What implied terms does the Sale of Goods Act 1979 imply into a sales contract?

The Sale of Goods Act 1979 (SGA 1979) is the primary statute governing contracts for the sale of goods in England and Wales. It implies a number of important terms into every contract for the sale of goods, which the parties cannot generally contract out of (particularly in consumer contracts). The key implied terms are as follows. Section 12 implies a term that the seller has the right to sell the goods (i.e. it holds legal title and the buyer will receive unencumbered ownership). This term cannot be excluded in any contract. Section 13 implies a term that where goods are sold by description, the goods must correspond with that description. For example, if a contract describes goods as made of stainless steel and they are in fact made of a cheaper alloy, there will be a breach of section 13. Section 14(2) implies a term that where the seller sells goods in the course of a business, the goods shall be of satisfactory quality. Satisfactory quality is assessed by reference to what a reasonable person would regard as satisfactory having regard to the description, price, and all other relevant circumstances of the goods. Section 14(3) implies a term that where the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are required, the goods shall be fit for that purpose, unless the circumstances show the buyer did not rely on the seller's skill and judgement. Section 15 implies terms where the goods are sold by sample. In business-to-business contracts, sections 13 to 15 can be excluded or limited by a term in the contract, but only where such exclusion is reasonable under the Unfair Contract Terms Act 1977. In consumer contracts, these terms cannot be excluded.

When does risk and title in goods pass under a UK Sales Contract?

The passing of risk and the passing of title (legal ownership) are two distinct concepts under the Sale of Goods Act 1979 and should be addressed separately in a sales contract. Risk relates to who bears the loss if the goods are damaged or destroyed. Under section 20 of the SGA 1979, risk passes with property (i.e. at the same time as title) unless the parties agree otherwise. This default rule means that if the seller retains title to the goods (for example, under a retention of title clause), the seller would also bear the risk of damage in transit, which is commercially undesirable for the seller. The contract should therefore expressly state when risk passes, typically on delivery to the buyer or to a carrier. Title (property) in goods passes when the parties intend it to pass, under section 17 of the SGA 1979. For specific or ascertained goods, the general rule under section 18 is that title passes when the contract is made. For unascertained or future goods, title cannot pass until the goods are ascertained (i.e. specifically identified). A retention of title clause (also known as a Romalpa clause, following the leading case Aluminium Industrie Vaassen BV v Romalpa Aluminium [1976]) delays the passing of title until the seller has received full payment. Such clauses are common in B2B sales contracts and are generally effective under English law, provided the goods are clearly identifiable as the seller's property.

What is a retention of title clause and is it enforceable in England and Wales?

A retention of title (ROT) clause, also known as a Romalpa clause, is a contractual provision in a sales contract under which the seller retains legal title to goods supplied until certain conditions are met, typically until the buyer has paid the purchase price in full. The purpose of a retention of title clause is to protect the seller against the risk of the buyer's insolvency before payment has been made. If the buyer becomes insolvent and the seller's goods can be identified as belonging to the seller (by virtue of the ROT clause), they should not form part of the insolvent buyer's estate available for distribution to creditors. Under English law, simple retention of title clauses (providing that title remains with the seller until the price of those specific goods is paid) are generally enforceable and effective. However, extended ROT clauses (for example, claiming title to all-monies outstanding, or asserting a proprietary interest in the proceeds of resale by the buyer) may create charges that require registration at Companies House under section 859A of the Companies Act 2006. An unregistered charge is void against a liquidator, administrator, or creditor. For this reason, retention of title clauses should be carefully drafted, reviewed by a solicitor with experience in commercial law, and the practicalities of identification and recovery of goods in an insolvency situation should be considered.

How are warranties handled in a UK Sales Contract between businesses?

In a business-to-business (B2B) sales contract in England and Wales, the seller's obligations with respect to the quality and conformity of goods are governed by both the implied terms of the Sale of Goods Act 1979 and any express warranties included in the contract. Under sections 14(2) and 14(3) of the SGA 1979, goods must be of satisfactory quality and fit for any disclosed purpose. In a B2B contract, these implied terms can be excluded or restricted by an express term of the contract, but only if such exclusion satisfies the reasonableness test under the Unfair Contract Terms Act 1977 (UCTA 1977). A blanket exclusion of all implied terms is unlikely to satisfy the UCTA 1977 reasonableness test. In addition to the statutory implied terms, the seller may choose to provide express warranties on the goods, for example, a warranty that the goods will be free from defects in materials and workmanship for a specified period after delivery. Express warranties are subject to the terms of the contract and typically require the buyer to give notice of any warranty claim within the warranty period. The contract should clearly state the duration of the warranty period, what defects are covered, the seller's obligation on a warranty claim (repair, replacement, or refund), and any exclusions (for example, defects caused by misuse or modification of the goods by the buyer). Both parties should be aware that, regardless of any express warranty, the implied terms under the SGA 1979 apply to the extent not validly excluded.

What are the consequences of late payment under a UK Sales Contract?

Late payment is a significant commercial risk for sellers under UK sales contracts. The primary statutory remedy for late payment in B2B contracts is provided by the Late Payment of Commercial Debts (Interest) Act 1998 (the Late Payment Act). Under the Late Payment Act, where a business sells goods or services to another business and the buyer fails to pay the agreed price by the contractual due date (or, if no payment date is agreed, within 30 days of delivery of the goods or the invoice, whichever is later), the seller is entitled to charge statutory interest on the overdue amount at a rate of 8% per annum above the Bank of England base rate. This statutory interest rate is significantly higher than the general interest rate available in litigation proceedings and is intended to deter late payment. In addition to interest, the Late Payment Act provides the seller with the right to recover a fixed sum of compensation for each overdue debt: £40 for debts below £1,000, £70 for debts between £1,000 and £10,000, and £100 for debts of £10,000 or more. The seller is also entitled to recover reasonable costs of recovering the debt beyond the fixed sums. The parties to a B2B contract may agree a contractual interest rate that is different from the statutory rate, but any such contractual term that purports to exclude or limit the buyer's liability to pay statutory interest must be substantial contractual remedy for late payment and must be fair and reasonable. The Sales Contract should expressly include a late payment interest clause to make the parties' rights and obligations clear.

Can a seller limit or exclude liability in a UK Sales Contract?

In a business-to-business sales contract governed by English law, a seller may include a limitation or exclusion of liability clause, subject to the constraints of the Unfair Contract Terms Act 1977 (UCTA 1977). Under UCTA 1977, certain liabilities cannot be excluded or restricted at all: liability for death or personal injury caused by negligence is absolutely non-excludable (section 2(1) UCTA 1977); liability for fraud or fraudulent misrepresentation cannot be excluded; and (in consumer contracts) the implied terms under sections 13 to 15 of the Sale of Goods Act 1979 relating to description, quality, fitness for purpose, and correspondence with sample cannot be excluded. In B2B contracts, sections 13 to 15 implied terms can be excluded or restricted only where it is reasonable to do so (section 6(1A) UCTA 1977). Reasonableness is assessed at the time the contract is made and takes into account the bargaining strength of the parties, whether the buyer received an inducement to agree to the exclusion clause, whether the buyer knew or ought reasonably to have known of the exclusion, and other factors listed in Schedule 2 to UCTA 1977. A cap on financial liability (for example, limiting the seller's liability to the total purchase price paid under the contract) is generally more likely to be upheld than a blanket exclusion of all liability, particularly where the parties are of broadly equal bargaining strength and the cap is proportionate to the transaction value and available insurance cover. The exclusion of indirect and consequential losses (such as loss of profit or loss of business) is commonly included in commercial sales contracts and is generally enforceable in B2B arrangements, provided it passes the UCTA 1977 reasonableness test.

Sales Contract (UK) — Canada

Document the sale of goods between a seller and buyer in England and Wales with this Sales Contract. Drafted in accordance with the Sale of Goods Act 1979 (as amended), the Consumer Rights Act 2015, the Unfair Contract Terms Act 1977, and the Late Payment of Commercial Debts (Interest) Act 1998. Covers purchase price, payment terms, delivery, risk, title, retention of title, warranties, and limitation of liability.

What Is a Sales Contract (UK)?

A Sales Contract is a legally binding agreement used in England and Wales to document and govern the sale of goods from a seller to a buyer. It records the terms on which legal ownership of specified goods passes from the seller to the buyer in exchange for an agreed purchase price. Unlike an informal purchase order or invoice, a Sales Contract provides a comprehensive legal framework covering the specification of the goods, the purchase price, payment terms, delivery, the passing of risk and title, warranties, retention of title, and liability.

Sales contracts are used extensively across commerce and industry in the United Kingdom, in both business-to-business (B2B) and business-to-consumer (B2C) transactions. Common examples include a manufacturer selling a batch of industrial components to a production company; a wholesaler supplying goods to a retailer under a one-off sale agreement; a business selling surplus assets, plant, or equipment; a technology company supplying hardware under a specific purchase order; and a trader selling goods to a private individual.

In England and Wales, the law governing contracts for the sale of goods is primarily contained in the Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994), which implies a number of important terms into every contract for the sale of goods, including terms as to title (section 12), correspondence with description (section 13), satisfactory quality (section 14(2)), fitness for purpose (section 14(3)), and sale by sample (section 15). Where the buyer is a consumer, the Consumer Rights Act 2015 applies and provides additional protections, including the short-term right to reject goods within 30 days. The Unfair Contract Terms Act 1977 governs the enforceability of exclusion and limitation clauses in B2B contracts. The Late Payment of Commercial Debts (Interest) Act 1998 provides for statutory interest at 8% over the Bank of England base rate on overdue B2B payments.

This Sales Contract template is designed for use in England and Wales between two businesses or between a business and a private individual. It covers all of the key commercial and legal elements of a goods sale transaction.

When Do You Need a Sales Contract (UK)?

A Sales Contract should be used whenever a seller wishes to transfer ownership of goods to a buyer for a price, and the parties want a clear, written record of the terms of that transaction. While many routine sales are conducted informally on the basis of a purchase order and invoice, a written Sales Contract is strongly advisable in the following situations.

First, where the goods are of significant value. For high-value transactions, both parties need certainty about the key commercial terms, including the purchase price, payment schedule, delivery arrangements, and any warranties. A written contract reduces the risk of costly disputes.

Second, where the goods are being sold subject to specific terms that differ from the standard implied terms under the Sale of Goods Act 1979, for example, where the goods are being sold ‘as seen’ or ‘as is’ with no implied warranty of quality, or where the seller wishes to include a retention of title clause to protect against the risk of the buyer's insolvency before payment.

Third, where the goods require specific delivery arrangements, inspection periods, or acceptance testing before the risk and title pass to the buyer.

Fourth, where the seller wishes to limit or exclude its liability for defects, indirect losses, or consequential damages. Limitation and exclusion clauses must be included in a written contract and must satisfy the reasonableness test under the Unfair Contract Terms Act 1977 to be enforceable.

Fifth, where the goods are manufactured to a specific specification or the sale is made on the basis of a sample, making it important to clearly document what the goods must conform to.

A Sales Contract should be signed before goods are delivered or payment is made, to ensure that both parties are bound by the agreed terms from the outset.

What to Include in Your Sales Contract (UK)

A well-drafted Sales Contract for use in England and Wales should contain all of the following key elements to protect both the seller and the buyer.

The identification of the parties and the goods. The contract should clearly identify both the seller and the buyer, including their full legal names, addresses, and (for companies) their Companies House registration numbers. The goods should be described with sufficient precision to leave no doubt about what is being sold, including quantities, specifications, and model or reference numbers where applicable.

The purchase price. The contract should state the total purchase price, whether VAT is included or additional, and the currency of payment.

Payment terms. The payment terms should specify the payment schedule (including any deposit), the payment method, the due date for each payment, and the consequences of late payment. Reference to the Late Payment of Commercial Debts (Interest) Act 1998 is advisable to put the buyer on notice of the seller's right to statutory interest on overdue amounts.

Delivery terms. The delivery clause should specify where and when the goods will be delivered, who bears the cost of delivery, and when risk passes to the buyer. Risk should generally pass on delivery, which is the point at which the buyer has the opportunity to inspect the goods.

Retention of title. A retention of title clause is strongly advisable in any credit sale where the seller is concerned about the risk of non-payment. It should clearly state that title remains with the seller until the purchase price is paid in full, and impose obligations on the buyer to identify and preserve the seller's goods while they remain in the buyer's possession.

Warranties. The contract should describe any express warranties offered by the seller, the warranty period, the coverage of the warranty, and the procedure for making a warranty claim. The statutory implied terms under the Sale of Goods Act 1979 apply in addition.

Inspection and rejection. The contract should specify the timeframe within which the buyer must inspect the goods on delivery and give notice of any defect or non-conformity, and what rights the buyer has if the goods do not conform.

Liability. The contract should clearly state the limits of each party's liability, including any cap on total financial liability and any exclusion of indirect or consequential losses, subject to the constraints of the Unfair Contract Terms Act 1977.

Governing law. The contract should confirm that it is governed by the laws of England and Wales.

What Is a Sales Contract (UK)?

When Do You Need a Sales Contract (UK)?

What to Include in Your Sales Contract (UK)

Frequently Asked Questions

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Bill of Sale (England & Wales)

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Letter of Intent (UK)