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What is a Contract of Sale?
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What Is Contract of Sale
A contract of sale is a legal contract where one party purchases an asset or property from another based on a predetermined sales price.
In other words, a contract of sale is a legally binding contract where a seller of property passes on the title to the same to a buyer in exchange for the receipt of a sum of money or an agreed consideration.
The main objective of a contract of sale is for the seller to deliver property or an asset to the buyer and for the buyer to pay the seller the agreed price.
Typically, the title to the asset in question passes on from the seller to the buyer when the buyer pays the agreed sales price to the seller.
The contract of sale can be very simple or highly complex in scope.
A simple contract will typically contain the name of the buyer and seller, the description of the goods sold, the price, and the contract date.
Keep reading as I will break down the meaning of a contract of sale further and see how it works.
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Contract of Sale Elements
Every jurisdiction will have its requirements relating to a contract of sale.
For example, common law jurisdictions and civil law jurisdictions will each define the essential elements for a valid contract of sale.
In the United States, you typically have six essential elements required for a contract to be qualified as a contract of sale:
- You need a buyer
- You need a seller
- An item to be sold
- An agreement on price or consideration
- Transfer of ownership
- Delivery date
A standard contract of sale will have the above elements.
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Types of Contract of Sale
There are different types of contracts of sale in business and that is quite common.
Here are the most common types of contracts of sales in business:
- Sales contract
- Order form
- Change order
- Service agreement
- Statement of work
- Terms of use
- Renewal agreement
- Upsell agreement
- Cross sale agreement
- Purchase order
Each of these agreements is used in different circumstances.
For example, a renewal agreement is used when the parties have already agreed on a prior contract of sale and wish to renew the agreement.
A change order or statement of work relates to the sale of services.
Although the foundation of all the above agreements relates to the sale of goods or services, you must ensure that you are using the right agreement at the right time.
Also, you must make sure that you include the proper protective clauses giving you the essential legal protections.
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Contract of Sale Content
Although a contract of sale can vary in complexity depending on the sophistication of the contracting parties and the complexity of the transaction, let’s see what’s included in a standard contract of sale.
A contract of sale is fundamentally a contract that includes the identification of the parties, the description of the goods and services sold, the sales price, and the contract date.
The buyer and seller can choose to include other provisions providing them with greater protection, such as:
- A payment plan
- Delivery terms
- Inspection period
- Warranties
- Indemnification clause
- Liability cap
- Disclaimers
- Governing law
- Confidentiality clause
- Breach of contract provisions
From a legal perspective, to the extent the contract is relating to an asset, property, or service, the parties have agreed on the price, and the seller is expected to deliver the goods or services to the buyer, you have a contract of sale.
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Contract of Sale Under The UCC
In the United States, a domestic sales contract is governed by the Uniform Commercial Code.
In fact, Section 2-201 of the Uniform Commercial Code states that a contract for the sale of goods for the price of $500 or more must be made in writing and signed for it to be enforceable.
When merchants enter into a contract of sale with one another, if written confirmation of the contract is sent by one merchant to another and there is no objection made within 10 days following its receipt, the content of the contract will be considered binding.
Under UCC, a contract of sale must satisfy the following requirements for it to be enforceable:
- If the goods are to be manufactured by the seller, if the buyer has made a substantial beginning of the manufacturing process or if there have been commitments for their procurement
- The contract is enforceable for the quantity of goods admitted
- With respect to goods for which payment has been made and accepted or the goods received and accepted
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Contract of Sale vs Bill of Sale
What is the difference between a contract of sale and bill of sale?
Although both a contract of sale and bill of sale are similar in many ways, they are different things.
A contract of sale is a legal agreement between a buyer and a seller relating to a good or service.
The contract of sale will generally provide for the identification of the goods, delivery terms, payment terms, and other legal clauses required by the parties.
On the other hand, a bill of sale is a document that is used to transfer ownership of goods from one person to another.
A bill of sale can be used in many situations such as when a person or entity is looking to transfer the ownership of goods they already own to another or the transfer of tangible goods.
You can consider a bill of sale to be a component of a contract of sale as the bill of sale relates to the transfer of property whereas the contract of sale includes the transfer of property but also other provisions relating to the sale.
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Takeaways
So there you have it folks!
What does a contract of sale mean?
In a nutshell, a contract of sale is an agreement where one party agrees to sell something and one party agrees to buy that thing at a mutually agreed price.
A contract of sale can be with respect to the sale of an asset, property, goods, or services.
Typically, a contract of sale will identify the buyer and seller, provide details on the goods or services, provide for the sales price, the transaction date, and other terms required by the parties.
A contract of sale is probably one of the most common types of contracts in business and can range from the sale of something for a few dollars all the way to a transaction of millions of dollars.
Having the right contract in place is important for both buyer and seller to ensure they are legally protected in case something does not go as planned.
Be sure to consult with a qualified contract attorney in case you have questions relating to a sales contract or need to have one drafted or negotiated for you.
Now that you know what a contract of sale is all about and how it works, good luck with your research!
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