Commercial Law: Proproducts Ltd case - Essay Example

?Introduction: Facts A contract of sale is an agreement between two parties, the seller and the buyer, which is to different conditions. For a sale of goods contract to be fulfilled, there are some conditions that have to be satisfied, and in this case, and analysis will reveal the issues and provide reasonable judgment. The facts in this case can be summarized as follows, first, Proproducts are in the business of supplying animal feed ingredients to manufacturers of the feed, and agreed to sell the following three items. The first agreement was to sell 100 tonnes of citrus pulp to Triofeeds Ltd at a predetermined price of ?100 per tonne. The contract made goes on to describe the location of the citrus pulp as being “in silo No 10 at our Wales depot”. Even though the contract was for the sale of 100 tonnes, the silo contained 200 tonnes of the pulp at the time the contract was made. The second contract made by Proproducts Ltd was for the sale of 50 tonnes of shredded maize kernels to Camden Ltd at ?50 per tonne. The third contract included the sale of a two-year old lorry to Birmingham Motors Ltd for ?10,000, with the buyer agreeing to pay the whole price upon delivery. The first two products in the contracts were subject to three main conditions; first, the goods were to be paid for in full 28 days after the delivery was made. The second condition was that, notwithstanding the delivery of the goods, the seller would retain the title to the goods until full payment had been received, subject to the first condition. The last condition was that, if the buyer mixed any of the products with any other product, the seller would own the title to the resulting mixture until payment for the first product is received in full, also subject to the first condition. Issues The first issue with the contracts that had been agreed on was that, before the delivery of the citrus pulp could be made, a lightning strike destroyed the silo that contained the pulp, and Proproducts insisted that the risk had already passed on to Triofeeds, so they were obligated to pay for the products. The second issue concerned the shredded maize, where the delivery of the shredded maize was done as agreed. The buyer immediately mixed 20 tonnes of the shredded maize with other ingredients to get 40 tonnes of cattle cake, of which 30 tonnes were sold and delivered to Dugby Ltd at a price of ?70 per tonne. Later, Camden Ltd went into insolvency liquidation with the price of the shredded maize still outstanding. The third issue in the case involved the lorry sold to Birmingham Motors Ltd, where the buyer paid the full price immediately after the delivery was made. However, the buyer has just discovered n engine fault on the lorry that requires a full replacement of the engine at a cost of ?5,000. It is essential to determine precisely when property (ownership) and risk in the goods passes to the buyer. The rules on the passing of property are different for specific goods and unascertained goods. Risk often passes to the buyer with property, but this is not always the case. The parties are generally free to agree when property and risk passes to the buyer. In the absence of such agreement, the SGA has certain ‘Rules’ that will apply. Which party bears the legal risk in cases where the goods are destroyed or in the event of insolvency will determine who suffers the loss. Discussion Rule The three contracts stipulated above are each subject to rules of law, with the main rules being the contact of sae and the effect of the contract. The first concerns the passing of risk from the seller to the buyer, the second being the performance of the contract. In this case, the performance of the contract relates to delivery of the goods in the stated quantity and condition and the party that bears the burden of the goods in case the goods are damaged. The third rule concerns the rights of the unpaid seller in case the buyer breaches the contract of the sale of goods. Analysis The sale of goods act describes a contract for a sale of goods as when a seller transfers of enters into an agreement to transfer the specified goods to a buyer for a monetary consideration called the price (Bradgate, 2008). In this case, the contract is referred to as a sale, and it may be absolute or conditional. The contract is referred to as a sale when the property in the goods is transferred to the buyer, and is referred to as an agreement to sell when the property in the goods is to be transferred in the future, subject to the fulfilment of a condition or conditions specified in the contract (Bridge, 1998). This contract is fulfilled when the time specified in the contract lapses or when the conditions also specified in the contract are fulfilled (Bridge, 1998). This transfer of property in the form of goods is tied with risk, which passes with the passing of the passing of the property in the goods. 1. Triofeeds Ltd In this case, Proproducts Ltd has entered into a contract with Triofeeds Ltd to sell the goods, deliver the goods when the payment has been made, and the implied condition that the goods will be in the specified condition. The first issue in this case is the issue of unascertained goods, which is subject to section 16 of the sale of goods act. In this case, when a contract for the sale of goods is agreed on, then no property in the goods is transferred to the buyer until the goods are ascertained of confirmed to be the correct specifications (InsiteLaw, 2012). This also means that unascertained goods refer to goods comprised in the entire stock that have not been identified by the buyer. In the case of Proproducts and Triofeeds Ltd, the 200 tonnes of citrus pulp in the silo are unascertained, since the citrus pulp is described in the contract as being “in silo No 10 at our Wales depot”. Hence, there is a contract of sale of unascertained by Proproducts ltd to Camden Ltd. Their demand for the contract price to be paid notwithstanding that the goods got damaged in the silo will not suffice, because property in those goods had not passed and as seen above the passing of property is in tandem with risk the two go together. This was determined in BadischeAnilinFabrik v Hickson [1906] AC 419, where it was concluded that a contract to sell unascertained goods is an agreement to sell. According to section 17 of the sale of goods act, property passes when the parties intend it to pass. When the contract is for the sale of specific or ascertained goods the property in them is transferred at such times when the parties intend to do so. The decision in Re Wait [1927] 1 confirmed this issue, where it was decided that ascertained goods means that the goods have been confirmed with respect to the contract made between the two parties. In this specific case, the buyer entered into a contract to buy 500 tonnes of wheat, which was part of a consignment of 1000 tonnes of wheat on board a delivery ship. However, the seller went bankrupt before the delivery could be made, and the question was whether the buyer could take possession of the 500 tonnes paid for. The court decided that, despite the buyer paying for his part of the consignment in advance, the 500 tonnes was still part of the bulk, and had, therefore, not passed into the buyer’s possession. Therefore, the buyer was only allowed to act as an unsecured creditor in the seller’s insolvency. The second issue in this case is the issue of unascertained goods perishing or being destroyed before the buyer takes physical possession of the goods. The facts in this case indicate that the contract was for the sale of unascertained goods by description, that is, 100 tonnes of citrus pulp in our silo No. 10 at our Wales depot. This means that the seller agreed to sell the goods by description, and before the delivery could be made, the goods were destroyed. According to Sealy and Hooley (2008) and McKendrick (2000), the seller is obligated to deliver the goods if the sale was made by description, notwithstanding the fact that the goods were destroyed before the delivery was made. This means that the seller cannot seek to excuse failure to deliver the goods by claiming that the goods were not available at the agreed time of delivery. In Blackburn Bobbin Co Ltd v. TW Allen & Sons Ltd, it was decided that the seller bears the risk of failure to deliver goods in the case of destroyed goods and must pay the accrued damages to the buyer. This implies that the risk of the goods had not yet passed to the buyer, therefore, Proproducts Ltd cannot sue for the contract price by claiming that the risk of the property had already passed to Triofeeds Ltd. 2. Camden Ltd This case contains two main issues, the ownership of the title to the property despite the fact that the goods have been delivered to the buyer, and the fact that the buyer has made a sub sale of the goods to a third party. The retention of title clause made by Proproducts Ltd and agreed to by Camden Ltd stipulated that the seller had the title to the goods until the full payment for the goods had been made by the buyer. In this case, it is not specified whether the retention of the title clause affected a sub sale of the goods by the buyer to a third party. A retention-of-title clause is meant to protect the seller from failure of payment by the buyer, but in this case, the law provided differently (InsiteLaw, 2012). First, the retention of title clause made by Proproducts Ltd protects them from the insolvency of the Buyer, where the seller has the legal right to reposes the remaining part of the goods. In this case, Proproducts Ltd is entitled to recover the 30 tonnes of unused shredded maize and the 10 tonnes of unsold cattle cake remaining at Camden’s factory. This is supported by Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676, where the seller agreed to sell aluminium foil to the buyer subject to a retention clause in the contract. The retention clause specified that the title for the goods remained in the possession of the seller until the full payment for the products had been received. The buyer then made a re sale of the products under the right acquired from the contract, and afterwards, the buyer became insolvent. The subsequent suit for the goods by the first seller was held, the decision pointing out that the seller had the right to the goods, and did not need to share the proceeds with other creditors. According to section 25 of the Sale of Goods Act 1979, the seller losses the right to the goods as specified by the retention clause if the buyer subsequently makes a resale of the goods. In this case, the third party buyer acquires a valid title if the buyer sells the goods before acquiring the full right of the goods as specified by the sale of goods contract and the retention clause specified by the first seller. The resale of the goods by the buyer presents a problem for Proproducts Ltd, since it is not specified in the retention clause whether the seller had the right to the proceeds of a resale of the goods. The wording of the retention clause is important in case the seller has to recover the proceeds of a resale of goods, for example, in Hendy Lennox (Industrial Engines) Ltd v Graham Puttick Ltd. In this case, the decision was made that the absence of a statement in the retention clause that implicitly deals with the issue of sub sales nullifies the seller’s claim to the proceeds. The retention clause made by Proproducts Ltd stated that the company held a right to the title of the goods until the payment had been completely fulfilled, but the retention clause did not make mention of the resale by the buyer. Therefore, the seller loses the right to the goods or the proceeds thereof when the sub sale is made, and is only entitled to the remaining shredded maize and the cattle cake in Camden’s possession. 3. Birmingham Motors Ltd The main issue in this case is that the goods sold to Birmingham Motors were later discovered to be defective, and the repair price amounted to ?5,000. This case can be viewed from different angles, with the first instance being the rejection of defective goods. According to contract law, a sale of goods contract implies some conditions, with one of the conditions being that the goods must be satisfactory quality (Sebert, 1990). This means that the goods being delivered by the seller must meet a standard that a reasonable assessment would term as satisfactory (Sebert, 1990). The other implied condition is that the goods sold should fit the purpose for which they are being purchased (Sebert, 1990). If any of these implied conditions are violated, the buyer ha the right to reject the goods being purchased. However, in the case of Birmingham Motors Ltd, the fault discovered in the engine was discovered after the goods had been accepted and full payment for the goods made to the seller. In this case, the doctrine of rejection of defective goods no longer applies, since the buyer has already accepted the goods (Attiyah, Adams and MacQueen, 2005). In this case, property had passed in this contract of sale as well as risk involved. Therefore, Birmingham Motors Ltd will bear the cost of repairing the vehicle. However, Birmingham Motors Ltd has the option of invoking the doctrine of revocation, where they would seek to revoke their acceptance of the goods (Sebert, 1990). In this case, the buyer is only accorded the right to revoke the acceptance of goods after satisfying some conditions. Under the Uniform Commercial Code Section 2 (Cornel University Law School, 2012), the buyer must first prove that the value of the goods is substantially impaired. This means that the buyer must prove that the impairment that the good possesses is enough to impair the normal usage of the product. In the case of Birmingham Motors Ltd, it can be proved that the impairment suffered by the lorry is substantial, since the replacement of the engine would cost half the cost of the lorry. The second condition that the buyer can use is that the revocation of the acceptance of the contract is done within reasonable time (Atiyah, Adams and MacQueen, 2005). This condition also implies that the buyer should have discovered the defect in the good before any substantial change in the condition of the good is effected by the use to which the good is put (Attiyah, Adams and MacQueen, 2005). In this case, the timeliness of the revocation can be proved, since the buyer accepted the lorry on 25th November 2011, and it is assumed that the defect was discovered on or before 13th December 2011. Since the buyer satisfies both conditions necessary for a revocation of the accepted contract, it is possible for them to recover the cost of the lorry or the cost or repairing the engine. Conclusion and Recommendations The three cases analyzed above have different implications for Proproducts Ltd, since the issues and applicable laws are different. In the case of Triofeeds Ltd, it is evident that Proproducts Ltd cannot sue for the contract price. This fact is supported by the fact that the risk had not passed from the seller to the buyer at the time when the lightning strike destroyed the goods. The fact that the goods were unascertained also implies that the risk had not yet passed to the buyer at the time of the lighting strike. The other fact that prevents Proproducts for suing for the contract price is the fact that the goods were part of a bulk belonging to the seller; therefore, the risk had not been passed. In the case of Camden Ltd, Proproducts Ltd have the option of recovering the cost of the contract from the remaining part of the stock in Camden’s hold. This is because the retention clause agreed on by both parties gives the seller the right to the goods in case of buyer insolvency. However, Proproducts cannot sue for the proceeds of the resale of the goods, since the retention clause did not include the rights to the proceeds of a resale. In the case of Birmingham Motors, Proproducts Ltd have already fulfilled the contract and the acceptance of the goods has been made, so they are not liable for the defects in the lorry. However, Birmingham motors have the opportunity to sue for revocation of acceptance of the goods in the contract. References Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676. Atiyah, PS., and Adams, JN., and MacQueen, HL. 2005. Sale of Goods. London, Longman Publishers. BadischeAnilinFabrik v Hickson [1906] AC 419. Blackburn Bobbin Co Ltd v. TW Allen & Sons Ltd. Bradgate, R. 2008. Commercial Law. Oxford, Oxford University Press. Bridge, M. 1998. The Sale of Goods. Oxford, Oxford University Press. Cornell University Law School. Uniform Commercial Law. Legal Information Institute. [Online]. Available at: [Accessed February 12, 2012]. Hendy Lennox (Industrial Engines) Ltd v Graham Puttick Ltd. Insitelaw, 2012. Retention of Title. InsiteLaw Magazine. [Online]. Available at: [Accessed February 12, 2012]. Insitelaw, 2012. Title and Passing of Property. InsiteLaw Magazine. [Online]. Available at: [Accessed February 12, 2012]. London International. (2012). Sale of Goods, Contract and Property Risk. [Online] Available at: [Accessed February 12, 2012]. McKendrick, E. (ed.). 2000. Sale of Goods. London, LLP Professional Publishing. Re Wait [1927] 1 Sealy, LS., and Holley, RJA. 2008. Commercial Law. Oxford, Oxford University Press. Sebert, JA. 1990. Legal Theory: Rejection, Revocation, and Cure Under Article 2 of the Uniform Commercial Code: Some Modest Proposals. Northwestern University Law Review. Read More