How to Draft an Agreement for the Sale of Goods

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parts

1Beginning the Contract

2Describing the Goods

3Identifying the Buyer’s Obligations

4Including Boilerplate Provisions

5Finalizing the Agreement

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You should use a sales agreement whenever you sell goods. The agreement will explain what goods are being sold and when payment and delivery should be made. A comprehensive contract will also protect the seller against lawsuits. Generally, sellers should draft contracts, although the buyer might want to negotiate changes to the contract before agreeing to sign.

Steps

Part 1

Part 1 of 5:

Beginning the Contract

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   Format your document. Set the font to a legible size and style. Although Times New Roman 12 point is fairly standard, you can pick anything that is readable.

   • If you intend to use this contract over and over, then you can create a template. Insert blank lines where you can write in information that will change with each contract, such as the buyer’s name, delivery date, price, etc.
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   Title the document. At the top of the page, you can center the title “Contract for the Sale of Goods” between the left- and right-hand margins. If you want, you can make the title bold or in all caps so that it stands out.
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   Identify the parties to the contract. In the first paragraph, you should identify the seller and the buyer. Make sure to include their business addresses, as this information will help identify them.

   • For example, you could write, “This Contract of Sale (‘Contract,’ ‘Agreement’) made and entered into on this [insert blank line for date] between [insert your name] (‘Seller’), located at [insert your address] and [insert blank line for name of buyer] (‘Buyer’), located at [insert blank line for buyer’s address]. Seller and Buyer are collectively referred to as the ‘Parties.’”
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   Include your recitals. Recitals are the “whereas” clauses that describe each party’s purpose in entering the contract. These are usually written as sentence fragments.

   • You can include these recitals: “Whereas Buyer is in the business of [insert business] and is in need of [insert description of goods] in order to conduct its business; and whereas Seller is in the business of [insert your business] and has [insert the product you are selling]; and whereas Buyer desires to purchase the goods as set forth in this Agreement from Seller; and whereas Seller agrees to sell the goods to Buyer. In consideration of the mutual covenants and provisions contained herein, the Parties agree as follows.”
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Part 2

Part 2 of 5:

Describing the Goods

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   Identify the goods. You need to describe the goods in sufficient detail that the parties can identify them. Also include the quantity of goods you are selling.

   • You could write: “Seller shall transfer and deliver to Buyer, and Buyer shall take delivery of the following Goods.” And then include a description of the goods.
   • If you are selling a lot of different things, then you can simply attach a list as an attachment. Make sure the contract says something like, “See Attachment A” or “See invoice dated” and then give the date of the invoice.
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   State the time of delivery. You should insert the date and the location of the delivery. You might also want to give the buyer the right to change the delivery date by given prior written notice to the seller.

   • A sample clause might read: “Seller shall deliver the Goods to Buyer by [insert date] to [add location of delivery]. Buyer shall have the right to change the delivery date by providing written notice 10 days in advance.”
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   Decide whether to give the buyer a right to inspection. You might want to give the buyer a right to inspect the goods before agreeing to accept them. If the buyer rejects the goods, then he or she must notify you. However, you might not want to give the buyer a right to inspection. In that situation, you should expressly state that the buyer cannot inspect the goods before offering payment.

   • If you want to grant a right to inspect, then include language like this: “Buyer shall have the right to inspect the Goods prior to acceptance. If the Goods do not conform to this agreement, Buyer shall have 10 business days to inform Seller of any defect. Upon written notification of nonconformity, the Seller shall have 10 business days to cure the nonconformity. If the Seller fails to cure within this amount of time, then Buyer shall have the right of any remedy available under the law.”
   • If you want to deny the buyer a right to inspect the goods, then include this kind of provision: “Buyer shall have no right to inspect the Goods until after payment. If the Goods do not conform to the agreement, then Buyer shall notify Seller, who shall cure the nonconformity within a reasonable period of time.”
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   Assign risk of loss. Accidents happen when goods are delivered. A truck might crash on the way to delivery, or someone might make off with the goods. You have to assign who will bear the loss. If the seller holds title to the goods until delivery, then the seller will bear the risk of any loss during delivery. However, if the buyer is assigned title as soon as the goods leave the warehouse, then the buyer assumes the risk of any loss during delivery.

   • A sample provision could read: “Risk of loss shall remain with the Seller until the Goods are transferred to the shipping agent, FOB.” With this clause, the buyer takes on the risk of loss when the goods are deposited with whoever is delivering the goods for the seller.
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   Insert warranties. A warranty is a legal promise to stand behind a product. In the sales context, sellers often warrant that the goods are fit to be used as represented and that they are free from any defect or incumbrance. As the seller, you often want to limit your warranties because you can be sued if your goods don’t live up to your promises.

   • You might want to warrant that the goods are free from any other legal claim, such as a lien. You could write: “Seller warrants that Goods are free from all security interests, liens, and encumbrances.”
   • Alternately, you might want to disclaim all warranties. By doing so, you can limit your exposure as the seller to any lawsuits if the goods are defective. For example, you could write: “Seller hereby excludes all express or implied warranties, including the warranty of merchantability. There are no warranties that extend beyond the description on the face of this contract. There are no representations between the Parties other than those expressly set forth in this Contract.”
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Part 3

Part 3 of 5:

Identifying the Buyer’s Obligations

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   Insert a provision about payment. The buyer needs to agree to accept the goods and pay for them, otherwise you don’t have a contract. Make sure to include a provision like the following:

   • “Buyer agrees to accept the Goods and pay for them according to the terms further set out below.”
   • Also state how much the buyer agrees to pay: “Buyer shall pay Seller the amount of [insert blank line to enter amount] in [which currency, such as U.S. Dollars] for the Goods covered by this Agreement.”
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   Explain how the buyer will make payment. There are several options for how the buyer can make payment. You should select the one that works best for you as the seller:

   • The buyer can pay in full upon receipt.
   • The buyer can pay in installments, as billed by the seller. If you choose this option, then the seller needs to draft a separate installment sales contract.
   • The buyer can pay half upon receipt and the rest within 30 days of receiving the goods.
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   Explain when goods are received. Sometimes disputes can break out when a buyer claims not to have received goods. Your contract should identify what qualifies as “receipt” of goods.

   • For example, you could write: “Goods are deemed received by Buyer when delivered upon Buyer’s address as set forth on the first page of this Agreement.”
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Part 4

Part 4 of 5:

Including Boilerplate Provisions

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   Insert a notice provision. If the parties need to contact each other to waive their rights or complain about the goods, then they should do so in writing. Your notice provision will explain how each side can give notice.

   • This is a pretty standard notice provision: “Any notice under this Agreement shall be in writing. Such notice shall be delivered to the Party at its address set forth on the first page of this Agreement. Such notice shall be effective immediately upon confirmation of receipt, otherwise three working days from mailing such notice if mailed through the United States mail, certified, postage prepaid.”
   • You can also allow notice to be provided by email or by fax, if you want. Make sure to include the email address or fax number that notices should be sent to.
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   Include a waiver provision. Sometimes it might be easier to complete a transaction if one side waives its rights under the contract. For example, a buyer might want to waive its right to inspection and just pay up. You can explain the situations in which a waiver would be effective.

   • For example, you could write: “Any provision of the Agreement may be waived by the Party entitled to its benefit. However, neither Party shall be deemed by any act or omission to have waived any of its rights or remedies unless the waiver is in writing and signed by the waiving Party. A waiver of one event shall not be construed as continuing or as a bar to or waiver of any right or remedy to a subsequent event.”
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   Add a severability clause. In some situations, if a judge finds one provision in a contract illegal, then the judge could void the entire contract. Contracts nowadays anticipate this problem by including a severability clause. This clause states that if one portion of the contract is deemed illegal, the rest of the contract remains in force.

   • Your severability clause could read: “If any provision of this Agreement is held to be void, unenforceable, or illegal, the remainder of the Contract shall not be affected.”
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   Include a merger clause. Sometimes a party will claim that the written contract doesn’t contain the entire agreement. Instead, they will claim that there were prior oral or written agreements. You can prevent either side from making these arguments by including a merger clause.

   • This is a standard merger clause: “This Agreement and any attachments to it constitute the entire agreement between the Parties concerning the subject matter hereof. Any and all prior discussions, representations, agreements, covenants, and warranties are merged herein. Any amendments or modifications of this Agreement shall be in a writing executed by both Parties.”
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   Add a choice of law provision. If there is a dispute that goes to trial, then the judge will need to apply a state’s law to interpret the contract and decide the dispute. You can choose which state’s law to apply. As the seller, you will probably choose the law of your state.

   • You can write, “This Agreement shall be governed by the laws of the State of Utah.”
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   Add an arbitration clause. If you are sued, then you might want to resolve the dispute outside of court. For example, you could arbitrate the dispute. Arbitration is like a trial, except you present your case to one or more arbitrators instead of to a judge. Unlike a trial, arbitration is private. It can also be faster and cheaper than a lawsuit. If you want to arbitrate disputes, then you should include an arbitration clause in your sales agreement.

   • The arbitration clause might read: “All disputes arising under this Contract shall be settled by binding arbitration in the state of [choose a state] or another location agreeable to both parties. An arbitration award may be confirmed in a court of competent jurisdiction.”
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Part 5

Part 5 of 5:

Finalizing the Agreement

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   Add signature blocks. At the bottom of the agreement you need to add lines for both the buyer and seller (or their agents/representatives) to sign.

   • You might also want to have the contract notarized. If so, you will have to insert a notary block applicable to your state.
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   Show the draft to a lawyer. This article describes a basic sales contract. You may need to revise many of its provisions to suit your business. Accordingly, you should show your rough draft to your lawyer and discuss if anything is missing or needs to be changed.

   • If you don’t have a lawyer, then you can find one by contacting your local or state bar association. Bar associations are lawyer organizations. You can get a referral if you contact one.
   • Schedule a meeting to show the contract to the lawyer. Also ask how much the lawyer charges per hour before scheduling your appointment.
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   Show the contract to the other side. The buyer might want to see the contract and try to negotiate some changes. Negotiation is more likely if the contract is for a lot of money or if you have never done business with the person before. Give the other side time to look over the contract with their lawyer and offer suggestions.

   • Make sure you agree with everything in the contract before signing it. If you and the other side can’t come to an agreement on contract language, then you should reconsider doing business with each other.
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   Sign the completed agreement. Each side should have an agent or representative sign the agreement. Make a copy for the buyer and store the original contract in a secure location.

   • You can also create digital scans of your contracts so that you have easy access to them.
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