Key Takeaways

  • A sales contract is an agreement between a seller and a buyer for an agreed upon price and other terms for a product or service.
  • Ownership of goods or results from services are transferred upon payment by the buyer and delivery by the seller.
  • Under certain conditions, a sales contract can still be valid even if the seller or buyer cannot immediately deliver or pay.
  • Sales contracts over $500 must be in writing in the U.S., as required by the Uniform Commercial Code (UCC).
  • Sales contracts should contain the name of the parties and be signed by all parties with an effective date and must provide a description of the goods or services, costs, payment terms, delivery details, any special terms, warranties, intellectual property rights, confidentiality, dispute and liability clauses.
  • Legal advice ensures compliance, validates enforceability, identifies risks, and tailors the contract to specific needs.
  • A well-structured sales contract prevents disputes and mitigates legal conflicts.
  • Hire a lawyer on UpCounsel for expert help creating, negotiating and enforcing sales contracts. 

What is a sales contract? Anyone who plans to be involved in any form of transaction should be aware of sales contracts and what they entail. For a sale to go through smoothly, both buyers and sellers have important roles to play. 

This article will cover important information about sales contracts including fundamental components, creating effective contracts, and much more. 

Definition and Purpose of a Sales Contract

A sales contract (or sometimes referred to as a contract of sale) is an agreement between a seller and a buyer. In this agreement the seller agrees to deliver or sell something to the buyer for a set price that the buyer has agreed to pay. With these contracts, the transfer of ownership happens when the buyer pays and the seller delivers.

This contract changes somewhat when the seller cannot yet deliver the sold item or when the buyer cannot yet pay the total price. 

In these situations, both parties can still agree to transfer ownership to the person buying if the seller is ready to deliver what is being sold and the buyer is ready to pay the amount agreed upon. The contract is then subject to resolutory condition, meaning if the buyer fails to pay, the seller takes the item back. 

 

Key Elements of a Contract of Sale

To be enforceable, a contract of sale must contain certain elements. 

  1. Offer: The offeror must make an offer (an agreement to sell).
  2. Acceptance: The offeree must accept the offer.
  3. Awareness: All parties must know the agreement they are entering into. This is also referred to as ‘a meeting of the minds.’
  4. Consideration: This means something of value is being exchanged in the contract.
  5. Capacity: Both parties must have the capacity to contract. This can relate to factors like age, mental capacity, and coercion.
  6. Legality: The contract must involve the sale of legal goods and cannot govern the trade of illegal products or services.
  7. Written document: As you’ll see below, some contracts need to be in written form. If this applies to your contract, a written document is another key element of a contract of sale. 


You can read about these elements in depth in this article.

 

Domestic Sales Contracts and Uniform Commercial Code 

The UCC, or Uniform Commercial Code, covers domestic sales contracts in the US. A domestic invoice is an example of a general sales contract. 

Under the Statute of Frauds, which is adopted by most states (except Louisiana which has adopted in part, certain contracts must be in writing to be enforceable. This statute dates back to English law in 1677. According to Article 2 of the Uniform Commercial Code, contracts for the sale of goods over $500 must be in written form to be enforceable. However, when selling other types of personal property, the total sale must be at least $5,000 before a contract needs to be in written form. If not, an oral contract can be enforceable as a binding agreement. Most importantly, regardless of the amount at issue, having a written contract is a best practice to protect your interests.

Different Types of Contracts of Sale

Contracts of sale are a fundamental part of business transactions. They outline the conditions under which goods or services are purchased or sold. Many sales contracts are very simplistic, while others have more detailed information regarding the transaction. 

Next, we will examine three primary types of contracts of sale: general contracts of sale, conditional contracts of sale, and international contracts of sale. 

  1. General Contracts of Sale

General contracts of sale are the most common form of contract. They refer to the general terms and conditions of the sale of products or services, are meant to be simple and provide for the basics of a sale.

General contracts of sale specify the obligations of both parties, eliminating ambiguous situations and causing fewer disputes. They minimize misunderstandings and are generally straightforward.

  1. Conditional Contracts of Sale

Conditional contracts of sale are contracts in which the sale is contingent upon fulfilling a condition. This condition can relate to the contract's subject matter or something external. 

They allow transactions to occur under certain conditions while defining what happens if those conditions are not met.

  1. International Contracts of Sale

International contracts of sale are when two parties live in different countries. These contracts are more complicated because the parties must consider trade laws and customs from both countries (such as INCOTERMS). 

Explicitly designed for international transactions, these contracts provide legal clarity on matters of jurisdiction, arbitration, and compliance to mitigate the risks of global trade.

Tips for Drafting an Effective Sales Contract

A sales contract does not need to be complicated to be effective. While certain elements must be included, the final decision depends on the specific needs and expectations of the parties involved. 

Here are some tips for drafting an effective sales contract:

  1. Leave no ambiguity in what you are selling. Describe the goods or services being exchanged, quantity, quality standards, and any other details.
  2. State the price for the good or service, the date payment is due, and how payments are to be made. If the transaction is overseas, provide exchange rates.
  3. Specify the date, place, and manner of delivery of the goods or services. Indicate who will bear the costs of shipping, how long it will take to arrive, and provide insurance information (if appropriate).
  4. Describe the warranty or guarantee on the goods or services and how to return or get a refund if the warranty or guarantee is not met.
  5. If intellectual property rights are applicable, state who owns them and how they will be transferred in the sale.
  6. Consider adding a confidentiality clause if your deal involves sensitive or confidential information.
  7. Indicate each party's obligations in the event the sale causes damage or loss and what indemnification clauses might be included to protect against legal action, if any.
  8. State which laws will govern international transactions and in which jurisdiction any legal actions will take place.

Avoiding Common Mistakes in a Sales Contract

In addition to the best practices listed above, there are common mistakes to avoid when creating a sales contract.

  • Avoid the use of ambiguous language that could lead to misunderstandings.
  • Don't overlook applicable laws and regulations to which the contract must comply.
  • Don't forget to account for risks like loss or liability.
  • Define consequences for non-compliance or breaches of the contract.
  • Don’t exclude any necessary details in the contract. Account for delivery timelines and the payment schedule.

Fortunately, an experienced contract lawyer will help you avoid these mistakes and enter into a sales contract that is enforceable, fair, and transparent. 

The Role of Legal Advice in a Sales Contract

The implications of entering into a sales contract can be severe, whether buying a home, a car or office supplies.Getting the contract right from the outset is vital so it is enforceable and your interests are protected. This is why legal guidance is imperative.

Here’s how legal representation helps while navigating the intricacies of contract law:

Legal Compliance

All contracts must be legally enforceable, which means they must conform to local laws and, in some cases, also international laws. Contract lawyers are well-versed in all the relevant legal frameworks governing sales transactions, including consumer protection, contract, and industry-specific laws.

Validating Enforceability of Contract Terms

A lawyer can review the contract to confirm it contains all the elements required for legal validity. 

Identifying and Mitigating Potential Legal Risks

Your contract attorney can analyze the contract to identify legal risks, such as clauses that are disadvantageous to the company or create liabilities. Contract lawyers may also recommend ways to mitigate these risks.

Tailoring the Contract to Specific Needs

Every sales contract is different. Legal advice helps ensure the contract is drafted to reflect the parties' needs – whether about meeting particular requirements, special conditions, or industry practices.

Dispute Prevention

Legal advice can also help you avoid disputes by ensuring the contract terms are covered and understood by both parties. A properly drafted agreement with well-defined terms can reduce the odds of disagreements and legal conflicts.

Conclusion: The Importance of a Well-Structured Sales Contract

A poorly written contract leaves you vulnerable to legal battles and financial damages. Enforceable contracts are good for businesses and everyone involved in a deal. Find a contract lawyer in your state to cover all your bases.

If you need help with contracts of sale, you can post your legal need on UpCounsel’s marketplace. 

UpCounsel lawyers come from prestigious law schools, average 14 years of legal experience, and have worked with leading companies in the US and abroad. 

Find a contract lawyer in your state to ensure all of your bases are covered.