SGA 1979: Key Legal Points for Small Business Owners

As a small business supplier, you must understand the legal and commercial law rules that can impact your operations. It is vital to comprehend ‘implied terms’ and how they impact your obligations. If you supply goods, knowing how an important law called the Sale of Goods Act 1979 (SGA) applies to your business-to-business (B2B) sales is crucial. For small business suppliers, the SGA is significant because it defines specific legal obligations when selling goods. This article explores some key points your small business needs to know about business contracts and how to navigate the SGA confidently and comply with your legal responsibilities.

Why are Contracts Important for Your Small Business?

Contracts are often vital to protecting your small business as a supplier. A robust contract can help you establish clear terms and expectations with your customers, ensuring both parties understand their rights and obligations and reducing the chance of disputes.

Well-drafted contracts can help safeguard your small business from significant risks in B2B transactions, such as non-payment or liability for issues outside your control. Important contractual provisions can also help limit your liability, giving your business better protection and certainty over how much it may need to pay a customer for breaching its contractual obligations.

How Can Implied Terms Impact Your Small Business?

In addition to the ‘express terms‘ that parties explicitly agree upon, implied terms can arise automatically under English law. These terms impose legal obligations and risks that your small business must understand. 

Statutory implied terms automatically form part of contracts, even when not explicitly stated in the terms. The SGA is a key example of an important law introducing specific implied terms to ensure fairness in B2B sales. Implied terms can arise in other circumstances and those implied by law. For instance, courts may imply terms based on industry practices or prior dealings between the parties.

Understanding implied terms is essential for your small business to avoid potential risks such as the following: 

• if your business fails to meet legal obligations you were not aware of, the other party could pursue legal remedies against you;
• your lack of awareness of implied terms can introduce unpredictability and confusion, which can also lead to customer complaints and disputes, which can increase costs and cause a drain on your time; and
• problems and arguments over implied terms can lead to loss of business and future revenue with disgruntled customers. 

How Does The Sale Of Goods Act 1979 Impact Contracts?

The SGA automatically introduces specific key terms into contracts for the sale of goods. These statutory implied terms ensure fairness and provide a baseline level of protection in B2B transactions. Understanding these terms is essential for your small business as a supplier to meet your obligations and avoid risk. 

Under the SGA, in-scope B2B contracts for the sale of goods will automatically include certain key terms your business must comply with. In simple terms, these include provisions regarding: 

• Right to Sell Goods: The seller must have the right to transfer ownership;
• Matching Description: The goods must correspond to their description; and
• Satisfactory Quality and Fitness: The goods must be of satisfactory quality and fit the buyer’s disclosed purpose.

Implied Terms

These implied terms will apply unless the contract’s express terms specifically and lawfully exclude or modify them. Practically, they can arise when a contract is silent on these points. 

Buyers will have different rights depending on which implied terms are breached, such as the right to reject goods or claim damages.

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Given the significant consequences of these terms and potential remedies available to your customers, a small business needs to understand implied terms, how they can apply, and their impact and consequences. 

To address risks proactively, you should carefully review your obligations under the SGA and other implied terms that may apply to your contracts.

Can Your Small Business Seek to Change These Terms?

Excluding or modifying implied terms under the SGA can give your small business more control over its contractual obligations. It is common for product sellers to lay out their own terms instead of relying on implied terms; however, this practice is subject to strict legal rules. 

You can exclude or vary some implied terms (for example, by agreement between the parties), but this must comply with the Unfair Contract Terms Act 1977 (UCTA) to be enforceable. 

A contract term that attempts to restrict or exclude the seller’s liability where the goods do not conform with the implied statutory conditions is effective only to the extent that it satisfies the UCTA reasonableness (or reasonable person) test. As such, it is vital that any exclusion of implied terms your business seeks to include in its contracts meets the reasonableness test under UCTA and is drafted precisely. 

Key Takeaways

Your small business must understand the implications of the Sale of Goods Act 1979 to effectively manage its B2B sales of goods contracts. Contracts for the sale of goods will automatically include implied terms covering key provisions to protect buyers. If you wish to exclude such terms, they will be subject to the reasonableness test under UCTA. As such, legal advice is vital to ensure you have excluded implied terms correctly and lawfully.

If your business needs legal advice on the SGA or its contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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