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An agreement with specific terms
An offer refers to the willingness to contract within some specified terms .On the other hand, an acceptance is the unconditional agreement to the terms stipulated within the offer. The consideration is the quid pro quo in the contract. It refers to what each party to the contract is able to receive in value from the contract. Once these elements exist, then the contract is said to be valid and enforceable in a court of law.
Verbal contracts like the written ones are legal and can be enforced in a court of law. However, in the absence of any written terms and conditions, it becomes difficult to prove. Legally, there are two terms that constitute a legally enforceable contract. The verbal agreement is binding whenever there is an agreement on the particular services that will be performed and there is also an agreement on the consideration. However, under the Statute of Frauds that was enacted in 1676, clearly outlines those contracts that must be made in writing. These include the sales of real property, a promise to pay another his debt, any contract that takes longer than a year to complete, real property leases running for more than one year, a contract that exceeds the lifetime of an individual, contracts in which the consideration is beyond the states threshold and the transfer of property upon death for the party performing the contract. In case a person agrees to enter into any of these contracts without having it in writing, then the contract is not enforceable in a court of law.
Contracts can either have implied or express terms. For an express term, it is clearly spelt out to the parties during the negotiation are clearly spelt out in a written document. On the other hand, the implied terms are not stated but they form a provision of the contract. Terms can either be implied in fact or can be implied in law. Contracts that involve the sale of goods are governed under the Sale of Goods Act 1979.The Act was enacted in order to provide four main protections to buyers. One, the seller has the right to sell the goods second, for the goods sold by description then they must correspond to the description, third, the goods must be of satisfactory quality and finally for the goods that are sold by sample, then the goods must correspond to the sample in quality.
The Sale of Goods Act applies to all the contracts that involve the sale of goods. Section 14 however has limited its scope in the sense that its application is only limited to the scenario in which goods are sold in the course of a business. The protections in this Act come in the form of statutory implied terms .What this therefore means is that the Act puts the terms in all the contracts involving the sale of goods irrespective of what the parties themselves agree in the terms and conditions. Implied terms are those which may not be stated but make a provision within the contract.
Section 14(2) of the Sale of Goods Act deals with the implied terms about quality or fitness of the goods supplied. The implied term in the event a seller sells goods in the course of business is that the goods be of satisfactory quality. The principle here is that the buyer of the goods has every reason to believe that the goods are of satisfactory quality. The terms in this section only gain relevance in the event that the seller is acting in the course of business. However, the term in the course of business is one that has gained a lot of judicial consideration. In the case of Stevenson v. Rogers (1999), the defendant was a fisherman for several years. He then sold his boat to the plaintiff with the intention of having his boat rebuilt to suit his own specifications. However, he changed his mind and by replacement he bought another boat in the month of May which he used for fishing purposes. The plaintiff sued the defendant in relation to the sale of the boat by the defendant. It was held; the sale of the defendant by the plaintiff did not constitute a sale of goods in the course of a business. As per s. 14(2).Hence this did not constitute an implied term that the vessel under question was a merchantable quality. However the decision was overruled in the court of appeal where the judge ruled that as long as the sale is even incidental to the sellers business, and for that matter it is not a private sale , then it is in the course of business as per the requirements of s.14(2).
The Sale of Goods Act s. 14(2) stipulates that there is an implied term that the goods sold are of satisfactory quality. Prior to 1994, the requirement was that the goods must be of merchantable quality and in most of the commonwealth jurisdiction; the requirement has still been retained. The Act does provide an objective test of ascertaining what a reasonable person can take to be satisfactory and the courts too have identified the factors that may either raise or lower the expectation of satisfaction. In the case of Bernstein v. Pamson Motors Ltd, 1987, the plaintiff had bought a new car from the defendant and after driving for 140 miles and using it for three weeks, it broke down and therefore he had to incur costs towing it. Upon complaining to the seller, the problem was fixed on the warranty of the manufacturer. However the plaintiff insisted on rescinding the contract and being paid damages. It was held; the contract could not be rescinded but the plaintiff was entitled to receive damages.
In the case of Bartlett V. Sydney Marcus 1965, it was held that if a second hand car develops a clutch problem and the buyer is made to be aware of the problem, therefore he is not protected by the Act. In the case of Crowther v Shannon 1975, an 8 year old Jaguar car had accumulated 85,000 miles. After three weeks of the sale contract, the engine seized. It was held that the vehicle was not of merchantable quality.
In the case, Ethical Company purchased a new car from Electric Motors Ltd .Since the two companies had been trading before, this time round, Ethical Ltd did not sign the standard terms that they are required to sign whenever they are sealing the contract. However, it was realised that the car was in breach of the terms stipulated under s.14 (2) of the Sale of Goods Act. Further, the terms stipulated in the contract limit the seller’s liability for any breach of contract to only £500 while the real cost of fixing the problem is £3,000.The service contract offer that was given by Electric Motors had on several occasions been rejected by Ethical Company. However it is on record that Electric Motors had on more than one occasion paid one of its clients for a similar breach of contract money in excess of the £500 limit.
First and foremost, the contract between Ethical Company and Electric motors Ltd is a valid one. This is because all the elements that constitute a valid contract are present. There was consensus ad idem, offer, acceptance and the due consideration was paid. There was therefore a valid contract between the seller and the buyer. Note that under the Sale of Goods Act 1979, the implied terms are classified as conditions and any attempt to exclude the will mean that an exclusion clause will have to be drafted in specific terms. In the case, it is a fact that there was a breach on the part of the seller in the sense that he did not meet the requirements of s.14 (2) in terms of satisfactory quality. Additionally, he had constrained his liability to £500.This was clearly spelt out in the agreement which the Buyer did not sign since the contract was sealed over the telephone. The fundamental question remains to be whether Ethical Company is bound by the exclusion clause in the contract.
According to the Act, s.14 is a condition and what this means is that it is a major term in all legal contracts. Whenever a condition is breached, the buyer has a number of rights. They may reject the goods and have their money refunded. On the other hand where some damage is caused by the breach, they are allowed to claim damages and have the contract terminated. Section 14(3) is also categorical that the goods purchased must be reasonably fit for the purpose disclosed by the buyer to the seller. This means that goods intended to perform a certain job must be able to do it reasonably. Both parts of the section 14 therefore are conditions and consequently the buyer has the right to reject the goods on the basis of a product defect. It is also easy for the buyer to lose his right of rejecting the goods if it is proved that there was some form of acceptance.
It must be understood that ethical company had been a customer to Electric Motors and in this regard, they were pretty aware of the exclusion clause that was clearly spelt out in prior agreements. They knew very well that the policy of the company was to compensate only to the stated limit. However the fundamental question is whether an exclusion clause limiting the compensation is enforceable. According to the Unfair Contract Terms Act 1977 was enacted to govern the legality of exemption clauses According to section 6(2), these clauses otherwise referred to as exclusion clauses are null and void to the extent that they contravene sections 13, 14 and 15 of the Sale of Goods Act 1979 .This protection though is limited to the case in which the buyer deals as a consumer implying the situation in which the buyer is not purchasing the goods for the purpose of business. While on the other hand the seller is acting as a business. This is of course irrespective of the fact that the clause was either displayed conspicuously at the till or not. Simply put, for the goods bought in a personal capacity and for personal use are those bought by consumers and not for purpose of business.
In Balmoral Group Ltd v Borealis 2006, the plaintiff purchased a material made of a polymer called borecene which he used to manufacture oil storage tanks. However the tanks recorded a high failure rate and consequently there were numerous spillages. The plaintiff sued for damages of £50 million for breach of contract. The plaintiff relied on section 14(2) and 14(3) of the Sale of Goods Act 1979.In his ruling; the judge determined that the agreement was not in breach of satisfactory quality and fitness of purpose. However, in his arbiter, the judge went to ascertain whether the exclusion clause in the defendant’s standard terms did satisfy the requirements of reasonableness under the Unfair Contract Terms Act.1977. In the obiter, the judge remarked that a clause that tries to exclude liability under an implied term in the Act is ineffective against the consumer.
With regard to the case of Ethical Company and Electric Motors, there is a breach of contract with regard to s.14 (2) of the Sale of Goods Act. Since the vehicle was new and was bought for personal use and not for the purpose of business, Ethical Company has a course of legal action against the seller. The exclusion clause that the seller, Electric Motors, had invoked in the standard terms is therefore irrelevant. It is immaterial whether he knew of the exclusion clause since the consumer is protected under the Unfair Contract Terms Act 1977. The criterion here is based on the premise that any exclusion clause that is contravenes the provisions of sections 13, 14 and 15 is null and void. With regard to this therefore, the exclusion clause that was employed by Electric Motors did contravene the provisions of s.14.Consequently; the plaintiff had the grounds to sue the defendant for breach of contract.
Following the ruling that was made in the case of Balmoral Group Ltd v Borealis 2006, the judge in his obiter clearly spells out that a seller cannot try to exclude himself from liability in the event that he sells a defective product. The judge also raised the issue of reasonableness of exclusion clause. From the case in question, the exclusion clause lacked reasonableness and as a result could not be used to limit the compensation entitled to the plaintiff. It therefore means that the plaintiff has the grounds to sue for compensation of £3,000.
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