Purchase & Sales Agreements Glossary

A mediation procedure that has, since 1999, been encouraged by the courts to avoid cases taking up the courts' time when they could be settled. An unreasonable refusal to mediate may result in the winning party to an action being unable to recover their costs. See also Mediation.

A client who is asked to pay a substantial amount of the price up front, say 25 per cent, usually to enable the supplier to procure materials or equipment, sometimes requires an advance payment guarantee, and this would be issued by the supplier’s bank. The purpose is to enable the client to recover the advance payment from the bank if the supplier becomes insolvent or defaults before the job is finished. As the project progresses, the advance payment is normally recovered by deduction from the stage payments under the business contract until the value of the guarantee is reduced to nil.

In relation to a business contract, rights under a business contract can be assigned (e.g. the right to receive payment can be assigned). However, the persons who have entered into a business contract may often include restrictions on assignment (e.g. assignment can only take place with consent). Other examples of assignments include assignment of leases, copyright and patents.

A failure by someone who has entered into a contract to perform its terms.

Goods bought and paid for immediately.

Goods sold, with immediate payment received in cash or by cheque, credit card or debit card.

A business contract is a legally binding business agreement which creates enforceable rights and obligations. For example, you may enter into a business contract with a supplier of DVDs to buy 1,000 DVDs. You and the supplier both have rights and responsibilities. The supplier is under an obligation to deliver the DVDs and has a right to be paid. The supplier delivers the DVDs and you are under an obligation to pay them.

Copyright is an intellectual property right which protects certain works (e.g. musical, dramatic, artistic and literary work) as soon as they are created. Examples of works protected by copyright include software, books, designs, films, songs, etc. One of the main rights that a copyright owner has is the exclusive right to copy the copyrighted work.

An agreement, usually under seal, by which someone undertakes to do, or not to do, some specified thing. Examples occur in leases; in conveyances, where the seller covenants that they have good title and the purchaser may covenant not to build, etc.; and in employment agreements where an employee may covenant not to compete.

An individual who is owed money by a debtor or money owed by a business as at the balance sheet date.

Goods bought, with payment to be made at a later date.

Goods sold, with payment to be received at an agreed date in the future.

Someone who owes money to another person or money owed to a business by its customers. etc.

Regulations protecting consumers who have purchased goods at a distance (e.g. by mobile phone, email, web, telephone, fax or interactive television). To comply with the regulations, suppliers must provide up-front information about goods and services to consumers before the contract is concluded; commit to delivering the goods and/or services within 30 days; and provide a seven (working) day cooling-off period, during which consumers can withdraw from the contract without penalty and without giving a reason.

The terms of a contract that are spelt out orally or in writing, as opposed to implied terms, which are to be inferred.

This business term is used to describe an event which is outside the control of business contract parties and which affects the performance of the business contract (e.g. war, acts of terrorism, floods, etc.). A clause, often included in business contracts, is known as a Force Majeure clause. The purpose of this clause is to prevent liability and a breach of contract occurring as the person affected by the event may be unable to carry out their contractual obligations. The clause will usually suspend or delay the performance of the business contract obligations by the person affected by the Force Majeure event, so that they are not in breach of contract. The term Force Majeure is not a defined term under the laws of England & Wales and should always be defined when used in a business contract.

An unexpected and unintentional event that makes the fulfilment of the terms of a contract impossible.

Done with honest intention.

Terms that are not expressly stated in a contract but are derived from custom and usage or are necessary to make it work from a business point of view.

An indemnity is a statement confirming responsibility for paying compensation in the event that loss or damages occur or some form of wrongdoing occurs. Indemnity clauses are often found in business contracts requiring the parties to indemnify the other party in certain situations; for example, ‘The seller will indemnify the customer for all loss and damages incurred by the customer as a result of the seller’s breach of contract’. This means that the seller will pay the customer for all their loss and damages due to the seller’s breach of contract.

Intellectual property rights protect creative and inventive outputs and work. For example, a patent can protect your invention, while copyright can protect a book that you have written and your company logo may be protected by a registered trade mark. In the UK, some of the rights require registration at the Patent Office to protect them, while rights such as copyright don't require it.

Liability is a legal responsibility; for example, Mr. Smith is personally liable for his company’s debts because he gave a guarantee to the lender.

The use of a mediator to help reach a settlement in a dispute. Mediation differs from arbitration in that a mediator will not come down on one side or the other and make an award. The aim of mediation is to persuade the parties to reach agreement and not to impose a ruling that has to be obeyed. Some County Courts now operate mediation schemes, which can be very effective and may avoid the expense of solicitors. See also ADR.

A guarantee by a parent company of a contractor’s performance under its contract with its client, where the contractor is a subsidiary of the parent company.

A patent is an intellectual property right which protects inventions. A patent application is required for the protection of this right and is filed at the Patent Office.

Designed to protect the supplier, this is a unilateral undertaking from a third party to pay the supplier amounts due to them under the contract if the business customer fails to do so. 

Designed to protect the client or customer, this is an undertaking from a bank or insurance company to pay the client a certain amount – usually 10 to 20 per cent of the business contract price – if the supplier fails to perform the services or becomes insolvent before the work is completed. These bonds are common in the construction industry.

A pledge arises when documents of title or goods are deposited by one person (pledgor) with another (pledgee) to be held as security for the payment of a debt or the discharge of an obligation upon the understanding that they will be returned once the obligation is discharged. Physical delivery may be sufficient but a memorandum of deposit, or letter of hypothecation, is often required.

Goods bought that are intended for resale.

The compensation payable for service under an employment agreement.

A clause which can be included in contracts for sale stating that ownership of goods being supplied to a third party will only pass from the supplier when the customer has paid in full for those goods.

Under the Sale of Goods Act 1979, goods sold must be of satisfactory quality and fit for purpose, and when they are sold by reference to a description or sample, the goods must correspond to that description or sample.

The sale of goods, whether on credit or for cash, in which the business trades.

A business that sells a service or advice instead of a tangible product.

A statutory demand (often just referred to as a ‘stat demand’) is a legal notice from a creditor to a debtor giving them 21 days to settle a debt before a winding-up petition may be issued. 

A termination clause provides for notice to be given before a contract is terminated.

A trade mark is an intellectual property right. Trade marks can include logos, names of businesses, expressions and jingles. Trade marks can be registered. They identify the goods and services of one business from those of another. The owner of a registered trade mark has the exclusive right to use that trade mark in relation to the goods and services relating to the trade mark registration in the country or countries where that trade mark is registered.

The total of sales, both cash and credit, for a particular time period.

A written assurance that a product or service will be provided or will meet certain specifications.

An application to the court for a company to be put into liquidation). A winding-up petition can only be issued if the amount owed by the debtor is greater than £750.