Free Law Essays - Establish Cirrus's Liability Under The Contract With Glacier Lake Winter Sports
In order to establish Cirrus's liability under the contract with Glacier Lake Winter Sports it must first be established whether or not there existed a contract of sale that falls within the remit of the Sale of Goods Act 1979 between Cirrus Ltd and Glacier Lake winter sport. Section 2(1) of the Sales of Good Act 1979 stipulates that:
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
Such a contract exists as Cirrus Ltd have supplied goods to Glacier Lake Winter Sport for the sum of 300,000
It must also be established that the snow makers are goods for the purposes of the sale of goods act and this is covered by section 61(1) of the sale of goods act:
Goods includes all personal chattels other than things in action and money and in Scotland, all corporeal moveables except money; and in particular, goods include 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
Therefore the snow makers will be considered goods for the purposes of the Sale Of Goods Act therefore it is established that this contract of sale was a contract that falls within the remit of the Sale of Goods Act 1979. The Sale of Goods Act imposes certain duties on parties to a contract falling within the remit of the act. Essentially the duties of the parties are defined by s27 and are as follows:
It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract
These duties are fundamental, so that failure by the seller to deliver, or by the buyer to accept and pay, constitutes a total failure to perform the contract. This situation has arisen here as Glacier Lake Winter Sport have paid for the goods and are now requesting a refund. This is one of the key points of the question and the reasoning for this will now be explored further,
The reason for Glacier Lake Winter Sports seeking rejection of the goods is that the goods are essentially not fit for the purpose for which they are intended. The purpose for which Glacier Lake Winter Sports intended to use the goods was to make snow continuously over a 24 hour period.
Before discussing in detail the importance of the terms contained within the standard terms supplied by Cirrus it is important important to be aware of the implied terms which arise automatically in every contract for sale by operation of law. These are contained in the Sale of Goods Act 1979 ( as amended by the Sale and Supply of Goods Act 1994) and the most important of these in this instance is s14 (3) which stipulates that the goods should be fit for the buyer's purpose where he makes that know to the seller. This section will only operate where the buyer has made known to the seller the particular purpose for which the goods are to be purchased. We assume that this is the case here as in the letter from Glacier Winter Sports Ltd, the Sales Director has indicated that:
As you know, when the above machinery was ordered it was made quite clear that continuous operating for 24 hours was required. We operate on a snow poor site and need the equipment to make skiing in the area viable. I am therefore tremendously disappointed that two of the four machines have fused after two separate periods of 24 hour use.
We will assume that Glacier Winter Sports Ltd made this purpose known as it is a requirement of section 14(3) that the special purpose is made clear to the seller. Furthermore Glacier Winter Sports Ltd have to demonstrate that the purpose for which they intend to use the machinery falls within the broad range of purposes and that the purpose for which Glacier Winter Sports Ltd intended to use the snow machines was not unforeseeable. It would appear that if Glacier Winter Sports are able to prove that if Cirrus were aware that they were in a snow poor area and that they were running a ski resort that it would not be unreasonable for them or indeed unforeseeable for them to be using these machines for making snow over a 24 hour period and therefore it would seem that Glacier Winter Sports can establish this point under the provisions contained within the Sales of Goods Act.
However Cirrus's standard terms appear to exclude the operation of the Sale of Goods Act and they have inserted into their contract their own term which deals with this point and it stipulates this:
Where any valid claim in respect of any goods which is based on any defect in the quality or condition of the Goods or their failure to meet specification is notified to the Seller in accordance with these Conditions, the Seller shall be entitled to replace the Goods free of charge or, at the Seller's sole discretion, refund to the Buyer the price of the Goods (or a proportionate part of the price), but the Seller shall have no further liability to the Buyer
Cirrus are entitled to exclude the statutory implied terms as far as is permitted by UCTA 1977 or replace them by these more limited, express, warranties. This term of the contract will be valid subject to the test of reasonableness and a person who asserts that a clause is reasonable must prove that it is. The assessment of the reasonableness of this term must be made at the time the contract was made and the question is whether the term itself, not reliance on it, is reasonable. The issue is whether the term [the whole term and nothing but the term] is a fair and reasonable one to be included.
In assessing the reasonableness of the term the courts will give consideration to a number of factors. The first of these will be the relative strengths of the parties bargaining positions, and this will take into account the alternative means by which the customer's requirements might be met. The second consideration will be whether or not Glacier Winter Sports received an inducement to agree the term, or in accepting had an opportunity of entering into a similar contract with any other person without accepting a similar term. Thirdly it should be considered whether or not Glacier knew or ought reasonably to have known of the existence and extent of the term. Finally it should be considered whether or not the goods were manufactured, processed or adapted at the special order of the customer.
Assuming therefore that the above means that the exclusion of the Sale of Goods Act was not unreasonable then the solution to this situation should be solved on the basis of Cirrus's standard term contract. It is assumed that the term was reasonable as it is generally considered in commercial transactions that parties have equal bargaining power and that it is for them to divide the risk between them. The second consideration of reasonableness is beyond the remit of the question and no indication is given and therefore it is assumed that it is decided in favour of the contract being reasonable. The third consideration it will be assumed that Glacier should have been aware of its existence and its extent and finally we are not told that the goods have been manufactured for Glacier's particular purpose.
Therefore it is assumed that Cirrus's standard terms will apply to the contract and that condition of the Goods or their failure to meet specification will mean that Cirrus is entitled to replace the Goods free of charge or, at the their sole discretion, refund to the Buyer the price of the Goods.
These terms can only apply to the two defective snow making machines. It is assumed that under the rules of part rejection Glacier are only seeking to reject the defective product and wish to keep the other two machines. Glacier are entitled to reject the two machines that are not working but still keep the two machines that are working as the buyer has the right to reject the goods by reason of a breach which affects some or all of them, but accepts some of them. Therefore Glacier may reject all of the goods or reject some of the goods which are defective and keep the remainder. Therefore it is assumed that they do not wish to reject the two snow machines that are operating correctly and the discussion of damages below relates only to the two defective products.
Cirrus cannot however exclude from their contract, as they have done, their liability for damages. Therefore if it can be shown that Glacier Winter Sports Ltd are entitled to damages then Cirrus will be liable to pay such damages.
Glacier Winter Sports Ltd will be entitled to damages for any loss or damage caused by the defective goods, prior to rejection, provided they are not too remote and subject to the duty to mitigate. Such damages will be assessed in accordance with the Sale of Goods Act 1979 s53.
According to s53(2) the measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty. This is simply the ordinary contract measure under the first limb of the rule in Hadley v Baxendale. However according to s53(3):
In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value that they would have if they had fulfilled the warranty
In addition Glacier Winter Sports Ltd may be able to claim special damages, these are defined by section 54. These may be awarded for profits which would have been made and to indemnify Glacier Sports Ltd against damages payable to his customers. They will only be able to claim these for the period in which the machines were not operating, as the machines have now been fixed by the engineers they will only be entitled to recover damages for the period for which the machines were not operating.
Furthermore if Glacier Winter Sports Ltd are able to show that the goods were bought for a particular use and that particular use would have generated profit had the goods satisfied the contractual requirements, then damages may cover loss of profits that would have been earned on their use. Much of this will as discussed above will depend on foreseeability and remoteness principles. Essentially this means that Cirrus is only liable for losses of a type which they foresaw, or could have foreseen, as not unlikely to result from his breach of contract when the contract was made. Losses are foreseeable where they arise naturally from the breach and in the ordinary course of events or where they could reasonably be supposed to have been in contemplation of the parties when the contract as the probable result of the breach. Furthermore it must be demonstrated that Glacier Winter Sports Ltd took reasonable steps to mitigate their loss, for example by buying replacement goods, if such goods were available then they will be unable to claim lost revenue as they would have failed to mitigate their loss. Of course the fact that Cirrus's engineers fixed the machines and that two the other two were working will mean that Cirrus have attempted to mitigate the loss to Glacier and therefore damages for the two machines that worked will not be recoverable.
Question 2
In law agency is the relationship which exists between two persons, principal and agent, who have both consented to the creation of that relationship. A number of consequences will flow from the agency relations. The first of theses is that an agent will have the power to bind the principal. Therefore the agent's actions, whilst acting in his capacity as agent, are attributed to the principal. The most significant aspect of the agent's power in the commercial context is that, as an exception to the doctrine of privity, contract made by the agent on the behalf of the principal are treated in law as the principals contract and are directly enforceable by him and against him.
The law gives the parties certain rights, and imposes on them certain duties, against each other. Most importantly, the agent occupies a fiduciary position vis--vis the principle and owes him duties similar to those owed by a trustee to trust beneficiaries. In return the agent is given certain rights at common law and most notably a right to be indemnified against expense incurred whilst acting on the principal's behalf.
The relationship of principal and agent can only arise by consent of the parties; however agency is a legal concept and two persons may be found to have consented to the creation of an agency relationship without there being any express agreement to that effect or without their realising it. Moreover, a person may have power in law to affect another position even though that other has not agreed to having such person.
Firstly the issue of distributorship will be considered as being distinct from agency. A distributor sells goods in his own name and thus has no authority to create privity between the manufacturer and the customers with whom the distributor deals. A distributor is not entitled to the rights, nor is he subject to the duties of an agent. Instead the relationship between manufacturer and distributor will largely depend on the terms of the distributorship agreement.
A typical distributorship contract will generally involve the manufacturer agreeing to supply the dealer with products, and possibly with other back-up supplies and services, from time to time, and may well agree not to appoint any other distributor in that area. The manufacturer's right to sell his own products direct and in competition with the distributor will depend very much on the terms of the agreement.
Distributorship offers the manufacturer some advantages over agency. The first of these is since the manufacturer is not in privity with the ultimate purchasers of its products, it incurs no contractual product liability to them, and it may be able to exclude or limit its contractual liability to the distributor. Secondly the manufacturer need only look to its distributor for payment for products supplied, were as under an agency the agent is normally merely a channel to arrange the contract and possibly, collect payment so that the principle is concerned with the solvency of the ultimate customers.
In support of an agency agreement the principle will have more control over an agent and over the terms of the contract made by the agent that over a distributor because the agent contracts on the principals behalf
Question 3
Whether or not Cirrus or the customer is responsible for the price of the goods will depend very much as to whether or not risk can be deemed to have passed to the customer. The standard terms of the contract are silent as to risk although they do say the following:
The Buyer shall pay the price of the Goods within 30 days of the Sellers invoice, and the Seller shall be entitled to recover the price, notwithstanding that delivery may not have taken place and the property in the Goods has not passed to the Buyer. The time of payment of the price shall be of the essence of the Contract.
And the following is noted about delivery:
6 Delivery 6.1 Delivery of the Goods shall be made by the Seller delivering the goods to the Buyers premises or, if some other place for delivery is agreed by the Seller, by the Seller delivering the goods to that place.
Section 16-20A of the Sale of Goods Act 1979 contains detailed rules governing the transfer of property and risk from seller to buyer. Different rules apply according to whether the goods are specific or unascertained and existing or future goods. These goods can be deemed to be existing and ascertained goods.
It is important first to establish at what point in the contract the property passes to the buyer as this is an indication of when risk will pass. The basic rule of English law is that under any contract for the transfer of property in goods property in the goods passes from transferor to transferee when the parties intend it to pass. This rule is reflect in the Sale of Goods Act 1979 s 17 which provides that the parties may indicate their intention expressly or impliedly. Section 18 sets out a series of rules of presumed intention which determine when property is to pass when there is no express or implied indication in the contract.
Section 17 provides that in ascertaining whose intention regard should be had to:
1. The terms of the contract
2. Their conduct;
3. All the surrounding circumstances
As this contract contains no express provision, the parties may be held to have impliedly indicated their intention as to the passing of property and reference may be had to the other terms of the contract, as indicated above, and the surrounding circumstances.
The first three rules in s18 apply to contracts for the sale of specific goods. The basic rule applicable to such contracts is set out in rule 1:
where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time for payment or the time of delivery, or both, be postponed
It is generally accepted that the reference to an unconditional contract means that the contract does not make the passing of property conditional on the happening of any event: in other words, rule 1 applies provided that there is no reservation of title clause in the contract. This rule will only apply if, when the contract is made, the goods are in a deliverable state. This means such a state that the buyer would, under the contract, be bound to take delivery of them. Goods remain in a deliverable state as long as nothing remains to be done to them by the seller before the buyer can be required to take delivery.
In consideration of rule one and the terms of the contract it would appear that the property passed when the contract was agreed so that delivery and payment are immaterial.
The basic rule of English law is that the owner of the property bears the risk of its damage, deterioration or destruction. This is reflected in the Sales of Goods Act 1979 at section 20:
Unless otherwise agreed, the goods remain at the sellers risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyers risk whether delivery has been made or not
Therefore as it has been established that the property in this instance has passed from Cirrus to the customer then if goods are damaged it follows that the risk will pass to the buyer and that they will still be liable for the purchase price of those goods.
However there are certain exceptions to this general rule one which deals with goods damaged in transit. The allocation of risk of damage in transit is covered by the Sale of Goods Act 1979 s32. Where the seller is authorised to send the goods to the buyer, delivery of the goods to a carrier for transmission to the buyer is treated as delivery to the buyer. The buyer is therefore treated as being in possession of the goods through the agency of the carrier whilst they are in transit.
If a carrier is employed by Cirrus to deliver the goods to the contractual point of delivery that carrier is the agent of the seller and the seller therefore remains in constructive possession of the goods up to that time.
A contract of sale can be affected by mistake or frustration in much the same way as any other contract. The Sale of Goods Act contains special provisions in ss 6 and 7 which deal with mistake and frustration in one particular limited, class of circumstances, where specific goods have perished. Section 6 applies where there is a contract for the sale of specific goods and, without the knowledge of the seller; the goods have perished before the contract is made. It is therefore concerned with a particular case of mistake and where it applies the contract will be void, this is not the case here as the contract had been made before the goods had perished. However Section 7 applies where there is a contract for the sale of specific goods and, between the making of the contract and the passing of risk from seller to buyer, the goods perish without the fault of either party. It therefore deals with circumstances which would normally be regarded as frustrating the contract and where it applies the contract can be avoided.
In this situation the goods have perished as they have been stolen although this will only make a difference if the seller employed the carrier. In summation the situation is as follows. This risk of the property had passed to the customer and therefore the customer would be liable for the risk and therefore have to pay for the goods under the contract. However if the seller employed the carrier to transport the goods then they will become agents of the seller and as the goods have perished as demonstrated above Cirrus will be liable to the buyer for the goods and will have to replace them and therefore Cirrus's liability will very much depend on this point. On the final point assuming that the avalanche was absolutely no fault of the buyer the buyer will be entitled to avoid the contract and therefore there will be no contract and the buyer will not be liable to pay any money to Cirrus and this would appear to be the most likely solution to this problem.
Bibliography
Legislation
Sale of Goods Act 1979
Cases
Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441
Barrow Lane and Ballard Ltd v Phillip Phillips and Co [1929] 1 KB 574
Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 ALL ER 220
Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343
Chanter v Hopkins (1838) 4 M & W 399
Culliane v British Rema Maufacturing Ltd [1954] 1 QB 292
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803
Grant v Australian Knitting Mills Ltd [1936] AC 85 at 99
Griffiths v Peter Conway Ltd [1939] 1 ALL ER 685
Godley v Perry [1960] 1 ALL ER 36
Hadley v Baxendale (1854) 9 Exch 341
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 2 QB 26 [1962] 1 ALL ER 474
Ingham v Emes [1955] 2 QB 366
Books
Bradgate R & White F, (2001) Legal Practice Course Guide: Commercial Law, Blackstone Press
Bradgate R, (2003), Commercial Law, Third Edition, Butterworths Lexis-Nexis
Global Counsel, (2002), Competition Law Handbook, Sixth Edition
Worthington S, (2003) Commercial Law and Commercial Practice, Hart Publishing
