Assessment 4
Law for Business
1) Two parties, Sharpsell Stores and L Ectronics have entered into a contract.
The case involves Sharpsell Stores agreeing to buy a particular second-hand mini computer from L Ectronics. Both parties have come to the agreement that L Ectronics will completely overhaul the computer before the delivery. Unfortunately prior to L Ectronics carrying out their side of the agreement the mini-computer was destroyed in a fire.
With this type of situation, neither Sharpsell Stores nor L Ectronics are directly in breach of their contract agreements. L Ectronics could not carry out their side of the agreement because the computer was destroyed.
When a party cannot carry out an agreement due to a fire or any other natural disaster etc, in which it is impossible for the party to carry out his obligations after the agreement and prior to completion, is known as supervening impossibility.
There are two categories within supervening impossibility, rei interitus and constructive total destruction.
Surrey Music Hall ca. 1858
Helen
Helen Dennis / 20071117.10D.46207 / SMLThis particular case falls under the category of rei interitus as the cause of destruction was not the fault of either party and the destruction was that of an external entity. If the courts rule out a contractual agreement as being rei interitus, then it would result in the contract being frustrated. An example of rei interitus is the case of Taylor v Caldwell in 1863. One party had booked a music hall so that they could do a series of concerts. Unfortunately the music hall had burned down. It was not the fault of the hall owner and therefor the courts had brought the contract to an end through frustration, as the hall owner could in no way perform his obligation.
However one of the parties will have to bear the financial loss of the mini-computer.
Under Scots Law the party that has to forfeit the loss of the computer is L Ectronics. The
Reason for this is because L Ectronics were required to do something to the goods in order to put it into a deliverable state. Sharpsell stores agreed to buy the mini-computer on the condition that L Ectronics would completely overhaul the computer before delivery. However this was not done due to the fire that broke out, Thus resulting in the transfer of ownership not passing to Sharpsell Stores, as L Ectronics did not put the specific goods into a deliverable state.
If L Ectronics had carried out their side of the agreement and overhauled the computer before the fire had broken out and notified Sharpsell Stores that it had been done then ownership of the computer would have transferred to Sharpsell Stores. The reason for this would be that L Ectronics would have met the conditions that Sharpsell Stores had set.
The Legal Act that would have settled this dispute is the Sale of Goods Act 1979, section 18, rule number 2.
Rule number 2 states that "Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods to put them into a deliverable state, ownership passes to the buyer only once this has been done and the buyer has been notified".
A relevant case that would back this up would be that of Gowans (Cockburn's trustee) v Bowe & Sons in 1910.
"A firm of potato merchants agreed to buy a farmer's whole potato crop. It was agreed that when they were ready, the potatoes would be lifted from the ground by the farmer and put into a pit on the farm. The buyer's were then to put the potatoes into bags and remove them. The farmer went bankrupt after the potatoes had been lifted and pitted but before the buyers had removed them. The potatoes were claimed by the seller's trustee in bankruptcy but it was held that the potatoes belonged to the buyers. The growing potato crop constituted specific goods in which had to be put into a deliverable state buy the seller. Under rule 2, ownership of the goods passed to the buyers once the potatoes had been lifted and pitted, and the buyers notified that this had been done".
b) The contract that has been formed is between Helen (customer) and a book publisher (seller).
Helen has ordered a book on 14 days approval that is guaranteed to improve her memory and also help her develop techniques of self-assertiveness. She forgets to return the book until several weeks later, and then asserts herself by tearing out several pages that seem to her useful.
The publishers are now demanding payment or return of the book.
Helen has broken her side of the contract agreement in which she had obtained a book from the publishers given to her on the terms of a sale and return basis.
Helen had 14 days in which she could have returned or paid for the book. Helen did not pay nor return the book within the time frame set.
The law that decides that Helen is in breach of her contract is the Sale of Goods Act 1979, section 18, rule 4. Rule number 4 applies to goods delivered on approval or a sale and return basis.
Rule 4 declares that the buyer becomes the owner when they retain the goods without rejecting them after a time limit set for their return has expired. Helen has failed to abide by this rule and is now the legal owner of the book and must pay the publishers the full amount due.
Rule number 4 also states that a buyer becomes the owner when a person acts in a way in which indicates that they are adopting the transaction.
Helen had ripped out several pages of the book; by doing this she had acted in a way in which she had indicated that she had adopted the transaction. Thus strengthening the case of the publisher in demanding payment of the book. So whether Helen wants the book or not she must under the Sale of Goods Act section 18 rule 4, pay for the book.
It would be likely that the publishers would resort to using a legal remedy against the buyer (Helen), it is probable that they would use "An action for damages for non-acceptance - section 50". This remedy states that if the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may bring an action against him for damages.
The case of Poole v Smith's Car Sales Ltd in 1962 is an example that backs this up.
"Poole, a car dealer had left a car with another dealer, Smith's Car Sales Ltd, in August 1960, on the understanding that S Ltd would try and sell the car. P was to receive ã325 and S Ltd would keep any sum left over that amount. By November 1960, P had received neither the money nor the return of the car. P wrote to S Ltd demanding either the price or the car by the 10th of November. The car was returned in a damaged condition at the end of November. Under Rule 4 ownership in goods supplied on a sale or return basis will transfer to the buyer in the absence of a fixed time limit for the rejection of the goods after a reasonable period of time has elapsed. It was held that, as a 'reasonable time' had elapsed by November, ownership of the car had passed to S Ltd and they were bound to pay the price to P".
c) Tom (buyer) has entered into a contract in which he has an agreement with a shop (seller) concerning a particular type of armchair.
The case involves Tom who wishes to buy a buttoned leather armchair. The shop to which he goes has of the type he wants, but it has a large notice on it stating it is for display purposes only. The assistant checks by telephone with another branch of the retailers, confirms they have one of the chairs, and on Tom's say-so puts an order in an order book, together with Tom's name and address, saying it will take one week to arrive. Six days later Tom is told at work that he is being moved to Germany, so he goes to the shop to call of the sale. There he is told the chair has arrived, and he must pay for it.
The legal situation is that buyer and the seller have agreed and entered into a contract on the sale of an unascertained good. The way this was done was with Tom, who wished to buy an armchair, which was not in stock. However as the salesman checked that they had another armchair in stock, Tom ordered the goods that he wanted. As soon as Tom ordered the armchair by placing his name and address in an order book the contract between the buyer and seller was formed. The Sale of Goods Act 1979, section 18, rule number 5 states "where there is a contract for the sale of unascertained or future goods by description, ownership transfers to the buyer when such goods, complying with the contract description, are unconditionally appropriated to the contract in a deliverable state. Appropriation of the goods may be either by the seller with the buyer's consent, or by the buyer with the sellers consent. Such consent may be express or implied, and may be given either before or after appropriation".
Tom bought the armchair on description, as the armchair he saw was not the exact good he wanted as it was for display purposes only. Tom had unconditionally appropriated the contract by placing an order for the goods by Tom himself with the sellers consent. Rule number 5 also states that the consent can be expressed or implied, which in Toms case consent was expressed as he placed the order himself.
For example if a person sees a picture of a Treadmill in a brochure stating the price and a brief description, and if that person wished to purchase the treadmill then they would be buying a unascertained or future good by description.
However a situation has occurred where Tom wishes to cancel his order for the armchair but the sellers of the chair demand payment.
Tom has broken his part of the contract as it was agreed that he wanted the chair and the supplier has kept his side of the agreement by ordering the chair for Tom.
Tom is liable to pay for the armchair.
A legal remedy that the seller would likely take against Tom would be "An action for the price - section 49". It states, "Where ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay the price, the seller may raise an action against the buyer for payment of the price".
2 a) Mabel (buyer) has entered into a contract with a shop that has sold her a washing machine.
The case involves Mabel who has bought a "Supawhite" washing machine, which frequently breaks down. After two attempts by the shop to repair it, without obvious success, she decides she wants her money back. The manager of the shop says she has no rights, because the machine was sold under a trade name, a clause in the guarantee excludes the shop's liability, and it is the manufacture's fault. The manufacturer has gone out of business.
It is highly likely that the washing machine that Mabel has bought from the shop is not of satisfactory quality, which renders it useless under its reasonable fitness for its particular purpose. As the case shows that the shop had twice tried to fix the machine after frequent breakdowns without success. Because Mabel had bought the washing machine for private use, she can use the Sale of Goods Act 1979 as a remedy. Mabel can claim a full refund or replacement from the seller. Section 14(3) - reasonable fitness for purpose, backs Mabel in stating, "where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought". Mabel had bought the product so that she could do her washing. It is likely that the seller knew exactly what the machine was being used for, as there are not any other uses for a washing machine other than to wash clothes.
A case example that would back this up would be that of Priest v Last. A hot-water bottle burst causing severe scalding. It was held that the buyer had, by implication made his purpose known.
Also the manager in the shop cannot say that Mabel has no rights in order in getting her money back, whether the good was sold under a trade name has nothing to do with the seller being liable if there are any faults, defects or if the goods are of a poor quality.
For example section 14 states that the seller's liability is strict. "The seller of a defected toaster cannot try to escape liability to the buyer by blaming the manufacturer". There was no contractual agreement between the Manufacturer and Mabel so section 14 would have no affect in Mabel getting her money back from the manufacturer. However Mabel did enter into a contract with the seller, and he had breached his end of the contract with supplying a poor quality good therefore he is in fact guilty of section 14. The seller should have checked the goods with the supplier (manufacturer) before bought the products, so as the manufacturer has gone out of business the seller has lost out, as he is liable to pay Mabel the full amount for the washing machine.
b) The contract formed is between Eric (customer) and a Salesman (seller).
The case involves Eric buying a new pair of golf shoes, a jacket described by the salesman as waterproof, and a fetching pair of yellow golf trousers. He plays a round of golf in a slight drizzle, and is disappointed to discover that the jacket is not fully waterproof, and the yellow trousers have turned a curious bilious green. The shoes are also giving cause for alarm, since he has a hole in one.
There are three material goods that Eric has purchased by a salesman that have not met the standards in which they were originally bought.
The first problem with this case is that Eric had been given an unfair/untrue description on a waterproof jacket. As the salesman wrongfully described the jacket as being waterproof, he is in fact guilty of a criminal offence under the "The Trade Descriptions Act 1968". This Act prohibits "false trade descriptions as to goods (s 1)" and "false or misleading statements about services (s 14)". When a seller describes goods to a potential buyer he must under the Trade descriptions Act give a true and valid description of the goods. For example if a shirt is described as "pure cotton then the shirt must be made of cotton and not of another material. A description can be applied verbally or it could be on the packaging of the goods. In this case the salesman verbally gave Eric a "false trade descriptions as to goods" concerning the waterproof jacket.
An example of a false trade description could be the case of Fletcher v Budgen in 1974. A car dealer told a private seller that there was no possibility of repairing his car and that it was only fit for scrap. The dealer then bought the car for ã2, repairing it at a cost of ã56, and then he advertised it for sale at ã135.
The salesman is also guilty of the Sale of Goods Act 1979 section 14(3) - reasonable fitness for purpose. It states "where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought". The salesman had expressly implicated that the jacket was waterproof, so Eric armed with the information that the salesman had given him bought the jacket. Both parties knew that the jacket would have been used during rain with the intent purpose of not letting water seep through. The salesman wrongfully described the product and is guilty of section 14(3) of this Act, as the jacket was not fit for its purpose. A case example of this would be that of Priest v Last. A hot-water bottle burst causing severe scalding. It was held that the buyer had, by implication made his purpose known.
So in order to obtain the protection of s 14(3), the buyer must tell the seller what he intends to use the goods for.
Under the Sale of Goods Act 1979, Eric has a legal remedy in which he can take against the retailer. The remedy is called "Rejection of the goods and damages" - section 15B and 53A. Section 15B is the section in which Eric can claim damages or compensation. Section 15B states that "where the seller is in breach of any terms of a contract, whether express or implied the buyer shall be entitled to claim damages and, if the breach is material, to treat the contract as repudiated and reject the goods".
It is evident that the salesman had "expressed" to Eric that the jacket was indeed waterproof and under section 15B he would be found guilty and would have to pay Eric damages, compensation or refund the full price of the jacket.
Eric also has statutory protection under civil law against the retailer who has sold him goods under false trade descriptions. However carrying out a civil claim for damages against a manufacturer or retailer can be very troublesome and expensive.
To counter this, the Law introduced "The small claims procedure" in 1988. It was designed to help the consumer if his claim was for no more than ã750.
As it is highly likely that the cost of the jacket was less than ã750 it could be a possibility that Eric can claim damages or compensation under the small claims procedure.
The second problem that Eric has is with the pair of yellow golf trousers that he had bought from the salesman.
It could be possible that the trousers are unsafe and the colours that have been used to produce the trousers may be toxic. If this is true then Eric can claim damages or compensation from the Manufacturer, as they could be guilty of producing an unsafe product in which could be harmful to the buyer.
However on discussing Eric's legal rights against the shop regarding the golf trousers, he can under section 14(2) - satisfactory quality of the Sale of Goods Act claim a refund or a replacement from the salesman due to a contract breach. Section 14(2) states that
"Where the seller sells goods in the course of business, there is an implied term that the goods supplied under the contract are of satisfactory quality".
The trousers where not made to a satisfactory quality due to the trousers turning into a bilious green colour in appearance.
On backing this up Section 14(2B) gives further guidance by stating that the quality of goods must be "durable".
The trousers had turned in colour the first day that Eric had used them therefore proving that the trousers were not durable.
On discussing Eric's legal rights against the shop over the golf shoes that have a hole in one, the salesman is guilty of the Sale of Goods Act 1979 section 14(3) - reasonable fitness for purpose. As the shoes had a hole in one it can in no way be reasonably fit for its purpose.
Also the quality of the shoes can be under question. Section 14(2B) - satisfactory quality, States that the quality of the goods should be "fit for all purposes for which goods of that kind are commonly supplied".
Eric can claim a full refund from the salesman or a replacement.