Installment Sales Contract

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Installment Sales Contract

A Brief Introduction About the Installment Sales Contract

An installment sale agreement facilitates payments for purchases over a certain period of time. This contract makes it easier for the buyer to own the product and helps improve the sales of the seller. The buyer needs to pay the installments on time or pay the penalty. In certain cases, the seller can terminate the contract and repossess the property or product.

This agreement allows the buyer the flexibility to pay for the product according to a mutually agreed schedule. This helps both the buyer and the seller as the buyer is able to afford expensive items while the seller is able to improve revenues.

The agreement includes a disclaimer that the seller is not liable for the quality of the product being sold. The buyer of the product needs to use the product with sole discretion. Any taxes associated with the property or product needs to be borne by the buyer. Insurance of the property is the responsibility of the buyer. The buyer needs to make the payments on time or risk forfeiture of the property or equipment.

The agreement states the events which will be considered a default. Legal remedies in case of default are also included in the agreement. The seller can assign the goods to a third party. If the seller wants to make a waiver, the same needs to be made in writing. As per the severability clause, if any part of the agreement has been declared invalid, the contract can be enforceable in a court of law.

Who Takes the Installment Sales Contract?

There are two parties to these contracts, the seller and the buyer. The buyer offers to buy the property through the contract in installments, and the seller accepts the offer. This contract makes it easier for buyers to own expensive property or equipment.

What is Retail Installment Sales Contract?

A retail installment sales contract is again an installment Sales Contract. It is an agreement between the buyer and the seller for the purchase of a product through installments and not a one-time payment. The buyer should not default on a single installment as it would lead to termination of the contract and forfeiture of the purchased items.

What Does Installment Buying Mean?

As opposed to making a lump-sum payment, installment buying means that you can span your payments over a specified period of time. This enables you to purchase an item or equipment of high value with ease.

Purpose of the Installment Sales Contract – Why Do You Need It?

A payment installment contract is entered into by a buyer who cannot afford to make an upfront payment and the seller who wants to provide an installment facility to the buyer so that sales can be improved.

The contract protects the rights of both the buyer and the seller. If the buyer does not maintain the goods or equipment properly when paying the installments, then the buyer has to compensate the seller. In the event of the buyer failing to pay the installments before the due date, the seller has the right to repossess the goods or equipment. The seller can also take legal action against the buyer as per the legal remedies mentioned in the agreement.

The disclaimer protects the seller against any quality-related claims made by the purchaser. The agreement also mentions the events which lead to default so that there is complete clarity.

Contents of the Installment Sales Contract

The information normally included in a retail installment sale contract is as follows:

  • The names of the parties to the contract, the buyer and the seller
  • The effective date of the agreement
  • The total number of installments being paid and the due date
  • Late charges in case of delayed payment
  • Disclaimer of warranties by the seller
  • Possession, use, and maintenance
  • Tax liability of the purchaser
  • Loss or damage
  • Waiver and indemnity
  • Insurance
  • Events of default
  • Remedies
  • Security interest, purchaser assurances, and representation
  • Assignment, counterparts
  • Effect of waiver, entire agreement, notices, applicable law
  • Signature of both parties

How to Draft the Installment Sales Contract?

While drafting the contract, the following points need to be kept in mind:

  • Eligibility of parties: The buyer and seller must be of legal age, of sound mind and not under coercion
  • The consideration is payable: The entire consideration payable by the buyer and the total number of installments. The due dates of all installments should be mentioned including the penalty for delayed payment.
  • Waiver: If the seller waives any clause, it should be given in writing.
  • Governing laws to be followed by the contract.
  • Confidentiality clause where trade secrets are involved.
  • Dispute resolution clause:How the dispute will be resolved, the attorney fees and the jurisdiction.
  • Termination of a contract clause: This will include the duration of the contract and the notice period for terminating the contract before the maturity date.
  • Signature of both parties.

The seller can negotiate a higher price with the buyer, depending on the number of installments being provided. The buyer can negotiate an extension if there is a shortage of funds. Both parties should incorporate these into the contract before signing it.

Benefits & Drawbacks of the Installment Sales Contract

The benefits of the installment sales contract are as follows:

  • Protection of interest of both parties: The buyer and seller are aware that they will have to honor their contractual obligations.
  • Higher sales: The seller benefits through more sales by providing this facility.
  • Greater affordability: The purchaser is able to afford an expensive product or equipment through this facility.
  • Legal remedies: If the buyer defaults in payments, the seller can take legal action.

The drawbacks of the installment sales contract are given below:

  • Losses for the seller: When the buyer defaults in payments, the seller suffers losses.

What Happens In Case of Violation?

In case of violation of any clause in the installment sales contract, the injured party can take legal action. The injured party can claim money damages(1), including loss of profits, depending on whether the breach is total or partial.

If there is fraud involved in the contract, then the contract can either be canceled under rescission or a fresh contract drawn by the court under reformation. If the other party is incompetent, then the money and property invested by the injured party have to be restored under restitution.

In the case of specific performance, the obligation has to be fulfilled.

In case of an installment sales contract, both the buyer and seller must include the termination and dispute resolution clauses. The number of installments, disclaimers, and consideration must be clearly stated. Both parties should read the agreement carefully.