Supreme Court
Action No.100 of 1992
27th March, 1995
G. D. MEERABUX, P.J.

Mr. R. Williams for the Plaintiff.
Mr. E. Courtenay for the Defendant.

Claim for $63,000.00 as liquidated damages against the defendant for breach of an agreement for supply of compact disc carrier cases - Cases found to be defective by eventual purchaser - Sale of Goods Act Chapter 214 - Nature of sale - Ccontract for resale of goods - Contract sale by sample - Time and place for examination of goods by buyer - Duty to return rejected goods - No obligation on buyer to return rejected bags - defects in carrier bags - Breach of condition of agreement - Measure of damages - Section 54(1)(b)(2) and (3) of Sale of Goods Act - Judgment for the plaintiff - Damages of $63,000. awarded - Costs to be taxed or agreed.

J U D G M E N T

In this action the plaintiff claims the sum of $63,000.00 BZE. as liquidated damages against the defendant for breach of an agreement made between the plaintiff and the defendant under which the defendant was to manufacture and supply to the plaintiff for resale a quantity of compact disc carrier cases.

Mr. Mario Castillo managing director of the plaintiff company testified that he made an agreement with the defendant company to manufacture 36,000 units of compact disc carry cases for Dynasound Organizer a company in the U.S.A. in accordance with a sample unit which he had shown to them for a price of $1.00 U.S. per unit. It was also agreed that all materials would be provided by Dynasound. Dynasound had agreed to pay him $1.50 U.S. per unit and the profit would have been $1.00 BZ. on each unit. The defendants having assured him of the quality and standard of work manufactured 10 compact disc carrier cases which were approved by Dynasound. The defendants had previously manufactured satisfactorily 4,000 units and he was assured of the same quality and standard of workmanship of the 36,000 units; 20,000 units to be labelled Realistic and 16,000 units to be labelled Dynasound.

The defendants had their own inspection system and he did not necessarily inspect the finished units before shipping, although he made a physical random inspection. The defendants manufactured the 36,000 units which he shipped overseas to Dynasound and paid the defendants $36,000.00 U.S.

Subsequently Dynasound faxed him letters dated 18/9/91 and 29/9/91 intimating their anger with the poor quality of the units in respect of those with the Realistic labels pointing out the following imperfections -

(a) some had pleats;
(b) some of the front pouches were twisted;

(c) some of the zippers were not sewn in properly;

(d) some had loose stitches;

(e) some had bottom hole problems.

Dynasound rejected these 20,000 units with the Realistic Labels but accepted the 16,000 units with the Dynasound Labels. Two thousand five hundred of the rejected cases were returned to Belize, the plaintiff and defendants agreeing to share the costs for the return shipment. The defendants inspected the units, accepted the units as their products, verified that the units were of poor quality, carried out the repairs at their expense and he shipped the units back to the U.S.A. However, in respect of the remainder of the units (17,000) the defendants and the plaintiffs could not agree on payment of the freight for return of these units. Dynasound would not agree to pay the return costs. The defendants were willing to repair these units but the problem was getting them back to Belize, which he failed to do inspite of many efforts on his part.

Under cross-examination the witness stated that the sample unit was prepared by the defendant and approved by him and Dynasound which sample was varied by an oral agreement in respect of the button hole. That the manufacture of these units were partially by sample and partially by description.

He admitted that there were two sales, one for 4,000 units and the other for 36,000 units, that the sample units were in respect of the first sale for 4,000 units and that no samples were prepared in respect of the 2nd sale for 36,000 units but that he told the defendants to make the 36,000 units in the same way in which the 1st order was made and that it was a sale by description and not by sample. The units were produced in the defendants' Ladyville factory as well as in the Orange Walk factory. He admitted that he visited the defendants' factory in Ladyville on Fridays and that no one prevented him from inspecting the cases of units.

He stated that he has 15 years experience in the garment Industry and that random selections are made of the finished products and that if random selection are inspected and approved the bulk is basically accepted. He admitted that on each occasion when he visited the factory at Ladyville he went to inspect the final product he had a fair opportunity to inspect the articles. He stated that "it was the practice of the trade that a party accepts goods when he act in relationship to those goods. However, he denied that he ever inspected the goods at the Orange Walk factory. Dynasound was his customer not Radio Shack but the goods were shipped to Dynasound who shipped them to various clients including Radio Shack. He is unable to say what happened to the 17,000 bags which were never returned to Belize and he cannot prove that they were rejected or "what was wrong with them". However, the goods which he inspected were of merchantable quality. The bags that were ordered were based on the sample and as far as he was concerned this was a sale by sample. "It is virtually impossible to check everything 100% so you make a random selection and would hope that that random selection reflects the quality of the lot. There is still a final inspection by the customer - Dynasound or which customer I am selling to".

Mr. Francis Shen testified that he worked for the defendant company during 1990 - 1993. He knew Mr. Castillo represented the plaintiff company as Executive Secretary and Sales Manager and placed orders in April 1991 with the defendant for 4,000 bags which order was carried out satisfactorily. Mr. Castillo placed a second order around June 1991 for sewing 40,000 units. Castillo was to supply all the materials and the defendant Company was responsible for sewing the units at a price of $1.00 U.S. per piece.

"The agreement in relation to the 2nd order was once the bags were sewn and finished Mr. Castillo would come to our factory and carry out an inspection over the bags to decide if these bags are good for shipment or not and if he approves for the shipment we would issue an invoice to him to let him know the amount he should pay. Then he would bring back the equivalent cash to us and take the goods away. Mr. Castillo usually come into our factory on a weekly basis and he would inspect these finished bags in the inspection section. He did the inspection by picking at random in my presence".

He recalled Mr. Castillo rejecting some bags which problem the company corrected. He admits that some of the labels to be placed on the bags were "Realistic" and "Dynasound". Some of the bags were prepared in the Ladyville factory and others in the Orange Walk branch. The bags produced in Orange Walk were sent to Ladyville in bulk for Mr. Castillo to inspect and to give OK for shipment. He recalled Mr. Castillo inspecting the bags from the Orange Walk branch and shipping them out.

In October 1991 Mr. Castillo complained that his customer had rejected some bags as not being properly sewn. Two thousand five hundred were returned to Belize. On inspection defects were discovered, corrected and returned back to Mr. Castillo. The defendants paid part of the freight.

Mr. Castillo further complained about some 20,000 units had similar defects and wanted the defendant company to pay the freight for their return to Belize but the plaintiff and the defendant did not pay the freight and he never saw this 20,000 units again in Belize.

He admitted he saw the bags before they were shipped and that he compared them with the sample provided by Mr. Castillo and that the "finished bags were as per the sample".

Under cross-examination he admitted that he "compared the finished bags with the sample because that is the regular procedure. I was the sales manager and I have to know what is going out. I know that the bags had to be like the sample. I got the sample from Mr. Castillo. The 2nd order I did not consider to be a re-order of the 1st order. The 1st order was for some small bags and big bags. The 2nd order was for some small bags".

He admitted that the defendants agreed to pay "one half of the freight of the bags to Belize before seeing any of the defective bags" but this was not because we were accepting that we were liable for them. It was partly a good will gesture".

He admitted he signed the Invoices and Customs entry for the bags shipped to the U.S.A. and that he only wrote the words "bags on my invoices" but that Mr. Castillo prepared these Invoices and Entries and he denied that Mr. Castillo informed him that the bags were "compact disc carrier bags" but when shown Invoice (Exh. F. S. 1) he admitted he saw his signature and description of the product as "Compact Disc Carrier Case".

The 2nd order placed by Mr. Castillo all the bags had the label "Made in Belize" but he admitted he did not check the bags individually to see if they all had this label. He admits that one of the problems was the defective button hole which was closed and not opened as on the sample. He cannot recall if the sample bag was Exh. M. C. 2 (bag).

He admits that when he dealt with Mr. Castillo in 1991 he had only been in the garment business for 2 1/2 years.

He admits random checks is the practice but states that if you do random checks and find the bulk defective it was not the practice to say "by words" that they are defective.

"Q. Because you have not seen the approximately 17,000 units you would not accept that they are not defective.

A. That is not the reason.

If Mr. Castillo had brought the bags back to me and I go through them and find the bulk to be defective and they were my goods I would be prepared to repair them"

He had paid 50% for the costs of the return of the 2, 500 units but the defendant was not prepared to pay for the return of the balance. It was not his responsibility to bring the units back. He admitted he knew that Mr. Castillo was selling the units to someone else in the U.S.A.

Both branches of the defendant company in Ladyville and Orange Walk had inspection sections.

He admitted that he told Mr. Castillo that "we can produce the bags in the kind of quality that he requested". He stated that the complaint was made about 3 months after they were shipped.

I find as a fact that there is no dispute that the plaintiffs purchased 36,000 compact disc carry cases from the defendants at a price of $1.00 U.S. per case.

I further find as a fact that the plaintiff -

(a) made random checks of some finished cases; although the defendant had their own inspection unit;

(b) accepted the 36,000 finished cases;

(c) paid for the said 36,000 cases; and

(d) resold the cases to Dynasound in the U.S.A.

I further find as a fact that some 2,500 units of the cases were rejected by Dynasound and returned to Belize where they were inspected by the defendants and the necessary repairs carried out at the defendant's expense, the freight for such transportation by agreement shared by both parties to this action.

1. The lst issue I have to decide is what was the nature of the sale, e.g. -

(a) a contract of sale for future goods;

(b) a contract of bale subject to a warranty;

(c) a contract for resale to a third party.

The nature of the sale is quite important to enable me to decide what relevant portion of the Sales of Goods Act or other law is applicable to this case.

I find from a careful perusal of the evidence that the defendants knew that the compact disc carrier cases were to be sold to Dynasound a company in the U.S.A. In this regard I believe and accept the evidence of Mr. Castillo.

Furthermore, Mr. Shen's evidence that if Mr. Castillo having inspected the bags -

"if he approves for the shipment we would issue an Invoice to him to let him know the amount he should pay",

confirms this finding of fact that the defendant company knew that the bags were to be sold to Dynasound.

He further confirms in his evidence that he not only signed the said Invoices but he wrote the word bags on the invoice. He denied he wrote the words "Compact Disc Carrier Case". A careful perusal of Exh. F.S. (Invoice) reveals that the defendants actually made out the Invoice to Dynasound Organizers Inc. of the U.S.A.

I therefore find that the evidence is overwhelming that the defendants knew that the goods were for resale to this U.S. company and therefore the contract was a contract for the resale of goods to Dynasound.

2. The 2nd issue I have to decide is whether the agreement between the parties to make these bags was a contract sale by sample or by description or both.

Mr. Castillo's evidence was that a sample of the carrier bag was prepared by the defendants and approved by him and Dynasound which was varied orally by both parties in respect of the button hole.

Mr. Castillo further testified that the 1st sale of 4,000 units were made in accordance with this approved sample and that the 2nd sale of 36,000 units were to be made in the same way as the 1st order and that this was a sale by description.

Mr. Shen's evidence in this regard was that -

"he compared the finished bags with the sample because that is the regular procedure. I was the Sales Manager and had to know what is going out. I knew that the bags had to be like the sample I got from Mr. Castillo. The 2nd order I did not consider to be a re-order of the 1st order. The 2nd order was for some small bags".

I further find that since the bags were for resale in the U.S.A. to Dynasound it followed that Dynasound had to approve the sample.

I further find and believe Mr. Castillo's evidence that the 1st order 4, 000 bags were to be made similar to the approved sample bag, which fact is admitted by Mr. Shen, and that the 2nd order for 36,000 were to be made in the same manner as the 1st order for 4,000 bags.

I therefore find that the compact disc carrier bags were made from a sample agreed by both parties and approved by Dynasound.

3. The third issue I have to decide is when is the time and place for examination of the goods by the buyer-

Halsbury Laws 4th Ed. Vol. 41 para. 791 p. 707 states as follows -

791. Time and place of examination. The time and place of delivery is prima facie the time and place for the examination of the goods by the buyer, but the circumstances of the case may indicate some other place and time, especially where the goods contain a latent defect not discoverable by ordinary diligence at the place of delivery. In the last case an examination of the goods at the place of delivery is not binding upon the buyer, and he may, on a subsequent inspection, reject the goods if they are not in conformity with the contract. Where a buyer is to the knowledge of the seller purchasing the goods for resale to an ultimate buyer, the inspection is postponed, if the place at which delivery to the immediate buyer takes place is unsuitable for inspection or the nature or packing of the goods makes inspection there unreasonable.

The prima facie rule does not, however, apply to c.i.f. and f.o.b. contracts where mercantile usage has imported a different rule".

The evidence reveals that Mr. Castillo made random samples of the finished bags at the Ladyville factory but never inspected the finished bags at the Orange Walk branch. He further testified that when he visited the Ladyville factory on Fridays the defendants would call the Orange Walk branch to inquire how many cases would be sent for shipment and as a result he would prepare the document and collect the bags for shipment. When he picked up the bags they were in sealed cartons.

I believe and accept the plaintiff's evidence in this regard. I find that in respect of the bags produced at the defendants' Orange Walk branch these finished bags were in sealed cartons when the plaintiff went to collect them for shipment which made the inspection unreasonable at the Ladyville factory. If Mr. Castillo was to conduct random checks of the samples from the Orange Walk branch how could he do so when the finished items were in sealed cartons ready for shipment.

I further find that it was not unreasoanble for the inspection to be postponed until the finished goods arrived at Dynasound the ultimate buyers in the U.S.A. where inspection revealed various defects.

In respect of the bags produced at the Ladyville factory I find that Mr. Castillo made random selections of the finished bags to ascertain if they reflect the quality of the entire order. I also find that Mr. Shen the Manager of the defendant Company admitted that he saw the bags before they were shipped and compared them with the sample as part of the regular procedure because "the bags had to be like the sample".

I find it astonishing that inspite of these checks the finished bags were rejected by Dynasound as being of poor quality and as not conforming to the approved sample.

I therefore find that these bags contained latent defects not discoverable by ordinary diligence at the place of delivery in Belize to Mr. Castillo the immediate buyer.

I further find that although "the time and place of delivery is prima facie the time and place for the examination of the goods by the buyer" my finding of latent defects in the said bags and further that both parties knew that the said bags were for resale to Dynasound are circumstances which indicate that the examination of the said bags be carried out by Dynasound in the U.S.A.

4. The 4th issue I have to decide is whether Dynasound the ultimate buyers having rejected the 20,000 carrier bags as being of poor quality and not conforming to the approved sample had a duty to return the rejected goods.

Halsbury's Laws 4th Ed. Vol. 41 para. 795 states as follows -

"Return of rejected goods unnecessary.

Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right to do so, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them".

I find as a fact that 2,500 carrier bags were returned to the defendants who rectified the said bags at their own expenses. Both parties shared in the freight expenses incurred. However, the remainder of the bags, 17,000, were never returned because both parties to this action were unable to foot the financial freight costs to Belize.

I find that there is no agreement before me that the carrier bags were to be returned if rejected for poor quality.

I further find that Dynasound having rejected the bags because of their poor quality had no right to return them to the defendants and it was sufficient for them to intimate this fact to Mr. Castillo which they did by E. Fax Exhs. M.C. 5 and 6. I also find that Mr. Castillo showed these Fax messages to the defendants who became aware of the rejection of the bags.

I therefore find that Dynasound having informed both parties of the rejection was under no obligation to return the bags to Belize.

5. The 5th issue I have to decide is whether the fact that the 17,000 bags were not returned to Belize for inspection of the defects is proof that they were defective.

The 5th issue I have to decide is whether the failure to return the 17,000 bags for inspection for defects is proof that were defective.

The standard of proof required in civil cases is generally expressed as proof on the balance of probabilities. Denning J. as he then was in Miller v. Ministry of Pensions [1947] 2 All E.R. 372, 373-374 puts it thus succinctly -

"If the evidence is such that the tribunal can say 'we think it more probable than not, the burden is discharged, but if the probabilities are equal it is not".

I find that a careful perusal of Exhs. M.C. 5 and 6 discloses grave defects and disappointment by Dynasound when they inspected the finished bags in the U.S.A.

I have also considered that the entire 2,500 of the rejected bags returned to Belize and were found to be defective by both parties in Belize - an unusually high percentage of the total quantity inspite of the random sample checks by Mr. Castillo and Mr. Shen.

I further find that the remainder of the bags were not returned to Belize because both parties could not bare the costs or were unwilling to do so.

I therefore find that on a balance of probabilities that the remaining 17,500 bags were also defective. I find that these defects in the carrier bags amounted to a breach of the condition of the agreement.

6. The sixth issue I have to decide is what is the measure of damages for breach of the agreement between the parties in this action.
In deciding this issue I am guided by Sec. 54(1)(b) (2) and (3) of the Sale of Goods Act Chapter 214 which states -

"11 (1) Where there is a breach of warranty by the seller, or where the buyer elects, or is compelled, to treat any breach of a condition on the part of a seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods, but he may:-

(a) ... ; or

(b) maintain an action aqainst the seller for damages for the breach of warranty.

2. The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty".

(a) The evidence reveals and I so find as a fact that the plaintiff paid the defendants $1.00 U.S. for the manufacture of each carrier bag - 20,000 bags for a total of $20,000.00 U.S. or $40,000.00 BZ.

(b) The evidence further reveals and I so find as a fact the plaintiff told the defendants that he was selling each of the completed carrier bags to Dynasound at $1.50 U.S. each representing a profit of $10,000.00 U.S. or $20,000.00 BZ.

(c) The evidence further reveals which I find as a fact that both parties shared the costs of $3,000.00 U.S. for the return to Belize of the rejected 2,500 carrier bags - $1,500.00 U.S. or $3,000.00 BZ.

I therefore estimate and find as a fact that the loss to the plaintiff "directly and naturally resulting in the ordinary cause of events from the breach of warranty" to be $31,500.00 U.S. or $63,000.00 BZ.

I therefore give judgment for the plaintiff for $63,000.00 BZ. as damages for breach of the agreement with the defendant with costs to be taxed or agreed.

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