The ProjecTeam Purchase Orders are published in two versions. One is in triplicate pad format, suitable for handwritten entries with pre-printed conditions on the reverse. The other is a five section document, intended for large contract purchases of high value.

The Purchase Orders are designed to be consistent with the ProjecTeam Services Contract documentation. Where appropriate, they apply the same principles and use the same wording as the model Services Contract. The Services Contract is based on CUP GN 59, published by Treasury's "Central Unit on Procurement" in May 1997.

The provisions in the Conditions of Purchase/Standard Conditions (depending on the version used) are based on CUP GN 23, published by Treasury's "Central Unit on Purchasing" in September 1990. Subsequent legislation has not affected the drafting of those provisions.

Sale of Goods law concerns the application and interaction of technical concepts such as delivery, inspection, acceptance, transfer of property and risk, the statutory implied terms as to quality and fitness and the exclusion of statutory liability. This note is not intended to provide a complete statement of the relevant law. It provides an outline of the main principles, sufficient to indicate how the ProjecTeam Purchase Orders deal with those issues to protect the interests of purchasing authorities and to avoid contractual disputes.

The principal Act is now the Sale of Goods Act 1979, which consolidated the numerous amendments to the Sale of Goods Act 1893. Other relevant Acts are the Supply of Goods and Services Act 1982 (applying the same principles to other transactions transferring the ownership or possession of Goods), the Sale and Supply of Goods Act 1994 (amending both the principal Act and the 1982 Act) and the Unfair Contract Terms Act 1977. The Sale of Goods Act 1979 is intended to codify the law on the sale of Goods. It sets out a number of rules that will apply to a contract of sale in the absence of express provisions within the contract.

The Law

The Contract

Under the Sale of Goods Act 1979 ("SGA") a "contract of sale" is classified as either a "sale", where there is an immediate transfer of property, or an "agreement to sell", where the transfer is to take place at some later time, after entering into the contract: SGA s.2.

The main distinction is that in the case of a sale, there will be a contractual condition that the seller has the right to sell the goods at the time when the contract is made. In an agreement to sell, there will be a condition that the seller will have the right to sell at the goods at the time when the property is to transfer. There will also be many other issues that do not arise in the case of an immediate sale.

There is a recognised distinction between "conditions of purchase" and "conditions of sale", depending on whether the purchaser or the seller issues the proposed terms of contract.

ProjecTeam Purchase Orders

A Purchase Order is legally a "contract of sale" as seen from the Purchaser's perspective.

The Purchase Orders are designed for the requisition of Goods which are to be supplied at some time after entering into the contract. For the purposes of the Sale of Goods Act 1979, the Purchase Order (once accepted by the Supplier) is an "agreement to sell".

Since the contracting authority determines the proposed conditions of contract, they are "Conditions of Purchase" and not "Conditions of Sale".

 

The Goods

The SGA makes a distinction between existing goods, owned or possessed by the seller at the time of entering into the contract, and future goods, to be manufactured or acquired by the seller after entering into the contract: SGA s.5(1).

The SGA also classifies goods as being either specific goods or unascertained goods. Specific goods are those where the actual item to be supplied has been identified and agreed upon by the parties at the time of entering into the contract (for example, a particular item chosen by the purchaser in the seller's showroom or warehouse): SGA s.61(1).

In all other cases the goods are referred to as unascertained goods. This expression covers the case where the contract specifies goods of a particular make and specification (for example, from a catalogue published by the seller). The seller could supply any one from a number of items of the description stated in the contract, provided that the item supplied complies with all the requirements of the contract. Unascertained goods become ascertained when a particular item is allocated to the contract.

In the case of unascertained goods, if the seller delivers a defective item before the due date for delivery, he could avoid being in breach of his contractual obligations by withdrawing the item and substituting an item that is not defective, provided this is done no later than the due date for delivery. The position would be different in the case of specific goods, where the goods would have failed to comply with the requirements of the contract and it would be necessary to have recourse to any remedies built into the contract or hold the seller to be in breach of contract.

The SGA also makes a distinction between goods sold by description only and goods sold by sample. Where goods are sold by sample, the goods actually supplied must correspond with the sample. In a written contract, the specification must make clear reference to the sample and the goods must correspond with both the description and the sample.

ProjecTeam Purchase Orders

The Purchase Orders include a section headed "Description of Goods and Prices". This is appropriate to cover both existing goods and future goods, specific goods and unascertained goods, goods sold by description and goods sold by sample.

It is therefore appropriate for the normal case, where the actual items to be supplied have not been selected by the Purchaser but must meet the description and other requirements stated in the Purchase Order.

Where a contracting authority orders Goods of a certain type, even specifying a particular make and specification, technically the Purchase Order will be a contract for the purchase of "unascertained goods".

 

Description

Virtually all contracts for the sale of goods, even those for the sale of specific goods, are contracts of sale "by description". The only exception is an immediate sale of specific goods where there are no words of description in the contract.

The description can extend beyond the descriptive name of the goods. It can include a description given in advertisements, packaging or negotiations. In an oral contract it can include statements made by the seller as to the nature, year of manufacture or origin of the item and references to design or manufacturing standards. In written contracts, matters contained in the specification are part of the description of the goods if the words serve to identify the goods.

ProjecTeam Purchase Orders

Condition 2 (Entire Agreement) excludes all prior negotiations, representations and understandings from the contract. The Purchaser must ensure that all matters relied upon to identify the Goods required are entered in the "Description of Goods and Prices" and that any special requirements relating to their nature, performance capabilities, design and manufacturing origin are set out in the Special Conditions / Specification (depending on the version used).

 

The Price

The SGA provides that the price may be (a) fixed by the contract; (b) left to be fixed in a manner agreed in the contract; (c) determined by the course of dealings between the parties; or (d) left open, in which case the purchaser must pay a reasonable price, which depends on the circumstances of the case: SGA s.8.

ProjecTeam Purchase Orders

The Purchase Orders provide for prices to be entered in the "Description of Goods & Prices". The price is therefore fixed by the contract.

 

Delivery

The SGA declares that it is the duty of the seller to deliver the goods and the duty of the buyer to accept and pay for them in accordance with the contract: SGA s.27.

Delivery means the "transfer of possession from one person to another": SGA s.61(1). It refers to the seller's obligation to hand over the goods and could be effected simply by making the goods available for collection. In the absence of a contractual provision, there is no obligation to transport them to the purchaser's premises.

The SGA provides that, unless otherwise agreed, the place of delivery is the seller's place of business if he has one, and if not, his residence. Where, however, the contract is for the sale of specific goods and the parties know that the goods are situated in some other place, that place will be the place of delivery: SGA s.29(2).

Similarly, unless otherwise agreed, delivery of the goods to a carrier is deemed to be delivery to the purchaser: SGA s.32(1). The risk of accidental damage in transit would then fall on the purchaser. The contract should therefore state whether the goods are to be collected or delivered to the purchaser's premises. It should deal with such matters as whether the goods will be packed and whether carriage extends to unloading and installation.

The SGA declares that payment and delivery are "concurrent conditions". The seller must be ready and willing to give possession of the goods in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods: SGA s.28. Payment and delivery therefore ought to take place at the same time, unless otherwise agreed.

ProjecTeam Purchase Orders

Conditions 5.1 - 5.3 require delivery to the place specified in the Purchase Order and include further requirements where delivery involves access to the Purchaser's premises.

Conditions 5.1 - 5.3 provide that carriage/freight costs shall be at the Supplier's expense (Free Delivered Destination). These Conditions include provisions applicable where the Purchase Order requires installation in the Purchaser's premises.

Conditions 7 and 9 impose obligations in respect of the labelling and packaging of the Goods and loss or damage in transit.

Condition 4.1 establishes that payment is conditional upon the supply of Goods being in accordance with the Purchase Order. Payment is to be made within 30 days of receipt of a valid invoice, or within 30 days after delivery, whichever is the later.

 

Time of Delivery

The contract will usually specify a date for delivery or require delivery within a specified time. Late delivery would then be a breach of contract. Where time is of the essence, the purchaser would be entitled to reject the goods on late delivery, without having to prove he had suffered any loss. A purchaser who acquiesces in late delivery loses the right to reject for late delivery, but does not lose the right to claim damages for breach of contract provided he can prove he has suffered loss.

Conditions of purchase usually make time of delivery of the essence. However, conditions of sale, prepared by the seller, often provide that the seller will do his best to deliver on time but does not give any warranty to do so.

ProjecTeam Purchase Orders

Condition 5.4 requires delivery within the time specified in the Purchase Order and states that time of delivery shall be of the essence.

 

Acceptance

Acceptance is not the same as taking delivery of the goods. It is equivalent to abandoning the right to reject the goods. It does not mean that the purchaser has abandoned the right to damages for a breach of contract.

The SGA provides that goods are taken to be accepted when the purchaser (a) informs the seller that he has accepted them; or (b) does any act in relation to the goods which is inconsistent with the seller continuing to own them; or (c) retains the goods beyond a reasonable period of time without indicating to the seller that he has rejected them: SGA s.35 as amended by the 1994 Act.

However, under all three of those grounds of acceptance, the purchaser is not deemed to have accepted the goods until he has had a reasonable opportunity to examine them for conformity with the contract: SGA s.35 as amended by the 1994 Act. In the case of a contract for sale by sample, the purchaser must have a reasonable opportunity to compare the goods supplied with the sample.

Previously this exception did not apply to the first ground of acceptance. If a purchaser states that he has accepted the goods, that statement is now not binding on him until he has had a reasonable opportunity to examine them. Signing an "Acceptance Note" or similar document on delivery cannot amount to an acceptance, since the purchaser cannot sign away his right to reject the goods before he has had a reasonable opportunity to examine them.

ProjecTeam Purchase Orders

Conditions 8.1 - 8.2 provide for inspection and testing by the Purchaser before delivery and allow for rejection within a reasonable time after delivery.

Condition 8.3 also stipulates a guarantee period of 12 months from putting into service or 18 months from delivery, whichever is the shorter. It allows for repair or replacement, at the option of the Purchaser, cost free.

Transfer of Property

The transfer of the property in the goods is an issue quite separate from delivery or payment.

The SGA provides that, where the contract is for the sale of unascertained goods, the property in the goods cannot be transferred to the purchaser until the goods have become ascertained: SGA s.16. The property cannot transfer where the goods are part of an undivided bulk, not yet allocated to the purchaser. Unascertained goods sold by description become ascertained when goods of that description, in a deliverable state, are "unconditionally appropriated to the contract". The goods are then subject to the same principle as specific goods as regards the transfer of property.

The SGA provides that the property in the goods will be transferred at such time as the parties intend it to be transferred. Their intention is ascertained by having regard to the terms of the contract, the conduct of the parties and the circumstances of the case: SGA s.17. The SGA sets out detailed rules where there is no evidence of their intention. Where unascertained goods become ascertained, property would pass when goods are appropriated to the contract by one party with the express or implied assent of the other party.

ProjecTeam Purchase Orders

Condition 6.1 provides that property in the Goods shall pass to the Purchaser at the time of delivery, without prejudice to any of his rights or remedies under the Purchase Order.

 

Transfer of Risk

"Risk" in this context means such risks as the goods perishing or being destroyed or damaged after the contract is made. The transfer of risk has to be considered as a separate issue from delivery.

If goods at the seller's risk are destroyed or damaged, the purchaser would be released from the obligation to accept them, but the seller would not be released from the obligation to deliver them. If goods at the purchaser's risk are destroyed or damaged, the purchaser may still be liable to pay the price, even though the seller would be released from the obligation to deliver them.

The SGA provides that, unless otherwise agreed, the goods remain at the seller's risk until the property in them is transferred to the purchaser, whether or not delivery has been made. However, once the property is transferred, the goods are at the purchaser's risk, whether or not delivery has occurred: SGA s.20(1). Where delivery is delayed through the fault of either party, the goods are at the risk of the party at fault, as regards any loss that might not have occurred but for such fault: SGA s.20(2).

Thus the basic rule is that property and risk will transfer at the same time. However, some conditions of sale, prepared by the seller, provide that risk will pass on delivery but property will not pass until the purchaser has paid for the goods.

ProjecTeam Purchase Orders

Condition 6.1 provides that risk shall pass to the Purchaser at the time when the property transfers, on delivery.

 

IMPLIED TERMS

As a general rule, a contract (whether oral or written) may consist of express terms, those actually spoken or written, and implied terms, arising by conduct, by custom and practice or by law. Where a contractual term might otherwise be implied, an express term can cover the matter explicitly. It may go further than the implied term or it may establish a contrary position. Express terms always have priority over any potential implied terms, unless the power to override the implied term is restricted by law.

The SGA contains particular rules that will apply to a contract of sale by operation of law "unless otherwise agreed" by the parties. The SGA also provides explicitly that certain terms will be implied. These terms will apply as terms of the contract unless (i) the contract covers the same point by an express term to the same, or to stronger, effect or (ii) the contract excludes or limits the implied term by an express provision, provided that the law allows its exclusion or limitation.

Special protection, intended primarily for the protection of purchasers, is given by the Unfair Contract Terms Act 1977 ("UCTA") in respect of the implied terms in the SGA. The protection applies to SGA s. 12 (Implied condition as to title); s.13 (Conformity of goods with description); s.14 (Implied terms about quality or fitness); s.15 (Sale by sample). (These implied terms are covered individually later in this Note).

SGA s.12 (Implied Condition as to Title) cannot be excluded or limited in any contract for the sale of goods: UCTA s.6(1). A contract therefore cannot exclude all implied terms under the SGA.

Where the purchaser is acting in the course of a business (as in the case of contracting authorities in central government, local government and the NHS), SGA s. 13, 14 and 15 can be excluded or limited, provided that the exclusion or limitation satisfies the statutory requirements of reasonableness under UCTA: s.6(3).

Those three sections of the SGA cannot be excluded or limited in the case of a consumer sale, namely where the purchaser acts in a private capacity but the seller is dealing in the course of business, and the goods purchased are of a type ordinarily supplied for private use or consumption: UCTA s.6(2). Purchases made by contracting authorities will not be consumer sales.

The UCTA also provides that a contract of sale cannot exclude or limit liability for negligence causing death or personal injury: UCTA s.2(1)). This provision, in itself, demonstrates that a contract cannot exclude the operation of rules of law which apply over and above the agreement made by the parties.

ProjecTeam Purchase Orders

The Purchase Orders do not exclude or limit any of the statutory implied terms under the Sale of Goods Act 1979. They contain provisions expressly covering the particular matters concerned. The express provisions take precedence over terms that would otherwise be implied, rendering it unnecessary to rely on the statutory implied terms.

Condition 2 provides that the Purchase Order "constitutes the entire agreement between the Parties" and "supersedes all prior negotiations, representations and understandings, whether written or oral". This Condition relates to matters between the Parties, in providing that no previous matters between them form part of the contract. It does not go so far as to exclude terms that would be implied by law over and above the agreement of the Parties.

Condition 3.2 provides that the Goods shall conform in all respects with the requirements of any statutes, orders, regulations or bye-laws in force at the date of the Purchase Order. This Condition covers any legal requirements as to manufacturing standards or specifications where applicable. It would also include any statutory requirements relating to the Goods, including those under SGA s. 13, 14 and 15, if it were necessary to rely on statutory implied terms.

Since the express Conditions take precedence over the statutory terms that would otherwise be implied, the Purchase Order maintains the concept of an entire agreement in which all the terms of the contract are contained expressly within the Purchase Order.

  

Implied Condition as to Title

There is an implied condition, in the case of a sale, that the seller has a right to sell the goods or, in the case of an agreement to sell, that he will have the right to sell the goods at the time when the property is to pass to the purchaser: SGA s.12.

ProjecTeam Purchase Orders

Condition 6.1 covers this point through the contractual requirement that the property in the Goods shall pass to the Purchaser.

 

Implied Term as to Description

Where the contract is for the sale of goods by description, there is an implied condition that the goods will correspond with the description. If the sale is by sample as well as by description, it is not sufficient that the goods supplied correspond with the sample, if they do not also correspond with the description: SGA s.13.

ProjecTeam Purchase Orders

Conditions 3.1 - 3.2 provide that the Goods shall conform in all respects with the requirements of the Purchase Order. This includes the "Description of Goods" and any matters of description in the Special Conditions/Specification.

 

Implied Term as to Satisfactory Quality

Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality: SGA s.14(2) as amended by the 1994 Act. The 1994 Act replaced "merchantable quality" with "satisfactory quality".

The statutory test of satisfactory quality is "the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances": SGA s.14(2A) as inserted by the 1994 Act.

ProjecTeam Purchase Orders

Conditions 3.1 - 3.2 provide that the Goods shall be to the reasonable satisfaction of the Purchaser. This enables the Purchaser to make the determination as to the Goods being of satisfactory quality but it imposes the standard that a reasonable person would regard as satisfactory. In effect, as under SGA s.14(2A), the Purchaser may only reject the Goods on grounds of unsatisfactory quality where it is reasonable to do so.

 

Fitness for Purpose

The quality of goods includes "their state and condition" and, in appropriate cases, "fitness for all the purposes for which goods of the kind in question are commonly supplied; appearance and finish; freedom from minor defects; safety; durability": SGA s.14(2B) as inserted by the 1994 Act.

There is however a statutory exception. The implied term does not extend to certain matters making the quality of goods unsatisfactory, namely: (a) any matter which is specifically drawn to the purchaser's attention before the contract is made; or (b) where the purchaser examines the goods before the contract is made, any matter which that examination ought to have revealed; or (c) in the case of a contract for sale by sample, any matter which would have been apparent on a reasonable examination of the sample: SGA s.14(2C) as inserted by the 1994 Act.

ProjecTeam Purchase Orders

Condition 3.3 requires that the Goods shall be fit and sufficient for the purpose for which such goods are ordinarily used. The Purchaser is entitled to rely on all the matters that are listed in SGA s.14(2B) in making a determination as to the satisfactory quality of the Goods.

The right of rejection and guarantee under Condition 8 have effect irrespective of the statutory terms.

The "Description of Goods" and/or Special Conditions / Specification should cover all relevant matters as to quality and fitness for purpose. The Purchase Order excludes all prior representations and understandings including those as to quality and fitness and any matters drawn to the Purchaser's attention. The Purchase Order thus overrides the exception in SGA s. 14(2C) by providing more extensive protection. This does not amount to an exclusion or limitation of the statutory implied term.

 

Implied Term as to Fitness for a Particular Purpose

Where the seller sells goods in the course of a business and the purchaser, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied - except where the circumstances show that the purchaser does not rely, or that it is unreasonable for him to rely, on the skill or judgement of the seller: SGA s.14(3).

ProjecTeam Purchase Orders

As an entire agreement, the Purchase Order excludes any implication arising from conduct or words spoken by the parties. The Purchaser must specify any particular purpose for which the Goods are required, in the Special Conditions/Specification. Condition 3.3 states that the Purchaser relies on the skill and judgement of the Supplier in the supply of the Goods and the performance of the Purchase Order.

 

Implied Terms relating to Samples

The SGA provides that a contract is a contract for sale by sample where there is an express or implied term to that effect in the contract. There is an implied condition that the bulk will correspond with the sample in quality and that the goods will be free from any defect, making their quality unsatisfactory, that would not be apparent on reasonable examination of the sample: SGA s.15.

ProjecTeam Purchase Orders

In any case where a sample of the Goods is provided and relied upon by the Purchaser, the Special Conditions/Specification must refer to the sample and require that the Goods to be supplied correspond with the quality, and any other relevant characteristics, of the sample.

ã ProjecTeam Ltd T: 0161-766-8709  F: 0161-766-6620  Email: mdrake@projecteam.co.uk   
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