already made a deposit and you want to cancel, the seller may also have the right to keep it.
For example, if the sale depended on contingencies, the buyer can cancel the sale if either party didn’t meet those contingencies. This can happen in real estate where the buyer had a contingency that the sale would be completed if they could secure funding from a lender.
Another way to cancel a sale agreement is by proving there were falsities in the contract. The buyer or seller may use a false identity during the sale, in which case the buyer can annul the contract. Another possible case is when the goods being sold is not as described in the contract.
The Cooling Off Period
You can cancel sales agreements made by door-to-door salesmen within three days of the purchase. This is referred to as the ‘cooling-off period’. You must make the sale at your home, workplace, dormitory, or a seller’s temporary location like a hotel or motel room. In addition to this, there are more restrictions surrounding this rule:
- The sale must be for over $25
- The sale must be over $130 when taking place at temporary locations
- The sale must be goods or services mainly for personal, family, or household use
- The sale cannot be made online, by mail, or by telephone
- The sale can’t be for an emergency
- The cooling-off period doesn’t apply if you’ve asked the seller to visit your home to make repairs or perform maintenance
- Items you buy from the seller after that repair/maintenance can still be covered by the cooling-off period
For more information about the cooling-off period, you should read the FTC’s guidelines on the matter.
