Law - Remedies of Rejection and Rescission - Essay Example

?Informal Report RE: Winston Graham and Alan Daly/Daly Car Sales Ltd. Introduction The main issue for Winston Graham is whether or not Daly and Daly Car Sales Ltd. is liable for breach of the contract of sale for the van. In considering whether or not there was a breach the main issues are whether or not the van was fit for purpose and whether or not Daly was under a duty to sell a van fit for purpose. Other important issues include misrepresentation and the validity of an exemption from liability clause which will affect the issue of Daly’s liability. This report advises on the main issues and determines the extent of Daly’s liabilities, if any and Winston’s potential remedies, if any. Issues Relevant to The Contract for the Sale of the Van Misrepresentation In negotiating for the purchase of a van from Daly, Winston explained that the putative van must have a storage capability of 200 feet and must be capable of regularly transporting antique furniture up to 1 ton. Based on these requirements, Daly told Winston that he had a van the fit Winston’s requirements and a van was offered for sale and accepted based on Daly’s representations. In fact, Daly also noted that the van in question had hardly been broken in. It is a fundamental rule of contract law that the parties to a contract enter into a contract on the basis of an understanding that they will receive the benefit bargained for and forming the inducement to enter into the contract.1 In addition, should one of the contracting parties fail to perform as mandated pursuant to the contract, the party losing the benefit bargained for and reflected in the contract for sale, is entitled to compensation for that loss.2 When the party loses the entire benefit of his or her bargain, he is entitled to treat the contract as terminated.3 Under the contract for the sale of the van, Winston was promised and expected to receive a van capable of replacing the van lost in the conduct of the antique shop’s business. The truck however, turned out to be inadequate as a replacement vehicle. The question is therefore whether or not the van’s failure to live up to expectations amounts to a breach of the contract on Daly’s part. Daly did make certain representations or as it turned out, misrepresentations that the van in question was fit for purpose. Misrepresentation occurs when false information is communicated and that false information induces the other party to enter a contract to which the false information applies.4 Misrepresentation can be made fraudulently or negligently or innocently.5 It is difficult to discern from the facts of the case for discussion whether or not the false information provided by Daly that the van was fit for its intended purpose was negligent, innocent or fraudulent. However, as a skilled or experienced salesman, it can be assumed that at the very least, Daly ought to have known whether or not the van was fit for purpose. It is therefore reasonable to assume that Daly’s misrepresentation was negligent at the very least. Regardless, it will be for Winston to prove that he relied on the information communicated to him or was induced by that information to enter into the contract.6 It can be assumed from the facts that Winston did in fact rely on Daly’s communication of facts since he was looking for a specific van with specific requirements and communicated those facts to Daly. Fit for Purpose Quite apart from misrepresentation, Winston can consider taking action against Daly under statute. By statutory law, it is an implied term of contracts for the sale of goods that goods purchased for a specific purpose are fit for purpose. By virtue of Section 14 (3) of the Sale of Goods Act 1979, where a purchaser either “expressly or by implication makes known to the seller” it is implied that the “goods supplied under the contract are reasonably fit for that purpose” unless the purchaser “does not rely,” on the “skill or judgment of the seller”.7 Winston can prove that he relied on Daly’s skill or judgement since Daly chose the vehicle and Winston accepted his choice. It was held in Comyn Ching & Co. Ltd. v Oriental Tube Co. Ltd. that the purchaser who accepted the goods recommended by the seller had proven that there was reliance on the skill or judgment of the seller.8 In this regard, Daly will not be able to use the defence that Winston did not rely on his skill or judgment that the van was fit for the intended purpose. Section 13 of the Sale of Goods Act 1979 as well as Section 3 of Supply of Goods and Services Act 1982 as amended, also imply statutory conditions to the contract between Winston and Daly for the sale of the van. Sections 13 (Sale of Goods Act) and Section 3 (Supply of Goods and Services Act) apply to a contract for the sale of goods and provide that when goods are sold by description the goods must conform with that description.9 The van contracted for was only briefly described in the standard contract form used by Daly: White Transit XL, 48,072 miles. It was agreed between the parties that the van should be capable of carrying 1 ton and have a storage capacity of 200 feet. The van sold did not fit this description as it could only carry half a ton and its storage capacity was 150 feet. However, the latter description was contained in the registration document. It can be assumed that the registration document were only known to or came into Winston’s possession following the completion of the sale. Therefore it can be argued that the goods did not conform with the description. Goods are sold by description when their description influences the sale of the goods. There must be a reasonable expectation that the description used will influence the purchaser’s decision to purchase the goods. In a case where the seller has the requisite expertise, his or her description of the goods will be expected to be relied on by the purchaser.10 As previously discussed, Winston was obviously looking for a specific type of vehicle fit for a specific purpose and he made this entirely clear to which Daly replied that he had exactly what Winston was looking for. Daly argues that the van’s failure to be fit for its intended purpose was due to Winston’s negligence and was not his fault. However, liability for breach of an implied condition of a contract is strict. It will not be a defence for Daly to argue that the van’s failure to conform to its description is “not his fault”.11 It would therefore appear that with respect to the implied statutory conditions of a contract for the sale of goods, Daly is bound to supply Winston with a van that is fit for its intended purpose and that conforms with the description used in the negotiations for the terms and conditions of sale. The description used in the negotiations for the terms and conditions of sale were entirely meant to form a part of the contract for the sale and purchase of the van. Daly cannot claim that the van’s failure to conform with the description or to be fit for intended purpose is not his fault. Clearly the van is not fit for carrying 1 ton and does not provide storage space for up to 200 feet. Exclusion of Liability The contract, as signed by Winston contained an exclusion clause which specifically admits to making no such claims and representations as to the quality, conditions or fitness for purpose. More importantly, the statutorily implied terms and conditions cannot be waived when a purchaser is a consumer and the other party is conducting business in his capacity as a professional or a business expert in the business at issue. It is argued that although Winston is a business partner in an antique’s shop he is a consumer for the purposes of the sale of the van since his business is entirely different from automobiles. In any event, an exclusion clause is only valid if it is brought to the attention of the party against whom it is intended to be impact.12 The exclusionary clause is arguably prominently placed as it is contained in a clause within the body of the contract used by Winston and Daly. It was also held in Baldry v Marshall that an exclusion from liability clause can only be binding if it is clear and capable of being understood.13 The exclusion from liability clause appears to be clear enough and based on the facts, Winston read the contract and appears to have understood each of the express terms and conditions contained in the contract as he signed it and did not ask for clarification of any of the express terms and conditions appearing in the contract. As previously determined, by virtue of Section 4 of the Unfair Contract Terms Act 1977, an exclusion from liability clause may not be used against a party who is a consumer, unless it is reasonable in the circumstances to do so. of Section 4 of the Unfair Contract Terms Act 1977 is predicated on the principle against facilitating the inequality of bargaining positions between the weaker and the stronger parties to a contract for the sale of goods. Based on the doctrine of good faith, reliance is placed on the strength of the respective contracting parties’ bargaining positions and ascertains whether or not it is fair and reasonable in the circumstances to enforce the exclusion clause.14 Moreover, in cases concerning the sale of goods, liability is typically strict in that where there is liability relative to a breach of a statutorily implied term, the party at fault cannot escape liability by virtue of an exclusion clause unless it is reasonable and only where the other party is not a consumer.15 It is argued that it is not reasonable in the circumstances to allow Daly to escape liability for breaching the statutorily implied terms and conditions of conforming goods and goods fit for intended purpose. It was at all times understood and agreed that Winston was shopping for a specific vehicle for a specific purpose. The vehicle was expected to meet certain load and storage requirements and quite clearly it did not meet those requirements. Moreover, Daly stated that the van was barely broken in and after only a few weeks use, it completely stalled indicating that it was not fit for its intended purpose and certainly did not conform to its sale’s description. Remedies Having already determined that Daly sold a van to Winston on the basis of misrepresentation and that the van did not conform to its negotiated description and was not fit for its intended purpose, Winston has a choice of remedies between compensatory damages or rescission of the contract. In misrepresentation cases, the innocent party can usually rescind the contract and/or seek damages.16 Pursuant to Section 2(2) of the Misrepresentation Act 1967, when misrepresentations are made either negligently or innocently, the remedy is usually for the rescission of the contract.17 This means that Winston will be entitled to return the vehicle and receive the purchase price less the use that he did get out of the vehicle. The idea is to restore the parties to their original positions had the contract not been finalized and acted upon. In addition, Winston can also claim damages for the loss of business in the interim and for the cost for repairs earlier on. Rejection is not as certain to provide Winston with a satisfactory remedy. Nonp-conforming goods may not be rejected in cases where the goods have been inspected and accepted or where there was a failure to notify the seller of intended rejection or by the retention of the goods for a reasonable time.18 The main issue is whether or not Winston’s conduct in regards to retaining the van was such that it functioned to Daly’s detriment. In other words, Winston should have acted in a way that clearly communicated his intention to return the goods to Daly so as to prevent Daly going on about his business in the belief that the van was accepted by Winston.19 Winston only indicated that the van had problems and Daly offered to make reasonable repairs. However, Daly did not return the vehicle for repairs. It can be argued however, that repairs would not have remedied the fact that the van was not fit for its intended purpose and did not conform with its sale’s description. Thus Winston can arguably request a replacement van fit for intended purpose or one that conforms with its sale’s description. Conclusion Based on the fact that Winston may not receive a satisfactory remedy if he rejects the van since he kept the van even after discovering its shortcomings and did not indicate that he intended to reject the van, he is advised to seek rescission and damages on the grounds of misrepresentation. Although the results of both remedies of rejection and rescission are primarily the same, Winston has a stronger case for rescission on the grounds of negligent misrepresentation since he retained the van for a few weeks after receiving it and had ample time to inspect the van’s registration and to discover its shortcomings. Bibliography Baldry v Marshall (1925) 1 KB 260. Bradgate, R. and White, F. (2007). Commercial Law, Oxford, UK: Oxford University Press. Comyn Ching & Co. Ltd. v Oriental Tube Co. Ltd. [1979] 17 BLR 47. Couston, Thomson & Co. V Chapman [1868] LR 2 HL 250. Furmston, M.P., Fifoot, C.H.S. and Cheshire, G.C. (2001) Cheshire, Fifoot and Furmston’s Law of Contract. (14th Edition) U.K.: Lexixnexus. Harlington & Leinster Ltd. v Christopher Hull Fine Act Ltd. [1990] 1 All ER 737. Hong Kong Fir Shipping Co. Ltd. v Kawasaki Kisen Kaisha Ltd. [1962] 2 QB 26. Misrepresentation Act 1967. Mulcahy, L. and Tillotson, J. (2004). Contract Law in Perspective. London, UK: Cavendish. Museprime Properties v Adhill Properties [1990] 2 ALL ER 196. Sale of Goods Act 1979. Stocznia Gydnia SA v Gearbulk Holding Ltd. [2009] EWCA Civ 75. Stone, R. (2005) The Modern Law of Contract. London: Cavendish Publishing. Supply of Goods and Services Act 1982. Unfair Contract Terms Act 1977. Read More