Drafting agreements for the sale of goods

November 6, 2014

Contract imageOne of the most common business transactions for any business is the “sale of goods.” The business will generally purchase products, raw materials and other goods from one or more vendors and, hopefully, will produce and sell its own goods. In each case, the purchase and sale transaction will be documented by some form of sales agreement. The form of these agreements will vary substantially, depending on the goods involved and the customs and business objectives of the parties. A robust set of commercial laws has been developed to assist the parties in the regulation of sales transactions, particularly Article 2 of the Uniform Commercial Code (“UCC”) (§§ 120:30 et seq.).

The process leading to the formation of a sales agreement can take on a variety of forms, including use of standard forms that set out the basic terms of the transaction; negotiation of an agreement that is customized to the needs of the parties; or oral discussions and negotiations that ultimately create an enforceable contract.

While standardized forms are often used for sales of goods transactions, every business should develop its own preferred form of contract relating to the sale of goods, whether the business is the buyer or the seller. Also, in sales transactions involving material sums of money, or essential goods, the parties should give serious consideration to taking the time to negotiate a carefully drafted sales agreement. Such an agreement may well minimize subsequent disputes that may lead to costly litigation, since the parties themselves with aid of legal counsel can agree ahead of time what should happen if things go wrong. This may include agreements for:

  • Allocating the risk of loss (§ 120:27) if the goods become destroyed or damaged;
  • Maintaining adequate insurance protection;
  • Excusing a party’s nonperformance due to strikes or other work stoppages;
  • Resolving defects or nonconformities in the goods or documents;
  • Price adjustments due to delays caused by weather, accidents, or other unforeseen problems;
  • Excuses for nonperformance due to the failure of certain basic assumptions to the agreement (which are stated in the writing);
  • Security interests;
  • Commercial arbitration of disputes (see Specialty Form at § 120:278);
  • Third-party inspections;
  • Flexible price (§ 120:12) mechanisms; and
  • Stipulated damages in the event of performance delays.

The procedures for tender, acceptance, inspection, and payment will typically be set out in a general form of contract for sale of goods, which will also set out the seller’s warranty obligations. See Specialty Form at § 120:257. Variations of the general form of sales agreement may be used in cases when the buyer is permitted to make payments in installments and the seller is granted a security interest in the goods until all payments have been made. See Specialty Form at § 120:260. To learn more about security interests generally, see Secured Transactions (§§ 124:1 et seq.).