Sales Contract

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Sales Contract

What Is a Sales Contract?

A sales contract (also known as a sales and purchase agreement) is a legally binding document between a buyer and a seller for the sale/purchase of various goods or services. It lists down the description of the goods/services as well as other terms and conditions such as the price, time, and mode of delivery. In the United States of America, a domestic sales contract is governed by the Uniform Commercial Code (UCC). Under the UCC, any sales contract for the sale of goods/services for more than $500 must be in writing in order to be legally enforceable. An exception to this provision is the sale of securities. A sales contract for securities must be in writing irrespective of the amount of the transaction. While drafting, it is important to ensure that all the provisions are in compliance with UCC.

Purpose of a Sales Contract

Having a written sales contract reduces some of the risks since the terms are set in writing and are agreed to by both parties. It provides a mechanism to address issues by laying down the grounds under which legal action can be taken while also providing for an appropriate forum to initiate such action. The buyer and seller are clear about the transaction, which helps in avoiding disputes that may otherwise arise.

Key Terms in a Sales Contract

Some of the key terms to be included in this contract are:

  • Names and identity of the parties
  • Date of entering into the agreement
  • Description of goods/services
  • Provisions relating to payment
  • Delivery – time, place, mode
  • Representation and warranties
  • Conditions precedent
  • Events of default
  • Remedies for default
  • Confidentiality
  • Dispute resolution
  • Governing law of contract
  • Signature of the parties

Drafting a Sales Contract

It is important to keep in mind the following points when drafting a sales contract:

  • The parties should be clearly identified by name and another identifier so that there is no confusion about who is being referred to.
  • The goods/services must be carefully defined to mean the exact goods/services that the buyer wishes to purchase. This clause should contain relevant information pertaining to the goods/service, such as type, model number, year of manufacture, weight, colour, and size.
  • The payments clause must include the price of the goods/service, the time such payment is to be made, and the mode of making the payment.
  • The process of delivery must be clearly elucidated. This clause should contain the time and place of delivery, the manner of delivery, and the associated costs. The penalty, if any, for late delivery as well as liability for failed delivery or damage to goods during delivery should also be stated. Parties may choose to include a force majeure clause to protect against events that are out of their control such as earthquake, fire, floods, riots.
  • Sometimes there is a gap between signing the contract and performing it completely. This is mostly due to certain conditions that must be satisfied before the contract can be performed completely. These are called conditions precedent and are usually administrative and regulatory clearances for the concerned deal. If included in the contract, the parties must thoroughly go through them and see that they do not interfere in the performance under the contract.
  • Clearly, state the events of default under which a party will be said to have violated the contract. Also, mention the liability of the defaulting party along with remedies that the aggrieved party may claim.
  • Include a dispute resolution clause to provide a redressal mechanism in case of a dispute. The preferred mode of dispute resolution in commercial transactions is arbitration.
  • State the governing law of the contract to avoid jurisdictional and procedural issues.

Types of Sales Contract

Sales contracts are used in different industry sectors. They are tailored according to the specific business. Some of them are:

  • Real estate sales contract: It is used to outline the terms and conditions of sale of residential property between a buyer and a seller.
  • Land sales contract: It is a contract used to purchase real estates such as a house, commercial building, or piece of land. Under this contract, the seller acts as a financer. He holds the property’s title, and the buyer makes regular payments until he has paid the entire amount agreed by them. Thereafter, the ownership is transferred to the buyer.
  • Auto sales contract: This contract is used to list the terms and conditions between a buyer and a seller where the sale of a vehicle is involved.
  • The vehicle sales contract with seller financing: Under this contract, the buyer makes payments according to a schedule agreed upon by the parties. He may take possession of the vehicle. However, the seller retains the title to it and may take possession of the vehicle if the buyer defaults in making the payment. It is useful when the buyer is unable to pay the entire amount for the vehicle, and the seller does not require a lump sum payment.

[Also Read: Car Purchase Agreement]

Sample Sales Contract

A sample of the Sales Contract can be downloaded from below.

Download Sales Contract Template

Sales Contract Agreement

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