#3258 - Sale Contracts - Commercial and IP

Commercial Law

Sale Contracts

Exam: Advise client on issues of drafting, interpretation or implementation of standard terms and conditions of sale and supply of goods & services.

Key legislation:

Sale of Goods Act 1979: sets out basic rights and duties of the parties to the contract and rules relating to delivery, price, passing of title and risk, measure of damages etc. The provisions of the act can be varied or excluded by express provision.
Supply of goods and services Act 1982
UCTA 1977
UTCC Regulations 1992
Consumer Protection and Unfair Trading Reg 2008

Standard Terms:

Written contract terms. Generic; not personal to each transaction. Saves cost & ease of negotiation.

Set out framework of how business will conclude its contracts

Less time and expense [less negotiation]
Vary the default rules of legislation – replace with more applicable provisions
Impose terms more favorable
Certainty
Business will be familiar with provisions and can resolve disputes faster
Conclude contracts at more junior level

Not necessarily incorporated
Legal restrictions on excluding liability
Risk of staff using standard terms which are not appropriate for that transaction
Require regular review – take into account legislative and market changes which change often.

Incorporation: Battle of the forms: “Last shot rule” applies = the contract will be deemed to have been concluded on the terms set out in whatever document received prior to an act of performance [thereby implying acceptance of those terms] by the other party.

Make sure standard terms are brought to table ASAP. [brochures / initial documentation – these are NOT contractual offers [make client aware of this]

Staff training: they should know about Battle of Forms – so incorporation of terms is more likely. Have set / standard procedure that staff must follow when concluding contracts

Don’t mention terms at all – risky approach

All documents sent out should include terms [draw attention to onerous / important terms to ensure they are incorporated.

Incorporation: Exception to last shot rule = where the party expressly stated they were not happy with the terms of the other. [GHSP v AB Electronic Ltd]. The default position of SGA applies.
Incorporation: Prevail clause = strategic attempt to allow “our” terms to be incorporated. [i.e. Our terms will apply to this contract etc]. Technically unenforceable [it will not be held up in court – because the issue is whether the contract was formed on those terms at all], but it has significant bluff value should a dispute arise.

Drafting standard terms:

Consider “Practical Law for Companies” Practice manual on Commercial contracts Vol.1 – checklist for drafting standard terms:

Nature of goods sold by supplier: high or low value; original form or will they be components / raw materials Profile of supplier’s customers – business or consumer? Transactions overseas? Insurance Disputes / practical problems relating to this particular product / service. What do supplier’s competitors do What are the contracting procedures of supplier?

Objectives:

Minimize scope for dispute Exclude / amend those terms which are inappropriate Allocate risk Provide machinery for the resolution of any disputes which do arise

Sale of Goods Act 1979

Objective of the Act: imposes duties on the buyer and seller with corresponding rights and remedies for each party, relating to transfer of ownership and performance of the contract.
Applies to B2B and B2C contracts
Important provisions of the Act:

Duties to seller

To pass good title [S.12]
To deliver goods which correspond with description [S.13]
Goods are of satisfactory quality and fit for purpose [S.14]
Goods correspond with sample [S.15]
To deliver goods [S.27]

Duties to buyer

Accept delivery [S.27]
To pay for the goods [S.27]

Rights / remedies for seller

Terminate / repudiate contract for breach of condition
Damages for non-acceptance [S.50]
To retain the title of the goods until paid [S.17&19]
Rights of the unpaid seller:

lien [S.41]
stoppage in transit [S.44,45]
resale [S.48]

Rights / remedies for buyer

inspect the goods [S.34]
reject the goods and refuse payment for breach of contract
damages for non-delivery [S.51]
damages when goods are accepted [S.53]
request specific performance [S.54]

Default provisions SGA 1979:

1. Ownership [Ss.17-19]

S.17: ownership passes when the parties intend for ownership to pass

2. Price – S.8

Parties free to fix own price. In the event that no price is fixed = what is reasonable will be implied [S.8]
What is reasonable is a question of fact
Price will include VAT unless specified [S.10(2)]
Buyers duty to pay the set price – S.27

3. Payment

[Ss. 27-28]

S.27 SGA: buyer’s duty to pay the price
Drafting considerations:

Time for payment: S.28 SGA = when the goods are delivered. What about payments in advance? Credit period for the buyer?

S.10(1): time is not of the essence of a contract for sale. Failure to pay is therefore not a breach of contract. Limits seller’s right to damages.

Seller should ensure time IS of the essence.

Method of payment: S.28 seller is entitled to be paid in cash. Is this appropriate in the circumstances?
Late payment: damages can be awarded to the seller for any additional costs caused by late payment from buyer. Late Payment of Commercial Debts (Interest) Act 1998.

Encouragement for early payment given to buyer – discount for prompt payment.

Right of resale: S.48(3) seller has statutory right to resell. This is limited = therefore better for seller to reserve the right to resale in the contract. Stop buyer taking advantage of ‘compulsory credit’ period created by S.10(1).

4. Delivery

[Ss.27-29]

What is delivery

S.61(1) “voluntary transfer of possession from one person to another”
Legal definition: delivery is the point in time which parties have agreed that the legal right to possess of the goods passes from Seller to Buyer.
Physical delivery = “carriage of goods”.

Duties on buyer and seller in relation to delivery

Seller’s duty to deliver goods = S.27

S.32: Delivery to the carrier will constitute as effective delivery to the buyer.

S.27: Buyers duty to take delivery and pay the price –

S.34: Buyer has reasonable opportunity to examine the goods [this may depend on the type of good]

S.35A: Right to reject some and reject others

S.35(4): Deemed acceptance if buyer starts using the goods or if he fails to notify seller of his intention to reject within a reasonable time. Loss of the right to reject

S.36: If you do reject the goods – you have no duty to return them

Seller’s duty to deliver right quantity = S.30

Buyer can reject goods if quantity is LESS that the contract quantity. If B accepts he must pay contract rate

If seller delivers MORE than the contract quantity – buyer can reject the excess or reject the whole [S.30(2)].

Buyer cannot reject the whole if the variation in quantity is slight. [S.15A / S.30 – applies only to B2B contracts] The breach will not be a breach of condition but a breach of warranty.

Buyer is not obliged to accept quantity in installments [S.31].

Miscellaneous:

TIME of delivery – reasonable [S.29]
Delivery at a reasonable hour [S.29(5)]
Cost of delivery is with seller [S.29(6)]

Passing of RISK

S.20(1): risk...

#3258 - Sale Contracts - Commercial and IP

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