Contract of sale: standard or specific terms?
Farmers will know that making a sale is usually a significant deal, and you’ll want to get the best deal you can for the fruits of your labour. Does this mean you have to accept the purchaser’s ‘standard terms’ in the contract of sale? What are the implications of setting your own terms in a contract of sale?
Like all businesses, farms have to sell the products they produce to a third party such as a wool merchant, dairy company, winemaker, fruit packer or meat processor.
Everything you sell must comply with a contract of sale. The terms of these contracts are set out in a supply agreement, a contract to purchase goods or services, or by statute. Most are industry standard documents. Most of the larger companies that purchase dairy, grapes and fruit have standard terms and conditions and won’t do business with individuals who want to negotiate the terms. Commonly, you’ll have little or no say about the terms of the contract.
Selling your product on a ‘need to know’ basis
Just because you have little or no say about the terms of the purchaser’s contract, doesn’t mean that ignorance is bliss. You need to know what the terms of the contract mean for you. When you consider the effort you go to to produce your product, it’s important to understand the standard terms and conditions so you know what to do if issues arise.
Can I have my own terms of sale?
Yes. This is becoming more common, especially for farmers who want to sell their stock, crops or produce directly to others. If you want to do this, you should have your own terms of sale. The old Sale of Goods Act 1908 has been replaced by the Contract and Commercial Law Act 2017. This new legislation governs contracts of sale to a certain extent.
The rules set out by the CCLA
- How a contract is formed and the implied terms for the sale of goods.
- The passing of property and risk in goods.
- Defects in the seller’s title to the goods.
- How goods are delivered, accepted and rejected if necessary.
- Your rights as an unpaid seller such as the right to a lien, the right to resell or to stop goods in transit.
- The CCLA also covers other remedies for buyers and sellers for breach including the principles for the recovery of damages.
The CCLA also covers the following implied terms:
- How you must be able to give good title as a seller.
- That your goods will correspond to description if sold by description.
- That your goods are reasonably fit for any purpose the buyer communicates.
- That your goods are of merchantable quality.
- That the bulk of your goods will correspond to a sample if that was the means of making the sale.
What’s the big deal?
When making your own deals, you will need to consider the implications of relying on the CCLA or if you want to set your own terms of sale. While your contract can vary many of the provisions in the CCLA, some are set in stone.
Because you’ll be making big deals direct from the farm, you need clear terms of sale, especially to cover payment terms, issues with product quality and so forth to protect your interests. In the event a payment isn’t made, you’ll want to register a security interest over the goods so you can recover them if necessary.
As a seller, it’s important to understand what the CCLA does and doesn’t cover you for and what you can vary to suit your circumstances. Before you make a decision, we encourage you to seek farm law advice from our rural lawyers who can guide you through the process.