Sale of Goods Act and Compensation Problem Question

An example case study looking at the Sale of Goods Act, contracts and compensation in UK law

Question

Barry is a lecturer in Biology at Nottingham University, and a keen gardener with a large orchard. Nogrow Ltd is a manufacturer of gardening requisites, and has a number of retail outlets from which they sell their own products and those of other manufacturers. Last March Barry visited one of these outlets to buy fertiliser. In the past, he had always used a top brand, but was hoping to find something cheaper. He looked at several types of fertiliser on display, noted the widely differing prices, and read the promotional leaflets. He studied the chemical composition of each fertiliser, given in the leaflets. Some fertilisers required application to the roots, others to leaves. He then sought the advice of the only available sales assistant, a youth who did not seem to know much about the products on sale. The sales assistant recommended that Barry should buy Nogrow Ltd’s ‘Apple Gro’, which, at £60, was considerably cheaper than all other brands in stock. Barry decided to buy a sack of ‘Apple Gro’, and was given a sales invoice to sign, which stated:

1. Nogrow Ltd agree to refund the purchase price paid for any goods which fail to conform with commercially recognised standards of quality or with any description applied to them. Any damages or compensation payable shall not exceed the purchase price of the goods sold.
2. All claims against Nogrow Ltd must be made within 21 days of purchase.
3. Nogrow Ltd does not give any undertaking as to the suitability or fitness of goods purchased for any particular purpose.

Barry paid for the fertiliser and signed the invoice without reading it.

The instructions on the fertiliser stated: “Spray once on leaves and fruit during June or July in dry weather”, and gave details of dosage rates. Barry duly sprayed his apple trees on a sunny day in July, but that night there was a heavy rainstorm, which washed away some of the fertiliser before it took effect. Barry did not realise that rain could wash away the fertiliser and no specific statement to this effect was contained in the instructions. The fertilisers Barry had previously used were applied to the tree roots and were not affected by rain.

When the trees produced fruit, the apples were small and sour. Though Barry had previously sold most of his apple crop to a local greengrocer and had won prizes for his apples at local horticultural shows, this crop could not be sold or entered for shows. As a result, Barry became depressed, his lecturing work suffered, and he was not even shortlisted for a promotion which most of his colleagues thought he would get.

Barry now wishes to sue Nogrow Ltd for all compensation possible, including the purchase price of the fertiliser, loss of profit on sale of the apple crop, loss of prize money from shows, stress, and loss of the increase in salary he would have got on promotion.

Nogrow Ltd deny liability, and argue that, in any event, they are protected by the invoice terms from any liability beyond the purchase price paid by Barry.

Make sure you cover

1. Discuss the grounds on which Barry may make a claim against Nogrow Ltd.
2. Assuming Nogrow Ltd is in breach of the contract of sale discuss the validity of the terms of sale in the invoice.
3. Assuming that Agro Ltd is liable for breach of the contract of sale, and is not protected from liability by the terms of sale in the invoice, discuss the remedies available to Barry.

Answer

Section 2(1) of Sale of Goods Act 1979 (“SGA”) defines a contract of sale of goods as: “a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called a price”.¹ The three key elements here are property, goods and money consideration. Property here refers to ownership – selling is the most common method by which ownership is transferred.² “Goods” is defined by the SGA as including: “emblements, industrial growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” – this also includes all tangible moveable things.³ Money consideration refers to the price in money paid for the ownership of the goods to be transferred to the buyer.⁴ Applying these to the facts of the case, it can be concluded there is a contract of sale between Nogrow Ltd (“Nogrow”) and Barry as Barry gave money consideration to Nogrow so that the ownership of the goods (here the fertiliser) would be transferred to him.

The effect of there being a contract of sale between Barry and Nogrow is that the breach of the terms of the contract (be it express or implied terms) would allow the innocent party to claim damages only or claim damages and/or repudiate contract depending on the classification of the term that has been breached.⁵ Terms of contract are classified as conditions and warranties.⁶ Conditions of a contract are those which “go so directly to the very substance of the contract or in other words, are so essential to its very nature that their performance or non performance may fairly be considered by the other party as a substantial failure to perform the contract at all.”⁷ The breach of a condition is serious and would give the aggrieved party a right to claim damages and/or repudiate contract. Conversely, warranties are terms which are collateral to the main purpose of a contract of sale – a breach of a warranty would give the aggrieved party a right to claim damages but not a right to reject the goods.⁸

There are two types of contract terms – express terms and implied terms. Express terms are those agreed by the parties to a contract whilst implied terms are implied by statute; in this case by ss 12-15 of the SGA. Sections 12 -15 of the SGA implies terms as to title, description, satisfactory quality, fitness for purpose and sale by sample respectively.⁹ On the facts of the case it would appear that there is a possibility that Barry may be able to bring a claim on the grounds that Apple Gro was not of satisfactory quality and was not fit for purpose.

s.14(2) of the SGA provides that where the seller sells goods in the course of a business, there is an implied term that the goods supplied are of satisfactory quality.¹⁰ The availability of this ground to Barry depends on whether Nogrow sells fertilisers in the course of a business. In it was decided that all sales carried out by a business should be defined as in the course of a business. Thus, it can be concluded that Nogrow was selling in the course of a business.

The SGA further provides that goods are of satisfactory quality if they meet the standards that a reasonable person would regard as satisfactory considering the price, description of the goods and all other relevant circumstances.¹² It is worthy to note that the satisfactory quality requirement does not mean the goods have to be of the best quality, the standard of quality expected would depend on all the facts of the case. For instance in ¹³ it was held that it is expected that defects would appear sooner or later in a second hand car. Thus in application to facts of Barry’s case, the question is an objective one, would a reasonable person consider Apple Gro to be of satisfactory quality considering the price? It is likely to be that a reasonable person would expect the quality of Apple Gro to be lower than other fertilisers of a higher price. However a reasonable person would also have to consider that specifically the quality of the goods also includes the fitness for all purposes for which goods of the kind are commonly supplied.¹⁴ Applying these to the facts, fertilisers are commonly supplied to enhance the growth and products of a plant. However Apple Gro did not serve this purpose for Barry’s apple trees, thus it can be concluded that Apple Gro is not of satsifactory quality. Furthermore, the absence of specific warnings in the instructions of Apple Gro can also aid the argument that it is of unsatisfactory quality. For example, in , tinned milk with trademark infringing labels were held to be of unsatisfactory quality. Similarly in , mineral water sold in a returnable bottle which burst and injured the buyer was also held to be of unsatisfactory quality,

S.14(3) of SGA provides that where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods is being purchased there is an implied condition that the goods are reaasonably fit for that purpose except the circumstances show that the buyer did not rely or that it is unreasonable to rely on the skill and judgement of the seller.

Applying this to the facts, it does not appear that Barry had specifically told the sales assistant the particular purpose for which he needed the fertiliser. However it can be argued that because fertilizers have only one normal use, the mere fact of considering purcase would by implication have made it known to the sales assistant that Barry intended to use the fertilizers for their normal purpose.¹⁷ Furthermore on the facts, it was stated that did not seem to know much about the products on sale thus it logically follows that it is unreasonable for Barry to have relied on the skill and judgement of the sales assistant. However it is worthy to note that the courts seem ready to infer reliance even when it appears unreasonable for a buyer to rely on the skill and judgement of the seller. For instance in ¹⁸ Lord Wright said:

“….in question of a purchase from a retailer the reliance will be in general inferred from the fact that a buyer goes to the shop in confidence that the trades man has selected his stock with skill and judgement”.¹⁹

This can be compared with a situation where the buyer asks for an article by its trade or brand name and does so in such a way as to exclude any discussion of its suitability then he is not relying on the seller’s skill or judgement as illustrated in On this note, it can be argued that it was reasonable for Barry to rely on the judgement of the sales assistant.

It is also worthy to consider the decision in ²¹ where it was held that the buyer had not relied on the seller’s skill and judgement because the buyer had not communicated certain requirements to the seller. Applying these to the facts, there is no indication that Barry specifically wanted fertilisers which were sprayed on roots thus whether or not he mentioned this is irrelavant. His known specification however is the fact that he wanted the product to be cheaper – of which the sales assistant recommended a cheap fertiliser. There was no mention of the standard of quality yet it can be implied that Barry would have wanted the fertiliser to serve their particular purpose. Thus the sales assistant should have informed Barry of the disadvantages of his recommendation – perhaps if he had, Barry would have opted for a different brand.

Therefore to conclude, it appears that Barry can bring a claim against Nogrow on the grounds that Apple Gro was not of satisfactory quality and that it was not fit for particular purpose. However it is important for Barry to know that his claim under the “fit for particular purpose” ground is probably not strong enough to successful based on the above analysis.

The validity of the terms of sale depends on the operation of common law and the relevant statute. On the facts, it would appear that given terms of sale, there are exclusion clauses. An exclusion clause is a term of contract intended to exclude or limit the liability of one of the parties to a contract, usually the seller.²²

It is a common law rule that the terms of a contract are of no effect unless they are incorporated.²³ Terms of a contract can incorporated by a number ways, one of which is by signing the contractual document. The terms of the contract in this case would be valid even if the buyer did not read the contract before signing it as illustrated in ²⁴ However if the document was brought to the attention of the buyer after the contract had been made, the terms in the document will not be incoproated into the contract terms as held in Thus this is one of the reasons why reciepts and invoices cannot incorporate contract terms because they are usually given after payment has been made (i.e after the contract is made). In the same vein, the court also rejects reciepts and invoices as contractual documents as in

Applying these to the facts, it is conceded that the invoice containing the terms of the contract was first brought to Barry’s notice when he decided to purchase Apple Gro and not after the contract had been made (i.e not after he made payment) thus it can be argued that the terms were validly incorporated after Barry signed the invoice albeit he did not read it as illustrated in . However, it can be successfully argued that the invoice is not a contractual document because no reasonable person would expect to find contractual terms in a document which proves that payment has been made. Thus it can be concluded that the terms were not incorporated because the invoice is not a contractual document therefore the terms do not form part of the contract and are thus invalid.

The implied terms as to satisfactory quality and fitness for particular purpose are conditions ²⁷ which gives Barry the right to reject the product and/or claim damages. Barry can also seek a remedy under s.48A and 48F of the SGA as he is a consumer buyer.²⁸ (Barry is deemed a consumer because, gardening is more of a hobby to him as he is actually employed as a lecturer.²⁹_)as well as recover the price he paid for Apple Gro.³⁰

As to the measure of damages that will be awarded – this would be subject to the rule in ³¹ which provides that damages can be obtained for losses naturally arising from the breach and any loss which at the time of making the contract, Barry could have predicted as likely to result from the breach. For illustration in ³² the buyer had purchased a larger boiler which was delivered 5 months late. Thus the buyer did not have the capacity to cater for a large volume of business. The buyer was awarded damages for this loss of ordinary business which arose naturally from the late delivery but not for some exceptionally lucrative contract that could have been secured had the boiler been delivered on time.

Applying these to the facts, it can be concluded that Barry would receive damages for not being able to sell his apples. However he will not be able to claim damages for not being able to enter his apples for shows, nor for his depression, or his work suffering or failing to make the promotion shortlist at work.

Footnotes

¹ Sale of Goods Act 1979. s.2(1)

² Paul Dobson and Robert Stokes, (Ebook 8th Edn, Sweet and Maxwell, 2012).

³ Sale of Goods Act 1979 s.61 and Dobson and Stokes

⁴ Ibid n2

⁵ Ibid

⁶ Ibid

⁷ Wallis & Wells v Pratt and Haynes 1911 AC 394

⁸ Sale of Goods Act 1979. S.61

⁹ Sale of Goods Act 1979. ss 12-15

¹⁰ Sale of Goods Act 1979. s.14(2)

¹¹ 1999 1 AII E.R.

¹² Ibid s.14(2A)

¹³ 1965 1 WLR 1013

¹⁴ Ibid s.14(2B)

¹⁵ 1921 3KB 387

¹⁶ 1920 1 KB 668

¹⁷ Priest v Last 1903 2 KB 148

¹⁸ 1936 AC 85

¹⁹ Ibid at 99

²⁰ 1925 1 KB 260

²¹ 2003 EWCA Civ 1030

²² Ibid n2

²³ Ibid

²⁴ 1934 2 KB 394

²⁵ 1949 1 KB 532

²⁶ 1940 1 K.B 532

²⁷ Sale of Goods Act S.14(2) and (3)

²⁸ Sale of Goods Act. 1979. s.48A – 48F

²⁹ See Feldarol Foundry Plc v Hermes Leasing (London) Ltd. 2004 EWCA Civ 747

³⁰ Rowland v Divall 1923 2 KB 500

³¹ 1854 9 Exch 341

³² 1949 2 K.B 529