Chapter 15: CONDITIONAL CONTRACT OF SALE

CHAPTER 15

Conditional Contract of Sale

IF GOODS ARE OF HIGH VALUE , a buyer may want to have the use of the goods immediately and pay for them over time. The following contract is for a sale of this type— known as a conditional sale. This contract should be used only if the payment period is relatively short, such as six months. If payments will extend for one year or more, a more detailed lease or credit agreement should be made instead.

Sample: Conditional Contract of Sale

On [date], this Agreement is made between [name], [a/an] [description and nationality] of [address] (the Seller) and [name], [a/an] [description and nationality] of [address] (the Buyer). The parties agree as follows: COMMENT: The agreement is binding on the parties who sign it, and these should be the parties identified in this clause. Give the full name of each party, and if a party is an entity, describe the type of entity (partnership, corporation, limited liability company, nonprofit corporation, and so forth). The business address of each party may be given here or at the end of the agreement immediately following their signatures. In international contracts, the description of each party includes the party’s nationality. Examples of descriptions: “a Société Anonyme organized and existing under the laws of France,” “a partnership organized and existing under the laws of the State of California in the United States of America,” or “an individual who is a citizen of Singapore.” 1. SALE OF GOODS. The Seller agrees to sell and the Buyer agrees to purchase the following goods (the “Goods”): [list]. COMMENT: The description of the goods should be specific, including as appropriate model numbers, colors, quantities, and so forth. If specifications are furnished by the Buyer, it is wise to include them as a separate attachment with a reference here incorporating them into the agreement. 2. PURCHASE PRICE. The Buyer agrees to pay [currency and amount, e.g., US$18,000] for the Goods (the “Purchase Price”) in accordance with the following schedule: [specify, e.g., US$6,000 in cash at the time this Agreement is signed by both parties; and the balance of US$12,000 in 6 equal monthly installments of US$2,000 each, to be paid on the tenth day of each month beginning on (date) and ending on (date). COMMENT: Although the period of payment is short, the parties may modify this clause to add interest to the payments. Interest should be made payable at the same time as each monthly payment to which the interest applies. As an incentive for early payment, the seller might waive interest “penalties” for pre-payment.

3. TITLE. The Seller will retain title to the Goods until the Buyer has paid the Purchase Price in full as provided in this Agreement, notwithstanding that the Goods are delivered to the Buyer before full payment is made. 4. USE OF GOODS. Until the Buyer has paid the Purchase Price in full, the Buyer must keep and use the Goods at the following location(s) only: [list]. The Buyer may not mortgage, sell, pledge, or otherwise encumber, lend, or dispose of the Goods while title to the Goods is held by the Seller. COMMENT: This clause is probably broad enough to cover the various uses of the goods that would be prohibited. However, the seller should check the laws of the buyer’s country to determine whether other possibilities exist that should be expressly stated. The seller should remember that the goods while in the possession of the buyer may still be subject to involuntary liens or attachments, such as by tax authorities or bankruptcy courts. The effect of involuntary liens is a point for negotiation between the parties: Is the contract breached by imposition of such a lien? How will the seller be compensated for the balance of the payments or ensured that the goods will be returned? 5. INSURANCE. Until the Buyer has paid the Purchase Price in full, the Buyer must obtain and maintain insurance coverage in the amount of [currency and amount] for loss, damage, or destruction of the Goods. The policy must name the Seller as loss payee. The policy must be issued by a reputable and solvent insurance company, and the Buyer must deliver a copy of the policy to the Seller. If the Buyer is unable or otherwise fails to obtain or maintain this insurance, the Seller has the option to obtain the insurance and to charge the premiums to the Buyer. If the Goods are lost, damaged, or destroyed before the Purchase Price is paid in full, the Seller will be entitled to the insurance proceeds paid to the Buyer up to the amount of the outstanding balance on the Purchase Price. COMMENT: It is important to provide that the seller may obtain insurance for the goods in the event that the buyer is unable to cover them. Adequate insurance coverage may or may not be available in the buyer’s country. 6. INTELLECTUAL PROPERTY RIGHTS. No intellectual property rights are being transferred, licensed, or otherwise given to the Buyer by this Agreement. These rights are the exclusive property of the Seller, and Buyer has no rights in the intellectual property rights connected with the Goods. The Buyer covenants not to infringe on the Seller’s intellectual property rights. 7. DEFAULT AND ACCELERATION. If the Buyer defaults on the payment of two or more installments of the Purchase Price or on any covenant of this Agreement, the Seller will have the right to demand full payment of the outstanding balance of the Purchase Price. If the Buyer fails to comply with the Seller’s demand, the parties will make diligent efforts to renegotiate the payment terms. If the parties fail to resolve the dispute, the Buyer will either return the Goods to the Seller or will give the Seller access to the Buyer’s premises during reasonable business hours to retake the Goods. The Seller may resell the Goods for the Buyer’s account or may repurchase the Goods at current market value. If the Goods are resold, the price obtained for them will be first applied to payment of expenses incurred in retaking and reselling them and next to payment of the outstanding balance of the Purchase Price. Any excess will be paid to the Buyer, but if there is a deficiency, the Buyer will pay the amount of that deficiency to the Seller.

COMMENT: This clause provides for renegotiation of the payment terms in the event of a default. Although renegotiation is not necessary, it is highly recommended. Otherwise, the seller will end up with used equipment of minimal value instead of full payment for the equipment, and neither party is likely to recoup all of the costs spent in shipping, installing, and so forth. Parties to overseas transactions should remember to remain flexible in consideration of the inherent variations in economies and markets, at least to the point where profit is still being made.

[signatures of both parties]