Escrow Agreements (Sale of Goods)
An escrow arrangement is a form of security involving the deposit of any asset with an escrow agent. The asset may be goods, money, documents, information, computer source code (or other material containing intellectual property), or any other asset. The escrow agent is an independent entity trusted by, and appointed by, the other parties to the transaction concerned. The agent is required to release the asset only when a condition specified in the escrow arrangement has been fulfilled.
The Guidance Note - Escrow Arrangements in this subfolder more fully explains the concept of escrow. It gives examples of various types of escrow arrangement most often encountered. These include computer program source code deposit, tenant’s rental security deposit, sale of goods payment escrow, warranty escrow, document escrow, the use of deeds placed in escrow in conveyancing, and, in connection with share or business asset sales, payment of the balance of the price after completion once the price (based on value of the assets of the company/business) has been finally calculated, or deduction of an amount from the total price to settle a warranty/indemnity claim by the buyer.
The Guidance Note - Escrow Arrangements also lists various escrow documents which are available in the main folders on our website and where they can be located. Some, not all, of the documents are in this Escrow Agreements (Sale of Goods) subfolder.
In addition to the Guidance Note - Escrow Arrangements, this subfolder contains three alternative forms of Agreement for establishing an escrow arrangement in connection with payment of the purchase price on a sale of goods. The information page for each sale of goods escrow template explains in detail the circumstances in which it may be used.
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Frequently Asked Questions
How can a buyer and seller protect a large payment until goods are actually delivered? +
Use an escrow arrangement. The buyer pays the price to an independent escrow agent instead of the seller, and the agent releases it to the seller only once the agreed condition, usually delivery or acceptance of the goods, is met. That protects the buyer from paying for goods that never arrive and the seller from delivering without secured payment. The sale of goods escrow agreements in this sub-folder set up exactly this.
What does an escrow agent do? +
The escrow agent is an independent party, trusted and appointed by both sides, who holds the asset and releases it only when the condition set out in the escrow agreement is satisfied. The agent does not take sides. Their job is to follow the agreed instructions on what to hold, what condition must be met and what to do if there is a dispute. The guidance note in this sub-folder explains the agent's role and how escrow works.
When is escrow worth using in a sale of goods? +
Escrow earns its cost where the sums are large, the parties do not know or trust each other yet, the deal is cross-border or there is a gap between payment and delivery that leaves one side exposed. For small or repeat deals between established partners it is usually overkill. If the risk of the other side not performing is real and the value justifies the agent's fee, escrow is a sensible protection. The guidance note helps you judge this.
What should a sale of goods escrow agreement cover? +
The essentials are what asset is held, the exact condition that triggers release, how release is requested and verified, the agent's duties and fees and what happens if the parties disagree. Vague release conditions are the main cause of escrow disputes, so precision on the trigger matters most. This sub-folder offers three alternative sale of goods escrow agreements, and the information page for each explains when it fits.
Is escrow only for money? +
No. An escrow can hold almost any asset: money, goods, documents, information or computer source code, as well as being used in situations from rental deposits to holding back part of a purchase price after a business sale. The sale of goods agreements in this sub-folder focus on holding the purchase price, but the guidance note describes the wider range of escrow arrangements and where the related documents sit on the site.
