Sales Agreement

A sales agreement is the cornerstone of many business transactions, setting forth the terms and conditions under which a sale occurs. Its precision and clarity are crucial, as a well-drafted sales agreement not only ensures a mutual understanding between the involved parties but also provides legal protection against potential disputes.

History of sales agreements

From their humble beginnings on ancient Mesopotamian clay tablets, sales agreements have intricately woven themselves into the fabric of commerce. As trade expanded, the mediaeval era saw the standardisation of these documents, culminating in the Industrial Revolution’s detailed trade stipulations. Now, in the modern era, they’ve transformed from mere records of agreement to comprehensive legal contracts, establishing trust while also safeguarding rights and interests in our complex global marketplace. This evolution underscores the vital role of sales agreements, which have become indispensable legal instruments in today's commerce.

Essential Components of a Sales Agreement

A well-structured sales agreement acts as the bedrock of a clear and smooth transaction between parties. While these agreements can vary based on the specific nature of the sale, certain fundamental elements remain consistent. Let's delve into the critical components that constitute a comprehensive sales agreement.

1. Parties Involved: Buyer and Seller

At the very core of any sales agreement are the primary participants: the buyer and the seller. Their names, addresses, and contact information must be explicitly mentioned to determine who is responsible for fulfilling the respective roles and obligations.

2. Description of Goods or Services

Accuracy here is paramount. The agreement should provide a detailed and clear description of the goods or services being sold. This could include specifications, purchase quantities, quality standards, and any other pertinent details that delineate exactly what is being offered.

3. Price and Payment Terms

Every sales agreement must clearly outline the agreed-upon price for the goods or services. Additionally, it should provide details regarding the payment exchange (e.g., cash, credit, instalment) and any payment timelines or milestones. Any late fee stipulations or discounts for early payments should also be specified.

4. Delivery Details

This section encompasses specifics on when, where, and how the goods or services will be delivered. It should cover expected delivery dates, shipping methods, potential delays, and responsibilities for shipping costs or risks associated with delivery.

5. Sales Terms and Conditions

The terms and conditions are the backbone of the agreement, offering a detailed breakdown of the rights and responsibilities of both parties. This section might cover areas like return policies, warranties, potential penalties for breaches, confidentiality clauses, and more. These stipulations ensure both parties are well aware of what is expected of them and the consequences if those expectations aren't met.

Differences Between Sales Agreement and Bill of Sale

A sales agreement and a bill of sale both play critical roles in the sales process, but they serve distinct purposes. While a sales agreement outlines the terms and conditions under which a sale will occur, a bill of sale serves as evidence that the transaction has taken place. Specifically, a bill of sale is a document that transfers ownership of goods from one party to another and typically includes details about the transaction, such as the date, price, and specifics about the item sold. In contrast, a sales agreement is anticipatory in nature, detailing the obligations both parties must meet for the sale to proceed. Essentially, while the sales agreement lays the groundwork for a transaction, the bill of sale confirms its completion.

The Role of Contingencies in Sales Agreements

Contingencies in sales agreements act as predefined conditions that must be met for a sale to finalise, offering protection and clarity to both parties involved. These stipulations could include:

  • a buyer securing adequate financing

  • an inspection being successfully completed

  • a business hitting a certain performance metric

The implication of these contingencies is significant: if any of these conditions aren't met, parties can often back out of the agreement without facing penalties, ensuring that both sides have safety nets in place during complex transactions.

Warranties and Representations

Warranties and representations are pivotal elements that provide assurances from one party to another. While they are often used interchangeably, they have distinct meanings.


Representations are statements or assertions made by one party about a specific fact or condition as of the agreement's date. For instance, a seller might represent that they have the legal right to sell a piece of property.


Warranties, on the other hand, are promises that a certain condition will remain true, both now and in the future, and often come with remedies if the promise is broken. If a product is said to be free of defects, that's a warranty.

The importance of these elements in a sales agreement cannot be understated. Representations provide a basis for entering into an agreement by ensuring all pertinent facts are disclosed, while warranties offer protection against future issues, ensuring the receiving party gets exactly what they're expecting. Both, when broken or proven false, can lead to legal repercussions, highlighting their significance in solidifying trust and clarity in transactions.

Termination Clauses in Sales Agreements

Termination clauses provide parties with a clear exit strategy should circumstances change or unforeseen challenges arise. Termination clauses give both parties the flexibility to end their commitment when certain predefined conditions are met, ensuring that they aren't unduly bound to an agreement that no longer serves their best interests. These provisions not only act as a safety mechanism but also as a tool for ensuring mutual respect and understanding between the involved entities.

Common Reasons for Terminating a Sales Agreement:

  • Breach of Contract: If one party fails to fulfil their obligations, the other can invoke the termination clause.

  • Force Majeure: Unexpected external events, such as natural disasters, war, or pandemics, that make it impossible to fulfil the contract.

  • Bankruptcy: If one party declares bankruptcy, it might be grounds for termination.

  • Mutual Agreement: Both parties agree that it's in their best interests to end the agreement.

  • Failure to Meet Contingencies: Like securing financing or passing inspections.

Process of Amending an Agreement

Contracts, while binding, are not set in stone. There might be times when both parties wish to alter some terms without terminating the entire agreement. To do this, they would draft an amendment, which outlines the changes in detail and, once signed by both parties, becomes a part of the original agreement. It's essential that any changes are clearly documented and mutually agreed upon to ensure continued clarity and trust between the parties.

Legal Jurisdiction and Governing Law in Sales Agreements

Legal jurisdiction and governing law clauses determine which country's or state's laws will apply in interpreting the agreement and where any legal disputes will be resolved. Specifying jurisdiction is paramount because laws and regulations can vary significantly from one region to another.

For example, contract laws in the US might differ from those in the UK, especially concerning consumer rights or intellectual property. Similarly, privacy regulations in the European Union, under GDPR, may have different implications than privacy laws in other parts of the world. By clearly indicating the governing law and jurisdiction, parties can preemptively minimise legal ambiguities and ensure they're on the same page about the rules that apply, streamlining any potential dispute resolution process.

Dispute Resolution Mechanisms

When conflicts arise from sales agreements, there are two primary methods that dominate this landscape: arbitration and litigation. Understanding their nuances is crucial for any entity entering into a contractual agreement.

1. Arbitration

Arbitration involves resolving disputes outside the courts by involving one or multiple arbitrators who make a binding decision.


  • Confidentiality: Proceedings and outcomes remain private, safeguarding sensitive information and reputation.

  • Flexibility: Parties can choose their arbitrators and set procedural rules.

  • Efficiency: Generally faster than traditional court processes, leading to quicker resolutions.

  • Enforceability: Arbitral awards are typically easier to enforce internationally, thanks to conventions like the New York Convention.


  • Limited Appeal: Decisions are usually final, with limited options for appeal.

  • Costly: Arbitrators, being specialised professionals, can be expensive.

2. Litigation

Litigation is the traditional legal process where disputes are resolved through the courts.


  • Precedential Value: Court judgments can set precedents, guiding future legal decisions.

  • Structured Process: A well-established process with clear rules and procedures.

  • Appeal Options: Unlike arbitration, there's a structured avenue for appealing decisions.


  • Time-Consuming: Court cases can drag on for years.

  • Public Proceedings: Unlike arbitration, litigation is public, potentially exposing sensitive information and affecting reputations.

  • Expensive: Legal fees, especially for prolonged cases, can mount quickly.

While both arbitration and litigation offer pathways to resolve disputes, the best choice hinges on the specific circumstances and preferences of the parties involved. Considerations like the need for confidentiality, the value of precedential judgments, and the potential costs are all crucial when making this decision.

Drafting a Sales Agreement: Tips and Tricks

Crafting a sales of goods agreement is a nuanced process, pivotal to ensuring smooth transactions and preventing future disputes. One of the most invaluable steps a party can take is to seek legal counsel. Experienced attorneys bring a depth of knowledge about the intricacies of contract law and can guide the drafting process to ensure every clause is both clear and comprehensive. By consulting with legal professionals, parties can sidestep common pitfalls, anticipate potential areas of contention, and craft an agreement that stands firm against challenges, thus safeguarding their interests and facilitating seamless business dealings.

E-signatures and Digital Sales Agreements

In an increasingly digitised business landscape, e-signatures and digital sales agreements have emerged as vital tools for faster and more streamlined transactions. E-signatures, now legally recognised across numerous jurisdictions, offer a quick and secure way to authenticate digital documents, eliminating the cumbersome steps associated with traditional signing. Their incorporation into digital sales contracts not only aligns with the rise of online transactions but also brings unparalleled efficiency to the commercial world.

Further enriching this digital transition is contract management software. These platforms not only centralise contracts and enhance security measures, but they also provide readily available sales contract templates, ensuring consistency and best practices in drafting. Such templates, combined with features like timely renewal reminders, have made contract management software indispensable.


With detailed components and stipulations, sales agreements ensure clarity, trust, and mutual understanding in business transactions. From delineating the responsibilities of parties involved to laying out precise terms and contingencies, they form the bedrock of smooth and clear exchanges. In the digital age, the emergence of e-signatures and contract management software underscores the evolution of these agreements, streamlining processes and bringing unparalleled efficiency to the commercial realm.


What should I do if the other party breaches the sales agreement?

If the other party breaches the sales agreement, it's advisable to first communicate directly with them to try and resolve the issue amicably. If that doesn't yield a resolution, you may consider mediation or arbitration as alternatives to litigation. If these methods fail or are not appropriate, you can seek legal advice and potentially take the matter to court to enforce the agreement.

How long is a typical sales agreement valid for?

The validity of a sales agreement depends on the terms stipulated within it. Some agreements have specific expiration dates, while others remain in effect until the obligations are fulfilled by both parties. It's essential to check the "term" or "duration" clause of the specific agreement.

Can I modify a sales agreement after both parties have signed?

Yes, a sales agreement can be modified after both parties have signed, but any modifications typically require mutual consent. Such modifications are often documented in an amendment or addendum to the original agreement, which both parties must sign.

Do all sales require a formal agreement?

Not all sales require a formal agreement, especially for routine or low-value transactions. However, for significant sales, complex deals, or those involving specific terms and conditions, a formal agreement is highly recommended to safeguard the interests of both parties.

How do I enforce a sales agreement?

To enforce a sales agreement, you would typically start by notifying the breaching party of the violation and requesting compliance. If they do not comply, you might resort to mediation or arbitration, if such clauses exist in the agreement. If these avenues are unsuccessful or not applicable, you can initiate legal action in a court that has jurisdiction over the matter.

What's the difference between a sales agreement and a purchase order?

A sales agreement is a comprehensive document that outlines the terms and conditions of a sale, covering aspects like price, delivery details, and more. It is a contractual commitment. On the other hand, a purchase order (PO) is a commercial document issued by a buyer to a seller, indicating the type, quantity, and agreed prices for products or services. The PO, once accepted by the seller, forms a one-off contract for that transaction, without the broader terms that might be covered in a sales agreement.

Can a verbal agreement be legally binding?

Yes, verbal agreements can be legally binding. However, they are much harder to prove and enforce compared to written agreements. Some jurisdictions or types of transactions may also require written contracts (e.g., real estate sales).

How often should a business review its sales agreement template?

A business should review its sales agreement template regularly, at least annually. However, more frequent reviews might be necessary if there are changes in the business environment, legal regulations, or the company's operations and offerings.

Accelerate your contract lifecycle

Plexus' contract management software gives you everything you need to accelerate business productivity in one modular platform. Get contracts signed faster, streamline document workflows, collaborate in real-time and integrate with the apps you already rely on.

Learn more


Get weekly legal transformation best practices, benchmarks and trend analysis.

We use cookies on this site to enhance your user experience and improve our services. By using our website, we assume you're ok with this. View our privacy policy for details.

Get your free eBook!

Modernise your legal function with the Digital Transformation Guide for General Counsels.

Digital Transformation Guide