Grace Garments Ltd v. Tajamahal's Ltd
Read the full judgment text of HCA 1535/1973 on BabelCite. This High Court CFI judgment.
1. This is an action for $27,107.00 for the balance of the price of goods - men's jeans - sold and delivered pursuant to a contract made on the 25th July 1971 whereby the Plaintiff agreed to sell and the Defendant to buy a quantity of jeans and the Defendant paid a deposit of $10,000. It was common case that goods had been delivered to the Defendant in purported execution of the contract but the Defendant claimed firstly that it was a condition of the agreement that the goods supplied would corr
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HCA001535/1973 IN THE SUPREME COURT OF HONG KONG (ORIGINAL JURISDICTION) ACTION NO. 1535 OF 1973 -----------------
----------------- Coram: Leonard J. Date of Judgment: 17th May, 1974. ----------------- JUDGMENT ----------------- 1. This is an action for $27,107.00 for the balance of the price of goods - men's jeans - sold and delivered pursuant to a contract made on the 25th July 1971 whereby the Plaintiff agreed to sell and the Defendant to buy a quantity of jeans and the Defendant paid a deposit of $10,000. It was common case that goods had been delivered to the Defendant in purported execution of the contract but the Defendant claimed firstly that it was a condition of the agreement that the goods supplied would correspond with sample which they did not; secondly, that it was a condition of the agreement that the goods should be of merchantable quality which they were not; and thirdly that the goods supplied would be of a type and quality suitable for sale to the "U.S. Military Market" which they were not. The Defendant claimed that it rejected the goods on the 23rd December 1971 and requested the Plaintiff to take them back but that the Plaintiff had failed to do so for an unreasonable period whereupon the Defendant had sold them by public auction for $7,702.66. The Defendant counterclaimed for $2,297.34 (the balance of the deposit less the auction price) damages for loss of profit on re-sale and costs of storage. The Plaintiff requested further and better particulars of the allegations that the goods were not in accordance with sample and that they were not of merchantable quality. In particularizing the alleged deviations from sample the Defendant's solicitors stated that :
That particular and the following additional particular were given as to merchantable quality :
2. In its reply and defence to the counterclaim the Plaintiff claimed that the sale was a sale by description only but that
it denied that the sewing was so bad that the jeans were coming apart at the waist-band. Notice of rejection was also denied and it was alleged that the right to reject, if any, was lost by full inspection and/or by subsequent disposal of the jeans. 3. It was common case that on these pleadings it was for the Defendant to begin. Only two witnesses were called by the Defendant a Mr. Lachman Narain the Managing Director of the Defendant company and a representative of The Federation of Hongkong Industries who assisted in the testing of a single pair of jeans submitted to the Federation and who produced the report on that testing. The sole witness called for the Defendant was a Mr. KO Sik-ming the Managing Director of that company. Allowing for some pardonable partisanship I regarded Mr. Naraim as a most honest and careful witness and his evidence as acceptable. I could not say the same for Mr. Ko who was evasive and who appeared to me to speak to the facts not as he remembered them but as he would like them to have been. 4. I find the facts to have been as follows : In June of 1971 London Britches Ltd. a wholly owned subsidiary of the Defendant company entered into an agreement with the U.S. Navy Purchasing Department whereby London Britches as from 1st July 1971 secured the right to run a men's boutique at the China Fleet Club Building and undertook to sell thereat to certain "authorized patrons" corduroy jeans of 100% cotton at $24 per pair and other goods. In the event this proved a lucrative undertaking and the Defendant company had little difficulty in selling the various articles which it was obliged to sell by reason of the contract between its subsidiary and the U.S. Navy Purchasing Department. In order to stock this boutique Mr. Narain as agent for the Defendant placed orders for about 600 dozen pairs of different types of jeans with the Plaintiff. All negotiations were carried out between Mr. Narain and Mr. Ko and those which resulted in the agreement in question took place at the conference room of the Plaintiff's premises on the 25th July 1971. There Mr. Narain told Mr. Ko that he was interested in purchasing corduroy jeans and Mr. Ko showed him a maroon or purple pair made up in the style which Mr. Narain had in mind. He also showed him swatches of seven or eight other colours. The pair of jeans shown to Mr. Narain was, and Mr. Narain, (after 27 years experience in the trade) was satisfied by an examination that it was, a well made pair of jeans. Thereupon Mr. Narain decided to place his order saying that he wanted the jeans "like the sample". Contract No. 71643 was prepared one copy signed by Mr. Narain and kept by the Plaintiff and the other copy signed by Mr. Ko and kept by Mr. Narain. When Mr. Narain eventually left he took with him the pair of jeans Mr. Ko had earlier shown to him. Contract No. 71643 is on a printed form and by it the Plaintiff :
Although there is a column on this form headed "Sample No." this column was left blank. Under the heading "Article and Description" the following entries may be regarded as material :
After the word "Shipment" the date 10th August 1971 is given and after the word "Payment" the words "cash on delivery". The quantity to be delivered was 192 dozen and the price per dozen US$30 or US$5,760.00 in all. None of the terms on the reverse of the form has any relevance to the issues between the parties. 5. At the same interview Mr. Narain ordered 60 dozen pairs of cotton corduroy jeans at a much lower price which he needed immediately. He was shown samples of these and told they were excess production. These were priced at US$17.75 per dozen. On asking if they were rejects he was told that they were not and in his own words "selected 60 dozen". Although the "shipment date" of these goods was also given as 10th August 1971 on a similar contract No. 71648, this 60 dozen was delivered on 27th July 1971. On delivery they were found to be defective in that the belt loops were insecure and the waist-band parted from the body of the jeans at a pull whereupon Mr. Narain rang up Mr. Ko told him the goods were unacceptable. They were returned to the Plaintiff and their rejection accepted by the Plaintiff. 6. On the same date namely 27th July 1971 Mr. Narain wrote to Mr. Ko returning the sample he had taken away when entering into the agreement the subject of these proceedings requesting that the jeans be finished with
7. On or about 12th August 1971 the corduroy jeans were delivered with other jeans under two invoices which were endorsed "received fifty-nine cartons unchecked" and "received unchecked" respectively. After receiving them Mr. Narain tested the waist-bands of about one dozen of them and found that the waist-band would come apart on being pulled that is that the fabric unravelled. He complained to Mr. Ko who took the entire shipment back within two or three days of the original delivery. Although Mr. Ko gave evidence suggesting that the reason for their return was because the jeans had the wrong labels on them I was satisfied that they were taken back because of the condition of the waist-bands. They were not re-delivered to the Defendant, until on or about November 23rd 1971. The Defendant's copy of the invoice for this re-delivery bears the notation "returned after supposed alteration" in Mr. Narain's handwriting and the Plaintiff's the notation "received the above goods unchecked. Acceptance will be subject to report from Federation of Industries after examination". Mr. Narain then told Mr. Ko over the telephone that the jeans were still coming apart and sent a pair to the Federation of Industries for testing. He subsequently sent a copy of the report which he obtained from the Federation to the Plaintiff. The report is dated 1st December 1971. On 13th December 1971 the Defendant sent to the Plaintiff five dozen of the jeans in question to enable the Plaintiff to endeavour to correct the difficulty as to the waist-band. The receipt of this five dozen was acknowledged in an unsigned receipt on the Plaintiff's notepaper and bearing the Plaintiff's chop. Although this receipt bearing as it does a clerical error as to the name of the Defendant and an incorrect invoice number was queried by Mr. Ko I am quite satisfied that it was genuine. To hold otherwise would be to hold that Mr. Narain was party to a forgery which I do not accept. I believed him when he said he personally had seen to the return of this five dozen and that the purpose of sending them was to enable Mr. Ko to see if he could have them corrected. If he could the balance were to be corrected in the same way. 8. On the same day as these five dozen jeans were sent to the Plaintiff namely the 13th December 1971 Mr. Narain wrote to Mr. Ko noting that he was
Mr. Ko denies having received this letter but I am satisfied that it was sent. The five dozen were in due course sent back to the Defendant with another line of stitching inserted in the waist-band. 9. On December 23rd Mr. Narain again wrote this time by registered post stating that they were not acceptable and were not merchantable and requesting removal of all the goods and threatening to store them for the account of the Plaintiff. In this letter he requested the Plaintiff to return the deposit. Mr. Ko denied receiving this letter, he did however say that he had received at about Christmas time a copy of the report from the Federation of Industries sent to him by registered post without covering letter. He did not understand why it had been sent and had unsuccessfully tried to get in touch with Mr. Narain over the telephone to find out. I believe that Mr. Narain did send this letter by registered post as he claimed. It was not acknowledged. Mr. Ko stated that on the 8th January 1972 and again on 9th August 1972 (seven months later) he wrote to the Defendant. These two letters are almost identical, indeed both have, unaccountably, the same typing error "We, therefore would appreciated"! Each asks for payment of US$6,510 "or our men would take the goods back". It would seem strange if Mr. Ko's story was true (which I do not believe) that he should know that the goods were still available on the 9th August 1972. According to Mr. Ko he had not heard from the Defendant since re-delivering the goods with correct labels in November 1971 except to receive the report from the Federation of Industries in December. According to Mr. Ko the goods were in order. Why should he think the Defendant had not sold them between Christmas 1971 and August 1972? Mr. Ko said both letters were delivered by hand and indeed the letters, if genuine, themselves indicate that they were to be delivered by hand and that the bearer of them was expected to return with the price of the goods. Mr. Ko said these letters were not booked in the Plaintiff's chit books or delivery books and there was no record of their delivery. I believed Mr. Narain when he said he had not received them. Mr. Narain does not appear to have taken any further action with regard to the goods for about nine months or until the 23rd September 1972, when the Defendant's solicitors wrote requesting the Plaintiff to take delivery of the goods, as they had been found to be "in unsatisfactory condition" and "were of inferior quality and workmanship which rendered the whole consignment un-marketable", and to return the $10,000.00 deposit within seven days. The Plaintiff did not reply to this letter and one month later on the 24th October 1972 the Defendant's solicitors wrote again informing the Plaintiff that unless they heard from him by return of post with proposals regarding the disposal of the goods the Defendant would dispose of them as best he could and look to the Plaintiff for re-imbursement of the difference between the proceeds of sale and the deposit. It is note-worthy that there is no allegation of damages or loss of profit in this letter. 10. This letter did not evoke a reply until 10th November 1972 when the following letter was sent by the Plaintiff's solicitors to the Defendant's solicitors :
No reply appears to have been sent to this letter and no proceedings were issued at that stage. On the 9th March 1973 the goods were sold by Lammert Brothers Auctioneers for the Defendant and realized $7,702.66 net but it was not until 18th June 1973 that the solicitors for the Defendant wrote to the Plaintiff's solicitors threatening proceedings for the recovery of the balance of the deposit namely $2,297.34. In reply the solicitors for the Plaintiff informed the Defendant's solicitors that they had issued a writ. In fact this had been issued on the 1st June 1973 but had not been served. 11. On these facts I arrived at the conclusion that the goods the subject matter of the contract were rejected by the Defendant on the 23rd December 1971 when the registered letter of that date was sent by Mr. Narain to Mr. Ko. That letter was quite unequivocal and rejected the goods as not merchantable. Up to that date the delays which occurred were attributable to the requests of the Plaintiff and Mr. Ko's expressed wish to be given opportunities to cure the defects in the goods to the satisfaction of the Defendant. This the Plaintiff was unable or unwilling to do despite the protestations to the contrary voiced by Mr. Ko to Mr. Narain. 12. The essential question falling for my decision was therefore whether the Defendant was entitled to reject the goods. If it was so entitled it was under no obligation actually to return the goods "it is sufficient if he intimates to the seller that he refuses to accept them" (Sec. 38 Sale of Goods Ordinance Cap. 26). In considering whether there was a right of rejection on the 23rd December 1971 I would first note that there was no evidence as to acceptance by the Defendant prior to that date. 13. Secondly despite the fact that I believed Mr. Narain when he stated that he had received and retained and subsequently returned a sample pair of trousers I considered I could not regard this sale as a sale by sample. Not with the letter of the 10th November 1972 quited above, I could find neither in the written document itself nor in what occurred between the parties any clear evidence that there was a term in the contract express or implied to the effect that the sale was a sale by sample nor could I find any evidence of a condition that the goods must be of a type and quality suitable for sale "to the U.S. Military Market" whatever that expression may connote. The only condition on which the Defendant could rely as conferring a right of rejection was that arising by virtue of Section 16(b) of the Sale of Goods Ordinance (Cap. 26) that the goods should be of merchantable quality. 14. Can the goods then be said to have been unmerchantable? I have accepted without reservation Mr. Narain's evidence that he found that the body of the trousers came away from the waist-band and that for that reason Mr. Ko willingly took back the whole consignment to see how the defect could be rectified and did not re-deliver for many months and that when he did re-deliver the defect was not rectified, that he complained and Mr. Ko took back five dozen to see what could be done put in an extra line of stitching and sent them back when Mr. Narain rejected them. This being so it would seem that as reasonable businessmen both Mr. Narain and Mr. Ko considered that neither the original delivery nor the re-delivery of the entirety amounted to an adequate discharge of the contract. By taking back the five dozen to see what could be done Mr. Ko tacitly accepted that his company was still in breach but was "putting off the evil day" when this would have to be admitted. Mr. Ko's present account that the entire consignment was returned for the labels to be changed and his denial of the re-delivery of the five dozen I do not accept. Delivery in November of goods contracted to be delivered in August would prima facie not have been a proper discharge of the contract and that this point has not been taken I regard as an indication of Mr. Narain's patience and willingness to co-operate with the Plaintiff on the one hand and of his determination not to accept the goods so long as the defects had not been made good on the other. 15. Mr. Mills-Owens argues that nevertheless the goods cannot be said to have been not "merchantable". They were he says clearly "saleable" for it is common case that they were sold and sold as "jeans" by Lammert Brothers as agents for the Defendant. The Defendant in his further and better particulars has suggested that they could not be so sold. The contrary has been established ergo they are merchantable. He referred me to Schmitthoff on The Sale of Goods, Second Edition at page 80 where the dictum of Denning M.R. in Bartlett v. Sidney Marcus Ltd.(1), that an article is of merchantable quality if it is "of some use [for the purpose for which it is intended] though not entirely efficient use for that purpose". These goods were clearly intended having regard to their nature and quantity for the purpose of re-sale and they were re-sold. They were therefore of some use. Bartlett v. Sidney Marcus Ltd.(1) was a case arising out of the sale of a second-hand car and it was held in that case that a second-hand car was of merchantable quality if it was in a usable condition although not perfect. It was recognised by Salmon L.J. that the question whether or not goods are of merchantable quality is essentially a question of fact (ibid page 1017). He pointed out that the car had been driven after delivery for more than 300 miles and it would therefore be impossible to say that the car was no use for the purpose for which a car is normally used within the meaning of the test laid down by Lord Wright in Cammell ...(illegible) & Co. v. The Manganese Bronze Co.(2) (i.e. "that goods were of unmerchantable quality if in the form in which they were tendered, they were of no use for any purpose for which such goods are normally used and hence were not saleable under that description") and went on to suggest that the test laid down by Lord Wright differed from that laid down by Farwell L.J. in Bristol Tramways & Carriage Co. Ltd.(3) only as a matter of semantics. The test laid down by Farwell L.J. is :
As I see it the difference between these two tests can be regarded as a mere matter of semantics only when the article in question is bought for use as distinction from re-sale. In our case the jeans were of some use for the purpose for which they were intended (re-sale) but they were not of adequate use. As was tacitly recognised by Mr. Ko, a reasonable man would not accept them in performance of his purchase. Which test should I then adopt? That of Farwell L.J. appeals to me as according to the attitude I would expect an ordinary businessman to adopt. In Brown v. Craiks(4) to which I was referred by Mr. Lee in the course of his able argument Lord Reid said :
He went on to base his judgment on Lord Wright's general statement of the law as being "the most applicable to the present case". In Brown v. Craiks(4) cloth made to a detailed specification was bought by cloth merchants from manufacturers. There was a misunderstanding as to the purpose for which the cloth was required. It was fit for industrial use but not for the use for which the buyers intended it - as a dress fabric. The price was low for a dress fabric but higher than normal for industrial use. The price was 36.25d. per yard and the goods were subsequently sold for 30d. per yard. The fabric was held to be of merchantable quality. Lord Guest in the course of his judgment said :
These considerations apply, with force in my view to a purchase for retail sale as this purchase was and was known by the parties to be. The purchase price was $37,107 the goods were eventually sold for $7,702.66 or approximately 20% of the purchase price. They were sold at public auction as jeans but with any defects they might have because the Defendant considered that they could not be sold through its retail outlets at any price without damage to the goodwill of its business. In all the circumstances I consider I must decide what is essentially a question of fact for which the considerations must vary from case to case bearing in mind all the circumstances. Those which weigh with me most strongly here as showing that these goods were unmerchantable are, the nature of the defect of which complaint was made, the attitude of Mr. Ko from August 1971 to December 23rd 1971 throughout which period he tacitly recognised breach by the Plaintiff and sought or pretended to seek to remedy it and the eventual difference in price. I hold that the goods were unmerchantable. 16. I therefore hold that in December 1971 the Defendant properly rejected the goods and the contractual relationship between the parties was at an end. Thereafter the Plaintiff was liable in damages, if these were suffered, and under a duty to accept the return of its goods and repay the deposit. It neglected to take back the goods or to refund the deposit. In these circumstances the Defendant was in my view entitled after a reasonable time to dispose of them as best it could. It decided to do so (after informing the Plaintiff of its intention to dispose of them), by public auction. Two objections have been made to this course. Firstly it has been suggested that by selling the goods it accepted them. There is no substance in this, one cannot accept what has already been rejected. Secondly it has been suggested that by selling by public auction, it did not get the best price available. That it would have got a better price if it had sold to hawkers. Mr. Ko gave evidence to the effect that he could have got almost their full cost from such outlets I do not accept this. It is possible that a better price could have been got by sale to some private individual but I consider that in selling by public auction the Defendant acted properly and reasonably. It would have been open to attack on the basis of not getting the best price no matter what method of disposal it picked and it would be entirely unreasonable in my view to have expected the Defendant to seek an outlet of which it had no experience. I hold that the Defendant is entitled to a dismissal of the original claim and to judgment on the counterclaim for return of the balance of deposit. The Defendant also claims damages and costs of storage. Damages have not been proved nor have the costs of storage been quantified. I make no award on the score of either. The Plaintiff's claim will be dismissed with costs. There will be judgment for the Defendant on its counterclaim for $2,297.34 with interest at 8% per annum from 23rd December 1971 to 9th March 1973 on $10,000 and on $2,297.34 from 9th March 1973 to today. The Defendant to have the costs of the counterclaim.
Representation: Mr. Mills-Owens (John Ip & Co.) for Plaintiff. Mr. Andrew Li (F. Zimmern & Co.) for Defendant. (1) (1965) 1 W.L.R. 1013, 1016. (2) (1934) A.C. 402. (3) (1910) 2 K.B. 831. (4) (1970) 1 W.L.R. 752. |