Avoiding Disputes Under The Sale Of Goods Act 1979: Key Contract Terms And Remedies That Every Business Should Know

Most transactions involving individual consumers purchasing goods or services from a business are governed by the Consumer Rights Act 2015. However, where both parties are acting in the course of a business, transactions involving goods are still governed primarily by the Sales of Goods Act 1979. In this article, we explain the framework of rights, obligations and remedies the statute provides to both buyers and sellers.

When does the Sale of Goods Act 1979 apply?

The Sales of Goods Act 1979 applies to all business-to-business transactions for the sale and purchase of goods where the parties contract anywhere in the United Kingdom.

If an item is physical, moveable and capable of being owned, then it is likely to be considered a “good” for the purposes of the Act. This includes, for example, machinery, parts and equipment; vehicles; livestock; raw materials; and manufactured items and consumables.

The Act applies to both new and second-hand goods. However, it does not govern contracts for services, the sale of heritable property, digital products, or cash.

The key implied terms offering protection to buyers

Parties entering into a contract for the sale and purchase of goods will normally outline the key terms of the transaction, either in writing or verbally. These are known as the express terms of the contract.

However, under the common law or in terms of certain legislation, terms can often be held to apply to a contract, regardless of whether or not the parties agreed to those in their written or verbal contract. These are known as implied terms.

The Act automatically inserts various key terms into B2B contracts, whether those are written or verbal, including implied terms that:

• The seller has title to the goods they are selling
• The goods will be as described
• The goods will be of satisfactory quality
• If sold by sample, the bulk's quality will correspond with the sample's

The Act also outlines the rules on transfer of risk and delivery, which can be useful where parties have not expressly confirmed arrangements.

The Act's terms in relation to description, quality and sale by sample can be restricted or excluded, but only if the clause seeking to limit or exclude liability is “fair and reasonable” under both the Act and the Unfair Contract Terms Act 1977.

How is satisfactory quality determined?

When considering aspects of satisfactory quality, it includes that the goods will be, among other things, fit for purpose, free from defects, safe, durable, and of suitable appearance and finish.

The only time goods are not required to be satisfactory quality is if a defect or issue was specifically drawn to your attention before you bought them.

Unless it is patently obvious, a party seeking to establish that goods are not of satisfactory quality will normally instruct a report from an independent expert such as a mechanic or engineer.

Remedies for dissatisfied buyers

Where a buyer considers that a seller is in breach of the Act's implied terms, the Act provides various potential remedies, including:

• To accept the goods, but claim a price reduction or damages (including in cases of late delivery)
• If the breach is material, to rejects the goods and cancel the contract
• To seek an order forcing the seller to fulfil their contractual obligations (known as specific performance or specific implement)

Recoverable damages are normally those directly and naturally resulting, in the ordinary course of events, from the breach. In the case of goods not of satisfactory quality, then the loss is the difference between the goods as delivered and what should have been delivered.

In many cases, a satisfactory solution can be negotiated directly between the parties, or with the help of the parties' solicitors, without recourse to the courts.

The key implied terms offering protection to sellers

The Act also provides important protections to sellers when a buyer may be in breach of contract, including the right to:

• Sue the buyer for payment for the goods
• Reclaim goods before they are delivered in the event the buyer becomes insolvent
• Retain possession of goods until payment is made
• Claim damages when the buyer refuses delivery or cancels the contract

How can we help?

A well-drafted contract can significantly reduce the risk of breach of contract disputes, including those under the Act. As a full service law firm, we can assist you with contract negotiations and documentation, which could potentially save considerable time, cost and disruption later.

We also frequently advise clients on breach of contract claims involving the sale and purchase of goods, including advising on whether or not any clause purporting to limit or exclude liability is likely to be considered reasonable.

We have considerable experience of resolving these disputes, whether via correspondence, the courts, or alternative methods of dispute resolution such as mediation. In such cases, it is essential that parties take legal advice at the earliest possible opportunity, because their acts, or failure to act, can be fatal to any potential remedies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.