A contract to sell goods to another business looks simple. Price, quantity, delivery date. Done.
But the law adds terms you never wrote down. It decides who owns the goods, who bears the loss if they are damaged, and what happens if your customer cannot pay. If your contract does not deal with these points, the default rules will.
For tech businesses selling hardware, devices or kit bundled with software, that can mean carrying more risk than you priced for. Written terms and the terms the law adds
Every contract has two layers.
Express terms are the ones you agree: price, volumes, payment, delivery and specification. They sit in a negotiated contract or in your standard terms and conditions.
Implied terms are added on top, mainly by statute. They apply automatically unless your contract validly limits or excludes them.
The five promises the law makes on your behalf
The Sale of Goods Act 1979 governs most sales of goods between businesses. Where goods are supplied in other ways, such as on hire or as part of a wider service, the Supply of Goods and Services Act 1982 adds very similar terms.
If you sell goods in the course of business, you are treated as promising that:
- You have the right to sell them. The buyer gets clear ownership and can use the goods without a third party claiming them.
- They match their description. If you sell by reference to a spec sheet, listing or model number, the goods must match it.
- They are of satisfactory quality. This is judged by what a reasonable person would expect, taking into account the description and price. Safety, durability, appearance and freedom from minor defects all count.
- They are fit for any purpose the buyer made known. If the customer tells you what they need the goods to do and relies on your expertise, the goods must be reasonably fit for that use.
- The bulk matches the sample. If you sell by sample, the full delivery must match its quality.
The commercial point: if a customer tells your sales team what they need the product for, that conversation can become part of the contract.
When courts add terms
Courts can also imply terms, but rarely. They will not add a term just because it seems fair. It must be needed to make the contract work, or be so obvious it goes without saying.
Terms can also be implied by settled trade practice, or by a consistent history of dealings between the same two businesses.
The practical fix is an entire agreement clause. It confirms the written contract is the whole deal, and it can shut out terms based on trade custom or past dealings. It does not remove the statutory promises above. If you want to limit those, your contract needs to say so expressly.
Who owns the goods and who carries the risk
Ownership (known as title) passes when the parties intend it to. By default, risk passes with ownership. So whoever owns the goods usually bears the loss if they are lost or damaged.
Most suppliers change this so that:
- risk passes on delivery, which means the customer insures the goods once they arrive
- ownership stays with the supplier until it is paid in full
That second part is a retention of title clause, sometimes called a Romalpa clause. If your customer becomes insolvent before paying, goods you still own are not part of their assets. You can reclaim them rather than queue with other unsecured creditors.
It only works in practice if:
- the goods can still be identified, ideally by serial number
- they have not been sold on or built into something else
- your contract gives you the right to enter the customer's premises and recover them
If the customer is in administration, you will usually need the administrator's consent or the court's permission before taking the goods back.
What happens when something goes wrong
The five statutory promises are conditions. If one is breached, the buyer can normally reject the goods, end the contract and claim damages.
There is a limit. In a business-to-business sale, if the breach is so minor that rejecting the goods would be unreasonable, the buyer cannot reject them and is limited to claiming damages, unless the contract says otherwise.
How far you can limit liability
Suppliers often replace the statutory promises with their own warranty, such as a 12-month repair or replace commitment, and cap their liability. That is allowed, within limits set by the Unfair Contract Terms Act 1977:
- Liability for the right to sell cannot be excluded or limited at all.
- Liability for description, quality, fitness for purpose and sample can be excluded or limited only if the term is reasonable.
Reasonableness depends on the facts. Courts look at the parties' bargaining power, whether the customer could have bought elsewhere on better terms, whether insurance was available and whether the term was clear. A cap that leaves the customer with almost no remedy is the one most likely to fail.
What about software?
Hardware with embedded software will generally be treated as goods. Software supplied on its own, by download or as a service, sits less comfortably within these rules, and the law here is not fully settled.
If you sell hardware and software together, your contract should spell out which terms cover which part: a sale of goods for the device, and a licence or subscription for the software.
Compliance clauses your customers will expect
Larger customers will push compliance obligations down their supply chain:
- Bribery Act 2010. A company commits an offence if someone acting for it pays a bribe, unless it had adequate procedures to prevent bribery. Contract clauses form part of showing those procedures.
- Modern Slavery Act 2015. Organisations with a turnover of £36m or more must publish an annual modern slavery statement. Even if you are below that threshold, customers above it will ask you to sign up to anti-slavery terms.
- Criminal Finances Act 2017. Companies can be liable for failing to prevent the facilitation of tax evasion by people acting for them, so expect clauses on this too.
If your customer becomes insolvent
Since the Corporate Insolvency and Governance Act 2020, suppliers generally cannot stop supplying or change the terms just because a customer enters an insolvency or restructuring procedure. Nor can they terminate during that period over unpaid invoices from before it started.
Clauses allowing you to walk away on insolvency are therefore largely ineffective at exactly the moment you would want them. There are limited exceptions, for example with the insolvency practitioner's consent, or where a court agrees that continuing to supply would cause you hardship.
This is why retention of title, deposits and sensible credit limits do more to protect you than termination rights.
Summary
- The law adds promises on ownership, description, quality and fitness for purpose to every B2B sale of goods.
- You can limit most of them, but only reasonably, and never the right to sell.
- Decide when risk and ownership pass, and keep ownership until you are paid.
- Do not rely on termination rights if a customer becomes insolvent.
- If you sell hardware with software, make sure your contract covers both properly.
If your sales terms were written before you started selling hardware, or came from a template, book a free 20-minute call with the Ethiqs team