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What Is a Sales Contract?
Sometimes called a sale of goods contract, a sales agreement, or a purchase agreement, a sales contract outlines the terms of a transaction between two parties: the buyer and the seller. These formal agreements are used to detail the services, goods, or property that is to be exchanged for payment or the promise of future payment. The result is a document that should be kept for legal and record-keeping purposes. In an effort to specify the conditions of the agreement, a sales contract identifies the:
- Goods or services
- Other important terms
When Should I Use a Sales Contract?
Whether it's a small-scale transaction or a large-scale purchase, a sales contract should be used to ensure that the transaction goes smoothly for both parties. Actually, in the United States, a sales contract must be put in writing if the sale of goods is for more than $500 in order for it to be enforceable under the Uniform Commercial Code. Though the UCC isn't federal law, it serves as a model that every state has accepted and implemented in some form.
What Are the Benefits of Using a Sales Contract?
Unlike oral contracts, which are only enforceable under specific circumstances, sales contracts clearly outline the contractual obligations and rights as well as the economic consequences associated with an agreement. Put simply, this document helps guarantee that the transaction will proceed in a way that's acceptable to both parties based on the agreed-upon terms, allowing you to protect your interests. This is because a sales agreement supplies the legal protections available to the buyer and seller if one of the parties fails to deliver what they promised when they promised it.
Sales Agreement vs. Bill of Sale
Sales agreements and bills of sale have pretty similar purposes, but the major difference between them is the amount of detail provided. While the sales contract talks about payment plans, warranties, and legal ramifications, the bill of sale is simply a form that signifies the transfer of ownership from one party to another. In fact, it is sometimes used as a component of a more comprehensive sales agreement to provide proof that the goods were indeed exchanged.
What Should I Include in a Sales Contract?
Sales contracts can require different or additional information based on the goods or services being exchanged. Regardless, you should at least include these details when creating a sales contract :
Identification of the Parties
One of the first things that a sales contract should do is clearly identify the parties involved, which is typically just a buyer and a seller. The full names and contact information should be provided for all parties involved.
Description of the Services and/or Goods
This is typically the most important aspect of a sales contract because it lists the exact goods or services that the buyer is paying for. For this reason, a description of goods should include key details, like the:
- Model number
In the case of exchanged services, you would clearly detail the jobs being performed and any deliverables. For example, if you were creating a sales contract for building a brand's website, you might describe the pages, copy, photos, graphics, and other special features that would be involved with the project.
The payment is usually the term of a sales contract that is most negotiated, which is why it's so important to put it in writing as soon as you reach an agreement. Aside from the agreed-upon price, including any adjustments or deposits, your sales contract should outline:
- How and when the buyer will receive an invoice
- The timeline for payment
- Acceptable payment methods, like email transfer, bank draft, certified check, cash, etc
- Whether payments can be made in installments or paid in one lump sum
In cases where the buyer isn't paying the full invoice right away, a promissory note is usually added to the sales contract. A promissory note is a document that goes into greater detail about the repayment terms, including any interest that will be charged and the schedule for repayment.
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Details about the delivery of the goods and/or services should also be addressed in a sales contract. This can include things like the:
- Cost of delivery
- Method of delivery
- Place for delivery
- Time for delivery
- Liability for a failed delivery or damage
It's also pretty common for a sales contract to include what's known as a force majeure, which is a clause that discusses the inability to deliver due to things that are out of both parties' control, such as riots, floods, and other natural disasters.
An inspection period isn't included in all sales contracts, but it can be a great way to bolster a buyer's confidence and give them a chance to examine an item to make sure that it meets the terms of the agreement.
The time allotted for an inspection period varies depending on the type of goods that are involved. For example, when perishable items are involved, buyers typically have to inspect and then accept or reject the goods as soon as they are delivered. On the other hand, when the sale involves more expensive items, like machinery, the buyer is usually given as long as a month to inspect the goods.
A warranty is a legally enforceable guarantee assuring a buyer that the goods or services provided will meet the expected level of reliability and quality. According to the Uniform Commercial Code, there are both express and implied warranties. While an express warranty is an affirmative statement made by the seller regarding the characteristics and qualities of the goods, an implied warranty is an unwritten guarantee that the goods they purchase will meet minimum requirements regarding the quality. In other words, these warranties automatically apply any time a buyer purchases goods from a seller.
If implied warranties are specifically excluded or modified in a written agreement, like a sales contract, they no longer apply. That's why this section is such an important, yet sometimes overlooked, aspect of a sales contract. Without it, the seller could be unknowingly agreeing to certain warranties.
Depending on the goods or services you're providing, you can include these additional provisions in your sales agreement:
- Governing Law: Also known as choice of law, this outlines which state law is applicable for the interpretation and enforcement of the contract.
- Severability: This provision is made to ensure that all other provisions are still valid and enforceable even if part of the contract is unenforceable or invalid.
- Confidentiality: In transactions where confidential information is shared, this provision explicitly limits the distribution of these private details.
- Breach of Contract: A breach of contract outlines what would happen if one party violates the contract, when a contract can be terminated, and any actions a party can take to recover their losses in the event of a breached contract.
- Notices: This section is especially useful if both parties need to remain in communication throughout the transaction because it describes how all communication should take place. Aside from the mode of communication, it sometimes even outlines the days and times that communication should occur.
- Amendments: An amendments section addresses the steps that should be taken in the event that the contract's terms and provisions need to be formally altered.
When doing business, it is in the best interest of both the buyer and seller to have an agreement in writing. Even though developing a sales contract does take more time, it can save you plenty of headaches in the future.
Meet some of our Sales Contract Lawyers
During the course of my career as a practicing attorney, I have been fortunate enough to serve as in-house corporate counsel for a New York-based real estate/construction development company, where my primary functions have been the negotiation, drafting and implementation of all real estate development contracts for design professionals, contractors and vendors, along with the implementation of numerous joint venture and strategic teaming agreements, as well as oversight of outside counsel. Prior to that, I was a partner in a large, New Brunswick, NJ-based law firm, where I specialized in the defense of construction firms and design professionals in complex construction litigation and arbitration matters, as well as working extensively in the area of contract review and preparation for numerous commercial clients. This diverse background, both as in-house corporate counsel and as a partner with a well-respected commercial firm, provides me with a wealth of experience and the ability to assist potential clients with a wide range of tasks.
Corporate attorney with 12+ years of in-house counsel, people leadership and client management experience. Provides legal expertise and a business-oriented approach to problem solving and building lines of business. Consistently works under pressure, prioritizing and managing workload and simultaneous tasks to meet deadlines in a changing, fast-paced environment.
I primarily work with small businesses and the self-employed. I help my clients build sustainable businesses, navigate risk, and resolve conflicts. Most of my cases involve contract review, drafting, negotiation, and disputes; I also work on business entity formation, employment and independent contractor issues, copyright and trademark registration and infringement, and more.
As a corporate lawyer, I have dealt with international transactions, complex litigation and arbitration, regulatory compliance, and multijurisdictional tax planning. In March 2021, I started my firm and shifted my professional focus to working with start-ups, small businesses, entrepreneurs, and families. I help my clients structure and run their businesses and take care of their assets, including intellectual property issues and estate planning for their families. I try to bring big law quality and small firm personal attention to every client.
Attorney that has worked in both litigation and transactional fields. Motivated and personable professional. Speaks fluent Spanish and very basic Portuguese.
Seven years experience reviewing and drafting corporate and transactional documents, including NDAs, LLC operating agreements, MSAs, employment agreements, etc.
I am an Argentine lawyer admitted to practice in Argentina and New York. I recently graduated with an LL.M Degree at Duke University Law School with focus in fintech, technology and corporate law. I hold 10+ years of experience in legal aspects regarding banking, corporate and venture capital transactions.