Aspects of Contract And Business Law

The Sale of Goods Act 1979 deals only with contractual rights and duties. However, a seller of goods may be liable in the tort of negligence or under the Consumer Protection Act 1987 to the buyer or third parties as the goods sold are dangerous and might cause injury. Referring to the case Fisher v Harrods (1966). The defendants bought a jewellery cleaner from a manufacture without making inquires as to its safety in use. It contained substances which were harmful to the eyes but no indication or warning of this was given either on the bottle or in any other way. A bottle of the cleaner sold by the defendants injured the claimant who was not the buyer. The contents would not come out of the container. The claimant applied gentle pressure. The bung flew out and some of the contents damaged her eyes. She now claimed damages from the defendants and it was held that they had been negligent in the circumstances of the case by failing to make inquiries of the manufacturer, failing to have the cleaner analysed, and selling it without a warning. Damages of £1,995 were awarded.

Consumer Protection Act 1987 brings into law strict product liability so that the consumer will no longer have to prove negligence when claiming compensation for damage or injury caused by products which are faulty or unsafe. Civil liability will arise if damage is caused by a faulty product.

Damage is described as death, personal injury, or loss of or damage to private property. Therefore damage to business property is not included. Furthermore, damage to property cannot be covered unless it exceeds £275. If it does then the whole amount is recoverable, including the first £275. This is to prevent trivial claims for damage to property.

In assessing whether the product is unsafe the court must have regard to any warnings as to its use in advertising and marketing in general, instructions for use, how long ago the goods were supplied, and whether the product was put to what might be described as a reasonable use.

The following may be liable under the Act: the manufacturer of the product; a person, who puts his name on the product therefore holding himself out to be the manufacturer, i.e. a supermarket ‘own brand’ which is made for it by another manufacturer; an importer and a supplier if that supplier will not respond to a request to identify the person who supplied the product to him.

It is a defence to show that: the product was not supplied in the course of a business; the defect did not exist when the product was supplied and technical knowledge was such that the defect could not have been known. Therefore the manufacturers pressed for the retention of the development risk defence so as not to slow down the development of new products.

The Act provides that any attempt to exclude liability by a term of a contract or notice will be ineffective. An injured party has three years in which to commerce an action after the injury and discovery of the producer. There is a time bar on claims in any event, this being ten years from when the product was supplied.

The Act does not impose liability or agricultural produce provided it has not undergone an industrial process.

Consumer Protection Act 1987 cancels the Consumer Safety Act 1978 and the Consumer Safety Act 1986 and provides a better legal framework to give the public protection from unsafe goods. The main provisions are as follows;

• A person is guilty of an offence if he supplies any consumer goods which fail to comply with the general safety requirement. In general therefore the goods must be ordinary intended for private use or consumption.

• The government may make safety regulations for the purpose of defining the general safety requirement.

• The department or Trade and Industry may serve upon a supplier a ‘prohibition notice’ prohibiting him from supplying goods which are considered unsafe or a ‘notice to warn’ requiring him to publish a warning about the goods at his own expense.

• A suspension notice may also be served by enforcement authorities, e.g. trading standards officers of local authorities, prohibiting a supplier from supplying specified goods where the authority has reasonable grounds for suspecting that there has been a contravention of the general safety requirement, any safety regulations or any prohibition notice.

The ordinary remedy for breach of contract is money damages.

A contract should always foresee the possibility of non-performance, intentional or unintentional, and should spell out what is to be done.

Some contracts go so far as to include an agreement on a set amount of “liquidated damages” which are to be paid in case something goes wrong. These are acceptable to the courts as long as the amount of liquidated damages is a reasonable estimation of the harm that would be done by the breach. If the amount is as excessive as to amount to a penalty or fine rather than compensation for harm the courts will ignore the liquidated damages clause and assess damages by actually measuring at trial the financial harm done by the breach.

The purpose of damages in suits on contracts is at best to place the injured party in as nearly as possible the same position he would have been in had the contract been properly performed, and at least to restore him as nearly as possible to the position he would have been in had he made no contract at all. In other words, no one should suffer loss because another has failed to perform a contract properly.

Where non-performance is total, for example, the damaged party should get back any money he has paid, along with additional money to compensate him for any actual financial loss which resulted from the non-performance. The loss must have been a reasonably foreseeable result of the non-performance.

Applicants can also sue for specific performance. Instead of money, specific performance is an order of a court that compels the other party to fulfil the obligations of the contract. This usually occurs if the agreement is highly specific. The more common the subject matter of the contract is the less likely one is to be granted specific performance.

As a general rule, a plaintiff will be entitled to specific performance where monetary damages would not be an adequate remedy. For example if someone agreed to purchase the Australian cap worn by Don Bradman in his last Test Match. It is unique, so no amount of money can compensate the buyer if the seller breaches the contract by keeping the cap. The most common example of specific performance concerns real estate.

Consider the situation where a purchaser has agreed to buy a house from a seller. Both parties have agreed to the contract of sale (‘exchanged contracts’) but the owner has received a better offer from someone else. If the owner then sells the property and transfers the title to the third party, the owner has breached the contract. The original purchaser can sue the seller. The original purchaser will ask for specific performance so that the seller must sell it to the original purchaser and transfer the title deed at the agreed price. This is because the common law considers that every parcel of land is unique.

If the terms of a contract are breached by one party, the other may suffer a loss. Where this occurs, there are various remedies which the party suffering from the other’s breach can use.

A breach of contract is caused by a failure to perform a duty specified by the contract. The contract’s terms can be divided into conditions and warranties. These can be expressly stated or implied within the contract. A condition is something fundamental to the contract. Breaching a condition will allow the other party to the contract to terminate it by ‘repudiating’ it and to claim damages. Breaching a warranty will only allow a damages claim and does not bring the contract to an end.

Monetary damages for breach of contract are intended to be compensatory –

i.e. to put the injured party in the position he reasonably expected to be in when the contract was created. Sometimes, the sum of damages will be written into the contract by the parties to it. This is termed liquidated damages. However, where the sum specified as liquidated damages is excessive, so that it is prevention rather than a genuine pre-estimate of loss, the courts may not uphold such a clause. Unliquidated damages are those damages decided after the breach occurs, either by the parties themselves or by the courts.

To determine the level of damages payable, consideration is given to how damages might arise both out of the contract itself and from the parties’ contemplation when they entered into the contract. Compensation can only be made for losses which are foreseeable at the time the contract was created.

The other remedy used in contract law is for the courts to order ‘specific performance’, which requires the party committing the breach to fulfil its part of the contract. This may involve an injunction to stop a breach of contract. It is not used where it is judged that damages would be an adequate remedy.

If someone has suffered a loss because of a breach of contract by another party, they may be able to obtain redress.