Agreement For Purchase Of Goods

Profitability and success of a business enterprise are measured by its ability to maximise profits and reducing expenses and losses. In order to achieve that objective, it is important to classify expenses and prioritise them. One of the big chunks of the expense chart of any organisation is purchases. This is particularly true in case of trading industry. Manufacturing and service sector also incur significant expenses in purchase of goods and materials either for resale or for the conversion into finished products. Investment on capital goods also involve purchases of high value. Every business entity purchases goods for some purposes or the other.For instance, in the taxi industry, cars may be procured to be used for commercial purposes. In this article, goods mean and include any product, commodity or material of definite economic value.

Purchases involve two parties: the buyer and the seller. It is not necessary that they have to be business entities. Purchases may well be between entities and individuals with the same legal effect. The rights and obligations as created by the agreement between them remain.

What Is the Need For An Agreement For Purchase Of Goods?

It is a well-understood fact that demand determines the price of a product and its supply. A manufacturer makes and a stockist stocks a product only to the extent of perceived demand. It would not be prudent to have more stock in hand than required. This makes it a good practice for a prospective purchaser to have an agreement in place with the seller so that their requirements are met in time. It allows ample time for the seller to arrange for the required goods either by producing, assembling or purchasing as per the nature of their business.

What Is An Agreement For Purchase Of Goods?

An Agreement for purchase of goods is an instrument which sets the rhythm of a sale transaction from point of view of a buyer.  It is a document that sets forth the rights and obligations of both the buyer and the seller. It is written mostly from the buyer’s point of view in order to safeguard their interests and to limit their liabilities. The terms are similar to an agreement of purchase in most respects since purchase and sale are parts of the same transaction. It is the intention to purchase that sets apart an agreement for purchase of goods.

What To Include In An Agreement For Purchase Of Goods?

An Agreement for Purchase of Goods begin with a description of both the parties. It is specified as to who is the buyer and what he intends to buy from the seller with a brief description of the product(s). It can also be mentioned as to who approached whom for the said purchase. The types of entities are mentioned: for example a company incorporated under the Companies Act, A Limited Liability Partnership, etc. Then comes the terms and conditions of the agreement: which can include the following details.

1. Purchase of Goods
   It is mentioned that the buyer agrees to procure and that the seller agrees to sell goods described in the agreement either in the clauses or as detailed in the annexures
2. Taxes and other third-party expenses
   There are various taxes imposed by the Central and State governments. Apart from that exists the amounts payable to third parties incidental to the transaction. For example for transportation. The liability of tax  and towards third parties is mentioned as to who will be responsible for meeting the same.
3. Invoice and Payment
   The number of days before payment should be made after raising of the invoice is mentioned. If there exists a credit facility for the buyer, it can be mentioned as well. Credit payments are common for long-term agreements where delivery happens in cycles. Inter state transactions can contain details like Letter of Credit between the buyer’s and the seller’s bank
4. Product, warranty and inspection
   The seller can declare that the products that will be supplied will be of the quality and grade as described in the agreement and that the product samples have  been inspected by the buyer.
5. Packaging
   The method of packaging can greatly affect the shelf life and safety of the products during transit. The agreement shall specify the quality and grade of packaging to be followed by the seller.
6. Insurance
   The agreement needs to contain the insurance liability of both the buyer and the seller and describe whose liability would be to ensure the goods while in transit.
7. Delivery
   The mode of delivery shall be mentioned in detail in the agreement. Just like packaging, even the way it is transported can affect the safety and quality of the product. The clause shall also mention as to when the delivery will be deemed to be completed. In some instances, the buyer shall arrange for transportation right from the warehouse of the seller. Then, the delivery would be considered to be completed when the representative of the buyer is handed over the goods for transportation.
8. Shipping Documents
   For inter-state movement of goods, there are certain documents which need to be obtained for transportation. For example- bill of lading for sea. The agreement shall specify the liability of the seller in handing over such vital documents.
9. Limitation of Action
   The time limit in which any aggrieved party can institute legal action needs to be made explicit in the agreement.
10. Governing Law and Dispute resolution
    The agreement should mention the procedure for legal action: namely arbitration or litigation and go on to mention the jurisdiction of the courts under which action shall lie if litigation is preferred, along with the laws that govern the agreement and any lawsuit that may arise.
11. Rejection and Penalty
    Reasons that can empower the buyer to reject consignments can be made a note of. They may be poor quality or non-compliance with the terms of packaging or a breach of any other terms of the agreement. In fact, the seller may also be allowed to refuse supply if any breach occurs from the buyer’s side. The penalties for any breach shall also be enumerated.

These are only some of the points that will be covered in a detailed Agreement to Purchase.

LegalDesk.com Has You Covered!

You may be a seller or a buyer. Legaldesk.com has solutions for all businesses and individuals out there. We not only have ready to draft templates for different purposes, but also the facility to guide you and create a customised agreement for your individual needs. If you are looking for an agreement to purchase or sell, you have come to the right place. Guess what – we even deliver your documents right to your doorstep.  With the advent of our Aadhaar based platform for electronic signature – esigndesk.com, you can even sign it electronically and conveniently. You may even make the other party use e-sign as co-signees. This gives you the privilege of complete legal effect for your document without hassles. To create an agreement online, request a service.