Problems in Contract Law - Essay Example

? Law for Business ASSIGNMENT BRIEF Case (The "water cooler disaster by A contract is a promise or a set of promises, a breach of which the law gives remedy for or the for performance of which the law in some way recognizes as a duty (Beatson J , 2002). It is a legally enforceable agreement, of which each party agrees to give and receive something of value called the consideration. To be valid, a contract must have the offer, acceptance, consideration and the intention to create legal relations. To add, it must not be illegal or contain vitiating factors. In this scenario, there is clearly an agreement, whereby the trader promises to deliver 100 water coolers and 1000 50 litre replacement bottles of water in return for a consideration of ? 6000. There is the intention to create legally binding agreement, which is evidenced in writing through the terms of the contract. Consequently, a contract exists between the trader and the company. Contractual terms define the obligation of both parties to a contract. A failure to comply in full with a performance of an obligation, devoid of any lawful excuse, is a breach of the contract. In a contract for the sale of goods, there are both the express and implied conditions. Express conditions are usually spelt out in the contract, while most implied terms are statutorily derived. This scenario involves a contract of sale of goods. A contract for sale of goods is defined at section 1 of the Sale of Goods Act 1979 to mean “a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called price.” Therefore, beside the express terms in the contract, the terms implied by the Sale of Goods and Services Act 1982, shall apply. The Company can recover damages from the trader for breach of the contract. A breach of contract occurs where one party to a contract fails to perform, exactly and precisely, its obligations under the contract. Breach could be either anticipatory or actual breach. A breach of contract entitles the innocent party, in this case the company, to an action for damages. In this scenario there is an actual breach of contractual terms. The trader is liable under both the express terms and implied terms. With regards to the express terms, the contract stipulates that the trader was to provide water coolers that take standard sized replacement bottles which are widely available. However, the water coolers actually supplied were not of universal size and design and it will not be possible to buy replacement bottles. This is breach of a condition. A condition is a term that goes to the root of the contract, the breach of which entitles the innocent party to terminate the contract and to have compensation of the damages awarded. In Behn V. Burness1 a ship was stated in the contract of charter party to be ‘now in Amsterdam.’ The fact that the ship was not in the port at the date of the contract discharged the charter from performance. Section 13(1) of sale of goods Act 1979 provides that “where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with description.” In this scenario, the water coolers to be delivered were described to be able to take standard sized replacement bottles. Therefore, this was a condition implied on the contract by the Sale of Goods Act 1979. To add, Sale of Goods Act implies the condition that the goods sold ought to be of merchantable quality. Section 14(2) stipulates that “where seller sells goods in the course of business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition-… (b) If the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal.” Consequently, there is evidently breach of conditions both express and implied. A breach of a condition entitles the injured party to damages. In this scenario, the company is the injured/ innocent party and is entitled to sue for damages. Nevertheless, damage shall extend only to the extent that it was foreseeable. In Hadley v. Baxendale2 the plaintiff carried on an extensive business as a miller. The mill was stopped by a breakage of a crankshaft, through which the mill operated. The plaintiff engaged the defendants to carry the shaft to the manufacturers, having informed them that the mill was stopped and that the shaft must be sent immediately. However, the defendants delayed the delivery because of some neglect and as a consequence the plaintiff did not receive the new shaft for several days. An action was brought for loss of profits, which would have been sustained during the period of the delay. The court held that ‘damages which the other party ought to receive in respect of such breach of contract, should be such as may fairly and reasonably be considered as arising either naturally, or those that may have been in contemplation of both parties.” This rule classifies damages to general and special damages. Special damages are those that arise on account of unusual circumstances affecting the plaintiff. They are not recoverable unless they were brought to the attention of the defendants so that the possibility of the special loss was in contemplation of the parties. In this scenario, unusual circumstance arise from loss incurred from the sickness of employees including the loss of labour for the periods the employees were hospitalised. Recoverability of consequential damages depends on whether such damages were in contemplation of the parties at the time they made the contract (Knapp et al 2007)3. It is contended that the type of loss should be foreseeable, not the manner in which the loss occurs. To add, the loss must be foreseeable, as a probable result of the breach. In this scenario, the special damages arising from the special circumstances were not easily foreseeable. Consequently, following the rule set in Hadley v Baxendale, the company cannot recover for the losses arising from the sickness of the employees. According to Dobson & Stokes,4When assessing what damages are recoverable, within the rule set in Hadley v Baxendale, one does not simply ask, “what damage could the seller at the time of the contract predict?” rather one asks, “had he known of the defect, what type of damage could the seller at the time of the contract have predicted?” Thus in Parsons v Uttley Ingham5, the buyers, who were pig farmers, bought a hopper, which they intended to use for storage of pig nuts, information which was within the knowledge of the sellers. On delivery, the ventilator on the top of the hopper was shut, a fact which nobody noticed. Consequently, nuts stored in the ventilator became mouldy. A large number of pigs therefore died from infection triggered by the mouldy nuts. Therefore, the sellers were in breach of an implied condition that the goods would be fit for purpose for which the buyers needed them. The question that arose then was whether the seller could recover under the rule in Hadley v Baxendale. The infection from which the pigs suffered from was unknown, and also it was not reasonably foreseeable that the pigs would become ill from eating mouldy pig nuts. However, the breach of contract by the sellers consisted not in feeding the mouldy pig nuts to the buyer’s pigs but rather from supplying unventilated hopper. The court thus considered the question whether if the seller had known that they were supplying unventilated hopper, would they have regarded the illness in pigs as unlikely consequence of that breach? The court ruled that they could have and were thus liable for loss of the pigs. It was held immaterial that the seller could not have predicted either the particular illness that resulted, or the severity of it6. In this scenario therefore, applying the rule set Parsons v Uttley Ingham, the question that the court is bound to ask is whether, at the time of contracting, had the seller known that the water was contaminated, would it have been foreseeable that the buyer would suffer loss as result of lost labour resulting from the sickness of his employees? If this question is answered in the affirmative, the seller would be liable for the special damages. Nevertheless, the contract had a term limiting the liability of the seller with relation to defects in goods, to the contract price. Pursuant to the consumer protection Act7, a product is defective if the safety of the product is not such as persons generally are entitled to expect. In the scenario, the safety of the water was not such as persons are generally entitled to expect, as people expect drinking water to be safe for drinking. As such therefore, the trader is liable under the term since the goods are defective and the buyer is entitled to the contract price. The term that seller’s liability for defects in the product is limited to the contract price, falls under the concept of ‘unfair term’. This arises where the seller intends to exclude or limit their liability under the contract. Dobson P & Stokes R (2008) argue that such terms can legally have no or little effect8. Therefore, the court may treat that term as unfair and therefore inapplicable. To add, the term stipulating that the buyer must inform the seller of any defects in the products within one week of taking delivery of them shall also be unfair in light of the circumstances of this scenario, and therefore, shall be inapplicable. Advice to the trader With regards to the trader, he can recover the losses incurred from compensating the company for the losses incurred by it. However, the extent of recovery shall depend on whether the dealer knew the purpose for which the company intended to use their product. With regards to the drinking water, the same shall be recoverable by the trader pursuant to the rule laid down in Parsons v Uttley Ingham. However, a problem is likely to arise with regard to the loss incurred in compensating the company for the breach of the term to supply water coolers that take conventional replacement bottles. This was a sale by description. The trader shall be able to rely on the same provision only if he made known to the dealer the same instructions he was operating under. Otherwise, it shall operate as if the bottles he bought were the ones he intended to buy and therefore shall have no remedy in law for own loss incurred through compensating the buyer for damages. References Legislation Sale of Goods Act 1979 Case law Behn v. Burness (1962) 1 B. & S. 877 Hadley v. Baxendale (1854) 9 Ex 340. Parsons v. Uttley Ingham. Books Dobson P. & Stokes R. 2008. Commercial Law. Sweet & Maxwell’s Textbook Series. 7th edn.Thomson Reuters. Knapp P 2007. Problems in Contract law Cases and Material. 6th Edn. Aspen.Breach of Contract & Remedies. (n.d.). Retrieved from http://goldsmithibs.com/resources/free/Breach-of-Contract/notes/Breach-of-Contract Remedies.pdf Read More