This article is written by Shreya Pandey, pursuing LLM from RamSwaroop University, Lucknow. The article specifically deals with the sales agreement and everything related to the sales agreement.
This article has been published by Sneha Mahawar.
Table of Contents
A sales agreement is a kind of contract that deals with the terms of transactions relating to sales. These agreements are usually done for real estate and business assets. A sales agreement consists of clauses regarding the time allowed for sale, amount details and payments details, etc. that are necessary for the sales agreement to be made.
In this article, we will understand the term sales agreement, its basic elements, and the need to form a sales agreement. We will also be discussing the need to make the sales agreement and how it is necessary to carry out complex sales transactions.
A sales agreement, also known as a sale contract or an agreement to sell, is a legally binding contract that specifically deals with sales transactions. The contract has 2 parties: one is the seller and the other is the buyer. A seller might be an individual or an organization or firm that is involved in the contract to sell a particular thing in question. A buyer can be an individual or organization/ firm interested in buying that particular thing. A sales agreement is formed to buy or sell either goods or goods and services.
Goods include tangible items such as machines. Goods and services include the item along with certain services relating to the item such as its servicing, installation, etc.
A sales agreement varies from a bill of sale because of the prerequisite that the conditions given in the agreement should be met for the deal to be considered final. In certain states, the sales agreement goes before a deed of sale, while in others the sale agreement is enrolled and can go about as a deed of sale.
Essentials of a sales agreement
Following are some of the essential elements that are needed to be included in the sales agreement:
- Basic information i.e., name, address and contact number of the buyer and seller.
- If there are any co-signers of the contract, then their name, address and contact number.
- Kind of sale taking place.
- Date when the agreement was initiated.
- If any amount is already deposited in the furtherance of the sale, then it should also be specified in the agreement.
- Specification of the targeted dates on which the other details in the agreement shall be accomplished.
- The date on which the contract is finished and when the ownership is transferred should also be included in the agreement.
- In the case of a property sales agreement, any defect should be informed and written in the sale agreement and the language must be specified in which the inspection is allowed and also whether the property is granted the permission to be used professionally.
- In financing sales agreements, basic financial terms, rate of interest, amount financed, sales commission, sales tax, a time limit to return the funds, etc are to be clearly specified in the agreement.
Need of a sales agreement
Without a sales agreement, it is possible that one may be unable to secure their venture, or incidentally might bear liability for something out of their control. That is the reason you ought to consider utilizing a sales agreement any time you trade products that are more complex than simply transferring the ownership. Assuming that you mean to get it done sometime not too far off or then again to move responsibility to the next party, a sales agreement can assist in securing the parties to the contract or the business if the agreement is done upon delivering the goods on any future date or one of the parties wants to transfer the liability to the other party.
A standard sales agreement incorporates certain safeguards. Such as:
- The purchaser consents to avail specific labour and products, and the vendor consents to give the mentioned number of merchandise and kinds of service.
- The purchaser consents to make a buy on a particular course of events, and the merchant consents to give the labour and products on or by that date.
- The purchaser consents to address a specific cost for the merchandise, and the seller consents to accept that cost.
- Neither party has an exclusive right if the other disregards the sales agreement.
Terms to be included in a sales agreement
A sales agreement can include such terms that can be customized according to the need of the parties but normally it should include the following terms:
- Buyer: The agreement shall include the name and basic information of the party who intends to buy the particular product and services.
- Seller: The agreement should include the name and basic information of the party who intends to sell the particular product and services.
- Goods and services: The agreement shall clearly state the goods or services or both for which the agreement is being signed.
- Details regarding delivery: This clause contains details describing the address, dates, and other details regarding the product or service to get delivered.
- Amendment or alteration: If the parties in the future would want to change, alter or amend the contract or any terms of the contract then they would have to follow the procedures prescribed under this clause that specifies how to alter or amend the contract.
- Contingency clause: Every sales agreement should include a contingency clause which may specify the procedure of any mishappening or any contingencies. This is a very important clause as there is a possibility that if anything agreed that does not happen or anything outside the contract happens then what measures could be taken by either party. Some of the examples that a contingent clause must consist of are:
- If the goods are not delivered on the agreed date or in the agreed condition or on the agreed place, then what is the solution to that situation.
- If the payment on the decided date is not done by the buyer then what possible solution does the seller has.
- If the parties have agreed to have an inspection of the goods or services delivered on a particular date and that day inspection is not done, then what is the additional time that would be given to make the inspection.
- Defaulting provision: If either of the parties makes default in their contract then the remedy that the other party has is to be specified in this clause or provision.
- Assignment: This clause specifies the procedure if a transfer of rights is available to either party to the contract and what formalities they need to complete before transferring such rights.
- Deposit details: This clause specifies the amount that needs to be deposited before the delivery of the product or service and also regarding the repayment of the amount deposited if there is any breach in the contract.
- Method of communication: This term speaks of the method that would be used by the parties to communicate for their contract business.
- Payment amount and method: This clause deals with the amount that the buyer has to pay to the seller and the method through which the payment is to be done to the seller.
- Payment date: This clause specifies the date on which the payment is to be done or if the payment is to be done in instalments then this clause contains a particular table that specifies the dates and the amount that would be paid.
- Severability: This clause states that if any part of this agreement becomes unenforceable then the agreement will prevail.
- Ownership: This agreement contains the clause of ownership where it states when and how the ownership will get transferred to the buyer of that particular product or service.
- Non-disclosure agreement (NDA): This clause protects the intellectual property of the seller by specifying that the buyer cannot use the intellectual property or data to produce the same or similar products.
- Warranty: This clause in the agreement clarifies that the conditions of the goods that need to be delivered to the buyer shall be of good quality and as per the condition that is agreed between the parties. The seller can give a warranty regarding the goods or services that are to be delivered to the buyer or even the seller can make no warranty regarding the goods or services to be delivered.
- Examination: This clause clarifies whether the buyer can inspect the goods or services before finishing the transaction.
Sample of a sales agreement
There are various ways to draft a sales agreement depending on the requirements of the parties. Hereinbelow is a sample for sales agreement that can be used to understand the format:
This Sales Agreement is entered onto __ day of _______, 20____, (Effective date) by and among/between:
Seller(s) (collectively known as Seller): ___________________ [Name], located at ________________________________________ [Address] and;
Buyer(s) (collectively known as Buyer): __________________ [Name], located at _______________________________________ [Address].
Seller(s) and Buyer(s) in this agreement shall be referred in the Agreement individually as a “Party” and collectively as “Parties”.
In consideration of the mutual promises and covenants contained herein the Agreement, the Parties agree to the purchase and sale the goods and the terms and conditions mentioned below in the Agreement.
- Sale of goods
In this Agreement, Seller agrees to sell, and Buyer agrees to purchase the following in the following items in the following quantities and at the prices hereinbelow mentioned:
|Goods||Quantity||Price per Unit||Date(s) (Date on which the Buyer has to pay the amount of goods whether in total or in portions)|
The goods shall be delivered to __________________________ [Delivery adress] on _____________ [Date].
Other Details: ___________________________________________________________________________________
- Purchase and sale
Buyer shall pay for the goods and for all the obligations specified under this Agreement, if any, to the Seller as the full and complete purchase price, the sum of Rs.________. Unless otherwise stated (put a tick mark in one), [ ] Seller or [ ] Buyer shall be responsible for all the taxes regarding the purchase of Goods in this Agreement.
- Terms and conditions
- PURCHASE PRICE AND EARNEST MONEY
The Buyer shall pay to the Seller in cash the purchase price of total Rs. _______ (“Purchasing Price”) on the Closing Date.
The Buyer must pay the earnest money of Rs.____________ on the Effective Date.
- CLOSING DATE AND TRANSFER OF TITLE
The negotiation will close on __________ (“Closing Date”) at _______________________ [Address]. On this date the Seller will transfer the title free and clear of all the liens and encumbrances except for _______________ (such as state tax, stamps, etc.).
Should the Buyer default under this Agreement, all money deposited by the Buyer will be considered as full liquidated damages and will be retained by the Seller. Should the Seller default, the Seller will be responsible for the costs incurred by the Buyer resulting from his/her negligence.
- SUCCESSORS AND ASSIGNS
The terms and conditions of this Agreement shall be binding upon the parties to the Agreement and their respective administrators, successors, and assigns.
- GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of India.
- RISK OF LOSS
Once the Buyer receives the goods, Seller shall have no responsibility if any loss is incurred after the delivery of the goods to the Buyer.
- SECURITY INTEREST
Till the Buyer has paid the Seller the full purchase price, the Seller is granted by the Buyer the security interest in those goods.
If in case goods do not conform to the the specifications as specified in the Agreement and as specified or promised by the Seller, then the Buyer will notify about such defects and give a reasonable opportunity to the Seller to rectify or replace the goods.
The Seller can cancel the Agreement if the Buyer declines from paying the shipping fees due through the specified method of transaction.
The Buyer can cancel the Agreement if the Seller kept delaying the deliver of good without giving any reasonable reason for doing so.
Seller’s Name Buyer’s Name
Need for an advocate in a sales agreement
A standard sales agreement can be used by the parties to contract but the problem that can arise is that a standard sales agreement may or may not consist of all the required clauses that the parties need to mention in the agreement. Therefore, the parties should contact an advocate before making or signing a sales agreement.
There are many advantages of contacting an advocate while making the contract and they are as follows:
- If an advocate is appointed to make the sales agreement then it will be his duty to include all such clauses that the parties exclusively want in their agreement. An advocate will not only include the standard clauses of a sales agreement but also will include personalized clauses as well.
- It is the advocate’s duty that he ensure that the parties’ liabilities shall be limited. It is important to limit the liabilities before and after the transactions. These limitations can be ensured by the advocate appointed to make the sales agreement.
- A sales agreement shall protect and ensure the rights and liabilities of both the seller and the buyer. An advocate shall ensure that both the parties are protected and it ensures that the goods, services, and compensation, etc. shall be taken into consideration while making the contract to protect the interests of the parties.
Position of sales agreement under certain Acts
Registration Act, 1908
According to Section 17(2)(v) of Registration Act, 1908, “Any document other than the documents specified in sub-section(1A) not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest.” Sales agreement falls under the category of this Section of the Registration Act. A sales agreement is not a compulsorily registrable document under this Section because of the reason that even if the sales agreement is registered or not it will make no such big difference in rights, title, or interest over immovable property.
Real estate Regulatory Authority (RERA) Act, 2016
Section 13(1) of RERA Act provides “A promoter shall not accept a sum more than ten percent of the cost of the apartment, plot or building as, the case may be, as an advance payment or an application fee from a person without first entering into a written agreement for sale with such person and register the said agreement for sale, under any law for the time being in force”.
This Section talks about the duties of promoters. They are:
- When the promoter has received the advance amount from the prospective buyer then it is the duty of the promoter to execute the sales agreement.
- It is the duty of the promoter to get the sales agreement registered before appropriate authorities.
Legal standing of a sales agreement
In M/S Imperia Structures Limited v. Anil Patni and another (2020), it was contended by the real estate developer that the date of registration of the project with the RERA shall be considered as the allotment date. The Supreme Court held that all the terms and conditions of the agreement such as construction plan and allotment date, etc. shall be binding on both the parties and they have to follow all the conditions specified in the agreement in a specified manner. The Court cited the RERA Act in which it is stated that neither of the parties in the agreement can make changes, alter or amend the agreement without getting the consent of the other party to the agreement. Both the parties are obliged to follow the agreement.
Difference between a sales agreement and bill of sales
A bill of sale is different from a sales agreement as:
- In a bill of sale transfer of ownership is done from the seller to the buyer while the sales agreement is an agreement that contains the clauses relating to the goods and services that need to be delivered.
- In a sales agreement, a detailed plan of payment or warranty is specified while in a bill of sales no such details are specified.
- In the sales agreement detailed and all necessary points are included in the agreement and it provides full flexibility to the parties while in the bill of sale very fewer details are provided and the parties have limited flexibility.
Documents required for sales agreement registration
- Old Sale deed/ Index-II
- In the case of the land sale agreement, a 7/12 Extract copy is required.
- Certificate of the agreement for sale registration of flat agreement or sale deed of the flat.
- Maintenance receipt in case of flat registration.
- PAN and AADHAR of buyer and seller
- PAN and AADHAR copy of two witnesses.
- 2 passport size photographs of buyer and seller, etc according to the requirements depending on the kind of sale being executed.
How to register a sales agreement
- Preparing the draft of the sales agreement by the advocate.
- After drafting the agreement, it will be sent to the parties for their approval.
- Once the parties give approval to the draft by signing the agreement, the agreement along with the documents required for registration shall be compiled and sent to the Office of Sub-registrar (SRO).
- If any queries arise, the registration lawyer will solve those queries.
- To get approval on the draft by the Sub- Registrar, you need to visit the office of the Sub-Registrar.
- When the draft gets approved by the Sub-Registrar, sale agreement stamp duty should be paid online (if the sale agreement is to be registered in Delhi, Uttar Pradesh and Haryana click on the name of the UT or state respectively), and attach the challan documents along with the stamp duty.
- Execution and registration of sale agreement become final.
- On the date of appointment, you can visit the Sub-Registrar’s office and collect the agreement.
TDS on sales agreement
- TDS will be deducted at the rate of 1%.
- The buyer will have to deduct the TDS, not the seller.
- If the sale is made of goods or services of an amount less than 50,00,000 then there is no need to get the TDS deducted.
- If the amount is to be paid in installments, then the TDS will get deducted on each installment.
Can registration of a sales agreement be done online
The process to register a sales agreement is explained above. An individual can apply to register the sales agreement online by paying the required stamp duty and providing the necessary documents but they have to reach the Office of Sub-Registrar in order to collect the registration of the sales agreement. It is advisable to contact an advocate for registering the sales agreement where he will guide you according to the state’s or UT’s procedures you are transacting in.
Alternatives to sales agreements
It is not necessary that a sales agreement can fulfill all the requirements of the parties. Other such agreements can be helpful for the parties according to their desire or need. They are:
Real estate purchase agreement
In case of transactions regarding property, building or any real estate, a real estate agreement would be more helpful to make and sign instead of a sales agreement.
Business purchase agreement
In case of transferring the entire business or part of the business from seller to buyer then a business purchase agreement would be a better option for clarifying the rights and responsibilities of both parties.
In case of transactions regarding any service or consultancy, a service agreement or Professional Service Agreement (PSA) would be a better option to specify the rights and obligations of either party.
In case of lending any amount of money where the lender has a right to take back his money on a particular date in a series of dates, then the lender can make the other party sign a promissory note.
A sales agreement is an agreement that is helpful to the parties involved in complex transactions regarding goods such as machines, technologies, etc, or services such as consultancy or rendering of any services. It is profitable for both parties to form a sales agreement as it deals with all the aspects of transactions that would protect either parties’ rights and help them protect from all possible losses that might incur if the sales agreement is not formed and signed.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: