Commercial Transactions Assignment PDF

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Summary

Sale of Goods major assignment...

Description

Contract for the Sale of Goods (SOG) Section 1(1) of the Sale of Goods Act 1895 (SA) (‘SOGA’) provides the requisite elements that may distinguish a contract as one for the sale of goods.1 In order to determine whether Wendy and Ripley’s Paint and Outdoor Supplies (RPOS) had a SOG contract four elements must be satisfied; There must be (1) a contract of sale that (2) relates to goods; the consequence of which is (3) the property in the goods is passed on between the parties and (4) the property must pass in exchange for money consideration, which is the price.2. Under Section A2(1) of SOGA, goods are defined to include ‘all chattels personal other than things in action and money’.3 As such, paint fits this definition and is a specific good.4 Within an unconditional contract with specific goods in a deliverable state, the property will pass upon the contract being made out.5 The SOG contract is further made out given the transaction made by Wendy.

Implied Terms In order to facilitate fair and equitable trading, the SOGA sets out implied terms that are applicable to SOG contracts.6 If there has been a breach of these implied terms, liability for the seller may arise.

Correspondence with Description Section 13 of the SOGA outlines the implicit obligation of correspondence with description.7 The implied condition in contracts for sale by description is that the goods supplied will correspond with the description given.8 Further, the provision will only apply where, objectively, the buyer has relied on the description put forward by the seller.9 This reliance on the description must be reasonable.10 Therefore, if it is found that the goods purchased by Wendy did not correspond with the description, then RPOS may be found liable.

In Australian Knitting Mills Ltd v Grant, it was held that ‘there is sale by description even though the buyer is buying something displayed before him on the counter…’ 11 Despite a lack of direct communication between the buyer and seller, the description inscribed on the packaging of a good may be deemed sufficient to render a sale by description.12 The packaging on the paint supplied by

1 Sale of Goods Act 1895 (SA) s 1(1) (‘SOGA’) 2 SOGA s 6 3 SOGA s A2(1) 4 S 3 SOGA 5 SOGA s 18 Rule 1 6 SOGA ss 12-15 7 SOGA s 13 8 Warders (Import & Export) v Norwood [1968] 2 All ER 602 9 Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1990] 3 WLR 13 10 Ibid 11 Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 (‘Grant’) 12 S Traves, Commercial Law (LexisNexis Butterworths Australia, Sydney, 2014), 161.

RPOS outlined the aesthetic and practical characteristics of the good. The aesthetic qualities are immaterial; however, the guarantee as ‘100% waterproof’ is in question since it was a requisite condition upon which the purchase was made. Moreover, the inspection of a good by the buyer will not necessarily vitiate a sale by description.13 In Elder Smith Goldsbrough Mort Ltd v McBride, a bull was sold as a ‘breeding bull’, it was later found to be infertile. The bull had been inspected by the buyer; however, the defect was undetectable upon inspection.14 It was deemed a sale by description. Notwithstanding, Wendy did briefly inspect the paint; however, the effectiveness of its waterproof capabilities was indeterminate upon this inspection. As such, reliance upon the description expressed on the packaging along with the assurances made by the RPOS employee was unavoidable. This reliance is not unreasonable considering RPOS is a specialist paint store. In Couchman v Hill, it establishes that ‘every item in a description which constitutes a substantial ingredient in the ‘identity’ of the thing sold is a condition’.15 The waterproofness of the paint is a substantial ingredient as to the identity of the good and would constitute a condition of the contract. However, Ashington Piggeries Ltd v Christopher Hill Ltd provides that a mere deficiency in the quality of the good does not necessarily alter the fundamental identity of the good, as such the quality will not be taken to be a part of the description of the good. 16

Here, it would seem that the deviation was so substantial that it altered the fundamental identity of the paint. Essentially, where a good is said to possess some specific attribute according to the description, there is a requirement that it should actually possess that attribute. The paint was described as ‘100% waterproof’; this was not the case and hence it is likely that RPOS breached the condition. Fitness for Purpose According to Section 14(a) of the SOGA, where the buyer, whether expressly or implicitly, imparts to the seller the particular purpose for which the goods are necessitated, then there is an implied condition that the goods will be fit for that purpose.17 For the condition to apply, the seller must operate in the business of providing goods of that description.18

13 Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 14 Ibid 15 Couchman v Hill [1947] 1 All ER 103 16 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 (‘Ashington’) 17 SOGA s 14(a) 18 Ashington n 16

Tre Cavalli Pty Ltd. v Berry Rural Cooperative Society Ltd provides that the onus is on the buyer to make clear to the seller the purpose for which the goods are required.19 Furthermore, the purpose is to be ‘particular’ or ‘specific’ as set out in Henry Kendall & Sons v William Lillico & Sons Ltd.20 According to the facts, Wendy did make clear the purpose for which she purchased the ‘waterproof’ paint. Wendy described her building’s walls as ‘thin, worn and… cracking’ and expressed her need to keep her stock in the building from getting wet. The particular purpose of the paint was to ‘to seal them (the walls) and ‘keep the rain out’. Furthermore, it must be inferred from the facts that the buyer relied on the seller’s skill or care. The Grant v Australian Knitting Mills Ltd case, expresses that reliance will be inferred when a buyer enters a shop having ‘confidence that the tradesman has selected his stock with skill and judgment.’ 21 It is a question of the facts to determine whether the buyer did rely on the seller’s judgment or expertise. In Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd [No 5] it shows that this reliance only need be partial.22 There is no requirement for the reliance to be reasonable.23 The salesman presented her with the paint and after the discussion and presentation of the paint Wendy stated she was ‘ultimately persuaded’ to buy the paint. Ultimately it can be said Wendy relied on the seller’s judgement and skill. There is a further requirement that for Section 14(a) to apply, the transaction must take place within the seller’s business.24 The reasoning for this requirement is to protect private persons in non-commercial transactions.25 There can be no objection to the fact that RPOS operated within the market of selling paints and other outdoor supplies. This requirement is satisfied. Finally, liability will not attach where the goods are purchased solely on the basis of their trade name.26 Where there are representations made by the seller in addition to the trade name, liability may still attach.27 Wendy did partially rely on the trade name and the packaging of the paint, however, the additional comments made by RPOS on the suitability of the good voided sole reliance on the trade name. It is likely that RPOS impinged upon the implied condition under Section 14(a) and that liability will attach. Merchantable Quality Section 14(b) of the SOGA sets out the implied condition that goods sold should be of merchantable quality.28 It requires that goods be ‘commercially saleable under the description they were sold.’ 29 Only commercial transactions will fall under the ambit of the act.30 The transaction between Wendy 19 Tre Cavalli Pty Ltd v Berry Rural Cooperative Society Ltd [2013] NSWCA 235. 20 Henry Kendall & Sons v William Lillico & Sons Ltd. [1969] 2 AC 31. (‘Hardwick Game Farm’) 21 Grant n 11 22 Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908 23 National Engineering Pty Ltd v Wellington Orana Foundry Pty Ltd [2003] NSWSC 21 24 SOGA s 14(a) 25 Ashington n 16 26 Groundhog Sales & Rentals Pty Ltd v Eastern Pearl Corporation [2012] FCAFC 113 27 Baldry v Marshall [1925] 1 KB 260. 28 SOGA s 14(b) 29 Henry Kendall & Sons v William Lillico & Sons Ltd and Others [1968] 1 3 W.L.R. 110 30 Ashington n 16

and RPOS was a non-private commercial transaction; hence, the section applies. The condition itself will not apply where the buyer, upon an examination of the good, may determine a defect.31 However, if it is unreasonable that the defect would be revealed even upon examination, then the condition will apply.32 There is authority in Frank v Grosvenor Motor Auctions Pty Ltd, which provides that whether the defect ought to have been discovered is varied and dependant on the examination that took place. 33 However, the opposing authority in Thornett & Fehr v Beers & Son requires, where possible, a full examination rather than some perfunctory examination in order to determine any defects. 34 In the circumstances, Wendy cannot have been expected to have examined the goods any further than what she did. Her examination of the goods was reasonable, and upon this examination no defect could be determined. Deduced from Hardwick Game Farm, goods will not be considered of merchantable quality where they are unfit for the purpose expressed within a specified description.35 RPOS, in consideration of the required purpose expressed by Wendy, offered a description of the paint in nonvague terms. However, the defect in the paint rendered it unusable for the prescribed purposes insomuch that the good could not be found to be of merchantable quality and the condition is likely breached.

Inapplicable Terms It is not relevant to consider the sale by sample legislation provided in Section 15 of the SOGA. 36 There was no sample offered to Wendy, rather she engaged in a precursory illustration of the good in regard to its aesthetic qualities. Furthermore, Section 12 of the SOGA will not apply as none of the conditions are met.37

Statutory Insurance Duties and Matters Relating to the Insured Sum The Insurance Contracts Act 1984 (ICA) provides contracts of general insurance with both, the duty of utmost good faith38 and the duty of disclosure39, respectively. Derived from the landmark case of Carter v Boehm, the duty of utmost good faith exists to promote fair and reasonable interaction between the insured and the insurer.40 Notably, the term ‘utmost’ denotes that the highest degree of good faith is required.41 The duty applies to all aspects of the 31 Eastern Pearl Corporation v Groundhog Sales & Rentals Pty Ltd [2012] FCA 406. 32 Thornett & Fehr v Beers & Son [1919] 1 KB 486. (‘Thornett’) 33 Frank v Grosvenor Motor Auctions Pty Ltd [1960] VR 607. 34 Thornett n 32 35 Hardwick Game Farm n 20 36 SOGA s 15 37 SOGA s 12 38 Insurance Contracts Act 1984 (ICA) s 13(1) 39 ICA s 21 40 Carter v Boehm (1766) 3 Burr 1905. 41 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (‘The Star Sea’) [2003] 1 AC 469

relationship between the insurer and the insured including pre-contractual and post-contractual interactions.42

In the pre-contractual stage, there is a duty of disclosure which requires the insured too disclose relevant information to the insurer.43 Pursuant to Section 22, the insurer must inform the insured of their duty of disclosure.44 Bryson Insurance (Bryson) requested information on the ‘structural integrity’ and satisfied the requirements of Section 22. Section 21(1)(a) outlines a subjective test which relates to the knowledge of the insured.45 However, the insured is only required to disclose information that is relevant to the insurer’s decision to accept the contract and not the assessment of risk.46 In Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd, the insured was deemed to have withheld information relevant to the insurer’s decision to enter the contract.47 Therefore, pursuant to Section 28(1) of the ICA, the insurer was able to avoid the obligations of the contract.48 Additionally, Section 21(1)(b) requires disclosure of all matters which a reasonable person would consider to be relevant in the circumstances.49 It is likely a reasonable person would appreciate that ‘worn and cracking’ walls would be a relevant matter to disclose to the insurer.

It is likely that Wendy breached her duty of disclosure by deliberately omitting information she deemed would be relevant to the insurer in order to arrive at a lower premium. This information, if disclosed, may have resulted in the insurer not entering the contract or at least significantly altering the terms of the contract. These dishonest dealings at the pre-contractual stage would likely constitute a simultaneous breach of both duties.

Given that Wendy failed to comply with the duty of disclosure pursuant to Section 28(1)(a), the additional provisions of Section 28 will apply.50 Hence, under Section 28(2) the insurer may avoid the obligations of the contract.51 However, the court may, in its discretion, disregard avoidance if not doing so would be ‘harsh and unfair’.52 The court may also determine that the insured is entitled to recover, if it is ‘just and equitable in the circumstances’, the whole or some part which would have been payable had the contract not been avoided.53

42 Australian Law Reform Commission, Report on Insurance Contracts (ALRC, 1982) 43 s 21 n 39 44 ICA s 22 45 ICA s 21(1)(a) 46 Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd 92 ALR 661 47 Ibid 48 ICA s 28(1) 49 ICA s21(b) 50 ICA s 28 51 ICA s 28(2) 52 ICA s 31(1) 53 Ibid

Insurer Violation of Utmost Good Faith Duty Section 13 of the ICA sets out the statutory duty of utmost good faith in insurance contracts.54 In the CGU Insurance Ltd v AMP Financial Planning Pty Ltd case , it provides that there is a requirement for the insurer to ‘act consistently with commercial standards of good faith.’55 Furthermore, in Moss v Sun Alliance, it was determined that an insurer may breach the duty of utmost good faith where they fail to provide reasons for their avoidance of a contract within a reasonable timeframe.56 The Moss case is analogous to the issues found in Wendy’s case. Bryson, over a period longer than a year, failed to pay the insured sum of $20,000 despite initially admitting liability. This is clearly a failure to adhere to their obligations to the insured in utmost good faith; as such they would likely be found to have breached the statutory obligation.

54 ICA s 13 55 CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 56 Moss v Sun Alliance (1990) 55 SASR 145...