A Sale and Servicing Agreement clubs together the sale of a product and support services associated with it as one single transaction. It facilitates long-term service engagements. Important clauses such as delivery, payment, and performance ensure that goods and services are provided in the correct manner.
What is a Sale and Servicing Agreement
A sale and servicing agreement is a legally enforceable arrangement between two parties wherein one party agrees to provide a specific good or service to the other party and also undertakes to provide follow up services for a specified period of time. For example the sale of software or hardware products and accompanying support services. The same is used to prevent the unilateral revocation of the agreement in the first place when the same has been effected through handshake deals. These handshake deals, or oral contracts, are difficult to enforce due to a lack of record, consideration, and acceptance.
Purpose of a Sale and Servicing Agreement
The basic premise of a sale agreement is to safeguard the rights and interests of both parties and at the same time facilitate the buyer to avail the best services and use of the seller’s product, be it a good or service. After entering into this contract, the buyer is assured of the quality and efficiency of the work of the seller, and in return, the seller is assured of the timely remuneration, in the form of consideration, for the good being sold by him or the work being undertaken by him.
Inclusions in a Sale and Servicing Agreement
A sale agreement typically includes standard terms such as names of the parties, effective date, waiver, notices, remedies, dispute resolution, severability and choice of law. Apart from the above, it should also have commercial terms such as limitation of liability and indemnification and risk averting terms such as confidentiality and intellectual property. The duration of the services should also be mentioned clearly in a servicing agreement.
Key Terms of a Sale and Servicing Agreement
A servicing agreement has the following key terms:
- Services Description/Description of goods: A sales agreement should also address what is being bought or sold. A sales contract should provide a detailed description of the goods and/or services at issue, the quantity of goods/duration of service, and any industry standards that the goods/services should meet.
- Delivery: A sales contract should address the many different aspects of the delivery of the goods and/or services. This includes time for delivery, the place for delivery, method of delivery, cost of delivery, and liability for damage or failed delivery.
- Time of performance and Payment: Price is often the most negotiated term in a sales contract and should be put in writing immediately after an agreement is reached. In addition to the price, a sales contract should state the time for payment.
- Downtime: Provisions for the downtime should be given in the contract.
Drafting of a Sale and Servicing Agreement
The following guidelines should be followed for effective drafting of a sales agreement:
- Mention each service description clearly and separately.
- The duration of the agreement should be mentioned clearly. If the support services are provided for a different duration, then the same should be mentioned.
- Downtime provisions should contain a fixed period of time. For example, a down-time (the period when support services may not be available) of 6 hours per month can be in the contract. Having a fixed downtime would prevent unnecessary delays.
- Payment terms, time of payment and mode of payment should be mentioned. If the support services are concomitant that too should be mentioned.
- Clauses such as limitation of liability, indemnification, etc. should be included and drafted carefully.
Benefits of a Sale and Servicing Agreement
A sale agreement allows the parties to maintain a highly specified relationship amongst each other, with the help of clauses such as indemnification and delivery. This primarily allows not just both parties, but also the enforcement authority to have a direct reference to the original intention of the parties.
Furthermore, it allows the parties to dictate certain requirements, such as those made in the form and time of the delivery, to ensure the greatest convenience on both sides of the deal. In turn, it also ensures that if either party is in breach of their contractual obligations legal recourse can be sought in the form of liquidated damages.
Cons of a Sale and Servicing Agreement
If the sales agreement does not clearly spell out the terms of the sale or include specific information about warranties, delivery or payment methods, the agreement may not protect the seller as originally intended.
Sales agreements that cover repeated purchases of products or services or which cover a specific time period may outlive their usefulness. The seller may need to increase the prices more than allowed by the sales agreement. Alternatively, the buyer may shift its strategy and decide to sell different products or decide that it needs different services that the seller cannot provide. Many sales contracts include provisions that make it difficult to end the contract before the termination date without claiming breach of contract. Other sales agreements neglect the inclusion of any cancellation or termination provisions at all except a contract end date.
These agreements are highly useful, even though there are demerits to the same, for the sole reason that ad hoc agreement which is not represented in a written format is more vulnerable to exploitation and unilateral recession which would unjustly enrich the party doing so. For the sale of basic goods or services, a one-page sales agreement will suffice. However, the sale of more-complex products requires complex agreements. These sales agreements can be specific or broad depending on the subject matter in question. Without the full scope, a customer could claim the seller, product or service did not meet its obligations. In the event of a dispute, the dispute resolution clause may be invoked and litigation/arbitration can be resorted to.
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