Remedies for International Sellers of Goods - Case Study Example

Eterna Motor Co. vs Motortek Question 1a The main legal issue is whether or not Eterna Motor can substantiate a claim against Motertek for the replacement or refund of components purchased from Motortek and subsequently stolen before Eterna took possession of the goods. It is therefore important to determine whether or not risk effectively passed from the vendor (Motortek) to the purchaser (Eterna) at the time of the purchase. In this regard, the Sale of Goods Act 1979 as amended by the Sale of Goods (Amendment) Act 1995 is relevant because it connects risk passing to property passing.1 The time at which title to property passes is therefore entirely relevant for ascertaining who assumes the risk related to perished, stolen or lost goods.2 In the case for discussion, the question for determination is whether or not the risk with respect to the stolen components passed from Motortek to Eterna. The answer to this question depends on whether or not the property had passed from Motertek to Eterna prior to the goods being stolen. Section 17(1) of the Sale of Goods Act 1979 provides that: Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred.3 The key legal issues are therefore whether the goods in question were specific or ascertained and what were the parties’ intentions relative to the passing of the property at the time the contract for the sale was made. According to Atkin LJ, ascertained goods are most likely goods that have been “identified in accordance with the agreement after the time a contract of sale is made.”4 It is probably safe to assume that the components were ascertained as Mark, as an agent for Eterna Motor purchased the goods, was issued a receipt following which he was prepared to transport the goods to Eterna. Based on these facts, Mark had at the very least a receipt which described the goods that he had purchased and since he was prepared to accept the goods, the receipt must have identified the goods in accordance with the agreement for sale. Even if the goods can be characterized as ascertained, they will in all likelihood be characterized as specified. Specified goods are those goods that have been identified and agreed on when a sales contract is made.5 Likewise, the fact that there is a receipt for the goods and that the buyer is prepared to accept delivery of the goods are all indications that the goods are specified. As for the parties’ intention, Section 17(2) of the Sale of Goods Act 1979 provides that: For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.6 Even so, it would appear that even where the parties have expressly indicated their intentions, those intentions will be of no real consequence as long as the goods have passed pursuant to the rules provided under Section 18 of the Sale of Goods Act 1979.7 It is important to note that all the facts and circumstances indicate that the parties in the case for discussion intended that property would pass from the vendor to the purchaser once the sale was completed. Only an emergency aborted the parties’ intention. In this regard, the goods had already passed when Mark changed his plan and intention to take immediate possession or delivery of the goods. Moreover, where the parties do not express an intention as to when property will pass, Section 18 will apply.8 Aside from the parties’ conduct following the sale of the components, there is no other evidence that the parties expressed any intention as to when the goods would pass from the vendor to the purchaser. Therefore Section 18 of the Sale of Goods Act 1979 applies.9 Section 18 Rule 1 of the Sale of Goods Act 1979 is particularly important to this case. In this regard, Section 18 Rule 1 provides that: Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.10 It is important to note that pursuant to Section 18, Rule 1, the rule only applies where goods are in a deliverable state. Goods are said to be in a deliverable state if they are such that the purchaser would be bound to accept delivery of them. In other words if there is nothing more that the vendor has to do to the goods and they are in their final sales’ condition, they are in a deliverable state.11 The fact is, even if the goods have not been paid for and are not taken away and they are in a deliverable state, the property will nevertheless pass to the purchaser. In Tarling v Baxter [1827] 6 B&C 360, a purchased paid for a haystack, but prior to taking the haystack away it burned down. The purchaser was still compelled to pay for the goods because they the property passed to the purchaser once a contract for sale was made. It was of no consequence that he had not taken delivery of the goods.12 Thus far it has been established that there are two consequences that follow from the passes of property under a contract for the sale of goods. First, if the purchaser fails to pay the purchase price under the contract for the sale of goods, the vendor may sue the purchaser for the purchase price pursuant to Section 49 (1) of the Sale of Goods Act 1979.13 Secondly, risk will typically correspond with the passing of the property in which case possession and passing are two different factors.14 For the purposes of the sale of goods contracts, risks generally mean degradation of the goods inclusive of damages brought about by third parties and accidental damages. Risk also means total destruction of the goods.15 In general the doctrine of res perit domino applies which essentially means that risk follows ownership.16 This doctrine is unambiguously contained in Section 20(1) of the Sale of Goods Act 1979 which reads as follows: Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not.17 It therefore follows that the components purchased by Mark for Eterna Motors passed to Eterna Motors despite the fact that Mark did not take possession of them. The fact is, the goods were in a deliverable state and the seller had, based on the facts of the case, presented the goods for delivery. For instance it was held in Sterns v Vickers that once the seller facilitates delivery of the goods and the buyer delays deliver, the buyer must accept the risk of any damages or destruction to the goods.18 It therefore follows that in all the circumstances of the case, Eterna Motors must accept responsibility for the loss of the property. The risk attached to the property passed to Eterna Motors once the sales’ contract was completed and there was no agreement between the parties that the risk should remain with the seller. Section 20(2) of the Sale of Goods Act 1979 specifically provides that where delivery is delayed by either the buyer or the seller, whomever causes the delay will be responsible for any loss “which might not have occurred but for such fault”.19 Since it is Mark’s fault that delivery of the goods were delayed, he is responsible for the loss. After all, had he taken possession of the goods, Eric would not have had to store them in the back store to free up space in which case, the goods would not have been stolen. Question 1b If Eric, instead of storing the goods himself had taken them to Mr. Koopa instead who subsequently accepted the goods and stored them for a fee, the risk would have remained with Eric until he passed custody of the goods onto Mr. Koopa. By taken the goods to Mr. Koopa, Eric is essentially taking control and possession of the goods. However, once he passes custody of the goods to Mr. Koopa he engages Section 37 of the Sale of Goods Act 1979. Section 37 (1) provides that: When the seller is ready and willing to deliver the goods, and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for an y loss occasioned by this neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods.20 Although Eric did not specifically request that Mark take possession of the goods, it can be inferred from the transaction that it was tacitly agreed that Mark would take possession of the goods and he was about to when he received a distress call from the hospital. In this regard, Eric would have been at liberty to charge Eterna Motor for the care and custody of the goods. The fact that he took the goods to Mr. Koopa does not alter this right. He was merely ensuring that the goods were stored at a reasonable fee. In such a case, Mr. Koopa by virtue of the doctrine of privity of contract is responsible to Eric for the care and custody of the goods and Eric is in turn responsible to Eterna Motors. Under the doctrine of privity of contract the parties are only bond to those persons or parties that are parties to the contract.21 In this regard there is privity of contract between Koopa and Motortek and between Motortek and Eterna Motors. In such a case, Eric on behalf of Motortek and through Koopa assumes the position of bailee in respect of the goods purchased by Eterna via Mark. Ultimately, Motortek passes on the duties of the bailee to Koopa whose duty or care or contractual obligations are owed to Motortek. The law in circumstances where the seller assumes responsibility for the goods despite the fact that the property and risk passes to the purchaser is only under a duty to take reasonable care to avoid harm to the goods. However, the seller as bailee, if he is found to be negligent will only be liable for compensatory damages and the buyer will not be at liberty to reject the goods.22 Assuming the goods were damaged while in Mr. Koopa’s custody and he found to have been negligent and his negligence resulted in the damages, he would be liable to Motortek for compensatory damages. Mark may then claim compensation from Motortek. This would be an indirect way of asserting the bailee’s duty of care against Motortek who indirectly assumed custody and care of the goods as bailee for Mark’s goods. All that is necessary is for Mr. Koopa to prove that he took reasonable care in the storage of the goods or that he did not permit the goods to damaged, destroyed or lost.23 The law in this instance dictates that “goods are bailed” when custody of the goods are “entrusted by the owner (bailor) to the recipient (bailee)” but there is no intention that ownership be transferred with the understanding that the goods : be restored to the bailor by the bailee as soon as the purpose for which the goods have been bailed has been fulfilled.24 Certainly, in this case, the goods become bailed when the seller accepts responsibility for them by delivering them to Koopa for storage. Up to that point the goods could not have been entrusted to Eric or Motortek unless, the latter had accepted responsibility for them. As established however, under such circumstances the bailee is only responsible for any damage or perishing of the goods if he/she is negligent. Koopa becomes a bailee as a third party and his duty of care is owed to Eric/Motortek. His duty of care in respect of Eterna Motors can only be founded in the tort of negligence as there is no privity of contract between them. However, Motortek will have a claim in both contract and the tort of negligence. However no claim can be substantiated unless the goods are damaged or destroyed or lost as a result of Koopa’s negligence. Bibliography Atiyah, P.; Adams, J. and MacQueen, H. (2005) Sale of Goods. Longman. Bhana, D.; Bonthuys, E. and Nortje, M. (2009) Student’s Guide to the Law of Contract. Kluwer Law International. Bridge, M. (1997) The Sale of Goods, Oxford University Press. Campbell, D. (2008) Remedies for International Sellers of Goods. Yorkhill Law Publishing. Clerk, J.; Lindsell, W. and Brazier, M. (1995) Clerk and Lindsell on Torts. Sweet and Maxwell. Collins, H. (2003) The Law of Contract. Cambridge University Press. Davies, I. (1987) “Transferability and Sale of Goods,” Legal Studies, Vol. 7(1): 1-38. Dennant v Skinner [1948] 2 All ER 29. Kouladis, N. (2006) Principles of Law Relating to International Trade. Springer. Re Wait [1927] 1 Ch 606. Rotherham, C. (2002) Proprietary Remedies in Context. Hart Publishing. Sale of Goods Act 1979. Singleton, S. (2010) Retention of Title. Thorogood Publishing. Sterns Ltd. v Vickers Ltd [1923] 1 KB 78. Tarling v Baxter [1827] 6 B&C 360. Thorpe, C. and Bailey, J. (1999) Commercial Contracts, Kogan Page Publishers. Read More