I’ve downloaded a couple of precedent contracts over the past few months from the crowd-sourced contract application Docracy for use in my legal practice. When I needed a simple contract for the sale of goods today, I checked in to see what was available. Finding no such agreement, I decided to finally make a contribution. You can see my handiwork here.
Several weeks ago I explored the idea of minimum effective legal protection in my post Considering a Contract’s Legal-Battle Rating. The gist is that in any given situation there’s a minimum level of legal protection that a contract — or a clause — should provide. Falling below that level leaves a party overly exposed to business and legal risks. When I drafted the sample I contributed to Docracy, I sought to achieve a seller-friendly MELP version of a simple business-to-business contract for the sale of goods to be used when there’s no special reason to think that the agreement will be litigated.
I’ve inserted the sample agreement below. What do you think? Would the document provide effective protection for a low-stakes run-of-the-mill B2B sale of goods, or have I omitted a clause that would leave my sale-side client unduly exposed? Is there any dead weight I could throw overboard?
CONTRACT FOR THE SALE OF GOODS
This contract for the sale of goods is between [_____], a [_____] organized under the laws of the State of [_____] (the “Seller”), and [_____], a [_____] organized under the laws of the State of [_____] (the “Buyer”).
[Insert background information about the transaction using full sentences.]
The parties agree as follows:
1. Sale of Goods. The Seller shall sell to the Buyer and the Buyer shall purchase from the Seller the goods set forth on Exhibit A (the “Goods”) in the quantities and at the prices stated in Exhibit A. Unless otherwise stated in Exhibit A, the Buyer shall pay all taxes and third-party expenses imposed on, in connection with, or measured by the transaction contemplated by this agreement in addition to the prices set forth on Exhibit A.
- Invoices; Payment. Unless otherwise stated in Exhibit A, payment for the Goods is due within 30 days of the date of the Seller’s invoice, which date will not be before the date of the Seller’s delivery of the Goods. The Buyer shall pay a delinquency charge of the lesser of (1) 1% per month and (2) the highest rate allowed under applicable law on all overdue amounts until the amounts are paid.
Delivery; Title; and Risk of Loss. Unless otherwise stated in Exhibit A, the Seller shall deliver the Goods FOB the Seller’s facility in [_____], and title to and risk of loss of the Goods will pass to the Buyer upon such delivery by the Seller. Any stated delivery dates are approximate. The Seller will not be liable for any losses, damages, penalties, or expenses for failure to meet any delivery date.
Disclaimer of Warranty; Due Diligence. The Goods are being sold “as is,” and the Seller disclaims all warranties of quality, whether express or implied, including the warranties of merchantability and fitness for particular purpose. The Buyer acknowledges that it has not been induced by any statements or representations of any person with respect to the quality or condition of the Goods and that no such statements or representations have been made. The Buyer acknowledges that it has relied solely on the investigations, examinations, and inspections as the Buyer has chosen to make and that the Seller has afforded the Buyer the opportunity for full and complete investigations, examinations, and inspections.
Limitation of Liability. The Seller will not be liable for any indirect, special, consequential, or punitive damages (including lost profits) arising out of or relating to this agreement or the transactions it contemplates (whether for breach of contract, tort, negligence, or other form of action) and irrespective of whether the Seller has been advised of the possibility of any such damage. In no event will the Seller’s liability exceed the price the Buyer paid to the Seller for the specific Goods provided by the Seller giving rise to the claim or cause of action.
Limitation of Actions. No action arising out of or relating to this agreement or the transactions it contemplates may be commenced against the Seller more than 12 months after the basis for such claim could reasonably have been discovered.
Security Interest. The Buyer hereby grants to the Seller a security interest in the Goods sold to the Buyer under this agreement and any proceeds therefrom (including accounts receivable), until payment in full for the Goods has been received by the Seller. The Buyer shall sign and deliver to the Seller any document to perfect this security interest that the Seller reasonably requests.
Governing Law and Designation of Forum. (a) The laws of the State of [_____] (without giving effect to its conflicts of law principles) govern all matters arising out of or relating to this agreement and the transactions it contemplates, including, without limitation, its interpretation, construction, validity, performance (including the details of performance), and enforcement.
(b) A party bringing a legal action or proceeding against the other party arising out of or relating to this agreement or the transactions it contemplates must bring the legal action or proceeding in any court of the State of [_____] sitting in [_____] County. Each party to this agreement consents to the exclusive jurisdiction of the courts of the State of [_____] sitting in [_____] County and its appellate courts, for the purpose of all legal actions and proceedings arising out of or relating to this agreement or the transactions it contemplates.
- Force Majeure. The Seller will not be liable for delays in performance or for non-performance due to unforeseen circumstances or causes beyond the Seller’s reasonable control.
Assignment; Delegation. The Buyer may not assign any of its rights under this agreement or delegate any performance under this agreement, except with the prior written consent of the Seller. Any purported assignment of rights or delegation of performance in violation of this section is void.
Recovery of Expenses. In any adversarial proceedings between the parties arising out of this agreement or the transactions it contemplates, the prevailing party will be entitled to recover from the other party, in addition to any other relief awarded, all expenses that the prevailing party incurs, including legal fees and expenses.
Entire Agreement. This agreement constitutes the entire agreement between the parties with respect to the subject matter of this agreement and supersedes all other agreements, whether written or oral, between the parties.
Amendments. No amendment to this agreement will be effective unless it is in writing and signed by both parties.
Effectiveness; Date. This agreement will become effective when both parties have signed it. The date this agreement is signed by the last party to sign it (as indicated by the date associated with that party’s signature) will be deemed the date of this agreement.
Counterparts; Electronic Signatures. This agreement may be signed in one or more counterparts, which together will form a single agreement. This agreement may be signed electronically.
Each party is signing this agreement on the date stated opposite that party’s signature.
[Insert dated signature blocks.]
Goods Price Quantity
[Note: I made some revisions to the sample agreement on February 15, 2013 in response to reader comments. You can see a brief summary of the revisions, as well as a redline showing the changes, at Sample Contract for the Sale of Goods Revisited. I revised section 4 on September 18, 2013 in response to a comment.]
Brian: Docracy might well crash due to a sudden surge in quality! (That’s my attempt at a joke: I haven’t looked closely at anything on Docracy.)
A couple of observations in passing. “Successors and assigns”? Here are my thoughts on that: http://www.adamsdrafting.com/2006/09/18/successors-and-assigns/.
And I think that “In no event will the Seller be liable for” is rhetorical emphasis for “The Seller will not be liable for”.
Ken: The quality of many the contracts I’ve seen on Docracy is similar to the quality of contracts in a typical law firm’s document management system.
I’ll remove “in no event,” but I’ll leave it for awhile so others can see what your comment refers to. I’m also dissatisfied with the limitation of actions clause and the ghastly list of taxes and fees in section 1.
As to the successors and assigns clause, my concern is the situation Robert Sonenthal describes in his comment to the post you linked to — that a purchaser in an asset sale (in which the Buyer in this contract for the sale of goods is selling its business) might leave behind a contract that benefits my client (which is the Seller in this contract for the sale of goods). I’ll have to keep noodling on that (and researching). Any thoughts from you or others would be quite welcome.
Other issues I’m still mulling over include whether I need a term clause, or at least a delivery date, and whether the references to Exhibit A in the payment and delivery clauses are helpful. I have in mind that business people will often use the form without help from their counsel, so I want to have defaults that can be easily overridden by including the information in Exhibit A.
My general approach to the document is to rely heavily on the default provisions of article 2 of the UCC, override some of the buyer-friendly provisions of the UCC and remaining applicable common law, and make enforcement easy for the seller in the event of the buyer’s breach.
Just yesterday I exchanged emails with someone about that asset-purchase issue. I expect to write about it myself at some point.
Great! I can’t wait!
For the Limitation of Liability clause, should there be an explicit reference to the limitation applies even if it “fails its essential purpose” under UCC 2-719?
The Disclaimer of Warranty and Entire Agreement clauses are very likely insufficient to negate claims of fraudulent inducement. I would suggest having a clause to address a potential fraudulent inducement claim even under a “minimum effective legal protection” scenario to decrease the buyer’s opportunity to manufacture factual disputes that would preclude a dismissal in seller’s favor. Language acknowledging that the Buyer is entering into the agreement based only on its own inspection of the goods (even if the seller has superior/peculiar knowledge of the goods) and an acknowledgement that Seller has made no representations about the goods may help.
Seller: I don’t think UCC 2-719 is a problem because the agreement doesn’t provide for a limited or substituted remedy; it disclaims warranties, limits liability for consequential damages, and caps liability. If it stated that ___ was the exclusive remedy, having that remedy fail of its essential purpose would indeed be a problem.
If the limitation clause were aggressive, I might start to worry about UCC 2-302’s provisions regarding unconscionability, however.
I’m still mulling over your fraudulent inducement point. If there were a clause that would ward off such claims, I’d be wholeheartedly in favor of including it in the most bare-bones of agreements. But — to my knowledge — no such clause exists.
I do often include the language you suggest, although in a case extreme enough to have a fighting chance to succeed on a fraudulent inducement claim, a court might find it merely self-serving. I can’t recall reading a case that turned on such a clause, although I haven’t specifically researched it yet.
Seller: After reading Glenn West’s 2009 Business Lawyer article Contracting to Avoid Extra-Contractual Liability—Can Your Contractual Deal Ever Really Be the “Entire” Deal?, I changed my mind and adopted the approach you suggest. I’m sure I’ll tweak the language at some point to reflect further research.
First, I’m a business guy, not an attorney.
Second, these are just random reaction thoughts. Hope they help.
I didn’t like the sales taxes (etc.) clause in section 1 at all — complicates things too much. I’d prefer it says something about paying the prices and all associated charges as specified in Attachment A and leave it at that. This way if I agree to pay for delivery with one customer but not the other the entire conversation happens one-off in the attachment.
From the point of view of the seller I found myself wondering what the argument would look like when it came to the state listed under 8. Governing Law. Naturally, I’d want all litigation in my city and state, so I could decrease my costs of defending a suit. But as the buyer, if I purchase a product, use it in my state, have a failure that creates an injury and want to sue, I want the suit in the city and state where the injury occurred.
When I read even these clear and simple contracts, I always find myself thinking “How much in legal fees will I suffer to negotiate this clause?” And it’s not just the governing law section, but all such sections where both parties will want it their way or the highway. I’m wondering if there’s a more fair way to write this stuff that settles the argument rather than creating it.
I love contracts that say “Whoever loses the law suit pays the other guy’s legal expenses of participating in the suit.” Thank you for that. But, if I sue the other guy does the clause as stated above still hold true if if my attorney works on contingency?
For example, suppose its 40% contingency and I win a $100,000 suit with no expenses, do I get $100,000 and the other guy pays the $40,000 to my attorney as well? Or does this clause become moot in contingency cases? Just wondering what this really means.
I was totally lost by the disclaimer of warranty. It sounds like the seller is saying “No matter what the warranty says you’re screwed if something doesn’t work as specified. Got lost in the complexity of that clause.
That’s it for now.
Gill: Thanks for your comments.
I’m mulling over whether there’s a simpler way to deal with taxes and third-party charges. It’s most common for prices to be exclusive of taxes and charges such as shipping, so I like having the default stated in the body of the contract to simplify the exhibit. Maybe I should just state, “Unless otherwise stated in Exhibit A, prices are exclusive of taxes and third-party expenses….” An additional complication is that the delivery term “FOB” covers some of this ground, so maybe I don’t need to mention third-party charges at all.
There’s no good answer to the choice of law and venue provision, but I will say that it’s rare for negotiation of these provisions to cost much in time and legal fees. They’re often negotiated, but the negotiations tend not be be protracted. The most important thing is for the parties to agree in the contract because it can save a lot of time and money if the contract is litigated.
I love your question about contingency fees. It’s rare for lawyers to take on breach of contract cases on contingency (although it does happen), and I don’t think I’ve ever seen a case where a court considered the issue. Contingency fee arrangements are more common in personal injury suits where the plaintiff and defendant don’t have a pre-existing agreement as to who pays for attorneys’ fees. Thus, the default “American rule” that each party pays its own fees usually applies. I think a court, which is deemed to be its own expert on the appropriateness of attorneys’ fees, would make a judgment call based on the specific facts of the case.
There is no warranty at all. The boldface type states that. The rest of the clause is meant to counter potential fraud claims, as noted in Seller’s comment to the post. In a perfect contract world, the clause would simply state, “The Goods are being sold ‘as is,’ and the Seller disclaims all warranties.” Unfortunately, there are statutes and cases that make us do legalistic contortions.
The language in section 4 that “the Seller disclaims all warranties (other than the implied warranty of title under article 2 of the Uniform Commercial Code)” is not technically accurate. Under Article 2 (note the capital “A”), the warranties of title and against infringement are not “implied warranties.” See 2-312 cmt. 6. Thus, language sufficient to disclaim implied warranties does not disclaim these warranties. I also question the reference to the “Uniform” Commercial Code. The UCC is not law, it is merely a model for states for follow. Finally, UCC 2-315 refers to the “warranty of fitness for particular purpose, not the “warranty of fitness for a particular purpose” (no “a”). I suggest the following instead (deleting the parenthetical):
The Goods are being sold “as is”; the Seller disclaims all warranties of quality, whether express or implied, including the warranties of merchantability and fitness for particular purpose.
Stephen: Thanks for your comments. I’ve revised the section 4 per your suggestions.
However, I’m comfortable referring to the “Uniform Commercial Code” because so many reported cases do so. Courts in Missouri, for example, might refer to “UCC § 2-312” rather than “RSMo § 400.2-312.”
kinldy advice, what happens to a seller who have been sellling goods on credit to a buyer and after 2 months the buyer becomes terminally ill?
please advice according to the law of contract and law of sale of goods.
My name’s Hien. I’m come from Vietnamese.
I’ve just search “Sale contract of goods sample” and find your site. Thanks for your post. And I hope you will consult for me about some thing.
I’m drafting a sale contract between a Vietnamese’compay and a Japaness’s company. But I don’t know that what should I use to law or customary internationl in the contract. Some body advise me use to “The Vienna Convention 1980”.
Please give me a advice.
Look forward to hear you!
What are the issues involved and rules governing the sales of goods to a party which was assured of quality goods and later find out that the goods were of no quality after he had purchased.
I want to sell 8 radio station licences, theses are just licences not a radio company.
I would have to sign the stations over to him and he would have to pay me the price.
What concerns me is if I send him the signed over forms completed by me and he does a runner without sending me the money, I would have big problems on my hands
Can you suggest a simple contract of sale type of documents that would do the job