Terms Of Sale

What Are Terms Of Sale?

Terms Of Sale refer to the contractual conditions agreed upon between the seller and the buyer. The conditions include details or requirements regarding the price, quantity, quality, delivery, payment, and warranties. The contractual obligations also place limitations wherever necessary, such as on refunds and dispute resolution.

The terms lay out the responsibilities of the parties involved and act as protection for them. Any breach of the terms results in a legal dispute and makes the affected party eligible for remedies. The conditions provide a pathway for the smooth exchange of goods and services and ensure prompt delivery.

• The terms of sale delineate the terms, responsibilities, risks, and financial aspects that both the seller and the buyer agree upon concerning the procurement and delivery of goods or services. 
• These terms play a crucial role in fostering mutual understanding between the parties involved and serve as a framework for facilitating the seamless exchange of goods and services, ultimately ensuring timely delivery. 
• Additionally, by clarifying expectations and obligations, the terms of sale aim to mitigate misunderstandings and prevent potential losses resulting from ignorance or ambiguity.

Terms Of Sale Explained

Terms of sale specify the conditions, obligations, risks, and expenses that both the buyer and the seller will bear in connection with the delivery of the goods or services. The conditions for sale can be established in both domestic and international trade. However, international trade may have to satisfy additional exporting guidelines laid down by governments.

Terms are important because they help both parties have a common understanding of the conditions that are laid out and accepted. The conditions shall be transparent in conveying the transaction's intention; in addition, they shall also mention revocation and remedies pertaining to it. It intends to avoid confusion over the meaning conveyed and thus prevents the loss arising due to ignorance. This way, it avoids disagreements and prevents unwanted cancellations that may potentially induce legal liabilities.

Some of the terms contained are as follows:

1. Details of goods or services (quantity, quality, etc.).
2. The units and their respective prices, along with the payment method.
3. Specification of the delivery timeframe for goods or services, as well as the payment deadline.
4. Loss and insurance details encompass aspects such as responsibility for loss during transit and insurance coverage for the goods.

General terms of the agreement and the essential meaning of related terms (words), such as ownership, transfer of title, etc., are also part of it. In addition, the terms of sale list also cover cancellation, legal liabilities, intellectual property violations, governing law, dispute resolution, and the contract's validity period.

Types

There are various types of protection it could offer, and some of the major ones are:

#1 - Limited Liability

As with any organization, there is a limit for taking responsibility, and these limits are exclusively stated in the terms. For example, a watch manufacturer may provide a warranty for its products. However, it may exclusively mention that the warranty does not cover certain types of damages, such as those from corrosive substances. It indicates that they would repair damages from the usual wear and tear of their products but ignore out-of-ordinary circumstances. This reduces the liability that must be borne for actions that exceed reasonable expectations.

#2 - IPR Rights

Sellers and buyers can be multibillion-dollar corporations that have released products as a result of innovative thinking, research, and development. Companies frequently state in their terms and conditions that using their product or service does not grant users the authority to copy, modify, or sell it elsewhere. They mention that it would breach their intellectual property rights (IPR). This clause establishes clear ownership, limits usage, and prevents profits from being stolen or eroded.

#3 - Legal Disputes

Agreements or contracts often carry a clause dedicated to the legal liabilities conferred upon the parties. The clause goes into great detail about the legal ramifications of violating the conditions. It would have already described the action that would be considered a breach. This helps users understand their rights, responsibilities, and available remedies. As a result, it helps avoid legal complications and assists in disputes. 

#4 - Protection of Parties

It clearly states both parties' conditions, limits, and liabilities. Each of the parties involved is expected to obey the terms laid down. If either of the parties voluntarily defaults on those conditions, legal action can be requested. As a result, it does not discriminate and protects the buyer and seller alike (if they have followed the contractual terms religiously).

Examples

Let us understand the concept with the help of some hypothetical and real-world examples given below.

Example #1

Suppose Strawberry Paper Mills, a paper manufacturing company that sells scented papers, recently found a client who wanted to use their products. Terms of sale sample would contain the following details:

• Goods offered: Scented papers.

• Price: Up to 10 tons, it is $5000 per ton. After 10 tons, it would be $4000 per ton.

• Delivery date: 30 days from the effective date.

• Payment: Through cash within 24 hours of delivering the goods.

• Cancellation: Strawberry Mills allows the cancellation of goods 15 days before the initiation of delivery, after which, even if the order is canceled, the total price of the order has to be paid.

• Insurance and damage recovery: The goods are not insured, and damages in transit will be covered up to 20% of the total value of the goods.

• Validity: The contract is to last for a year, after which it becomes null and void.

It also mentions that any attempt to modify its unique design imprint on the paper or use its name to sell inferior products is prohibited. It will result in the user having to pay a fine of $5,000 or more to reverse the damages. Any disputes arising will be dealt with in accordance with US laws. In summary, the draft sample provided by Strawberry Paper Mills specifies the terms of the agreement for the purchase of scented papers, covering aspects such as pricing, delivery, payment, cancellation, insurance, validity, and dispute resolution, with penalties outlined for violations.

Example #2

HSBC Holdings plc has reached revised terms for the sale of its French retail business to My Money Group, backed by Cerberus Capital Management. These revised terms, constituting the terms of sale, outline that HSBC's European arm will retain a portfolio of €7 billion in loans, which My Money Group post-closing will service. As part of the agreement, HSBC anticipates a pre-tax loss of up to $2.7 billion, primarily attributed to unforeseen increases in interest rates. It also involves licensing the Crédit Commercial de France brand to My Money Group and an additional capital injection of €225 million from Cerberus-managed funds. 

This renegotiated agreement, governed by the terms of sale, aligns with HSBC's strategic vision of streamlining operations and prioritizing growth in Asian markets. Through this sale, HSBC underscores its commitment to strategic transformation while emphasizing its dedication to reinforcing operations in high-potential regions such as Asia.

Frequently Asked Questions (FAQs)

Recommended Articles

This has been a guide to what are Terms Of Sale. Here, we explain the concept in detail along with its examples and types. You can learn more about financing from the following articles –

• Sales Pipeline
• Forced Sale Value
• Negotiated Sale