Is a bill of sale a binding contract? In many cases, yes, a bill of sale can be used as a contract depending on the circumstances. However, there could be other elements that are also required along with a bill of sale to act as a contract.

What is a Bill of Sale and How is it Legally Binding?

A bill of sale is a centuries old document used when people purchase specific types of goods, such as boats, cars, or even animals. A bill of sale is a piece of paper that transfers the ownership of the goods from one party to the other.

It is used when the person who owned the goods transfers the property to the buyer instead of a real estate agency or another service. It is a legal document, similar to a contract, that makes a record of the agreement to sell and receive the goods.

To be legally binding, the agreement is made consciously and some actions will now be either prohibited or required, depending on the situation:

  • A bill of sale is a piece of evidence for the sale.
  • The bill of sale also helps form an obligation for one party to sell to another later in the future.
  • A bill of sale can also be issued for property transfers when the buyer obtains the actual possession of the property.
  • It is also issued when a buyer is obtaining a right or title to the property without the property actually leaving the seller’s possession.

When a bill of sale is used, a purchase agreement is also used in most cases. Other documents that are often used include a promissory note, an operating agreement, and the like.

A bill of sale is a simple document that lists the purchase price and details what is being purchased. This section is a list that separates the purchase into categories that are taxable by the IRS.

Not included in a bill of sale are the terms of the sale, such as the conditions or the circumstances surrounding different components of the item or property. Also not included are warranties or representations, the terms of payment, date of closing, and so on.

A bill of sale is more akin to a receipt rather than a contract. Since it is such a simple document, there is no way to truly enforce it. If the bill of sale is the only document you use in a transaction, it is best to ensure there is enough detail on it to make the transaction enforceable.

A bill of sale does need to conform to state regulations to be used for official purposes, such as registering a car or a boat. An odometer reading and a bill of sale may be required in your state to get a car registered.

Both parties to the sale can sign the bill of sale, but only the seller is required to do so. If the property is jointly owned, both need to sign the bill of sale.

If you choose to use a bill of sale to secure a loan, things may get tricky. If a person says a car will be collateral for a loan, the lender could require a bill of sale for the vehicle that becomes effective if the loan faces default. A bill of sale can also be used as a component of the loan. If you are making payments via financing, the entire agreement can be considered a bill of sale even though the transfer of the title will not happen until all payments are made.

When Should You Use a Bill of Sale?

Most every state will require a bill of sale to serve as proof that you purchased a vehicle or a certain type of branded animal, such as a cow or horse. It is typically used when you are purchasing a high value item. If you are only selling an item like clothing, you can choose whether or not you want to use a bill of sale.

If you are buying an item and prefer to have a bill of sale, you can bring your own if there is not one provided by the seller.

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