Commercial Contracts Problem - Essay Example

? Commercial Contracts For assessing the contractual liability of the Queen Industries Ltd and the retailer Radio Stores; the first issue to be considered is whether they were in breach of section 13 of the Sale of Goods Act 1979. The implied terms in section 13 of the Sale of Goods Act 1979, permits a buyer to reject the goods supplied, if they have not been described correctly. However, the purchaser should have relied on the description of the goods provided by the seller, for this provision to be applicable. Moreover, the Sale of Goods Act 1979 enjoins that the goods supplied should not have any defect (Von Bar, et al., 2004, p. 280). To make Queen Industries and Radio Stores, liable for a breach of the law under the provisions of the Sale of Goods Act 1979, Satterthwaite Hotels must prove that there was a description of the goods, on which it had relied, while making the purchase. When Satterthwaite Hotels informed Radio Stores about its need for robust washing machines, the Radio Stores had described the Queen Industries’ washing machines, as being suitable for the extensive washing of clothes. However, these washing machines became frequently out of service, requiring the replacement of expensive components. Since, Satterthwaite Hotels had entered into the contract of sale by virtue of the advice given by Radio Stores; the latter is liable for a breach of implied terms in the contract, under the provisions of the sale of Goods Act 1979. Section 13 of this Act states that buyers who rely on advertisements and sales materials, while making a purchase, are also protected (Marson, 2011). In our problem, the buyer Satterthwaite Hotels did not rely on the advertisement made by the manufacturer, while purchasing these washing machines. Consequently, the manufacturer, Queen Industries is not liable for sale by description, under section 13 of the Sale of Goods Act 1979. In Harlington and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd, wherein the buyers of a painting were experts in that area of art, whereas the sellers had merely relied on an earlier auction catalogue. During the course of purchasing this painting, supposedly by the German painter Munter, the purchasers had the painting inspected by their panel of experts. Subsequent to the sale it came to light that the painting was a forgery that was not even worth a ?100, whereas the purchasers had paid ?6,000 for it. In this case, the buyer had not relied on the description of the goods provided by the seller. The sellers were not held liable by the court, as the buyers had not relied upon this description of the goods sold (Bridge, 1997, p. 289). However, this case will not apply to our problem, since Satterthwaite Hotels had relied on the description given by Radio Stores, with respect to the quality of the washing machines. The second issue to be considered is whether Radio Stores and Queen Industries were in breach of the provisions of section 14 of the Act, regarding the satisfactory quality of the goods sold. Section 14(2) of the Sale of Goods Act 1979, makes it very clear that goods sold in the course of business have to be of satisfactory quality. Moreover, they should serve the purpose for which they have been bought. As such, a number of implied terms are incorporated into contracts for sale of goods, by the Sale of Goods Act 1979, under sections 12 to 15. These have been termed conditions and warranties. If a party to a contract infringes the conditions of the contract, then the other party can claim damages and rescind the contract. However, the breach of a warranty permits the injured party to merely claim damages. In such instances, the contract cannot be annulled (Stone, 2005, p. 214). As such, goods should be suitable for the purpose for which they had been purchased by the buyer. For this to hold good, it has to be established that the seller was aware of the purpose for which these goods were being purchased (Sale of Goods Act 1979, (c.54), n.d.). The washing machines sold by Radio Stores are not sufficiently robust to meet the needs of Satterthwaite Hotels, which comprised of a chain of cottages and apartments in the Lake District. Hence, the seller Radio Stores and the manufacturer Queen Industries are liable for breach of implied terms in respect of the quality of the goods sold under the contract. As held in Derry v Peek, it is sufficient for the buyer to prove that the seller believed or was aware the he was making a false statement to the buyer, regarding the suitability of the goods (Christensen, et al., 2004, p. 28). In Cehave NV v Bremer Handelgesellschaft mbH (The Hansa Nord) [1976] citrus pellets for animal food had been sold, by a German company to a Dutch company. Subsequently, the value of citrus pellets reduced substantially, and the entire consignment had not been delivered. The purchaser rejected these goods, as being defective and contrived to obtain these goods for a much lower price. The Court of Appeal ruled that the rejection was unjustified, as the contractual clause requiring the shipment to be in good condition was an intermediate term, and not a warranty or condition (Mothersole & Ridley, 1999, p. 377). From this judgement it follows that a party to a contract can repudiate contractual obligations, sue for damages, or both. However, a sufficiently serious breach should be present for such repudiation; otherwise the repudiation could be deemed to be a breach. The consequences of a breach of a contractual term will vary with the nature of the breach. All the same, with regard to a breach of contract, an action for damages is always available. With regard to a warranty, only an action for damages is permitted, and repudiation of contractual obligations will constitutes a breach (Turner, 2010, p. 104). Similarly, in our problem, the washing requirements of the Satterthwaite Hotels were not satisfied due to the inferior quality of the washing machines sold by Radio Stores. Hence, the manufacturer Queen Industries Ltd and the retailer, Radio Stores are liable for a breach of contract under section 14(2) of the Sale of Goods Act 1979. As opined by the court in Godley v Perry, a produce that has become unsafe for use, on account of some defect, will be deemed to be of unsatisfactory quality. In this case, it was held that the purchaser had made a reasonable examination, which as per section 15 of the Sale of Goods Act 1979, was sufficient for establishing that the goods were of unsatisfactory quality (Connolly, 1998, p. 85). In Ashington Piggeries, the court declared that description and quality are distinct. The latter implies a specification that can be identified by the buyer. The Court of Appeal ruled that the seller was not liable under the provisions of the section 13(1) of the Sale of Goods Act 1979. In Reardon Smith Line v Hansen Tangen, a steamship company with the intention of performing a charter, nominated a vessel as “Yard No. 354 at Osaka”. The buyer was desirous of evading contractual obligations, and contended that the contract was void, as the ship did not correspond to its description, as required under section 13 of the Sale of Goods Act. This argument was rejected by their Lordships who held that the term “Yard No. 354 at Osaka” was merely a substitute for a name. Specifically, Lord Wilberforce held that hull number and yard, which this term depicted, had no particular significance, and was merely an innominate term (Reardon Smith Line v Hansen-Tangen , 1976). Moreover, in Clegg and another v Andersson (trading as Nordic Marine) a yacht had an overweight keel, which rendered it of unsatisfactory quality. This yacht’s rig safety was seriously compromised due to this defect, which could not be remedied by minimal work. The court held that the provisions of section 14(2) of the Sale of Goods Act 1979 had been breached, as the goods sold were not of satisfactory quality (LexisWeb, 2011). In Henry Kendall Ltd v William Lillico Ltd, section 14(3) of the Sale of Goods Act 1979, was interpreted to imply that goods with several uses have to be fit for all the uses severally (MacLeod, 2002, p. 446). The court determined that the previous dealings between these parties had been sufficient to render the terms of the current transaction reasonable (Henry Kendall Ltd v William Lillico Ltd, 1969). In the above case, the court held that the exclusion clause was integral to the contract between these parties. The reason behind this ruling was that the regular course of dealings over a protracted period indicated the buyer’s willingness to be bound by the terms in the notes (Furmston & Tolhurst, 2010, p. 133). With regard to breach of a contract of sale, the Sale of Goods Act 1979 provides a number of remedies to the buyer. Some of these remedies are replacement of the goods found to be defective, a partial refund with respect to the price of the goods, rejection of the goods, or a full refund of the price of the goods. In addition, such goods are deemed to have been defective from the very beginning, provided the defect in the goods takes place within 6 months of their purchase. Another major implied term is that goods sold in the normal course of business should be of standard quality (Sale of Goods Act 1979, (c.54), n.d.). Similarly in our problem, Satterthwaite Hotels can demand of the Radio Stores, as well as of the Queen Industries to replace the washing machines, since they had violated the implied terms of quality and fitness for purpose under the provisions of the Sale of Goods Act 1979. Furthermore, Satterthwaite Hotels can reject the washing machines and claim a full refund of the payment made by them, in this regard, under section 14 of the Sale of Goods Act 1979. In addition, the Satterthwaite Hotels can also claim damages from the Radio Stores for breaching provisions for sale by description. It can also claim damages for misrepresentation, under the provisions of section 2 of the Misrepresentation Act 1967. This is due to the fact that the Radio Stores had made a false statement, with respect to the worthiness of the Queen Industries’ washing machines, in order to induce a contract of sale with the Satterthwaite Hotels. References Ashington Piggeries Ltd v Christopher Hill Ltd (1972) AC 441. Bridge, M. G., 1997. The Sale of Goods. 2 ed. Oxford, UK: Oxford University Press. Cehave NV v Bremer Handelgesellschaft mbH (The Hansa Nord) (1976) QB 44. Christensen, S. A., Duncan, W. D. & Walsh, T., 2004. Professional Liability and Property Transactions. Annandale, NSW, Australia: The Federation Press. Clegg and another v Andersson (trading as Nordic Marine) (2003) EWCA Civ 320. Connolly, M., 1998. Briefcase on Commercial Law. 2 ed. London, UK: Cavendish Publishing Limited. Derry v Peek (1889) LR 14 App Cas 337. Furmston, M. & Tolhurst, G. J., 2010. Contract Formation: Law and Practice. Oxford: Oxford University Press. Godley v Perry (1960) 1 WLR 9. Harlington and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd (1991) 1 QB 564. Henry Kendall Ltd v William Lillico Ltd (1969) 2 AC 31. LexisWeb, 2011. Clegg and another v Andersson (trading as Nordic Marine) [online] Available at: [Accessed 29 November 2012]. MacLeod, J. K., 2002. Consumer Sales Law: The Law Relating to Consumer Sales and Financing of Goods. 2 ed. London, UK: Cavendish Publishing Limited. Marson, J., 2011. Chapter Eleven: Statutory Regulation of Contracts [online] Available at: [Accessed 30 November 2012]. Misrepresentation Act 1937, (c.7), London: HMSO. Mothersole, B. & Ridley, A., 1999. A-Level Law in Action. 2 ed. Cengage Learning EMEA. Reardon Smith Line v Hansen-Tangen (1976) 3 All ER 570. Sale of Goods Act 1979, (c.54), London: HMSO. Stone, R., 2005. The Modern Law of Contract. 6 ed. London, UK: Cavendish Publishing Limited. Turner, C., 2010. Key Facts Contract Law. Taylor & Francis . Von Bar, C., Drobnig, U. & Alpa, G., 2004. The Interaction of Contract Law And Tort And Property Law in Europe: A Comparative Study. Munchen, Germany: Sellier European Law Publishers. Read More