Free Law Essay - Contract Terms Sale

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Prucilla v. Shady Electricians

It is necessary first to examine the formation of the contract and the terms which therefore became incorporated in it. The requirements that the lighting system be "first class" and "modern" are probably too vague to become terms since they fail to satisfy the test that a reasonable bystander would be able to ascertain their meaning (Scammell & Nephew Ltd v Ousten). In any event, its effectiveness as a specification is superseded by the fact that Prucilla herself specified the exact make and type of system.

The contract contains terms as to quality and fitness for purpose. These are implied by law. The Sale of Goods Act 1979, s.14 (as amended by the Sale and Supply of Goods Act 1994 and the Sale and Supply of Goods to Consumers Regulations 2002) provides:

"(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality."

Subsection 3 defines satisfactory quality as that which a reasonable person would regard as satisfactory taking account of any description of the goods, the price (if relevant) and other relevant circumstances. In this case, the system fails to meet certain of the specific aspects of quality provided for by ss.2B namely "(a) fitness for all the purposes for which goods of the kind in question are commonly supplied" and "(d) safety".

Thus Shady are prima facie liable to Prucilla for breach of contract and also in negligence in respect of the loss, damage and personal injury caused. (Prucilla may also be able to pursue remedies against the manufacturer of the system under the principles of tort and the Consumer Protection Act 1987 but the focus here is upon Shady.)

Prucilla has expressly made time "of the essence" of the contract by reference to the staff holidays in July and the exhibition in August and this may therefore be expected to supersede the purported exclusion by paragraph (b) of the standard terms in the written agreement. In The Mihalis Angelos, a contract to hire a ship provided that the vessel was "expected ready to load" on a certain date. When compliance with this time stipulation was not possible (albeit due to bombing) the purported cancellation of the contract was held to be a repudiatory breach. Thus Prucilla would have been entitled to rescission of the contract as well as her remedy in damages for its breach.

The fact that the system not only failed to perform as expected but in fact caused damage entitles Prucilla not only to recover damages for the reduction in the value to her of the system but also in respect of 'consequential loss', i.e. the fire damage. This was established in H. Parsons (Livestock) Ltd v Uttley Ingham & Co in which the suppliers of a defective livestock feed hopper were held liable not only for the diminution in the value of the hopper but also for the consequential loss of a herd which became ill as a result of deterioration of the incorrectly stored feed.

Recovery of Prucilla's lost earnings is less certain. Pure economic loss is not recoverable in contract. However, she may be able to recover damages for 'loss of expectation'. Poole points out that "the court will attempt to put some value on an expectation even when what is lost is no more than an opportunity to take the risk of making a profit, rather than a certain loss of a speculative profit" (Chaplin v Hicks). Alternatively, if she is able to show that she has lost certain expenditure in preparing for the gallery opening in reliance upon Shady fulfilling the contract, this will be recoverable (Anglia Television v Reed).

It is now necessary to examine the extent to which Shady may evade these prima facie liabilities by relying upon the purported exclusion clauses in the contract. First, it may be possible to argue that the clauses should not be incorporated into the contract on the basis that they are "onerous and unusual" since this was a lighting system and the terms are those standard to a different field viz. heating installation (Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd ). If these are found to be unusual terms, there is a particular responsibility to draw them to the attention of the contracting party (Thornton v Shoe Lane Parking Ltd) and it might be argued that presenting them on the agreement in small print was insufficient in such circumstances.

In any event, the contract as one which relates to dealings "in the course of a business" is subject to the Unfair Contract terms Act 1977. Section 2(1) provides:

"A person cannot by reference to any contract term or to a notice given to persons generally or to a particular person restrict or exclude his liability for death or personal injury resulting from negligence."

Accordingly, if negligence in the installation of the system can be shown, Prucilla will be able to recover in respect of her personal injuries (subject to any contributory negligence which might be shown if she was so negligent in attempting to assist her customers) and the purported limitation of liability to £10,000 will be unenforceable.

Section 3 of the Act provides that a person cannot by reference to any term in the contract restrict or exclude his liability for breach of contract except insofar as the term satisfies the condition of "reasonableness" (defined in s.13). This would appear to be satisfied in respect of the exclusion of latent defects where the customer, as here, has specified the system. The general test of reasonableness was propounded in Photo Production Ltd v Securicor Transport Ltd in which the cost and availability of insurance cover was identified as a factor to be considered. This is qualified and refined by the special test in s.11(4) of the Act which requires the court when considering clauses restricting liability to a specific sum of money to have particular regard to whether the party purporting to restrict might be expected to have the resources available to meet such liability. Again, the availability of insurance cover will be such as to render it unlikely that Shady will be allowed to restrict their liability in the manner attempted.