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Business Law

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Autor:  anton  22 December 2010
Tags:  Business
Words: 1866   |   Pages: 8
Views: 365

R, a car dealer, agreed to sell a car to S for HK$50,000 after S had examined the car on the garage forecourt. The document on the car windscreen indicated the price and in large letters said, Ў°All our cars are in tip top condition!Ў± Later in small print was a clause which read, Ў°We accept no legal responsibility for the condition of the vehicle. For terms of sale see the notice in the office and the details in the sale agreement.Ў± In the office, where there was a large notice on the wall indicating all the major provisions, S signed the agreement to purchase the car. It contained the following provisions:

Ў°It is agreed that there is no warranty, condition, or statement about the condition of the car and that no statement was made which persuaded the purchaser to enter into the contract.Ў±

Ў°It is agreed that the maximum damages payable for breach of contract shall be HK$2,500Ў±

Ў°There is no express term, implied term (statutory or otherwise) or warranty or statement about the vehicle which is to have any legal effect. There is no promise about the condition of the vehicle.Ў±

Two days later, when SЎЇs wife was driving the car which S had given to her as a birthday present, the car crashed because the brakes were defective. Mrs S was injured and off work for six months causing her to lose HK$100,000 in wages. The car was a write off.

Advise S.

Whether the statement in large letters Ў°All our car are in tip top condition!Ў± is a representation or a term depend on the intention with which the statement was made. If it was intended to be a binding part of the contract it is term; otherwise it is a representation. To test this intention the following test can be applied:

1) Special knowledge or skill of the party: A statement made by a person who is recognized to have some special knowledge is more likely to be a term. One example is Oscar Chess Ltd v Williams. The court ruled out that the defendant as an innocent purchaser who had no special knowledge about car model. The plaintiff, who was a car dealer, was expected to have special knowledge about cars, and was able to exercise judgment. Therefore, on an examination of all the relevant facts, the statement by the defendant was an innocent misrepresentation instead of a term of the contract. From the information provided by the question, R was a car dealer, so that he was very likely to have special knowledge about carЎЇs condition. R should know that it is natural that the customer S will rely on him to know about the carЎЇs condition. Therefore, what he wrote indicates that he intended to bind himself in contract to the fact thatЎ±All our car are in tip top condition!Ў±.

However, it is arguable that the statement in large letters may be a representation, if the intention of the statement is to induce S into the contract. Like the case Routledge v McKays, the defendant ,owner of a motor cycle , said his cycle was a 1942 model, but the written contact didnЎЇt mention this point at all. The court ruled out that no evidence was adduced that there was intended to be given a warranty when the reference to the date of the cycle was made. That means if a contract has been reduced to writing, anything that has been left out is presumed to be a representation rather than a term. So, in this case, we can treat the statement in large letters as representation.

If R already knew that the brakes of the car were defective, then the false representation he made is a fraudulent representation. Since S was induced to the contract by the fraudulent representation, he can rescind the contract and recover damages to cover his loss.

If R didnЎЇt know the defect in the car and he honestly believed that this car was in good condition, the statement he made will be an expression of opinion rather than a statement of fact. One example is Bissett v Wilkinson, which the defendant didnЎЇt work in his farm before, so his statement to the farmЎЇs capacity was an expression of an honest opinion and the plaintiff could not sought rescission on the ground of misrepresentation. Therefore, similarly in this case, S cannot sue R for remedies on the ground of misrepresentation.

Once the terms of the contract have been identified, we need to determine whether the statement in large letter Ў±All our car are in tip top condition!Ў± was a condition or warranty or an innominate term. In Hong Kong Fir Shipping Co. Ltd. v Kawaski Kisen Ltd., the court held that the term Ў°seaworthyЎ± ship, in relation to an agreement involving rental of a ship for business use, was an innominate term. And after the courtЎЇs assessment, the consequence of the breach of contract in that case happened to be not serious, so it was regard as the breach of warranty. However, in this case, assuming the statement was an innominate term (i.e. the consequence of its breach can be either trivial or serious), the consequence of breach of contract was serious in this case (S had to spend around $50000 to buy a new car as the old one was a write off).So, S can sue R for the breach of condition.

Also, the implied conditions in the Sale of Goods Ordinance Cap.26 apply to this case as this is a business-to-customer transaction. R had breach SOGO s16(2) which implies that goods supplied under the contract are of merchantable quality. In Roger v Parish, the court ruled out the plaintiff can sue the defendant for the breach of contract and can reject the defective car. In this case, the consumer S couldnЎЇt find out the defect although he had examined the car before the contract is made. Also R didnЎЇt tell S the specific defect, therefore, R can be sued for the breach of SOGO. However, SЎЇs right to reject the car is lost as he accepted the defective car after he had made a reasonable examination.

Next, we need to discuss the Control of Exemption Clauses Ordinance in this case which indicates factors to determine the reasonableness of general exemption clauses under Schedule 2 and s3 :

1) Incorporation by notice: An exemption clause in small print was not reasonable to draw SЎЇs attention if he visited the shop for the first time.

2) Prior history of contracts may amount to notice of existence of terms: If S had visited the shop for many times, and he has a prior consistent course of dealings ( i.e. S had already knew that the clauses were in small print )with the party relying on the exemption clause, S would be taken to have known about the exemption clause, like what happened in the case Kondall v William, the court rule out that the consumer was bound by the exemption clause.

In this case, apart from the small printed clause, R did another reasonable step to bring SЎЇs attention. A large written exemption clause was displayed at RЎЇs office where S signed the contract. It was therefore likely to be a term of contract, unlike what happened in cases like Olley v Marbourough Court Hotel. An exemption clause will be treated as a contract term if it was shown to the customer at the time of or shortly before the conclusion of the contract.

Nevertheless, in this case, Mrs. S suffered physical injuries and property damage (the car was a write-off) due to the defective brakes. Since S is a consumer, under s11 of the Control of Exemption Clauses Ordinance, clauses exempting liability for loss due to defective consumer goods are ineffective.

If S bought the car on behalf of Mrs. S, then there was a contract between Mrs. S and R. Therefore, remedies for breach of the contract depend on two factors: 1) the nature of the contract terms and 2) the consequences of the breach of the contract.

Firstly, as the implied terms of the SOGO are considered to be conditions of the contract, the remedies for Mrs. S should include damages and rescission. In this case, Mrs. S should be compensated for medical fees for her physical injuries and the damages of HK$2500 as stated in the statement.

Moreover, whether her loss of HK$100,000 in wages can be compensated depends on the reasonable foreseeability of her loss in wages. (i.e. the nature of her job, etc.)It is arguable that whether Mrs. SЎЇs loss of HK$100,000 is reasonably foreseeable. If her money loss is reasonably foreseeable, she can get compensation of HK$100,000 in wages. If not, she cannot get this compensation.

In this case, as the consequences of breach of the contract are very serious and the implied terms of SOGO is considered to be a condition, Mrs. S can get remedies of rescission as well.

However, rescission cannot be awarded in the situation when the innocent party is unable to restore at least the substantially the original position before the formation of the contract, as we can see, the car was a write off. Therefore, Mrs. S cannot get equitable remedy of rescission.

If Mr. S bought the car in his own name, then there was no contract between Mrs. S and R. The Privity of Contract rule states that if a person is not a party to a contract (i.e. he is said to be a third party) he does not have any rights or obligations under it. For example, in the case Dunlop Pneumatic Tyre Co. Ltd v Selfridge Co Ltd, the court held the plaintiff couldnЎЇt sue on a contract to which they were not a party. In this case, the contract was formed between Mr. S and R. As a result, the remedies for the breach of contract are not available for Mrs. S .

But; she may sue R for negligence under the Law of Tort. First, we need to test whether R owed the duty of care to Mrs. S. If S relied everything on R to buy the car and R acted as an agent of S in the transaction, R owed a duty of care to S. If not, the manufacture of the car owed a duty of care to Mrs. S according to the Neighbor Principle, which means the manufacturer ought to take reasonable care to avoid injuries which can be reasonable foreseeable to the ultimate user of the product. The case provides the Neighbor Principle is Donoghue v Stevenson. The court ruled out that the manufacturer of the beer which was found a snail inside should compensate the customer. In this case, the car manufacturer obviously breached the duty of care as he sold a defective car to S, and the car manufacturerЎЇs act or omission was the cause of Mrs. SЎЇs injury. Therefore, Mrs. S can sue the car manufacturer for negligence and get compensation for a reasonable amount of her loss of wages and the medical fee

Besides, S can also get the compensation of HK$2500 for the breach of SOGO by R.

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