Contract Issues

Sale of Goods Contract

There is a sale of goods when a seller transfers or agrees to transfer the ownership of (property in) goods to a buyer for a money consideration, called the price.  The Act applies to both a sale, which is a direct transfer of goods for a price and also to an agreement for sale.  An agreement for the sale of goods is a contract, and the normal contract rules apply.

Where goods are purchased by request, a sale contract will be readily found and enforced.  The courts will generally be willing to conclude that the parties intend to form a contract, even if the terms are bare.

The Sale of Goods Act implies default rules into the barest of contracts. Even if there is no sale contract, the law of restitution obliges a party to pay a reasonable sum for goods supplied or work done at his request.


Supply of Goods and Services

When a contract is for goods and services, the application of the Sale of Goods Act to it depends on which predominates.  If the supply of goods is ancillary to the provision of services, then it is a supply of services.  Alternatively, where the supply of goods predominates, incidental services may not affect its character as a sale of goods.  Alternatively, it may be possible to distinguish two distinct contracts.

The distinction may be important in that the Sale of Goods Act implies certain strict obligations including unconditional liability in relation to merchantability and fitness for purpose in the sale of goods.  In contrast, the obligations in respect of the provision of services are not in the same unconditional terms.


The Act and Sale Contract

The basic provisions applicable to the sale of goods are determined primarily by the sale contract made by the parties.  Implied terms may supplement express terms.   The rules in relation to offer and acceptance, consideration, duress, misrepresentation, mistake, and the capacity to enter the contract derive from contract law. The buyer and seller have the freedom to agree on the terms of the sale, subject only to mandatory consumer protection rules.

The Sale of Goods Act makes provision for auction sales.  A bid is an offer to buy. The auctioneer’s final knocking down of the asset / property is acceptance.  The seller may reserve the right to bid and fix a reserve price.  Unless specifically reserved, the seller is not permitted to  bid.

In business to business contracts, most of the Sale of Goods Act provisions apply only to the extent that the contract does not otherwise provide. Most of the consumer protection provisions in the legislation are mandatory and it is not possible to contract to the contrary.


Note or Memorandum Required

A contract for the sale of goods valued at more than €12.70 (£10) requires written proof in some circumstances, in order to be enforceable by legal action.   Such a contract may be  enforced provided that

  • the goods have been paid for or partly paid for;
  • the goods have been accepted or received;
  • something has been given in earnest in respect of the sale;
  • the buyer does something that impliedly recognises the contract (such as dealing with the goods as if they are his own);

Otherwise, there must be a signed written memorandum of the terms of the sale contract.

The memorandum is a written note signed by the party against whom it is to be enforced or by his agent.  The note must have the basic details; price, parties, goods, other key provisions. The memorandum need not be a single document.  There can be a series of documents which are referred to.  It or they need only contain the principal provisions of the sale.

In the case of auction contracts, the highest bidder is generally bound without any further requirement. It is presumed that the auctioneer has authority to sign a memorandum on his behalf, where one is necessary.


Price

The Sale of Goods Act requires that there be a price or monetary equivalent by way of consideration.  A contract for barter or exchange is not regulated by the Sale of Goods Act.

The price may be fixed by the contract.  It may be fixed in accordance with a procedure under the contract.  It might arise from a previous course of dealings between the buyer and seller. If the price is not fixed, a reasonable price must be paid.

The failure to agree a price may be fatal to the existence of a contract. Where the price is to be agreed at some future date without objective criteria, the agreement may not be sufficiently certain so as to be enforceable. However, if goods are delivered and accepted at the request of the buyer, then the principles of restitution require that a reasonable price be paid to avoid unjust enrichment.


Representations

There may be representations which are not terms of the contract, but which have legal significance. If a person has entered a contract in reliance on a false or incorrect representation, he may be entitled to cancel the contract and/or to compensation for breach of representation.

In the case of a sale of goods or the supply of services (unlike other sales and contract types),  the courts may award damages for breach of a misrepresentation which is not part of the contract.  This is so, at the court’s discretion, even where the misrepresentation was innocent.  A fraudulent misrepresentation or negligent misrepresentation may give the innocent party a right to damages on the basis of a civil wrong (tort) in some cases.


Statements as Representations

An incorrect statement may be made prior to a contract which encourages the buyer to enter the contract.  It may constitute a contractual term or representation.  Where the statement is false or misleading and the buyer has entered the contract in reliance on it, then one of a number of consequences may follow.

A false or incorrect statement may be a misrepresentation.  The misrepresentation may entitle the buyer to compensation or to cancel/rescind the contract.  The Sale of Goods legislation provides for rights of compensation, and rights to cancel the contract that are more extensive than under the general law.

A statement may not be regarded as sufficiently certain to be a statement of fact on which the buyer relied.  General promotion, advertisement, and “sales talk” may be insufficiently factual for the buyer to reasonably rely on.


Statement as a Contract Term

A statement made prior to the contract may become a term of the contract.  In this case, its inaccuracy may constitute a breach of contract for which the buyer would be entitled to damages or compensation for loss thereby caused.

Whether the statement is intended to form part of the contract is a matter of interpretation of the agreement in the circumstances. The court will determine the contents of the contract.  A previous course of dealing and customs in the particular business may inform the decision.  (See generally the section on contract law).


Breach and Termination

In accordance with general contractual principles, the breach of a fundamental term of the contract entitles the innocent party to terminate the contract and sue for compensation.

Under the Sale of Goods Act, terms of the sale contract, the breach of which entitle the other party to terminate, are called conditions.  Other contract terms are warranties, the breach of which gives rise to a right to damages (only). The terminology used in the Sale of Goods Act differs from that commonly used in other contexts.

Outside of the sale of goods, the expressions “terms” and “conditions” are largely interchangeable. The distinction is between “fundamental” terms or conditions and others. The general law recognises innominate terms and conditions. They are intermediate terms, where the right to terminate for their breach depends on the seriousness of the actual breach in the circumstances.


Exemption and Limitation Clauses I

Exclusion, exemption and limitation clauses are those which limit or exclude the obligations of (typically) the seller or provider of goods or of a  service. The terms are used interchangeably here. The courts are reluctant to enforce clauses which purport to severely limit or take away the buyer’s rights.

The courts take the view, that if particular goods or services are to be provided, it is not possible at the same time to negate or largely take away from that core obligation. Contracts which purport to give with one hand and take away with the other, are not favoured by the courts and may be held to be illusory.

Exemption clauses may limit the amount of damages or compensation that can be awarded.  They may impose strict time limits for making claims and exclude liability for certain breaches.

The courts seek, where possible, to interpret exemption clauses against the interests of the party who has required their inclusion. Sometimes, the courts will stretch the bounds of interpretation to avoid giving effect to an exemption clause which is perceived as unfair and unreasonable.


Exemption and Limitation Clauses II

The courts require that reasonable notice is given of exclusion clauses.  They must be clearly incorporated and become part of the contract. A notice given after the contract has been entered, cannot be part of the contract.  However, it may be incorporated in future contracts between the parties, and thereby become incorporated into the contract by a course of dealing.

Where the exclusion clause has been incorporated and applies, the courts will interpret it “strictly”, against the interests of the party for whose benefit it has been inserted.  The courts will not allow an exclusion clause to remove entirely a party’s fundamental obligations. Where particular obligations are undertaken, a clause which purports to exclude liability for their breach significantly or entirely, may not be upheld.

The courts hold that the clauses may not protect against a fundamental breach of contract (i.e., a very serious breach).  More recent case law holds this to be a strong presumption, rather than a rule of law. Apart from this, if the exclusion clause clearly applies by its terms and conditions, it must be given effect.

The Sale of Goods Act was amended in 1980 to give power to the courts to deny effect to exclusion clauses which are not fair and reasonable. This provision applies to domestic sales only.


References and Sources

Irish Texts

Brian Doolan, A Casebook on Irish Business Law (1989)

Henry Ellis, Modern Irish Commercial and Consumer Law (2004)

Michael Forde, Commercial Law, 3rd Edition (2005)

Linehan, Irish Business and Commercial Law (1995)

McCormack, Reservation of Title 1990 (1994)

Patrick O’Reilly (ed.), Commercial and Consumer Law  (Statutes) (2000)

Sean Quinn (ed.), Statutes Revised on Commercial Law, 1695-1913 (1994)

Fidelma White, Commercial Law (2003) (2nd Ed 2012)

Fidelma White, Commercial and Economic Law In Ireland (2011)

Vincent Grogan, Thelma King and Edward J. Donelan, Sale of Goods and Supply of Services: A Guide to the Legislation (Law Society of Ireland, 1983)

Paul Anthony McDermott, Contract Law (Butterworths, Dublin, 2001) (2nd Ed 2017)

2011 Report of the Sales Law Review Group,

UK texts

Atiyah and Adam’s Sale of Goods 13th Ed (2016)

Bridge, Benjamin’s Sale of Goods 9th Ed (2015);

Bridge, The Sale of Goods 3rd Ed (2014)

Blackstones’ Statutes Commercial and Consumer Law 2017

Goode on Commercial Law 5th Ed 2017

Legislation

Sale of Goods Act 1893

Sale of Goods and Supply of Services Act 1980

Electronic Commerce Act 2000

Criminal Justice (Theft and Fraud Offences) Act 2001 (50/2001)

International Carriage of Goods by Road Act 1990 (13/1990)

European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013 (S.I. No. 484 of 2013)

European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003 (S.I. No. 11 of 2003)