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If you have a contract with a buyer to sell them goods, your obligations to deliver the goods are fundamental terms in the contract. Ideally, a contract for the sale of goods will specify your obligations as the seller to deliver the goods. However, where a contract is silent, the law imputes certain obligations onto the seller and buyer. This article will explain what your delivery obligations are as a seller. Also, this article will explain the commercial implications of these delivery obligations.
Delivery in a Contract for the Sale of Goods
The law defines delivery widely. In the most basic sense, delivery refers to how the buyer is to take possession of the goods. In a retail context, delivery is not as important because delivery happens automatically. That is, at the point of sale, the buyer takes possession of the goods at your shop once the purchase is completed.
However, if you are a manufacturer or a wholesaler, delivery becomes quite an important term of the contract. For instance, the buyer may come to your premises to collect the goods. Alternatively, you may hire a delivery service to transport the goods. You may even transport the goods yourself.
Industry customs and the express terms of the contract typically govern delivery obligations regarding the specific goods to be delivered.
“EXW” — the Default Position
Ideally, your contract should specify exactly what your obligations are as a seller to deliver the goods. This minimises the chance of any dispute and provides you and the buyer with commercial certainty.
However, where a contract is silent on delivery, the law steps in and implies certain terms. These terms are binding; it is though you and the buyer agreed to them yourselves.
These implied terms state that, you the seller, are to deliver the goods to the buyer within a reasonable time. Effectively, this means you must ensure the buyer can collect the goods from your business premises within a reasonable time. What is reasonable depends on the circumstances.
Industry custom refers to this provision as an EXW. This is short for “Ex Works”, or “from the buyer’s works”. As a seller, this is the most advantageous position to be in. This places all the transportation costs on the buyer. For high-value goods or goods shipped over distances, this can be quite expensive. The buyer also must meet any insurance costs themselves.
As such, unless you have more bargaining power than the buyer, the buyer will be keen to negotiate express terms that distribute the cost of delivery more evenly.
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Further Considerations
There are additional obligations in place that the law implies absent express terms to the contrary.
You the seller are under a duty to deliver the goods and the buyer is under a duty to accept the goods. This means that provided the goods are not defective and fit for purpose, as described, and of a satisfactory quality, the buyer cannot refuse the goods upon delivery. If the buyer does, they are in breach of contract for non-acceptance.
Additionally, you must be prepared to relinquish the goods to the buyer upon delivery. Concurrently, the buyer must be prepared to pay for the goods at the point of delivery. In practice, these terms are expressly modified out of custom. For instance, most buyers pay on credit, which means the contract does not obligate them to pay the buyer at the point of delivery. But absent an express term, the buyer would be in breach of the contract if they showed up to collect the goods but were not prepared to pay.
Further, if your contract is governed by EXW you may be in breach of the agreement if your buyer came to collect the goods but you could not give the buyer possession of the goods.
Is Time of the Essence?
If any term in the contract governing delivery specifies that time is of the essence, you must deliver the goods within this time. If you do not, you commit a repudiatory breach of contract. This is the gravest of contractual breaches because it entitles the buyer to terminate the contract. This means they can refuse to accept the goods upon late delivery. That is, they would not be in breach of the contract if you commit a repudiatory breach.
Courts take the view that most contracts that specify delivery within a certain time imply that time is of the essence. As such, the contract need not specify that time is of the essence, for the Court to reach this conclusion.
Therefore, to avoid strict obligations, you should specify in the contract more lenient terms. For instance, you might have a provision that allows you seven days after the specified delivery date to deliver the goods. This is a matter of negotiation between you, the seller, and your buyer.
Force Majeure
A force majeure clause specifies certain events that, if they arise, may release you from your contractual obligations, including your delivery obligations. Common examples of such events include:
- declarations or threats of war and armed conflict;
- acts of terrorism;
- civil war;
- catastrophic natural disasters such as floods, forest fires, hurricanes, and tornadoes (sometimes called “Acts of God”);
- epidemics and pandemics;
- nuclear, chemical, or biological contamination;
- the collapse of a building;
- a building fire;
- labour and other trade disputes; and
- certain third parties that fail to fulfil certain specified obligations.
To rely on this clause, you must take reasonable steps to mitigate the event’s effect.
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Key Takeaways
In a contract for the sale of goods, how the goods are delivered is frequently a key term of the contract. Absent any express terms, the law states that, you the seller, should make the goods available for collection by the buyer within a reasonable time at your premises. This is often called an “EXW” provision when it is expressly negotiated. EXW provisions are the most favourable to you, the seller, while imposing the most cost on the buyer. Consequently, your buyer will likely negotiate with you to include an express term in your agreement, that apportions the delivery obligations between you two.
As a seller, you should ensure you are prepared to give possession of the goods to the buyer upon delivery. The buyer should be prepared to pay for the goods at the point of delivery. This is absent any express condition to the contrary. In most contracts, time is of the essence. Accordingly, you may be in repudiatory breach of the contract for late delivery of the goods to your buyer.
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Frequently Asked Questions
Absent any express terms, the law states that, you the seller, should make the goods available for collection by the buyer within a reasonable time at your premises.
An EXW term is an industry shorthand for “Ex Works”, which refers to arrangements that place the obligation to collect the goods on the buyer. This can entail significant cost and risk to the buyer, which is why EXW arrangements are only common where the seller has a superior negotiating position.
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