The Sale of Goods Act  mostly operates to protect businesses that sell goods to other businesses as well as certain business-to-consumer sales. The law implies certain terms into those contracts to protect the parties from buying or selling faulty goods. Those terms apply even if you did not agree to them at the time of signing the contract. In limited situations, you and the other party could contract out of those obligations. This article explains the implied terms under Sale of Goods Act and when can you contract out of the law.

What Are the Implied Terms under the Sale of Goods Act?

The Sale of Goods Act implies specific terms into contracts that allow for the sale of goods between parties. These terms apply to both consumers and other businesses. The terms include that:

  • the seller is allowed to sell the products at the time of sale;
  • the buyer enjoys quiet possession of the goods (known as buying and enjoying the goods without outside interference);
  • there is no third party who declared or made it known to the buyer that they had a claim over the goods when they were sold; 
  • when goods are sold based on their description, the goods will reflect that description,
  • when the buyer tells the seller that they need the goods for a particular purpose, the goods should be reasonably fit for such a purpose;
  • any goods sold by description will be suitable for the purpose (known as ‘merchantable’ quality);
  • if the seller sells goods by sample, the rest of the goods will correspond with the quality of the sample;
  • if the goods are sold by sample, the buyer will have a reasonable opportunity to compare the bulk of the goods with the sample; and
  • any goods that are sold by sample does not contain defects that would make them not suitable for the purpose (known as ‘unmerchantable quality’), especially you cannot see the defects after examining the sample. 

When Can You Contract Out of the Implied Terms?

As a business, you can choose to contract out of Sale of Goods Act through:

  • express agreement, where both parties agree to exclude the Act from applying to the contract;
  • during business dealings throughout the time of the contract; or
  • common use, if the use binds both parties. 

For example, a restaurant owner buys lettuce from a supplier based on the supplier’s description given over the phone that the lettuce is fresh and green. The contract does not say the goods have to match the description. The lettuce arrives looking brown. Therefore, the lettuce fails to match the description. The supplier would have breached the implied term that any goods that they sold by description would reflect that description.

However, the situation is different if the contract between the restaurant and its supplier includes a term stating that “The conditions implied by the Sale of Goods Act do not apply in this agreement”. The restaurant owner would not have a claim against the supplier, as they gave up their legal right for the Act to apply to the contract. 

Businesses and consumers usually have the autonomy to decide their rights and duties within a contract. A court can determine the appropriate rights and duties if there is a contract dispute.

Can You Contract Out of Your Consumer Sale Obligations?

However, you cannot contract out of Sale of Goods Act‘s implied terms if your business is selling to consumers. The only exception is when the consumer knew about  defects before they bought the product. If you included a clause in your contract that excludes the Act’s application, that term would be made void, which means it cannot be enforced against any consumers. 

What is a Customer Sale?

However, the Sale of Goods Act defines customer sales quite specifically. The law states that a customer sale involves the sale of goods bought for the purpose of private use to someone who is not buying the goods for business reasons. 

For example, if your business sells a TV to a young father of three kids to watch Netflix, that would be a customer sale under Sale of Goods Act. If your business was selling a TV to a corporate executive who wants the TV for business presentations, that is unlikely a customer sale under Sale of Goods Act.

Therefore, if you are making customer sales, you cannot contract out of your obligations under Sale of Goods Act. Any contractual term that claims otherwise will be void. 

Key Takeaways

Your business can exclude the operation of Sale of Goods Act in your contracts by inserting a clause in the contract to state that the law does not apply to the contract. You cannot exclude the law’s operation if you are selling goods to customers for private consumption. Any contractual term that claims otherwise will not be enforceable. If you have any questions or need your contract reviewed, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Eugenia Munoz
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