#13890 - Defective Goods - Commercial Law

Defective Goods

Introduction

• A breach of an express or implied term will give rise to a remedy – the nature of the remedy will depend on the severity of the breach and whether we’ve got a breach of an implied term which is a condition or treated to be a condition or treated as warranty

• Important to remember that the parties are free to contract they can vary or negative the implied terms (the terms implied by statute) subject to UCTA and other UTCCR

• The moment of delivery is very important:

  • 1)Delivery (voluntary transfer of possession is the moment of delivery)

  • 2)Acceptance

  • 3)Payment

• The general position is that the buyer collects the goods from the seller

• This moment in time is very important, because somewhere in time between delivery and acceptance where the seller forwards to the buyer a reasonable opportunity to examine the goods. It’s the examination which becomes important because the buyer will say are these goods which I contracted for. So at that moment he can either accept the goods (he may be lawfully required to accept the goods if they do conform the contract), or he could reject the goods (if he has a lawful right of redemption)

• Imagine if the buyer accepts the goods and later finds them to be defective. But we have acceptance and any right of rejection is lost. But he does have rights under the contract.

• This leads us to the two-prong point of express and implied terms. The moment of delivery is very important because that is when the examination comes – and ought to reveal a defect if there is one. Of course there may be latent defects that only are visible a bit later.

Express Terms

• Deviation from express terms (aside from de minimis rule) = there will be breach of contract

• Express terms often treated as innominate terms

• As held in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]

  • according to this case innominate terms may be innominate/ intermediate at the time of the contract as it is unclear whether the parties intend for that term to be treated as a condition or warranty. It is only at the time of breach would the courts consider whether at the time of breach how important it was, if it was really important then we would treat it as a condition or innominate or is it a mere representation (then it would fall outside the contract)

• Cehare v Bremer Handelsgesllschaft (1976) - applied in this case in a sales contract.

• Nature and consequences of breach may not allow buyer to repudiate the (whole) contract - some breach may only give rise to the buyer’s right to damages

• In the commercial setting might amount to a discount – where the goods are only slightly defective

Implied Terms

• Implied terms according to the SGA are treated as conditions – justify Buyer’s rejection of the goods

  • Four primary implied terms in Sale of Goods Act to be treated as conditions:

    • s.12 – at the time of contract/delivery has good title

    • s.13 – description

    • s.14(2) – satisfactory quality, fitness for (common/ordinary) purposes

    • s.14(3) – fitness for (particular) purpose, which are made known

    • s.15 – sample

    • s.15(A) – de minimis as amended in 1994. Saying that in the situation where we’ve got a non-consumer buyer and the breach is so slight that a reasonable buyer wouldn’t be entitled to claim/reject then this is of course de minimis. Where we’ve got a consumer buyer then even the slightest breach will entitle the buyer to have the right to claim/reject. Keeping the wheels of commerce going – any slight breach will not stop the contract.

  • If there is a breach of an implied term, which is a condition, then the buyer effectively has the right to reject the goods. This rejection may happen once the buyer has examined the goods or once the buyer has accepted the goods – then perhaps he has a right to claim for breach of contract

Effect

• Buyer’s protected against risk of goods proving to have defects of quality or fitness for purpose.

• And so there is a: series of ‘graduated duties’ upon the seller to ensure that the goods are of satisfactory quality.

• Onus is on the seller to keep the goods in satisfactory quality. Caveat emptor or caveat venditor?

• Perhaps this is caveat venditor as the onus is on the seller to ensure that the goods are of satisfactory quality. Good example of caveat venditor state of affairs

• Implied terms limits the extent to which seller can ‘contract out’ (UCTA 1977, UTCCR 1999)

• If there are certain duties on the seller, perhaps he might like to draft the contract (subject to his position/bargaining power) in such a way that he himself is protected and so the onus is on the buyer. Then it will be a case of caveat emptor. Not a problem in the theory of the freedom of contract parties can decide as they wish. Problem is where we bringing consumers into the equation, whereby UCTA/UTCCR are afforded more protection.

• SGA sets out certain rights of the buyer – we get the rights through according duties on the seller – someone has to be responsible. If the seller tries to take the rights of the buyer away then we’ve got UCTA/UTCCR as a fall back if it would be unreasonable to do so (reasonable test in UCTA). UCTA doesn’t only deal with consumer buyers but also non-consumer buyers where it would be unreasonable to bury the implied term in someway

Sale by description

• s.13(1): ‘Where there is a contract for the sale of goods by description, there is an implied term that the goods correspond with the description...’

• So what we can see here is that description is very important here…what is a contract for the sale of goods by description? The goods when delivered must correspond with the description – we will see that on examination

• N.B. A sale by description is different from the sale of a specific chattel (e.g. a particular type of book that is identified – specific/individualised)

• How do we discern if we’ve got a sale of description – we will look at the parties’ common intention & the buyer’s reliance on the description

• To what extent does a description protect a buyer? The more detailed the description then the buyer has to ensure that the goods comply with the description.

• If it’s a very brief description – then there’s a lot of room for interpretation and therefore less protection

• So we look at 1) intention, 2) reliance

• Descriptive words can be words that identify the goods or descriptive words in context of the quality of the goods. E.g. Triple A Canned Tuna

• So we’ve got descriptive words of contractual obligation (specific things) giving rise to liability (namely condition, warranty or innominate term)

Arcos v Ronaasen [1933]

• Buyer agreed to buy a quantity of wooden staves for making cement barrels

• The seller knew the purpose for which the staves were to be used.

• In the contract the staves would be inch thick

• On delivery the buyer found that 5% of the quantity was 5% thick, but most of them were wider then inch thick. Though the rest being smaller than 5/8^ths thick.

• House of Lords held that the goods were ‘commercially within and merchantable under the contract specification and reasonably fit for the purpose for which they were sold’

• However the buyer was entitled to reject the goods for the sellers breach of s.13 – because the goods in the words of s.13 the goods do not correspond with the description.

• Lord Atkin said that ‘if the written contract specifies the conditions of weight, measurement and the like, then those conditions must be complied with. A tonne does not mean about a tonne, or yard about a yard.

  • 1) At the time 1933 – the language is about ‘merchantable quality’ today it is ‘satisfactory quality’. Before 1973 we say that the goods must be fit for purposes for which the goods are commonly sold/merchantable. Courts were saying for the goods, which are commonly bought (not sold). Point to take away from this is to see in light of caveat emptor/venditor and how the statutory language has changed and how this has changed the position of buyer and seller.

Goods which are commonly sold versus bought.

Tested under the old language under the standpoint of the seller – ask another seller is this for one of the purposes for which you commonly sell these goods – yes or no? Versus ask a reasonable buyer – are these a the purposes for which you commonly buy your goods? So it’s about asking the reasonable buyer versus the reasonable seller

2) How would you reconcile the breach with s.15(A) – the de minimis rule. The law has modernised ‘de minimis’ for not giving rise to claim for breach. Would Arcos be decided differently today? If you look at what Lord Atkins says he says that this is something for really specific if I’m going to put a specific measurement into the contract then it has to be complied with. Presumably the parties have discussed this to come up with the measurement. The buyer could have been vague about it but he was not. It is about identifying the goods. If it is bigger than X amount then these are not the goods that I contracted for.

• Interesting in this case as he could still make the cement barrels he was at no loss.

Beale v Taylor [1967]

• Defendant advertised his car as a “Herald, White Convertible, 1961”

• You might not be able to ascertain whether it is a ’61 convertible.

• The buyer bought it after an examination – and it turns out that the car was made from two parts, and only half of it comprised of a 1961 herald. A half-truth.

• Court of Appeal said that 1961 formed part of the description for the purposes of s.13. In other words we have a sale by description b/c we test it in the standpoint of the intention of the parties. What is the...