Implied Terms in Contract of Sale

In advising George the first thing that must be identified is the cause of action that he may have against Farmworks in respect of the tractor supplied. As the facts indicate that the tractor was sold to George there will have been a contract of sale between the two parties. The main causes of action that George may pursue against Farmworks is breach of contract for the implied terms under the Sale of Goods Act 1979 (SOGA) or a claim in misrepresentation. Each cause of action will be discussed below in relation to the law and remedies that might be available to George.

Implied Terms:

Section 14(3) of the SOGA 1979 implies into contracts of sale a condition that the goods supplied under the contract will be reasonably fit for any purpose which the buyer expressly or impliedly made known to the seller. When a buyer asks a seller for advice or further information on the product being purchased it is considered reasonable for the buyer in that situation to rely on the skill of the seller. The implied condition under section 14(3) is confined to situations where the seller sells in the course of his business and the buyer must have relied upon the advice in making the sale. The facts indicate that George specifically asked Andrew from Farmworks whether the TX model of tractor is suitable for ploughing all types of soil. The representation made by Andrew indicated that many major agribusinesses had bought the tractor which suggested the tractor was versatile. Additionally George sought information on the weight of the tractor which Andrew had specifically pointed out the size of the tyres which distributed the weight of the tractor so that it would not be too heavy. It is also important to point out that Andrew knew George in a personal capacity which would suggest that he may well have known the specific use George had bought the tractor for. For George to establish a breach of section 14(3) he must prove that he communicated the specific purpose of the tractor either expressly or impliedly and then went on to rely on the advice provided by Andrew in making the purchase. Therefore George’s case will turn upon two key issues, firstly whether George sufficiently communicated to Andrew either expressly or impliedly the particular purpose and secondly whether George relied upon the response making the purchase.

On the first issue the approach of the courts in interpreting the ‘particular purpose’ has been wide and does not require that the buyer should disclose all the purposes which the goods are to be used. However, in George’s case it seems that the soil is of a particularly fine and dusty nature which may be very specific to George. Additionally George did not expressly make Andrew aware of his intentions of using the tractor to plough in such fine and dusty soil, although he did asked questions relating to ploughing. Where there is a particular eccentricity within the purpose the courts have found that there must be some disclosure to the seller. It will be for the courts to decide whether George should have disclosed the fact that the soil is a particularly light and dusty light and whether this is a particular eccentricity only applicable to George. The issue will turn upon whether George can assert that as Farmworks is a local supplier of agricultural machinery they would have or at least should have constructive knowledge about the soil types in the locality within which they carry on trade. Further the fact that Andrew knew George personally it may indicate he would have been or should have been fully aware of the type of works that George had intended the tractor for. Although ultimately it will be for the courts to determine whether section 14(3) can be relied upon, it can be asserted that as Farmworks is a local supplier, that Andrew knew George and George asked a number of pertained questions – it all points to a particular purpose which may point to the courts accepting the particular purpose was known to Farmworks.

On the second issue of whether George actually relied upon the response given by Andrew the courts have tended to find that the buyer must ‘bring home’ to the seller that they are relying upon the information given to such an extent that the seller is selling the goods on those terms. However, in essence there must be a ‘reasonable reliance’ made by George. Reasonable reliance involves considering the expertise of the buyer and the seller. It is evident from the facts that Andrew is a farm machinery agent selling agricultural machinery to individual customers and businesses. It is there line of trade and therefore it may be reasonably expected they should know the suitability of their tractors and be able to advise their customers appropriately. However, as the TX model is a new line of tractor it may be sufficient for Farmworks to abrogate their responsibility in that it may considered by the courts as being unreasonable for Farmworks to have been able to advise the suitability of the TX model. It must be noted that as George knows the nature of the soil on his farm and has arguably communicated this to Andrew indirectly through his questions and through the fact that they know each other, it may be reasonable to argue that Farmworks knew the nature of the soil and was being asked to comment on the suitability of the TX on George’s farm. Additionally, by George directly questioning Andrew about the weight of the tractor and Andrew response as to the wide nature of the tyres to even distribute the weight of the tractor, it may be argued that it was reasonable for George to rely upon the information given by Andrew during the course of the sale in deciding to purchase the tractor.

In summary if George can prove that he communicated the particular purpose he required the TX tractor for and reasonably relied upon the information provided he will be able to rely upon section 14(3) of the SOGA 1979. The remedies he may be entitled to claim are the right of rejection of the goods, damages for non-delivery and damages for breach of warranty.

In dealing with the right to reject goods a non-consumer, such as George, is not allowed to reject the goods under section 14 of the SOGA 1979 for trivial reasons but rather the courts allows the buyer under section 15A of the SOGA 1979 to sue for damages under a breach of warranty. This only applies where the breach is so slight that it would be unreasonable to allow George to reject the tractor. It will be a matter for the court to decide whether in this particular case the breach is so slight that it would be unreasonable to allow George to reject the goods. It can be submitted that if the courts accept that the breach is so serious that it detrimentally affects George’s ability to operate sufficiently which damages would not compensate adequately, they may allow a right to reject. But as George is not a consumer it must be accepted that the likely remedy would be damages for breach of warranty.

In dealing with damages for non-delivery under section 51(1) of the SOGA 1979 it provide for compensation where the goods delivered where rightfully rejected by the buyer. The key question will be whether George can now eight weeks post-purchase ‘rightfully reject’ the goods. Under section 34 of the SOGA 1979 the buyer is allowed a reasonable period of the time to examine to the goods to assess their compliance with the contract of sale. Under section 35 of the SOGA 1979 a buyer will only have deemed to accepted the goods after a lapse of a reasonable period of time. In Clegg v Anderson (2003) and Truk (UK) v Tomakidis GMgH (2000) a reasonable period of time for inspection was held to be 6 months post-purchase plus a further three some for investigation. On the basis of these two cases, it can be submitted that in George’s case eight weeks is perfectly reasonable period of time to assess the compatibility of the goods in comparison to the contract. Under section 51(2) of the SOGA 1979 it allowed the buyer to sue for compensation which is in the ‘ordinary course of events from the seller’s breach of contract’. In George’s particular case he will be entitled to sue under the principles set out in Hadley v Baxendale (1854). The statute and case law allows compensation for loss of profit, loss of goodwill or for general damages which they incurred directly resulting from the loss. However, it is important to note that the buyer in these circumstances must take all reasonable steps to mitigate any losses. The facts indicate that George is seeking compensation for the loss of profits resulting from his lower yields of wheat. This loss appears to be directly related to the breach by Farmworks and would reasonably have been contemplated by the parties considering if the tractor had not been suitable for George’s farm.

In summary if George can successful establish a claim under section 14 of the SOGA 1979 he will be entitled to damages for breach of warranty and damages for non-delivery.

Other Causes of Action:

A further basis for a breach of contract would be under section 13 of the SOGA 1979 where a sale has taken place by description. When George entered the premises of Farmworks he saw an advertisement on the window which claimed that the TX tractor was ‘suitable for all types of ploughing’. Under section 13(1) there is an implied term into a contract of sale where goods are sold by description the goods delivered must correspond to that description. The courts have held that the description must relate substantially to the identity of the goods and the buyer must rely upon that description. It is only where the buyer relies upon that description does it become actionable under section 13. (Harlington & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd (1991)). The courts have also held that the standard to which the goods must correspond with that description is substantially high in that buyers are generally allowed to reject goods which do not correspond to the description. (Re Moore & Co Ltd and Landauer & Co Ltd (1921)). In George’s case it would depend upon the exact wording used within the advertisement, whether there were any further explanations and whether any exclusion was made on the advertisement. Ultimately whether there is a breach of contract under the implied terms under section 13 will be determined by the courts, however, it may be argued that as the poster specifically stated ‘suitable for all types of soil’ and the tractor subsequently turns out that it is not suitable George may be able to use section 13 to further strengthen his claim against Farmworks. It should be noted, however, as with section 14 discussed above the courts have generally not allowed rejection of the goods for breach of description in non-consumer cases, opting to allow claims for damages.

Closely linked to section 13 is section 14 of the SOGA 1979 which deals with whether goods are of a satisfactory quality. When a seller sells goods in the course of their business under section 14 there is an implied term that those goods will be of a satisfactory quality. In order to determine whether Farmworks were acting in the course of their business and whether George could be considered as not acting in the course of his business, consideration must be given to the way in which the sale was transacted. It is evident from the facts that Farmworks is in the business of regularly selling farm machinery such as tractors in an on-going business capacity. As George is a farmer and may be considered a business entity also, the facts indicate that a tractor is not within his regular daily business but rather it is just a tool of his trade. In such circumstances, it can be argued that Farmworks dealt in the course of their business and George did not deal within his course of business. (Feldaroll Foundry plc v Hermes Leasing (London) Ltd (2004). Section 14(2A) and (2B) lists a number of factors to consider when assessing whether goods are of a satisfactory quality. The statute states that goods are not of a satisfactory quality if they are not as a reasonable person would regard as being satisfactory taking into account the description of the goods and their price in addition to any other relevant circumstances. Factors to help determine whether goods are of a satisfactory quality is whether the goods are fit for all the purposes which the goods are commonly supplied, their appearance and quality, their freedom from minor defects, their safety and their durability. The most relevant factor for George is the freedom from minor defects; the courts have held goods not to be of a satisfactory quality where engine faults were found six months post-purchase. (Rodgers v Parish (1987)). The key question for George’s action will be whether the courts would consider the failure of the TX tractor in being unable to plough George’s land as being more than a minor defect which affects the satisfactory quality of the goods. It may considered that as Farmworks advertised the TX tractor’s suitability for ploughing all soil types and the other relevant circumstances surrounding George’s questions to Andrew, Andrew’s likely knowledge of George’s farm and the location of Farmworks being in the locality of George’s farm, all seem to point towards the delivery of a tractor which is not of satisfactory quality.

In summary it may be considered that George may succeed in a claim under section 13 for sale by description and section 14 for satisfactory quality if the court considers that George relied upon the advertisement advertising the fact that the tractor was suitable for all types of soil and the fact that the tractor is not suitable for George’s farm may be more than a minor defect which affects the satisfactory quality of the tractor.

One further additional claim that George may bring against Farmworks is a claim for misrepresentation by the advertisement stating the tractor’s suitability for all soil types and Andrew further information relating to George’s questions. There are three stages to successfully establishing a claim in misrepresentation: firstly there must be an actionable misrepresentation, secondly the statements must be made prior to the contract, and finally the statements made must have induced the contract.

An actionable misrepresentation is a statement of material fact, made prior to a contract which is either false or misleading but induced the other party to enter into the contract. The basis of this claim is that the advertisement coupled with Andrew’s further information form together to represent a statement of material fact likely to be considered an opinion made by Farmworks as to the suitability of the TX tractor’s use on George’s farm. The key issue here is that in general a false opinion cannot give rise to a misrepresentation as to a fact and in this case the fact that the tractor is suitable for all types of soil. (Bissett v Wilkinson (1927). However, where the party making that statement has special knowledge or skill which gives weight to that opinion, in these circumstances an opinion may give rise to an implied representation of fact which is capable of being an actionable misrepresentation. (Smith v Land and House Property Corp (1884)). It is also unlikely that the opinion in George’s case would be considered mere sales talk or puffs made by Farmworks as the representation goes to the core use George intends for the TX tractor and it is central to George’s reason for entering into the contract of sale. The facts also make clear these statements were all made prior to the contract. (Roscorla v Thomas (1842)).

In considering the final aspect of a claim for misrepresentation the statements made must have induced George to enter into the contract, which can be evidenced by George’s reliance on the statement. The facts indicate that the statement is made by Farmworks and George does appear to have relied upon that statements as to the tractor’s suitability for ploughing all soil types. (Attwood v Small (1838)).

In considering the facts it is likely that the type of misrepresentation made by Farmworks is either innocent misrepresentation or negligent misrepresentation. It does not appear that Farmworks actually were aware of the tractor’s unsuitability for light and dusty soils however, it may be considered negligent for making such claims without proper investigations made by Farmworks as to the tractor’s suitability. If George can successfully establish a claim under misrepresentation he will be entitled to claim rescission of the contract and/or damages. Rescission is an equitable remedy which the courts can grant which would allow the contract to be set aside and terminated as if it never existed. Damages may be recoverable under negligent or innocent misrepresentation for losses which are reasonably foreseeable. (Hedley Byrne v Heller (1963)). If successful it would be likely that George would be able to recover the loss of profits as this would have been reasonably foreseeable.

Conclusion

In summary it is likely that George would be able to establish a claim under the implied terms of the SOGA 1979 if he can establish the necessary requirements discussed above. Additionally he may have a claim in misrepresentation. The advantage of the implied terms is that they are usually easier to prove in that they are perceived in strict liability terms whereas misrepresentation will have to be proved on a balance of probabilities. However, the misrepresentation claim would allow him to rescind the contract and return the goods in addition to claiming damages for loss of profits.