The Sale of Goods Act 1979 - Essay Example

? Assignment By Due This document discusses the concepts of breach of condition and warranty under the Sale of Goods Act 1979 through a case study. It also explains the application of Doctrine of Frustration and the concept of exclusion clauses in the light of Contract Law. It discusses the duties of the parties to an agreement to sell and the rights and liabilities that arise due to a breach of condition or warranty. Keywords: Condition, Warranty, Doctrine of Frustration, Exclusion Clause, Contract, Sale, Agreement to sell, Future Goods. Rights against Costumes R Us English National Operetta Company (ENOC) entered into a contract with Costumes R Us for the purchase of theater costumes. The contracts of sale are governed by Sale of Goods Act, 1979 which defines a contract of sale in s.2 (1) as: ‘a contract whereby the seller transfers or agrees to transfer ownership in goods to the buyer in return for a money consideration called the price.’ In the given case, Costumes R Us agreed to manufacture and deliver theater costumes to ENOC and ENOC agreed to pay ?5,000 in return. The agreement was made on 1st May 2010. This is an agreement to sell. It pertains to future goods which would be delivered on 1st September 2010. But before Costumes R Us could begin the manufacturing process for the agreement, on 1st June 2010, a fire broke out due to a fault of some children and burnt down their premises. They could not manufacture the costumes and hence could not deliver them to ENOC. ENOC has threatened to sue Costumes R Us for damages. Costumes R Us could not perform their promise. ENOC had to purchase the same quantity of costumes from Theatre Togs Ltd at a cost of ?6,000. ENOC is looking to recover their resulting loss in the form of damages from them by suing them for breach of contract. Costumes R Us would look to defend by pleading on the basis of Doctrine of Frustration. If this doctrine is fully applicable, the contract would be cancelled and the court would restore the parties to their pre-contractual states. The Doctrine of Frustration has three conditions for its application: i. The contract (as a result of the frustrating event) was impossible to perform; and ii. The happening event must have been outside the contemplation of the parties at the time they entered into the agreement. Where the parties have foreseen the likelihood of such an event arising and have made express provision for it in the contract the doctrine of frustration will not apply; and iii. The frustrating event was not self induced. In other words, the frustrating event must not have been the fault of, or due to the actions of, either of the contracting parties. In the given case, on June 1st 2010, the fire accident rendered it impossible for Costumes R Us to manufacture the costumes. The event is a frustrating event. On May 1st 2010, the time of making of the agreement, this event could not have been foreseen as it is not normal that the whole premises of a business are burned down due to an outbreak of fire. According to the given facts, the fire was caused by some children who were playing with matches near the premises. Therefore, the fire was not caused due to negligence or a fault by either of the parties. On the other hand, the breakout of fire occurred before the stipulated time of delivery i.e. 1st September 2010. If three months were sufficient for Costumes R Us to recover from the accident and perform their promise of making the costumes and delivering them, the Doctrine of Frustration would not be applicable. The subject matter of this contract is not of existing goods. It pertains to future goods which would be manufactured by Costumes R Us in the future. The fire could not have destroyed the subject matter of the contract. But it can be assumed that the machinery required to process the material was destroyed so the subject matter could not have been brought into existence. The courts would discharge both the parties from the contract by the application of s.7 of Sale of Goods Act, 1979 which states that: ‘Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.’ In Taylor v. Caldwell, the defendant owned a music hall and the plaintiff contracted with him to organise a function. Before the date of the function, the hall burnt down. The promise could not be fulfilled and the plaintiffs sued. It was held that that the unfortunate event rendered the performance of the promise impossible. It was also not due to the fault of any of the parties to the contract. It was an act of God which was beyond the control of any of the parties. Both the parties were excused from the contract. Assuming that availability of premises is essential to the manufacture of costumes, Taylor v. Caldwell is applicable in this case. ENOC and Costumes R Us would be excused from this contract. ENOC deposited ?1,000 with Costumes R Us as a part of the full payment and promised to pay the rest, ?4,000, on delivery which was due on 1st September 2010. The Doctrine of Frustration would discharge both the parties from the contract but, according to Law Reform (Frustrated Contracts) Act 1943, Costumes R Us would have to return the amount that they have already received from ENOC. The courts would attempt to restore the parties to their pre-contractual status without giving any of the parties an unfair advantage over the other. If the circumstances are such that the availability of premises was not essential for the performance of the contract or there was sufficient time for Costumes R Us to manufacture the costumes, it would imply that the fire incident did not destroy the subject matter of the contract. In this case, the first condition for the Doctrine of Frustration would not be applicable. Therefore, Costumes R Us would be sued successfully by ENOC for breach of contract. Rights against Pristine Printers Ltd. The English National Operetta Company ordered 5,000 theatre programmes from Pristine Printers Ltd. The agreement was made on June 1st 2010 and the delivery of the programmes was due on 1st August 2010. S.2(5) of Sale of Goods Act, 1979 states that: ‘Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled the contract is called an agreement to sell.’ Therefore the agreement between ENOC and Pristine Printers Ltd is an agreement to sell. In a contract of sale, there are some expressed and some implied conditions which must be fulfilled. In the given case, ENOC specifically mentioned it to be a condition on the contract that that the programmes must be delivered on time. A breach of condition by one party entitles the other party to treat the contract as repudiated and sue for damages. As the programmes were never delivered by Pristine Printers Ltd, ENOC has a right to treat the contract as repudiated. Not just that Pristine Printers Ltd did not fulfill the condition, non-deliverance means that they never fulfilled their promise at all. ENOC had to purchase the programmes from Prompt Printing Ltd who charged them ?500 more than Pristine Printers Ltd. The buyer is also entitled to treat the breach of condition as a breach of warranty but it cannot be done in this case because the event for which the programmes were required has been held already. ENOC can recover the extra amount that they had to pay to Prompt Printing Ltd from Pristine Printers Ltd in damages. Rights against Prompt Printing Ltd. The English National Operetta Company ordered 5,000 theatre programmes from Prompt Printers Ltd. This agreement pertained to the sale of future goods and was an agreement to sell. The programmes were delivered on time as agreed by Prompt Printing Ltd. S.2 (6) of Sale of Goods Act, 1979 states that: ‘An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.’ Therefore this is a completed contract of sale. Sale of Goods Act, 1979 explains that there are some expressed and implied conditions which must be fulfilled. According to given facts, the programmes delivered by Prompt Printers Ltd were of a low quality and not of the standard agreed upon. The quality was so poor that ENOC had to refund the money taken for programmes to audience members. S.11 (2) of Sale of Goods Act, 1979 entitles ENOC to treat the breach of condition as breach of warranty but they would not be looking to do that. They have a right to treat the contract as repudiated and sue for damages. S.14 (2) of Sale of Goods Act, 1979 states that: ‘Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.’ In this case, the goods have certainly not been of satisfactory quality. ENOC had to refund the money taken for programmes. A reasonable person would not regard such programmes as satisfactory which is an important condition to regard the goods as satisfactory under S.14 (2A) of Sale of Goods Act, 1979. If it is assumed that ENOC had explained the purpose of the programmes to Prompt Printing Ltd, then there is a breach of an implied condition. S.6 (2) of Sale of Goods Act, 1979 states that: ‘Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or not), there is an implied condition that the goods will be reasonably fit for such purpose, except that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.’ When ENOC complained to Prompt Printers Ltd regarding these matters, Prompt Printers referred them to an exclusion clause contained on the back of the invoice supplied with the programmes which read: ‘Prompt Printers Ltd denies all legal responsibility for any faults, defects or mis-descriptions in relation to any goods supplied to its customers’. Exclusion clauses seek to exclude liability for breach of a legal obligation. It must satisfy the following criteria to be effective: i. it must be incorporated into the contract; ii. it must be clear and unambiguous; and iii. it must satisfy statutory requirements. A really important point relating to exemption clauses is that for a term to be incorporated into (i.e. become part of) a contract, notice of the exclusion of liability must be given prior to acceptance of the offer. An exemption clause will not be binding unless the offeror has taken reasonable steps to draw it to the customer’s attention. The more onerous the term, the greater degree of notice is required. In Olley v Marlborough Court Hotel, A notice in the claimant’s hotel bedroom stated that the proprietor would not be liable for theft of guests’ property. Later jewellery and furs were stolen from her room. It was held that the contract was concluded at the reception desk when Mrs Olley booked in, before she read the notice. It did not therefore form part of the contract and the hotel was not exempt from liability for the theft. Assuming that the exemption clause was not brought into the notice of ENOC at the time of making the contract, it would not be effective. Also, ENOC could not be deemed to have implied notice from past contracts so that the courts are satisfied that these have been on the same terms, sufficiently regularly over a sufficient length of time. However, if their agreement was signed on a document and the document had contained the same exemption clause, it would have been effective because it is implied that a person who has signed a document has read it carefully before signing it. Prompt Printing Ltd has committed a breach of condition. There exclusion clause is ineffective. Therefore, ENOC has a right to treat the contract as repudiated and sue Prompt Printing Ltd for damages. Word count: 2019 Bibliography 1. Sale of Goods Act, 1979. (UK) s 2 (1). 2. Sale of Goods Act, 1979. (UK) s 7. 3. Sale of Goods Act, 1979. (UK) s 2 (5). 4. Sale of Goods Act, 1979. (UK) s 2 (6). 5. Sale of Goods Act, 1979. (UK) s 11 (2). 6. Sale of Goods Act, 1979. (UK) s 14 (2). 7. Sale of Goods Act, 1979. (UK) s 14 (2A). 8. Sale of Goods Act, 1979. (UK) s 6 (2). 9. Law Reform (Frustrated Contracts) Act, 1943. (UK). 10. Taylor v Caldwell [1863] 3 B & S 826 11. Olley v Marlborough Court Hotel [1949] 1 KB 532 Read More