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Flashcards in Buyer's Rights of Rejection COPY Deck (22):
1

Right of Rejection and Termination

= Buyer’s right to refuse to accept the goods and/or the documents and to refuse to pay for them.
Arises when the breach is sufficiently serious - i.e. breach of a condition.

If breach is REPUDIATORY, buyer can TERMINATE the contract.
Buyer's right to treat the contract as AT AN END - in which case, seller has no more opportunities to perform the contract.
SOGA refers to termination as 'repudiation' - means the same thing.

Not all breaches sufficiently serious to give rise to buyer's right to terminate the contract.
If party terminates when not entitled to, = wrongful termination - gives other party right to repudiate.
Right of Termination is not the same thing as Right or Rejection - but will very often be exercised together - but may not be (e.g. buyer rejects documents as defective, but still time to be corrected - buyer rejecting a particular performance but not terminating the whole contract.)

Buyers' decisions to reject will often come down to fluctuations in market price (economics > law)
If buyer locked into price higher than current market price, will want to get out of contract, and vice versa.

2

When will a breach be sufficiently serious, entitling buyer to reject goods/documents?

Whether breach is 'sufficeintly serious' depends whether the term breached is a condition, warrantym or innominate term.

Breach of CONDITION
- buyer can REJECT and get damages
- Conditions = most important terms.

Breach of WARRANTY
- damages only

Breach of an INNOMINATE TERM
- will be classified as a condition or warranty by the court, AFTER the breach.

3

Sale of Goods Act 1979, s.61

Defines "warranty"

“warranty” (as regards England and Wales and Northern Ireland) means an agreement with reference to goods which are the subject of a contract of sale, but COLLATERAL TO THE MAIN PURPOSE of such contract, the breach of which gives rise to a claim for damages, BUT NOT A RIGHT TO REJECT THE GOODS AND TREAT THE CONTRACT AS REPUDIATED.

So breach of warranty only entitles buyer to damages, not right to reject the goods.

4

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962]

H of L developed the concept of INNOMINATE TERMS.
= Terms where it cannot be known whether they are conditions or warranties, beforehand, but can only be classified as such AFTER THE BREACH (i.e. depends on the issue being litigated).

Here, defendant bound deliver a ‘seaworthy ship’ to the claimant - was this term a condition or warranty?
H of L; cannot know until the term has actually been breached - depends on the SERIOUSNESS OF THE BREACH.
Failure to deliver seaworthyship could lead to quite trivial consequences (e.g. ship is a bit late) or very serious consequences (e.g. total loss of the vessel).
could be very serious – e.g. total loss of the vessel.

If the consequences of breach of the term were not serious, the law will clarify it as a warranty, in which case the claimant is entitled to damages only.
If the consequences of breach were serious, the law will clarify it as a condition, in which case the claimant is entitled to damages and to terminate the contract.

5

Sale of Goods Act 1979, s.62 (2)

Says that all the common law rules about remedies, such as the one stemming from Hong Kong Fir (innominate terms), are still in existence – simply preserves the common law rules.

(2) The rules of the common law, including the law merchant, except in so far as they are inconsistent with the provisions of legislation including this Act and the Consumer Rights Act 2015, and in particular the rules relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake, or other invalidating cause, apply to contracts for the sale of goods.

6

Sale of Goods Act 1979, s.11 (3)

(3) Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract; and A STIPULATION MAY BE A CONDITION, THOUGH CALLED A WAARRANTY IN THE CONTRACT.


Parties will often describe what a term is expressly, or say that 'breach of this term will give X the right to terminate;
But, by virtue of this provision, notwithstanding the labels the parties use, it IS ULTIMATELY UP TO THE COURT.

7

Sale of Goods Act 1979, s.12 (1)

It is a CONDITION of the contract that the seller actually has the right to sell the goods.

(by virtue of subsection 5A which classifies it as such:
"the term implied by subsection (1) above is a condition and the terms implied by subsections (2), (4) and (5) above are warranties")

Example of a condition imposed by the Act, breach of which will entitle the buyer to terminate the contract.

8

Sale of Goods Act 1979, s.13 (1)

It is CONDITION that the goods will correspond with the contract description (e.g. quantity, date of shipment etc.) (in sale of goods contracts, the date of shipment is considered part of the description of the goods – so if the goods are shipped outside the shipment period, it’s considered a breach of condition).
(By virtue of subsection 1A)


Example of a condition imposed by the Act, breach of which will entitle the buyer to terminate the contract.

9

Sale of Goods Act 1979, s.14

(2) It is a CONDITION that the goods supplied will be of satisfactory quality.

(3)(a) Where the buyer makes known to the seller, expressly or impliedly, that the goods are being bought for a particular purpose, it is a CONDITION that the goods are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied.

(6) Subsections (2) and (3) imply terms that are CONDITIONS.

Example of conditions imposed by the Act, breach of which will entitle the buyer to terminate the contract.

10

Sale of Goods Act, s.15 (2)

In a contract of sale by sample, it is a CONDITION that the goods will correspond with any sample (by virtue of subsection (3).

Example of a condition imposed by the Act, breach of which will entitle the buyer to terminate the contract.

11

Sale of Goods Act, s.12 (2)

(2) It is a WARRANTY that the goods are (a) free from encumbrances, charges, mortgages, liens etc. and (b) the buyer will enjoy ‘quiet possession’.

(by virtue of subsection 5A which classifies it as such:
"the term implied by subsection (1) above is a condition and the terms implied by subsections (2), (4) and (5) above are warranties")

Example of a warranty imposed by the Act, breach of which will only entitle the buyer to damages (he must still pay, can't reject).

12

Kwei Tek Chao v British Traders and Shippers Ltd [1954

AUTHORITY: CIF SELLER, HAVING TWO DIFFERENT DUTIES, HAS TWO SEPARATE AND INDEPENDENT RIGHTS OF REJECTION - "TWIN RIGHTS"
right to reject documents is separate from right to reject goods.

Here, date of shipment by 31 October - not loaded until 3 November - means goods were non-conforming (as date of shipment part of the 'description of the goods')
Bill of lading altered to make it look conforming; said goods delivered on 31 October (without seller's knowledge) - Buyer accepted documents which appeared conforming on their face.
All came to light - buyer still took delivery of goods (leverage) - but couldn't sell them in falling market.

Seller argued because buyer had taken delivery of goods, he'd lost his right to sue in relation to the documents - arguing that rejectings goods and docs is a single process.
DEVLIN J HELD;
Although only one act here (failure to ship the goods according to the contract description), it can give rise to two separate breaches: breach in relation to the documents and a breach in relation to the goods.
Fhe fact that buyer chose to accept the goods on arrival didn’t mean that he’d waived his right to sue for the original breach, in relation to the documents
(But here, couldn't reject docs anyway as had already accepted them, but could sue for damages for loss of his right to reject them (due to the fraudulent alteration)

13

Henry Dean & Sons (Sydney) Ltd v O’Day Pty Ltd (1927)

(Australia)

Australian court differed from approach in Kwei Tek Chao.
Here, seller tendered conforming documents – there was absolutely nothing wrong with them.
But buyer refused to pay against them, on the basis that there was a defect in the goods.
Australian court upheld the buyer’s argument –
Held; if buyer knows there is something wrong with the goods, he can reject the documents even though he knows the documents are fine – he doesn’t have to pay against the documents.
(So not fully treated as separate and independent rights of rejection).

14

Berger & Co Inc v Gill and Duffus SA [1984]

H of L held that Henry Dean & Sons (Sydney) Ltd v O’Day Pty Ltd does NOT apply in English law.

C of A had applied the Australian approach – if the buyer is aware there is something wrong with the goods, he can reject the documents even though they conform.

But H of L overruled this – said it was incorrect.
H of L HELD; if seller tenders conforming documents, the buyer has a DUTY TO PAY AGAINST THEM: HE CANNOT REJECT THEM – if the buyer rejects conforming documents in these circumstances, he himself has breached the contract.
BUYER HAS NOT RIGHT TO REJECT GOODS UNTIL THEY ARRIVE.
The earlier attempt to reject the documents here was held to be a repudiation of the contract of sale.
Reinforces Kwei Tek Chao.

15

Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA [2015]

Confirms that same rules apply to FOB contracts as CIF contracts, in relation to the buyer's twin rights of rejection, as laid down in Kwei Tek Chao v British Traders and Shippers Ltd, and reinforced by Berger & Co Inc v Gill and Duffus SA.

16

Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604

Where documents are accurate, but inform buyer that there is something wrong with the goods, buyer can reject those DOCUMENTS, IF the documents reveal that there has been a breach of CONDITION.

Here, sale of barley - not to contain more than 4% foreign matter - certificate of quality had to be tendered - revealed it was 4.1%
Buyer wanted to reject these documents on the basis thay revealed, TRUTHFULLY, the goods were non-conforming.
HELD; no - couldn't because it wasn’t a condition of the contract that the goods has to be of this particular quality - this provision as to impurities was not part of the 'description of the goods'.
Ultimately this turns on a matter of contractual construction – have documents accurately revelead that it is a condition that has been breached?

(NOTE: even though, under s.13 (1) SOGA, it is an implied CONDITION that the goods correspond with their description, buyer didn't plead SOGA argument, so not open to court to consider it).
This is a useful case to cite but make sure to mention its weaknesses - cite alongside Vargas Pena

17

Vargas Pena Apeztieguia y Cia v Peter Cremer G.m.b.H. [1987]

Reinforces Tradax Internacional SA v Goldschmidt SA

Here, fat content in cottonseed exceeded 15%, ‘the goods were rejectable at the buyer’s option’.
The documents ACCURATELY revealed that a fat content of 15.73%.
HELD; the documents revealed a breach of condition (because revealed that goods didn't correspond with contract description) – allowed buyer to reject the documents.
Reinforces that the buyer can reject the documents even though the documents are a correct record and appear conforming, even if they reveal a defect in the goods, the defect being a breach of a contract CONDITION (whether it be a condition written into the contract or a condition under SOGA).

Generally speaking, if the parties give a particular label to a term, or attach a right of termination or rejection to it, the courts tend not to interfere – courts tend to honour the freedom of contract.
This is so even though they can look behind the labels if they wanted to – by virtue of s.11 (3) SOGA.

18

Bowes v Shand [1877]

Failure to ship goods in shipment period is a breach of contract description; s. 13(1) SOGA 1979.

19

Sale of Goods Act 1979, s.30

(1) Where seller delivers to buyer a quantity LESS than contract requires, buyer may REJECT them, but if buyer accepts them, must pay for them at contract rate.

(2) Where seller delivers to buyer a quantity LARGER than contract requires, buyer may accept the contract quantity and REJECT just the rest, or may REJECT the whole.

(3) If buyer accepts the whole (under subsection (2), buyer must pay for them at contract rate.

But NOTE - buyer loses right if excess/shortage is so slight that rejection would be unreasonable, under subsection (2A).

20

Sale of Goods Act 1979, s.10

(1) Unless a different intention appears from the terms of the contract, stipulations as to TIME of payment are not of the essence of a contract of sale.

(2) Whether any other stipulation as to time is or is not of the essence of the contract depends on the terms of the contract.

Unlike terms such as the description of the goods, which we know are conditions because SOGA says so, the Act does NOT say that time for delivery is a condition – it depends on the construction of the contract, as to whether time is 'of the essence'.

21

Bunge Corporation v Tradax SA [1981]

LORD WILBERFORCE thought that in commercial sales, because certainty is so important, that any time conditions – whether for delivery of goods or of the documents – should be treated as CONDITIONS.

This reflects the reality that normally, there is a whole string of sales contracts – if one delivery is late, future deliveries will be late – making it difficult to fulfil onward contracts without them being terminated.

Thus, although SOGA doesn’t classify terms relating to time for delivery as conditions, the courts have.
Cite alongside s.10 of the Act.

22

Hartley v Hymans [1920]

If buyer wants to terminate contract for late delivery (i.e. breach of stipulations about time when time is of the essence - s.10 SOGA), buyer must be CLEAR in how he communicates his decision to the seller.

If the buyer leaves it open for the seller to deliver late, then the courts may say that he’s waived his right to terminate for late delivery.

Here, seller told buyer he was going to deliver late -
but buyer didn’t terminate the contract; rather the buyer continued to request delivery.
When the buyer later tried to terminate the contract for late delivery, court held that he couldn’t, and that his attempt to do was a breach by him.
He had intimated to the seller that he was willing to accept the late delivery.