contract; sale of goods; misrepresentation;

Background Our client, Eastern Kitchens, who are leading manufacturer of fitted kitchens has made an agreement with the Faux Stone Enterprises ,who produce the imitation stone surface, for licensing of the technology which they uses to manufacture its imitation stone and purchased one of their Machines. They made an agreement on 19th March 2010. However, the technology of Faux Stone revealed a problem that the imitation stone was very sensitive to vibration in the kitchen-something they never disclose to our client and lots of customers suffered the damage.

Strengths

1. Breach of Contract (implied terms)

The Faux Stone should responsible for the loss of Eastern Kitchen. Before making the agreement, the Eastern Kitchen had told the Faux Stone they needed their technology of manufacturing imitation stone and would apply the goods in the kitchen not somewhere else like bathroom, swimming pool and garden. Therefore, the Faux Stone should make sure whether their imitation stone can be used in the kitchen or not according to professional test. After they agreed to make an agreement with the Eastern Kitchen, the claimant had enough reason to believe the defendant would supply fitness and reasonable goods. Section 14 (2B) (a)of the Sale of Goods Act 1979 provides that fitness for all the purposes for which goods of the kind in question are commonly supplied [1] and sub-section(3) shows that where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known—

(a) to the seller, or

(b) where the purchase price or part of it is payable by installments and the goods were previously sold by a credit-broker to the seller, to that credit-broker,

any particular purpose for which the goods are being bought, there is an implied [term] that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker [2] . These implied terms mean that the Faux Stone sold its technology and machine to the Eastern Kitchen which should fit for the purpose of the buyer and in reasonable condition. Although this clause is not written in the agreement expressly, it is essential in most of contracts and also can be used here. The principle which shows in section 14 of Sale of Goods Act 1979 is also applied in the case law. In the case of Ashington Piggeries Ltd v Christopher Hill Ltd [3] held that “the respondents were also in breach of the condition implied by S14 (2) in Sale of Goods 1893 that the goods were of merchantable quality.” Consequently, Faux Stones’ behavior to supply the defective imitation stone to the Eastern Kitchens was unsuitable and they should be liable for the damages such as the loss of the customers, the damage of reputation, etc. [4] 

2. Misrepresentation (innocent or negligent)

Misrepresentation is the intention what the contractor said is not real and they still make a contract with the other party without disclose anything. [5] There are three types of misrepresentation: innocent, negligent and fraudulent. Analysing the case, it is difficult to prove that the Faux Stone intended to cheat the Eastern Kitchens in the goods. Consequently, innocent and negligent misrepresentation can be applied in the case appropriate. Due to the Faux Stone is a professional enterprise to manufacture the imitation stone, they should disclose to the Eastern Kitchen- a nonprofessional company that their goods can not endure any vibrations in the kitchen. This situation is negligent misrepresentation that the Eastern Stone has the evidences to prove that the Faux Stone do not have reason to believe this is true. Both of physical injury and damage of property can be recovered by the reason of negligent misrepresentation. [6] 

In the agreement between two parties, clause 7 restricted the Eastern Kitchen’s liability to acknowledge the information of the goods from other professional people and this clause is unfair to the Eastern Kitchen. It shows that “the licensee shall hold the Processes and the Technical Knowledge which the Licensee receives from the Grantor in according with this agreement as absolutely secret and shall not during the continuance of this Agreement or at any time after its expiration or termination disclose or permit the same to be discloses to any person…” Held of Hedley Byrne & Co Ltd v Heller &Partners Ltd [7] provide in the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness [8] . It is clear that the Faux Stone lack reasonable reason of the unfit for the good and machine and the claim of negligent misrepresentation can be applied here.

This argument is also discussed in the English Law where Section 2 (1) of the Misrepresentation Act 1967 [9] indicates the person who has suffered loss because of the misrepresentation of the other party can be remedied. Furthermore, the party who had suffered loss may terminate the contract in general circumstances to protect their rights from the other party. [10] However, the Eastern Kitchens still want to continue the contract with the Faux Stone since they produce the realistic looking imitation stone. The Eastern Kitchen has the right to require the Faux Stone to pay for the compensation they paid for the consumers and fix for the machine as quick as possible.

Weaknesses:

the warranty of the machine

The defective goods caused the Eastern Kitchen have to pay for thousands of pounds worth for compensation to customers. Therefore, the finance circumstance of the company became worse so that the Eastern Kitchen made a difficult decision to pledge the FSGM to the Fifth Commercial Bank to release the finance burden. However, in the agreement between them, the clause 5.5 express that “the Licensee acknowledges that the Equipment incorporate proprietary technology, and agrees that it shall not sell, transfer or alienate the Equipment, or part with possession to it, or create any interests, including but not limited to security interests, in it.” This is an express term in the contract which both sides must obey it. It is apparent that the Eastern Kitchen breached of its obligation to pledge the machine to the Bank and the Faux Stone has the right to ask for remedy. Though the Eastern Kitchen bought the machine and the title of the machine had been transferred to it, the Faux Stone has the right to define the exclusion clause such as clause 5.5. Section 55 [11] of the Sale of Goods 1979 “(1) Where a right, duty or liability would arise under a contract of sale of goods by implication of law, it maybe negative or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract.” Whatever reason the Eastern Kitchen want to do for the benefit of the company, it is illegal to warrant the machine to the Bank. On the contrary, as a creditor of the machine, the Fifth Commercial Bank also can be compensated by the Eastern Kitchen. [12] 

2 the test of machine and it satisfied the parameters

The clause 5.3 regulates 10 days for the Eastern Kitchen and Faux Stone to delivery and test the machine. In addition, the Eastern Kitchen tested the machine on 9th June 2010 with the engineer from the Faux Stone. On 11th June 2010, the vice president wrote to them that the FSGM performed satisfactorily and its performance met all parameters in the specification. The risk of the FSGM transferred to the Eastern Kitchen on that day—clause 5.2 provided title and risk shall pass on delivery of the Equipment [13] .It might be the disadvantage of the claimant because the Eastern Kitchen accepted the machine with its own conduct. The Faux Stone has the proof to prove that the Eastern Kitchen totally agreed with the condition of the FSGM. Therefore, the defect of good should be put in the claim instead of the inappropriate of the machine which might be supported by the judge or arbitrator.

Conclusion

In summary, the negligent misrepresentation and the quality of the goods are the key factors in this case. It is necessary to put them in the claim as the arguments for the Eastern Kitchen. The Eastern Kitchen suffered the loss not only money but also reputation because of the technology of the Faux Stone which has defective and it did not disclose prior to make the agreement. The Faux Stone must be liable for all of them and the Eastern Kitchen also can claim for the suspension of the payment until the engineers fix the machine.

The arbitration is the proper dispute solution. In the agreement, clause 16 rules about the arbitration-- the ICC Rules is chosen by both parties and London is the venue of the arbitration.



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