Commercial Law Exam Notes
Core terms – Price, payment and delivery
Standard terms and conditions –
The buyer will want: (a) goods to be delivered on time, (b) for the seller to be liable for any defects.
The seller will want: (a) flexibility for late delivery, (b) will want buyer to collect goods eg for its
factory, (c) might accept liability for defects but will not want to be liable for every trivial problem.
Basic checklist for a commercial agreement:
1. Commencement and date
2. The parties: full names, addresses, company numbers.
3. The recitals: background to contract. They explain the previous relationship between the
parties, and the reason for entering into a contract.
4. Definitions and interpretations
5. Conditions precedent: Certain conditions may need to be satisfied BEFORE the agreement /
or parts of the agreement come into effect.
6. Agreements
7. Representations and warranties: give rise to liability in the event they are breached.
8. Indemnities
9. Limitations and exclusions
10. ‘Boilerplate’ clauses.
11. Execution clause and signature
12. Schedules.
Boiler-plate clauses
Prevail clauses: A prevail clause provides that, in the event of a dispute, one party’s (e.g., the
seller’s) terms shall prevail over the other party’s terms.
Entire or whole agreement clauses: obligations provided in one document, provides
certainty.
No authority clauses: A no authority clause provides that a contract will be effective only if
made by certain individuals within each parties’ business.
Choice of law and jurisdiction. Rome I - law of the country where the seller has habitual
residence will apply (Art 4), The parties’ choice of law will override this (Art 3(1)).
Force Majeure: suspend or terminate the contractual obligations in the event of an
occurrence outside the control of the parties (fire, flood, storm etc). Usually for benefit of
seller/deliverer of goods.
Non-assignment, no subcontracting clause: buyer will not want work to be subcontracted to
different supplier.
Dispute resolution clause: DR provisions in the event of dispute.
Severance: allows court to strike out a clause or part of clause which is for some reason
illegal or invalid. The offending provision severed, remainder of agreement will be
enforceable.
, Battle of the forms: In a situation where both parties seek to impose their own standard
terms on the other, it may not be clear whose terms apply.
Termination: allows the parties to get out of the contract.
Incorporation of contractual terms
Clauses may be incorporated into the contract: by signature, by notice, by a previous course
of dealing.
Notice: bring to customer’s attention. The more onerous or burdensome the clause, the
greater the need to draw it to the buyer’s attention; the so-called “red hand rule”: Spurling v
Bradshaw.
Variations of contractual terms: party must generally provide consideration. Or other party
waives their right by continues with performance or does not object. ‘no authority clause’ to
stop staff unintentionally varying contracts (MWB Business Exchange Centres Ltd v Rock
Advertising Ltd).
Remedies for breach of contract:
Breach of condition – innocent party can repudiate contract (refuse to honour it), or
terminate the contract. Discharged from all future obligations under it. May recover property
transferred (including price paid for any goods) and claim damages.
Breach of warranty – innocent party can only claim damages.
Contractual damages:
Hadley v Baxendale – claim for damages are limited to: (a) losses that flow naturally from the breach,
(b) losses that may reasonably be supposed to have been in the contemplation of the parties at the
time they made the contract.
Mitigation – the claimant must have made a reasonable attempt to mitigate the loss. Burden of proof
on D to show C did not mitigate.
The sale of goods:
S2(1) SGA 1979: ‘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’.
Main concerns for the parties: the seller will want to ensure that the price is right and that payment
is prompt in order to avoid cash-flow problems. The buyer in relation to payment will be looking for
favourable credit periods and concerned to see that delivery is prompt.
,The Price
S8 SGA: s8(1) the price in a contract for sale may be fixed by the contract, or may be left to be fixed in
a manner agreed by the contract, or may be determined by the course of dealing between the
parties. S8(2) where price is not determined the buyer must pay a reasonable price.
Price lists and quotations: specify any length of time for which any quoted price or price list
will remain valid.
Price escalation clause: if costs of materials or labour increase between signing of contract
and delivery, without an escalation clause the seller will not be able to change the price.
VAT: price is taken as including VAT unless otherwise specified (s19(2) Value Added Tax Act
1994).
Payment
S27 – buyer’s duty to pay the price. Only payment in full will discharge buyer’s liability, buyer may
want credit period.
S28 – time for payment is when goods are delivered. Only changed where this is in contract, eg credit
period of 30 days.
S10(1) unless a different intention appears from the terms of the contract, stipulations as to time of
payment are not of the essence of a contract of sale.
Provide as a provision in the contract, interest for late payment.
S49 – unpaid seller has a right to sue for the price.
S48 – where buyer fails to pay, seller has statutory right of resale.
If the buyer is given a credit period, the contract must specify when the seller has a right to
issue an invoice as this will commence the credit period.
Interest on late payment: Late Payment of Commercial Debts (Interest) Act 1998.
Delivery
S61(1): ‘voluntary transfer of possession from one person to another’.
S27 – duty of the seller to deliver the goods. And duty of the buyer to accept delivery.
S30 – duty to deliver the right quantity.
DRAFTING CONSIDERATIONS
Passing of risk S20(1) risk passes with the property in the goods, title
to/ownership of goods. Does not automatically pass with
delivery.
Seller can be at risk even if in buyer’s possession.
Therefore, seller will want contract to be drafted so risk to
goods passes to buyer with physical possession of goods.
Contract could provide that buyer has obligation to insure
goods.
Place of delivery Default position – s29(2) will be at seller’s place of business or
residence. Contract should therefore specify where delivery is to
occur.
Date and time of delivery Default position – s29(3) within a reasonable time. To avoid
commercial uncertainty, contract should deal with issue.
S10(2) parties can agree whether or not time is of the essence.
Hartley v Hymans – commercial contracts, where delivery date
specified, time of delivery is of the essence.
Force majeure event may suspend delivery date.
Cost of delivery Provision in contract as to who will bear the costs of delivery, usually
this will be the buyer.
S29(6) seller is responsible for putting goods in deliverable state.
Rejection of delivery S36 – goods delivered to buyer, buyer rejects them, not obliged to
, return them, seller must arrange collection of the goods.
S37 – buyer is liable for costs incurred by the seller due to buyer’s
neglect or refusal to take delivery, ie wrongful rejection of delivery.
Acceptance of the goods A buyer is deemed to have accepted the goods when: He tells the
seller this OR Does any act inconsistent with ownership of the seller
(e.g. uses them or sells them to a third party) (s35(1)).
Time of the essence Where time is of the essence in relation to an obligation, a failure of a
party to meet a deadline will entitle the innocent party to terminate
the contract. S10(1) and (2).
Seller will want contract drafted so time not of essence – risky
for them if it is. Any attempt to exclude will be subject to s3
UCTA 1977.
Rights and remedies of the seller
The ‘unpaid seller’: s38 – (a) when the whole of the price has not been paid or tendered, (b) when a
bill of exchange or other negotiable instrument has been received as conditional payment, and the
condition on which it was received has not been fulfilled by reason of the dishonour of the
instrument or otherwise.
S39 gives the unpaid seller rights –
Can only exercise in LIMITED CIRCUMSTANCES – (a) seller must come within definition of unpaid
seller, (b) seller must have possession of or control of goods.
1. A right of lien on the goods: s41 unpaid seller in possession of goods entitled to retain
possession of them: until paid, where any credit period has expired, where the buyer has
become insolvent. S43 – rights of lien lost if goods are paid for or buyer has possession of
goods or by waiver by seller.
2. A right of stopping the goods in transit: ss44-46 – seller may stop in transit where buyer has
become insolvent and retain them until paid.
Under s46(1), the stopping could be either by: ➢ Taking actual possession of the goods; or ➢
By giving notice of the seller’s claim to the carrier.
The right can be lost if the buyer manages to intercept the goods before the seller has an
opportunity to exercise its right.
3. A right of resale: s48(3) seller can resell goods where – (a) goods are perishable, (b) seller
gives notice to buyer of its intention to do so.
Limit: must give notice to the buyer of its intention to re-sell and wait to see whether the
buyer tenders the price within a reasonable time.
On resale: ➢ The original contract of sale is rescinded and ➢ The buyer is discharged from
further liability to pay the price.
But, seller can sue original buyer if any loss on resale.
Personal rights of the unpaid seller –
Sue for price of the goods (s49).
