Most sales contracts are completed without any issues. The seller delivers the goods, the buyer pays the purchase price, and the parties go their separate ways. But what happens when the goods are delivered late, turn out to be defective, or the buyer fails to pay as agreed?
The law of sales governs precisely these situations. Its purpose is to ensure a fair balance between the parties’ interests and to provide predictability when something goes wrong during the performance of the contract.
Agreements must be honoured
A fundamental principle of Norwegian law is freedom of contract. As a starting point, the parties are free to agree on the terms and conditions governing the sale. This is reflected, among other provisions, in Section 3 of the Norwegian Sale of Goods Act, which provides that the Act’s rules yield where otherwise follows from the agreement, established practice between the parties, trade usage, or other custom.
For both businesses and private parties, this means that the sales contract is often the primary legal basis governing the transaction. The Sale of Goods Act largely serves as a supplementary framework that fills any gaps left by the contract.
Consumer sales are somewhat different. The Norwegian Consumer Purchases Act contains a number of mandatory provisions designed to protect consumers against unfair contractual terms.
Sales are based on the principle of concurrent performance
A sale creates reciprocal rights and obligations. The seller is entitled to payment but is simultaneously obliged to deliver the goods. The buyer is entitled to receive the goods but must pay the purchase price.
The performance of the contract is based on the principle of concurrent performance, often referred to as the principle of “performance against performance.” As a general rule, neither party is required to perform its obligations before the other party does the same. The seller may withhold delivery until payment is made, and the buyer may withhold payment until the goods are placed at his or her disposal.
This principle reduces risk for both parties and creates a natural incentive for the contract to be performed.
Exceptions apply where the parties have agreed on credit terms or advance payment.
The seller’s main obligations
The seller’s principal obligation is to deliver the goods in accordance with the contract. This includes an obligation to deliver:
- at the correct place,
- at the agreed time, and
- in the agreed condition.
In some cases, the seller may also be required to provide ancillary services, such as installation, assembly, or training.
If the seller fails to fulfil these obligations, the breach may constitute either delay or defect.
What constitutes delay?
Delay occurs when the goods are not delivered at the agreed time, provided that the delay is not attributable to the buyer or circumstances on the buyer’s side.
In the event of delay, the buyer may, among other remedies:
- demand performance,
- withhold payment of the purchase price,
- terminate the contract, or
- claim damages.
When may the buyer terminate the contract?
Termination is the most far-reaching remedy available for breach of contract. As a result, the general rule is that the delay must constitute a material breach before termination is permitted. The assessment is fact-specific and depends on factors such as:
- the importance of the agreed delivery date,
- the length of the delay,
- whether the buyer still derives benefit from the goods, and
- whether the buyer can be adequately compensated by other means.
The buyer may also set a reasonable additional period for performance. If the seller still fails to perform within that period, this may provide grounds for termination.
The buyer’s right to damages for delay
Delay may cause financial losses to the buyer. Accordingly, the Sale of Goods Act gives the buyer the right to claim compensation for losses resulting from the delay.
Liability for damages is largely based on the so-called control liability principle. In simple terms, this means that the seller may be liable even without negligence, unless the delay was caused by an impediment beyond the seller’s control that could not reasonably have been taken into account.
At the same time, the buyer has a duty to mitigate losses. If the buyer fails to take reasonable measures to reduce the loss, he or she must bear the portion of the loss that could have been avoided.
What is a defect?
Goods are defective if they do not conform to the requirements of the contract or the provisions of the Sale of Goods Act.
Where a defect exists, the buyer may generally:
- withhold payment of the purchase price,
- demand repair,
- demand replacement goods,
- claim a price reduction,
- terminate the contract, or
- claim damages.
A prerequisite is that the defect is not caused by the buyer or circumstances on the buyer’s side.
Repair or replacement
The Sale of Goods Act seeks, as far as possible, to preserve the contractual relationship. For this reason, repair and replacement are often the most important remedies.
Repair means that the seller remedies the defect so that the goods become contractually compliant. Replacement means that the defective goods are exchanged for new goods.
The buyer may require repair provided that this does not impose unreasonable costs or inconvenience on the seller. To require replacement, the defect must normally be material.
At the same time, the seller may in certain circumstances have the right to repair or replace the goods even where the buyer has not requested it. If the seller offers a lawful remedy, this may limit the buyer’s right to invoke other remedies for breach.
Price reduction and termination for defects
If the defect is not repaired or otherwise remedied, the buyer may claim a reduction in the purchase price.
As a general rule, termination requires that the defect constitute a material breach of contract. Here too, a concrete overall assessment must be made of the significance of the defect and its consequences for the parties.
Notice of defect: Do not wait too long
Many claims are lost because the buyer waits too long before taking action. In cases involving defects, the Sale of Goods Act operates with two notice periods.
The relative notice period
The buyer must notify the seller within a reasonable time after discovering, or after he or she ought to have discovered, the defect.
The absolute notice period
As a general rule, claims cannot be asserted more than two years after the goods were taken over by the buyer.
Specification of the notice
In addition, the notice must be sufficiently specific. It is normally sufficient to inform the seller that a defect exists and to describe the nature of the defect. However, for certain claims, the buyer must also specify which remedy for breach is being invoked.
What if the buyer fails to pay?
Sales law does not protect only the buyer. The seller also enjoys extensive rights if the buyer breaches the payment obligation.
If the buyer fails to pay on time, the seller may, among other remedies:
- demand payment,
- claim default interest,
- claim damages, and
- terminate the contract in the event of a material payment default.
The seller may also grant the buyer a reasonable additional period for payment. If the buyer still fails to pay within that period, this may provide grounds for termination.
Once the goods have already been taken over by the buyer, the seller’s right to terminate becomes considerably more restricted. One reason for this is the need to protect the interests of the buyer’s other creditors.
