The UK Commercial Law - Case Study Example

Commercial Law Case law - Solution Introduction In transaction of the goods, whether it is by sale or by hire purchase, the general rule is that both seller and buyer should take reasonable diligence regarding the goods. The law has enacted several limitations on both the seller and the buyer while introducing relevant safe guards. We can assume that the battle will lead to the victory of one party, but sometimes it may happen that the in the flash point the other party will win over ,subject to the certain conditions imposed by the law on the beginner. In the given case, Bertz has good opportunity to win the case by the provisions of the Law. But, it is to be remembered that the law has made certain conditions to be fulfilled by the claimant which may turn to the triumph of the defendant. Before proceeding to render an advise to ITS, Firstly we shall examine the provisions of various Acts arises from this case and also we shall examine how it is wrought to help claim of ITS, the defendant. The general rule is that he purchaser of goods, which turn out to be defective, will sue in contract for breach of the terms implied by the Sale of Goods Act 1979, or the Supply of Goods and Services Act 1982, which cannot be excluded against a consumer. In Donoghue v Stevenson (1) Lord Atkin stated that a manufacturer of products owes a duty to the ultimate consumer to take reasonable care in the preparation of the product. But as said above the law never is single sided 1. Implied Conditions under Sale of Goods Act 1979 Section 12- 14 enumerates that there is an implied condition as the goods shall --------------------------------------------------------------------------------------------------------- 1. Donoghue v Stevenson 2 correspond to the description and such goods shall be of merchantable quality.(2) This aspect is well explained in the case Varley Vs Whipp.(3) The term, "merchantable quality' means that the goods comply with the description, so that to a purchaser buying goods of that description the goods would be good tender. In Harlingdon and Leinster Enterprises Ltd v. Christopher Hull Fine Art Ltd (4) also the same point has been discussed. Moreover in Wilson v Rickett, Cockerell (5) by applying the purview of S. 14 (3) the court of Appeal held that where the seller sells goods in the course of a business and the buyer expressly or by implication makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract, are reasonably fit for that purpose whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill and judgment of the seller. a) In the course of the buisiness In the course of a business' in the context of the Sale of Goods Act 1979 s14 (2), where it limits the statutory implication of a term as to the quality of the goods to sales where sellers are acting 'in the course of a business'. However, a requirement of merchantability was only implied if the sale was made 'in the course of a business' and that remains the case in relation to satisfactory quality By applying the scope of the phrase 'in the course of business in Stevenson v Rogers (6) it was held that the meaning to be given to the phrase 'in the course of a business' came to be considered as a preliminary matter. But there is an exception this -------------------------------------------------------------------------------------------------------- 2.Sales of Goods Act 1979 3. Varley Vs Whipp 4. Harlingdon and Leinster Enterprise Ltd v Christopher Hull Fine Art Ltd [1991] 1 QB 564 5. Wilson v Rickett, Cockerell 1954] 1 QB 598 6. Stevenson v. Rogers [1999] Q.B. 1028 3 rule that there is no such condition (a) as regards defects specifically drawn to the buyer's attention before the contract is made- or (b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal. Here Bertz has not made any examination regarding the quality of the computer and the printer even before the purchase .It is on the part of the buyer to inspect the property/goods and assure himself that the goods are of good condition. So the provision in sec.14 (2) which enumerates the relationship between the merchantable quality and in the course of business can be applied on behalf of the defendant also. b) Sale by description and merchantable quality In contracts for the sale of goods, s13 Sale of Goods Act 1979 imposes the condition that the goods must correspond with the description. The precise requirement of s13 was illustrated in Re Moore and Landauer (7). In Arcos v Ronaason (8)also was it held that the buyers were entitled to demand goods answering the description in the contract, and were not bound to accept the goods tendered merely because they were merchantable under that description., But the judgment further said that it is not necessary to examine again the actual difference between the goods shipped and those defined in the specification nor it is possible to fix the exact extent to which the exposure of the staves, for which the respondents were responsible, has altered their size. It is given in Sec. 13(1) of SGA for there to be a sale by description,it must be ------------------------------------------------------------------------------------------------------------ 7. Re Moore and Landauer [1921] 2 KB 519 8. Arcos v Ronaason [1933] AC 470 4 established that the parties shared a common intention that the description should be a terms of contract.In seeking to establish whether there is acommon intention between the parties the court could look at whether or not the buyer placed any reliance on the description words used by the seller.If there is no such reliance it will be a powerful evidence for the defenant. Moreover is to be noted that under this provision of sale description and merchantable quality there are some conditions to operate the sections, they are, -- the buyer has to make known either expressly or impliedly the particular purpose for which the goods are required -- the buyer should rely on the seller's skill and -- the goods of a description should be in the course of the seller's business to supply (9) In the given problem, eventhough Bertz accepted the goods as per the sec. 35 of the SGA i.e acceptance of the asper the description ,he never mentioned the purposec for which he has purchased the computer and printer.There is a possibility that these goods might have faced the damage due to heavy loads of the work.So it was duty on the part of the Bertz that the purpose should be made known to the seller,ITS.Since Bertz could not follow this contion,this situation may be an advantage for ITS' claim. Under these circumstances, it will be approppriate to mention the case of Cammell laird v Mangenese Bronze(10) in which Lord Reid modified the claim of claimant that goods were unmerchantable if they were of no use for any purpose for which such goods would normally be used. Lord Reid modified this phrase to "no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used". ----------------------------------------------------------------------------------------------------------- 9. Cammell laird v Mangenese Bronze [1934] AC 402 10. ibid 9 . 5 c) Goods wanted for particular purpose In Cammell Laird & Co. Ltd v. Manganese Bronze and Brass Co. Lord Reid explained the aspect of goods for particular purpose.He said that an implied condition where the buyer makes known to the seller the particular purpose for which the goods are required and shows reliance on the seller's skill and judgment. Reliance need only be partial .In such circumstance the seller in the ordinary course is accustomed to supply goods of the description in question and there is a implied condition that they are reasonably fit for the intended purpose.(11)In Drummond Vs Van Ingen (12) it was held that a manufacturer/seller who agrees to supply goods to order ,knowing the purpose for which they are required ,thereby impliedly undertakes to supply goods fit for the purpose in view. The above said explanation also shows the inability of the claimant, Bertz to prove all the conditions under sec.12- 14 of SGA, whether it is condition related to sale by description or the condition related to the mentioning the goods of particular purpose. So all these deviations are benefit for ITS, the defendant. 2. Exclusion Clause Exclusion clause in the contract states that "the clause recognizes a potential breach of contract and then excuses the liabilities i.e. strict liability and negligence or the breach". But the clause is constructed in such a way that it includes the reasonable care to perform duties are one of the parties. Here the defendant has already made the provision for their exclusion of the ------------------------------------------------------------------------------------------------------------ 11. Herbert Jacobs , Steven's Elements of Mercantile Law, pp. 303-304 10th edn , publ. Butterwoth & Co. Ltd., London 12 Drummond Vs Van Ingen .1887 12 App.Cas,at p.295 6 liabilities by sticking the notice in the shop which shows the money refund in case the damage of the goods within one week of purchasing. Since the claimant has not approached the defendant within this time limit, whatever the reason may be, the defendant has a good reason to defend his side because of this exclusion clause. In Photo Productions v Securicor (13) the House of Lords ruled unanimously that the exclusion clause should stand. Between organizations with rough parity of bargaining power, it was confirmed, the contract must be interpreted on the basis of the intentions of the parties. "Under no circumstances shall the company be responsible for any injurious act or default by any employee of the company unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of the company as his employer. (14).The same view has taken in the case of Mitchell v Finney Lock Seeds (15) in which it was held that the exclusion clause in an inter-business contract had to be reasonable and not a blanket to cover up negligence. The exclusion clause may play an important role in holding the claim of defendant firmly. But it is to be remembered that defendant's claim always in the dark shade of the scope of section 2(1) of Unfair Contract Terms Act 1977 and Sec. 14(2) of Sales of Goods Act of 1979 .Sec. 2(1) of UCT act clearly states that no one acting the course of business can exclude or restrict his liability in negligence for death or personal injury by means of a term in the contract or by way of notice .and the Sec. 14(2) of Sales of Goods Act of 1979 states that where the seller sells the goods in the course of business ,there is a implied condition that the goods supplied under the contract are of merchantable quality. ------------------------------------------------------------------------------------------------------------ 13 Photo Productions v Securicor [1980] 1 All ER 556 14. Unfair Contract Act 1977 15. Mitchell v Finney Lock Seeds [1983] 1 QB 284 7 In Olley v Marlborough Court (16) it was held that Reasonable steps must be taken to bring the clause to the attention of the customer before or at the time the contract is made. Any subsequent notice of terms cannot be incorporated in the contract without the other party's consent. But it should be noted that the burden of proof of whether the exclusion clause incorporated with the contract or not lies on the defendant. Moreover in Thornton v Shoe Lane parking (17) demonstrates that for an Exclusion Clause to be incorporated into a contract, other than by explicit agreement, the affected party must be given adequate warning .If it is given then the defendant's claim will be completely protected by the provision of the law. It is to be remembered here that the Sec. 11(2) of Unfair Terms of Consumer Contract Act 1977 does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract. 3. Deliverable state Another provision of the commercial law which can be applied in this case is the scope of 'deliverable state. The rule is "deliverable state "does not depend upon the mere completeness of the subject matter in all its parts. It depends on the actual state of the goods at the date of the contract and the state in which they are to be delivered by the terms of the contract. This point is mentioned in Underwood v. Burgh Castle Brick and Cement Syndicate. (18) Here in the given problem, the goods were in proper condition and were in actual state at the time of contract and even at the time of purchase also. There is no intention on the part of the defendant to swindle the claimant. ------------------------------------------------------------------------------------------------------------ 16. Olley v Marlborough Court [1949] 1KB 532 17 Thornton v Shoe Lane parking [1971]2 QB 163 18. Underwood v. Burgh Castle Brick and Cement Syndicate [1922] 1 K.B. 343 (CA) 8 4. Estoppel by Negligence There is a possibility that the claimant may rise a claim on the basis of negligence of defendant he may seek the protection by law on the basis of estoppal by negligence. Section 2(2) of Unfair Terms of Consumer Contract Act 1977 enumerates that in the case of other loss or damage; a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. In our case, the defendant had issued the receipt showing refund policy which constitutes the part of the term s of the contract. Since this receipt and the display in the shop regarding refund policy itself constitute the terms of the contract, we can not say the defendant cannot be excluded from the liability of loss/damage of the goods. The general conclusion is that a narrow interpretation is placed on estoppel and the courts have leaned in favor of the property rights of the original owner/seller .In Mercantile Credit Co. Ltd. v. Hamblin (19)the Court considered as there was no estoppel by negligence against defendant, because although there had been sufficient relationship between her and persons who might contract to provide her with money to give rise to a duty of care on her part towards them with regard to the preparation and custody of contractual documents, yet, in the particular circumstances her conduct had not been negligent nor, if it had, would her negligence have been the proximate or real cause of plaintiffs being induced to part with their money. In that way the court has accepted the rule against the estoppel by negligence in Moorgate Mercantile Co. Ltd. v. Twitchings(20) by rendering the judgment for the ------------------------------------------------------------------------------------------------------------ 19. Mercantile Credit Co. Ltd. v. Hamblin [1965] 2 Q.B. 242. 20. Moorgate Mercantile Co. Ltd. v. Twitchings [1977] A.C. 890 9 defendant .In this case the House of Lords rejected the argument and held by a majority that the car belonged to Moorgate Mercantile Co for the reason that failure to register by Moorgate had not resulted in a representation that there was no H.P. agreement on the car and neither had they been negligent because there was no duty to register, since registration was voluntary. 5. Doctrine of Caveat Emptor This provision under the SGA Act says that the goods shall be of merchantable quality provided that if the buyer has examined the goods. Here we can apply the doctrine of Caveat Emptor. It is an obligation in any commercial transaction that the seller is to allow the buyer prior to entering into an agreement to inspect the goods in order to ensure that the goods to be purchased are free from any unknown defects. Under this circumstance the buyer should investigate whatever the goods purchased, whether it is movable or immovable, are free from any defect before the actual agreement is completed, so as to protect him from any future risk arising from a defective product. I.e. the implication is that the purchaser/buyer after such inspection will shoulder the responsibilities of any risk after the completion of the said sale or purchase agreement. (21) It is to be remembered that the doctrine of caveat emptor does not lay down any obligation in the seller to point out the defects in goods to be sold. The only exception was if the seller actively concealed latent defects and he is under the duty to allow the buyer to inspect the goods/property himself. In Drake v Thos. Agnew & Sons Ltd (22) it was held that the claimant always exercise a due diligence at the time of transactions of the goods. ------------------------------------------------------------------------------------------------------------ 21. Caveat emptor Vs Khiyai al -"aib" Dictonomy Mohd.Masum Billah Vol.13 no.3 1998 278- 299 22. Drake v Thos. Agnew & Sons Ltd. [2002] EWHC 294 (QB 10 6. In nominate term There is a third class of contractual term outside of warranties and conditions known as innominate term, which are determined by the consequences of the breach of the contract. This case represented a significant change in the standard of determining types of terms, which were normally determined by looking at the contract at the time it was formed. The type of term can be determined by examining the consequences of the breach. A breach that deprives an innocent party of "substantially the whole benefit" would mean the term is a condition certain terms are impossible to determine without looking at the extent and circumstances of the breach. Consequently, where the legal consequences depend on the nature of the breach and does not fall within a reasonably expected classes of breach then the terms are innominate and will be determined to be a warranty or condition based on the extent of the breach.. This aspect was well explained in the case Hong Kong Fir case(23) in which the Kawasaki contracted with Hong Kong Fir to charter a vessel for a period of 24 months. A provision in the terms warranted that the vessel was "fitted in every way for ordinary cargo service" and that the owners would "maintain her in a thoroughly efficient state ... during service". Soon after beginning the voyage it was discovered that the vessel was in need of many repairs. Initially, Hong Kong Fir spent five weeks fixing the vessel, but more damage was found and so more repairs were needed totaling 15 weeks before it was seaworthy. Once the vessel was made seaworthy, it was still available to the chatterers for a period of 17 months. Kawasaki wrote to the owners repudiating the Charter. Hong Kong Fir brought an action for wrongful repudiation In given case, ITS already conducted the repairing of the goods earlier in spite --------------------------------------------------------------------------------------------------------- 23. Hong Kong Fir case [1962]2 QB 26 11 of the matter that it had been used for months. The clause says "the breach deprives the whole benefit of the innocent party."Since the computer and printer has been using and Berts has been accruing the income from it, he can not claim that the breach deprived his whole benefit .So under this provision also ITS,the defendant can relax . Sec. 48A of Sales of Goods Act 1979 This provision is well built for the defendants in consumer contracts.Sec.48 A of SGA 1979 says that if the buyer deals as consumer or there is a consumer contract in which the buyer is a consumer, and the goods do not conform to the contract of sale at the time of delivery. If this section applies, the buyer has the right to require the seller to repair or replace the goods. (24) Since the contract between the Bert and ITS is a consumer contract, Bert is bound to follow the rules related to such contract. He is not able to raise a claim for either replace or refund as the sec.48A of clearly mentions that the goods do not conform .at the time of delivery. It is to be noted that there is nothing specified as refund/replacement for damaged goods. Here the case of Bert is the refund for the damaged goods. So Bert cannot claim for refund as per the contract. Moreover ITS can defend the case on the ground of extensive use of the computer and printer. Even though Bertz made known all the needs to ITS and ITS provided the computer and printer as per the needs ,there is a possibility that the extensive use like , producing simple advertising material, calling cards and similar items may cause the damage to the system. In Aswan Engineering v Lupdine Ltd and another (25) it was held that the manufacturer will not be liable if the consumer misuses the product: ------------------------------------------------------------------------------------------------------------ 24. Sec.48 A Sale of Goods Act 1979 25. Aswan Engineering v Lupdine Ltd and another [1987] 1 All ER 135 12 So we can conclude that ITS has good defence against the plaintiff, Bertz and may win the case resorting the various provision/exceptions of the law. Conclusion The law has given wide opportunity for any plaintiffs to prove their case. It does not mean that the law has kept away the interests of the opposite parties .Perhaps the law allows the plaintiff to apply all the relevant provisions .For e.g. in sale there law says that there is no need of reading the contract, mere signature is sufficient. But all these provisions are made subjected to one or other limitations which may turn to be safeguards for the opposite party. In conclusion we can say that the offenders also can enjoy the benefit of the law. ******************************* References Books and Authors0 1. Athiyah,P.S , Adams, J.N Sale of Goods 11th edn. 2005 2. Bradgate, Robert Commercial Law 3rd rev edn publ. Lexnexis UK 3. Cooke, John Law of Torts 8th edn. 2007 4. Dykstra, John W. The Realm of caveat emptor Vol. 85 No.3 pp.280-286 publ. by Lawrence Erlbaum Associates 5. Goode , R. M., Royston Miles Commercial law 3rd ed, Roy Goode London, Penguin, 2004 7. Guenter Trietel Some land marks of 20th Centaury Contract Law 2002 Ch.4 Clarendou Law lectures, Law Oxford 8. Harpwood,Viienne Modern Tort Law p 365 Publ.Routledge Cavendish 2005 9. Herbert Jacobs, Steven's Elements of Mercantile Law, pp. 1-132 10th edn , publ. by Butterwoth & Co. Ltd., London 10. Joseph W Glannen The Law of Torts: Examples and Explanations 2nd edn. Aspen Publishers 11 .Lawrenson L.A The Sale of goods by Description- A Return to caveat Emptor , Vol.54 No.1 1991 pp 122- 126 Blackwell publishing 12. Lawson, Richard Exclusion Clauses and Unfair Contract Terms p 211 Publ. Sweet and Maxwell 2005 13.. Lunney , Mark and Oliphant, Ken Tort Law ,Text and Materials 2nd edn. Publ.by Oxford University press 2003 14. Maclead,Keith,John Consumer sales Law p 528 Cavendish publishing 2002 15. Masum Billah, Mohd. Caveat Emptor Vs Khiyai Al - Aib : A Dichotomy Arab law quarterly Vol.13 No.3 1998 Pp.278-299 publ.Brill 16. Sacks, Vera Torts (Interference with Goods) Act 1977 Vol. 41, No. 6 (Nov., 1978), pp. 713-721 17. Sealy, L. S., Leonard Sedgwick, 1930 Commercial law, 3rd ed,London, Butterworths, 2003 18. W.R Anson Anson's Law of Contract, edited by Gues , A.G ,Oxford university Press ,London. Statutes 19. Consumer protection Act 1987 20. Torts (Interference with Goods) Act 1977 21. Sale of Goods Act 1893 22. Sale of Goods Act 1979 23. Sales and Supply of Goods Act 1994 24. Unfair Contract Terms Act 1977 25. Unfair Terms in Consumer Contracts Regulations 1999 Websites 26. www.citizeninformations.com Unfair Terms in Consumer Contracts 27. www.dti.gov.uk sale and supply of goods and services 28. www.fdic.gov.com Consumer Protection 29.www.netlawman.co.uk Unfair contract Terms Act 1977 30. www.law.cornell.edu.com Commercial Law and Contracts 31.www.warwick.ac.uk Y2K contractual exceptions clauses 1999 Elizebeth Mc Donald Table of Cases 1. Aswan Engineering v Lupdine Ltd and another [1987] 1 All ER 135 2. Arcos v Ronaason [1933] AC 470 3. Cammell laird v Mangenese Bronze [1934] AC 402 4. Donoghue v Stevenson 5. Drake v Thos. Agnew & Sons Ltd. [2002] EWHC 294 (QB 6. Drummond Vs Van Ingen 1887 12 App.Cas,at p.295 7. Harlingdon and Leinster Enterprise Ltd v Christopher Hull Fine Art Ltd [1991] 1 QB 564 8. Hong Kong Fir case [1962]2 QB 26 9. Mercantile Credit Co. Ltd. v. Hamblin [1965] 2 Q.B. 242. 10. Moorgate Mercantile Co. Ltd. v. Twitchings [1977] A.C. 890 11. Mitchell v Finney Lock Seeds [1983] 1 QB 284 12. Olley v Marlborough Court [1949] 1KB 532 13. Photo Productions v Securicor [1980] 1 All ER 556 14. Re Moore and Landauer [1921] 2 KB 519 15. Stevenson v. Rogers [1999] Q.B. 1028 16. Thornton v Shoe Lane parking [1971]2 QB 163 17. Underwood v. Burgh Castle Brick and Cement Syndicate [1922] 1 K.B. 343 (CA) 18 Varley Vs Whipp [1900] 1 Q.B. 513, 516 19. Wilson v Rickett, Cockerell 1954 1 QB 598 Read More