Commercial Law - Sale of Goods Contract - Coursework Example

COMMERCIAL LAW: SALE OF GOODS CONTRACT CASE STUDY Definition of goods and passing of The sale of goods Act originated from The United Kingdom Sales of Goods Act.1 Under the common law, the laws that administer sales of goods are categorized as contracts of sale. “A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.”2 Under the U.K. Sale of Goods Act 1979, 853, goods are put into several categories, which determine the appropriate time that the intended title passes. Section 6(1) of The Sales of Goods Act 1979 provides that specific goods are those that are categorized and agreed upon when a contract of sale is made. Apparently, the cleaner machine that is bought by The Royal Derbyshire Hotel from Walcott cleaners is seemingly suited for this category, and the laws that authorizes decline of sales and repudiation of contracts falling under this category will apply accordingly. 4 According to sec. 18(1), the title of specific goods passes when they are in a deliverable state and if the contract of sale is unconditional – this is with the exception of a contrary intention between the buyer and the seller. Whether the time of payment or delivery is postponed is of no importance in this case. This means that if all other requirement of the title of specific goods is met, the title of the cleaner would have passed to the buyer despite the delivery taking place after the date that was originally agreed. However, this assumption is contrasted with the fact that courts infer that parties to such a contract did not plan to pass the title in line with rule 1, but instead planed to pass it only when the goods are delivered or paid for.5 An “unconditional” contract means that the contract is free of any condition which may affect the passing of title. For example, a conditional sale agreement, under which the passing of title occurs only upon payment of the price, or a contract under which the seller must himself acquire the goods before he can honor his agreement to sell them to the buyer, would not be “unconditional” within the meaning of rule 1. Where the seller has undertaken to do something to the specific goods in order to put them into a deliverable state, title to the goods, according to rule 2 of sect. 18, is presumed to be intended to pass only when the seller does that thing and the buyer has actual notice of it.6 Implied terms When purchasing the machine, Robin could not have doubted the rights of the seller because Section 12(1) stipulates that the seller has the right to sell the goods. This means that even if the patent of the cleaner belonged to William, Robin could still repudiate the contract and recover the full purchase price from the seller because it is assumed that he bought the goods in good faith and without the knowledge the seller could have been using another person’s patent illegally. 7 The facts in this case can be compared with those in Rowland v Divall,8 where the plaintiff, a car dealer, bought a car and sold it without knowing that it had been stolen. Later, the car was impounded and returned to the rightful owner. The plaintiff was forced to return the full purchase price to the customer and then lodged a claim against the defendant, in accordance with the Sale of Goods Act. It was held that the defendant did not obtain a good title from the thief and hence he did not have a right to sell the goods. In other words, the ownership remained with the true owner of the car. Similarly, if Walcott can be able to prove to the court that, for sure, the patent was stolen from him – then Robin will be entitled to return the cleaner to the rightful owner and repudiate the contract besides seeking for the return of the full purchase price or fail to pay if he had not paid. Although the present case can be compared with Rowland v Divall, it should be noted that there are some problems with sec. 12 and sec. 11(4). These concerns the association between the circumstances implied in sec. 11(4) and sec. 12(1). The former provision provides that a buyer cannot reject goods for an infringement of condition once they have accepted them, though they are allowed to claim damages. In Rwoland v Divall, there was an intention that this provision will exclude the buyer from claiming his full purchase price and was forced to sue for damages. However, the court declined this argument, perhaps for the reason that a sale cannot occur if the seller does not have rights to sell. This is like arguing that 11(4) is not applicable to breach of sec. 12(1), and that is why the judge added that if it is particularly not easy to find any warranty for this position in the Act itself. It is, however, important to note that, if the buyer is in the knowledge that the seller does not have title to the goods, there can be an acceptance according to sec. 11(4).9 Specifically, section 12 (1) stipulates clearly that where the seller is engaged in breach of patent, trademark or copyright, he does not have the rights to sell the goods. In Niblett v Confectioners Material,10 the plaintiff had bought some tins from the defendant, who had used some label that had been patented Nestle Company. The company threatened of seeking court injunction if the plaintiff sold the cans, hence forcing him to return them to the seller and brought an action against them. It was held that the sellers did not have the right to sell the goods and hence the plaintiff was granted a right to repudiate the contract. Basically, this case is very similar to the present case and in the same manner Robin is entitled to return the cleaner to the seller and henceforth repudiate the contract. Does the seller have title to the goods? If the seller does not own goods, the buyer is also prevented from gaining the title. Instead, the only reprieve available for the buyer is to sue the seller for breach the implied term as to the title (s21). In carefully defined situation, this provision is subject to very many exceptions, including ss. 21, 24, 25 SGA 1979, s.2 Factors Act 1889, ss. 21, 24, 25 SGA 1979, and s.2 Factors Act 1889. In such a situation, the seller is considered to hold a voidable title, though this title can pass to the buyer in good faith. The title of the sale between The Royal Derbyshire Hotel and Walcott Cleaners UK was supposedly voided before the contract, since there was a violation of patents – in such a case, the title cannot pass from the seller to the buyer.11 Sale by description Section 13(1) stipulates that if the contract of sale of goods is by description, then it is implied that such goods will match with the description. In the present case, the description of the goods went as follows “This is the best new cleaner on the market. It shifts all kinds of dirt and grime from carpets, curtains and furniture. The use of steam and cyclone technology incorporated into The Terminator will leave rooms fresh and clean.” Robin can, therefore, reject the goods on the grounds that they do not correspond to the supposed description. It is not clear whether Robin or any of his representatives had seen the cleaner before deciding to buy it, but if they had done so, then section 13 may not be relied upon.12 For example, in Harlington & Leinster v Christopher Hull Fine Art,13 the plaintiff purchased some paint form the defendant. The paint was described in a catalogue as painted by Gabrielle Munter. Before accepting to purchase, the buyers had sent their experts to examine the painting. Following the sale, the buyers realized that the painting was neither genuine nor worth its price. When the buyer brought an action against the seller in reference to section 13 of the Sales of Good Act, arguing that the painting differed from the description, it was held that the sale ceased to be by description when the buyer sent their experts to inspect the painting. Robin will therefore not be able to reject the cleaner or cancel the contract on the basis of sales by description if the goods had been examined previously, but he can still do so on any other grounds. What this means is that, the implied term may only be contravened if the buyer depended on the description. At the same time, if the representative that was involved in the purchase of the cleaner was an expert in a similar field, the reliance term may not be invoked. For the purpose of, section 14(3), if the buyer impliedly or expressly informs the seller his intention to purchase the goods, it is the responsibility of the seller to make sure that those goods fits that purpose – provided it is sensible for the buyer to rely on the expertise of the seller. Apparently, if Walcott Cleaners UK is in business for the purpose of selling these kinds of machine, then it is absolutely reasonable for The Royal Derbyshire Hotel to rely on their expertise. This provision is, for example, is applied in Godley v Perry.14 Section 14 gives the buyer the right to reject the goods where the seller sells them in the course of a business. The contract between The Royal Derbyshire Hotel and Walcott cleaners UK is clearly based on business relationship and hence this section will apply. The case of Stevenson v Rogers,15 described the circumstances under which goods can be said to have been sold in the course of a business. In this case, the judge held that the sale was not made in the course of doing business, by applying the similarities in the Davies -v- Sumner16 in reference to R & B Customs Brokers Co Ltd -v- United Dominions Trust Ltd17 and section 1(1) of the Trade Description Act 1968. In this case, the judge relied on the implied assumption that, where goods are sold in the course of doing business, then they are supposed to be of satisfactory quality. Further, goods are said to be of satisfactory/reasonable quality if they are up to the standards that a reasonable individual would consider as reasonable, taking into consideration the price (if appropriate), any description, as well as any other relevant state of affairs. The fact that the cleaner failed to pick up food that had stuck to the carpets on the restaurant’s floor, despite the description stating otherwise, is a reasonable ground to reject the machine or even repudiate the contract. In UK, failure by the seller to execute any material part of a contract of sale necessitates cancellation of the sale or repudiation of the contract since the contract is assumed to have been breached – this gives a buyer the right to reject the goods and repudiate the contract within a reasonable time after the delivery of the goods. As such, Robin should go ahead and reject the goods immediately. Delivery The question as to whether the time of delivery of goods is of essence depends on the terms of the contract. The contract between The Royal Derbyshire Hotel and Walcott cleaners UK have some terms specifying that the cleaner should have been delivered by 23 December 2012 because Robin had made it clear that the machine was required to spring clean all the public areas of the hotel in time for the New Year. In view of this, delivery of the machine after this date makes the it less useful and Robin was entitled to reject it if he had wished to do so. For a case in point, in Paton v. Payne,18 the House of Lords held that time was of no essence in a contract that involved the sale and delivery of printing machine, because even the terms of the contract had not stipulated any such requirement. Considering that time for delivery is of essence like in the present case, the seller cannot call upon the buyer to accept the late delivery if the buyer rejects it, because they have failed to deliver the cleaner within the stipulated period.19 Despite the time of delivery being of essence in our present case, if the buyer brings an action on this case purely on the basis of time of delivery being of essence, the judges are likely to rule that the buyer waived the delivery essence when the machine was delivered late and the buyer failed to take any action. In other words, this was like an implied acknowledgement that they have accepted the goods despite their late delivery, and they have no qualm with it.20 Conclusion In view of this discussion, it is clear that, to some extent, The Royal Derbyshire Hotel can successfully reject the cleaner and henceforth repudiate the contract. Several considerations have been made in reaching this conclusion. First, the Hotel can argue that Walcott cleaners UK were late in delivering the cleaner, despite its time of delivery being of essence. However, considering that the hotel accepted the goods after they were delivered late without raising any dispute, it would be hard to sustain such an argument because the court of law can maintain that their conduct led to waiver of the time of delivery essence. In Hartley v Hymans, 21it was held that following the buyer’s waiver of the delivery period, what followed was an implied new contract to make longer the period of delivery to a reasonable time in future. Third, the Hotel can argue that Walcott has breached the contract of delivery of specific goods by description. In the description of the goods, Walcott had stated clearly that the cleaner would be of high quality, free from any default. Since the machine did not work for the first as well as the second delivery, the Hotel has the right to reject the cleaner and possibly repudiate the contract on the grounds that the machine does not match its description. Third, the fact that William Gallos, emerged later claiming that they owned the patent to the cleaner, means that the seller had no right to sell the machine in the first instance. In such a situation, the Hotel has no option but to deliver the machine to its rightful owner and them repudiate the contract with Walcott, and possibly sue them for damages. Bibliography Books Bridge M.G, The Sale of Goods, (New York, 1997) Bridge M.G., The Sale of Goods, paperback edition (Oxford: Oxford University Press, 1998) Acts Supra, 1979 U.K. c. 54 at sect. 2(1) The Sales of Goods Act 1979 The United Kingdom Sales of Goods Act 1979 U.K. c. 54 Trade Descriptions Act 1968 Cases Charles Rickards v Oppenheim [1950] 1 KB 616 Davies -v- Sumner [1984] 1 WLR 1301 Devlin J in Kwei Tek Chao v British Traders and Shippers [1954] Godley v Perry [1960] 1 WLR 9. Harlington & Leinster v Christopher Hull Fine Art [1991] 1 QB 564 Hartley v. Hyams, [1920] 3 K. B. 475 73 Jerome v. Clements Motor Sales Ltd., [1958] O.R. 738 at p. 745. M. Furmston, Sale of Goods (Surrey: Croner Publications, 1990), at 173; Niblett v Confectioners Material [1921] 3 KB 387 Debunk Niblett v Confectioners Materials Co Ltd [1921] 3 KB 387 Paton v. Payne, 1897, 35 S.L.R. 112 R & B Customs Brokers Co Ltd -v- United Dominions Trust Ltd [1988] 1 WLR 321 R.V. Ward Ltd. v. Bignall [1967] 1 Q.B. 534 at p. 545 (C.A. per Diplock L.J.) Rowland v Divall [1923] 2 KB 500 Stevenson v Rogers [1999] 1 All ER 613  Varley v. Whipp, [1900] 1 Q. B. 513 Read More