When goods are sold in a commercial context, a sale of goods contract is created. Within that contract it is important that all the necessary terms are covered. These can include things such as the price, the time and method of payment, and the time and method of delivery. It is essential that nothing is overlooked.
There are a number of ways in which the price of goods under a sale of goods contract can be determined. The most obvious way is for the parties to negotiate a price specifically for the contract on hand. In other cases, the price is determined according to a price list or by an independent third party.
The following things need to be considered when the provisions relating to price under a sale of goods contract is drafted.
If a price list is to be used, it is important to establish which price is the relevant one. It may be wise to insert a clause to the effect that the price is set according to a price list amended by the seller from time to time.
The parties have to think about whether other charges and expenses are involved in the performance of the contact. If so, can these charges and expenses be specifically named, or they are going to be covered by a general clause. The question that follows is who will be responsible for the charges.
From the seller's point of view, they may wish to increase the price if their expenses increase between the date of the contract and the date of supply. It may be a good idea to put in a specific price escalation clause in a sale of goods contract. In light of the Unfair Terms in Consumer Contracts Regulations 1999, the contract should also allow the buyer to terminate the order if the price increases beyond a certain amount.
If the price is to be determined by a third party's valuation, it is important to note that if the third party cannot or does not make the valuation, the agreement will be voided altogether according to Section 9 of the Sale of Goods Act 1979.
According to law there is an assumption that unless the contract otherwise provides, the price will be deemed to include VAT. Therefore, if a seller wishes to quote prices exclusive of VAT, this has to be made clear in the agreement.
It is important to provide in the sale contract as to when the buyer has to pay for the goods. Is payment to be made on delivery or is a period of credit to be allowed? If so, how long is the credit period?
Although at the time of contracting, parties are positive about the performance of the contract, it is always advisable to provide for the possibility of default in a contract to avoid any possible argument in the future. The following clauses may be included in a typical sale of goods contract:
When drafting commercial agreements, one should also consider the effects of the Late Payment of Commercial Debts (Interest) Act 1998. However, recent evidence suggests that small firms are still unwilling to use the rights given to them by the Act in case they antagonise the customers on whom they are most heavily reliant.
The Act gives businesses the right to claim 'statutory interest' from other businesses. The rate of interest is presently set at 8% above the Bank of England base lending rate. The Act will be important for sellers who wish to devise their own clauses to cover late payment since they may find that their freedom to do so is restricted.
In an attempt to prevent contracting out of the statutory rights, the Act provides that the parties may substitute another 'substantial contractual remedy' for the right to statutory interest but may not agree that late payment will not carry any remedy at all.
In sale of goods contracts, it is important to decide whether the seller will deliver the goods to the buyer or whether the buyer will collect such goods from the seller's premises. The law provides that in the absence of contrary agreement, the place of delivery will be at the seller's place of business or residence. The date of delivery should also be agreed upon.
Unless it has been agreed between the parties, the buyer does not have to accept delivery by instalments. When the seller makes defective deliveries in respect of one or more instalments or the buyer neglects or refuses to take delivery of or pay for one or more instalments, the Sale of Goods Act is not helpful as to whether the innocent party can rely on the breach as a reason for terminating the contract as a whole.
To avoid uncertainties, it may be sensible to have a specific provision in the contract preventing the buyer terminating the contract for late or defective delivery of one or more instalments. This clause is, in effect, an exemption clause and will be subject to the test under the normal rules (generally reasonableness) of the Unfair Contract Terms Act 1977.
Under a retention of title clause, ownership of the goods sold will not normally pass to the buyer until the buyer pays for the goods. If the seller believes that the buyer is in financial difficulties, the seller may want to terminate or suspend the contract. In either case, they may wish to demand immediate payment for the goods already supplied (irrespective of the credit period allowed in the contract itself).
As the goods have already been delivered, a carefully worded retention of title clause is needed to allow the seller to repossess the goods. The Sale of Goods Act 1979 recognises these retention of title clauses and provides that:
'Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may ....... reserve the right of disposal of the goods until certain conditions are fulfilled.'