Contract conditions in yacht building are explained further in this chapter. I have not imagined that it will take me so long to adapt the paragraphs in so many articles. It is not the last one in the series, and many more will come after this one. I just hope you will not be bored with its nature. Legislation is rather necessary when dealing with everything involving boats, yachts, or super-yachts. Delving in this subject has to make you prepared to deal with brokers, owners, lawyers, notaries and insurance companies.
Contract Conditions – The Waller Test
Two important conditions of what may be called the “Waller Test”, limbs (iii) and (iv) can be collectively defined as conditions by contract, on the ground that they find their source in the freedom of the parties to determine the terms of their agreement. These will typically include terms–invariably and improperly referred to as “warranties” – about Class compliance, speed and performance, noise level, freedom from vibration, range and fuel consumption to mention just a few. Whether these terms will be treated as conditions, intermediate terms or warranties in the technical sense will depend on the phrasing of the relevant clause and the contract as a whole.
As the consequence of the builders breach of a given magnitude is contractually agreed to be termination, this clause falls in limb (iii) of the Waller test and hence is a condition, at least for noise levels three decibels higher than those agreed in the specifications. On the other hand, if the noise levels within the yacht at the time of delivery were higher than those agreed in the specifications but below the three-decibel threshold, the breach would only amount to a breach of warranty, accompanied by a liquidated damages clause. Any law (American, English, Turkish, etc.) should allow for the parties to such an important commitment the freedom to choose the characteristics of their purchase and the remedies for faults. However, what if the parties agree that the noise level should not be above a set maximum but do not provide for a remedy for breach? Are such clauses conditions, warranties or innominate terms? This is where the classification of a yacht-building contract as one for the sale of goods to which the 1979 Act applies becomes of relevant importance.
Conditions implied by the Sale of Goods Act 1979
Clauses falling within limbs (i) and (ii) of the test may be collectively classified as conditions by law, as they find their source either in statutory provisions or in the common law. The Sale of Goods Act 1979 implies three types of conditions into all sale contracts, two of which are particularly relevant in the context of yacht building:
(1) terms describing the yacht (the goods);
(2) her satisfactory quality.
(1) Terms describing the goods
Section 13 in the Sale of Goods Act 1979 states that, where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description. If the buyer can prove a breach of description, he could terminate the contract by service of the agreed notice. However, a buyer eager to get out of the contract relying on this section of the Act should consider its options very carefully, as
(i) it may well have acquired title in the yacht and rejecting her would make it a creditor for all advances paid, with the typical issues as to security that any such position will entail;
(ii) section 15A of the Act gives the builder a defense as if the defect “is so slight that it would be unreasonable” for the buyer to opt for rejection, it may actually not be able to get out of the contract. In the context under consideration here, the presence of remedial clauses, often on “best endeavor” terms, may help the yard in satisfying its burden of proof;
(iii) the contract would anyway prevail over section 13, and if the parties have excluded the application of the section, agreed to allowances and/or price adjustments in their contract, the courts will infer that that particular item of the description was not regarded by the parties as a condition at all.
(2) The goods must be of satisfactory quality
Section 14 of the Sale of Goods Act 1979 further provides that, where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of a satisfactory quality and that this implied term is a condition. In an attempt to clarify what is intended by satisfactory quality, the Act regards as satisfactory the quality of goods meeting “the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances”. Moreover the quality of the goods is said to include their state, condition, fitness for all the purposes for which goods of the kind in question are commonly supplied, appearance and finish, freedom from minor defects, safety and durability.
[Stay tuned for Part Four!]
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