WITH REFERENCE TO THE STANDARD FORM CONTRACT (in isolation):
Question 1: Explain the legal issue that clause 1 of the standard form contract is addressing and what it is aiming to achieve. Do you think it would be effective?
Question 2: Explain the legal issue that clause 9 of the standard form contract is addressing and what it is aiming to achieve. Do you think it would be effective?
WITH REFERENCE TO THE SCENARIO (commenting on both the common law position and the effect of the standard form contract had it been adopted and ignore any aspects of insurance when advising who would bear the loss).
Micro-Maker is a small company involved in the manufacture of microwave ovens. One of its main customers is a large department store called Lacey with many branches around the country. The business arrangements between buyer and seller have developed along the following lines:
Micro-Maker provide a demonstration model of each of its microwaves to the relevant Lacey store. Lacey does not pay for the demonstration models at this stage. Customers of Lacey who select Micro-Maker microwaves are given an approximate delivery date. Lacey then place an order to Micro-Maker together with a 10 per cent deposit on the value of the goods ordered and Micro-Maker sends microwaves to the relevant store via an independent carrier. Lacey pays the balance owing on each microwave on 60 days credit. Lacey delivers the microwave to the customer using its own van and driver.
When a demonstration model has been in the shop for some time, Lacey sells it off at a knock-down price and, at that stage, the price becomes payable to Micro-Maker. Micro-Maker is concerned that the volume of business has grown considerably since the start of the relationship and feels that it might be appropriate to formalise the contractual arrangements. They want to adopt a standard form contract and ask you for advice.
Question 3: Describe the legal rules for ascertaining ownership of goods and comment specifically on ownership and risk as regards the microwaves at each stage in the distribution chain.
Question 4: In view of the fact that Lacey will not be paying for the goods for some time, what advise would you offer Micro-Maker as regards the risk of non-payment?
Question 5: If the goods were damaged in a fire while in the shop waiting to be sold, who would bear the loss - Micro-Maker or Lacey?
Question 6: If the goods were stolen from the Micro-Makers' delivery van while in transit to one of Lacey’s shops, who would bear the loss?
Question 7: Micro-Maker delivers a consignment of general order microwaves to Lacey and Lacey discover that, although they are in good working order, they are a different model from the ones which were ordered. What rights would Lacey have?
Question 8: Lacey discovers that on some of the models the outside of the microwave is slightly scratched. Some of Lacey's customers might protest and refuse to take delivery. Outline the remedies available to Lacey as regards these particular goods.
Question 9: Consider the following additional scenario:
Micro-Maker is becoming concerned about Lacey's financial position. Although Lacey is not insolvent, it did not include the stipulated 10 per cent deposit with its latest order of general models. In addition, Micro-Maker has not received payment for several demonstration models which it believes Lacey has sold on to customers.
Micro-Maker is particularly worried as it has just arranged for several consignments of demonstration and general order models to be sent by road to various Lacey shops. The goods are still in transit and Micro-maker is concerned that it may not be paid for these goods. A further three consignments of demonstration models are waiting at the warehouse ready to be delivered to the independent carrier.
What if any steps can Micro-Maker take to protect their position in these circumstances?
Question 10: Micro-Maker has now learnt that Lacey is, in fact, insolvent.
(a) What obligations would they have to deliver Demonstration models to the Warehouse?
(b) What rights would they have to recover Models already despatched and in transit ?
(c) What rights would they have to recover Models in Lacey’s stores ?
Standard Form Contract:
WHEREBY IT IS AGREED that the seller shall sell and the buyer shall purchase the goods described in condition 2 in accordance with the terms of this contract:
1) No amendments or modifications to these conditions and, in particular, no terms or conditions of purchase of the buyer shall form part of the contract or be binding upon the seller unless expressly agreed to in writing and signed by the seller.
2)
a) Description of goods:
b) The description of the goods in condition 2(a) above is believed to be correct as to weights, dimensions, capacity, composition, performance and otherwise. Any error, omission or mis-statement therein shall not annul the sale nor entitle the buyer to be discharged from the contract or to claim any compensation in consequence thereof. Provided that nothing in this condition shall oblige the buyer to accept any goods which differ substantially in any of the above- mentioned respects from the goods agreed to be sold. In that event the buyer shall be entitled to rescind the contract and to claim repayment of the price, but the seller shall incur no further liability in respect thereof.
3)
a) In addition to the price of the goods, the buyer shall pay:
- Vat or other taxes payable in respect of the goods;
- The cost of insurance under condition 8; and
- The cost of delivery under condition 4.
b) The price of the goods is: ....... £
- add V.A.T: £
- insurance £
- delivery: £
total amount due £
c) Where the date of delivery specified in condition 4 is more than six months from the date of this agree¬ment, the seller reserves the right to increase the price of the goods in proportion to any increase in costs to the seller of materials labour and other inputs between the date of this contract and the date of delivery.
d) The buyer will pay the price of the goods and any other sums due to the seller under this contract within 30 days of the date of delivery. In the event of a failure to make payment by the due date interest at the rate of 10 % per annum shall be payable on any sums outstanding.
4)
a) The delivery date is .................
This date is given as way of an estimate only and the seller shall not be liable for failure to deliver on time.
b) Unless the seller is notified otherwise in writing at least seven days before the delivery date, the seller shall deliver the goods to the buyer's place of business. The cost of transportation and insurance up to the time of actual delivery will be paid by the buyer in accordance with condition 3.
c) The seller shall be entitled at its sole discretion to make partial deliveries or deliveries by instalments.
d) Deviations in quantity of the goods delivered (representing no more then 10% by value) from that stated in condition 2 shall not give the buyer any right to reject the goods or to claim damages. The buyer shall be obliged to accept and pay at the contract rate for the quantity of goods delivered.
5)
a) The seller reserves the right to modify the specification or design of the goods in whole or in part without prior notification to the buyer. The buyer shall accept such modified goods in performance of the contract.
b) The buyer shall be deemed to have accepted the goods unless within 14 days of delivery written notice is received by the seller to the contrary.
6)
a) The property in the goods shall remain with the seller until the seller has received payment in full for the goods and all other sums owing to the seller on whatever grounds.
b) If the buyer sells the goods prior to making payment in full for them, the rights of the seller under this condition shall attach to the proceeds of sale or to the claim for such proceeds. The buyer shall, if required to do so by the seller, formally assign any such rights.
c) For so long as the property in goods remains with the seller, the buyer shall store the goods separately so that they may readily be identified as the property of the seller. The seller shall during this time have the right to retake possession of the goods. For this purpose the buyer hereby irrevocably authorises the seller of his agents to enter upon any premises occupied by the buyer.
d) The seller may maintain an action for the price notwithstanding that property in the goods may not have passed to the buyer.
7) The goods shall be at risk of the buyer in all respects from the date of this contract or, if later, the date of manufacture by the seller.
8) Unless the buyer notifies the seller in writing to the contrary, the seller shall at the expense of the buyer in¬sure the goods to the full replacement value thereof until the time of delivery.
9)
a) In the event that the goods supplied to the buyer fail to comply with the terms of this contract, or prove to be defective, the liability of the seller is limited to the replacement of the goods or, at the seller's option, the refund of all payments made by the buyer in respect of the goods.
b) Except as otherwise provided in condition 9(a), the seller shall be under no liability of whatsoever kind whether or not due to the negligence or willful default of the seller or its servants or agents arising out of or in connection with any breach of the seller's obligations under this contract. All conditions, warranties or other terms, express or implied, statutory or otherwise, are hereby expressly excluded.
c) Nothing in this condition shall exclude or restrict any liability of the seller for death or personal injury re¬sulting from the negligence of the seller or its servants or agents.
d) If it should be held in relation to any claim that the preceding provisions of this paragraph are ineffec¬tive, the buyer shall not be entitled to reject the goods and any damages recovered by the buyer shall be limited to the reasonable cost of remedying the breach of contract provided that the seller shall first be af¬forded the opportunity of itself carrying out such remedial work.
e) Nothing in this condition or in conditions 2(b) or 4(d) shall exclude or restrict any liability of the seller for breach of its implied undertakings as to title; and, where the buyer deals as a consumer, any liability of the seller for breach of its implied undertakings as to description, quality, fitness for purpose, or correspondence with sample.
f) In the case of transactions covered by paragraphs (4) and (5) of the Consumer Transactions (Restrictions on Statements) Order 1976 the provisions of this contract shall not affect the statutory rights of the consumer.
10) The seller shall not be liable for non-performance in whole or in part of its obligations under this contract due to causes beyond the control either of the seller or of the seller's suppliers including any Act of God, fire, flood, tempest, act of state, war, civil commotion, embargo, accident, plant breakdown, hindrance in or prevention from obtaining any raw materials or other supplies, interference by labour disputes, inability to obtain adequate labour, manufacturing facilities or energy, or any other like cause. If any such event con¬tinues for a period of more than 6 weeks, the seller may cancel this contract or vary condition 4(a) hereof by notice in writing to the buyer without liability on the part of the seller.
11)
a) The seller shall have the right to terminate this contract by notice in writing in the event of the buyer's insolvency and the buyer shall indemnify the seller against all losses and damage suffered by reason of such termination.
b) Termination of the contract under this condition shall not affect the accrued rights of the parties arising in any way out of the contract as at the date of termination.
c) In the event of termination under this condition the seller shall have the right to enter any business prem¬ises occupied by the buyer and recover any goods which are the seller's property.
12) In the event of cancellation of this contract by the buyer for whatever reason, the buyer agrees to pay 20% of the purchase price to the seller by way of liquidated damages.
13) The benefit of this contract shall not be assigned or transferred by the buyer without the prior written con¬sent of the seller. The seller shall have the right to assign to any of its associated companies all of the rights, powers, duties and obligations under this contract without the consent of the buyer. In the event of any such assignment by the seller references in this contract to the seller shall be deemed to be references to any company taking under the assignment.
14) If any difference shall arise between the seller and the buyer upon the meaning of any part of this contract or the rights and liabilities of the parties hereto, the same shall be referred the arbitration of two persons (one named by each party) or their umpire in accordance with the provisions of the Arbitration Act 1950 or any amending or substituted legislation for the time being in force.