What is a Sale on Approval?

A sale on approval, as applicable to the law of contracts, is a conditional sale of goods that is made on a trial basis. A buyer who enters into a sale of approval agreement receives the goods and has a set period of time in which to try them out before deciding whether to buy. A sale on approval is different than a sale that gives a buyer the right to return goods. In a sale on approval context, the title to the goods, and with it liability for the risk of damage or loss, remains the seller’s up until the point that the buyer affirmatively decides to purchase. If the buyer does not make a decision within the allotted time, he is usually deemed to have accepted the goods, and title will transfer at that time.

Especially popular between businesses, sales on approval can also occur between individuals. The specifics of what a sale-on-approval setting looks like varies, but it always concerns transactions involving goods. Services cannot generally be contracted on an approval basis. The sale on approval framework gives the buyer a chance to try a product out, but if it does not work or is not quite what he expected, he has no obligation to buy it. It also gives the seller a way to promote goods and encourage potential buyers to try them risk-free.

Approval contracts are typically used when the goods at issue have a likelihood of not working out for the buyer. Certain corporate software programs or machines, magazine subscriptions, and office or home furnishings are examples of goods that might be purchased on an approval or trial basis. The sale of goods that are subject to change might also involve approval-based contracts, particularly in a business arrangement setting. A contract to buy several crates of next year’s apple crop, for instance, might be formed as a sale on approval to give the buyer an out if next year’s crop is not like last year’s. The same would be true of a contract to purchase a forthcoming version of a car, shoe, or other product.

Goods sold on a sale on approval basis are said to be held in “bailment” until the buyer either accepts them or returns them. Bailment does not typically convey any of the rights of ownership. This means that, even though the buyer is actively using the goods during the trial period, those goods still belong to the seller. If the buyer is in debt, his creditors cannot seize any items held in bailment. Likewise, if the goods are damaged by forces outside of the buyer’s control — weather, for instance, or a third party’s negligence — the seller must bear the costs of replacement or repair.

The contracting parties are responsible for agreeing on the terms and timing of acceptable return, which are typically set out in a sale on approval acknowledgment letter. The time that a buyer is allowed to try out a product can range from a few days to a few months, depending on the nature of the goods and the relationship between the parties. Most of the time, returns within the return period will be at the seller’s expense. There is usually also a requirement that goods must be returned in their original condition. Buyer-caused damage is often subject to a penalty or, in some cases, acts as an indication of acceptance.

Timing is always important in sales on approval contracts. It is generally stipulated that if a buyer does not advise the seller of his choice by the agreed-upon deadline, he is presumed to have accepted the goods. Title and all its attendant benefits and obligations pass to the buyer at that time.