Problem Based Questions - Assignment Example

Question 1 With regard to David’s potential rights, it is evident that as Lana is working for Movie Manie, any claim will be against Movie Manie and not directly against Lana under the principle of vicarious liability. In order to advise David with regard to his rights it will be necessary to evaluate the following: 1) Whether there was in fact a legally enforceable contract between David and Movie Manie respectively; 2) If there was a legally enforceable contract whether Movie Manie, whether the shop was entitled to revoke the contract thereby negating any claim by David for breach of contract or specific performance; and 3) Alternatively, the legal implications for Movie Manie if their revocation of the offer is found to constitute breach of contract. The law of contract stipulates three fundamental requirements to establish a legally enforceable contract; namely offer, acceptance and consideration (it is important to note that parties entering into a contract must also have legal capacity to do so and it is presumed from the facts given that capacity is not an issue in this case). Lord Wilberforce asserted the rule for formation of contract in New Zealand Shipping Co Limited v A M Satterthwaite, The Eurymedon1: “English law having committed itself to a rather technical….. doctrine of contract, in application takes a practical approach…… into the marked slots of offer, acceptance and consideration”2. An “offer” in the context of contract law has been described as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree.3” The “expression4” may take different forms. The intention element is an objective consideration and the case of Smith v Hughes 5emphasised the relevant consideration as being a focus on how a reasonable person would view the situation. Furthermore, the law distinguishes between an offer and an invitation to treat, which is not an offer but an indication of willingness to negotiate a contract6. For example, in the case of Gibson v Manchester City Council7, the words “may be prepared to sell” constituted an invitation to treat and not a distinct offer. Indeed, the Gibson decision challenged the traditional view for formation of contractual agreement. In this case, Lord Denning asserted that when considering whether there is a binding contractual agreement, it could be argued that “there is no need to look for strict offer and acceptance. You should look at the correspondence as a whole and at the conduct of the parties and see therefore whether the parties have come to an agreement on everything that was material8”. However, there has been some uncertainty in this area of law as evidenced by the case of Carlil v Carbolic Smoke Ball Limited9. In this case, the defendant was the proprietor of a medical substance and placed and advert in the Pall Mall Gazette promising to pay $100 to anyone who used the carbolic smoke ball for two weeks and who for a limited time after contracted the flu virus. Carbolic Smoke Ball Limited argued that the advert did not constitute an offer but was rather an invitation to treat. The Court of Appeal rejected this argument and held that there was a legally enforceable contract. The advertisement constituted an offer to the whole world and was capable of amounting to an offer of a unilateral contract without the requirement for acceptance. The Carlil decision had far reaching implications for contract law, with some commentators arguing that there is no difference between an “invitation to treat” and a contractual “offer”10. However the facts of the current scenario suggest in store advertisement was a distinct offer to sell and unless Movie Manie can adduce evidence to the contrary, the offer will be binding on acceptance of the offer by customers by the stipulated method, which was by cash. In the current scenario, David did not have cash and asked for the goods to be held aside for him until he could come back the next day before 12 noon. Valid acceptance in law follows a valid offer and the formation of a contract follows immediately. Furthermore, valid acceptance is final and unqualified acceptance of an offer as demonstrated in the case of Peter Lind Limited v Mersey Docks & Harbour Boar11, highlighting the “mirror image” rule, where acceptance must be unequivocal and unconditional, therefore acceptance must “mirror” the offer. Moreover, acceptance is a “final and unqualified expression of assent to the terms of an offer”12. The issue of contention in the current scenario is whether David’s conduct constituted valid acceptance at law and whether the subsequent revocation by Movie Manie on discovery of the mistake is a valid revocation or in breach of contract. In the current scenario, Lana agreed to put the figurines aside until 12 noon the next day. However, whilst this may constitute an agreement to put the goods aside, it doesn’t constitute an offer to sell and the shop would still have the right to sell the goods to someone else. As such, there has been no acceptance in law of the offer to sell and therefore there is no contract with Movie Manie directly for the sale of goods. Alternatively, the only claim David appears to have is that Lana agreed to hold the goods aside until 12 noon and was in breach by failing to do this. Even if David was able to establish an enforceable contract, any right to sue for damages cause by breach of contract would require David having to establish that he suffered loss as a result of the breach and that the loss was not too remote. The principles of remoteness were set out in the case of Hadley v Baxendale13, which provided that the following losses are recoverable: 1) All losses which flow naturally from the breach; and 2) All loss which was in the contemplation of the parties at the time the contract was made. This rule has been interpreted to mean that only loss which is within the reasonable contemplation of the parties can be recovered14. Accordingly, it is difficult to see what David’s loss would be as he hasn’t parted with any money for the figurines. Additionally, he will have a duty to mitigate her loss as established in the case of Anglia TV v Reed15 In summary, unless the offer in the store window specifically stated that Movie Manie “may be prepared to sell” or there was an express proviso stating that the offer was to be regarded as an invitation to treat, the in store advertisement is likely to constitute an offer. However, David didn’t have cash and therefore there was no acceptance of the offer. Additionally before he handed over any cash, the goods had been sold and therefore David would not have suffered any loss. In any event, whilst Lana was theoretically in breach of a separate obligation to hold the goods for David, Movie Manie was not obliged sell to him and therefore, it is highly unlikely that David can sue for breach of contract. Question 2) In order to advise Jack with regard to his rights under the Sale of Goods Act 1979 (SGA) it is firstly necessary to ascertain whether there was an enforceable contract for sale as required by section 1(1) of the SGA. As stated above, the law of contract stipulates three fundamental requirements for the formation of a legally enforceable contract; namely; offer, acceptance and consideration16 (it is important to note that the contracting parties must have legal capacity, which is presumed not to be an issue in this case). Lord Wilberforce asserted rules for contract formation in the case of New Zealand Shipping Co Limited v A M Satterhwaite, the Eurymedon17 thus: “English law having committed itself to a rather technical……. Doctrine of contract, in application takes a practical approach……… Into the market slots of offer, acceptance and consideration18”. The law of contract formation distinguishes between an offer and an invitation to treat, which is not an offer but an indication of willingness to negotiate a contract19. For example, in the case of Gibson v Manchester City Council,20 the words “may be prepared to sell” constituted an invitation to treat and not a distinct offer. Furthermore, in the case of Grainger & Son v Gough21it was held that a newspaper advert will constitute an invitation to treat and not an offer unless an advertisement is specific and conveyed the exact item of product for sale. It was also indicated that there must be an indication of intent on the part of the advertiser to sell. In applying the criteria posited by Lord Herschell22 to the current scenario, the advert stated that the second hand lawnmower was for sale and “basically new”, which clearly points towards an intention to sell and as such, the advert in the paper constituted an offer. The subsequent purchase by Jack for the sum of £10,000 satisfied the requirements of consideration and acceptance to create a legally binding contract. The side board was advertised as a “basically new” and when Jack went to visit Doug, Doug advised that the lawnmower’s engine had been recently overhauled and that it was in “tip top condition”. Doug further warranted that Jack would “never look back”. However it transpired to have never been serviced and has seized up. Furthermore, the facts indicate that the description of the Lawnmower and the purpose for which Jack was going to use the product was clearly the motivation behind Jack’s purchase for his lawn-mowing business, went to “the root of the contract,”23thereby constituting a condition24. Accordingly, the description of the lawnmower was clearly misrepresented and (in addition to false representation) it is arguable that this misrepresentation gives Jack the right to repudiate the contract and return the lawnmower on grounds that the misrepresentation constituted a breach of condition25. The burden would be on Jack to prove this26. Additionally, whilst Jack signed a contract that expressly excluded any warranties regarding the condition of the lawnmower, the SGA implies terms into sale of goods contracts which can be asserted by consumers27. The SGA provisions will apply to second hand goods. However as asserted by section 14(2) of the SGA, the implied term provisions only apply to contracts where the “seller sells goods in the course of a business,” and the initial obstacle for Jack is whether Doug was selling the lawnmower in the course of a business. If not, the contract will not be covered by the protections implied by the SGA28. The SGA does not require businesses to be registered for contracts to be covered by its provisions29. However, if Jack can demonstrate that the circumstances overall pointed towards a sale in the course of a business, the contract will be covered by the SGA protections30. As mentioned above, the SGA implies certain terms into contracts for the sale of goods and I shall deal with each in turn as they apply to Jack. Firstly, section 12(1) of the SGA provides that there is an “implied term on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such right at the time when the property is to pass”. This is not in contention in the current scenario. Section 13 of the SGA is of particular importance to Jack’s position, which asserts that “where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with that description”. Furthermore, section 13(3) provides that “a sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer”. In order to be a sale by description, the description must be an “identifying” description31. In context of Jack’s purchase, his viewing the lawnmower prior to purchase will not prevent it being a “sale by description”. Moreover, the advert describing the lawnmower’s model and quality regarding the engine, will satisfy the “identifying description” requirement. If we consider the case law, in Beale v Taylor32, an advertisement had read “Herald, convertible white 1961”. However, it transpired that two “half cars” were actually joined together, including the back half of a 1961 model and the front of an older model. It was held that as the vehicle failed to comply with the express description, it was a breach of the equivalent section 13 provision of the SGA. With regard to Jack’s purchase, the product was clearly advertised as a “One Green John Deer roide on lawnmower 2006, basically new,” subsequently transpiring to be in poor condition with a damaged engine and as such, is clearly in breach of section 13 of the SGA for failing to comply with its description. Furthermore, the provisions of the Sale and Supply of Goods to Consumer Regulations 2002 (the Regulations) provide further guidance to consumer rights under the SGA. With regard to breach of section 13, Regulation 5 of the Regulations grants buyers additional remedies in consumer cases and provides that if the goods do not conform to the contract of sale at the time of delivery, then the “Buyer has the right to require replacement or repair of the goods or rescind the contract regarding the goods in question”. Jack’s rights under section 13 are potentially strengthened by virtue of section 14 of the SGA, which provides that there is an implied term that goods supplied under an SGA contract are of satisfactory quality. Section 14(2A) elucidates and provides that “goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price and all other circumstances. However, section 14(2C) of the SGA expressly provides that the implied term regarding quality does not extend to any matter making goods unsatisfactory that was brought to the buyer’s attention before the contract was made. Furthermore, the implied obligations under section 14 will be negated where the buyer examines the goods before the contract is made and the defects were such “that the examination ought to reveal”. With regard to the practical application of section 14(2C), Regulation 3 of the Regulations asserts that the relevant circumstances when considering whether the defects should have been discovered upon examination include “any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly in advertising or selling”. With regard to Jack’s position, not only did the lawnmower fail to comply with the advertised description, the state of the engine further transpired to have not been overhauled as represented by Doug. The central issue of contention regarding Jack’s claim which is likely to be cited by the seller is the fact that Jack looked over the item prior to purchase, however Jack does not know much about engines. In the case of Beal v Taylor33, although the plaintiff had inspected the car prior to purchase, it was only until after purchase that he realised it was an earlier model. Nevertheless, the Court of Appeal held in the plaintiff’s favour and determined that he was entitled to damages for breach as he had relied on the description in the advertisement. The Court of Appeal also stated that as the plaintiff was a consumer and not an expert in cars and could not be expected to have known that the car was not the model advertised. If we apply this by analogy to Jack’s position, although he operated a lawn mowing business, he did not know about engines and the internal machinations of lawnmowers. Accordingly, in line with the reasoning in Beal, Jack will have a strong argument that despite his prior inspection he could not be expected to have known that the engine was fault. Another issue in applying section 14 is how long the satisfactory quality and fitness of purpose is meant to last after purchase in order to bring a claim, as this is not expressly defined in the SGA. For example, in the case of Bernstein v Pamson Motors34 a new Nissan car was purchased for cash by Mr Bernstein. After three weeks of use and clocking up 140 miles, the car engine seized up on the motorway due to a drop of sealant, which had infiltrated the lubrication system on manufacture. It was held that the car was not of merchantable quality and that a consumer would not expect that the engine of a new car will cease up after 3 weeks. However, there hasn’t been a consistent approach to the length of time post purchase and ultimately it is a question of fact dependant on the circumstances. For example, with regard to “appearance”, in the case of Rogers v Parish35 the plaintiff purchased a car under conditional sale agreement. On delivery, there were defects in the engine, gearbox and bodywork and the oil seals were defective. Nevertheless, the plaintiff continued to drive the car for 6 months whilst regularly complaining, clocking up 5,500 miles. However the faults remained after the 6 month period and the issue arose as to whether the bodywork defects and the level of comfort fell below the level that should be expected in a new car. The Court of Appeal asserted that appearance defects in a new car could, (depending on the standard expected) render a car, to be of unsatisfactory quality and in this case the period of six months did not negate a claim that the quality of the car supplied was in breach of section 14 for being of unsatisfactory quality. The current scenario is dealing with second hand goods, which can still be rejected for being of unsatisfactory quality36, however the age and price will be taken into consideration. For example, in the case of Bartlett v Sidney Marcus37 the plaintiff had purchased a second hand Jaguar for £950. He was told that the clutch needed repair, however after the car had been driven for 300 miles and the whole clutch needed replacing at a cost of £84. However, it was held that the car was of merchantable quality as the clutch defect could be expected in second hand cars. Conversely, in the case of Crowther v Shannon Motor Co38, which also involved the purchase of second hand Jaguar, the mileage on purchase was 82,000 miles. After purchase, the plaintiff drove a further 2,500 miles in 3 weeks and the engine seized up. The Court of Appeal upheld the plaintiff’s claim and held that the car should have lasted longer and the relevant consideration was the car’s age. Whilst the bulk of these decisions involved purchases of cars, the general consideration in contracts involving second hand goods is the age of the product and the level of quality one can reasonably expect from the second hand product. With regard to Jack’s purchase, it is evident that whilst the product may have been second hand and likely to have had some general wear and tear, the fact the lawnmower’s age is quite recent along with the fact that the engine is seizing up clearly falls below the standard of quality that Jack was entitled to expect and as such, points to a breach of section 14. In summary, the initial obstacle is for Jack to establish that the contract for sale was in the course of business in order to come within the ambit of the SGA. Furthermore, the fact the state of the lawnmower points to a breach of section 13 notwithstanding Jack’s prior inspection. Even though the lawnmower was second hand, the condition of the lawnmower clearly fell below what Jack could reasonably have expected and fails to satisfy the fitness for purpose test and as such, is also in breach of section 14. These breaches of the implied terms under the SGA entitle Jack to return the lawnmower and get a refund. BIBLIOGRAPHY P. S Atiyah (2005). Sale of Goods.11th Edition Longman. Blackstones Statutes on Contract, Tort and Restitution Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. John Macleod (2006). Consumer Sales Law. 2nd Edition Routledge Cavendish. Linda Mulcahy & John Tillotson (2004). Contract Law in Perspective. Routledge Cavendish. Jill Poole (2006). Contract law. 8th Edition Oxford University Press. G H. Treitel (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell Legislation Sale of Goods Act 1979 Supply of Goods and Services Act 1989 Sale and Supply of Goods to Consumers Regulations 2002 Read More