An Introduction to Agreements to Sell Personal Property
A Personal Property Sales Agreement is a document that covers the sale of personal assets between parties. This is a private instrument, and has nothing to do with the sale of real property (real estate). Depending on the scope of the transaction, this document could be relatively simple or it could be rather complex. It could include inventory from beer glasses at a tavern with very formal closing documents or it could cover the sale of fruit and vegetables at a farmer’s market with a hand written note. It could be as technical as including professional appraisals , inventories and photos of the property to be sold.
It’s important to use a personal property sales agreement to list the items to be sold so that there is no confusion between the parties on what was included in the sale. A Personal Property Sales Agreement is used for the purchase of various types of personal property including:
The Personal Property Sales Agreement may also be referred to as a Bill of Sale, an Equipment Sale Agreement, and Assets Purchase Agreement. In most sales of personal property, it is a good idea to use a Personal Property Sales Agreement to protect the buyer and seller.
The Essential Components of an Agreement to Sell Personal Property
A personal property sale agreement should identify the parties to the transaction, including full names, marital status (to avoid issues regarding non-joinder or homestead rights) and mailing addresses. In addition, it should clearly describe the property in detail and set forth the price to be paid, the method and timing of payment, and any other payment terms, such as interest rates or the type and location of security, if any. It also should contain covenants of the seller regarding his or her ownership of the property (such as that the property is free and clear of all liens), the right to sell it, and that the property is not subject to adverse claims. There also often is a covenant by the seller that he or she will defend the buyer from anyone who tries to enforce any adverse claim to the property against the buyer. The agreement may also require the seller to indemnify the buyer for any damages arising from the breach of any of those covenants.
It is important that the property be adequately described in the agreement for several reasons. First, the agreement (if signed and delivered) serves as evidence of the transaction and title to the property to third parties. Second, the contract may be recorded in the appropriate county’s land records as notice to third parties. Finally, the buyer needs an adequate description to recognize the property if he or she goes to take possession of it (bank statements don’t usually contain the seller’s telephone number). There are, of course, innumerable ways to describe the property, but one method is to simply attach a copy of any existing invoice, receipt, bill of sale or other document that reasonably identifies it. In most instances, the invoice will include a description of the item referenced on the invoice, including the size, make and style, model number, state-assigned serial number, etc. Also common is to place the item on the seller’s bill of sale to the buyer and deliver that to the buyer in lieu of a separate description. There are also many instances where the buyer and seller have negotiated the sale of the property and a prior sales agreement is the best option to describe the property (especially if the transaction is part of a larger transaction). And, of course, the description can be put into the new sales agreement.
The agreement should provide for the manner of conveyance. In some instances it may be appropriate to provide for the delivery of the item at closing. In many transactions, however, it is exceedingly inconvenient to deliver the property to the buyer’s location. In those cases, the parties will often provide for delivery of the property at the seller’s location or at a neutral location. If the first option is chosen, care should be taken to provide for who is responsible for transporting the property to the buyer (assuming the property is movable). The following options are frequently used for conveyance: Also, if the property is a highly desirable object (or simply not easily recognizable), the contract should provide for an inspection period (often a window of 24, 48 or 72 hours within which the buyer must inspect the property and either pick it up or notify the seller in writing that arrangements can’t be made to pick it up within that period of time).
Agreement for Sale of Real Property vs. Agreement for Sale of Personal Property
When purchasing or selling commercial property, you need to have a basic understanding of how these transactions are structured. An agreement for the sale of real property is different in a number of respects from an agreement for the sale of personal property. This section focuses on the differences, and the legal implications of those differences.
Real property is land and whatever is permanently attached to it, such as a house, office building, or barn. The following summarizes the basic characteristics of an agreement to sell real property:
• It involves the sale of real estate, free of defects and encumbrances, except for those that will not materially impair the value of the real property.
• The agreement contains a legal description of the property.
• It is usually supported by earnest money that is held in escrow by a third-party (this is not generally done with personal property agreements; although the parties may decide to have someone hold the payment until the property has been delivered).
• The payments may be due over time or upon delivery, depending on the agreement. (Again, personal property sales agreements are usually lump sum and due upon delivery.)
• The seller usually agrees to deliver possession of the property no later than some closing date (or upon delivery).
• Real property is often sold "as is." The agreement should contain language indicating that the sale is "as is," which means that the seller makes no representations or warranties about the property.
Legal Considerations and Exceptions
For a personal property sales agreement to be legally valid, it must meet a few basic legal requirements. The buyer must be legally capable of contracting, meaning that both the buyer and the seller be at least 18 years of age, mentally competent, and free from undue influence. That said, even if all the technical conditions of a contract are met, a court may find that a sales agreement was not enforceable. By way of example, if the agreed upon price is grossly inadequate or the terms of the agreement are otherwise unconscionable, the court could find the agreement to be void. In addition, courts have found that restraint of trade provisions, such as non-compete clauses, are void, particularly if the language is too broad or restricts the transfer of property to reasonable period of time or a relevant geographic area.
In some cases, there may be statutory requirements that must be met to make a contracts enforceable under state law. For example, where the property being sold or purchased is a business, a seller must provide certain disclosures as to the extent of the assets being sold.
Errors to Avoid in Drafting
There are several mistakes that are frequently made when drafting documents for the sale of personal property. Here are some examples:
Not including the description of the personal property being sold.
You will want to be able to reference the specific items being sold. You can do this by attaching a list or a bill of sale, or by referencing appropriate serial numbers. Be as specific as possible.
The terms of the sale are unclear.
Say what you mean and be precise. If you want the sale to be contingent on the buyer physically inspecting the property, be sure to say so and provide a reasonable time frame in which the inspection must occur. Be clear about the price and method of payment, and who pays for any applicable sales tax. Reserve the right to retain the proceeds of the sale if the buyer fails to appear for the close of escrow.
The document, or agreement, is not signed.
It seems obvious but maybe it’s worth repeating. Don’t forget to always sign and date the transfer agreement, and to have the buyer do the same. If you need the services of an escrow agent, this person can also sign the agreement on behalf of the buyer. If you are doing the agreement without the help of an escrow agent, consider having the buyer initial each individual page of the agreement. This will help eliminate controversy over what was included in the agreement.
Changes and Addendums to an Agreement
As with many contracts for the sale of personal property, the parties may need to modify or amend their agreement for any number of reasons. Importantly, the law in New Jersey permits, and generally encourages, contract parties to freely enter into mutually beneficial agreements. Indeed, N.J.S.A. 25:1-1.1 provides that: The provisions of the Uniform Commercial Code, compiled in Title 12A of the New Jersey Statutes, shall, whenever possible, be liberally construed and applied to promote its underlying purposes, to wit: (a) to simplify, clarify and modernize the law governing commercial transactions; (b) to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; (c) to make uniform the law among the various jurisdictions; (d) to facilitate the ordering of business dealings and, to this end, to be responsive to the changes and developments in the needs of the people, as reflected in bank credit records, commercial history, legislative history and administrative practice, and to the international needs and formalities relating to commercial transactions; and (e) to put into practice the responsibilities imposed by the Social and Ethical Standards of International Buying Habits Program, requirements for fair dealing in merchant practices, and simplify the process of reporting and eliminating nonconcerted practices from the market place .
Therefore, because the law generally favors the freedom to contract to any extent the parties desire, there are many valid reasons why a legal contract surrounding the sales of personal property may require modification or amendment. For example, perhaps the buyer desired to purchase, and the seller agreed to sell, more property than originally contemplated. Under these circumstances, increasing the scope of property enumerated within the original contract makes perfect sense and is almost certainly proper.
However an even more common scenario involves the requirement that the seller accurately describe the personal property being sold. The reason for this is obvious: the fundamental purpose of a contract for the sale of personal property is for the seller to sell property to the buyer and give the buyer accurate and useful information about the property. Naturally, therefore, if the seller misdescribed the property in the original contract, then the parties must enter into an appropriate amendment to make the necessary changes. Indeed, to this end, a proper amendment will identify the specific areas of the initial contract which require modification and the reasons for the same.
In sum, when considering amendments or modifications to a preexisting contract for the sale of personal property, consider the above and, ultimately, the law favors freedom of contract.
Enforcement of an Agreement to Sell Personal Property
In the unfortunate event that a party breaches a personal property sales agreement, the non-breaching party may have several legal remedies available to them, depending on the type of breach that occurs. Assuming the buyer has not paid the purchase price and refuses to take possession of the goods, the seller may have a claim for breach of contract and may be able to recover any applicable damages, including, but not limited to: (1) compensatory damages resulting from the difference in market value between the goods delivered and the goods contracted for; (2) reliance damages resulting from the costs incurred by the seller in preparing the goods for or moving the goods to the buyer; or (3) consequential damages resulting from injuries to the seller’s person and/or to an innocent third-party that are proximately caused by the breach by the buyer. The seller may also be permitted to keep the goods and offset any damages caused by the breach.
If the buyer refuses to take possession of the goods when promised, the purchaser would generally be liable to the seller for any damages directly resulting from the buyer’s refusal to perform under the contract. If the seller is able to mitigate the damages, those mitigation damages must be deducted from any damages sought from the purchaser. The measure of damages for a seller against a breaching purchaser is the difference between the contract price and the market price at the time and place of the tender, plus incidental damages, less any expenses saved as a result of the breach.
In the above circumstances, a seller may be entitled to seek specific performance pursuant to UCC § 2-716. Specific performance is only appropriate "where the goods are unique or have a special value based on the particular needs of the buyer." Some examples of unique goods that warrant specific performance include works of art, heirlooms and certain collectibles. Securities may also be considered unique assuming the existence of a pre-existing market and the securities can be procured from another source. Specific performance may not be awarded if the breach was provoked by the seller. Further, the remedy may not be granted if the remedy of an action at law is an adequate remedy.
If specific performance is granted by the court, the seller may obtain injunctive relief to prevent the buyer from obtaining possession of the goods from a third-party. The seller may also seek attachment, repossession or sequestration (remedies available under state law).
If a seller obtains a court judgment for the price when the goods cannot be identified to the contract, the judgment may be enforced in equity by a decree for specific performance. Specific performance, however, is not conditioned on whether the risk of loss has passed to the buyer.
Advice for Purchasers and Sellers
Buyers of Personal Property should pay very close attention to the Sale Agreement for the assets they have purchased. Look for representations and warranties and be sure to ask for the same type of indemnifications as to claims arising in favor of customers and regulatory agencies. If not included, ask for those provisions to be added. Ask for buy-backs.
Sellers of Personal Property also should pay very close attention to the Sale Agreement for the assets they have sold. You do not want to be saddled with ongoing liabilities for which you thought you had been indemnified. Ask the buyer for representations about its plans for the business and the financial wherewithal to comply with contractual and regulatory requirements. Also ask the buyer to represent that the assets will not be misused or damaged.
Wrap Up
In summary, an agreement for the sale of personal property serves a critical function in an owner’s estate plan. This is true whether the owner is planning for the eventual need for incapacity (a power of attorney), or as part of a larger process of lifetime gifting of personal property. An agreement that is properly executed can provide comfort and peace of mind to an owner about the future . Common types of personal property sales agreements include dated bills of sale, works of art co-operatives or "living trusts", and family or household inventories and transfers.
The only way to ensure that any of the preceding options is legally enforceable is for an agreement to be properly drafted, and signed before the transfer. It goes without saying that we recommend that any proposed transfer of personal property be reviewed by a lawyer.