Drafting a Sale of Goods Contract

A “good” is anything that can be moved from one place to another. The definition of goods also includes specifically manufactured goods, investment securities, and anything else that is movable at the time of sale. The term also includes the unborn young of animals, growing crops, and other things that are attached to real estate.

What Is The Sale Of Goods?

The sale of goods is a transaction in which one party transfers the ownership of a good to another. The sales of goods are governed by sales law (rather than contract law) when it comes to the necessary provisions.

A contract for the sale of goods is an agreement between two or more people. In a commercial setting, the agreement is typically between two “merchants”. Merchants are people who deal in goods as part of their job, and are usually skilled at what they do since dealing in goods is their occupation on a day-to-day basis.

A contract for the sale of goods is a specific type of contract. The sale of goods means that the title to the goods is transferred from the seller to the buyer for a price.

The sale can be present or future. Goods are considered conforming to a contract when they meet all the requirements of the contract.

How Do You Draft A Sale of Goods Contract?

Formation
A contract for the sale of goods may be formed in any way that shows that both parties agree to the terms of the contract. This includes conduct by both parties – e.g. when the parties recognize the existence of a contract between them.

Even if the exact moment of when the contract begins is unknown or undetermined, an agreement that constitutes a contract for the sale of goods can still be found.

Offer and Acceptance
An offer to make a contract for the sale of goods is an invitation to the other party to accept the offer in any way that is reasonable. If you accept an offer, you are agreeing to all the terms, even if they are different from what was originally offered.

This is true even if you send a written confirmation that says you agree to some but not all of the terms. However, if you only agree to some of the terms and not all, this is considered a conditional acceptance.

Value and Consideration
Most often, the consideration in a contract for the sale of goods is based on performance. In other words, one party agrees to perform by selling goods, and the other party agrees to perform by buying the goods.

A well-drafted agreement should specify what constitutes adequate performance when it comes time to transfer ownership of the goods.

The Uniform Commercial Code (UCC), which serves as the preeminent source of commercial law in the US, offers guidance on what constitutes performance.

For example, under the UCC, a contract for the sale of goods would contain a promise or “performance” by one party to sell a number of goods at a set price, while the other party promises to buy the agreed-upon number for goods at the agreed-upon price.

Failure to include this provision renders the contract unenforceable under most circumstances. The Uniform Commercial Code requires that goods sold “must” pass from the seller into the buyer’s possession when ownership is transferred.

What Should Be Included In A Sale of Goods Contract?

Some provisions to consider that should always be included in a sale of goods contract are:

“Right to inspect”
The right to inspect the goods received allows the buyer a chance to inspect, test, and sample the goods before accepting delivery. Inspections are usually for both the buyer and the seller to satisfy performance.

“This agreement is the entire agreement between buyer and seller.”
This phrase means that this contract compiles all previous negotiations, correspondence, and discussions between the parties.

“Payment will be due upon the receipt of invoice.”
This phrase means that full payment must be made before any further performance may begin. It is one example of how a vendor may want to receive payment.

“All products have a minimum warranty of 90 days unless otherwise specified.”
This means that any product sold must have a warranty of at least 90 days. Any exceptions should be written so as to not negate the warranty time frame.

“This Agreement is governed by the laws of the State of _______”
This type of provision is known as the choice of law or jurisdiction statement. It means that a particular state’s laws will govern the contract and any disputes.

An example would be, “This Agreement shall be governed, construed, and interpreted by, through, and under the laws of the State of Florida. Each party hereby consents to the jurisdiction of Florida and venues of the State of Florida to resolve all disputes.

This usually occurs when the party making the contract is headquartered inside a particular state, and the other party is headquartered outside the state.

What If I Receive Damaged Goods?

Goods frequently break or become spoiled during transportation. The UCC does allow for a seller to “cure” or replace any damaged goods rejected by the buyer if the buyer notifies the seller within a reasonable time after the discovery of the damaged goods.

If a buyer accepts goods and then discovers (or should have discovered) that the goods were non-conforming, and then fails to notify the seller within this reasonable time frame, then a buyer may be barred from any remedy.

This often depends on the kind of goods being sold. For instance, a machine must function correctly for longer than a mere moment for it to be considered fit for its purpose. Food needs to be inspected immediately and near the time of delivery since food is perishable.

On the other hand, an item of clothing that doesn’t even appear as though it was worn can still be considered new if it’s only been tried on.

Both parties generally must specify whether they intend for there to be an implied warranty that the product may be fit for its particular purpose—an issue that heavily influenced U.S. Supreme Court decisions on consumer protection.

Do I Need An Attorney?

It is not uncommon for parties or merchants in commercial sales contracts to disagree over who bears the different types of risks when an item is bought or sold. Usually, there are many legal questions that arise when one party makes multiple promises in a sale of goods contract. Does each promise need to be fulfilled in order to satisfy the terms of the contract?

Drafting a valid and enforceable sales contract requires specifying certain critical elements if either party wishes to avoid costly disputes later.

Since the sale of goods is a complicated area of law, it’s a good idea to seek the advice of an experienced contract law attorney if you are either drafting a sale of goods contract or need legal advice on reviewing a contract as a buyer.

If you are in a breach of contract dispute and need representation, a lawyer familiar with the UCC can appear in court and guide you in your case.