CASE STUDY ON CONSUMER LAW

QUESTION

Learning Outcomes

1. Understand the essential elements of a valid contract in a business context
2. Be able to apply the elements of a contract in business situations

Role

You are to adopt the role of a trainee legal advisor.

Case Study A: Electrocrash Limited

Recently Electrocrash Ltd entered into negotiations with Slyfox Ltd for the supply of 5,000 flat screen computer monitors. In particular, there was much wrangling regarding price and the delivery schedule. The agreed schedule required Slyfox Ltd. to make three monthly instalments with payment to be made at the end of the month in which delivery was made.

After the negotiations had been completed Slyfox Ltd sentElectrocrash Ltd their own standard form contract. This contained inter alia the following clauses:

• No.1(a) These conditions shall form part of all contracts for the supply of goods by Slyfox Limited (hereinafter called “the Company”) to any other person or body corporate (hereinafter called “the Customer”).

1(b)  All quotations and contracts are subject to the terms and conditions herein.

• No. 3 The amount invoiced by the company may be adjusted to take account of increases in costs of components or equipment not manufactured by the company, raw materials, wages, freight, insurance, currency exchange rates, import duties, taxes or surcharges.

• No. 6 The Company shall be under no liability including liability for any indirect or consequential loss or damage of whatsoever kind howsoever caused whether or not due to the negligence or wilful default of the Company or its servants or agents arising out of or in connection with the goods. All conditions, warranties or other terms express or implied, statutory or otherwise are hereby excluded.

• No. 8 The Company shall not be liable for any loss or damage caused by the non-performance or the delay in the performance of any of its obligations under the contract directly or indirectly resulting from causes beyond control either of the Company or its suppliers due toAct of God, hostilities, sabotage, civil disturbance,  strikes, lockouts or other industrial action,  flood, fire, explosion, adverse weather, delay in delivery products or materials or any other cause whatsoever beyond the control of the Company

• No. 12 Property in the goods shall remain in Slyfox Limited until it has received payment in full for the goods. Risk in the goods shall pass to the buyer on delivery.

• No.13 The contract as between the Company and the Customer shall be governed and interpreted in accordance with the laws of Northern Ireland

Electrocrash Ltd. later acknowledged receipt of Slyfox’s order together with an attachment containing an official order for the monitors using their own standard printed order form. This contained a number of terms and conditions including:

“This order contains the terms and conditions upon which the contract is to

be conducted.”

Since the order was placed with Slyfox Ltd the first consignment of monitors have been delivered. However, shortly after their delivery some of the monitors malfunctioned causing considerable inconvenience for Electrocrash. Sarah Cox, the Chief Executive Officer asked Slyfox Ltd to replace the monitors, but unlike previous occasions when this happened it refused to do anything about the problem. Furthermore, Slyfox Ltd have increased the contract price by 10%. In a letter to Sarah, Slyfox Ltd apologised for the increased price which they claim is due to a rise in component costs and as such is allowed under Clause No. 3 in its terms of business.

Case Study B

Last month in an effort to improve her health Sarah Cox decided she would buy a bike. Upon looking in the local newspaper Sarah found an advertisement for Sid’s Cycles and was particularly interested in the listing for a mountain bike identified as being ‘ex display, latest model in excellent condition’. The next day Sarah visited Sid’s shop and was shown the mountain bike. Sid stated that it wasthe latest model used only for demonstration purposes, and was in excellent condition. Having decided it was just what she was looking for, Sarah bought it at a cost of £230.00 a saving of £70.00 on the recommended retail price.

However, six weeks after taking delivery of the bike Sarah was very annoyed when a large crack appeared in its frame. Furthermore, a friend who is a keen cyclist informed her that it was not the latest model of that particular bike. Sarah then complained about the bike to Sid and demanded her money back.However, Sid pointed to a small notice on the cash register stating that full refunds were not provided after 30 days from the date of sale. He did, however, offer Sarah a credit note for £170.00,(valid for 28 days), given that she had had the use of the bike for six weeks. Sarah refused this solution.

Student Tasks

1. 1.     Sarah Cox, the Chief Executive Officer of Electrocrash Ltd. is now thinking of cancelling  the contract with Slyfox Ltd. As the company’s legal advisor she has asked you to prepare a formal report on the elements of a valid contract and the application of these elements to the situation withSlyfox. In particular the report must:

(a)  Explain the importance of the essential elements required for the formation of a valid contract;

(b)  Apply the essential elements to the contract between Electrocrash and  Slyfox and determine whether or not the contract is ruled by the terms provided by Slyfox Ltd;

(c)  discuss the nature of termsnumbered 3, 6, 8 and 12 and analyse them with reference to their meaning and effect.

1. Sarah has also informed you about the problem with the bike she bought from Sid’s Cycles and wants your advice on what she should do. Write a report to Sarah outlining the legal position and indicating what action she could take. In particular the report should:

(a)  Apply the law on contract terms with particular reference to the express terms together with those implied by the Sale of Goods Act 1979; and

(b) Evaluate the effect of these different terms.

SOLUTION

Task 2:
(a)    In view of improving her health Sarah Cox decided to purchase a bike, through a newspaper advertisement of Sid’s Cycle she bought a bike which was in the display for $230.00 with a profit of $70.00 less the retail price. Sid stated that it was a latest model and in excellent condition, trusting him she bought the bike which she found to be defective after 6 weeks with a crack in the display and also she found that it was not a latest piece through her friend who is a keen cyclist.
Sarah then complained about the bike to Sid and demanded her money back for which the retail cycle shop denied the payment and said that refund is available only for a period within 1 month from the date of sale. However, he did offer her a credit note for $170.00 valid for 28 days for which she denied.
As per the facts of the case it can be observed that statements made by Sid were in a way satisfying the needs of Sarah, they were made in a way to attract Sarah and make her compel to purchase it. He explained the bike Sarah wanted to purchase with good level of knowledge and also as an expertise because from his conversation with Sarah he understood that she had little knowledge about bike thus he utilized this for his advantage in selling his product. He explained about the bike but did not give proper instruction about the terms and conditions applied while purchasing the mounting bike or the norms their retail shop. Sid stated to Sarah that it was a latest model in the bike she had selected and having less knowledge about bikes Sarah believed what Sid said and accepted to but it.
As per law of contract it is very essential that the party selling the product provides complete details of the product to the purchasing party, it has to disclose all the facts and also the terms and conditions and hide none, the party entering in to the contract in this case purchaser has the right to know all the facts of the goods they are purchasing. Here Sid did not disclose the fact that the bike was not latest model and also about the damage it may incur in future after regular usage. The terms of the contract are the conditions and warranties offered by one party to the other. Under the conditions of the contract it is compulsory that the party offering the contract should disclose all the facts of the case and under the warranties of the contract the suffered party has all the rights to seek monetary damages for the loss they had suffered.
The purchase of mounting bike is termed as Sale of Good thus the Sale of Good Act, 1979 can be applied and as per the requirement we have to see how these implied terms of the law of contract can be applied to this case along with Sale of Good Act.
Section 12 to Section 15 of the Sale of Good Act can be observed as proper base of argument in this case such that Sarah can decide what action she needs to take further with the case and what actually is her legal position in this case.
It can be advised to Sarah that she needs to understand and have proper knowledge of the product she is buying and also should be able to prove that the statements Sid made did not provide her complete knowledge of the product.
Sid stated to Sarah that the bike was a latest model and had been used only for demonstrative purpose and excellent condition; he hid the fact that it was not the latest model and also that it was damaged and regular use may affect it. It is clear from these statements of Sid that his aim was in selling the bike and not to give regards to the buyer’s requirement. His aim was selling his product by convincing the customer, as per law of contract terms Sid being the seller has the complete right to sell his product and convince the customer but it has also been made clear by law that the real facts of the product need to be disclosed to the customer. Thus, on basis of this condition Sarah can claim monetary damages and decline the offer of Sid because it was his mistake in not disclosing the facts to its customers.
As stated earlier before entering into a contract of sale, Sid did make many statements to Sarah about the product she is willing to buy and these statements did encourage her to purchase the bike and complete a regular contract. Later dispute arose when Sarah found the product to be damaged and not a latest model instead of the statements made by Sid based on which she purchased the bike. Now the issue of the statements made by Sid has to be considered as conditions, or warranties under contract. As per Law of contract these statements can be termed as mere pre-contractual talk, and not part or term of contract and thus parties are bound only to the terms of the contract. Only if Sarah can prove that the facts made by Sid are made with special knowledge about the product and is an expert in that field then court considers these statements as evidence and terms of contract binding on both the parties. Based on this Sarah can claim damages from Sid on the concept of breach of contract and also can file suite for compensation of damages she had incurred for using an old model of bike. Offer made by Sid as compensation cannot be accepted by Sarah because it does not completely recover her status from the damages she had incurred. Also, in the process of applying for her claim Sarah should also be able to prove that she had purchased the product from Sid’s Cycle only.
(b)    We have related this case under the Sales of Goods Act 1979 and Law of Contract, as we have already observed the remedies available to Sarah under the Law of contract and the implied terms of Sale of Good Act, we will now go further deep in evaluating the effect of these terminologies in this particular case. As stated earlier Section 12 to 15 of the Sale of Good Act are applicable for this case and these sections explains us the actual concept to be termed as a term and condition in a valid contract and based on what statements does a valid contract rely.
Section 12 of the Act states that parties which enter into the contract are bound by the implied terms of contract; the seller has every right to sell his product and buyer has every right to enjoy it possession of the purchased good. Sub section 3 & 4 of Sec 12 states that the seller has the right to sell the title of the property and that in the course of selling his product the seller is bound under implied warranty to disclose all the facts of the product to its customers under implied warranty. Thus, here Sid did not clearly disclose the actual facts of the product he was selling to his customer. Even though he was implied under law he did not disclose the facts and was aiming only at selling his property. Earlier we stated that along with Section 12 there are even other sections which can be used as basis for legal representation by Sarah.
Section 13 is related to description sale. In the advertisement Sid Cycles did give complete description of the bikes on sale and also its price but while selling the mount bike which Sarah was willing to buy Sid did not give the actual description of bike, he hid the fact that it was not the latest model and also that it was damaged. Under this act we need to consider the fact that if damage appears in the goods within 6 months from the date of its purchase, law assumed that the damage was already in the product when it was purchased, based on this statement Sarah can argue against the statement Sid gives that refund can be made on products only within 30days of its purchase. Even if refund payment with 30 days is the rule of Sid’s Cycle he has to abide by the law of the country he resides in thus, he has to compensate Sarah for the damages incurred by her in this contract as per the norms of Section 13 because Sid could not give complete description of the product while selling it to him.
Section 14 of this Act implies that when a seller sells his property he has to sell it with implied quality and fitness. As already stated the assumptions of law in relation to damage it can be noted that Sarah found the bike to be damage at the display screen, thus as per law assumptions the bike was damaged at the time of purchase itself, thus it can be noted that there was breach of Section 13 and 14 of the Act by Sid in selling the bike. He did not disclose the facts of the bike as per its description, nor that had he sold his product with good quality. It can be understood by the details of Sarah that she was not knowledge about the original quality of neither the bike nor its fitness. So she has all the legal rights to claim damages from breach of contract. Before selling his product Sid could have asked Sarah to try the bike and only her satisfaction buy it but he did not do that act and just sold his product to the customer. To sell his property to the customer he lied about the facts of the bike and also completely influenced the customer into buying the product. Which she purchased and utilized it for 6 weeks, later she came to know that the product was damaged and also came to know that it was not the latest model. Sid had the knowledge that it was not the latest model but as per the terms of the Act he breached the contract by telling a lie that the product in question is the latest model in that range of motorbikes. On sale of property the rights of the property move from seller to buyer but here the product sold was damaged and defective thus there was no proper transfer of ownership made to the buyer.
As the contract was breached, Sarah had the right to demand her money or compensation for the damage. Than denying her demand Sid should have offered her a replacement of the product or provide free repair and maintenance charges to her along with compensation, but than that he just offered her a credit note below the value of the money she paid for the product. Negligence and reluctance can    also be noted in the behavior of the seller, than accepting his mistake he made a statement to Sarah that the refund is available within 30 days of purchase only, which is also against the assumptions of law that when a product is damaged within 6 months of its purchase then it is termed to be damaged during the time of its purchase as well.
Therefore, as per the terms and norms of Law we advise Sarah to move forward with her claim and that she is very much eligible in getting justice in her favor. For better assistance she needs to take help of the Sale of Goods Act and the concept of terms under the Law of Contract. This legal representation will help her in getting proper justice for the damage she suffered with the breach of contract by Sid.

REFERENCE:
    Sale of Goods Act, 1979
    Chris Field, Western Australian Ombudsman, the terms of Contract; The Law Handbook.
    Bernstein v Pamson Motors (Golders Green) Ltd 1987
    Grant v Australian Knitting Mills 1936, (itchy underpants)
Wilson v Rickett Cockerall & Co. 1954 (exploding coal)

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