Cancellation of Contracts - Essay Example

Cancellation of contracts Introduction The major issue in this case is the question of discharge of the contract that exists between Boris and Ben for the purchase of the computer and peripherals. The contract will be governed by the provisions of the Sale of Goods Acts of 1979 and 1982, despite the fact that contract is governed by the will theory or the basic principle that the parties have freedom to contract and all terms of the contract, including exclusion clauses, are governed by the free will agreement of the parties. Discharging contracts: The general rule in discharging a contract is that all parties to a contract must precisely perform all the terms of the contract before their obligations can be said to be fulfilled. Section 13 of the Sales of Goods Act of 1979 imposes a specific requirement that all terms of the contracts must be precisely performed. In the case of Re Moore and Landauer1 a buyer was able to cancel an entire contract because the specification laid out was that 3000 cases of canned fruit were to be packed in 30 tins, however upon delivery the fruit was packed in only 24 tins. Despite the fact that the total amount of fruit was as specified in the contract and there was no loss in market value or any loss to buyer, yet the buyer was able to reject the entire consignment due to the violation of section 13 of the Sale of Goods Act that clearly states that goods must correspond with their description. Do the goods supplied by Boris conform to the description that is stated in the online advertisement? Applying the general rule for discharge of contracts, it may be noted that Boris has advertised one particular computer/printer/scanner, however the goods that he has delivered do not correspond with the description of the all in one printer/scanner/copier that he has advertised. Therefore Ben can apply section 13 of the Sale of Goods Act, state that the delivered goods do not correspond to their description and thereby reject the entire consignment. Under Section 13 of the Act, Boris is obliged to supply the goods as described and cannot replace it with a cheaper substitute, because this can form actionable grounds for Ben to refuse the entire consignment. Furthermore, Boris was expected to deliver the goods on December 30th but failed to do so, which means that he has further violated the terms of the contract and has therefore not discharged it specifically as per contractual terms. On this basis therefore, Ben may have the option to reject the entire consignment – the computer as well as the printer/scanner units, using both the grounds stated above. Trietal however points out that in respect of obligations of parties in a contract “the question whether a particular obligation is entire or severable is one of construction, and where a party agrees to do work under a contract, the courts are reluctant to construe the contract so as to require complete performance before any payment becomes due.”2 Therefore in making a determination on whether or not a contract may be repudiated, the Courts will also look into whether any certain mitigating factors exist, that must be taken into consideration before applying the contract discharge rule. In the event a contract has been substantially performed, subject only to minor defects, then a seller will be allowed to recover the contract price with necessary reductions to the extent that he has failed to perform the entire contract. The courts may not hold in such cases that the entire contract can be repudiated. This was the case in Dakin v Lee3. In this case, a builder promised to build a house according to certain specifications but did not carry out all the specifications as promised. The concrete was not four feet deep, not properly mixed – however this failure was not deemed to constitute a violation of terms of contract serious enough to merit cancellation and the seller was allowed to recover payment with necessary deductions to the extent his work was defective. However this was not the case in Bolton v Mahadeva.4 In this case, a central heating system was installed which was found to be defective to an extent that seller was not held eligible to recover any amount on the contract. Applying this in the case of Boris and Ben, the question that arises therefore is whether Boris will be entitled to part payment for the goods that he has supplied, i.e, the computer? It must also be noted that Boris has gone against his assurance and has delivered the computer and peripherals during a time when Ben was unable to inspect them, and therefore the fact that Ben has had the items in his possession for a week may not be a relevant issue. This is because the first opportunity Ben had to inspect the goods was when he returned from vacation, so it is as if he has just received the goods. Therefore, Boris’ contention that Ben is obliged to keep the goods because he has had them for a week may not be a criterion that will be strictly applied by the courts. It must be noted that Boris has supplied the computer as specified, however the all in one printer/scanner/copier has been substituted contrary to the terms of the contract. But this substitution does not substantially render the product defective to an extent where it cannot justify the price paid. Rather it is possible that the court may deem that adjustments have to be made to the price Ben has paid, because he has paid for a superior version of an all in one printer. Applying the precedent set out in Dakin v Lee, the Court may decide that since Boris has supplied the computer according to specifications, he has performed the contract substantially and must be paid for it. On the other hand, the Court could also apply the precedent of Bolton v Mahadeva, and section 13 of the SOGA and decide that since the product does not conform to the online description of the goods, Ben is not obliged to accept the consignment at all. Another significant issue that must be considered is the delay in delivery of the computer. In this aspect, Boris has further failed to discharge the contract. In the case of Panchaud Freres SA v Establissments General Grain Co5 the grounds that were presented for cancellation of a contract of purchase was the delay in shipping of the goods. Although the Court rejected these grounds in this case, it was only because the buyers has earlier sought to repudiate the contract on other grounds. However, delays in shipping will be a valid issue in the case of Ben and Boris, since it has resulted in a delay in delivery of the goods and also the inspection of the goods. The Supply of Goods and Services Act of 1982 also makes it clear that while there is no general warranty about the quality of a product, when a sale is made and a seller transfers the goods in the course of his business, there is an implied condition that the goods that have been supplied are of satisfactory quality6. Goods are deemed to be satisfactory if “they meet the standard that a reasonable person would regard as satisfactory….taking into account all other relevant circumstances.”7 If a wrong description is used for the goods, then such a description is false and akin to misrepresentation8 and cannot be said to be the kind of goods that Ben had originally intended to buy and paid for. In the case of Reardon Smith v Hansen Tangen9, Lord Diplock clearly highlighted grounds that could exist for breach of contract through lack of identification of the goods being purchased: “Ultimately the test is whether the buyer could fairly and reasonably refuse to accept the physical goods proferred to him on the ground that their failure to correspond with that part of what was said about them in the contract makes them goods of a different kind from those he had agreed to buy.”10 On this basis therefore, it must be stated that the goods that Ben intended to buy were the all in one printer/copier/scanner which was of high quality, what he has actually received however does not correspond to that description, it is actually an inferior product, which fails to correspond to the online description. ON these grounds therefore, applying the principle laid out by Lord Diplock as stated above, Ben as the buyer can fairly and reasonably refuse to accept the goods that have been delivered to him. Moreover, even in the case of a cheaper product, Dixon X proposed the “relevance of the price” test for a product, as being one where a buyer “fully acquainted with the facts and therefore knowing what hidden defects exist…would buy them without abatement in the price…..” 11 However, this is an issue that must be contested in Ben’s case, because the fact that he wants to return the goods means that having examined the cheaper product, he has not found it to be satisfactory or worth the cheaper price, and he obviously has not made the choice to buy a cheaper product despite knowing its defects. Therefore the relevance of price test cannot apply in Ben’s case and therefore, there is no justification for Boris to substitute a cheaper product. Lastly, there is a clear breach of Section 4(2) of the SOGA 1982 which specifies that the goods supplied must be of satisfactory quality. The goods Ben has paid the price for are of a quality that is satisfactory to him, what has been delivered is a cheaper product that would not be satisfactory and therefore, Boris will be held liable for the breach of contract and resultant damages arising out of such a breach12, which would include a refund of the purchase price for the printer and scanner. Within the UK, contracts for the sale of goods are governed by the SOGA. However the strict requirements for quality and the provision to return the entire consignment may not exist under the laws of other countries. Therefore, if Boris had been based in another European country, the provisions of the SOGA may not apply and it is possible that Ben may be forced to accept the product rather than canceling the entire contract. Conclusion: On the basis of the above, it may therefore be concluded that Ben has good grounds under the provisions of the SOGA to ask for a repudiation of the entire contract and to cancel the entire consignment. However, the Court may also choose to hold that mitigating circumstances must be taken into account in the delay in delivery of the goods. The court may also consider the fact that the computer has been delivered according to specifications and therefore a substantial part of the contract has been performed. It is likely that the Court may order Boris to refund the amounts paid by Ben for the all in one printer that has not been delivered according to specification, or alternatively may allow Be to repudiate the entire contract. However, Ben’s chances to cancel the entire contract are better in the UK than if Boris was in some other European country, since the provisions of the SOGA may not apply in that European country. Therefore if Boris is in another country, it is likely that Ben will have to accept the computer and only the price of the printer can be refunded. Bibliography * Bolton v Mahadeva (1972) 2 All ER 1322 * Dakin v Lee (1916) 1 KB 566 * Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 * Cehave v Bremer Hendelsgessellschaft m.b.H (The Hansa Nord) (1976) QB 44 * Grant v Australian Knitting Mills [1936] AC 100 * Oscar Chess v Williams [1957] 1 WLR 370 * Panchaud Freres SA v Establissments General Grain Co [1970] 1 Lloyds Rep 53 * Re Moore and Landauer (1921) 2 KB 519 * Reardon Smith v Hansen Tangen (1976) 1 WLR 989 HL * Trietal GH “The Law of Contract” at pp 702 Read More