Arcos Ltd v E A Ronaassen & Son [1933] AC 470

KEY POINTS

• In commercial transactions, implied conditions ensure fairness and efficacy, covering quality and conformity. They uphold trust and accountability, guiding parties through agreements with fairness.

• Arbitration clauses provide a structured way to resolve disputes outside of courts, offering speed, cost-effectiveness, and confidentiality. They promote cooperation and pragmatism amidst potential conflicts.

• Contracts rely on strict performance, requiring parties to fulfill obligations precisely as agreed. This principle maintains contractual integrity, ensuring promises are honored and breach risks minimized.

• Commercial contracts delineate legal rights and obligations, providing clarity and recourse in business relationships. They safeguard interests and establish trust, supporting the legality of transactions.

• The implied condition of fitness for purpose ensures goods meet intended needs. It empowers buyers to expect reliability and functionality, fostering purchase confidence and satisfaction.

FACTS

• The case revolves around two contracts for timber sale between Arcos, Limited (the Sellers) and E.A. Ronaasen and Son (the Buyers).

  • The contracts specified the sale of redwood and whitewood staves of certain dimensions in length, breadth, and thickness.

  • The staves were intended for making cement barrels, a purpose communicated to the sellers.

  • The contracts did not include any qualification regarding thickness; they stipulated that the staves should be 1/2-inch thick.

• The goods were shipped per the contracts, but upon inspection, the Buyers claimed that a significant portion of the staves exceeded the specified thickness.

  • This discrepancy led to a dispute, which was referred to arbitration.

  • The arbitrator's inspection, conducted nine months after the goods had been exposed to weather, revealed that only a small percentage of the staves met the specified thickness.

  • However, the arbitrator found it impossible to determine the proportion of staves that conformed to the description at the time of shipment due to swelling and exposure to rain.

• The Buyers contended that the deviation from the contractual thickness was significant and warranted the rejection of the goods.

  • On the other hand, the sellers argued that the deviation was negligible and that the goods were still fit for making cement barrels.

• Ultimately, the question before the court was whether the goods, when shipped, complied with the implied condition that they should correspond with the description provided in the contracts, specifically regarding thickness.

JUDGEMENT

• In this case, the judgment was in favor of the Buyers.

  • The Buyers rejected the goods because they did not meet the contractual description, specifically regarding their thickness. 

• The dispute went to arbitration, where the arbitrator initially ruled in favor of the Sellers.

  • However, the Court of Appeal overturned this decision, stating that the goods did not conform to the contract description and thus the buyers were entitled to reject them. 

• The House of Lords affirmed the Court of Appeal's decision, ruling in favor of the Buyers.

  • The judges emphasized the importance of strict adherence to contractual conditions, stating that the buyer can reject the goods if a condition is not performed. 

• Therefore, the appeal was dismissed with costs.

COMMENTARY

• The case reflects a nuanced understanding of commercial transactions, emphasizing the significance of implied conditions, arbitration clauses, strict performance, and legal rights within contractual relationships.

  • It outlines the fundamental principles that govern fair and effective commercial dealings, underscoring the importance of trust, accountability, and clarity in agreements.

• The case discussed involving Arcos, Limited E.A. Ronaasen and Son illustrates the practical application of these principles.

  • The contracts for timber sale specified certain dimensions for redwood and whitewood staves intended for making cement barrels.

  • Despite the absence of a specific qualification regarding thickness, the contracts implicitly required the staves to be 1/2-inch thick.

  • When the goods were delivered, a dispute arose over the thickness of the staves.

  • The buyers contended that a significant portion exceeded the specified thickness, leading to their rejection of the goods.

  • The matter was referred to arbitration, where the arbitrator's inspection revealed discrepancies in thickness due to weather exposure, making it challenging to determine compliance at the time of shipment.

• The courts ruled in favor of the buyers, affirming their right to reject the goods based on the failure to meet the contractual description, specifically regarding thickness.

• This decision underscores the principle of strict adherence to contractual conditions and the buyer's entitlement to enforce those conditions.

ORIGINAL ANALYSIS

• Plaintiff agreed to buy wood 8/16 inch thick but Defendant actually delivered wood 9/16 inch thick.

• The court considered that Plaintiff could not be bound to accept goods that did not match the description of those specified in the contract. Plaintiff was allowed to terminate, even though the goods were “merchantable”.

• The real reason for Plaintiff terminating was because it had made a bargain that was unprofitable to them.

• This case shows the unfairness of an absolute insistence on the specified terms of the contract.