Law of Business Transactions - Assignment Example

Law of Business Transactions PART ONE Peter, the proprietor of an employment agency, People4U Ltd, decided to change the carpeting in his office. To this end he approached United Floors Ltd, a seller of carpets, and ordered around a hundred square meters of carpeting for his employment agency. The total cost of re carpeting his office was agreed upon by them at two thousand three hundred pounds sterling. Within two months of fitting the carpets, they revealed signs of wear and tear. Peter was of the opinion that the shoddy appearance of the carpets would adversely affect his business. The United Floors Ltd had included an exclusion clause in its contract, which required intimation of any alleged defects within three weeks of fitting the carpets. As such, it had included a clause, whereby its liability per contract was to be restricted to five hundred pounds. Peter is seeking refund of the two, thousand, three hundred pounds paid by him and compensation for the business lost, during the time the carpet was being replaced. United Floors Ltd refuses to accept and relies on its exclusion clause. An exclusion clause can be enforced by resorting to adhesion contracts or standard form contracts. The party which draws up such contracts offers negligible choice to the other party to the contract. In the words of Downes, an authority on contract law, wherever, there is great disparity in the bargaining power of the parties to the contract, exclusion clauses can prove to be extremely prejudicial.1 Legislation like the Unfair Contract Terms Act 1977 or UCTA and the Unfair Terms of the Consumer Contract Regulations 1999 or UTCCR have been enacted, in order to exercise stringent control on the use of exclusion clauses. The UCTA makes a business liable for not fulfilling obligations or duties that are consequent to what has been done or is to be done in the normal course of business2. Peter’s contract with the United Floors Ltd is subject to the UCTA, because consumer contracts fall under its purview3. In contractual terms reasonableness is of paramount importance and the UCTA verifies as to whether an exclusion clause, after taking into consideration the circumstances that should have normally been known to the contracting parties, is rational4. In this manner the UCTA grants wide discretion to the courts, in determining whether an exclusion clause is reasonable or not. If a contracting party wishes to take recourse to an exclusion clause in the contract, then the onus of establishing its reasonableness rests on it5. The UTCCR deals with all the contractual terms and not merely those relating to exclusion clauses. This makes it much wider in scope. The primary task is to determine whether the exclusion clause incorporated by United Floors Ltd is unfair, because damage to the carpets within a short period of two months is unreasonable as per the implied terms of the contract. The exclusion clause is therefore invalid under both UTCA and the UTCCR. Valid exclusion clauses have to conform to certain conditions, which are set out in the following. Such a clause has to be included in the contractual agreement; it should clearly cover the liability; it should not be proscribed by statute or other laws like the Consumer Protection Act 1987, UCTA and the UTCCR. Some exclusion clauses are invalid. Examples are, exclusion clauses that seek to limit liability for death or injury resulting from negligence, for fraud and for failure to comply with the implied terms in the contract. The chief purpose of the UCTA 1977 is to curtail the degree to which contractual liability can be excluded, whenever a breach of contract occurs. Such an objective is attained either by exact proscription or by allusion to a reasonableness condition. The Sale of Goods Act requires contracts to provide an assurance that the goods, which are bought will be of a satisfactory quality. However, this requirement is pertinent only in the case of goods, which were sold in the due course of business. In addition, implied terms in a contract require the goods sold to fit their depiction, be of acceptable quality and by all reasonable standards should serve the purpose of the buyer. This requirement is of immense value to a party to a contract that desires to initiate legal proceedings for breach of contract. The effect of this legislation is to make fix liability on the supplier of the goods. The crux of the matter is that satisfactory quality has to be inherent in the goods sold or supplied6. It remains to be seen, whether the United Floors Ltd can take recourse to the exclusion clause to escape liability and whether Peter can recover the cost incurred on purchasing and fitting the carpet. In order to do so Peter has to establish that the United Floors Ltd cannot avoid liability by relying on the exclusion clause in the contract. The purpose of exemption clauses in contracts is to eliminate the liability of one of the contractual parties. Accordingly, it is essential to ascertain as to whether the person buying the goods is a consumer or not. The Consumer Contracts Regulations 1999 state that “[A] Consumer means any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession7.” Peter had purchased the carpets and had them fitted in his office. Since, he was not dealing in carpets, for this specific agreement he is deemed to be a consumer. The relevant case law in this context is given in the sequel. In Davies v. Sumner, a car was sold by being falsely described as having done a far lesser number of miles than it had actually travelled. Their Lordships opined that the car was merely incidental to the defendant’s courier business and not integral to it. Therefore, the defendant was deemed to be a consumer8. In Stevenson v. Rogers, the court Potter LJ held that if the business is buying and selling of cars then the sale of a car is integral to the business. However, in this case the defective car sold was not afforded the protection of the exclusion clause9. Since, Peter does not deal with the purchase and sale of carpets, he is a consumer. Peter had undertaken the carpeting of his office as a consumer, since, he was not in the business of trading in carpets. This is borne out by the case of R&B Customs Brokers Co Ltd v United Dominion Trust Ltd, in which the contract excluded liability for breach of certain statutory implied terms and the exclusion clause, was subject to section 6 of the UCTA. The Court of Appeal held that the purchase of the car was only incidental to the company’s business activity, which meant that the purchase was not made in the course of business and so the plaintiff company was dealing as a consumer. Thus the defendant could not exclude liability for the breach of implied terms10. The Sale of Goods Act 1979, requires the carpeting sold to Peter by the United Floors Ltd to have durability11 and the agreed upon appearance and finish12. This did not happen and within two months the carpeting showed signs of wear and tear, and displayed a palpable variation in colour. Since the United Floors Ltd had violated the implied terms of the contract, which had been considered to be mandatory requirements by the legislation, in particular by the condition specified under section 14(2) of the Sale of Goods Act 1979, the United Floors Ltd is liable to make a full refund of the cost incurred by Peter for carpeting his office. In addition, Peter can repeal the contract. Moreover, Peter can claim refund for the loss sustained by him due to the temporary disturbance to his business, when the carpet was being fitted in his office. As the carpeting was damaged within a short period of two months, Peter can opt for either a repair, replacement or a refund under the provisions the Sale and Supply of Goods to Consumers Regulations 2002. PART TWO Purchasers who are put to a loss due to craftsmanship that is not up to the mark are offered protection by the Supply of Goods And Services Act 1982. This important piece and crucial piece of legislation, also addresses victimization engendered by disparities in the time taken to render such service and the cost incurred for the obtention of that particular service. This act brings into its ambit every contract in which the supplier provides some service in the due course of his business. Sections 13 and 15 of the Supply of Goods And Services Act 1982 contain the provisions that relate to implied terms with respect to service. Section 13 of the Supply of Goods And Services Act 1982 clarifies that an implied term exists, whereby the supplier, during course of business, has to ensure adequate skill and care while providing the specified service. Section 14 of the Supply of Goods And Services Act 1982, states that in instances wherein, the supplier performs according to the course of business and if there is no specification regarding the time within which that service is to be provided, either in the contractual terms or as the outcome of a series of dealings between the parties, the supplier is required to complete the service within a period of time that is reasonable by normal standards13. There are certain contracts, to which the Supply of Goods and Services Act 1982 is applicable and which are the so called hybrids. For instance a contract to replace the existing electrical wiring in a house would fall under this category, because such a contract would involve the supply of electrical goods like wires, switches and circuit breakers and also their installation, which would constitute a service. In such cases, sections 2 and 5 of the Supply of Goods and Services Act 1982, would apply to the supply of goods; whereas sections 13 to 15 of this act would be applicable to the service provided, in order to complete the contract14. According to the provisions of the Sale of Goods Act, when a purchase is made, wherein it is either specified or implied that goods for a particular purpose are required, then the goods sold should be in accordance with such requirement and moreover, the goods should be such that any rational person would consider them to be adequate for the purpose. As regards the quality, the goods should be what is commonly expected with regard to appearance, finish, lack of minor defects, safety and durability. If these conditions are not satisfied, then the consumer has certain remedies available to him. The consumer can claim monetary compensation and the seller can propose to either repair or substitute the goods or offer a credit note; however the consumer is not bound to accept these choices. The Sale and Supply of Goods to Consumers Regulations 2002 allows consumers to reject the goods or to seek compensation if they prove to be defective, unfit for the purpose for which they were manufactured or not in conformity with their description. Consumers can opt for either a repair, replacement or a refund that is partial or complete. As per this act, goods found to be defective within the first six months of purchase are deemed to have been faulty at the time of the sale and there is no requirement for the consumer to establish that the goods were defective. The carpeting in Peter’s office showed signs of damage within two months of its purchase. Hence, it is assumed that they were defective at the time of the purchase itself. Therefore Peter is entitled to obtain a full refund. If there is a defect in the workmanship and not in the goods supplied, then Peter can obtain redressal under the provisions of the Sale and Supply of Goods to Consumers Regulations 2002 and also under the provisions of the Supply of Goods and Services Act 1982 . Under these provisions Peter can claim monetary compensation, repair or replacement. Bibliography 1. Davies v. Sumner (1984) 3 All ER 831, (1984) 1 WLR 1301 2. Downes, TA, ‘Textbook on Contract’, 5th edition, 1997, Blackstone, P.273 3. Kelly, David. Holmes, Ann. Hayward, Ruth. Business Law. 5th Edition. 2005. Cavendish Publishing. P. 236 4. R&B Customs Brokers Co Ltd v United Dominion Trust Ltd (1988) 1 All ER 847 5. Sale and Supply of Goods to Consumers Regulations 2002 6. Section 1(3), Unfair Contract Terms Act 1977 7. Section 3, Unfair Contract Terms Act 1977 8. Section 3(1), Consumer Contracts Regulations 1999 9. Section 11, Unfair Contract Terms Act 1977 10. Section 11(5), Unfair Contract Terms Act 1977 11. Section 14(2), Sale of Goods Act, 1979 12. Section 14(2B)(b), Sale of Goods Act 1979 13. Section 14(2B)(e), Sale of Goods Act 1979 14. Stevenson v Rogers (1999) 1 All ER 613 15. Supply of Goods and Services Act 1982 Read More