High Court clarifies limitation period for Agreements for Sale based on breach of contract

In the recent case of Murphy v Joe O'Toole & Sons Ltd & Anor [2014] IEHC 486, Baker J. held that the limitation period for an agreement for the sale of goods ran from the date of delivery of the goods, rather than from the date of the contract was entered into by the parties.

The decision clarifies when time begins to run in actions for breach of contract for agreements for the sale of goods, which are to be delivered at a later date.  Baker J. noted in her judgment that there was no direct authority on point as to the running of the limitation period in the case of an agreement for sale. 

Facts
The plaintiff purchased agricultural machinery in April 2002, which was financed by means of a hire purchase-type agreement by the second defendant. The machinery was delivered in October 2002.  The plaintiff was subsequently stopped by the Gardai on the grounds that the machinery was not suitable for transportation on the Irish roads.  The plaintiff returned the machinery to the first defendant in October 2003, and issued these proceedings in July 2008.

The plaintiff claimed against the first defendant for breach of contract and in negligence and negligent misstatement.  With regard to the latter claim, the plaintiff pleaded that the first defendant had negligently advised him that the machinery was suitable for transportation by tractor on the Irish roads, and/or that the first defendant negligently failed to consider the suitability of the machinery to be transported in combination with a tractor on the Irish roads.

The first defendant, in its Defence, pleaded that the claim was statute-barred.  It claimed that time began to run at the date the parties entered into the oral contract (i.e. April 2002), and that the six-year time limit provided by section 11(1) (a) of the Statute of Limitations Act 1957 had run before the proceedings were instituted in July 2008.

The plaintiff claimed that he was within the six year time limit, when he issued proceedings in July 2008, on the grounds that: (i) time began to run for breach of contract only when the machinery was delivered, namely in October 2002; (ii) the contract was conditional upon hire purchase finance, and the evidence unequivocally pointed to the fact that the finance was not obtained until October 2002, and that time did not begin to run until the condition precedent was satisfied; and (iii) the claim in negligence accrued when damage or loss was incurred by him which he alleged was either the date of delivery or of the finance agreement (Hegarty v O'Loughran [1990] 1 IR 148). 

Held
The High Court held that the claim for breach of contract was not statute-barred on the grounds that the relevant limitation period ran from the date of delivery of the machinery in October 2002, and not from the date the contract was made. 

The nature of the contract
The judge did not accept the plaintiff's argument that the contract was one conditional upon the loan finance, or that it was one which did not come into existence and was not formed until the purchase money was available and paid over by the plaintiff.

Baker J. accepted the defendant's evidence that it was "the practice in the trade…for a deal to be done on a handshake", and that "it was standard practice that a retailer would not deliver machinery unless the money was available, but that in the industry machinery was ordered without deposits or formal contract documentation."

Statute of limitations: the accrual of the cause of action
Section 11 (1)(a) of the Statute of Limitations Act 1957 provides a limitation period of six years in breach of contract cases which is to run from the date the cause of action accrues. The general rule in a claim for breach of contract is that the cause of action accrues not when the damage is suffered but at the time of breach and this law is well established.

The judge stated: "In light of the authorities it is clear to me that the cause of action in contract must be the date on which a breach occurs and not the date when the contract is made.  There may of course be incidents when these dates or times are coterminous as was found in the Supreme Court decision of Gallagher v ACC Bank [2012] IESC…In that case the court held as a matter of fact that the cause of action accrued at the date on which the transaction was entered into, the date on which the financial product was sold."

Baker J. noted that a cause of action was defined by Viscount Dunedin in Board of Trade v. Cayzer, Irvine and Co. [1927] A.C. 610 at 617 as “that which makes action possible”. The judge noted that the plaintiff could not have commenced an action for breach of contract based on a plea of breach of condition or warranty of fitness for purpose in the period between April 2002, when the agreement was made, and October 2002, when the agreement was performed, because until performance it could not be said that there had been a breach of the obligations of the seller.

The judge noted that under section 1 of the Sale of Goods Act 1893, "the delivery of goods, and the concurrent obligation to pay for the goods, is the point at which the contract or agreement for sale becomes a sale and breach, if there was one, occurred at performance or delivery when the contract was no longer executory but was executed."

Accordingly, she concluded that the breach of the contract for sale, if there was a breach, occurred at the date of delivery of the goods to the buyer, meaning that the plaintiff's claim for breach of contract was not statute-barred.

The action in negligence
Following Gallagher v ACC Bank, Baker J. refrained from engaging upon the "artificial exercise of distinguishing between or decoupling the claims in contract and tort".  She concluded that the central and primary claim in this case was a claim for breach of the agreement for sale of a machine, a claim made in contract and under the provisions for the Sale of Goods Act 1893 and 1980.

For more information please contact Davinia Brennan at dbrennan@algoodbody.com

Date Published: 13 January 2015