Lecture 2 - Statutorily implied terms PDF

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Statutorily implied terms...

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Lecture Two Statutorily Implied Terms 1. Introduction of Terms Implied in the Sale of Goods Act 1979 • From Caveat emptor to Caveat venditor S14 (1), SGA 1979 (Caveat emptor preserved) ‘Except as provided by this section and section 15…and subject to any other enactment, there is no implied term about the quality or fitness for any particular purpose of goods supplied under a contract of sale.’ (still alive for purely private contracts e.g. C2C)  BUT caveat emptor eroded by s12-15 of SGA 1979 and Pt1 of CRA 2015  The governing principle for contract of sale NOW: caveat venditor. Caveat emptor – (Used to be the governing principle underpinning SG contracts) Let the buyer be aware – buyer must not be ignorant about the nature of the property he is buying – should ensure the quality of the product and that the seller has the right to sell the product. Caveat Venditor – (Now the governing principle) Let the seller be aware – seller responsible for any problems the buyer may encounter in respect to the goods. Classifications of terms under a sale contract:  Express terms (goods, specifications, price, time and method of delivery) – these vary upon circumstances and are agreed upon by both parties when creating the contract.  Implied terms (by court, by statute) – these are not expressly agreed, but are included into the contract, often without these, the contract would not make sense.  Condition (breach gives the right to reject goods AND claim damages BUT the right to reject goods may be lost if the goods are ‘accepted’)  Warranty (breach gives right to damages only) Subject to two qualifications: 1. If the seller breaches a condition of a contract of sale, the buyer can waive the condition (waive the right to reject the goods or repudiate the contract) and elect to treat the breach of the condition as a breach of warranty (claim damages only) and not as a ground for treating the contract as repudiated. 2. A buyer who does not deal as a consumer and who would otherwise have the right to reject the goods, following a breach of terms implied by s13-15 will not be permitted to do so if the breach is so slight that it would be unreasonable for him to reject them. Condition or Warranty?  Depends “in each case on the construction of the contract” (s.11(3))

 Statutorily implied terms are classified as conditions or warranties:

3. The Duty to pass good title (s.12) (effects of breaching the following 3 sections): 

S 12(1): Implied term (condition) that the seller has the right to sell the goods

Right to sell (Just because you own it, does not mean you have the right to sell it) must be distinguished. NOT ALWAYS THE CASE – The seller can affect a contract of sale on behalf of another who DOES have title to the goods, as long as this is consented for by that person. Niblett v Confectioners Materials Co Ltd [1921] – Seller had no right to sell goods although had title to the goods and had transferred this title to the buyer BECAUSE of trademark infringement and seller liable to injunction that restrained the sale. “The sellers had not the right to sell these goods. They gave an undertaking not to sell them, and having admitted that they were an infringement of the Nestlé Company's trade mark they were liable to an injunction restraining the sale. Therefore, they had no right to sell these goods at the time when the property was to pass.” per Atkin LJ ‘A vendor can be stopped by process of law from selling, he has not the right to sell’ (Per Scrutton LJ) Stock v Urey [1955] – car sold by seller to buyer seized by customs authority because car smuggled – seller had no right to sell the car.

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S12(2)(a): Implied term (warranty) that goods are free from any undisclosed charge or encumbrance

Condition - buyer can reject the goods, repudiate the contract and sue for damages Section 11(4) states that a buyer may lose the right to reject goods where he has ‘accepted’ the goods BUT DOES NOT appear to apply to breach of section 12. Rowland v Divall the buyer was entitled to reject the goods and recover the full purchase price after a length of time after the sale. Thief stole car, sold it to D, who sold it to R (motor dealer). R painted the car & put it in showroom, sold to customer. 2 months later, car repossessed by police (stolen).

COURTS: ‘[T]here has been a total failure of consideration, (because buyer did not obtain valid title) that is to say that the buyer has not got any part of that for which he paid the purchase money. He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession, but the seller had not got the right to possession and consequently could not give it to the buyer. Therefore, the buyer, during the time that he had the car in his actual possession had no right to it, and was at all times liable to the true owner for its conversion.’ per Atkin LJ ‘In this case there must be a right to reject and also a right to sue for price paid as money had and received on failure of the consideration.’ ‘the sub-section (s11(4)) has no application to a breach of that particular condition.’ • CRITICISED: Injustice—a buyer may recover the full purchase price even though he may have enjoyed use of the goods for a considerable period. (further explained in Butterworth) Butterworth v Kingsway Motors Ltd [1954] seller recovered more than what he actually lost. Law Reform Committee proposed a change so that the buyer in this circumstance can recover NO MORE than what he actually lost, given benefit as to how he came about acquiring it.

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S 12(2)(b) Implied term (warranty) that the buyer will enjoy quiet possession of the goods

Warranty the goods are free, and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed or known to the buyer before the contract is made. S12(2)(a) SGA:  Charge/encumbrance only refers to proprietary or processionary rights, not a mere contractual right.  The goods must be free and remain free until the goods pass to the buyer.  The section will not apply where the existence of the charge or encumbrance has been made known to the buyer before the contract was made.  Buyer could only receive damages from the seller. A continuing warranty (may be breached even after property transferred to the buyer)- ‘the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed or known.’ Section 12(2)(b) Quiet Possession

 The duty implied by this section is a CONTINUING DUTY! Rubicon Computer Systems v United Paints Ltd (2000) - seller sold computer programme to the buyer, dispute arose and the buyer withheld part of the payment so the seller activated a time lock system to prevent B from accessing the system – when this was released, the computer programme was outdated. Held: S was in breach of s.12(2)(b) Microbeads AC v Vinhurst Road Markings Ltd [1975] – breach can also occur where a third party interferes with the buyer’s quiet possession. Seller sold 3 machines to buyer and buyer dissatisfied with their performance and refused to pay full price of contract. 2 years later 3rd party sought injunction preventing buyer using machine as machine infringed 3rd party’s patent. ‘Now I turn to section 12 (2). It says that there is “an implied warranty that the buyer shall have and enjoy quiet possession of the goods.” Taking those words in their ordinary meaning, they seem to cover this case. The words “shall have and enjoy” apply not only to the time of the sale but also to the future. “Shall … enjoy” means in the future. If a patentee comes two or three years later and gets an injunction to restrain the use of the goods, there would seem to be a breach of the warranty.’ (Lord Denning) – said no breach of section 12(1) because seller had right to sell goods at time contract was made (3rd party’s patent not yet granted at time of contract concluded) Contracting out of s12: Section 55 (1) Implied contract terms may be contracted out BUT they are subject the UCTA. “Where a right, duty or liability would arise under a contract of sale of goods by implication of law, it may (subject to the Unfair Contract Terms Act (UCTA) 1977) be negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract.” ‘Liability for breach of the obligations arising from— (a) section 12 of the Sale of Goods Act 1979 (seller’s implied undertakings as to title, etc.); …. cannot be excluded or restricted by reference to any contract term.’ s.12 – s. 6 (1) of the Unfair Contract Terms Act HOWEVER– s.12(1) and 12(2) are subject to s.12(3)! This subsection applies to a contract of sale in the case of which there appears from the contract or is to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third person may have. 12(3) See also 12(4) and 12(5)

S13 - Implied Term: Goods must correspond with the Description: 13(1) Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.

(1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition. The basics:        

Applies even where seller is a ‘private’ seller (e.g. C2C transactions) Varley v Whipp [1900] Applies where ‘goods are sold by description’ (applies to unascertained or future goods, and specific goods) Grant v Australian Knitting Mills ltd [1936] Goods must correspond with the description Arcos Ltd v E A Ronassen & Son [1933]; S15 A, SGA Implied condition = strong remedies if s.13 is breached! --could allow buyers to escape from a bad bargain --Subject to s15 A

Where the buyer is unreasonable to reject the goods, the breach of section 13 will only be treated as a breach of warranty, not condition (so only entitled to damages). Issues to consider (4): ISSUE 1, Q: Does s.13 apply?  Section 13 applies ‘Where there is a contract for the sale of goods by description…’ Identification of the goods Initially intended to protect buyers of future or unascertained goods; Varley v Whipp courts extended application of s13 to cover specific goods where unseen.

Varley v Whipp buyer bought second-hand whipping machine said to be ‘NEW’ but was not, buyer rejected machine and wouldn’t pay for it. Courts: buyer not able to rely on s14 as the seller was not a dealer in agricultural machinery so was a C2C contract, not business. BUT goods didn’t correspond with description SO held breach of section 13. ‘The term 'sale of goods by description' must apply to all cases where the purchaser has not seen the goods, but is relying on the description alone. It applies in a case like the present, where the buyer has never seen the article sold, but has bought by the description….The most usual application of that section no doubt is to the case of unascertained goods, but I think it must also be applied to cases such as this where there is no identification otherwise than by description.’ Seen goods: Grant v Australian Knitting Mills Ltd [1936] ‘It may also be pointed out that there is a sale by description even though the buyer is buying something displayed before him on the counter: a thing is sold by description, though it is specific, so long as it is sold not merely as the specific thing, but as a thing corresponding to a description e.g. woolen undergarments, a hotwater bottle, a second-hand reaping machine, to select a few obvious illustrations.’ Lord Wright Beale v Taylor [1991] - similar approach Seller believed car to be: ‘1961 Triumph Herald 1200’ Advertisement read: ‘Herald convertible, white, 1961, twin carbs., £190…’

After purchasing, buyer realized the car was a mashup of two cars. 

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‘The question in the present case is whether the sale here was a sale by description or whether, as the seller contends, it was a sale of a particular thing seen by the buyer and bought by him purely on his own assessment of the value of the thing to him.’ Couldn’t be taken under section 14, as section 14 only applies to situation where goods are sold in the

Could be sale by description for specific goods, even where goods displayed and inspected by the buyer, so long as it was sold not merely as the specific thing, but the thing responding to the description. SO, the buyer relies at least in part, on the description (here relies on badge on car showing model and description).

course of business. This is reflected in S13 (3) ‘A sale of goods is not prevented from being a sale by description by reason only that, the goods being exposed for sale or hire, are selected by the buyer.’ Breach of s13 may enable the buyer to repudiate the contract and reject the goods (very strong remedies) Q: Was there reliance in Beale v Taylor? Seller was not a motor dealer (private person – C2C transaction) so therefore reliance would be difficult to establish. This highlights why the judgment could possibly be criticised. Commercial law aims to respect the validity and sanctity of the agreement reached by parties and avoid the abuse of strong remedies enabled by s13. The description must constitute a term of the contract – if not, may simply be a representation & therefore an alternative remedy required (misrepresentation). 

Section 13 applies “Where there is a contract for the sale of goods by description…” - interpreted as meaning that the description must constitute a term of the contract! What factors do the courts take into account when deciding if a description is a term of the contract? Oscar Chess Ltd v Williams [1957] ‘I am of opinion that there was no evidence to support the conclusion that the statement that the Morris car was a 1948 car was a term of the contract. The registration book, showing that the car was first registered in 1948, was produced by the defendant to the plaintiffs' representative, a motor salesman, who was familiar with the car having often had lifts in it, thought it looked like a 1948 car, and checked up on the registration book. The defendant was stating an opinion on a matter of which he had no special knowledge or on which the buyer might be expected also to have an opinion and to exercise his judgment.’ Per Hodson LJ Harlingdon and Leinster Enterprises v Christopher Hull Fine Art Ltd [1991] (parties’ common intention & buyer’s reliance) B2B contract of the selling of paintings that ended up being forgeries. Did the description form a term of the contract? – buyer must have relied on the description. In this case, buyer and his employee were experts therefore didn’t rely on the description (inspected the paintings before buying).

‘The description must have a sufficient influence in the sale to become an essential term of the contract and the correlative of influence is reliance. Indeed, reliance by the buyer is the natural index of a sale by description. … For all practical purposes, I would say that there cannot be a contract for the sale of goods by description where it is not within the reasonable contemplation of the parties that the buyer is relying on the description.’ per Nourse LJ The issue is ‘on an objective assessment of what the parties said and did at and before the meeting at Motcomb Street, and of all the circumstances of the case, is it right to impute to them the common intention that the authenticity of the attribution to Gabriele Münter should be a term of the contract of sale?’ per Slade LJ … ‘where a question arises as to whether a sale of goods was one by description, the presence or absence of reliance on the description may be very relevant in so far as it throws light on the intentions of the parties at the time of the contract. If there was no such reliance by the purchaser, this may be powerful evidence that the parties did not contemplate that the authenticity of the description should constitute a term of the contract… If, on the other hand, there was such reliance … this may be equally powerful evidence that it was contemplated by both parties that the correctness of the description would be a term of the contract (so as to bring it within section 13(1)).’ per Slade LJ

SUMMARY OF RELIANCE: *If it is clear that the description is a term of the contract (e.g. if written in the contract) – do not need to show reliance *Reliance becomes important when the description forms part of pre-contractual negotiations and/or is not recorded in the written contract. *Reliance a tool to ascertain intention of the parties Terms that are excluded from forming part of the description:

Courts impose a number of restrictions in relation to section 13. They take a very restrictive view.

Reardon Smith Line Ltd. V Hansen Tangen [1976]

Turns out the ship was built in a different shipyard in Japan, not the one stated in the contract. When the vessel was ready for delivery, the market collapsed & the charterer (buyer) tried to reject the vessel relying on section 13(1) on the grounds that the ship was not built in the shipyard in contract. Court held this term did not constitute, under section 13, the implied condition. Only if the item constitutes a substantial ingredient of the identity of the goods, will the term form part of the description – shipyard did not constitute this in this case, didn’t matter where it was built Ashington Piggeries Ltd v Christopher Hill Ltd [1972] Sale of ‘Norwegian herring meal fair average quality of the season’ for minks The meal contained a preservative which reacted with the herring to form a chemical (DMNA) that was toxic to mink COURT HELD: Issue of quality (s14) rather than description (s13) because adding the preservative that was added and toxic to mink, did not change the identity of the goods (may have been able to feed other animals anyway) ‘Not all A summary: Varley, Grant and Beale expand the scope of s.13 Applies not only to unascertained goods but to specific goods (seen or unseen), once they are sold by description. Oscar Chess and Harlingdon restrict the scope of s.13 Applies to terms and not mere representations. Reardon and Ashington further restrict the application of s.13 Only applies to terms relating to identity of goods, not to every term. Courts take a restrictive view of s.13 statements about the characteristics of goods which aregenerally…. the subject-matter of a contract of sale form part of the "description" by which they are sold …The "description" by which unascertained goods are sold is, in my view, confined to those words in the contract which were intended by the parties to identify the kind of goods which were to be supplied…. ’ ‘…It is open to the parties to use a description as broad or narrow as they choose. But ultimately the test is whether the buyer could fairly and reasonably refuse to accept the physical goods proffered to him on the ground that their failure to correspond with that part of what was said about them in the contract makes them goods of a different kind from those he had agreed to buy.’ Per Lord Diplock Contrast: Pinnock Bros v Lewis and Peat Ltd [1923] - Sale of ‘East African Copra Cake, described as ‘fair average quality. Goods ended up being mixed with castor beans, which were poisonous. The goods therefore could no longer be described as copra cake – lost their identity so breach of section 13. ISSUE 2, Q: Is there a breach of the implied term in s.13? Beale v Taylor – ‘Herald convertible, white, 1961, twin carbs., £190…’ Varley v Whipp -- ‘new reaping machine, used to cut 50 – 60 acres’ Fogarty v Dickson -- ‘spring wheat seed’ (breach, as the goods delivered was of a winter wheat seed)

Arcos Ltd v E A Ronassen & Son [1933] Sale of wooden staves, to be ½ inch thick BUT, 95% were 1/8 inch smaller than the contractual description. Still suitable for use BUT courts held breach of s.13 & that buyer could reject the staves! ‘If the written contract specifies conditions of weight, mea...