Commercial
Sale of Goods Act 1979 and its Relevance Today
Author
Barbora Korcova
Author
Barbora Korcova
November 10, 2024
Commercial
Contract Law
The Sale of Goods Act 1979 (SGA) is a key piece of legislation in the UK that governs the sale and purchase of goods. Since its introduction, it has undergone several amendments to adapt to changing commercial landscape and to better balance the interests of buyers and sellers.
However, with the introduction of the Consumer Rights Act 2015 (CRA), much of the SGA’s application to consumer contracts has been replaced. The CRA now governs most transactions involving individual consumers purchasing goods (or services) from businesses.
Despite the shift, the SGA still plays a critical role in areas outside the scope of the CRA. It continues to apply to business to business (B2B) transactions which makes it highly relevant in commercial settings. Read below to find out more.
Basics
So, what is sale of goods? SGA defines the sale of goods as a ‘contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price’.
A key distinction of the SGA is that it applies exclusively to goods, which are defined as tangible, movable items. It does not extend to services or transactions involving intangible assets. An example of an intangible asset would be ownership of a patent or a domain name.
Similarly, contracts involving hire purchase agreements—a separate legal framework—fall outside the scope of the SGA. Hire purchase agreements are governed primarily by the Hire Purchase Act 1964.
By establishing foundational principles such as the requirement for goods to match their description, be of satisfactory quality, and be fit for purpose, the SGA continues to be a benchmark for B2B transactions concerning tangible goods.
Interplay with the Consumer Rights Act 2015
The introduction of the CRA marked a transformative shift in consumer protection laws in the UK. The CRA consolidated various pieces of consumer legislation, including parts of the SGA, Supply of Goods and Services Act 1982, and Unfair Terms in Consumer Contracts Regulations 1999. It also introduced new provisions tailored specifically to consumer contracts.
While the CRA now governs most consumer transactions, the SGA remains relevant for contracts formed before 1 October 2015, when the CRA came into effect. For example, a consumer contract for the sale of goods entered into on or before 30 September 2015 would still fall under the SGA.
This distinction is critical for legal disputes involving transactions preceding the CRA. In these cases, courts would rely on the provisions of the SGA rather than the newer CRA.
B2B transactions
As mentioned above, the SGA remains highly relevant in B2B sales and purchases.
Key aspects of the SGA in B2B transactions you should be aware of are:
1. Implied Terms
Any contract will contain two types of terms: (1) express terms and (2) implied terms. Express terms are the terms that the parties have written down or spoken to each other (in the case of oral contracts).
Implied terms are terms that are not spoken or written but nevertheless apply under the common law or under relevant legislation.
The SGA is an example of such relevant legislation. It contains certain provisions that will automatically be implied in any contract covered by the SGA for the sale of goods.
These include:
- Title. The seller must legally own the goods they are selling, ensuring the buyer receives a clear title. If this term is breached by the seller, the buyer has a right to terminate the contract and claim compensation (damages) for loss suffered. There are some legal scenarios in which a legitimate purchaser of goods from a seller without proper title to them can still obtain the title to the goods from the defective seller which we do not deal with here.
- Description. Goods sold must match their description, a requirement particularly important in sectors like manufacturing.
- Satisfactory quality and fitness for purpose. Goods must meet the standard that a reasonable person would see as satisfactory and be suitable for any specific purpose disclosed by the buyer to the seller. This is especially relevant to industries purchasing specialised equipment or materials.
2. Flexibility to exclude implied terms
It is not possible for the seller to exclude the implied term as to the seller’s title in the goods. Any attempt to exclude the implied term as to the title would be considered void. Therefore, if a seller sells goods that it did not own, it will always be liable to the buyer.
The implied terms as to the description and/or satisfactory quality and fitness for purpose can be excluded in the contract unless it is shown that it would not be fair or reasonable to rely on such exclusion. This is set out in the SGA itself, which states:
‘In the case of a contract of sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 13, 14 or 15 above is…not enforceable to the extent that it is shown that it would not be fair or reasonable to allow reliance on the term’
Whether or not it would be ‘fair or reasonable’ would depend on several factors such as the strength of the bargaining positions of the seller and buyer, whether the buyer knew about this exclusion of the implied term and so on.
It is important to note that these limitations are separate from and in addition to the legislative limits on the exclusion or avoidance of certain types of liability
Exclusion clauses are common in B2B contracts where the parties have equal bargaining power. Such clauses must be clearly drafted and comply with the Unfair Contract Terms Act 1977, which permits exclusion clauses in some cases, subject to the reasonableness test.
Therefore, a party seeking to cap its liability for a breach of the terms implied by the SGA must also take into account the Unfair Contract Terms Act 1977.
3. Transfer of risk from the seller to the buyer
The SGA sets out the rules for determining which party bears the risk of loss or destruction of the goods.
The general rule is that the goods remain at the seller’s risk until the ownership in them is transferred to the buyer. Once the ownership is transferred to the buyer, then the goods are at the buyer’s risk (and it does not matter if they have been delivered to the buyer or not).
There are 3 exceptions to this general rule:
- Parties agree otherwise in their contract. Buyers and sellers are free to state that the risk will transfer at an earlier time rather than when ownership will pass to the buyer (or indeed any other arrangement). For example, in distribution arrangements it is common for risk to pass when a buyer picks up the goods from the manufacturer’s warehouse but has not yet paid the invoice for the goods in full.
- If delivery has been delayed because of the fault of either the buyer or seller, the party that is at fault must bear the risk of any loss which might have not occurred if there was no delay.
- If the seller agrees to deliver goods to a location different from where they were sold, the buyer will be responsible for any natural deterioration that happens to the goods during transit unless the contract states otherwise.
4. Breach of contract and remedies
The SGA offers robust remedies for breaches, which can be crucial in B2B contexts where breaches can have significant financial and operational impacts. Some of these are listed below:
- Right to reject goods. If the goods delivered do not conform to the contract (e.g. they are of unsatisfactory quality or do not match the description), the buyer has the right to reject the goods and terminate the contract. Alternatively, the buyer may accept the goods and seek a price reduction or damages.
- Damages for non-delivery or late delivery. If the seller fails to deliver the goods or delivers them late, the buyer may claim damages for any losses suffered as a result. This could include losses from having to source alternative supplies or from production delays.
- Specific performance. In certain cases, where goods are unique or have specific value, the buyer may seek a court order for specific performance, compelling the seller to fulfil their contractual obligations.
Conclusion
While the CRA has largely replaced the SGA for consumer transactions, the SGA’s relevance in B2B contracts cannot be overlooked. Its principles continue to govern key aspects of the sale and purchase of goods, offering legal protections to both buyers and sellers.
If your business engages in B2B sales or complex commercial transactions, understanding the implications of the SGA is essential. If you need guidance or tailored advice on how these regulations impact your operations, feel free to contact us here to discuss how we can assist.
