Goustar Enterprises Ltd v John Kokas Oumo (Civil Appeal 8 of 2003) [2006] UGSC 13 (17 January 2006)

Key Facts

Transaction Type

Issues

• This issue concerns the mathematical calculation of the refund amount awarded to the respondent. The Court of Appeal awarded Shs. 18,355,120/= based on the calculation that the total value of three tractors with implements plus tax was Shs. 105,677,140/=, making the cost of one tractor Shs. 35,226,380=, and the respondent had deposited Shs. 53,584,500=, resulting in a refund of Shs. 18,358,120=.
• The main legal issue concerns whether Goustar Enterprises Ltd, the seller, fulfilled their contractual obligation to supply tractors that were reasonably fit for the particular purpose specified by the buyer, John Kokas Oumo, who relied on the seller's skill and judgment. The court examined Section 35 (now Section 34) of the Sale of Goods Act which provides that where the buyer makes known the particular purpose for which goods are required, showing reliance on the seller's skill or judgment, there is an implied condition that the goods shall be reasonably fit for such purpose.
• This issue addresses whether the respondent (buyer) properly rejected the two defective tractors when they were found to have hydraulic problems and overheating during field testing. The court considered Section 34(1) of the Sale of Goods Act which states that a buyer is not deemed to have accepted goods unless they have had a reasonable opportunity to examine them. The court found that the respondent had a reasonable opportunity to test the tractors in the presence of the appellant's agent, and upon discovering the defects, was entitled to reject them.

Holdings

Remedies

• The appellant is awarded costs of the appeal and in the lower court. The cross-appeal is dismissed with costs to the appellant.
• The appellant is entitled to a refund of shs 18,355,120/= with interest at the rate of 12% per annum from 19th September 1999 until full payment.
• The cross-appellant is ordered to pay shs 5,000,000/= in general damages to the appellant.
• The Supreme Court dismissed the appeal with costs to the respondent in this Court and the Courts below, upholding the Court of Appeal's orders.

Contract Value

Monetary Damages

Legal Principles

• The court found that the appellant (seller) committed a fundamental breach of contract by supplying tractors that were not fit for the buyer's specified purpose. The defects (hydraulic problems and overheating) appeared within two months of delivery, well within the 12-month warranty period. The court held that breach of an implied condition about fitness for purpose entitles the buyer to reject goods, not just claim damages as would be the case with breach of warranty.
• The court emphasized that the burden of proof lies with the party making the claim. The respondent (buyer) had to prove that defects existed at the time of delivery rather than developing after. The court held that since there was no independent evidence showing defects occurred after delivery, and the defects appeared within the 12-month warranty period, the seller was in breach of the implied condition that goods must be reasonably fit for the buyer's specified purpose.
• The court applied Section 34 of the Sale of Goods Act (now Section 35) regarding buyer's right to examine goods before acceptance, and Section 15 of the Sale of Goods Act regarding implied conditions that goods must be fit for particular purpose when buyer relies on seller's skill and judgment. The court also applied the principle that relief not founded on pleadings will not be granted, noting the appellant never counterclaimed for repair costs.

Precedent Name

• Francis Sembuya - vs - AllPorts Services (U) Ltd.
• Habre International Co. Ltd. - vs - Abraham Alayakha & Others, Civil Appeal No. 4/98
• Candy -vs- Caspair Air Charter Ltd.
• Manchester Liners - vs - Rea
• Banco Arabe Espanyol - vs - Bank of Uganda Civil Appeal No. 8 of 1998
• Kinyanjui - vs - D T Dobie & Co. (Kenya) Ltd.

Key Disputed Contract Clauses

• The contract included a 12-month warranty period for the tractors supplied by the appellant. The defects were discovered approximately 2 months after delivery, within the warranty period. The appellant argued that this constituted a breach of warranty rather than a breach of condition, which would only entitle the buyer to damages rather than rejection of goods. The court held that the breach was of an implied condition that goods must be reasonably fit for the buyer's specified purpose.
• Clause 7 of the Memorandum of Understanding (Exh. D1) between Goustar Enterprises Ltd and the Uganda National Farmers Association stipulated that Guostar shall offer training to buyers (operators) on cost price but charge for after sales services. This clause was central to the dispute as the appellant argued that the respondent used the tractors before training and removed spare parts, causing the defects. The court analyzed whether the respondent's use of tractors before training constituted tampering that caused the defects, or whether the defects existed at delivery.

Cited Statute

• Civil Procedure Rules
• Sale of Goods Act
• Sales of Goods Act

Judge Name

• Odoki, CJ
• Kanyeihamba, JSC
• Tsekooko, JSC
• Oder, JSC
• Karokora, JSC

Passage Text

• "In the result, ground 2 must fail. The complaint in ground 3 was that the Justices of Appeal erred both in fact and in law in failing to cancel out the order of Justice Okum Wengi, that the cross-Respondent, retain one tractor and hand over the other to the appellant after finding that the judge was wrong. I must say that this ground does not make sense. Moreover, no submissions were made by counsel to support it. In her lead judgment, Byamugisha, JA, stated: I accept that the trial judge was wrong to make the orders in the manner that he did. The judgment itself was a contradiction of sorts. The understanding was that the cross-appellant would supply three tractors with their implements. Therefore, the order of the court was in contradiction with the memorandum of understanding which was, the basis for the supply of the tractors. I agree with the above conclusion and I find no merit in this ground which must fail."
• "There was no independent evidence to determine whether the tractors were fit for the purpose. But the evidence from the respondent was its responsibility to test the tractors and train the appellant and other workers on how to use them." The Lady Justice cited section 35 which is now section 34 of the Sale of Goods Act which provides that: "Where goods are delivered to the buyer which he has not previously examined, the buyer is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for purposes of ascertaining whether they are in conformity with the contract."
• "Clearly, the evidence which was before court was that the appellant was a supplier of tractors for use by farmers. DW1 had testified before court that he was an agricultural specialist. In the memorandum of understanding between the appellant and the Association the type of tractors that the respondent required were specified and DW1 confirmed in his testimony that he was given the required specifications. Therefore, the respondent had relied on the appellant's judgment and skill to supply tractors fit for the respondent's use. If, as the evidence showed, the hydraulic system failed as a result of which one tractor could not lift and lower the ploughs, then that tractor never fitted the purpose for which the respondent wanted it. Further, if the second tractor overheated on being tested in the presence of the appellant's agent, then that tractor failed to fit the purpose for which the respondent wanted to buy it. Consequently, this ground must fail."

Damages / Relief Type

• Refund of Shs. 18,355,120/= with interest at 12% pa from 19th September 1999 till full payment
• General damages of Shs. 5,000,000/= awarded to appellant
• Costs of appeal and in lower court awarded to respondent; appeal dismissed with costs