Drafting a Sales Contract
Sales contracts are legally binding written agreements that govern a transaction between a buyer and a seller.
When drafting or reviewing a sales agreement for a business, there are two questions that can be asked before the contract can be considered complete. Firstly, does the sales contract cover all bases required to ensure that all elements of the transaction run smoothly? Secondly, does the contract provide for remedies should the transaction not go as expected?
The parts of an effective sales contract can include the following elements:
It is important that the contract itself is titled something that reflects the transaction that the document represents. There are several alternative titles that could be used in the header instead of “sales contract”. These alternatives include “sale of goods contract”, “sales agreement”, “purchase agreement”, “service agreement”, “service level agreement” and other similar names.
Party Names and Contact Details
A well-written contract has the correct legal names, physical addresses, emails and telephone numbers for all of the entities involved in the transaction. The entities’ contact information might also include a designated contact person such as an officer of the company. In the case of a corporation, a legal department rather than the name of a specific person may be more appropriate.
Having complete contact information in the contract allows all parties to contact the other to formally serve documents, clarify issues with the transaction and deliver payment information such as invoices and statements.
Description of the Services or Products to be Rendered
All contracts are required to include the deliverables of the transaction. These deliverables are the goods and/or services that one party agrees to provide to the other in return for some form of payment. To ensure accuracy, a well-written contract can include a detailed description of the goods and services to be rendered, a timeframe for delivery and the method of delivery. The more detailed the description of the service or product the more enforceable the contract.
For example, if products are to be delivered from the seller to the buyer, then this section of the contract might include item SKU or other product code, color, size, quantity and a short written description of each product.
In the case of a service delivered from the seller to the buyer, this section of the contract may include the number of hours to be worked, the amount of content to be produced, the location of delivery and the timeline for delivery.
A guarantee or warranty is a legally enforceable assurance given to a buyer from a seller. The assurances given in a warranty can be that the goods or services to be provided in the contract meet certain levels of quality, reliability and timeliness. Like many aspects of a written sales contract, the way warranties are handled is outlined in the Uniform Commercial Code or UCC. While the UCC is not federal law, it has been adopted by all US States including Florida as a legal standard.
The UCC provides for both “express” and “implied” warranties. An express warranty is a written promise made by a seller with regard to the quality of goods and services. An implied warranty is, by definition, an unwritten statement guaranteeing minimum requirements regarding the quality.
Written sales contracts often explicitly nullify any implied warranties and replace them with express warranties.
A complete sales agreement includes a termination clause or severance clause. The termination clause lays out how the parties can mutually or unilaterally end an agreement under certain specific situations.
Termination clauses spell out when and how a contract can be ended legally, avoiding legal disputes when the relationship between the parties to the transaction comes to an end.
Typically termination clauses are separated into two types, termination for convenience and termination for cause. Terminations for cause occur when one or both parties have breached the contract by their actions or performance failures. Terminations for cause tend to be contentious and are more likely to end up with legal action being taken. On the other hand, when both parties agree or a single party agrees to end the contract they may terminate the agreement according to the terms and conditions laid out in the termination clause.
The Price or Other Consideration
Agreeing on price and payment terms frequently requires negotiation between buyer and seller. Once the parties reach a verbal agreement on price and payment terms, it is best practice to memorialize specifics in the writing in this part of the contract. Components of this part of the contract typically include:
- The agreed-upon base price
- Price variations including adjustments for circumstances or pricing for additional services
- Frequency and method of invoicing
- Invoicing Dates and Payment Due Dates
- Payment methods accepted and information needed for the buyer to make payment with the various options
Some contracts include additional information in this section such as a promissory note for the buyer to make the remaining payment after an initial deposit. In cases where payment is made in kind (eg: a service or product exchange that does not use or only partially uses money), this section could outline the legally binding details by which the exchange of goods and services takes place.
“Some contracts include… a promissory note for the buyer to make the remaining payment after an initial deposit.”
Another important component of any legal contract is the inclusion of the laws which govern the contract. In the US, it is typical to choose a governing state such as Florida and a governing county such as Broward County or Miami-Dade. This is usually a simple process when both parties are based in the same legal jurisdiction. However, if the buyer and seller are from different states or counties, a disagreement over which jurisdiction governs the contract may occur.
In such cases, parties may consult their legal counsels and determine which jurisdiction best fits the needs of the transaction and guarantees certain rights of the parties. An alternative approach is to give jurisdiction to an arbitration organization. Arbitration is a legally binding process similar to a court of law in which an arbitrator or panel of arbitrators decides on the resolution of a dispute based on the contract governing the agreement between the parties.
South Florida Law
Sales contracts and sales agreements can be highly-detailed legal documents that can financially impact the business of all parties to the contract. Drafting of sales contracts is ideally led by experienced corporate attorneys representing the best interests of one side of the transaction. Before signing and putting into effect any sales contract, the side receiving the contract would do well to instruct an experienced legal counsel to review the document. Because every matter requires its own unique legal assessment, contact South Florida Law, PLLC or call us on (954) 900-8885 for a consultation to determine whether a specific sales contract or sales agreement meets the needs of the transaction and is in the best interest of your business.