The Anatomy of a Sale of Goods Agreement

The Anatomy of a Sale of Goods Agreement (to Distributors or Resellers)

If you are in the business of selling Goods to distributors or resellers – you should have a solid Sale of Goods Agreement in place to govern your relationship. This Agreement dictates all the specifics of the business relationship, and protects your business from associated liabilities. This blog post will give you a high level overview of what goes in to a Sale of Goods Agreement to distributors or resellers.

  1. Definitions – A Definitions section is common across the board in Agreements. For Sale of Goods Agreements, the Definitions section should specifically define company, industry, and goods specific information within the universe of the transaction.
  2. Agreement to Purchase and Sell Goods – This Section lays out that the purpose of this Agreement is for the Seller to sell, and Buyer to buy, a specific product or set of products – otherwise defined as the Goods. In addition, there should be a provision herein that the terms of the overarching Agreement govern an applicable purchase order.
  3. Forecasts – If the expectation is a long term relationship with a Distributor or Reseller with a continuous set of orders through purchase orders, you may require that your Distributor or Reseller present you with a forecast of their orders within a given time period. You can lay out whether you want such forecasts to be binding, or non-binding in this section.
  4. Order Procedure – It is best practice for Sellers to lay out, specifically, how orders are meant to be received and processed. Use this section to dictate what goes into a Purchase Order, and what rights you have as a seller to either accept or reject such Purchase Order. In addition, Sellers often reserve a right to cancel any individual transaction for specific reasons.
  5. Shipment and Delivery – Sellers use this section to lay out their rights in choosing a method of delivery and methods of packaging and labeling. In addition, this section can be used to define what happens in case of late deliveries or delayed shipments. Buyers may use this section to lay out their inspection rights to determine whether the Goods conform to what their expectations are. Both parties can lay out a limited right of return here.
  6. Title and Risk of Loss – An important section in the sale of Goods is the Title and Risk of Loss. This section is used to dictate at what point the Buyer takes title the the Goods (either upon shipment, or upon delivery), and who carries the risk of loss at what time. Sellers generally want Title to remain with Buyer until delivery, and Risk of Loss to be allocated to the Buyer upon tendering the Goods to a shipping carrier.
  7. Price and Payment – It is important for the Price and Payment section to be comprehensive. Purchase orders generally dictate the price terms, but it is important for the Sale of Goods agreement to indicate this, as well as specifically mention who is in charge of shipping charges, insurance, and taxes. Payment terms specifically call out how often invoices are presented, and when they should be paid along with specific payment information (routing numbers, bank address, etc.) In addition, this section should lay out in situations of unsatisfactory credit by the Buyer, invoice disputes, late payments, and if the Goods have a security interest on them to secure Buyer’s payment obligations.
  8. Compliance with Laws – Seller’s have the option to go specific (if they sell regulated products) or general in terms of requiring Buyer’s to comply with all applicable laws and regulations.
  9. Intellectual Property Rights – Seller’s want to ensure that they own all rights, title, and interest to the intellectual property surrounding the goods – and no ownership rights are transferred in the sale of such goods. Further, this section should lay out prohibited acts – including but not limited to challenging intellectual property rights, making false claims of ownership of such rights, creating competing products, or otherwise altering or obscuring Seller’s trademarks.
  10. Term and Termination – A common provision amongst all types of Agreements, this section lays out how long the Term of this Agreement is, in addition to any renewal terms that are pre-negotiated. Further, this section lays out the rights each party has to terminate the overarching Agreement, and the effect of termination.
  11. Confidentiality – When dealing with intellectual property, Confidentiality is of utmost importance. This section lays out specific guardrails around what is considered confidential information, and under what circumstance such information can be used. The Parties should further dictate what measures are expected to be taken in order to protect such confidential information.
  12. Representations and Warranties – Both Parties to the Agreement should lay out representations and warranties, including ensuring that each party has the right to enter into this agreement, and any associated warranties in terms of compliance.
  13. Product Warranties – An important section in the sale of Goods – product warranties dictate the responsibilities a Seller takes in selling the product, including ensuring that the Goods are conforming to the specific requirements, dictating a warranty period, and most importantly, setting out limitations to the warranty. Buyer’s should also have a remedy for defective goods sent by the Seller. It is also necessary to have a disclaimer of all other warranties not specifically mentioned.
  14. Indemnification – It is important to lay out how both the Buyer and Seller will be indemnified in case of third party claims, caused by either the Seller’s Goods, or the Buyer’s use/sale of such Goods. Common reasons for indemnification include claims alleging material breach of warranties, negligence or willful misconduct, and bodily injury or death of persons or damage to real tangible property.
  15. Limitation of Seller’s Liability – Sellers use this section to set forth specific limitations of liabilities, including no liability for consequential or indirect damages, the maximum available liability, and specifically call out an assumption of risk.
  16. Miscellaneous – Boilerplate contractual terms are necessary in this Agreement, as with any other agreement. This section includes, but is not limited to, provisions around further assurances, survival of specific terms, where legal notices go, interpretations, amendments and modifications requiring signature, governing law and jurisdiction, and relationship of the parties.
  17. Exhibits – Seller’s use Exhibits in Sale of Goods Agreements to lay out a description of the goods and specifications, along with any additional or supplementary terms that may be industry or product specific.

Let us Help

This post is not meant to be a comprehensive breakdown of a Sale of Goods Agreement. There are many more nuances and specifics, and you should have an experienced attorney help you through drafting the right one to make sure your business are protected.

Kader Law can help you through drafting, negotiating, and understanding Sale of Goods Agreements. If you’re interested, feel free to contact us.

This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.