The Sale of Goods between Contigrain and Agrigus - Essay Example

Commercial Law Contigrain v Argigus, Hampshire, Industrial, Farmer Giles and Munchy Feed Introduction The legal issues arising under the contracts for the sale of goods between Contigrain and Agrigus as well as the contract between Contigrain and Munchy turn on the question of whether or not the goods in question have effectively passed from the buyer to the seller. The primary legal issues relate to the question of title in each of the cases. The answer to this question will determine whether or not Contigrain is entitled to take possession of the Brazilian peanut extract from the Monrovia and whether or not Contigrain can demand payment in full for the sale of the turnip fibre to Munchy. The purchase of the conveyor belt raises the issue of whether or not Contigrain is an innocent third party and can claim damages for fraudulent misrepresentation on the part of Hampshire. The sale of the truck to farmer Giles may also expose Contigrain to liability on the grounds that the truck was not of merchantable quality. I. Title to Goods under a Contract for the Sale of Goods In order to determine whether or not Contigrain is entitled to demand possession of the Brazilian peanut extract from the liquidators of Agrigus or demand payment in full from Munchy Feeds for the turnip fibre it is necessary to examine each contract by reference to the Sale of Goods Act 1979. To start with Section 2(1) defines a contract for the sale of goods as an agreement where the vendor “transfers or agrees to transfer the property in goods to the buyer” for a price.1 On the facts of the case for discussion there is a sale of goods contract in both instances. Clearly, Contigrain and Agrigus agreed that in consideration of the sum of 1000 pounds per ton, Agrigus would transfer 100 tonnes of peanut extract to Contigrain for which the latter made a payment of 50,000 pounds. Similarly, Contigrain agreed to and did deliver 500 tonnes of turnip fibre to Munchy in consideration of the sum of 1000 pounds per ton to be paid in full within 30 days of delivery. Having established that contracts for the sale of goods have been completed between Contigrain and Agrigus and Contigrain and Munchy, it is necessary to determine whether or not and at which point title to the property passes from the seller to the purchaser. This is important for ascertaining who bears liability for any risk associated with the goods. Section 20(1) of the Sale of Goods Act 1979 provides: Unless otherwise agreed, the goods remain at the sellers 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 buyers risk whether delivery has been made or not.2 The question now is whether or not title to the peanut extract has effectively passed from Argigus to Contigrain prior to the former going into liquidation. It is also important to determine whether title to the turnip fibre effectively passed from Contrigrain to Munchy prior to fibre mixture and the remaining fibre. Section 17(1) of the Sale of Goods Act 1979 provides some guidance in that it states that the property in question will pass “at such times as the parties to the contract intend it to be transferred”.3 In this regard, the contract with Munchy unambiguously provide that should any of the fibre be mixed with any other goods, that portion of the goods in its mixed form will remain the property of Contigrain until such time as the purchase price is paid in full. Moreover, the title to the fibre will remain vested in Contigrain until such time as they are fully paid for. As for the contract with Argigus, there are no express intentions as to when and at what time the title to the peanut extract passes from Argigus to Contigrain. This question will be determined by Section 18, Rule 1 of the Sale of Goods Act 1979 which 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.4 It is therefore of no consequence to the title that Munchy has not yet paid for the goods or that Contigrain has only maid partial payment to Argigus. In both cases the contracts deem that the title in the goods are vested in Contigrain. This is an express term of the standard contract between Contigrain and Munchy. As for the contract between Contigrain and Argigus the parties intention are expressed by virtue of their conduct which inevitably falls under s. 18 r.1 of the 1979 Act with the result that the goods have passed to Contigrain. The contract between Argigus and Contigrain does not have any conditions attached to it and certainly there are no provisions pertaining to what should happen in the event of liquidation. Moreover, Section 61(5) of the 1979 goes on to state that goods are in a “deliverable state” if they are positioned so “that the buyer would, under the contract, be bound to take delivery of them.”5 It was also held in Underwood Ltd v Burgh Castle Brick and Cement Syndicate goods are in a ‘deliverable state’ when the vendor has done all that he needs to be done under the contract for bringing that contract to a conclusion.6 Having paid half the purchase price in response to which the goods have been delivered, Contigrain is bound to take delivery of the goods. Assuming that the fibre has not been paid for in full, Contigrain is entitled to take possession of the goods from Munchy since Munchy is in liquidation which essentially means that the company is insolvent and cannot pay its debts. Similarly, the fact that Agrigus has gone into liquidation, puts Contigrain in a position where it can treat the contracts as breached or might rely on the concept of anticipatory breach. Ordinarily the doctrine of anticipatory breach arises where a contracting party communicates by conduct or by word that he/she does not intend to perform a fundamental term or condition of the contract.7 It was held in numerous cases that liquidation and/or insolvency amounted to anticipatory breach entitling the injured party to repudiate the contract unless the liquidator assumed the contract.8 For instance it was held in Ogdens v Nelson, the House of Lords ruled that the seller was not under a duty to deliver goods to an insolvent purchaser until such time as payment is made or secured.9 Moreover, it was held in Re National Benefit Assurance Co. Ltd. that the insurer’s insolvency was repudiation.10 Similarly in Re Asphaltic Wood Pavement Co. Lee and Chapman’s Case liquidation amounted to repudiation in a case where there was a contract for street repairs for a 15 year period.11 The liquidation of both Argigus and Munchy changes the character of Contigrain’s obligations under the contract. In both cases the title in both cases are vested in Contigrain under the terms of the Sale of Goods Act 1979 as delineated above. Contigrain therefore has two options against Argigus. It may sue the Argigus and/or liquidators for delivery since the property in the peanut extract is vested in Contigrain. Alternatively, Contigrain may sue Argigus for breach of contract on the basis of its insolvency and can expect to have the funds paid in advance repaid. In either case, Contigrain is entitled to damages for incurred as a result of incidental expenses related to the breach. Similarly, Contigrain may either demand a return of the goods delivered to Munchy or damages for breach of contract on the basis of the liquidation. II. Innocent Third Parties/Misrepresentation/Mistake Contigrain’s purchase of the used conveyor belt from Hampshire raises issues of misrepresentation and the passing of bad title to an innocent third party who is a bona fide purchaser in good faith. It is obvious on the face of the facts that Hampshire knew or ought to have known that the conveyor belt had been in their possession on a lend-lease basis and that they were not at liberty to pass title to a third party. Therefore it is a matter of fact that Hampshire fraudulently misrepresented to Contigrain that they had title to the conveyor belt and thereby induced Contigrain to purchase the same. It is s firmly established tenet of English contract law that once fraud is proved the innocent party who was induced to enter into a contract by fraudulent misrepresentation may rescind the contract.12 Ordinarily, Contigrain would be able to rescind the contract thereby putting them in the position that they would have been in had the contract not been executed.13 The injured party is also entitled to recover all damages whether they were reasonably foreseen or not.14 With Hampshire in liquidation, damages and restitution may not be the best option. Therefore, the fact that Contigrain is an innocent third party in a breach of contract between Hampshire and Industrial is very helpful for Contigrain. It may be best for Contigrain to proceed with a claim on the basis that they were mistaken as to the title of the conveyor belt, believing that Industrial was the rightful owner of the conveyor belt and had they known that Industrial was not the rightful owner they would have never contracted with them for its purchase. Contigrain may therefore rely on the provisions contained in Article 4(103) of the Principles of European Contract Law, 1998. Article 4(103) permits the contract to be avoided if a mistake emanates from “information given by the other party” or in instance where that “other party knew of the mistake and that “it was contrary to good faith and fair dealing” or the other party knew that the innocent party was mistaken and knew that had the innocent party known of the mistake they very likely would not have executed the contract or at the very least would have negotiated on different terms.15 The question for Contigrain is whether or not they were in a position to investigate the title in which case they might have found evidence of its lend-lease status. However, since the conveyor belt is not a vehicle nor is it realty, it is very unlikely that a document of title are recorded and therefore it is reasonable for them to have relied on the good faith of contract. Article 4(103)(2) provides that where there is a fundamental mistake, a contracting party may not seek to have the contract avoided if his or her mistake is inexcusable or that he/she reasonably assumed the risk of mistake.16 Article 4(103) should be read together with Article 4(103)(1) which emphasises good faith. Article 4(103)(ii) will not allow a party who specifically deals in bad faith, particularly when the offending party makes a fraudulent representation inducing the innocent party to part with or purchase goods. If Industrial attempts to repossess the conveyor belt, Contigrain will have a defence in its status as a bona fide purchaser for value without notice.17 This defence is significant in cases where there are outstanding or pending claims for restitution, something that Industrial is likely to claim as against Hampshire to whom it let the conveyor belt and will likely name Contigrain as a third party to the action. This defence is open to Contigrain as a third party to any action by Industrial for restitution. The defence of bona fide purchaser for value functions on two separate levels. It functions as a defence in equity and in law.18 At common law the doctrine of nemo dat quod non habet typically adheres to the concept that a person cannot pass title that he does not own. There is the exception where a bona fide purchaser for value takes the legal title free of defects in the vendor’s title.19 In equity, the legal title is transferred free of any equitable interests.20 Based on the foregoing discussion, Contigrain is therefore advised to take no action with respect to the conveyor belt and to keep it as it has been doing all along. If Industrial demands recovery, Contigrain should refuse to return the conveyor belt. Industrial will have to take any action for recovery against Hampshire with whom it has a contract and may third party Contigrain. Contigrain will then maintain the defence of bona fide purchaser for value without notice. III. Sale of Goods and Merchantable Quality In the sale of the truck to Giles Section 14 (3) of the Sale of Goods Act 1979 applies. Section 14(3) mandates that any sale made in the course of business will automatically imply that the goods sold are reasonably fit for the purpose for which it is purchased unless: …the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely on the skill and judgment of the seller.21 On the facts it appears that both farmer and Giles and Contigrain are in vastly similar businesses and are both familiar with each other’s business operations since they are both involved in agriculture in one way or another. Therefore it is reasonable to conclude that the truck was sold in the course of business operation and transactions. The exception contained in Section 14(3) of the Sale of Goods Act 1979 will likely not apply since there is no reason to expect that farmer Giles did not rely on the business acumen of Contigrain. Certainly, Contigrain, being in a business similar to that of farmer Giles had to be aware that the truck would be used in connection with his agricultural business or simple transport. Section 14(3) of the 1979 Act applies even if the purpose for which the goods are purchased is only one purpose and the vendor will be deemed to have notice of that purpose.22 Contigrain was in a position to know that should a farmer purchase a heavy duty truck there was likely only one purpose for the purchase of that vehicle and that was for use on the farm and this would invariably mean the transfer of farm produce from one location to another. Unless the truck’s constant failures are attributed to some incompetence or some fault on Giles’ part, Contigrain may be liable in damages and restitution in which case, Contigrain will be required to return the purchase price to Giles in exchange for the truck. In Slater v Finning Ltd. a crankshaft purchased by the plaintiff failed when used on a fishing boat. Subsequent replacements also failed. The failure was due to some flaw in the boat to which it had been attached and so the defendant was not liable since the failure was due to some fault not known to the vendor.23 In this case however, the problem appears to be in the mere usual operation of the vehicle and it is unlikely that Contigrain would succeed in a defence of this nature. Contigrain ought to have known that the heavy duty truck was not fit to make the journeys. The law takes the position that once on the facts it is obvious that the vendor: Knew of the particular purpose, the burden is on the seller to show that there was no, or unreasonable, reliance.24 Giles may also rely on Section 14(2) of the Sale of Goods Act 1979 which merely requires that the goods be of satisfactory quality.25 Since the truck kept failing it is hardly likely that the court would find that the truck was even of satisfactory quality. In Jewson Ltd. v Goyhan the court explained that Section 14(2) of the 1979 was focused on the intrinsic value of the goods sold.26 The intrinsic value of the truck sold for 20,000 pounds is questionable. One would automatically expect that a truck sold at that price was able to take several trips. Contigrain is advised to return the funds to farmer Giles and to take the truck back. Alternatively they may wish to have the truck examined and determine the cause of the malfunction and if it is a pre-existing fault that they ought to have discovered they could offer to repair the truck. Conclusion Contigrain is likely to succeed in a claim for damages against both Argigus and Munchy . The claims against both companies are founded on the fact that Contigrain continues to have the title to the goods that have not been delivered to it. The claim against Hampshire is also related to title but based on the question of the bona fide purchaser for value without notice. In this case, Contigrain has possession of the goods in question and should keep it and raise the defence of bona fide purchaser in good faith should Industrial try to reclaim it. In the case involving Giles, Contigrain should try to resolve the matter by offering to repair the truck. Bibliography Bishopsgate Motor Finance Co. Ltd. v Transport Brakes Ltd. [1949] 1 K.B. 322 Car and Universal Finance Co. Ltd. V Caldwell [1961] 1 QB 525 Doyle v Olby (Ironmongers) Ltd. (1969) 2 QB 158 Jewson Ltd. v Goyhan [2003] EWCA Civ 1930 Lipkin Gorman v Karpnale [1991] 2 AC 548. Ogdens v Nelson [1950] AC 109 Panagopoulos, G. (2007) Restitution in Private International Law. Hart Publishing Priest v Last [1903] 2 KB 148. Principles of European Contract Law, 1998 Re Asphaltic Wood Pavement Co. Lee and Chapman’s Case [1885] 30 Ch. D 216 Re National Benefit Assurance Co. Ltd. [1924] 2 CH 339 Sale of Goods Act 1979. Slater v Finning Ltd.[1996] 3 All ER 398. Stone, R. (2009) The Modern Law of Contract. Routledge Cavendish Taylor v Russell [1892] AC 244. Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343. Vitol SA v Norelf Ltd [1996] 3 All ER 193 Wood, P. (2007) Principles of International Insolvency. Sweet and Maxwell. Read More