What to check in a sale of goods contract

The most critical part of any sale agreement is the description of the goods. Vague terms lead to disputes regarding quality and specifications. Both parties must be clear on whether the items are new, used, or custom-made for the buyer.

In many jurisdictions, there is an implied warranty that goods will match their description. However, relying on implied terms is risky. It is better to attach technical specifications or samples as an exhibit to the main contract to ensure there is no ambiguity.

• Exact quantity and units of measurement
• Technical specifications or model numbers
• Condition requirements (e.g., brand new vs refurbished)
• Packaging and labeling requirements
• Acceptance criteria for quality control

A sale of goods contract must state the total price or the method to calculate it. This includes clarity on who pays for ancillary costs like shipping, insurance, and import duties. In international trade, parties often use Incoterms to standardize these costs.

Payment timing is equally important. Sellers usually prefer payment upfront or via letter of credit, while buyers prefer credit terms or payment upon inspection. The contract should specify penalties for late payments, such as interest or the right to halt future deliveries.

• Unit price and total contract value
• Taxes (VAT, GST, or Sales Tax) responsibilities
• Currency of payment and exchange rate risk
• Payment milestones (deposit, delivery, acceptance)
• Late payment interest rates

Delivery is not just about the physical arrival of goods; it is about when legal responsibility shifts. Risk of loss usually passes from the seller to the buyer at a specific point, such as when the goods leave the warehouse or when they are signed for at the destination.

Title transfer is a separate legal concept. Sellers often include a 'retention of title' clause, which means they own the goods until the full price is paid. This protects the seller if the buyer goes bankrupt before paying for the delivered items.

• Physical delivery location or port
• Shipping method and carrier selection
• Risk of loss transfer point
• Title transfer timing
• Consequences of delivery delays

Warranties are promises about the quality and performance of the goods. Common warranties include 'merchantability' (the goods work as expected) and 'fitness for a particular purpose'. In the EU and UK, consumer sales have strong statutory protections that cannot be signed away.

For business-to-business (B2B) deals, sellers often try to limit these warranties. It is vital to check if the contract excludes 'implied warranties' and what the specific remedy is for defective goods, such as repair, replacement, or a refund.

• Warranty duration (e.g., 12 months)
• Exclusion of implied warranties
• Process for claiming under warranty
• Limits on product liability claims
• Indemnity for intellectual property infringement

The buyer has a legal right to inspect goods before accepting them. The contract should define a 'reasonable time' for this inspection. If the buyer stays silent for too long, they may be deemed to have accepted the goods, even if defects are found later.

If the goods are non-conforming, the buyer can reject the whole lot or just the defective portion. The contract should outline how the buyer must notify the seller and who bears the cost of returning or disposing of the rejected items.

• Inspection window (e.g., 48 hours after delivery)
• Notice requirements for non-conformity
• Seller's right to 'cure' or fix the defect
• Return shipping cost allocation
• Partial vs full rejection rights