Terms and conditions: sale of goods

Terms and conditions: sale of goods

Terms and Conditions for the sale of goods between businesses. Also incorporating terms and conditions for supply of goods between businesses.

Background

A business which sells goods to other businesses on a regular basis will likely require a pre-prepared set of contractual terms which it will seek to apply to its business transactions and dealings.  A business purchaser of goods on a regular basis may also want to have its own set of Terms and Conditions which it would seek to apply to its purchases of goods.

Why use Terms and Conditions?

Businesses will use Terms and Conditions for the following principal reasons:

• so that they have a consistent set of contractual terms which apply to their business dealings
• to seek to avoid or limit negotiation or discussion with buyers or sellers on the contractual terms, including where the contract is concluded without any direct communication at all (for example, online)
• to prevent the other party’s Terms and Conditions from applying to the contract

How should a party apply its Terms and Conditions?

Terms and Conditions will only apply to a contract if they have been incorporated into the contract.  

In the absence of a signed contract which either sets out the Terms and Conditions, it is important that a seller or seller (as the case may be) applies a consistent and practice in all pre-contract discussions and negotiations.  This should include identifying in one’s own pre-contract documents, for example sales quotations or purchase orders, that your own Terms and Conditions will apply to any contract and to provide a copy of them.  If the other party provides or refers to its own Terms and Conditions, for example in a buyer’s purchase order or a seller’s acknowledgement of a purchase order, the other party’s Terms and Conditions could apply if no objection or response is made to the effect that your own Terms and Conditions should apply.

If both parties insist on their own Terms and Conditions applying, the preferable solution is to try and negotiate the differences between the two sets of Terms and Conditions so as to reach a mutually acceptable position on the basis of one party’s amended Terms and Conditions.

What is the battle of the forms?

The battle of the forms arises where both parties to the contract seek to apply their own Terms and Conditions.  The answer to the question as to which should apply will generally depend on when the contract was concluded and whose Terms and Conditions had been incorporated into the contract at that stage.  Often, this will be the party which last put forward its Terms and Conditions (assuming the other party had not expressly rejected them) – who has fired the “last shot”.

What terms are implied in contracts for the sale of goods?

The sale of goods on a business to business (B2B) basis is governed principally by the Sale of Goods Act 1979 (“SOGA”), in conjunction with the Unfair Contract Terms Act 1977 (“UCTA”)?

Terms implied into a B2B contract for the sale of goods include:

• title to goods: an implied condition that the seller has the right to sell the goods
• encumbrances: an implied warranty that the goods are free from any charge or encumbrance not disclosed or known by the buyer
• quiet enjoyment: an implied warranty that the buyer will enjoy quiet possession of the goods
• sale by description: if the contract is for the sale of goods by description, an implied condition that the goods will correspond with the description
• satisfactory quality: an implied condition that the goods are of satisfactory quality.  Goods will be of satisfactory quality if the meet the standard that a reasonable person would regard as satisfactory, taking into account any description of the goods, the price (if relevant) and other relevant circumstances
• fitness for purpose: if the buyer has made the seller aware of any particular purpose for which the goods are being bought, an implied condition that the goods are reasonably fit for that purpose (unless the circumstances show that the buyer did not rely or that it is unreasonable for the buyer to rely on the seller’s skill or judgment)
• sale by sample: if the contract is a sale by sample, an implied condition that the bulk will correspond with the sample and will be free from defect making their quality unsatisfactory which would not be apparent on reasonable examination of the sample
• delivery by instalments: unless otherwise agreed, the buyer is not obliged to accept delivery of goods by instalment

What makes goods of “satisfactory quality”?

Goods will be of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking into account any description of the goods, the price (if relevant) and other relevant circumstances.  Quality of goods include their state and condition and the following are aspects of the quality of goods (in appropriate cases):

• fitness for all the purposes for which goods of the kind in question are commonly supplied
• appearance and finish,
• freedom from minor defects,
• safety
• durability

The implied term as to goods being of satisfactory quality does not extend to any matter which makes them unsatisfactory:

• which is specifically drawn to the buyer’s attention pre-contract
• which ought to have been revealed by a pre-contract examination carried out by the buyer
• which out ought to have been apparent on a reasonable examination of the sample, in the case of a contract for sale by sample

Can the SOGA implied terms be excluded or restricted?

Yes under UCTA, with certain exceptions and, for others, provided that the exclusion or restriction is reasonable. 

For example:

• title to goods, encumbrances and quiet enjoyment: liability under these implied terms may not be excluded or restricted
• sale by description, satisfactory quality, fitness for purpose and sale by sample: liability for breach of these implied terms may be excluded or restricted by a term in the Terms and Conditions provided that the term satisfies the requirement of reasonableness under UCTA

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).

About these Terms and Conditions: sale of goods

These Terms and Conditions are for the sale of goods between businesses, both of whom are within the UK, governed by English law.  They are not suitable for a business to consumer sale of goods or for the supply of services, whether B2B or B2C.

The Terms and Conditions are for a specific sale and purchase of goods on the basis of a single order.  They are not prepared as a master or framework agreement.  

They are prepared on the basis of a seller’s standard Terms and Conditions for the sale of goods (rather than for a buyer, which is less likely to have its own standard Terms and Conditions for the purchase of goods).

Document features

Features include:

• 20 paragraphs over 8 pages
• Contract and incorporation: provisions detailing what the contract comprises and how the Terms and Conditions are incorporated
• Provisions relating to specification, delivery, ownership and risk and price and payment for goods
• Warranties and remedies for breach of warranty
• Exclusions and limitations on seller’s liability
• Force majeure and termination clauses

Explanatory guidance

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