Sale Contract

Business Contracts

The sale of goods and the supply of services will involve a contract whether in writing, by words or implied from the circumstances.  Certain rights are implied into most contracts for the supply of goods or services.  These rights can generally be excluded in contract between businesses but cannot be excluded in contracts between businesses and consumers (end users).

Sale of Goods legislation requires goods to correspond with their description, to be of satisfactory quality, in safe and working order, free from defects, and capable of doing what they are meant to do i.e. fit for the purpose.   In the case of services, it is implied term that services are carried out with reasonable care and skill within a reasonable time.

It is an implied condition on the sale of goods that the goods are of satisfactory quality. This means it must be of a standard that any reasonable person would regard as satisfactory.  This implies, amongst other things, that they work properly and do not appear defective.   Goods must be fit for purpose.  This means they should be capable of doing what they are supposed to do.

The Sale and Supply of Goods to Consumers Regulations give consumers a right to repair or replacement of goods which turn out to be faulty. If goods are faulty and a consumer has complained within six months it is a matter for the trader to prove there was no fault at the time of sale. If this cannot be done they must be offered a refund or replacement. After the six months the consumer may still be entitled to ask for repair or replacement, but will have to prove there was a fault at the relevant time.

The general rule is that businesses are free to set out whatever terms and conditions they wish in their sale and supply contracts.  However, the Unfair Contract Terms legislation places certain restrictions on what may not be validly inserted.

Contract clauses excluding liability for death and injury are never permissible.  Clauses excluding liability for negligence, defective or poor quality goods are only permitted if reasonable.   Although the legislation does not define what is “reasonable” the Courts will usually take into account the information available to the parties, whether the contract was negotiated in standard form or whether the purchaser had bargaining powers to negotiate better terms.

It is important that a business considers the terms and conditions of contracts with those with whom one deals both as supplier and customers. When dealing with customers, consumer protection laws may override the term of the contract.

Enforcement of Contracts

Where a supplier does not perform his contract or breaches its terms there is a right to take legal action for breach of contract.  The party in breach of contract will be liable to pay damages to the innocent party for the direct financial consequences of the failure.

Where goods are supplied to an end user and they are not paid for the business is entitled to take legal action to recover the price. Generally there will be no defence and special expedited debt collection procedures will apply in obtaining a Court Order, which can be enforced to ensure collection.

Where customers believe that goods do not conform to the above conditions they can reject them.  They would generally be entitled to a refund and compensation for loss and expense incurred as a result of the rejection.  Customers generally lose their right to reject goods, if they are accepted.  Goods are accepted when they are used or kept for a reasonable time.  Even if the goods are accepted the customer may be entitled to compensation for the defect.

Customers cannot complain in relation to defects which were pointed out at the time of purchase.  Similarly if they examine the goods before buying and the defect is obvious they cannot later reject them.

A warranty is a legally binding assurance of promise in addition to normal contractual rights. Sometimes warranties or guarantees or extended warranties are paid for by insurance policies. A warranty is in addition to the general responsibilities of a business under the sale of goods legislation.

Warranties and Conditions

The Sale of Goods Act distinguishes between “warranties” and “conditions”. These are different types of terms in the sale contract. Generally, breach of a warranty is less serious than breach of a condition.  The consequence of a breach of warranty is that the wronged party is entitled to compensation in money, but may not reject the goods and treat the contract as at an end.

Breach of condition is usually a more serious.  Breach of a condition generally entitles the buyer to treat the contract as terminated and to reject the goods. Alternatively, the buyer may “waive” the condition, not terminate the contract, accept the goods and claim for damages. He may simply waive the condition entirely and not claim for damages.

Default Rules on Sale Contracts

The English Sale of Goods Act and the Irish Sale of Goods Act are in broadly similar terms.The Sale of Goods legislation sets down certain rules which apply to the Sale of Goods, unless the contract says otherwise.

Ownership

It is implied that the seller is the owner of the items concerned and is entitled to sell them.  Title (valid ownership) cannot be sold if they the seller does not have it.  Therefore, if a third party maintains a claim against the purchaser of goods, he in turn will have a claim against the seller for breach of the implied promise of valid ownership.

Satisfactory Quality

It is implied that goods are of “satisfactory quality”. This gives a purchaser very significant rights.  Satisfactory quality is the standard that a reasonable person would regard as satisfactory, taking account of the description, price and all other relevant circumstances. The quality of the goods includes their state and condition, their fitness for the purpose concerned, their appearance and finish, freedom from any defects, safety and durability

Compliance with Description

Where goods are sold by description, there is an implied term that they will correspond with the description. Where goods are sold by sample it is implied that the goods will correspond with the sample.

When the contract provides for sale by sample, the sample should be identified because there is an implied condition that the bulk will correspond with the sample in quality. The buyer should have a reasonable opportunity to compare the bulk with the sample and that the goods are of satisfactory quality and are free from defects which would not be apparent on an examination of the sample.

Impossibility

Where it is impossible to perform the contract certain rules apply.  Where the sale of specific goods is agreed and they perish without either party’s fault, the contract may be void. However, there may be a clause in the contract that puts the goods at one party’s risk.