Sales of Goods | Free Contract Law Essay

Question 1 (a)

In order to advise Sam of his rights and liabilities, it is firstly necessary to determine whether valid contracts existed between Sam and Arun and Brendan respectively. The requirements for a valid contract are offer and acceptance, consideration and intention to create legal relations. There appears to be no problem in establishing any of these requirements in relation to Arun or Brendan. Sam agreed to buy the benches from Brendan (offer and acceptance) for a sum of money (consideration) in a commercial transaction, where there is a presumption of intention to create legal relations. Arun also agreed to buy a bench from Sam (offer and acceptance) in a commercial transaction. It is irrelevant that Sam gave Arun a 50% reduction on the retail price of the bench, as consideration must be sufficient (to enable the promisee to enforce a promise) but need not be adequate. Therefore, valid contracts exist between Sam and Arun and Sam and Brendan .

Two months after purchasing the bench, Arun told Sam that the legs on the bench had become loose and that it was therefore unusable. He demanded a full refund. Although there is no evidence of any express terms of the contract between Sam and Arun, there are a number of contractual terms which may be implied by law. Contracts relating to the sale of goods are governed by the Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994). The Act applies to the contract between Sam and Arun, since the contract was made on or after 1 January 1894 and was a contract 'by which the seller transfers…the property in goods to the buyer for a money consideration, called the price', i.e. a contract of sale of goods.

Section 14(2) of the Act provides that 'where the seller sells goods in the course of a business, there is an implied term that the goods are of satisfactory quality'. Therefore, since Sam has sold Arun the bench in the course of his garden furniture business, this term is implied. Goods are of satisfactory quality if they 'meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances'. It is unlikely that a reasonable person would consider that a bench which was rendered unusable as a result of loose legs was satisfactory. The reduced price is unlikely to help Sam since the reduction was offered because it was a new product range rather than a reduction for damaged or discontinued goods. Therefore it is likely that Sam is in breach of the term implied by section 14(2) of the Act.

Moreover, since Arun has not bought the bench for business use, he is dealing as a consumer. Section 48A of the Act will therefore apply if the bench did not conform to the contract of sale at the time of delivery. There is a presumption that goods which do not conform to the contract at any time within six months from delivery did not do so on delivery; therefore since the fault became apparent after two months, section 48A of the Act will apply. It is unlikely that Sam could rebut the presumption by prove that the bench was of satisfactory quality on delivery, particularly since it suffered from a design fault. Arun wishes to rescind the contract and receive a full refund. Since section 48A applies, he may do so if repair or replacement is impossible or disproportionately costly to Sam in comparison to recission. If so, Arun may require Sam to remove the bench and give him a refund, although any reimbursement may be reduced to take account of the use that Arun has had of the bench in the preceding two months.

Sam also has a contract with Brendan and is potentially liable under the term implied by section 14(2) of the Act that the bench would be of satisfactory quality since Brendan has also sold the bench in the course of a business. Brendan has firstly denied liability on the grounds that Sam has sold the bench on and had thus accepted it; however section 35(6)(b) of the Act provides that Sam is not deemed to have accepted the bench 'merely because the goods are delivered to another under a sub-sale'. Therefore Brendan cannot disclaim liability merely because Sam has sold the bench on to Arun. Brendan is also denying liability since the signed contact for sale contained a term stating that Brendan would accept not liability whatsoever for defects notified to him after one month of delivery. In order for this clause to be valid it must be incorporated into the contract. Since the clause is contained within a document, then the document must be 'contractual in nature' (Chapelton v. Barry Urban District Council). At common law, any such terms are incorporated into the contract if a reasonable person would assume the document contained such terms (Parker v. South Eastern Railway) and Sam is bound on signing even if he did not read the exemption clause (L'Estrange v. Graucob), provided there was no misrepresentation (Curtis v. Chemical Cleaning & Dyeing Co.). There is no evidence that Brendan misrepresented the nature of the document; therefore the exclusion clause is incorporated into the contract. Section 6(3) of the Unfair Contract Terms Act 1977 provides that against a person not dealing as consumer (Brendan is dealing as a business), liability for breach of section 14 of the 1979 Act can be excluded or restricted by reference to any contract term but only in so far as the term satisfies the requirement of reasonableness. Guidelines of what can be classed as reasonable can be found in section 11 and Schedule 2 of the 1977 Act. Brendan will have to show that it is reasonable in all the circumstances. This will be a matter of interpretation for the court. The clause attempts to exclude all liability within a month; this may lead to it being considered unnecessarily restrictive and weighted in Brendan's favour and, therefore, unreasonable. If so, then Brendan may not rely upon it. 

Question 1(b)

Chan advertised a 'genuine 17th century statue; ideal for large gardens'. However, the statue was a modern copy made of inferior material and was for indoor use only. It is assumed that there is a valid contract for sale of goods between Sam and Chan. Section 13(1) of the Sale of Goods Act 1979 implies a term into the contract that the goods will correspond to any description applied to them by the seller. This is generally interpreted in a narrow sense. Since the statue does not correspond with the description, Chan may be liable for breach of contract. It will be necessary to establish whether Sam relied on Chan's description and whether this was in the reasonable contemplation of the parties at the time the contract was made. Chan may argue that Sam acted in reliance on Deepak's verification of the advertisement. However, Sam could argue that the words of the advertisement were unequivocal and that, despite Deepak's mistaken intervention, Sam and Chan could reasonable have contemplated that Sam would be relying on the advertisement. Had the advertisement been accurate, Sam would not have asked Deepak for an opinion since the statue would not have met Edmund's needs. It is therefore likely that, since he acted promptly, Sam will succeed against Chan for breach of contract and claim damages accordingly.

Question 1(c)

Gurjit

Gurjit was badly injured by an electric shock from a faulty motor in an electric fountain. Section 2(1) of the Consumer Protection Act 1987 will apply if Gurjit can prove that he has suffered damage, caused by a defect in a product. Damage includes personal injury such as that sustained by Gurjit. Causation will be established since he would not have been injured 'but for' the defective product. The fountain was defective since its safety was not 'as persons generally are entitled to expect'; a person would not expect to suffer sever shock by touching the edge of a fountain that had been properly set up. 'Product' is defined widely in the Act to include goods, and components comprised in another product (such as the motor in the fountain). Therefore section 2(1) of the Act will apply and any potential defendant will be liable for the damage.

Such potential defendants are listed in section 2(2). The Indonesian company may be liable as the producer of the product. Wesser may also be liable since it importer the fountain to Germany (a member State of the EU) from Indonesia (a place outside the EU) in order to supply it to Sam in the course of its business. Sam may also liable as a 'forgetful supplier' if he is unable to meet Gurjit's request to identify Wesser or the Indonesian company. Liability between the potential defendants is joint and several; therefore Gurjit could choose to sue any or all of them. The burden of proof will be on each defendant to prove one or more of the relevant statutory defences provided under section 4 of the Act: that the defect did not exist when the fountain was supplied; that they supplied the fountain as a private sale, rather than in the course of a business; that the defect was attributable to compliance with legal requirements; that the fountain was 'state of the art' and as such the producer could not have been expected to find the defect. It is unlikely that any of these defences could successfully be raised. In practice, Sam and Wesser will be able to avoid liability by identifying someone higher up the supply chain, and thus the Indonesian company will be the most likely defendant. It will be liable to Gurjit for his injury (pain, suffering and loss of amenity).

Gurjit may also have a claim in tort against the Indonesian company following the narrow rule in Donoghue v. Stevenson; that a manufacturer owes a duty to the ultimate consumer or anyone that he should reasonably have in mind as likely to be injured by want of case in relation to the manufacture of the product (if there is no reasonable possibility of intermediate inspection). Gurjit is thus owed a duty of care by the Indonesian company; there is nothing to suggest that Wesser or Sam would have reason to examine the fountain Causation is satisfied as before, and the damage is not too remote from the breach.

In the absence of some sort of guarantee, Fiona will have no contract with Wesser or the Indonesian company and therefore no claim for breach of contract. Moreover, Fiona has suffered no damage to property or any personal injury and therefore has no claim in tort; the value of the fountain is pure economic loss which is generally not recoverable in tort.

Fiona may have a claim in contract against Sam. Since the fountain is defective it would not have been of satisfactory quality and thus a breach of the term implied by section 14(2) of the Sale of Goods Act 1979. It also seems likely that it would not be reasonably be fit for her particular purpose, which she would have made known by implication, and thus a further breach of section 14(3). Liability for both breaches is strict, so Sam would not be able to pass liability on to Wesser or the Indonesian company. Fiona can therefore claim damages to put her back in the position that she would have been if the contract had been properly performed. Therefore, she can claim for the reasonable cost of a replacement fountain.

Question 2(a)

Sid wishes to cancel the agreement he had with Fast Cash (FC) for £17,000 credit. It is first necessary to determine whether the agreement falls within the Consumer Credit Act 1974. This FC credit agreement is regulated by the Act since it is a personal credit agreement between an individual (Sid) and 'any other person' (FC) (being a legal person), by which FC provided Sid with credit not exceeding £25,000 and does not fall into any of the statutory categories of exempt agreement.

Such a regulated agreement may be cancelled by Sid in accordance with Part V of the Act since the negotiations prior to Sid entering into the agreement were included oral representations by Vipul acting as negotiator on behalf of FC and the agreement was not secured on land or to finance or provide a bridging loan for the purchase of land and the unexecuted agreement was signed by Sid in his own home.

Vipul left Sid with the signed top copy of the agreement in accordance with section 62 of the Act and sent it to FC for execution. FC then executed the agreement and sent a copy of the executed agreement to Sid within seven days in accordance with section 63(2) of the Act. Both the top copy and the executed agreement advised Sid on his rights to cancel the agreement in accordance with the statutory duty imposed on FC to provide such notices including how and when that right is exercisable, and the name and address of a person to whom notice of cancellation may be given.

Sid's statutory right to a 'cooling-off' period is provided by section 68 of the Act. Sid may serve notice of cancellation between his signing of the unexecuted agreement and the end of the fifth day following the day on which he received the second copy provided under section 63(2); the notice of cancellation rights under section 64(1)(b) having been received within the same document. Therefore, since Sid decided to cancel two days after receiving the second notice under section 63(2), he has a further three days in which he can exercise his right to cancel under the cooling-off period provided by section 68. He must cancel by writing to the address given in the notice.

Section 69 of the Act provides the consequences of service a notice of cancellation indicating Sid's intention to withdraw from the agreement. The notice will cancel the agreement with FC and any linked transaction, such as the building contract with Ace Builders. If Sid repays the whole or a portion of the credit within a month or before the first instalment is due, he will not be liable for any interest. Sid would also be under a duty to restore any goods which he has acquired from Ace Builders to them, although this will not apply to any goods which, before cancellation, had become incorporated in any 'land or thing not comprised in the cancelled agreement or a linked transaction'; therefore Sid will have to return any unused building materials to Ace, but not the two installed windows or materials used in the repair of the wall.

Question 2(b)

If Sid decided to stop work two weeks after receiving the second copy of the agreement from FC then he would be outside the statutory cooling-off period provided by section 68 of the Act and would therefore not be able to cancel the agreement under the terms of the Act.

However, Sid entered into the agreement 'after much persuasion' from Vipul. Sid could attempt to prove that he entered into the contract under actual (class 1)undue influence. He would need to produce evidence to show that there was a very real coercion on the part of Vipul to enter into the agreement and that the coercion was dominant to the extent that Sid was in fact unable to exercise free will or act independently of the influence in entering the contract. Sid could attempt to demonstrate the Vipul has unduly pressurised him into entering the contract, emphasising the extreme circumstances in which he found himself, as an 83 year old man in poor health, uninsured, with a fire-damaged house and no savings. Moreover, Vipul 'helped' Sid to fill in the proposal form. This could suggest that Vipul had influenced Sid to the extent that the contract could be voidable. This would be for the court to decide. If Sid is successful, the contract would be set aside.

Question 2(c)

Sid explained to Paul, Healthy Sleeper's salesman, that he needed a bed specifically suitable for someone with a particular spinal disease. Assuming that there is a valid contract between Sid and Healthy Sleeper for the supply of goods (the bed), then, since the sale is made in the course of a business, section 14(3) Sale of Goods Act 1979 implies a term into the contract that, since Sid made his particular purpose known to the seller, the bed will be reasonably fit for that purpose, unless it is unreasonable to expect Sid to rely on the skill or knowledge of the seller. Since Healthy Sleeper specialised in providing beds for people with bad backs and the salesman (albeit falsely) claimed expertise in the area, it is entirely reasonable that Sid should have relied on his purported knowledge. However, the bed proved to be totally wrong for someone with Sid's condition. Healthy Sleeper is therefore in breach of the term implied by section 14(3) of the Act. Unfortunately for Sid, Healthy Sleeper has gone out of business; therefore even though Sid is likely to succeed, an impecunious supplier is not worth suing.

However, section 75 Consumer Credit Act 1974 provides that where a person has paid for goods with a credit card and there has been a breach of contract by the supplier of the goods, they the buyer can sue the credit card company in addition to, or instead of, the supplier of the goods. It only applies where the value of the goods is greater that £100 and less than £30,000. Therefore, since the value of the bed is £700, Sid may sue the XYZ Credit Card company instead of Healthy Sleeper for damages in respect of the bed. He is likely to recover the £700 in full.  

Case List

  • Barnett v. Kensington and Chelsea Hospital [1969] 1 QB 428
  • BCCI v. Aboody [1990] 1 QB 923
  • Chapelton v. Barry Urban District Council [1940] 1 KB 532
  • Currie v. Misa (1875) LR 10 Ex 153
  • Curtis v. Chemical Cleaning & Dyeing Co. [1951] 1 KB 805
  • Donoghue v. Stevenson [1932] AC 562
  • Esso v. Commissioners of Customs and Excise [1976] 1 WLR 1
  • Harlingdon & Leinster Enterprises Ltd v. Christopher Hull Fine Art Ltd [1990] 3 WLR 13
  • Hedley Byrne & Co v. Heller & Partners [1964] AC 465
  • L'Estrange v. Graucob [1934] 2 KB 394
  • Mountford v. Scott [1975] Ch 258
  • Parker v. South Eastern Railway (1877) 2 CPD 416

Statute List

  • Consumer Credit Act 1974
  • Consumer Protection Act 1987
  • Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994)
  • Unfair Contract Terms Act 1977

Bibliography

  • Chen-Wishart, M (2005) Contract Law, (1st edition) OUP, Oxford
  • Koffman, L and Macdonald, E (2001) The Law of Contract (4th edition), Tolley, Croydon
  • Poole, J (2001) Casebook on Contract Law (5th edition), Blackstone Press
  • Richards, PH (2003) Law of Contract (6th edition), Longman, Harlow
  • Smith, JC (2000) Smith and Thomas: A Casebook on Contract (11th edition), Sweet & Maxwell, London
  • Treitel, G (2003) The Law of Contract (11th edition), Sweet & Maxwell, London