A sales contract is a formal agreement between a buyer and seller for the exchange of goods, services, or property for payment or promise of payment of a certain value. A sales contract will spell out certain terms and conditions such as price and delivery. But why bother with the hassle of writing out a sales contract when most commercial deals are made on a handshake?
“Handshake” deals are best characterized as oral contracts, and may only be enforceable in certain circumstances. Oral contracts are very difficult to enforce due to the lack of a clear record of the offer, consideration, or acceptance. In addition, in the United States, a contract for the sale of goods for more than $500 generally must be in writing in order to be enforceable under Article 2 of the Uniform Commercial Code. The Uniform Commercial Code is not federal law, but is a set of model statutes that has been adopted in some form by all 50 states.
It’s always a safer bet to put any agreement down in writing. With that said, what should be included in a sales contract?
Identity of the Parties/Date of Agreement
The first topic a sales contract should address is the identity of the parties. Generally, in a commercial agreement, this would be the name of the legal entity of your small business (e.g., Widgets, LLC) and the respective name of the individual or legal entity of the company you are doing business with. When signing the form, the signature portion should include your name and title (e.g., John Smith, CEO of Widgets, LLC). The first paragraph of the sales contract (and the signature section at the end) should also clearly state the date that the agreement is made and executed (or signed).
Description of Goods and/or Services
A sales contract 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.
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, the method for payment, and any payment schedule (e.g., lump, installment, etc.) agreed upon.
A sales contract should address the many different aspects of the delivery of the goods and/or services. This includes time for delivery, place for delivery, method of delivery, cost of delivery, and liability for damage or failed delivery. A sales contract may also include a force majeure clause to address nonperformance due to “acts of God, fire, flood, riot, etc.” that may be out of both parties’ control.
While the above provisions should be included in every sales contract, other provisions you may want to consider include:
- Warranties (Express and Implied) – provisions assuring that the product will meet a certain level of quality and reliability (as well as any warranty disclaimers if so agreed upon).
- Breach of Contract – provisions that address what happens when one party breaches the contract, the time to cure any breach, when a party can terminate the contract, and any remedies a party can recover.
- Confidentiality – provision that limits the dissemination of confidential information.
- Severability – provision that states that other remaining provisions will remain valid and enforceable if any provision is found invalid or unenforceable.
- Legal – provisions that address which state law is applicable (a.k.a Choice of Law), where any lawsuits will be litigated (a.k.a. Choice of Venue), whether litigation will be in courts of law or arbitration (a.k.a Arbitration Clause), and who will bear the costs of litigation (a.k.a. Attorney’s Fees).
Here are some templates of sales contracts available online: