When you sell goods, a sale of goods contract is created. Within that contract, it's important that all the necessary terms are covered. This section looks at these in detail, as it's essential that nothing is overlooked.
There are a number of ways to determine the price of the goods in a sale of goods contract. The most obvious way is for you to negotiate a specific price with the buyer. In other cases, the price is determined according to a price list or by an independent third party.
In order for you to have a contract, the essential terms, including the price, need to be certain enough for both parties to know what they are. The price should either be a set price or capable of being determined by a certain procedure, otherwise the contract may be too uncertain to be valid.
You'll need to consider the following issues relating to price:
If you're using a price list, it's important to establish which price is the relevant one. You might want to include a clause that states that the price is set according to a price list that you might change from time to time.
You must both think about whether other charges and expenses are involved when carrying out the contact. If so, you should consider whether to specifically name these charges and expenses, and say who will be responsible for them.
If you're the seller, you might want to increase the price if your expenses increase between the date of the contract and the date of supply. It might be a good idea to put in a clause in a sale of goods contract to reflect this.
The contract should also allow the buyer to cancel the order if the price increases beyond a certain amount.
If the price is to be determined by a third party's estimate ('valuation'), it's important to note that if the third party can't or doesn't make the valuation, the contract might be cancelled altogether.
Unless the contract says otherwise, the price will be deemed to include VAT. If you quote a price without saying that it doesn't include VAT, the buyer will only have to pay you that price, and you'll then have to pay any VAT due to HMRC. Therefore, if you want to quote prices that don't include VAT, you need to make this clear in the contract.
It's important to state in the contract when the buyer has to pay for the goods. The law provides that payment is due in full when the goods are delivered unless you agree on different terms. You might want to change this and think about questions such as:
Although you might both intend to fulfil the duties of the contract, it's always best to agree what should happen if the buyer doesn't pay on time. This way you can avoid possible arguments in the future. In a typical sale of goods contract, you can include any of the following terms in the event that the buyer doesn't pay on time:
When you draft commercial agreements, you should also consider the effects of the Late Payment of Commercial Debts (Interest) Act 1998. This Act protects suppliers in business-to-business contracts (but not consumer contracts) from late payment. It gives you the right to claim 'statutory interest' on debts paid late by other businesses. The rate of interest is currently 8% above the Bank of England base lending rate.
The Act prevents parties from agreeing that the supplier won't have this statutory right to interest, unless they agree to a fair and reasonable solution instead. You'd need to bear this in mind if you want to create your own clause to cover late payment.
In legal terms, delivery means the transfer from the seller to the buyer of the right to possess the goods. This may or may not coincide with physical handover of the goods. For example, when you give the buyer a delivery order authorising them to collect the goods from your premises, you could specify that delivery happens when you give them the delivery order, rather than when they physically collect the goods.
You should agree with the buyer what constitutes delivery:
Transferring the right to possession isn't the same as transferring ownership of the goods - you could agree to transfer ownership at a different time.
When you're selling goods, it's important to specify in the contract the place of delivery. If you don't, the place of delivery will be at your place of business or residence, so the buyer will have to collect them.
The buyer will generally want you to agree on a date for delivery. If you agree a specific date, but fail to meet it, you would be in breach of contract. You might prefer to agree an approximate date instead. If you're sending goods to the buyer and you don't specifically agree on a date, you must do so within a reasonable time.
As the seller, it would be in your interest to state in the contract that time for delivery of the goods isn't 'of the essence'. This means that if you're late in delivering the goods, the buyer doesn't have an automatic right to end the contract. If you don't state this, and you've agreed a specific delivery date, then the law implies that the time for delivery is of the essence. This means the buyer can end the contract if you deliver late. They can also claim damages from you if they've suffered loss as a result.
Time being of the essence just affects the buyer's right to end the contract. If you deliver late, you'll still be liable to pay damages for late delivery, regardless of whether time is of the essence.
The buyer doesn't have to accept delivery by instalments, unless they've agreed to this. You might agree to deliver in instalments in return for payment in instalments. If you agree to this, the buyer might not be entitled to end the whole contract if you make a defective delivery (e.g. delivering the wrong number of goods, or by delivering the wrong goods or defective goods.)
Similarly, if the buyer rejects or doesn't pay one or more instalments, this may not be enough for you to end the contract as a whole. Therefore, to avoid uncertainty in this situation, it's best for you to spell out how many defective deliveries or missed payments are allowed before the other party can end the contract.
If you're the seller, it's best for you to state that risk in the goods passes with delivery. This means that although you're responsible for any damage to the goods before delivery, once they've been delivered, the buyer would be responsible for them. This means if the goods are damaged after delivery, the buyer would still have to pay you for them.
If you include a retention of title clause in the contract, the buyer won't own the goods until they've paid you. If you've agreed a credit period, you should include this clause so you can get your goods back if the buyer doesn't pay for them on the due date, or if you believe that the buyer is in financial difficulties.
The retention of title clause needs to be carefully worded to deal with the issues below: