Consumer Contracts and Commercial Law

Generally contracts are concluded by providing express terms in the agreement and such express terms specifically mentioned and agreed by parties may be oral or in writing. In addition to these express terms there are some which exists even they are not specifically provided in the contract and these may be implied terms by statute or implied by the decision of the courts. In English law a contract contains two kinds of terms: express and implied. Courts consider these implied terms to give effect to statutory requirements and common law presumptions. These terms needs to be fulfilled in a contract of sale. The courts do not only put in force those terms which are specifically agreed between the parties, but implied terms as well which can easily be understood (implied) from those express terms. There have been various developments in last couple of decades concerning the application of implied terms in a contract of sale and to understand the present law it is necessary to go through its historical development. [1] P.S Atiyah said [2] , since the 1973 Act there have been developments relating to implied terms and further changes are now expected in the light of the EC’s Directive on certain aspects of the Sale of Consumers Goods and related Guarantees. The first step of developments was the passing of the consolidated Sale of Goods Act 1979. [3] While the second development was that which belongs to the statutory implied terms regarding the quality and fitness were gradually comprehensive to other contracts for the supply of goods as well as contracts of sale. [4] The implied terms are in favour of the buyer and application of these implied terms has limited the possibility of exclusion of seller’s liability in case of breach. These terms are very much important and very wide in scope. The current contracts of sale revolve around these terms. The purpose of the implied terms is to control and regulate the contract of sale. [5]

Modern law has moved away from the principle of caveat emptor by passing the laws for the protection of the buyer consumers and by the implication of implied terms in a contract of sale. Goode said [6] , Doctrine of Caveat Venditor (let the seller be aware) has become more widespread after the increased responsibilities have been placed upon the seller, and seller in most of the cases is under a duty to supply goods of satisfactory quality and fit for their known purpose. The modern law statute and case law transform the position of a buyer from that of caveat emptor to one in which denial of remedy to the buyer for defective goods became exception. [7] In England implied terms as to quality and fitness in s 13-15 of the 1893 Act represented an important step in the abandonment of the original common law rule caveat emptor. [8]

The era of eighteenth and nineteenth century was the era of developments in contract of sale. During that time the prevailing philosophy was ‘laissez-faire’. [9] At the end of the nineteenth century many rules relating to the rights and duties of the buyer and seller had developed and law of sale was included in the commercial law partly. Sir Mackenzie Chalmers presented a bill in the Parliament in1889 which was known as Sale of Goods Bill. [10] The bill became the law in 1893. The objective of the bill was to codify the whole common law however due to the drafting details and amendments made in the parliament it changed the previous law. [11]

The 1893 Act had the force of law till the 1979 Act came into force. Many minor amendments were made during that time. A set of amendments were made in the shape of Supply of Goods (Implied Terms) Act 1973. Such Act restricted the scope of exclusion liability of the seller in case of breach of implied terms regarding goods and gave the new definition of merchantable quality. [12]

The 1979 Act was passed to modify the prevailing law. The consolidation of the 1893 Act and the subsequent amendments happened by virtue of this Act. The result of such consolidation was that most of law in 1979 Act came from the 1983 Act. To make the laws more appropriate to modern consumers and commercial transaction the 1979 Act was amended three times. A remarkable growth made in twentieth century and large amount of legislation has been made for the protection of consumers. The Unfair Contract Terms Act 1977 came into force to put some restrictions on the ability of the seller to exclude liability in case of breach of implied terms regarding goods. The 1977 Act was supplemented by the Unfair Terms in Consumer Contracts Regulations 1999 by the overlapping restrictions. [13]

The problems in the sale of goods act:

The provisions of the Sale of Goods Act are simple. However such simple provisions are misleading to a number of problems. Most of the problems came from the fact that the provisions of the 1979 Act are based on original Act of 1893. The 1979 Act is not a complete code due to this most of the transaction fall outside the scope of the Act either in the consumer protection legislation or in common law. Moreover the Act has been modified three times in 1994 and 1995. [14]

As mentioned above the most of 1979 Act based on 1983 Act which means the 1979 Act was based on the pre existing common law and the court did not considered the issues before 1983 Act so the 1979 Act does not cover such issues. [15]

Some inclusion in the 1979 Act is also the reason of the problems. The Act does not define some terms for example there is no definition of condition in the Act. Some of the language of the Act is not according to the conditions of Modern commerce. [16]

Application of the Implied Terms in a Contract of Sale and Supply of Goods

The terms implied by statutes are applicable to a contract of sale and supply of goods. These terms are provided in section 13-15 of the Sale of Goods Act which gives the buyer substantial degree of protection altogether in regards of goods having defects or fitness of purpose. [17] The types of implied terms provided in the Act are as follows;

Description- s. 13

Satisfactory quality, and fit for ordinary purposes- s.14(2)

Fitness for particular purposes- s.14(3)

Before explaining section 13 to section 14 it is very significant to explain section 12 of the SGA 1979 which will help us to understand more. Section 12(1) of the SGA 1979 [18] states that there is an implied term in the contract of sale that at the time of sale the seller has the right to sell the goods and in case of agreement to sell the seller can invoke such right at the time when the ownership will pass.

Description (s 13)

Section 13 of the Sales of Goods Act [19] provides;

Where the parties enter into contract for the sale of the goods there is an implied term in the contract the goods being sold are according the description mentioned in the contract.

Where the goods are sold by sample as well as description, it is necessary in such case that the goods according to the sample and description as well. It is not enough if the goods are according to the sample alone.

The purpose of this to sale of generic goods that the buyer should be confident that the goods he is going buy are the goods he wants. So this implied condition to correspond with the description plays a very important role [20] . As in the case of Re Moor & Co Ltd and Landauer & Co Ltd [21] there was a contract of Australian canned fruit being packed 30 each case, while on arrival it was found that some of them containing 30 and some of them 24. It was held that by court of appeal that the buyer has the right to reject the whole consignment on the basis of breach of section 13.

If the buyer relies on the descriptive words used by the seller either expressly or impliedly for the purpose of identifying the goods then the sale is by description. If the goods are future or unascertained then the sale must be a sale by description. The description has to be significant in the sale so as to become an essential term or condition of the contract. Expressive words needs to be contractual in nature rather than a simple representation by the seller. In the case of Beale v Taylor [22] there was an advertisement made by the respondent for a care as a ‘Herald’ convertible white and it was bought by the claimant after inspection at seller’s home. In reality, the car was made of two parts being welded together, only one of which was from a 1961 model and the rear half was of any other model. The court of appeal held that; ‘the words were part of the contractual description and the descriptive statement by a seller is a contractual term and not a mere representation’. [23] Buyer normally relies on the expressive words of the seller in the sale of unascertained or future goods. In a situation where the buyer has more expertise and skill and he wants to rely exclusively on his own skills knowledge and judgment then the expressive words used by the seller becomes ineffective. In Harlingdon & Lienster Enterprises Ltd v. Christopher Hull Fine Art Ltd [24] it was held that the case where in the given field the buyer himself has more knowledge than the seller, it would be wrong to suggest that the buyer could have the right to reject the painting sold to him on account of not being the original painter. Where the buyer is not relying on the descriptive words used by the seller then it is relevant to determine the objective of the parties. The plaintiff in the above mentioned case was a specialist in German expressionist paintings, and defendant dealer was not, and the plaintiffs had inspected the paintings, and the plaintiff had inspected the paintings as well LJ Nourse observed that a contract for the sale goods by description cannot be regarded as contract of sale where it does not comes in the ambit of reasonable contemplation of the parties, where the buyer is relying on description. [25]

It is important to determine that which part of the descriptive words used by the seller falls within the scope of section 13 of sales of goods and thereby giving rise to liability if the descriptive words are not complied. On this particular point case law has been developed. In Arcos Ltd v E A Ronaasen & Son [26] , the buyers agreed to buy a quantity of required stave for the purpose of making barrels as the sellers knew about it. Where the contract describes that thickness of the staves will be half an inch. While in fact, only about 5 per cent of them were according to this requirement but a large part was more than half an inch, but not more than 9/10 of an inch; some were larger than this but less than 5/8 inch; and a very small proportion were larger than that. As a matter of fact these goods were commercially within and merchantable under the contract specification and also that they were logically fit for the purpose for which they were sold. Despite having these findings the House of Lords held that the buyer has the right to reject the goods for breach of s. 13.

The implied terms of section 13 even will apply where the goods are being sold by a person who sells not for the business purposes as it discovered in the case of Varley v Whipp [27] where there was a contract of sale of second hand reaping machine but the buyer refused to pay due to misrepresentation than it was held there defendant could not rely on section 14 but there was a breach of section 13.

When the expressive words are being used in a contract of sale the first thing which needs to be analysed is whether they are contractual, or simply amount to representation. If the words are simple misrepresentation then the normal common law and reasonable rules apply. Buy in the case where words are held to contractual then the next important step is to determine whether there is an express term requiring the compliance of those descriptive words. In such a case the remedy of the buyer depends upon the nature and consequences of the breach. If the description is not amounting to express term, then it is a condition and strict compliance is required. [28]

Where the goods sold by sample should comply with the description as well as sample. In Nichol v Godts [29] where the parties agreed to sell and buy specific oil described as foreign refine rape oil. The seller was ready to deliver the oil other than agreed oil which was not complied with by the tender of oil. The court held that where the goods sold by sample should comply with the description as well as sample.

Satisfactory Quality (s14)

There are different ways by which the law protects the interests of the buyer of goods. Implied terms laid down by the SGA 1979 (as amended) is regarded as one of the most important way to protect the interest of the buyer. Implied terms relating to the fitness purpose and satisfactory quality are regarded as more important from a practical day to day view. For the application of these particular terms it is necessary that is selling the goods in the course of business. [30]

Goods supplies under a contract needs to be of satisfactory quality (s 14(2)) and fitness for the buyer’s purposes (s 14(3) [31] . Section 14(2) of the Act provides that,

There is an implied term in the contract of sale of goods that the goods are of satisfactory quality provided that the seller is selling the goods under the course of business. [32]

Section requires the goods to be satisfactory quality supplied under a contract of sale. The term merchantable quality was used before it was substituted for the goods to be of satisfactory quality by the Sale of Goods Act 1994. For the application of section 14(2) of sales of goods act there must be;

Seller sells goods under the course of business

Goods supplied under the contract.

Seller sells goods in the course of business

The implied condition laid down in s. 14(2) of the act applies to the goods sold in the course of business. In Ashington Piggeries [33] case House of Lords held that; the seller sold the goods privately and not under the course of business therefore the contract does not come in the influence of section 14 however the contract comes within the scope of section 13 in which conformity with the description is necessary. [34] While the case of R & B Customs Brokers v UDT Finance Ltd [35] gives the wider definition of consumer in 1977 Act where it was held by the court of appeal that whether the buyer acted in the course of business or as a consumer for the reason of Unfair Contract Terms Act 1977. In suitable situation the first deal by a business could be essential to and therefore in the course of business, so the above case of R & B Customs Brokers v UDT Finance Ltd [36] defines that occasional sales by a business does not means course of business . In Stevenson and others v Rogers [37] , the defendant carried on the business of a fisherman, having purchased his first fishing vessel Dolly Mopp many years ago. He bought the Jelle in 1983 and he sold the Dolly Mopp in November 1986. In April 1988 he sold the Jelle to the plaintiff, intending to have a new boat built to his requirements, but he changed his mind and, by way of replacement, bought another boat in May 1988 which he thereafter used for his fishing business. The plaintiff brought an action against the defendant in relation to the sale of the vessel. The judge held on a preliminary issue that the sale by the defendant to the plaintiff was not a sale of goods ‘in the course of a business’ for the purposes of s 14(2) of the Sale of Goods Act 1979 and thus did not give rise to an implied term that the Jelle was of merchantable quality. The court of appeal by allowing the appeal held that; the words ‘in the course of a business’ in s 14(2) were to be construed largely and at face value. The harm which Parliament intended to resolve in relation to s 14(2) was that s 14(2) of the Sale of Goods Act 1893 had an uncertain effect and was insufficient to impose on every business seller, whether or not habitually dealing in goods of the type sold, the implied condition as to merchantable quality. It was not necessary to do more than to turn to the Sale of Goods (Implied Terms) Act 1973, which s 14(2) simply re-enacted, to see that it was the intention of the 1973 Act to widen the protection afforded to a purchaser by s 14(2) from a situation where the seller was a dealer in the type of goods sold, to one where he simply made a sale ‘in the course of a business’; the requirement for regularity of dealing, or indeed any dealing, in the goods was removed. Given the removal of that requirement, there was on the face of it no reason or warrant to re-introduce some implied qualification, difficult to define, in order to narrow what appeared to be the wide scope and apparent purpose of the words, which was to distinguish between a sale made in the course of a seller’s business and a purely private sale of goods outside the confines of the business carried on by the seller. Accordingly, there was an implied term as to merchantable quality in the contract for sale of the Jelle. [38]

In case of sale through agent the section 14(5) describes that if the principle selling for the business purposes unless the buyer having the knowledge that the agent is acting on the behalf of private principle than the principle will be held liable. In case where there is undisclosed principle than both of them will be held liable in the implied terms [39] . As found in the case of Boyter v Thomson [40] .

Section 14 (2) applies even in the sale of second hand goods and for the application of this rule it is not necessary that buyer had relied on the seller’s skill and judgment. The implied term was a guarantee of inherent quality, and did not depend on any showing that the buyer had relied on the seller. For example, if a buyer ordered goods from the seller which was only made by one manufacturer so that the goods could only be obtained from that manufacturer or from someone who had bought from him, the seller would still be treated as warranting the merchantable quality of the goods. [41]

The contract of sale of goods cannot be rendered repudiated where the goods supplied by the seller to the buyer can be used for proposed purpose. In Cehave v Bremer, The Hansa Nord [42] the court concluded that citrus pulp pellets supplied by the seller could still be used was used for making cattle feed which was its intended purpose and thus fit for satisfactory quality.

Fitness for Purpose

Section 14 (3) requires the goods supplied under a contract of sale to be reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied. The present provisions provide that the quality of goods includes their shape and condition and that among other things which are aspects of the quality of goods is their fitness for all (emphasis supplied) the purposes for which goods of the kind in question are commonly supplied. [43] Although it is very hard to imagine for which purpose the buyer is buying the goods. Grant v Australian Knitting Mills Ltd: Lord Wright [44] , There is no need to specify in terms the particular purpose for which the buyer requires the goods, which is nonetheless the particular purpose within the meaning of the section, because it is the only purpose for which anyone would ordinarily want the goods. [45] The term particular purpose is wide in the sense because it is not foreseeable that for which particular purpose the buyer is buying the goods and sometime it happens that goods seem suitable for one purpose and unsuitable for the other. In such a situation it would not be wrong to assume that goods sold by the seller are required for a normal purpose or one of normal purposes. In a situation where a buyer ordered goods to be made according to his specification and is required for a particular purpose then the buyer need to communicate it properly to the seller then the seller’s duty is limited to using all the reasonable care and skill in selecting the material or making the goods.

A case where buyer relies on seller partially on his skill or judgement as observed in the case of Cammell Laired & Co Ltd v Manganese Bronze & Brass Co Ltd [46] where the respondent agrees to construct two propellers for two ships as described by the appellant but certain things left on respondent’s skill. The House of Lord held that respondent is liable for the breach. Another situation where seller is exporter and from UK to another country of the world and the buying purpose of the buyer is import does not means that he relies on his sill or judgement with respect of suitability of that particular country. [47]

Consumer Protection

There have been implied terms laid down in s.12 to 15 of the Sale of Goods Act those on quality found in the Sale of Goods Act since the original Act of 1893. The satisfactory quality term came into force on January 3, 1995 as a result of an amendment to the Sale of Goods Act 1979 effected by s.7 of the Sale and Supply of Goods Act 1994. [48] In last couple of decades the problem of consumer protection has received good publicity and many legislative changes have been brought as well. The most important of these issues relates to quality and fitness of goods sold in a contract of consumer sale. General rules laid down in s. 14 (2) or (3) the seller is liable irrespective of all due care and skill; his concept of strict liability extends the seller’s liability to consequential loss caused by the defective goods and is not limited to losses which arises under the contract itself, rather the buyer can claim damages from the seller for any loss which is caused by defective goods sold by the seller under the implied terms in the Sale of Goods Act, despite the fact that there is no negligence on the part of the seller. In the famous case of Donoghue v Stevenson [49] it was held that the pursuer, who had consumed part of the contents of a bottle of ginger beer which allegedly contained the remains of a decomposing snail, and who as a result suffered physical illness, might sue the manufacturer of the ginger beer, notwithstanding that the bottle had been bought for her at a cafe by a friend. It is beyond the scope of a work of this nature to deal in detail with the complexities of the tort or delict of negligence; however, its principal problems from the plaintiff’s point of view must be noted. In the first place, the claimant must establish negligence on the part of the manufacturer. The fact that it can be shown that a defect in the product was the cause of the injury will suffice to throw the onus onto the manufacturer to show that he exercised proper care, but he may be able to discharge that onus. [50]

Ervine in his article said; If there is any disposition to advocate a right of repair for sellers in consumer sales, one has only to look at the Law Commissions’ reasons for rejecting such a change to support upholding the status quo. The Commissions in their consultation paper set out three possible schemes of which only their preferred one is referred to here. Under this, where the seller was in breach of the implied terms in ss.13 to 15 of the Sale of Goods Act, the buyer would be entitled to reject the goods: [51]

Incorporation of implied terms in Sale of Goods Act has given buyer a great level of protection. The Sale and Supply of Goods Act 1994 made some significant changes to English Law as contained in the Sale of Goods Act 1979. First, the definition of “merchantable quality” is altered and the implied term itself renamed “satisfactory quality”. Secondly, in non consumer contracts, the buyer is prevented from rejecting the goods and terminating the contract, in the wake of a breach of one or more of the implied conditions in sections 13-15 of the Sale of Goods Act, where the injurious consequences of the breach are so slight that it would be unreasonable to reject the goods. A similar provision prevents the buyer from rejecting goods under section 30 where the shortfall or excess is slight. Thirdly, some minor alterations are made to clarify the relationship between the buyer’s right to examine the goods and the loss of the right to reject them upon acceptance. Fourthly, a new right of partial rejection is given to buyers under entire contracts. Similarly, this right extends to instalments delivered under a severable contract. [52]

Remedies

Liabilities imposed on seller in a contract of sale are very strict and he will be held liable in case of breach even he was unaware of the defects [53] . Exclusion of those liabilities by the seller is restricted by the Unfair Contract Terms 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 [54] . In any case if seller is in breach of his obligations under the contract than the buyer will be entitled to recover the damages for the loss he suffered. There are different types of remedies available to the buyer depends upon the circumstances like right to reject the goods, repudiation, termination of the contract etc. [55] Rejection of the goods is considered most obvious remedy also this right can be exercised even after the transfer of property [56] . As in the case of Kwei Tec Chao v British Traders & Shippers Ltd [