Supply of goods and supply of services templates

Why use standalone contracts rather than standard Terms and Conditions?

A business may want to have a standalone contract for the sale of goods or supply of services, rather than standard Terms and Conditions.

As a negotiated and signed contract, this may help to reach agreement quicker and/or avoid a later dispute or argument over a number of issues and the obligations of both parties, including:

• whether the seller/supplier or buyer/customer’s standard terms and conditions should be used
• whether standard terms and conditions have been incorporated as part of the contract
• the “battle of forms”, where both parties consider that its own standard terms and conditions apply to the contract
• whether an exclusion clause or liability limitation clause in standard terms and conditions would have been effective

These matters are discussed in more detail in relation to Terms and Conditions in our section Terms and Conditions.

In addition, a business which does not regularly sell goods or supply services to the customer may wish to use a standalone supply of goods and services agreement template on the occasional times it does this, rather than having to prepare its own standard terms and conditions.

What implied terms apply to contracts for the sale of goods or the supply of services?

“Implied terms” are contractual provisions which will be assumed to have been included in a contract even though they are not expressly included in it.  Provisions which are expressly stated in the contract are “express terms”.

Implied terms can arise for a number of reasons, including:

• terms implied by statute – for example, the Sale of Goods Act 1979 in the case of a business to business sale of goods
• terms implied by common law
• terms implied by custom or usage, for example of custom or usage of a particular trade
• terms implied by previous contracts and dealings between the same parties
• terms implied to reflect the parties’ intentions but which they did not expressly include

In the context of contracts for the sale of goods or the supply of services on a B2B basis, terms implied by statute are particularly relevant, namely:

• in the case of the sale of goods, the Sale of Goods Act 1979
• in the case of the supply of services, the Supply of Goods and Services Act 1982
• in both cases, the Unfair Contract Terms Act 1977

Terms will be implied by these statutes into B2B contracts for the sale of goods or the supply of services.  The statutes also provide where (if at all) these implied terms can be excluded or limited by the express terms of the contract.

The guidance notes which accompany our template contracts explain this subject in more detail in the context of the applicable form of template contract.

What are exclusion clauses or liability limitation clauses?

English law, established by a combination of caselaw and statute, provides for the remedies and rights of recovery which a contracting party will have if the other party is in breach of contract.  For example, a right to terminate the contract and/or bring an action for damages for breach of contract.

As explained above, English law also implies certain terms into contracts.

A party to a contract can seek to exclude or restrict its potential liability for breach of contract and the application of implied terms into contracts by the inclusion of express exclusion clauses or liability limitation clauses in the contract.

What rules govern exclusion clauses?

The inclusion of these clauses is however subject to a number of rules (once again established by a combination of caselaw and statute).  These must be taken into account in determining whether a particular clause has been properly included in the contract, how the clause will be interpreted should a dispute arise and whether there are any rules which will either prohibit or limit its effect.

In summary:

• an exclusion or limitation clause is only effective if it has been properly incorporated into the contract
• the clause must clearly cover the liability in question
• there may be statutory limitations on the effectiveness and scope of the clause

For example, in the case of commercial (ie B2B) contracts to which the Unfair Contract Terms Act 1977 (“UCTA”) applies:

• the contract cannot exclude or restrict liability for death or personal injury resulting from negligence
• other liability resulting from negligence (property damage or financial loss) can only be excluded or restricted if the clause satisfies what is known as the “UCTA test of reasonableness”
• the contract cannot exclude certain terms which are implied by the Sale of Goods Act 1979. This includes liability under the warranty implied by the Sale of Goods Act 1979 that the seller has title to the goods being sold
• other terms implied by the Sale of Goods Act 1979 can be restricted if the clause satisfies the UCTA test of reasonableness. This includes liability under the warranties implied by the Sale of Goods Act 1979 relating to the quality or fitness of goods sold for a particular purpose

The UCTA test of reasonableness, amongst other matters, requires regard to be given as to whether the non-breaching party knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties).

The guidance notes which accompany our template contracts explain this subject in more detail in the context of the applicable form of template contract.