Sale of Goods from Petrus NV to Quagga Ltd Perspectives Under Sale of Goods Act and Common Law

Introduction

This essay discusses the legal issues arising out of the problem scenario involving sale of goods by Petrus NV in Antwerp, Belgium of 1000 tonnes of citrus pulp pellets to Quagga Ltd in Tanzania for use in high-grade cattle-food. This essay provides advice to Quagga in two different situations based on the law contained in the Sale of Goods Act 1979 and the common law.

At this point the issues at stake are:

Breach of terms by Petrus

The issue in this case is whether there is a breach of contract by Petrus in supplying Quagga with pellets which are not in accordance with the description, quality and fitness requirements for the goods as per the agreement.

Terms of contract include conditions and warranties. There is also a distinction between terms of the contract and representations made by one party to the other. Terms are the promises made by the parties and these are intended to bind the parties, whereas statements made without the intention of being bound is a representation. The distinguishing factor is if the statement made by the party led to the party entering into the contract, because in that case this will be a term. If condition of the contract is breached, then this is a breach of contract by the seller and the buyer can reject the goods. However, if the term is a warranty, then the buyer cannot repudiate the contract and reject the goods, although the buyer can ask for damages.

The terms of the contract between Petrus and Quagga are that the latter are to supply pellets that are treated with chemicals that are already listed before the contract has been entered into. The terms of the contract include the goods. In this case, the agreement to buy the pellets followed the visit from Petrus saleswoman who showed the list of chemicals that the pellets are being treated with and Quagga had specifically informed her about the grade of cattle-food produced by them. However, on receipt of the goods, Quagga realised that these could not be used for production of cattle-food because there are additional chemical treatments that the pellets have been treated with which are not lawfully permitted in Kenyan law.

In contract involving sale of goods, if the goods are sold by the seller in the course of business, then this gives rise to claims under Sale of Goods Act 1979, Section 14 (2) for a right to damages and right to reject the goods. The questions that are to be asked are as follows: were the goods of satisfactory quality taking into consideration goods, price and other circumstances; did the buyer examine the goods before making the contract; and if the buyer did subject the goods could this have revealed by the examination. There are three points that may be considered to assess whether there is a breach of contract terms by Quagga in providing pellets that are treated with chemicals other than those listed and shown to Petrus prior to the agreement. The first relates to contractual terms related to description. The second relates to the contractual term related to quality. The third relates to the fitness.

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1. Eric Baskind, Greg Osborne and Lee Roach, Commercial Law (2nd edition, Oxford University Press 2016) 333.
2. Bannerman v White, (1861) CB(NS) 844.
3. Poussard v Spiers and Pond (1876) 1 QBD 410.
4. Ibid.
5. Roy Goode, Commercial Law (5th edition, Penguin 2017).
6. Jo Reddy and Rick Canavan, Commercial Law (Routledge 2015) 21.

Sale of Goods Act 1979, Section, 13 (1) provides that goods should correspond with the description if description is a condition in sale of goods. If the sale does not comply with the description, then the buyer has the right to reject the entire consignment under Section 30(4). The term description can include a variety of aspects related to goods; for example in Moore & Co v Landauer & Co, the court held that the method of packing was part of the description of the goods and a term of the contract, and its non compliance can entitle the buyer to reject the goods.

With respect to quality of the goods, Section 14(2) provides that there is an implied condition that the goods will be of satisfactory quality where sold in the course of business. The quality standard is provided in Section 14(2A), and the minimum standard consistent with description is to be ensured.

With regard to fitness of the goods, Section 14 (3) also provides that if the buyer’s purpose is made known to the seller prior to the making of the agreement, then the goods should be reasonably fit for that purpose. This principle is established in the law and Jewson v Kelly may be mentioned here. In this case, the court held that if the buyer, expressly or impliedly lets the purpose of the goods be known to the seller, the goods should be reasonably fit for that purpose. In the event that the buyer lets the purpose be known, there is a prima facie implied condition of fitness which the seller can only defeat by proving that the buyer had not relied on his skill and if has so relied, has been unreasonable to do so.

If the seller is aware of the purpose for which the buyer is purchasing the goods, and is aware of the fact that certain chemicals if used for treatment of the pellets would render them unfit for the purpose of making cattle-food, then the buyer can also claim that the goods do not satisfy the fitness of the goods for the purpose.

The buyer may also claim that the claims by the seller that only the stated chemicals would be used to treat the chemicals, amounted to misrepresentation. A claim of misrepresentation succeeds if the claimant has relied on the representation made by the seller. The Misrepresentation Act 1967, Section 2 provides that damages can be claimed by the party that claims misrepresentation by the other. In Jarvis v Swan’s Tours Ltd, Lord Denning opined that damages can be assessed on the difference in value between what paid for and what he got and also included measuring damages by including the factor of mental distress.

On the basis of the points made out above, Quagga may claim that there is a breach of terms in the contract, these being in the nature of condition because the contract was entered into by Quagga because they were informed that they would receive pellets that were treated with the approved chemicals. They can claim breach of contract on the basis of sale of goods that do not match the description, and is not of satisfactory quality, and is not fit for the purpose for which they are bought. On the last point, as the purpose was told Petrus before the contract was entered into, it can be established by Quagga that there is a breach of contract. Based on the provisions of Sale of Goods 1979, damages from Petrus can be claimed.

Deteriorated pellets and loss of profits

The issue in this case is whether Quagga has a remedy for the deteriorated pellets that they received from Petrus. The right of rejecting the goods is being considered here. Under

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7. Re Moore and Landauer [1921] 2 KB 519.
8. Brown v Craiks [1970] 1 W.L.R. 752 (HL).
9. Ibid.
10. Slater v Finning Ltd (1997) AC 473 HL.
11. Jarvis v Swan’s Tours Ltd [1973] QB 233 (CA).

Section 30 of the Sale of Goods Act 1979, if the seller fails to perform a condition of the contract, then the buyer has the right to reject and terminate the contract. In cases where the buyer has the right to reject the goods and lawfully rejects the goods, then he can refuse to pay the price of the goods or recover the money if paid. In case there is non-delivery of goods, then there is also the right to claim for damages for non-delivery under Section 51. After the rejection of the goods, the buyer does not have a responsibility to return the goods to the seller as per Section 36.

The presumptive rule is that performance may be rejected only if the breach is serious. Moreover, the right to reject can also be lost by the buyer under certain circumstances. Section 35 of Sale of Goods Act 1979 is important here because under this provision, a person can lose their right to reject under certain circumstances and in these cases, there is no right to terminate the contract. These conditions are where the buyer intimates to the seller that he has accepted them, or when he does any act “inconsistent with the ownership of the seller after delivery to him, or when he keeps the goods without intimating to the seller that he has rejected them after “the lapse of a reasonable time. To explain this with reference to the provisions, Section 35 defines the acceptance of goods as follows. First, when the buyer has intimated to the seller that he accepts the goods (Section 35(1)(a)), or when he does any act after delivery to himself of goods, that is inconsistent with the ownership of the seller (Section 35(1)(b)).

Under the Sale of Goods Act 1979, Section 11, there is no right to reject the goods if the right is waived by the buyer or if the goods are accepted by the buyer. In this case, the goods were shipped to Quagga in good condition on departure, but deteriorated by the time Quagga collected them. In this situation, Quagga not only accepted the delivery, it also blended the pellets in their cattle-food. This can be an act which is inconsistent with the ownership of the seller because once the pellets have been used by the buyer, these cannot be returned to the seller.

The claim is that cattle-food was of a lower grade than Quagga normally produced because of the quality of the pellets due to which Quagga lost profits. However, Quagga has mixed the pellets with the cattle feed after taking the delivery of goods. It can also be said that Quagga has examined the goods before taking acceptance of the goods. In this case, Section 14(2) can also be applied here. In case the buyer has examined the goods and the examination should reasonably reveal the defects in the goods, then Section 14(2) does not provide a claim to the buyer. In this situation, the buyer will lose the right to reject even if they did not discover the defects in the goods when they reasonably should have revealed the defects in the goods.

With regard to what the position would be if the pellets had deteriorated so much that they were useless for making cattle food of any kind, in this case, the buyer would be able to reject the goods and claim damages. In this case, the buyer could claim damages for the loss of profits as well. Damages can include the difference between the price of goods and the bad goods. The remedy for the same is provided in Section 53 of the Sale of Goods Act 1979 and this is breach of warranty. This provides that in case of breach of warranty by the seller, or where the buyer elects to treat any breach of a condition on the part of the seller as a breach of warranty, then this is not alone to let the buyer reject the goods. The remedies are related to setting up against the seller the breach of warranty in extinction of price, or maintain an action for breach of warranty. Section 53(2) allows the measure of damages for breach of warranty to be estimated loss directly and naturally resulting, in the ordinary course of events. Section 53(3) in case of breach of warranty of quality, the loss is calculated on the basis of the difference between the value of the goods and the value they would have been were it not for the breach of warranty.

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12. Hongkong Fir v Kawasaki [1962] 2 Q.B. 26.

Damages can be consequential as well as per Section 53. Consequential damages include the consequential loss including damages paid to sub-buyers, and lost profits. Consequential damages include loss of profits due to the breach of contract but for these to be recoverable the claimant should be able to establish that this loss was reasonably foreseeable at the time of the formation of the contract; in Hadley v Baxendale, the Court of Appeal held that the claimant can only recover generally foreseeable losses if these were foreseeable by the defendant. The principle laid down in Hadley was that claimant can recover of true loss and no more (or less), so that the party can be put in the same position he would have been if the contract had been performed in the monetary sense. The claimant can claim true losses by showing loss of profits as the generally foreseeable losses of the breach of contract as done in the case of Bacon v Cooper Medicals Ltd. The court may ask in this situation, what the defendant would have thought about the probable loss to the buyer in the event of lack of quality or breach of condition or warranty.



Conclusion

To conclude, Petrus may be sued for breach of contract by Quagga for the breach of terms in the contract related to the chemicals approved by Quagga before the contract. Quagga can reject the goods and claim damages for loss of profits. With regard to the second situation where Quagga has mixed the deteriorated pellets in the cattle feed, Petrus may claim that Quagga has lost its right to reject the goods because these are already accepted by Quagga and action taken which is inconsistent with the rights of ownership of Petrus. Moreover, the quality of pellets is an important point here because the buyer has the right to reject only if the the breach is serious. This is applicable to a scenario where the pellets are so deteriorated that they are not useful for making the cattle feed. In case the pellets were examined by Quagga and used for making sub standard cattle feed, this does not provide remedy under Section 14(2) of the Sale of Goods Act 1979.

Continue your journey with our comprehensive guide to Payment of Debts and the Exception for Alternative Consideration.

Table of cases

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13. Hadley v Baxendale [1854] EWHC J70.
14. Ibid.
15. Bacon v Cooper Medicals Ltd [1982] 1 All ER 397.
16. Bence v Fasson [1998] Q.B. 87.

Bacon v Cooper Medicals Ltd [1982] 1 All ER 397.

Bannerman v White, (1861) CB(NS) 844.

Bence v Fasson [1998] Q.B. 87.

Brown v Craiks [1970] 1 W.L.R. 752 (HL).

Hadley v Baxendale [1854] EWHC J70.

Hongkong Fir v Kawasaki [1962] 2 Q.B. 26.

Jarvis v Swan’s Tours Ltd [1973] QB 233 (CA).

Jewson v Kelly [2004] 1 Lloyd's Rep 505.

Inntrepreneur Pub Ltd v East Crown Ltd, [2000] 2 Lloyds Rep 611.

Poussard v Spiers and Pond (1876) 1 QBD 410.

Re Moore and Landauer [1921] 2 KB 519.

Slater v Finning Ltd (1997) AC 473 HL.

Books

Baskind E, Greg Osborne and Lee Roach, Commercial Law (2nd edition, Oxford University Press 2016).

Goode R, Commercial Law (5th edition, Penguin 2017).

Reddy J and Rick Canavan, Commercial Law (Routledge 2015).