Action for Breach of Contract - Essay Example

Contract assignment Ans Alf may bring an action for breach of contract against D-I-Y under the provisions of Section 4(2) of the Supply of Goods and Services Act of 1982, seeking compensation for the injuries that have been caused to him and to his house by using the defective product supplied by D-I-Y. The Supply of Goods and Services Act of 1982 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 quality1. Since D-I-Y is in the business of selling home improvement products, there is an implied condition that the varnish supplied is of satisfactory quality, especially since it is an in-house product. Was the varnish of satisfactory quality? There are two factors that would appear to indicate that it was not. Firstly, 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.”2 In the case of “Décor Shine” the instructions on the tins indicate that the product is suitable for use on all types of wood. But this is not the case – the product is not suitable for use on very old wood since it causes shrinkage. Therefore the description that has been used for the product is false and akin to misrepresentation3 and cannot be said to be the kind of goods that Alf intended to buy. In the case of Reardon Smith v Hansen Tangen4, 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.”5 Alf intends to buy varnish for treating old wood, Décor Shine is not suitable for use on old wood, yet the label implies that it is, therefore the description of the product is inaccurate – they are not fit for the purpose for which Alf intends to use them.6 The statutory test to determine the merchantable quality of goods is that they are fit for the purpose that they are to be used8. Secondly, there is another factor impacting upon the satisfactory nature of the product - it contains no instructions that it should be used in well ventilated conditions, a statutory warning that would normally be included with these types of products and which a buyer has a right to expect. Since Décor Shine is in the business of supplying building products, there is an implied condition that the goods being supplied are of “satisfactory quality”9 in terms of safety, durability and freedom from defects. Décor Shine is a cheaper product, however 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…..” 10 In Alf’s case however, it is obvious that he is not fully acquainted with the facts on the use of varnishes and has relied upon the superior knowledge of D-I-Y as dealers of building products, relying upon the word of its employee that the product has been selling well and is widely used by other customers.11 While it could be argued that D-I-Y is absolved of responsibility because Alf placed reliance upon the word of a salesgirl, which it was not reasonable for him to do, nevertheless the failure of D-I-Y to include instructions about proper use of the product on its label would amount to gross negligence on their part, which would definitely be deemed an unreasonable dereliction of duty. There is a reasonable duty of care that is expected from D-I-Y, based on the principle laid out in Donaghue v Stevenson12 that reasonable care must be taken to avoid injury to other persons. According to Lord Dunedin in the case of Dominion Natural gas Co Ltd v Collins and Perkins13 (1909), when a dangerous product is involved, there is “a peculiar duty to take precaution imposed upon those who send forth or install such articles when it is necessarily the case that other parties will come within their proximity.”14 In this case, the product was dangerous when used without proper instructions and therefore it may be argued that there is a special duty of care imposed upon the manufacturer – D-I-Y, to take necessary precaution by placing warning instructions on the tins about the use of the product. Otherwise, the product can be said to be defective – the kind of defect that could have been prevented with reasonable care by manufacturer of the varnish – in this case DIY itself. Manufacturers have been held liable for defective products when the defect arises due to the lack of care of the manufacturer15 or supplier of the product. Another factor that has been taken into consideration by the Courts in determining a breach of duty of care expected by a manufacturer or supplier of goods is in the element of foreseeability about the harmful effects of defective products, especially when injuries have been caused to the Plaintiff.16 In Alf’s case, the question that arises is – was there a reasonable degree of foreseeability about whether or not adverse results could be anticipated, as a result of the negligence of DIY to include proper warning notices on its label? With the knowledge that D-I-Y has about varnishes, it is foreseeable that unless users are provided clear instructions about ventilation, the use of the product could be dangerous, as it was in the case of Alf. Where the question of risk element is concerned versus the burden of prevention that is placed upon a supplier of a product, the Courts have held in favor of increased responsibility placed upon the supplier to ensure that it takes utmost precautions to prevent misrepresentation about its products by seeking the escape route of exclusion clauses, as spelt out in the case of Pegler v Wang17, which is regarded as the “high water mark of judicial intervention in limitation provisions18. Therefore, the company will be held to be in breach of its duty to warn consumers about the dangers of improper usage of product, especially to persons in physical proximity to the product19. The failure of D-I-Y to include warning notices on its label about the use of the product in the presence of ventilation will therefore constitute grounds on the tort of negligence for Alf to bring a suit against them for breach of contract. Ans 2: 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. Thus, under common law, courts are barred from adopting an interventionist doctrine in contract. However although the freedom of contract exists under common law, rigorous examination about how it is constructed and the doctrine of fundamental breach of contract19b are options available to deal with unfair aspects that may be generated by exclusion Clauses19a. Section 16(1) of the SOGA 1982 deals with exclusion clauses. Sections 1 to 14 and Schedule 2 of the Unfair Contract terms Act are the statutory provisions that are relevant to examine exclusion clauses in this case. One of the major points of defense that will be available to DIY against Alf’s suit for breach of contract will be in the exclusion clauses that are a part of its contract. DIY’s liability, according to Clause 1 of the contract provisions set out in the trade discount card, is limited to a refund of the purchase price paid for the product. If this exclusion clause is to be deemed to be invalid for any reason, it will be because it is unreasonable in its terms and conditions20. A contract that is deemed to be unfair due to the inclusion of an unreasonable exclusion clause will not be binding upon a customer21, therefore if the contract between Alf and DIY is held to be unfair, then the limitation on liability will not be valid and DIY will be liable to compensate Alf for his damages. A contract will be said to be unfair if “contrary to the requirement of good faith it causes a significant imbalance in the parties rights and obligations under the contract, to the detriment of consumers.”22 Alf has purchased the product using a trade discount card, moreover he is self employed as a builder, therefore the first question that must be considered in establishing whether exclusion clauses can help DIY avoid liability is whether Alf will be considered to be a Customer for the purposes of the Act? He is a self employed home builder and has been supplied with a trade discount card, therefore could he be presumed to be a business? The validity of exclusion clauses have been upheld by the Courts in the case of dealing between businesses23. In making a determination about whether or not a contract was unfair, the Courts are guided by the parity between the parties. As stated by Chadwick LJ in the case of Watford v Sanderson: “In circumstances in which parties of equal bargaining power negotiate a price for the supply of a product under an agreement which provides for the person on whom the risk of loss will fall, it seems to me the Court should be very cautious before reaching a conclusion that the agreement which they have reached is not a fair and unreasonable one.”24 In this case, the limitation of liability of the seller as laid out by the exclusion clause was held to be valid and reasonable in the circumstances. However, it must be noted that in Alf’s case, he has purchased the product for use in his own home and not for his business, therefore, he is dealing with DIY as an ordinary customer rather than as another business. The UCTA generally provides more scope for an ordinary customer to contest a contract as being unfair, especially in terms of its exclusion Clauses, since an ordinary customer will be deemed to be in an inferior bargaining position as compared to the supplier, who will also be deemed to possess greater knowledge and therefore redress will be offered to compensate for the unequal bargaining position24a. In the case of R & B Customs Brokers Co Ltd v United Dominion Trust Ltd25 the plaintiff, which was a private Company, purchased a car for the personal use of its directors and the Court held that since the activity was only incidental to the Company’s business, the plaintiff was dealing as a customer and therefore an existing exclusion clause could not negate liability of the defendant for breach of contract. The burden of proving that a person is not dealing as a customer will be upon D-I-Y and it may be noted that in this case, since Alf is purchasing the goods for his personal use and for his own home, therefore he is undoubtedly dealing as a customer and not as a business. In this case, Section 6 of the UCTA will apply and there will be an implied warranty about the quality and suitability of the product, its safety and durability and therefore the exclusion clause will be invalid and likely to be overruled by the Courts.. According to the UTCA, a contract may be unfair if its objective is that of “excluding or limiting the legal liability of a seller or supplier in the event of ….. personal injury to the latter resulting from an act or omission of that seller or supplier.”26 It may be noted that the objective of DIY in including the exclusion clause is to limit its maximum liability to the refund of the purchase price of the product rather than compensating Alf for the damage to the wood or compensating him for his health problems, that have resulted as a result of the clear omission of DIY to include instructions about proper use of the product on its label. Therefore, the contract may be deemed to be unfair. In making a decision about whether or not a contract in unfair in terms of its exclusion clauses, the UCTA 1977 specifies that a “requirement of reasonableness”27 must be satisfied28. Schedule 2 of the Unfair Contract terms of 1977 sets out the guidelines on reasonableness in contractual terms. These guidelines are relevant when applied according to sections 6 or 7 which deal specifically with the sale of goods such as those purchased by Alf and there are a list of factors that are generally relevant in establishing the requirement for reasonableness in contract and in exclusion clauses, so that when applying the test for reasonableness, the court will take into account the following factors: (a) the information that was available to both the parties at the time the contract was drawn up (b) whether the contract was a standard one or whether it was negotiated (c) whether the purchaser had the option and the power to negotiate better terms (d) whether extent of liability was determined by customer’s compliance with some condition and whether such compliance was reasonable to expect in the circumstances. In Alf’s case, factors that will stand in his favor was that the contract was not a negotiated one but that Alf accepted the terms imposed upon him by DIY, and at the time of drawing up the contract, information about the price was available to Alf, but no information was available to him about the potential harmful effects through statutory warnings on the varnish cans and deceptive information was provided to him about the suitability of the varnish for all kinds of wood. Therefore, in effect, DIY has sought to limit its liability through exclusion clauses without taking care to ensure that its duty of care is satisfied through provision of statutory warnings, and has thus required customer to comply with the use of a defective product without providing adequate compensation for liabilities arising out of harmful effects. Therefore its exclusion clause is not reasonable, especially since Clause 4 of its contract on the trade card says that the statutory rights of the customer are retained, which will include the rights of the customer to being suit for breach of duty of care. Sections 16(3) and (4) of the SOGA of 1982 qualify exclusion Clauses and clarify that notwithstanding the provision for exclusions, they will not indemnify a seller of responsibility for maintaining the standards set out in Sections 14 and 15 of the SOGA, deemed necessary in the interest of consumers. The UCTA is also specifically intended for the protection of consumers, which will apply in Alf’s case. In making a determination about the reasonableness of the exclusion clause, the time frame between the actual purchase and the breach will not be relevant, rather the contract terms should have been reasonable and fair in terms of the circumstances and the facts and the knowledge that the parties should have had28a. The burden of proof is upon whichever party seeks to rely upon the clause to show whether or not it was unreasonable.29 If DIY seeks to rely on its exclusion clause in this case, it may be noted from the above that in view of its negligence in failing to provide statutory warnings, its limitation of liability is not reasonable and therefore the contract may be deemed to be unfair and it will have to compensate Alf accordingly. Ans 3: The damages that are available to Alf for breach of contract will arise out of the tort of negligence – the failure of DIY to post statutory warnings on its label. The Unfair Contract Terms Act of 1977 does not exclude liability of the manufacturer of the product for injuries arising out of the use of the product30. Therefore the asthma attack that Alf suffered from and the medical expenses he incurred in connection with this crisis will have to be reimbursed by DIY. Moreover, there is a clear breach of Section 4(2) of the SOGA 1982 which specifies that the goods supplied must be of satisfactory quality and therefore, DIY will be held liable for the breach of contract and resultant damages arising out of such a breach31, which would include a refund of the purchase price and additional amounts as damages. The issue that has arisen in this case is the tort of negligence and the liability arising thereof, and the Courts have held that clear words are required to exclude liability in negligence, and if this is not the case, the defendant will be fully liable for damages. For example, in the case of White v John Warwick and Co Ltd32 there was an exclusion clause that stated that the owners would not be liable for any personal injuries arising out of the contract. However, the Courts held that the defendant owed a duty in contract and tort to the plaintiff and while the clause excluded the contractual duty, it did not exclude the tortious liability and the defendant was obliged to compensate the plaintiff for his injuries. In a similar way, DIY will be liable in tort to compensate Alf for the medical expenses he has incurred through breach of DIY’s duty of care, which in fact amounts to negligence through failure to label its product appropriately. The guiding factor will be the extent to which the defendant’s negligence may be held to have contributed to the damages that have occurred. For example in the case of Hollier v Rambler Motors,33 an exclusion clause regarding liability for fire damage was held to be no more than a warning notice, since no liability arose unless the fire was caused by their negligence. In the case of Alf, it may be argued that (a) he suffered the asthma attack from using the varnish in a non ventilated room and (b) the damages to his property entailing expenses of an additional 5000 pounds arose due to the use of cheap varnish on old wood. In both the instances (a) and (b), it may be noted that the damages have occurred because Alf had no guidance available to him on the appropriate use of the product by way of statutory guidelines and warnings on the label of Décor Shine. While it may be argued that the damages to the property were not directly caused by DIY and therefore liability does not accrue, the asthma attack suffered by Alf is a direct consequence of the negligence of the defendant in failing to include necessary warnings. If DIY had included such warnings and Alf had improperly used the product, its liability would have been limited, but since it failed in its duty of care, it is directly responsible for the damage caused. By failing to include statutory guidelines on use of the product, DIY violated its duty of care and will be liable. But the damage to the property is only indirectly caused by DIY and its liability may be limited. Therefore, it may be concluded that Décor Shine will be liable for not only refunding the price Alf paid for the product, but will also be obliged to pay Alf’s medical expenses for his asthma attack and additional damages by way of its negligence. However, in terms of compensating for the additional expenses on the property, its liability may be limited, since Alf should have sought direction from a more experienced person on the use of such varnish for very old woods rather than relying on the advice of a sales girl who was not an expert. Above all, it is also possible that the damages that are to be paid by DIY may be limited in view of the fact that Alf, being a builder, should have known that using varnish required ventilation, therefore contributory negligence may play a role in reducing the extent of damages payable by DIY. Bibliography Cases: * Cehave v Bremer Hendelsgessellschaft m.b.H (The Hansa Nord) (1976) QB 44 * Dominion Natural gas Co Ltd v Collins and Perkins (1909) 640 * Donaghue v Stevenson [ 1932] AC 562 * Dorset Yacht Co Ltd v Home Office (1970) AC 1044 * Hollier v Rambler Motors (AMC) Ltd (1972) 2 QB 71; (1972) 1 All ER 399 * Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, adopted from Grant v Australian Knitting Mills [1936] AC 100 * Kirby v Burke (1944) IR 207 * Keeley v Guy McDonaldLtd [1984] NLJ 134 * Lambert v Lewis [ 1982] AC 225 * Lloyds Bank v Bundy (1975) QB 326 * Oscar Chess v Williams [1957] 1 WLR 370 * Pegler v Wang (2000) 70 Con L.R. 68 * Photo Production Securicor Ltd (1980) AC 827 * R & B Customs Brokers Co Ltd v United Dominion Trust Ltd [1988] 1 WLR 321; [1988] 1 All ER 847. * Rodgers v Adams (2003) 657 So. 2d 838 (Supreme Court of Alabama) * Reardon Smith v Hansen Tangen (1976) 1 WLR 989 HL * White v John Warwick and Co Ltd (1953) 1 WLR 1285 ;(1953) 2 All ER 1021 * Watford Electronics Ltd v Sanderson CFL Ltd (2001) 1 All ER (Comm) 696 Legislation: * Supply of Goods and Services Act of 1979 * Supply of Goods and Services Act of 1982 * Unfair Contract terms Act of 1977 Books/Articles: * Barker, D, 2001. A Return to Freedom of Contract, 151, New Law Journal, 344 * Macdonald, E, 1999a. Exemption Clauses and Unfair Terms London: Butterworths * McKendrick, Ewan, 2000. Contract Law 4th edition, Palmgrave Law Masters at pp 360 * Thal, SA, 1998. The inequality of bargaining power doctrine: The problem of defining contractual fairness 8 Oxford Journal of Legal Studies 17 Websites: * “Guidance on unfair terms in Home Improvements Contracts” OFT 2005 [online] available at: http://www.oft.gov.uk/NR/rdonlyres/22DC0CA3-53E7-4999-92EC-7D48BA652DD1/0/oft737.pdf Read More