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Don’t break your promise!

February 11, 2016 | Company/Commercial, Latest Thinking, News

The Court of Appeal (Court) has recently, in the case of Hughes v Pendragon Sabre Ltd., reinstated several principles in relation to the sale of future goods, collateral contract, and the assessment of damages in case of failure to delivery with unavailable market of the goods. In the case, the defendant, Pendragon Sabre Ltd. (Pendragon), had to pay damages to the appellant, Hughes, for breaking its promise to sell the latter a Porsche as agreed earlier.

Facts

Hughes ran a garage that provided service to high-performance automobiles like Porsche. Pendragon was a Porsche dealer in Bolton. Due to his work, Hughes had been in contact with Mr. Mansfield, a sales executive from Pendragon, in order to get parts of Porsche for his work.

In early 2011, Hughes was aware that Porsche was going to manufacture a limited edition of the 911 GT3 RS4 model. In a hope that Pendragon might get one of this latest model, Hughes had a conversation with Mansfield on 15 March 2011, and sent an email saying that he would like to place an order subject to price and availability. Subsequently, Hughes was asked to pay a deposit of £10,000 on 18 March 2011 at Pendragon office, and was informed that he could be the first on the list. An agreement was signed pursuant to the payment of deposit, even though a lot of details about the model were left out, including the final price. On 23 March 2011, Mansfield sent an email to Hughes stating that the deposit had been accepted and Hughes would be the first one to get the model if Pendragon was allocated one.

On 23 May 2011, Hughes claimed that he had received an email from Mansfield saying that Pendragon had not been allocated any of the model yet. However, Mansfield and Pendragon later admitted that the model was given to another customer because they thought that Hughes would sell the car for a profit. In October 2012, Hughes sued Pendragon for specific performance of selling him the model, or alternatively, damages for breaching an agreement to sell.

County Court’s Ruling

First, the judge found that no contract of sale had existed because there wasn’t any details about the car mentioned in the agreement. He then relied on Clause 2(b) of the agreement, which stated that “the Seller shall not be obliged fulfil orders in the sequence in which they are placed”, to say that Pendragon was absolved from the obligation even if a contract did exist.

Then, the judge rejected Hughes’s argument that the email on 23 March could amount to a variation to the original agreement. The judge relied on Clause 18 of the agreement which stated that “no variation or modification of these terms and conditions shall be in any way effective unless in writing and signed on behalf of the Seller by a director or authorised signatory thereof”. Lastly, the judge ruled that it was impossible to ascertain any loss to Hughes because Hughes had never specify the amount he was willing to pay and there was no specific time for the assessment of damages to take place.

Court of Appeal’s Ruling

On the point of whether a contract of sale existed, the Court of Appeal (CA) cited s.5 of Sales of Good Act 1979 (SOGA), which reads,

“(2)There may be a contract for the sale of goods the acquisition of which by the seller depends on a contingency which may or may not happen.

(3)Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.”;

and s.8(1) of the same act, which reads, “The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties”. Besides, clauses 4 and 5 of the agreement expressly provided that the specification was to be confirmed, and the price being the one recommended by the importer. Therefore, the lack of specific details about the car did not preclude the formation of a valid contract of sale.

Then, on the priority issue, CA ruled that the email on 23 March 2011 was not a variation, but an evidence that affirmed the existence of a collateral contract concluded on 18 March 2011. Even though clause 18 precluded the incorporation of any verbal agreement, CA held that the promise of selling Hughes the first model allocated did constitute a collateral contract to the main contract, and it was obviously breached by Pendragon.

Finally, regarding the assessment of damages, CA used s.51(3) of SOGA as the starting point, where the damages being the agreed price and the list price of available goods on the market. Yet, given the specificity of the model being a limited edition, CA deemed the provision inapplicable, and adopted s.51(2) of SOGA instead. S.51(2) mirrors largely the test laid down in Hadley v Baxendale, which states that the assessment be “the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract”. CA finally awarded a sum of £35,000 to Hughes.

Concluding remarks

From the case, it seems that the current legal regime is more inclined to the protection of consumers’ rights. In this case, the Court of Appeal readily incorporated verbal agreement as collateral contract although the standard-form contract provided the otherwise. The promise was the only reason why the appellant would pay the deposit in haste, and signed the agreement with the respondent. Given such circumstances, it would seem unfair for the Court not to take into account the promise when looking into the contract of sale.

Besides, with the Consumer Rights Act which came into effect in October 2015, it is expected that cases involving consumer-seller disputes would be ruled in favour of consumers.

If you would like to know whether the policies in place at your company are sufficient to protect your interest, please feel free to contact us on 020 3318 5794 or email us at londoninfo@hudsonmckenzie.com.

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