The principle areas that this question is concerned with are contracts relating to the sales of goods and exclusion clauses. An exclusion clause is a term in a contract or notice which either seeks to exclude liability or remedies for breach of contract and negligence, for the party relying upon it.
The first scenario involves Big Deal Ltd and Mr. Boom, who is acting on behalf of Slump Ltd. The question arises as to whether a contract has been formed between both parties. The Sales of Goods Act 1979 would come into effect if such a contact had been formed, which provides legal rights to buyers of goods.
A contract for the sale of goods can be defined using s.2 (1) of the Sales Of Goods Act 1979 as 'a contract of sale of goods by which the seller transfers or agrees to transfer ownership in goods to the buyer for money consideration, called the price'.
It can therefore be ascertained that the definition of a contract for the sale of goods was satisfied with regards to Big Deal Ltd and Slump Ltd, as there transfer of the ownership of goods (cars) in return for a money consideration.
S.14 of the Sales of Goods Act 1979 would relate to the faulty cars presented in the first scenario. The 'Sundat GR 2 model' had developed serious engine faults and the brakes were defective. Under S.14 (2) of the Act, there is an implied term 'that the goods supplied under the contract are of satisfactory quality where the seller sells goods in the course of a business'. S.14 (2A) states that 'goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, the price (if relevant) and all other relevant circumstances. Further, S.14 (2B) states that the following factor determines whether goods are of satisfactory quality:
Appearance and finish
Freedom from minor defects
The defendant in the question, Big Deal Ltd is a business seller; therefore, s.14 will be able to apply to Mr. Boom who is acting on behalf of Slump Ltd. Section 14 (2), S.14 (2A) and S.14 (2B) are already contained within the con tract, regardless of either party mentioning these implied conditions or not. A condition is an important term that goes 'to the root of the contract'; the significance of which being that if these terms are broken by the seller, the buyer will be entitled to a refund plus damages.
It can be reasonably assumed that the salesperson of Big Deal Ltd, Mr. Smoothie, had more experience and knowledge of cars than Mr. Boom as he works for a car dealership. It would also be reasonable to assume that the salesperson's 'special knowledge' of cars would be relied upon by Mr. Boom. It would be assumed that Mr. Boom had little or know knowledge and experience in dealing with cars and was merely directed by Slump Ltd to purchase three cars of a certain 'Sundat GR2 model'. The question arises as to whether the three cars purchased were actually Sundat GR1 models, and that they had developed 'serious engine faults and the brakes were defective', will be a breach of contract.
It can be argued heavily towards the fact that the cars were not of satisfactory quality in relation to s.14 (2) of the Sales of Goods Act 1979. A reasonable party would not be expecting the cars purchased to be of inferior quality or breaking down a week after they have been purchased.
Section 14 (3) of the Sales Of Goods Act states that 'Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known any particular purpose for which the goods are being bought, there is an implied condition that the goods are reasonably fit for purpose. Except where the circumstances show that the buyer did not rely upon the skill and judgment of the seller'. It can therefore also be argued that Big Deal Ltd also breaches s.14 (3) of the Sales of Goods Act in relation to the cars. The cars were not fit for their purpose, driving from point a to point b, due to the mechanical faults of the cars.
In Grant V Australian Knitting Mills Ltd (1936), the defendants were liable due to the production of a faulty garment containing excess sulphite, which led to the claimant contracting dermatitis; which led to the claimant spending a long period of time in hospital. This case relates to Slump Ltd as due to the negligence shown Big Deal Ltd, 'five of the company's best customers have now transferred their business to Slump Lt's main competitor, Keynes Ltd'.
The second scenario involves Big Deal Ltd and Ms Market. This scenario is in contrast to the first one as Ms Market is an individual consumer, not a business. This outcome is satisfied by using S.12 of the Unfair Contract Terms Act 1977 (UCTA) which has a 'three part consumer test':
The buyer does not make the contact in the course of a business, and
the seller does make the contract in the course of a business, and
the goods are of a type ordinarily supplied for private use or consumption.
The application of s.12 (1) of UCTA to the scenario indicates that Ms Market satisfies all three parts of the test.
The question arises as to whether Big Deal Ltd is in breach of misrepresenting the details of the car, as well as acting negligent, when selling the car to Ms Market.
In Dick Bentley Productions Ltd V Harold Smith (Motors) Ltd (1965), the defendant sold the car claiming it had only done 20,000 miles since major repair. However, the car had significantly more illegal than that stated by the defendant. This is similar to Ms Market as she stated expressly that the car she wanted to purchase should have a mileage of less than 25,000 miles. It can therefore be argued that the statement made by the sales representative was a breach of an expressed term. This is justified by the fact that Ms Market had gone to Mr. Galbraith, a mechanic who had informed her that the mileage had been 'clocked'. It is reasonable to assume that the mechanic was correct as his job is centered on cars, and therefore has special knowledge and expertise of cars much greater than that of Ms Market, and probably the car salesperson as well.
This is indicates a misrepresentation by the sales representative, as it seems that the mileage statement was made in order to induce the sale of the second hand Dorf; which should also have been greatly reduced in price had the correct mileage been show. Therefore, the sales representative was in breach of an express term. This relates to the case of Smith v Land and House Property Corporation (1884) where there was a misrepresentation which induced the claimant into forming a contract. The case of Bannerman v White (1861) also relates to this scenario as an express term of the contract had been breached whereby the merchant had purchased hops treated with sulphur, which the claimant specifically expressed not to.
The fact that 'the engine would need to be replaced' strongly indicates a breach of s.14 (2) and also s.14 (3) of the Sales of Goods Act, as once again the car did not prove to be of satisfactory quality as 'the vehicle had developed such serious engine faults that it could no longer be driven'.
Section (3) of the Misrepresentation Act 1967 states that if a contract contains a term which would exclude or restrict-(a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or (b) any remedy available to another party to the contract by reason of such a misrepresentation, that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does.
This act is substituted by the Unfair Contract terms Act (1977) (http://www.swarb.co.uk/acts/1967MisrepresentationAct.shtml).
This act also emphasizes the breach of contract made by misrepresenting the true facts of the car, and not disclosing any faults that the car had. Big Deal Ltd.
The question now arises as to the significance of the sign at the entrance, "No refunds given on faulty goods'. The question also arises as to whether Big Deal Ltd had made an attempt to notify the injured parties of the notice or whether both parties had seen the exemption clause notice.
In Thornton v Shoe Lane Parking Ltd (1971), Shoe Lane had not taken adequate steps to make aware to Thornton of the clause of the car park before he entered the contract. Therefore, Shoe Lane Parking Ltd was not protected by the exclusion clause. Further, in Olley v Marlborough Court Hotel (1949), a representation stated by one party cannot form a contract term if it occurred after the agreement. The representation is only binding at the time the contract is being formed.
If the notice was effective, it would prevent both Slump Ltd and Ms Market their rights to refunds plus damages for the breach of s.14 of the Sales of Goods Act.
There is strong evidence that the contract formed between Mr. Boom and Big Deal Ltd does not satisfy s.11 (1) of the Unfair Contract terms Act. This section applies the reasonableness test to the context of the scenario: 'In relation to a contract term, the requirement of reasonableness for the purposes of this part of this Act [and section 3 of the Misrepresentation Act 1967] is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made'.
For the clause to stand, it has to relate to what Ms Market is complaining about. The notice does cover the fact that the car was faulty, and therefore covers s.14 of the Sales Of goods Act. Both parties are complaining that the seller is in breach of s.14 thus is the same as the clause and so passes the first test. The question now arises as to whether the clause is a term of the contract. The notice was near the entrance at the time Ms Market purchased the car, so this part of the requirement would have been met. The third aspect is that the clause has to satisfy s.6 of UCTA 1977 which states that liability of s.14 of the Sale of Goods Act 1979 cannot be excluded if the buyer is a consumer. Therefore, as Ms Market is a consumer, the clause will not affect her legal rights.
For Ms Market, there was a clear breach of her expressed term that the mileage of the car should be know more than 25,000 miles, as was the case in Arcos Ltd v E.A. Ronaasen and Son (1933), where the court held that the buyer of the goods was not obliged to purchase them due to the description of the goods being sold.
Applying s.12 (1) of the UCTA 1977 (as already written above) to the scenario, it seems that Ms Market satisfies all three conditions of s.12 (1) and so the notice near the entrance at Big Deal ltd will be void and thus will have not legal affect. The same applies to Slump Ltd and they will have the ability to claim compensation plus damages.
From the analysis of both scenarios in the question, it can be ascertained that there are remedies for both injured parties against Big Deal Ltd.
For Slump Ltd, the exclusion clause is not relevant to their case as it does not satisfy the conditions needed to be met under s.11 (1) of the UCTA. However, Slump Ltd will be able to get a full refund on the three cars purchased as well as the ability to have the contract discharged. Rule one of Hadley v Baxendale (1854) states that Mr. Boom would be able to sue for damages due to the contract breach. This relates to the case Koufos v C. Czarnikow Ltd, The Heron II (1967); where the court held that the claimant was bale to obtain the difference in prices of the goods and the value of the goods after the delay. This would entitle Slump Ltd to sue for future lost earnings as thy lost 5 clients to a competitor as a result of the misrepresentation and breach made by Big Deal Ltd.
For Ms Market, the remedy is entirely dependant on the type of misrepresentation that was made. A fraudulent misrepresentation such as in Royscot Trust Ltd v Rogerson (1991) would entitle her to damages. Ms Market would be able to rescind the contract if it decided that there is a fraudulent misrepresentation. This seems more likely, especially when the mileage was purposefully 'clocked'. This would entitle her to a refund and damages.
Poole, Jill, 'Casebook on Contract Law', 8th edition. Oxford University Press (2006). Pgs. 200, 249, 509, 569
Macintyre, Ewan, Business Law, Fourth Edition, chapters 5,6,7,8