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chapter4

Aug 19, 2014

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Chapter 4: The Quality of Goods and Services: Private Law Remedies

1. IntroductionOften regarded as central topics in sales law and certainly the area of greatest litigation, sections 14 and 15 of the Sale of Goods Act are central to issues concerning buyers reasonable expectations of product performance. They are also of significance to products liability. This area of sales law is not easy to rationalize at a doctrinal level because the sections are applicable to many differing fact situations with correspondingly distinct policy rationales. For example, they may be applicable to a case of personal injuries caused by product defects, to a claim for pure economic loss by a commercial business against a retailer, a claim by a consumer for having received a lemon automobile, or an international commodity contract. One could analyse this area in terms of two competing paradigms: (1) a concern by the courts to impose a risk allocation which the parties would have bargained to (the default rule analysis) and (2) the imposition of obligations by the courts based on ideas of fairness or distributional concerns such as loss and risk spreading. The area is further complicated by the fact that since these implied terms are conditions, an individual is entitled to reject for breach of the condition. It is probably the case that judicial interpretation of the standard (e.g. is this car merchantable) has been affected by concern for the remedial consequences of their finding. Finally, the open texture of the standards of merchantable and reasonable fitness for purpose confer a broad discretion on judges to determine the question based on their perception of buyer expectations. It is perhaps not surprising therefore that in many commercial contracts, contracting parties attempt to establish their own standards of performance. Stapleton claims that the implied terms as to quality "have been the single most potent aspect of the development of the law of product liability. It made commercial sellers accustomed to strict obligations with respect to quality long before they were exposed to a fault standard in tort in this regard, and long before pressures developed to convert that standard into a strict standard". Stapleton, Product Liability (1994) at 14. In relation to retailers the focus is on a sale of goods and the associated obligations implied under the Sale of Goods Act, but there may also be near sales such as a contract for work and materials which do not fall within the scope of the Act (see s2 for definition of sale) or a contract for services such as moving a consumers goods. Leases of goods are also a popular method of distributing goods and these transactions do not fall within the sale of goods act unless they are in substance sales (see discussion earlier in course in relation to leases and security leases) . In relation to quality obligations there may always be the possibility of arguing a common law action based on misrepresentation or express warranty.

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Description, Quality and Fitness for Purpose

68Description, Quality and Fitness for Purpose

The Implied Conditions There are three implied conditions in relation to quality and the condition of goods: correspondence with description (s14); merchantable quality 15(2); reasonable fitness for purpose 15(2). These conditions may not be contracted out of in a consumer sale (see ss9(2) and (3) of the CPA) The latter two are probably the most important and are often argued together as there is significant overlap between them. These are all conditions and therefore breach of an implied term prima facie entitles you to reject the goods and sue for any damages suffered. Rejection is potentially powerful remedy which confers significant bargaining power on the consumer. It is also a consumer remedy since most consumers with defective goods are unlikely to want to keep slightl y damaged goods and receive an adjustment on the price. However s12(3) of the Act limits the right to reject and may potentially cut down significantly the right to reject. (see Chapter 9 at 168-176). We will return to this later but the limitations in the Sale of Goods Act mean that it may be prudent also to claim under the Unfair Practices section of the Consumer Protection Act (provided a plaintiff can prove an actionable misrepresentation under s14 of the Act) which has less restrictions on the right to rescind although there is the one year limitation period. see s18 (3).

3.1. Condition that goods correspond with description in a sale by description The first condition is perhaps less important but includes a private sale whereas merchantable quality and reasonable fitness for purpose apply only to professional sellers. There are two issues here: (1) when is there a sale by description and (2) what constitutes the extent of the description condition. A sale by description was originally restricted in 19th century to a sale of unascertained goods e.g. a commodity sale of 500 tons of Oregon Grade A Wheat and the description identified the goods. The restriction of this condition and the implied term of merchantable quality to sales by description was an exception to caveat emptor because the buyer could not inspect goods and was relying on description. This contrasted with a sale of specific goods (see definition in Sale of Goods Act) where there would be caveat emptor. However, after the passage of the Sale of Goods Act the judges interpreted the concept of a sale by description broadly in order to provide protection to buyers since this was a precondition for application of the merchantable quality protection. The concept of a sale by description was extended to a sale of specific goods where a defect was not readily apparent (see discussion of the development of the sale by description in Harlingdon and Leinster Enterprises Ltd v. Christopher Hull Chapter 9 at 71-84) An example is Beale v. Taylor where a private seller sold a car described as a Herald Convertible White 1961". This was in fact true only of the back part of the car because the front of the car came from a different model and had been 69Description Quality and Fitness for Purpose

welded on. This was not apparent to the consumer and the car was held not to correspond with its description. Most sales will be sales by description and would include self service stores. Reference is often made to the judgment of Lord Wright in Grant v. Australian Knitting Mills where he stated 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. woollen undergarments, a hot-water bottle. A recent commercial case Harlingdon and Leinster Enterprises suggests that the idea behind a sale by description is the concept of reliance so that where the buyer buys the goods such as they are it will not be a sale by description. The second issue concerns the scope of the description. It must correspond with the description. The courts have suggested that the concept of description goes to the issue of the identity rather than the quality of the goods which are addressed by merchantable quality and reasonable fitness for purpose. Suppose one bought a car with the description Blue, 1995, one owner, FM radio, leather seats. If the car did not have an FM radio would this be a breach of s14? It is clearly not easy to distinguish quality from identity in this type of case and although judges use terms such as that the description relate to a substantial ingredient of the identity of the thing s old ( Lord Wilberforce in Reardon Smith Line Ltd. v. Hansen Tangsen Chapter 9 at 45) there may still be room for argument as to whether the absence of an FM radio was part of the identity of the goods sold. There is something a little odd about section 1 If it applies where a 4. characteristic is a substantial ingredient of the identity of the thing sold then it is also likely that this characteristic will be an express condition of the contract, suggesting that there is an implied term that goods correspo to an express term. nd 3.2 Merchantable Quality (section 15) Note requirements that the goods be bought by description from a seller who deals in goods of that description ( would apply to first sale/ willingness to accept orders for a product, but probably not to a legal firm disposing of its computers). Note also limitation where buyer has examined the goods. There is no definition of merchantable quality in the Act. See Chapter 9 at 84-93 and note the two modern approaches to merchanatable quality outlined at 86-87. The commercial acceptability test (p.86) is potentially quite a strong protection for consumers. For example, would a reasonable consumer buyer be willing to accept goods with cosmetic defects or a car which had teething troubles? Merchantable quality is a contextual standard which takes its meaning partly form the description and circumstances of the sale. Thus the standard of merchantability may be lower on the sale of a second hand automobile than on a new automobile. 70Description Quality and Fitness for Purpose

Merchantable quality is to be determined at time of delivery and goods are not merchantable merely because they are capable of being made merchantable. If a good is in fact unmerchantable at the time of sale then there is a breach. In the case of an early IBM counting machine in 1925 the piece of glass which covered the dial was broken. It would have cost under a dollar to replace the glass r but the court accepted that a retailer buying for resale would not accept it and the goods were held to be unmerchantable See IBM v Shcherban [1925] 1 WWR 405 (Sask CA) . Analogy to a car with a minor defect. 3.2.1