What are Sales Contracts?
Contracts are essential for any kind of transaction of goods and services. They dictate the terms and obligations the parties involved have to follow. Contracts are everywhere around us and have a great influence on our lives – both personal and professional. What would we even do without contracts?
Contractual agreements are vital for future reference when something has to be checked or when an unexpected issue arises. There are multiple types of contracts. While they have common clauses, there are also different aspects that must be considered. This article will tackle the purchase and sale agreement issue. We will first answer the question “What is a SPA?” and then move on to the clauses specific to a sales and purchase agreement.
A SPA stands for sales and purchase agreement. It is a binding contract between two parties – a buyer and a seller. A purchase and sales contract states all the necessary terms and conditions for a successful transaction of goods or services from one party to the other. Having a written record of the terms and obligations that were agreed upon is crucial for preventing possible misunderstandings and offering solutions to future potential disagreements.
A contract needs to be as clear as possible and a purchase and sales contract makes no exception. To make it easier for you to understand how a purchase agreement works, we have made up a list of the essential clauses that need to be included in each and every sales and purchase agreement.
Just like any other contract, a purchase and sales contract must state clearly and unambiguously the scope of work. This clause is one of the most important parts of a contract. In the case of a sales and purchase agreement, the details regarding the seller’s transfer of goods or services to the buyers are defined. Everything from what is the product the seller is taking on the engagement of providing the buyer with to how, when, and where the goods will be delivered must be included in the sales contract. Through the scope of work clause, the expectations of both parties are specified, helping avoid future disputes.
The payment terms are another absolutely essential clause that every contract between a buyer and seller has to contain. In this part of the purchase contract not only is the amount of money the buyer must pay to the seller specified, but also the method and time of the payment are mentioned. As delays in delivery or payment can happen, the penalties for not respecting the terms are necessary to be included. This clause serves as a protective shield for both parties – the seller gets paid on time and the buyer receives the goods or services they paid for.
The warranty and liability clause is directed toward the seller. It covers the responsibilities of the seller, from the quality and performance of the products to unexpected events such as what needs to be done in case something goes wrong. For warranty, a duration must be set in place. For liability, the remedies and limitations have to be specified. Also, in the eventuality of the buyer making a claim, the conditions for that claim to be made are necessary.
In the dispute resolution clause, the methods that the parties resort to in case of a disagreement or conflict are outlined. Solving disputes comes with certain rules and procedures in the case of a purchase and sales contract. This clause serves an important role and must not be omitted. Not only does the dispute resolution clause help with avoiding litigation but it also contributes to maintaining a good relationship between the buyer and seller.
The termination of the contract clause is a must even though ideally a contract should not end prematurely. This clause states how and under what circumstances the contract can come to an end. Terminating the contract is especially damaging to the party that is responsible for supplying the goods or services. However, in the eventuality of a termination of the contract request the consequences and cost of it.
The confidentiality clause is what ensures that both parties will keep the details of the contracts and any sensitive information undisclosed. First of all, what is considered confidential must be outlined in the contract. Then, how that information will be stored and protected has to be included. This clause protects the secrets of both parties and prevents unwanted and unauthorized disclosure.
In case of unforeseeable events and circumstances, the force majeure clause has to be included. In it what happens in such cases is stated – how the parties involved will handle the situation and how performance will be affected. Determining what falls under the category of force majeure is vital – natural disasters, strikes, or wars. As neither of these situations can be controlled or prevented, this clause offers the parties a degree of flexibility.
Sales contracts come with different levels of complexity, varying depending on the transaction that will take place between the buyer and seller. Particular terms or negotiations might be necessary – each case is slightly different. We have included the answer to “What is a SPA?” and the essential clauses that have to be included in a standard purchase and sales agreement. When drafting such a contract, it is highly advisable to consult a legal expert.
