Business Law

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, ÐŽoAll our cars are in tip top condition!ÐŽ± Later in small print was a clause which read, ÐŽoWe 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.ÐŽ± 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:

ÐŽoIt 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.ÐŽ±

ÐŽoIt is agreed that the maximum damages payable for breach of contract shall be HK$2,500ÐŽ±

ÐŽoThere 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.ÐŽ±

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 ÐŽoAll our car are in tip top condition!ÐŽ± 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 thatÐŽ±All our car are in tip top condition!ÐŽ±.

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 ÐŽ±All our car are in tip top condition!ÐŽ± 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 ÐŽoseaworthyÐŽ± 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: