Sales Agreement

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Sales Agreement

Sales Agreement is a contract under which the ownership and possession of a good, or entitlement to a service, is transferred from a seller to a buyer in exchange for a specified sum of money, or its equivalent. Mostly, they are related to real estate transactions and are utilized to finalize the interests of both involved parties before the transaction is closed.

The sales agreement is an agreement which creates a right for the purchaser to purchase the property in question on satisfaction of certain conditions. The seller also gets the right to receive the consideration from the buyer on complying with his part of the terms and conditions.

For example, ‘A’ wants to buy a house, ‘B’ has a house for sale, the two parties would enter into a sales contract or a sale deed wherein the house would be sold by B to A for a negotiated sum of money.

Parties Involved in a Sales Contract

In an Agreement of Sale, generally there are two parties involved:

  1. Buyer: The buyer is the person or company that is purchasing a product or service from the seller.
  2. Seller: The seller is the person or company that is selling that same product or service to the buyer.

Purpose of Sales Contract:

A sales contract is extremely important in order to ensure that no fraudulent activity occurs during the course of the sales transaction. It serves the following main purposes:

  1. Prevent Miscommunication: A written Agreement of Sales helps to communicate the terms and conditions and rights and liabilities governing sales in a better manner. It helps in removal of any scope of lack of consensus ad idem
  2. Provides Details: A written Agreement of Sale provides all the details with respect to sale that is taking place. It includes name of the parties, mode of payment, amount of payment, dispute resolution clause, indemnity, etc.
  3. Provides Legal evidence: Sales Agreement acts as a legal proof and help a court decide if there was a valid contract by examining the contents of the document and the subsequent actions of both parties.
  4. Working Document: A sales agreement can help your staff provide ongoing service to a customer and help with internal productivity. A detailed sales agreement lays out all the particulars for the sales rep or contract manager to fulfill the contract throughout the year.
  5. Helps in quality assessment: Having a written document helps in buyer assessing and checking the quality of services and goods sold. 

Contents of a Sales Agreement Template

A well drafted Sale Agreement Form typically consists of:

  1. Parties to the Agreement: A Sale Agreement must include the details of the parties to the agreement. These would typically be the buyer and the seller.
  2. Description of Goods to be sold: It provides every detail about the commodity which is to be sold. This ensures that seller delivers the correct goods. In the event a property is being sold, its area, location, number of fixtures (if any) etc. will be included in the contract.
  3. Delivery: Agreement of Sale also provides for the date, time and place for delivery of goods and help in avoiding any confusion which may arise with respect to delivery mode.
  4. Liquidated Damages: Typically, this clause is included in order to prevent delay in delivery of goods. Liquidated damages are a pre-determined percentage of the sale consideration which is deducted from it typically for each day of delay.
  5. Inspection Period: This period gives the buyer time to inspect the goods after delivery and reject any unfit goods. The inspection period varies depending on the type of goods involved.
  6. Warranties and Indemnities by the Seller: The Sales Agreement also includes the warranties and indemnities being made by the seller. It differs from goods to goods and company to company which needs to be carefully verified.
  7. Payment Details: The Agreement of Sale must also include the mode of payment, amount to be paid and also any other instruction regarding payment. 

How to Draft a Sales Contract Template

Following points must be considered while drafting an Agreement to Sale:

  1. Details of Parties: The Agreement of Sale should provide complete details with respect to buyer and seller of the goods or property being sold.
  2. Description of goods or property being sold: The agreement should specify the details of the goods or property which is being sold. It should not leave any room for confusion. For example, whether the goods being sold are perishable or non-perishable should also be mentioned.
  3. Payment Details: Agreement of Sale should specify the mode and date by which payment is to be made. Typically, in property sale, the payment is to be made in traches or after regular intervals. 
  4. Delivery Details: Agreement to Sale should also provide complete details about the mode of delivery, date of delivery, place of delivery or any other instruction with respect to delivery.
  5. Passing of Title: Agreement of Sale must lay down in clear terms as to when the title of property is being passed to buyer.
  6. Witness: The Agreement to Sale should also provide for the details of witnesses to the agreement.
  7. Dispute Resolution: An agreement between buyer and seller sample should ideally contain methods of dispute resolution such as litigation or arbitration.
  8. Forfeiture and Refund: The Agreement of Sale must provide for forfeiture and refund to be made in case of breach of terms of the contract. 

[Also Read: Distribution Agreement]

Negotiation Strategies:

Following Negotiating Strategies to be kept in mind:

  1. As a seller, insist on advance payment and as a buyer insist on payment in tranches after quality inspection.
  2. Negotiate on indemnity for at least breach of applicable law and breach of intellectual property (this is important if software as a service is being sold).
  3. Understand the clauses well before you go to negotiate. 
  4. Be firm but not aggressive.
  5. Research your points well in advance.

Benefits and Drawbacks of Agreement:

Following are the Advantages of Agreement to Sale:

  1. Minimize Risks: A well drafted Agreement to Sale clearly lays down rights and duties and of both buyer and seller and also provides for appropriate remedy in case of breach of contract, hence it minimizes any risk involved in buying and selling of goods or property.
  2. Clarity: A well drafted Agreement to Sale provides clarity and prevents and scope of any dispute.
  3. Quality check: A sales agreement typically includes representations and warranties as to the condition of the good/property to be sold. This mitigates the risk being incurred by the buyer. 
  4. Security of payment: As a sale deed outlines the quantum, mode and timeline of payment, it ensures the seller, that his payment will be made. 
  5. Fear of penalty: A fear of penalty/legal proceedings, propel the parties to play fair and abide by the contractual terms.

Following are the Disadvantages of Agreement to Sale:

  1. Time and Money: Drafting a standard Agreement of Sale requires lot of money and time. The legal complexities require that a lawyer be hired for the same. This further leads to consumption of time and money.
  2. Quality control: If despite, the assessment, the quality of goods or services are not up to the mark, the buyer will not have much recourse apart from terminating the agreement. 

What Happens in Case of Violation?

Remedies Available to the Buyer:

  1. Damages for non-Delivery: Buyer is entitled to claim damages when the seller delays in delivery of goods or does not deliver goods.
  2. Remedy for Breach of Warranty: Buyer can also sue the seller for any breach of warranty committed by the seller.
  3. Specific Performance: Buyer can bring a suit for specific performance of contract in cases where the buyer suffers irreparable loss because of non-performance by seller.
  4. Liquidated damages: Buyer can demand liquidated damages in the event of delay in delivery(1).

Remedies Available to Seller:

  1. If the buyer wrongfully refuses to pay, then the seller can sue the buyer for the purchase price.
  2. Damages for Non-Acceptance: If the buyer wrongfully refuses to accept the delivery of goods, then damages can be claimed from buyer(2).

[Also Read: Master Purchase and Sale Agreement]

Remedies Available to Both Buyer and Seller:

  1. Repudiation: Both buyer and seller may repudiate the contract in case the other party breaches the terms of sale agreement.
  2. Interest or Special Damages: The buyer or seller may claim interest or special damages in case of breach of terms of Agreement to Sale.

A Sale Agreement forms a convenient and clear way to conclude a sale. It helps in avoiding any confusion and facilitate sale in a better way. Although, it is time consuming, it still has the advantages that the Agreement to Sale offers are far more lucrative than getting engaged in litigation afterwards. It is advisable to sit and negotiate the terms before-hand and enter into an agreement to sell or a draft sales contract. Both the parties should be on the same page as far as the terms of contract are concerned.