A sales agreement, or sales agreement contract, is a legal document that outlines the terms and conditions of a transaction. Because these agreements sometimes impose conditions upon the parties, they are more extensive bills of sale or simple sales receipts.
Sales agreements may also be referred to as sale and purchase agreements and, in general, will cover the sale of goods rather than the sale of services. Every jurisdiction may have different rules governing sales agreements.
This is because each county or state may have different requirements and features governing the exchange of goods. In addition, sales agreement requirements may vary depending on whether one or more of the parties is a professional merchant.
Generally, purchase and sale agreements are often used in situations involving the sale of real estate property, such as a home, company stock, or other assets. Technically, however, these agreements may be used for any arrangements that involve the sale of goods.
In contrast, a contract used for a transaction involving the sale and purchase of a service is referred to as a service agreement.
What Is a Sales Agreement Used for?
The purpose of the majority of contracts, including purchase and sales agreements, is to preserve a written record of the original intentions of the parties at the time the contract was signed. Contracts outline the duties of the contracting parties and help to ensure they fulfill their end of the agreement.
They also offer the parties involved legal protections in the event that a dispute arises over the contract. Sales and purchase agreements are typically used for the purpose of helping a buyer and seller deal with foreseeable increases or decreases in factors such as product demand and product costs. These types of agreements are often used in business sales and supply departments for larger publicly traded entities.
The agreement may outline the different obligations that both the seller and the borrower have in relation to each other. The sales agreement may dictate that the supplier of goods will provide the purchases with a set quantity of a number of months or years.
For example, if a buyer wants to place an order for a certain number of items every holiday season for the next 5 years, this type of agreement can be a huge advantage when it comes to predicting future costs, product demand, and shipping details. Specifically, these agreements may be used to identify:
- Products or property;
- The price of the product of property;
- The conditions for delivery, such as:
- date;
- time;
- location; and
- other details; and
- The stand and end date of the agreement.
In return, the buyer may promise not to conduct business with other suppliers for that type of good. A sales agreement is also commonly used in the real estate industry.
Typically, the parties will enter into a contract period using the agreement in which a buyer may be required to put money in an escrow account but, at that point, they will not hold title and have not paid the seller directly for the house or property. In these situations, the agreement will provide instructions regarding:
- The closing date;
- What else the buyer needs to procure to prepare to purchase the home;
- What else the seller needs to do to prepare to sell the home; and
- Additional provisions regarding home insurance and situations that may terminate the contract.
What Should Be Contained in a Valid Sales Agreement?
To be a legal contract, a sales agreement should contain all of the basic information related to the transaction, including:
- The identities of the parties;
- A description of the property or products being sold;
- The price of the goods or property;
- A description of how, when, and where the items will be delivered;
- A description of when and how payments will be made;
- The amount of a down payment, if applicable;
- Applicable return policies;
- The signatures of the contracting parties; and
- A provision that states how and what happens when the agreement is terminated or breached.
In addition, the following information may also be included in the sales agreement:
- Warranty information for damaged or defective goods;
- Time periods in which the buyer can inspect or try out the product;
- Which state laws will govern the sales agreement, as business laws can vary by state;
- Whether the parties can resort to litigation or alternative dispute resolution in the event of a dispute; and
- Whether the sales agreement is subject to:
- renewal;
- modification; or
- amendment.
Sales agreements may also include provisions that state whether an agreement is to be the only legally binding document for the transaction or whether other documents can be referenced. In many cases, the agreement should be signed by at least 2 witnesses, although state laws may vary regarding witness requirements.
It is important to note that the information that is included in a purchase and sale agreement may depend on the subject matter of the agreement, such as real estate versus shipping goods as well as the desires of the parties forming the agreement.
Other types of clauses that may be included are clauses concerning:
- The confidential nature of the agreement;
- Whether any of the provisions are severable;
- Whether the parties are required to resolve disputes using arbitration or mediation, as opposed to litigation; and
- Any warranty claims the seller wishes to make about their product.
When Do You Sign a Purchase and Sale Agreement?
It is important to keep in mind that purchase and sales agreements are not considered the final contract. This is especially true if a transaction involves selling a home.
Instead, the agreement binds the parties to the terms that were agreed upon following the negotiation stage but prior to the official closing date, when the final contract will be signed. Essentially, the purchase and sale agreement is a placeholder for the final contract.
Using the sale of a home as an example, the purchase and sale agreement will remain in pace until the closing date. At the time of closing, the parties will sign the final housing contract which will replace the agreement.
The buyer will then pay the seller whatever monies they still owe to purchase the house, and in return, the seller will give the keys to the buyer.
What Happens if a Sales Agreement Is Violated?
A valid sales agreement is, essentially, a type of contract that creates a legally binding relationship between the parties. A violation of the terms of a sales agreement may constitute a breach of contract that may lead to various legal or equitable remedies.
These may include a monetary damages award or an injunction that requires the breaching party to perform their duties or cease engaging in conduct that violates the agreement.
Do I Need a Lawyer for Help with a Sales Agreement?
A sale and purchase agreement can be very important for the success and legality of a business transaction. If you need assistance drafting or editing a sales agreement, a contract attorney can help.
If you are considering entering into a purchase and sale agreement, your attorney can review the agreement before you sign it. In addition, your attorney can be present during negotiations to ensure that the other side is acting fairly and reasonably.
If a legal dispute arises, your attorney can help represent you during the legal proceedings.
