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Sales And Purchase Agreement

Updated on May 30, 2024
Article bySusmita Pathak
Edited byAaron Crowe
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Sale And Purchase Agreement (SPA)?

A Sale and Purchase Agreement (SPA) is a legally binding contract between parties involved in trading a product or service. After the contract is signed, neither the seller nor the buyer can disobey it at any cost. However, it does not obligate the parties to agree to buy or sell the item in question, but only to follow the transaction terms specified in it.

What Is Sale And Purchase Agreement (SPA)

The sales and purchase agreement of goods includes terms and conditions, the purchase price, deposits made as negotiations progress, the closing date, limitations, contingencies, etc. The agreement, commonly used in major transactions, protects all parties involved, reduces potential conflicts, and helps estimate demand and expenses.

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Key Takeaways

  • A Sale and Purchase Agreement (SPA) is a legal contract that binds a seller and a buyer to sell and purchase a product or service on the agreed-upon terms. It occurs in real estate deals, mergers & acquisitions, stock purchases, advertising contracts, etc.
  • The SPA contains terms and conditions, the purchase price, deposits paid during negotiations, the settlement date, limitations, contingencies, etc.
  • It requires both parties to thoroughly read the contract and obtain legal advice before signing it or requesting a change.
  • The agreement safeguards the interests of both parties, restricts them from ditching each other, minimizes potential conflicts, and aids in forecasting demand and costs.

How Sale and Purchase Agreement Works?

The sales and purchase agreement of business signifies the culmination of negotiations between the buyer and seller and restricts them from ditching each other. The two parties mutually agree upon it before signing it and making it legally binding. It does, however, require both parties to read the contract carefully and seek legal counsel before deciding whether or not to sign it or request a revision. A SPA details the following information:

  • Buyer and seller information
  • Purchase price
  • Transaction means
  • Settlement date
  • Any deposits made during negotiations
  • Final sales price
  • Items relevant and irrelevant to the transaction
  • Contingencies
  • Limitations

The sales and purchase agreement provides a legal framework that safeguards the interests of all parties involved and prevents them from acting in ways that are inconsistent with the terms of the agreement. The contract is commonly used in real estate, mergers and acquisitions, share purchase agreements, advertising agreements, etc.

Sales And Purchase Agreement benefits

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No party is committed or compelled to obey a SPA unless signed. If, for example, parties A and B come together to draft a SPA, they can take their time reading it thoroughly. Meanwhile, if A finds a more profitable arrangement with Party C, it can sign a SPA with the latter. Since the SPA between A and B has yet to be signed, neither party is legally obligated to follow the contract.

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Content Of Sale and Purchase Agreement

A SPA contains information related to the transaction under different sections. The following is a list of content that must be included in each agreement:

Sales And Purchase Agreement structure

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#1 – Terms

The contract terms will contain the clauses and conditions, which both the parties must agree on before signing it. It will reflect their commitment to the agreement, making them legally obligated to fulfill the terms. In addition, this section may include a list of goods and information about the required quantity or volume.

#2 – Purchase Price

This section details the costs associated with the transaction, including the amount that the buyer will pay the seller and the currency specifics. This figure includes VAT and other related charges, such as packaging fees and shipping costs.

#3 – Delivery

This segment includes the delivery date and a commitment to deliver the goods to customers in good condition.

#4 – Risk Of Loss

The details of the risk liabilities are described in this section. It specifies that the seller is responsible for all risk obligations until the items are delivered to the buyer, regardless of the cause.

#5 – Acceptance

According to this segment, the buyer must inspect the items as soon as they are received. Furthermore, the buyer must file a claim for damages related to the products’ quality, condition, and grade within the specified number of business days following delivery.

#6 – Warranty

This part of the contract specifies the seller’s warranty on the sold items, claiming that they are free of defects in workmanship and materials. The seller’s claim is usually restricted to repairing faults, replacing objects, or refunding the purchase price.

#7 – Warranty Of Title

It says that the seller has the exclusive right and title to sell the products. It also specifies and asserts that the seller is unaware of any outstanding title or claim to the goods.

#8 – Governing Law

This part defines the country’s laws that will govern the contract and the court that will hear any disputes about the agreement.

#9 – Force Majeure

This section stipulates that the seller has the right to postpone the manufacture, sale, and delivery of the items or terminate the contract. It happens in cases of force majeure events or situations beyond the seller’s control, such as political turmoil, acts of God, failure of a source of supply, and so on.

#10 – Miscellaneous

Aside from the contents described above, a few points should be underlined in the contract. It states that no changes to the contract can be made unless both parties agree in writing and sign it. The parties and their respective heirs, executors, successors, administrators, and personal representatives, will be bound by the contract.

Example

A seller looking forward to selling its equipment prepares a SPA. Here is what the sales and purchase agreement template looks like:

Sales And Purchase Agreement example

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Frequently Asked Questions (FAQs)

What is sales and purchase agreement?

A Sales and Purchase Agreement represents the conclusion of negotiations between the buyer and seller before entering into a transaction and prevents them from abandoning one other. The two parties must agree on terms before signing the contract and making it legally binding. However, it does not bind the parties to purchase or sell the goods in question. Therefore, both parties must thoroughly read the contract and obtain legal advice before signing it or requesting a change.

Can a seller back out of a sales and purchase agreement?

No, a sales and purchase agreement is a legal document where both parties mutually agree upon the clauses before they sign it and make it legally enforceable. In any instance, if a contract is signed that one does not agree with, the individual will be legally compelled to follow the terms.

How to write a sales and purchase agreement?

The sales and purchase agreement of goods contains specifics about the sale under different segments, including:
– Terms
– Purchase Price
– Delivery
– Risk of Loss
– Acceptance
– Warranty
– Warranty of Title
– Governing Law
– Force Majeure
– Miscellaneous

This has been a guide to Sales And Purchase Agreement and its definition. Here we discuss how it works along with its structure and example. You can learn more from the following articles – 

Reader Interactions

Comments

  1. Amina says

    Very useful info you provide about agreement types and legal vocab.

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