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

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1. Introduction Often 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.

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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 consumer’s 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.

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 slightly 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.

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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 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 sold” ( 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 14. If it applies where a 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,

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suggesting that there is an implied term that goods correspond to an express term.

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.

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. Merchantability and durability

Merchantability traditionally decided at time of delivery. One question is the extent to which there is an implied term of durability in the merchantability concept. e.g. the sofa that starts to wear after six months, the computer monitor which fails after 14 months. Argument here that:

(1) that the defect which has arisen is simply evidence of the fact that it was defective at the time of the original sale

(2) That there is a continuing warranty that the goods shall be merchantable or reasonably fit for a reasonable period or time...

In the Fording case ( Chapter 9 at 87) a case decided in 1991 by the BC court of appeal there was the catastrophic failure of rollers in a large mining shovel. The failure was due to deep radial cracking in the rollers. The rollers were proved to have been “doomed to fail” because of their abnormal hardness

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profile. Caused damage to the rest of the assembly of the shovel and repair costs were $400000. The failure took place five years after the shovel had been purchased and the roller had performed about 25% of its anticipated lifespan.. The purchasers had been given a one year warranty which did not exclude the implied warranties and conditions under the Sale of Goods Act

Plaintiff argued both 15.1 and 2 (18a and b in BC)

Several point in the judgment:

1. The express warranty did not exclude nor was it inconsistent with the existence of an implied warranty. In order to exclude implied condition must be express disclaimer.

2. Because the goods had defect at time of delivery and were “doomed to fail”, the fact that they operated for five years did not affect the fact that they were unmerchantable at the time of sale because of latent defect. Court appeared to accept the argument of the respondent that the fact that the goods do not last the time which might be expected “may be taken as an indication of inappropriate quality, state or condition at the time when the goods must be of merchantable quality” (92) (i.e. at time of delivery). Example: If IBM monitor only lasts 14 months..then argue that this is significantly shorter than expected lifetime and evidence that not merchantable at the time of the sale.

3. The appellants had argued that the time period for the implied condition should be determined by reference to the express warranty of one year. The court rejected this argument. See also in Rogers v. Parish the attempt to use an express warranty to limit the implied condition and also the lack of success there as well.

Note the limitation of the merchantability provision where the purchaser has made an examination of the product. See Chapter 9 at 93.

3.3 Reasonable fitness for purpose (s15.1)

On first sight this section looks as if it imposes a narrower liability than under s15.2 since it refers to “the particular purpose” being made known and requires the buyer to show that she is relying on the sellers skill or judgment. In fact the courts have given a broad interpretation to this section, reflecting a willingness to extend liability to protect buyers reasonable expectations. The English case of Slater and Finning (Chapter at 115 , although decided under the now differently worded English provision) provides a useful guide to these developments. Steyn J points out that

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1. Particular purpose is simply specified purpose and may be very general e.g. a bicycle to ride on the road [para 34] ( or a car to drive on the road). Goods must be reasonably fit for all normal purposes for which one uses a car.

2. It is not necessary to expressly communicate purpose to the seller since it will often be implied from the circumstances of the sale. Refers to Lord Wright in Grant v. Australian Knitting Mills where he states that in a purchase from retailer reliance will be “in general inferred from the fact that a buyer goes to the shop in the confidence that the tradesman has selected his stock with skill and judgment”.

Note that in the Slater and Finning case the HL limited the application of the section by concluding that the fishing vessel for which the camshaft was being provided had an abnormality and that this fact had not been communicated to the supplier. The court analogised this to an old allergies case Griffith v. Peter Conway where an individual with especially sensitive skin who contracted dermatitis from a Harris Tweed coat was unable to recover from the seller. She had not communicated the particular purpose of the transaction which was the supply of coat for a person with abnormally sensitive skin.

The generally broad interpretation given to s15.1 means that this section and 15.2 will be argued together. In s15.1 there is the “patent or trade name”exception. The leading case on this is Baldry v. Marshall (Chapter 9:127) where the court gave a very restrictive interpretation to this section which favoured the consumer buyer of the Bugatti eight cylinder. Note Bankes L.J. discussion of the three scenarios where a consumer might use a trade name (128-129) and his conclusion that the patent or trade name exception will only apply where the buyer specifies the goods under their trade name in such a way as to show that “he is satisfied rightly or wrongly that it will answer his purpose, and that he is not relying on the skill or judgment of the seller”. This decision substantially undermined the potential application of the exception. Even if the trade name proviso might be applicable in some cases, it may still be possible to use the merchantable quality section. The Ontario Law Reform Commission recommended the abolition of the trade name exception: it does not apply in Saskatchewan and has been abolished in the UK.

4. Application of these provisions to purchase of automobile

The case of Rogers v. Parish (Chapter 9: 162) provides some pointers on what constitutes merchantability and reasonable fitness for purpose in a new car. In this case the consumer had purchased a new Land Rover. There were problems with the oil seals and the engine and gearbox had defects at the time of the sale. After inspections and repairs the engine was still misfiring at all road speeds six months after the sale. There were also substantial defects with the

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bodywork. The consumer had driven it for about 5,500 miles before losing patience and giving notice to the dealer that he was rejecting the car. The defendants refused to take it back. Mustill J. noted that the fact that the defects were capable of repair did not prevent them from rendering the good unmerchantable at the time of delivery. In addition he indicated that merchantability did not mean merely that the car could be driven safely. It also included the ability to do so “with the appropriate degree of comfort, ease of handling and reliability, and, one might add, of pride in the vehicle’s outward and interior appearance”. So merchantability includes functional and aesthetic factors. Mustill talks about the consumer being entitled to “value for money” with the implication that the more expensive the automobile the greater the consumer expectations. Clearly on the facts of this case the vehicle was not merchantable.

The court also addressed the argument of the defendant that the manufacturer’s warranty should be taken into account in determining consumer expectations and that because it anticipated the possibility of defects the consumers expectations should be correspondingly lowered to expect defects on initially purchasing a vehicle. This argument was not received sympathetically by the court since it implied that a consumer with a manufacturer’s warranty would expect less of her new car than someone who did not have a warranty. The warranty is an addition not a subtraction of a consumer’s rights. In any event, even if the warranty had some impact on the expectations of a consumer, the defects in this case were well outside a consumers expectations of “teething problems” with a new automobile.

4.1 Exclusion Clauses and the implied conditions in sale of goods act

Note that CPA 9 (3) prevents the exclusion of the implied conditions. There are some issues in relation to this section. First it does not directly prevent the exclusion of remedies for the breach of the implied terms though presumably it intended to. Second, it does not address directly the fact that an exclusion clause might be relevant to the definition of the obligation undertaken in the implied condition. For example, use of the term “as is” may be viewed as an exclusion clause but it is also might be relevant to defining the implied condition in a particular sale.

5. Remedies for breach of implied conditions under Sale of Goods Act (see Chapter 9 161-176)

The remedies would include rejection + damages.

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5.1. Rejection

Rejection is powerful remedy for consumer. However, a consumer may lose this remedy under s12(3) of the Act. Note that where the contract is not severable ( for definition and cases on when a contract is severable see Chapter 8 52-55) that there are two situations where the consumer may lose the right to reject

1. Where on a sale of specific goods the property has passed

2. Acceptance of goods by consumer

Acceptance of the goods is further defined by s34 which indicates that buyer will be deemed to have accepted the goods when buyer (a) intimates to seller that the goods have been accepted (b) after delivery, does any act inconsistent with ownership of seller or (c) after the lapse of a reasonable period of time, retains the goods without intimating to the seller that they have been rejected.

Note also s33 which indicates that where goods are delivered to the buyer that the buyer has not previously examined the buyer shall be deemed not to have accepted them until there has been a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.

It might be worthwhile to keep in mind two not uncommon scenarios in consumer sales of goods where a consumer might think it worthwhile to litigate ...automobiles and computers. These goods may have teething defects which a consumer might initially tolerate but when they become worse result in a consumer wishing to reject the product. An alternative scenario would be where a product develops a serious defect some time after the sale (e.g. 15 months).

5.1.1 Loss of right to reject through property passage

If the contract says nothing about when property passes then there are presumptive rules in the Act. Section 19 Rule 1 indicates that in sale of specific goods property passes when contract is made. The implications of a literal application of this section would mean that consumers would immediately lose their right to reject.

This section is an anachronism (abolished in many jurisdictions) and there are some avoidance techniques such as implying a term that property would not pass until acceptance or inspection by buyer. Another possibility is to argue in relation to “deliverable state”. This is defined (s2(4)) as goods that are in

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such a state that the buyer would under the contract be bound to take delivery of them”. Since a buyer is not bound to take delivery of unmerchantable goods could make argument that not in a deliverable state. Canadian courts seem to ignore this section, and perhaps this is correct, given its anachronistic nature in relation to the purchase of complex goods for use. Since the Sale of Goods Act is an old piece of legislation which was simply imported into Canada, I am not sure that this form of judicial glossing is undemocratic. A final alternative here is to rely on the Unfair Practices sections of the CPA as well.

5.1.2 Loss of right to reject through acceptance

The main issue here will relate to acceptance being lost through continued use which either indicates an act inconsistent with the seller’s ownership or lapse of a reasonable time.For example, acceptance of repairs might be regarded as inconsistent with ownership of seller. The section on “inconsistent ownership” was originally designed for sub sales of commercial commodities and its underlying rationale as with the lapse of reasonable time is the idea that substantial use or repairs would prevent the return of the goods in substantially the same condition.

On pages 168-169 Chapter 9 of Casebook I indicate that the courts in Canada have in a number of cases permitted an extended right of rejection (over 6 months) in relation to consumer goods (Note also that entitled to reject in Rogers v. Parish although had automobile for six months and had driven over 5500 miles. This is based sometimes on (a) buyer trying out the equipment (extended interpretation of s33) or (b) buyer deferring right of rejection based on representations of seller that goods would be made perfect (c) estoppel against seller. These interpretations recognize that consumer goods may be complex and that serious problems may not surface immediately. In the case of a major defect occurring after, for example, 14 months it might be more difficult to reject based on lapse of reasonable time argument, although the consumer would still be entitled to substantial damages for breach of the condition.

What is the consequence of a consumer signing an “acceptance note” on taking delivery? Could argue that unconscionable (eg. in small print, not made clear what it includes) or that of no contractual effect (because was merely receipt) or that note included only patent and not latent defects etc.

5.1.3 . Is it possible to continue to use goods even though you wish to reject?

This is a significant practical issue since a consumer who rejects may often find that the seller (particularly in the case of an automobile) will refuse to take the goods back. A consumer buyer may not be able to afford to keep the rejected auto in the garage and rent or purchase a substitute while the claim is being adjudicated. Will continued use be deemed to constitute acceptance. The

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case of Lasby (Casebook Chap.9 at 169), although decided under the BPA does suggest this possibility. In this case the court granted rescission of the contract under the BPA even though the consumer had the automobile for 22 months and had driven 40,000 kilometres. The court stressed the financial necessity facing the consumer and the fact that the continued use was caused by the defendants wrongful act. In addition, the court thought that a contrary interpretation would encourage vendors to wrongfully resist legitimate acts of rejection and undermine the effectiveness of the remedy as a bargaining tool for consumers. It is true that the approach in this case may have been influenced by the court’s perception that the actions of the seller were fraudulent. On page 176 I summarize some of the factors which have been referred to by US courts in addressing similar situations in the US.

There is some uncertainty in the standards and remedial structure in relation to quality obligations in the Sale of Goods Acts. This has led to developments such as Lemon Laws in the US and the CAMVAP arbitration programme in Canada (Chap 9 176-179).

6. Quality and condition obligations in “near sales’ (Chapter 9,130-146)

Borek v. Hooper indicates that the courts are willing to imply similar quality obligations in contracts for work and labour, in this case the commissioning of a painting. In concluding that this was not a contract of sale the court looked to the substance or primary purpose of the contract which was to contract for the skill and labour of the artist. However, the court also implied a condition that the materials would be of good quality and reasonably fit for the purpose. It concluded that the yellowing and cracking of the painting after three years indicated a breach of this implied obligation. Under the Consumer Protection Act 2002 it is not possible to contract out of the obligations in relation to either the goods or the services. This case is also evidence of a durability obligation. I note in the casebook at 690 the attraction of an implied condition argument in product liability cases because it offers a theory of strict liability rather than negligence.

In Ter Neuzen the Supreme Court was unwilling to imply a condition of strict liability in a contract of services where the plaintiff was inseminated with HIV infected semen. Sopinka reviewed the case law on the implication of conditions in work and materials contracts and at para 84 noted the policy arguments in favour of implication of these conditions in a work and materials contract. These are (a) that the supplier can normally proceed up the chain and recover from the manufacturer and (b) if not the supplier was in a better position to bear the loss than the consumer. He also noted that there might be a greater hesitation to imply a warranty where the contract is primarily for services and the goods are incidental to the contract. The reluctance to imply an obligation of strict liability in this case seemed to be based on the courts perception of the context of medical services which differed from the “ordinary commercial

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context”. and paras. 94/95. The issue might be raised of the implied terms in a consumer lease. Some recent jurisprudence in Ontario indicates a willingness to imply terms similar to the sale of goods. Thus in Scarborough Tire and Spring Service Ltd v. Campbell Graphics [1994] OJ 2092 Hoilett J implied a term in an automobile lease that the automobile would be fit for its intended purpose. He commented that:

Concerning the first issue raised, that is whether there should be an implied term that the vehicle was fit for its intended purpose, common sense would dictate, in my view that there must be. Were this a sale instead of a lease the point would ...not be argued. It is common ground that, increasingly, leases are replacing sales in t he non-commercial car market and it would be strange indeed were the lessee to be in a less advantaged position than a purchaser so far as the performance of a vehicle was concerned.

The CPA 2002 now extends the implied conditions and warranties “with necessary modifications” to leases s9(2). These obligations cannot be contracted out of in a consumer transaction.

The issue of computer software was addressed in St Albans City and District Council (Chap 9 p143). The court held that software when it is reduced to a disk constitutes goods and is a sale. In the particular case however the disk had not been sold but the company had installed the programme on the plaintiff’s computer but retained the disk. However the Court of Appeal held that although there was not a sale of goods there was an implied term that the programme would be reasonably fit for the purpose.

2. Implied condition of description

We considered some aspects of this condition in Chapter 1. Note that s14 requires that the sale be “by description”. The following cases explore the scope of this concept.

Varley v. Whipp [1900] 1 Q.B.513

In this case the plaintiff had sold a second hand self-binding reaping

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machine to the defendant . The defendant did not see the machine before purchasing it. It was described to him as being new the previous year and having only been used to cut fifty or sixty acres. An issue in this case was whether the sale was by description. Channell J concluded that it was noting:

“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. In that case, by the Sale of Goods Act, 1893, s. 13, there is an implied condition that the goods shall correspond with the description which is a different thing from a warranty. 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…

Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1991] 1 QB 629, [1991] 1 QB (CA) 564, [1990] 1 All ER 737,

Cur adv vult NOURSE LJ (giving the first judgment at the invitation of Slade LJ).

It is a matter of common knowledge that the market value of a picture rests largely on its authorship. Frequently the seller makes an attribution to an artist, although the degree of confidence with which he does so may vary considerably. In some cases the attribution may be of sufficient gravity to become a condition of the contract. In others it may be no more than a warranty, either collateral or as a term of the contract. Or it may have no contractual effect at all. Which of these is in point may depend on the circumstances of the sale there being, for example, a difference between a sale by one dealer to another and one by a dealer to a private buyer. Remarkably, there is little authority as to the legal consequences of these everyday transactions. Here, in a sale by one London dealer to another of a picture which was later discovered to be a forgery, the judge in the court below, finding that the buyer did not rely on the seller's attribution, gave judgment for the seller. The buyer nevertheless contends that there was a contract for the sale of goods by description and a breach of the condition implied by s 13(1) of the Sale of Goods Act 1979. He also claims that there was a breach of the condition as to merchantable quality implied by s 14(2) of the 1979 Act. The trial took place in the Mayor's and City of London Court before his Honour Judge Oddie. On 19 January 1989 the judge delivered a very

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thorough judgment, in which he reviewed the evidence at length and made full and careful findings. In this court the facts can be stated comparatively briefly, mainly in the judge's own words.

The defendant company carries on business from a gallery in Motcomb Street, London SW1, being owned and controlled by Mr Christopher Hull. In the autumn of 1984 he was asked to dispose of two oil paintings which were described in a copy of an auction catalogue of 1980 as being the work of Gabriele Muenter (1877__1962), an artist of the German expressionist school. The true position was that the painting with which this action is concerned was not a work of hers but a forgery. Mr Hull, who specialises in the works of contemporary British artists of the younger generation, had no training, experience or knowledge which would have enabled him to conclude from an examination of the paintings whether they were by Munter or not. He took them to Christie's who expressed interest. Before that he had been told by Mr Evelyn Joll, a director of Thomas Agnew & Sons Ltd, that the plaintiff company, which carries on business as Leinster Fine Art from a gallery in Hereford Road, London W2, had a good reputation as dealers in German art. In fact they had a special interest in buying and selling German expressionist paintings. The plaintiff company is owned and run by Mr and Mrs Holger Braasch and in the autumn of 1984 one of their employees in the business was Mr Klaus Runkel.

Mr Hull, acting on Mr Joll's recommendation, telephoned the plaintiffs and spoke to Mr Braasch. Mr Hull said that he had come across, and was in the position to sell, two paintings by Gabriele Munter. Having seen the auction catalogue and consulted Christie's, Mr Hull had reasonable grounds for believing, and did believe, that they had been executed by that artist. Mr Braasch expressed interest in the paintings. On some date at the end of November 1984 Mr Runkel visited Motcomb Street in order to view them. There he met Mr Hull, who did not need to repeat, and did not repeat, what he had already said to Mr Braasch about having two paintings by Munter. It was obviously and clearly understood between Mr Runkel and Mr Hull that the former had come to decide whether the plaintiffs might purchase a painting or paintings, which the latter had said were by Munter. Mr Hull said that he did not know much about the paintings, that he had never heard of Gabriele Munter and that he thought little of her paintings. He made it absolutely plain that he was not an expert in them. By some form of words which neither party could precisely remember at the trial, Mr Hull to a certain extent made it clear that he was relying on Mr Runkel.

Mr Runkel examined the paintings. Neither he nor Mr Braasch had special expertise or training in the assessment of German expressionist painting, and Mr Runkel's examination neither would nor ought to have revealed that the painting in question was not by Munter. Mr Runkel saw a copy of the auction catalogue, in which the relevant entry (translated from the German) was:

'VILLAGE STREET IN UPPER BAVARIA Oil on cardboard. 39/48 cm.__Framed.

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Monogrammed, bottom left: MU. Gummed label on back with stamp of the estate Gabriele Munter. Alongside a massive wall surrounding a yard the street leads steeply into the background. Three separate women on the path. Warm sunlight from the right.

Reproduction Table 25 Mr Runkel asked no questions about the provenance of the paintings.

He did not ask for any opportunity to make further inquiries. He expressed no reservations about the degree of his own knowledge or experience. Neither he nor Mr Hull expressed any doubt whether either or both of the paintings were executed by Munter. There was bargaining as to price, but Mr Hull kept to his asking price of L6,000 for the painting in dispute. By the end of the meeting Mr Hull and Mr Runkel had agreed that the painting should be sold by the defendants and purchased by the plaintiffs at a price of L6,000 if and when the plaintiffs found a customer of their own who agreed to purchase it from them, failing which the painting would be returned to the defendants. This is the agreement with which this case is concerned.

On 1 December 1984 both pictures were delivered to the plaintiffs' gallery in Hereford Road. On 3 December the plaintiffs notified Mr Hull that they had found a customer of their own who had agreed to purchase the painting from them and they requested Mr Hull to make out an invoice to them. The invoice was in these terms:

'Leinster Fine Art 9 Hereford Road London W. 2. FFAI84209 GABRIELE MUNTER 1877__1962 3 December 1984 Dorfstrasse in Oberbayern oil on board, 39/48cm, Msno961 L6,000

The judge found that no addition was made to the terms of the sale when the invoice was made out. It merely gave effect to the earlier agreement between Mr Hull and Mr Runkel.

The judge found that both at the time when the agreement was made and subsequently when the invoice was made out both Mr Hull and Mr Runkel believed that the painting was by Munter and that, if either had not believed that, the deal would not have been made. He made the following further findings:

'In my judgment Mr Runkel must have known and accepted that Mr Hull was disclaiming any judgment, knowledge or private information which would or could have grounded the latter's earlier statement to Mr Braasch that he had two paintings by Gabriele Munter for sale . . . I think the only conclusion

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which can be drawn from the unusual facts of this case is that it was Mr Runkel's exercise of his own judgment as to the quality of the pictures, including the factor of the identity of their painter, which induced him to enter into the agreement he made with Mr Hull. However, I am not satisfied that without the attribution given what followed in the circumstances in which it was made, Mr Runkel would not have purchased the painting. If it had never been made Mr Runkel would never have gone to see the paintings. But when he did go and examine the painting he considered whether it was a Munter or not: he did agree to buy it, regardless of the attribution, because he relied on his own judgment . . . It was reliance on his own assessment and not on anything said by a man who had gone out of his way to stress his ignorance of the paintings which led Mr Runkel astray.'

Thus did the judge find as a fact that the plaintiffs did not rely on the description of the painting as one by Gabriele Munter. They relied only on their own assessment.

The rest of the story can be briefly told. In February 1985 the plaintiffs' purchaser sent the painting for examination by the Gabriele Munter_ un Johannes Eichner_Stiftung in Munich, which is the keeper of the entire estate of Gabriele Munter. By a letter of 26 February the stiftung's director, Dr Armin Zweite, informed the purchaser that he and two other experts had independently of one another formed the view that the painting was a forgery. This information was passed back to Mr Braasch, who in March took the picture back and refunded the purchase price to the purchaser. Mr Braasch then asked Mr Hull to take back the picture and refund the L6,000, but that request was refused. Proceedings were commenced by a writ issued on 11 September 1985, claiming repayment of the L6,000 plus expenses of L250, alternatively damages. Before Judge Oddie and initially in this court the plaintiffs' case was put in four different ways. First, it was said that there was a contract for the sale of goods by description within s 13(1) of the 1979 Act, second, that the painting was not of merchantable quality within s 14(2) and (6), third, that there was a breach of the implied condition that the painting would be reasonably fit for a particular purpose made known to the defendants within s 14(3) and, fourth, that the defendants made an actionable misrepresentation inducing the plaintiffs to enter into the contract and entitling them to recover damages under the Misrepresentation Act 1967. Judge Oddie held in favour of the defendants on all four points. In this court the third and fourth points were abandoned by counsel for the plaintiffs. We have therefore to consider only the questions of sale by description and merchantable quality. ...[on the issue of sale by description]

The sales to which the subsection is expressed to apply are sales 'by description'. Authority apart, those words would suggest that the description must be influential in the sale, not necessarily alone, but so as to become an

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essential term, i e a condition, of the contract. Without such influence a description cannot be said to be one by which the contract for the sale of the goods is made.

I think that the authorities to which we were referred are consistent with this view of s 13(1). In Varley v Whipp [1900] 1 QB 513...[after outlining the decision in this case]..

Other authorities show that s 13(1) may apply to a contract for the sale of specific goods which have been seen by the buyer, provided that their deviation from the description is not apparent on a reasonable examination: see Chalmers' Sale of Goods (18th edn, 1981) p 120 and the cases cited in footnote (a), to none of which we were referred in argument. We were, however, referred to another authority in the same category: see Couchman v Hill [1947] 1 All ER 103, [1947] KB 554, where the plaintiff purchased from the defendant at auction a heifer which was described in the sale catalogue as 'unserved'. Later, having been found to be in calf, she died as a result of carrying it at too young an age. After the plaintiff had overcome an objection which is immaterial for present purposes, it was held by this court that the description of the heifer as unserved constituted a condition of the contract. Scott LJ, with whose judgment Tucker and Bucknill LJJ agreed, said ( [1947] 1 All ER 103 at 105, [1947] KB 554 at 559):

'. . . as a matter of law I think every item in a description which constitutes a substantial ingredient in the ''identity'' of the thing sold is a condition . . .'

We may be sure that the heifer had been seen by the buyer, but that the fact of her being in calf was not apparent on a reasonable examination. The buyer must have relied on the description. Although he did not rely on the description alone, it was held to be a substantial ingredient in the identity of the heifer or, if you prefer, an essential term of the contract....

In Gill & Duffus SA v Berger & Co Inc [1984] 1 All ER 438 at 445__446, [1984] AC 382 at 394, the facts of which need not be stated, Lord Diplock, with whose speech the other members of the House of Lords agreed, said this of s 13:

'. . . while ''description'' itself is an ordinary English word, the Act contains no definition of what it means when it speaks in that section of a contract for the sale of goods being a sale ''by description''. One must look to the contract as a whole to identify the kind of goods that the seller was agreeing to sell and the buyer to buy . . . where, as in the instant case, the sale (to use the words of s 13) is ''by sample as well as by description'', characteristics of the goods which would be apparent on reasonable examination of the sample are unlikely to have been intended by the parties to form part of the ''description'' by which the goods were sold, even though such

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characteristics are mentioned in references in the contract to the goods that are its subject matter.' (Lord Diplock's emphasis.)

These observations, in emphasising the significance to be attached to the word 'by', show that one must look to the contract as a whole in order to identify what stated characteristics of the goods are intended to form part of the description by which they are sold.

We were also referred to the decision of Sellers J in Joseph Travers & Sons Ltd v Longel Ltd (1947) 64 TLR 150, where it was held that, since the buyers had placed no reliance on a descriptive name for rubber boots, the sale was not one by description. The decision is chiefly of value for Sellers J's approval (at 153) of the following passage in Benjamin on Sale (7th edn, 1931) p 641:

'Sales by description may, it seems, be divided into sales: 1. Of unascertained or future goods, as being of a certain kind or class, or to which otherwise a ''description'' in the contract is applied. 2. Of specific goods, bought by the buyer in reliance, at least in part, upon the description given, or to be tacitly inferred from the circumstances, and which identifies the goods. So far as any descriptive statement is a mere warranty or only a representation, it is no part of the description. It is clear that there can be no contract for the sale of unascertained or future goods except by some description. It follows that the only sales not by description are sales of specific goods as such. Specific goods may be sold as such when they are sold without any description, express or implied or where any statement made about them is not essential to their identity or where, though the goods are described, the description is not relied upon, as where the buyer buys the goods such as they are.' (Benjamin's emphasis.)

It is suggested that the significance which some of these authorities attribute to the buyer's reliance on the description is misconceived. I think that that criticism is theoretically correct. In theory it is no doubt possible for a description of goods which is not relied on by the buyer to become an essential term of a contract for their sale. But in practice it is very difficult, and perhaps impossible, to think of facts where that would be so. 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. It is true that the question must, as always, be judged objectively and it may be said that previous judicial references have been to subjective or actual reliance. But each of those decisions, including that of Judge Oddie in the present case, can be justified on an objective basis. For all

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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. For those purposes, I think that the law is correctly summarised in these words of Benjamin p 641, which should be understood to lay down an objective test:

'Specific goods may be sold as such . . . where, though the goods are described, the description is not relied upon, as where the buyer buys the goods such as they are.'

In giving his decision on this question Judge Oddie said:

'There can clearly be a sale by description where the buyer has inspected the goods if the description relates to something not apparent on inspection. Every item in a description which constitutes a substantial ingredient in the identity of the thing sold is a condition.'

Later, having said that he had not been referred to any similar case where a sale in reliance on a statement that a painting was by a particular artist had been held to be a sale by description, the judge continued:

'In my judgment such a statement could amount to a description and a sale in reliance on it to a sale by description within the meaning of the 1979 Act. However, on the facts of this case I am satisfied that the description by Mr Hull before the agreement was not relied on by Mr Runkel in making his offer to purchase which was accepted by Mr Hull. I conclude that he bought the painting as it was. In these circumstances there was not in my judgment a sale by description.'

I agree. On a view of their words and deeds as a whole the parties could not reasonably have contemplated that the defendants were relying on the plaintiffs' statement that the painting was by Gabriele Munter. On the facts which he found the judge could not, by a correct application of the law, have come to any other decision.

I turn to the claim under s 14, sub_ss (2) and (6) of which are in these terms:

'(2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition__(a) as regards defects specifically drawn to the buyer's attention before the contract is made or (b) if the buyer examines the goods before the contract is made, as regards

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defects which that examination ought to reveal . . . (6) Goods of any kind are of merchantable quality

within the meaning of subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances.'

As to these provisions, it is clear that neither of the exceptions from sub_s (2) applies to this case. The defendants therefore accept that there was an implied condition that the painting should be of merchantable quality. The dispute is whether there was a breach of the condition or not, for which purpose it is necessary to consider sub_s (6).

The first question which arises out of the words of sub_s (6) is for what purpose or purposes are paintings of this kind commonly bought. The second question is whether this painting was as fit for that purpose or those purposes as it was reasonable to expect having regard to any description applied to it, the price (if relevant) and all the other relevant circumstances. Those were both questions of fact to be decided by the judge, who answered them thus:

'In my view the purpose or purposes for which goods of this kind are commonly bought are the aesthetic appreciation of the owner or anyone else he permits to enjoy the experience when the picture is displayed for view. Having regard to . . . the description before the agreement was entered, the price and all other relevant circumstances disclosed by the material facts of this transaction, I am not satisfied that this painting was not of merchantable quality.'

The first of these findings was attacked by counsel for the plaintiffs on the ground that the purpose for which a painting is commonly bought by one dealer from another is resale. I see some force in that attack, but all that it means is that the purpose or purposes contemplated by s 14(6) are either resale alone or resale and aesthetic appreciation together. In either case, I do not think that Judge Oddie's second finding is invalidated. It is true that the painting was defective in that it was not the work of the artist by whom it appeared to have been painted. I agree with Denning LJ in Leaf v International Galleries [1950] 1 All ER 693 at 694, [1950] 2 KB 86 at 89 that that was a defect in the quality of the painting. But it was not one which made it unsaleable. The evidence was that it could have been resold for L50 to L100. Admittedly that would have been a very long way below the L6,000 which the plaintiffs paid for it. But the question whether goods are reasonably fit for resale cannot depend on whether they can or cannot be resold without making a loss. Nor did the defect make the painting unfit for aesthetic appreciation. It could still have been hung on a wall

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somewhere and been enjoyed for what it was, albeit not for what it might have been.

I do not think that the views which I have so far expressed are affected by the regard which s 14(6) requires there to be had to the description applied to the painting, its price and any other relevant circumstances. I will take those matters in turn. I will assume that a description which is not relied on by the buyer can nevertheless be one which is 'applied to' the painting. But having held that the sale was not made by that description, I cannot think that it would be right, in having regard to it, to give it the significance which it would have had if s 13(1) had applied. I arrive at a similar view in regard to the price. Having been prepared to pay L6,000 in reliance only on their own assessment, the plaintiffs cannot use their own error of judgment as a basis for saying that a painting which would otherwise be reasonably fit for resale or for aesthetic appreciation is thereby rendered unfit for those purposes. As for any other relevant circumstances, I do not think that counsel for the plaintiffs suggested that there were any in the present case. In the result, I would also reject the plaintiffs' claim under s 14(2).

Judge Oddie advanced two further grounds for rejecting the claim under s 14(2), of which only one is now relied on by counsel for the defendants. As to that ground, the judge said:

'I am not persuaded that the meaning of the words ''merchantable quality'' relate to anything beyond the physical qualities of the goods sold. In my view such physical qualities would not include the fact that the painting was executed by a particular artist. If so, the fact that it was not so executed would not mean that it was not of merchantable quality.'

In seeking to support the judge's view of this question, counsel for the defendants relied on the decision of the Court of Session in Buchanan_Jardine v Hamilink 1983 SLT 149. But the facts there were very different and I do not think that the decision can be said conclusively to support the general proposition advanced by the judge. Since it is unnecessary for me to express a view as to that proposition, I prefer not to do so.

Although that is enough to dispose of this appeal in favour of the defendants, I desire to add some general observations about sales of pictures by one dealer to another where the seller makes an attribution to a recognised artist. The huge additional value of an authentic attribution has, from the earliest periods of European art, seduced a corresponding volume of skill and energy into the production of fakes, even in the lifetime of the artist. An early example was Durer (1471__1528), who had to enlist the support of Emperor Maximilian I in order to prevent the imitation of his woodcuts and engravings. With the great expansion in royal and noble collections which took place in the eighteenth century, faking became an art of its own. It has even been known for a faker,

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Hans van Meegeren, who between 1935 and 1945 produced forgeries of the works of Vermeer, to become almost as famous as the artist himself. Modern advances in technology, while in some respects increasing the possibilities of detection, have in others assisted the faker to apply his skill with ever_increasing ingenuity. Even if fakes are put on one side, many old master paintings cannot be safely attributed to a particular member of a group of artists, some of whom may still remain obscure.

All this is a matter of common knowledge among dealers in the art market and, I would expect, among all but the most inexperienced or naive of collectors. It means that almost any attribution to a recognised artist, especially of a picture whose provenance is unknown, may be arguable. In sales by auction, where the seller does not know who the buyer will be, the completeness with which the artist's name is stated in the catalogue, e g 'Peter Paul Rubens', 'P P Rubens' or 'Rubens', signifies in a descending scale the degree of confidence with which the attribution is made. Nowadays an auctioneer's conditions of sale usually, perhaps invariably, so declare and, further, that any description is an opinion only. But in sales by private treaty by one dealer to another there is no such practice. That would suggest that there the seller's attribution is not a matter of importance. Indeed, Mr Joll, who gave evidence at the trial as to the professional practices of art dealers, went further. The effect of his evidence was that neither of the conditions implied by ss 13(1) and 14(2) could apply to a sale by one dealer to another. He said that an art dealer's success depended on, and was judged by, his ability to exercise his own judgment. It was not customary for a dealer to rely in any way on the judgment or representations of the dealer from whom a picture was being purchased. Understandably enough, the judge was not satisfied on Mr Joll's evidence that there was any usage or custom in the London art market which would exclude the application of the material provisions of the 1979 Act. But he did, I think, accept it as showing that many dealers habitually deal with each other on the principle caveat emptor. For my part, being confident that that principle would receive general acceptance among dealers, I would say that the astuteness of lawyers ought to be directed towards facilitating, rather than impeding, the efficient working of the market. The court ought to be exceedingly wary in giving a seller's attribution any contractual effect. To put it in lawyers' language, the potential arguability of almost any attribution, being part of the common experience of the contracting parties, is part of the factual background against which the effect if any, of an attribution must be judged. I would dismiss this appeal.

STUART_SMITH LJ. (Dissenting) The principal issue in this appeal is whether the sale of the painting Dorfstrasse in Oberbayern was a sale by description, the name of the artist, Gabriele Munter, being part of that description. If it was, it is common ground that the painting did not correspond with the description it was a fake.

Section 13(1) and (3) of the Sale of Goods Act 1979 provides:...

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Every item in a description which constitutes a substantial ingredient in the 'identity' of the thing being sold is a condition: see per Scott LJ in Couchman v Hill [1947] 1 All ER 103 at 105, [1947] KB 554 at 559. That the identity of the artist who painted a picture can be a substantial ingredient in the identity of the thing sold seems to be beyond question.

[Discussing the decision of the lower court judge]... the nub of his conclusion is that Mr Runkel did not rely on the description but on his own judgment as to the authorship of the painting. For my part I have great difficulty in understanding how the concept of reliance fits into a sale by description. If it is a term of the contract that the painting is by Munter the purchaser does not have to prove that he entered into the contract in reliance on this statement. This distinguishes a contractual term or condition from a mere representation which induces a purchaser to enter into a contract. In the latter case the person to whom the representation is made must prove that he relied on it as a matter of fact.

Counsel for the defendants sought to support the judge's conclusion that reliance was an essential ingredient in a sale by description. He referred us to Joseph Travers & Sons Ltd v Longel Ltd (1947) 64 TLR 150 at 153...

In that case although the footwear were described as 'waders' both parties knew that they were not waterproof, this being apparent from the nature of their construction, having been specially made to go over boots and protect the wearer from gas. It could not therefore be implied from in the description 'waders' that the goods would be waterproof. If both parties know that the description is in fact a misdescription, then no doubt there is not a sale by description. But that was not the position here. The judge found in terms that both parties believed that the painting was by Munter and Mr Runkel made his offer on the basis that it was.

In my judgment the matter can be tested in this way. If following the telephone conversation Mr Runkel had arrived at the defendants' gallery, seen the painting, bargained about the price and agreed to buy it, it seems to me beyond argument that it would have been a sale by description. And indeed counsel for the defendants was at one time disposed to concede as much. Had the invoice been a contractual document, as it frequently is, again it seems to me clear that the sale would have been a sale by description. In fact the invoice was written out subsequently to the oral contract but the judge held, rightly as it seems to me, that it gave effect to what had been agreed. It was cogent evidence of the oral contract.

How does it come about that what would otherwise be a sale by description in some way ceased to be one? It can only be as a result of the conversation between Mr Hull and Mr Runkel before the bargain was actually struck. If Mr Hull had told Mr Runkel that he did not know one way or the other whether the painting was by Muunter in spite of the fact that he had so described it or that he could only say that the painting was attributed to Munter, and that Mr Runkel must make up his mind for himself on this point, I can well see that the effect of what had previously been said about the identity of the painter might

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have been cancelled or withdrawn and was no longer effective at the time of the contract. But Mr Hull did not say that, as the judge found. And I cannot see that this is the effect of what was said. Merely to say that he knew nothing of the painter and did not like her paintings does not in any way to my mind necessarily mean that he was cancelling or withdrawing what he had previously said, based as it was on the auction catalogue. Nor does the fact that it was recognised that the plaintiffs were more expert in German expressionist art than Mr Hull advance the matter. It would, in my judgment, be a serious defect in the law if the effect of a condition implied by statute could be excluded by the vendor's saying that he was not an expert in what was being sold or that the purchaser was more expert than the vendor. That is not the law it has long been held that conditions implied by statute can only be excluded by clear words. There is nothing of that kind in this case.

Moreover, the question has to be asked: expert in what? No doubt the plaintiffs were knowledgeable and experienced in the sort of prices at which a painting by Gabriele Munter could be sold and might well know where to find a buyer. These would be important matters in an art dealer's expertise. It does not follow that such a dealer has expertise in deciding whether a picture is genuine or a fake and the judge found that the plaintiffs did not have such expertise.

No doubt the initial telephone conversation was an invitation to treat but it was an important part of the negotiations. It was, as the judge said, obvious and clearly understood by both Mr Runkel and Mr Hull that the former had come to decide whether the plaintiffs might purchase a painting described by Mr Hull as by Munter. That being so, I can see no reason why Mr Runkel should apply his mind to the question whether the picture was genuine or not and there was nothing in the subsequent conversation that required him to do so or put him on notice that he should. No doubt he exercised his judgment to the effect that the plaintiffs could find a buyer and make a profit on the deal but that was on the basis that the painting was genuine. I can find no evidence that justified the judge in finding that he made up his own mind and relied on his own judgment to the effect that the painting was genuine. And it seems to me to be quite contrary to his evidence.

The defendants adduced the evidence of Mr Joll to the effect that on the London art market it was the custom and practice as between dealers for the purchaser to make up his mind as to the genuineness of a painting whatever was said by the vendor, and he took the risk of its being a fake, even if the vendor described the painting as having been by a named artist. In other words, despite the Sale of Goods Act 1979, caveat emptor. If this evidence had been accepted, then no doubt the plaintiffs would have failed. But the judge rejected it.

For these reasons I consider that the judge reached the wrong conclusion on this issue and I would allow the appeal. In reaching this conclusion I am in no way influenced by the fact that the judge's decision appears to produce an unjust result. It is trite that hard cases make bad law. But it is undoubtedly a hardship on the plaintiffs, who have refunded the price to their

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purchaser, that they are left holding the loss, when the defendants or their client would appear to have a claim over against those who sold the painting to them. In these circumstances I propose to deal quite briefly with the alternative claim that the goods were not of merchantable quality. Section 14(2) of the 1979 Act provides as follows:...

The defendants admitted that there was such a term but they denied breach. Whether goods are of merchantable quality is determined by s 14(6) as follows:...

The judge rejected the plaintiffs' arguments on two grounds. First, he held that merchantable quality did not relate to anything beyond the physical quality of the goods sold. It was a picture and fit for use as such. He cited no authority for this proposition... the question whether something is genuine or a fake is a quality of the goods themselves. I do not therefore agree with the judge on this ground.

Second, he held that the painting was of merchantable quality because the purpose or purposes for which pictures are commonly bought is for aesthetic appreciation of the owner or anyone else he permits to enjoy the experience when the picture is displayed for view and the painting was fit for that purpose. If the sale was simply for the specific picture, an article consisting of oil on board, without any description as to the identity of the artist, then I would agree with the judge's conclusion.

The question of merchantability of goods was considered recently in this court in Rogers v Parish (Scarborough) Ltd [1987] 2 All ER 232, [1987] QB 933, a case referred to in the skeleton argument of counsel for the defendants but on which no argument was addressed to us by counsel. In that case the goods were a Range Rover bought for a sum in excess of L14,000. Mustill LJ said ( [1987] 2 All ER 232 at 237, [1987] QB 933 at 944):

'Starting with the purpose for which ''goods of that kind'' are commonly bought, one would include in respect of any passenger vehicle not merely the buyer's purpose of driving the car from one place to another but of doing so with the appropriate degree of comfort, ease of handling and reliability and, one may add, of pride in the vehicle's outward and interior appearance. What is the appropriate degree and what relative weight is to be attached to one characteristic of the car rather than another will depend on the market at which the car is aimed. To identify the relevant expectation one must look at the factors listed in the subsection. First, the description applied to the goods. In the present case the vehicle was sold as new. Deficiencies which might be acceptable in a secondhand vehicle were not to be expected in one purchased as new. Next, the description ''Range Rover'' would conjure up a particular set of expectations, not the same as those relating to an ordinary saloon

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car, as to the balance between performance, handling, comfort and resilience. The factor of price was also significant. At more than L16,000 this vehicle was, if not at the top end of the scale, well above the level of the ordinary family saloon. The buyer was entitled to value for his money.'

These words are appropriate here. If for the reason given by the judge this was not technically a sale by description within s 13(1) of the 1979 Act because of the absence of reliance, the court is nevertheless entitled and required to consider the matters listed in the subsection. These include the description of the painting as being by Munter and the price. Moreover, both parties knew perfectly well that the purpose of the sale was resale as dealers, and not merely putting the picture on the wall and enjoying its aesthetic qualities. I cannot think that it is a reasonable expectation in these circumstances that a fake which is virtually worthless is fit for the purpose of being sold as a painting by Munter at a price of L6,000.

Accordingly, in my judgment, the plaintiffs are entitled to succeed on this ground also. I would allow the appeal.

3 Merchantable Quality

Section 15.2. requires that goods bought by description from a seller who deals in goods of that description be of merchantable quality. Prosser’s article explores the doctrinal basis of this condition (which he describes confusingly in terms of a warranty).

W.L. Prosser "The Implied Warranty of Merchantable Quality" (1943) 21 Can. Bar Rev. 445 and 461-53

When the ordinary lawyer, or court for that matter, says that a warranty is "implied", what seems to be meant is merely that it is not expressed. There has been surprisingly little discussion of just how, or why, the implication

arises. Both as a matter of history and at the present day, however, there are three distinct theories to be discerned as the basis of implied warranties of

quality.

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1. The warranty is a misrepresentation of fact. The seller has asserted, whether expressly or by his conduct, that the goods are of a particular kind, quality or character, and the buyer has purchased in reliance upon that assertion. This is obviously a tort theory, closely allied to the cases of deceit; and it differs from deceit only in that it imposes strict liability for innocent misrepresentations, in the absence of any "scienter" in the form of knowledge of their falsity or lack of belief in their truth. Logically, however, it does require reasonable reliance on the part of the buyer upon some supposed information of the seller concerning the truth of the assertion; and if the seller does not purport to have such information it should follow that the buyer does not reasonably rely upon it, and no implied warranty is to be found. The implied warranty of fitness for the buyer's particular purpose, as it is stated in the Uniform Sales Act, apparently stands on this footing; and in many cases where the seller obviously knows nothing about the goods, as in the case of a sale by a retailer of beans sealed in a can, the courts have refused to imply a warranty for lack of such reliance.

2. The warranty has in fact been agreed upon by the parties as an unexpressed term of the contract of sale. The seller has contracted to deliver described goods, and it is understood that they are to have certain qualities; but that understanding has not been embodied in the agreement. Nevertheless the court, by interpreting the language used, the conduct of the parties and the circumstances of the case, finds that it is there. Such a contract term "implied in fact" differs from an express agreement only in that it is circumstantially proved. Any difficulties arising from the parol evidence rule usually have been met by saying that the description of the goods appearing in the contract is open to interpretation or explanation in the light of the circumstances of the case.

Obviously this theory is pure contract. It arose only after warranties had been held to be enforceable in a contract action; and the first case in which it appeared was one in which the seller did not know what the goods were, and the buyer knew that he did not know and never had seen them. It does not rest upon any belief on the part of the buyer that the seller has superior information, or any information at all about the goods; and the seller's innocence or ignorance or inability to deliver what he has contracted to deliver will no more excuse him than in any other breach of contract. Any "reliance" of the buyer upon the seller becomes important only in so far as it bears upon his actual understanding of what the latter has undertaken to deliver.

3. The warranty is imposed by the law. It is read into the contract by the law without regard to whether the parties intended it in fact; it arises merely because the goods have been sold at all. This theory is of course one of policy. The loss due to defective goods is placed upon the seller because

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he is best able to bear it and distribute it to the public, and because it is considered that the buyer is entitled to protection at the seller's expense. It is perhaps idle to inquire whether the basis of such a liability is contract or tort. It partakes of the nature of both, and in either case it is liability without fault. It is not often that "implication of law" is differentiated clearly from "implied in fact;" but the question of the policy involved is seldom absent from warranty cases, and there are a respectable number in which it appears to have controlled the decision.

If it be asked which of these three theories is the basis of the law of implied warranties in general, it can only be answered: all three. It is seldom that it makes any difference which is adopted; but when the occasion arises, the courts have flitted cheerfully from one to another as the facts may demand, always tending to an increasing extent to favour the buyer and find the warranty. When lack of "reliance" of the buyer upon the seller's information becomes an obstacle, the first is abandoned in favour of the second; when it is necessary to avoid the effect of disclaimers or the parol evidence rule, the second is forsaken for the third; and when it is desired to extend the warranty to one not in "privity of contract" with the seller, there is a return to the first. So far as the warranty of merchantable quality is concerned, however, the second theory, that of agreement "implied in fact" and actually understood but not expressed, has predominated from the beginning; and with few exceptions, it explains the decisions.

There are two modern approaches to the concept of merchantable

quality. The first is based on the idea of commercial acceptability. This asks the question whether a reasonable buyer, acquainted with knowledge of the defects would be willing to purchase the goods under the contract description without substantial abatement of price. If the goods are multipurpose goods then provided some buyers would be willing to buy for one of purposes, then the goods will be merchantable.

This formulation emerged from Lord Reids decision in Henry Kendall v. William Lillico [1969] 2 AC 31 and B.S. Brown v. Craiks [1970] 1WLR 725 (HL)

A second approach evident in Henry Kendall is to ask whether the goods are useable for any purpose for which such goods would normally be used. If they are fit for one of the purposes then they are merchantable. This definition tracks closely the idea of “fitness for purpose” in section 15.1 and there will often be overlaps between the two sections.

3.1. Issues in relation to merchantability

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(1) Durability There is remarkably little authority on the question of how long a good

must be merchantable. The time for testing merchantability is the time of delivery so that the goods must be merchantable at this time. English cases have held that in the case of perishable goods where delivery takes place at the port of shipment, they should remain merchantable for the normal transit to the destination and for disposal on arrival. See Mash and Murrell Ltd v. Joseph I. Emmanuel Ltd. [1961] 1WLR 862. For a similar approach in relation to the delivery of a consignment of fish see Georgetown Seafoods Ltd. v. Usen Fisheries (1977) 78 DLR (3d) 542 (PEISC).

In Lambert v. Lewis [1981] 2 WLR 713 at 720 Lord Diplock commented in relation to the warranty for a particular purpose in relation to an automobile coupling that:

I do not doubt that it is a continuing warranty that the goods will continue to be fit for that purpose for a reasonable time after delivery, so long as they remain in the same apparent state at that in which they were delivered, apart from normal wear and tear. What is a reasonable time will depend on the nature of the goods...

Fording Coal Ltd. v. Harnischfeger Corp. of Canada (B.C.C.A.) [1991] B.C.J. No. 3682 DRS 93_08265 Vancouver Registry: CA012336 8 B.C.A.C. 250

British Columbia Court of Appeal Hutcheon, Toy and Rowles JJ.A. Heard: November 7, 1991 Judgment: December 17, 1991 (13 pp.)

ROWLES J.A. (for the Court, dismissing the appeal):__ This is an appeal from a decision of Mr. Justice B.D. Macdonald in which he found the appellant in breach of the implied warranties of fitness and merchantable quality arising under ss. 18(a) and (b) of the Sale of Goods Act, R.S.B.C. 1979, c. 370 in respect to a contract of sale of a mining shovel.

Two grounds of appeal were advanced:

1. The trial judge erred in not construing the implied warranties as to fitness and merchantable quality in light of the express warranty which had been negotiated between the parties.

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2. The trial judge erred in concluding that the mining shovel was not reasonably fit for its intended purpose.

Facts: The appellant sells large mining shovels. The respondent operates an

open pit coal mine at Elkford, British Columbia and had previously purchased mining shovels from the appellant. In early 1982, the appellant sold to the respondent the subject P & H Model 2800 mining shovel for a total purchase price of between $5,000,000 and $6,000,000. The shovel was put into service in April, 1982. Except for normal holidays, annual shutdowns and a strike period in 1983, the shovel was operated continuously until its failure in January, 1987.

The trial judge gave the following description of the cause of the failure and its consequences:

The house (or cab) and the boom of this huge machine are permitted to swivel in relation to the tracked car body, on which it moves from one position to another, by means of a roller path between the house and the car body. An essential component of that "bearing" or swivel assembly are some 54 rollers, which allow the house to turn in relation to the car body. While the rollers do not last forever, under normal operating conditions they fail in a progressive manner by surface spalling, damage which can be detected by routine visual inspection. The design permits roller replacement without dismantling the shovel.

In this case there was a "catastrophic" failure of one roller due to deep radial cracking which had developed within the roller. The cause of the failure was an "abnormal hardness profile" (i.e.: high sub_ surface hardness which was the indirect result of surface decarburization). That condition resulted in sub_surface tensile stresses which would not be present in a correctly heat_treated roller. The presence of those stresses led to the sub_surface cracking and subsequent failure of the roller. It was unfit for service.

The sudden fracture of the defective roller caused the roller path to jam, fracturing many of the pins holding the other rollers and damaging the roller path itself. While the cost of a replacement roller is only $1,000, the cost of repairs to the swivel assembly of the shovel (parts and labour) was close to $400,000, and the plaintiff claims in excess of $160,000 as the extra cost of operating other equipment to do the work which would have been performed by this shovel during the 32 days consumed by the repair process.

The damages claimed amounted to about eight per cent of the original cost of the shovel.

At the time of the failure, the shovel had been operated successfully for five years and for about 25,000 hours. The shovel had no history of breakdown and was successfully repaired.

There was no suggestion that abuse or improper maintenance

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contributed to the failure of the roller. There was evidence called to establish that the anticipated life of the

rollers was at least 50,000 and perhaps 100,000 hours. The trial judge noted that "one can say that this failed roller had performed for about 25% of its anticipated life span".

The parties had negotiated the warranty that was to apply in respect to the shovel. Although the appellant's standard form of warranty excludes all other warranties, express or implied, that exclusion was deleted from the written warranty which the respondent accepted in connection with this sale. The warranty which was negotiated was for one year and unlimited hours in lieu of the appellant's "standard" warranty of one year or 3,000 hours. The terms of the warranty were:

Harnischfeger Corporation warrants every part and detail of the equipment to be free from defects in material, design and workmanship for a period of 365 days (unlimited hours) following initial operation.

The above unit must be capable of operating at Fording Coal Limited, Fording River Operations, under the following conditions:

1) Excavating primarily blasted rock and loading 170 ton capacity rear dump haulage trucks. 2) Temperature Variance _ _40 C to +30 C. 3) Elevation 5,200 feet to 7,200 feet above sea level. 4) This unit will work on a twelve hour shift, two shifts per day, seven day week continuous basis.

The above equipment must comply with the British Columbia Coal Mines Regulation Act.

Statutory Provisions Section 18 of the Sale of Goods Act provides:... (d) an express warranty or condition does not negative a warranty or

condition implied by this Act unless inconsistent with it. It is common ground that in the circumstances of this case, there is a no

practical difference between the warranties implied under s. 18(a), fitness for the intended purpose, and s. 18(b), merchantable quality.

The appellant conceded that since the particular purpose for which the shovel was required had been made known to the appellant, the provisions of s. 18(a) were applicable.

Ground 1 of appeal: The trial judge erred in not construing the implied warranties as to fitness and merchantable quality in light of the express warranty which had been negotiated between the parties.

The appellant conceded that the express warranty negotiated between the parties neither explicitly excluded the implied warranties nor was inconsistent

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with them so as to render them inapplicable. That concession is in accord with Hunter Engineering Company Inc. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426.

The parties had negotiated an express warranty which was more generous than the appellant's standard warranty. One change from the standard warranty was that the appellant gave up the 3,000_hour warranty limit and agreed to a one_year warranty with unlimited hours. That change effectively doubled the duration of the warranty since the shovel was to operate 5,000 to 6,000 hours per year.

The person who negotiated the warranty on behalf of the respondent gave evidence that it was the respondent's practice to negotiate the duration and content of the warranty as a form of insurance, to fix the vendor with financial responsibility during the length of the warranty.

Appellant's counsel submitted that the courts, when deciding whether or not the provisions of the Sale of Goods Act have been satisfied, ought to give considerable weight to the fact that the parties have specifically addressed the allocation of risk by the warranty to which they agreed.

On behalf of the appellant, Mr. Macintosh argued that while a contractual warranty and the statutory conditions are not necessarily co_existent in time, the Legislature could not have intended to confer statutory protection upon a sophisticated purchaser for a period substantially in excess of the period for which he chose to protect himself in his contract.

In respect to the first ground of appeal, the same arguments were advanced before the trial judge who rejected them. The trial judge said:

The question raised here is whether or not any limitations should be placed on the scope and extent of those implied warranties in circumstances where the parties have bargained for a specified warranty. Should reference be had to the specific warranty to limit or define the implied warranties under the Act even though the latter are not excluded by the former? I have concluded that no such reference is required or appropriate. . . .

The policy questions raised in argument here have already been decided by the Legislature. Unless the contract excludes their application, the implied warranties and conditions in the Act allocate the risk of an inherent defect to the seller. The seller is free to contract out of that risk. The defendant here chose not to insist upon such a term in the contract for the sale of this shovel even though its "standard warranty" accomplishes that end. Having agreed, in effect, to the inclusion of the implied warranties in the Act as terms of its contract, the defendant cannot limit the scope and extent of those implied warranties by reference to the terms of an express warranty which has long

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since ceased to have any application.

. . . To permit an agreement which extended the standard warranty of the defendant to limit the scope of the implied warranties under the Act, would be to allow the defendant to achieve indirectly what it concedes it did not do directly under s. 18(d) of the Act (e.g.: to negative a warranty or condition implied by the Act). I can see no distinction between a case where no express warranty exists and one where an express warranty which does not negative the implied warranties in the Act has expired.

On this issue, I agree with the conclusions of the trial judge for the reasons he stated.

Ground 2: The trial judge erred in concluding that the mining shovel was not reasonably fit for its intended purpose.

At trial the respondent argued that the roller's susceptibility to unpredictable and severe failure of the type which occurred rendered the shovel in which the roller was installed unfit for the purpose for which it was intended.

The trial judge concluded that the defect existed at the time of delivery and that the failure occurred well before the expected life span of the roller was up and in a manner which could not have been anticipated or detected by normal maintenance inspections.

The trial judge acceded to the respondent's submission that an unpredictable failure during the part's normal life span from a defect existing at the time of delivery was sufficient to render the goods unfit for their intended purpose.

The appellant's counsel submitted that the effect of the judgment below is that a vendor is to serve as the guarantor of all goods during their expected lifetime in all cases where the Sale of Goods Act has not been expressly excluded. The approach adopted by the trial judge, Mr. Macintosh argued, would necessarily result in the predicted life span of the part or product in question becoming the measurement for the terms of the implied terms under the Sale of Goods Act.

In advancing his submissions, Mr. Macintosh referred to Venus Electric Ltd. v. Brevel Products Ltd. (1978), 19 O.R. (2d) 417 (C.A.), in which Dubin, J.A., as he then was, referred (at p. 424) with approval to what is stated in 77 Corp. Jur. Sec., 325, at p. 1178:

A warranty of fitness has to do with the intrinsic qualities and characteristics of the property sold . . . An implied warranty that goods are reasonably fit for the purpose must be

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reasonably construed in the light of common knowledge with respect to the nature of the article sold. While such warranty requires that goods be reasonably suited or fitted to the purpose for which sold, nothing further is required, and it is not necessary, for example, that the article purchased be perfect or the best of its kind, nor is there any implied warranty that the article is as suitable for the purpose as other articles of the same kind. The warranty does not constitute an agreement that the goods can be used with absolute safety or that they are perfectly adapted to the intended use . . . . (Dubin, J.A.'s emphasis)

The trial judge quoted the above passage, but, in Mr. Macintosh's submission, he misapplied it for the implied warranty that goods be reasonably fit for the purpose intended does not impose an obligation that the roller "be perfect or the best of its kind" or that the roller is "as suitable for the purpose as the articles of the same kind".

In advancing those submissions Mr. Macintosh pointed to the following facts: the shovel had been operated successfully and virtually continuously for a five_year period when one of 54 rollers failed; the roller which failed had functioned properly for at least 25 per cent, and possibly one_half, of its expected lifetime; the cost of repair was only about eight per cent of the total purchase price of the shovel.

In response to the appellant's arguments, Mr. Phillips submitted that the trial judge did not impose an implied warranty that the goods would last for their expected lifetime. The mere fact that the roller lasted less than its expected lifetime was not the foundation of the respondent's claim nor the trial judge's conclusion. Instead, the respondent's claim was based simply on the fact that the roller, at the time of delivery, was defective and that it was doomed to fail catastrophically. Although prolonged use may be an important factor in the factual determination of whether the goods are of merchantable quality, the evidence that the goods do not last the time which might be expected may be taken as an indication of inappropriate quality, state, or condition at the time when the goods must be of merchantable quality.

In respect to the appellant's submission that the trial judge imposed an obligation that the roller be "perfect" or "the best of its kind", Mr. Phillips submitted that the trial judge did not impose such an obligation but instead took into account the fact that the roller was a critical component of the shovel, that it contained a defect which arose during the manufacturing process, and that the defect was one which could not be detected. The defect rendered the roller susceptible to failure in a manner that could not be anticipated or ascertained by normal inspection. That failure was likely to occur within the roller's normal life span and hence while the shovel was in operation. The result of the failure was likely, therefore, to be catastrophic. That is enough to show that the roller, and hence the shovel which contained it, was not of merchantable quality. The

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obligation that the shovel not contain an undetectable defect that will probably cause it to suffer catastrophic failure falls short of an obligation that it be "perfect" or "the best of its kind".

I agree with the argument presented by the respondent's counsel in response to the appellant's submissions.

The unusual facts in this case support the trial judge's conclusion that the appellant was in breach of the implied warranties of fitness and merchantable quality arising under ss. 18(a) and (b) of the Sale of Goods Act.

I would dismiss the appeal.

ROWLES J.A. HUTCHEON J.A.:__ I agree. TOY J.A.:__ I agree.

Examination proviso

Ontario Law Reform CommissionReport on Sale of Goods 1979 p218

[discussing the proviso in s15.2 in relation to defects that “such examination ought to have revealed] ..this test has been criticized as being too favourable to the buyer. First, it is said, it encourages the buyer not to examine the goods. Secondly, even if he does examine the goods, the buyer is only deemed to have notice of defects that “such” (that is, his actual) examination ought to have revealed...the buyer is under no obligation to conduct a reasonably careful examination. It will be observed, however, that the test is not wholly subjective, since the buyer will be deemed to be aware of defects which his examination “ought to have revealed”....We are ...troubled by the criticism that the buyer who conducts a perfunctory examination of the goods may be better off than the diligent buyer...On balance, however, we have decided to recommend no change. The problem does not appear to be of great practical importance”.

Seller who deals in goods of that description.

See comments of Lord Wilberforce in Ashington

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Piggeries below p40

4. Reasonable fitness for purpose

Hardwicke Game Farm v. Suffolk Agricultural and Poultry Producers Association [1969] 2 AC 31

In this case the Hardwicke Game Farm had bought in 1960 feeding stuff for young turkeys from a local feeding compounder SAPPA. The compound included about ten per cent of brazilian ground nuts which were contaminated by a poison which killed the turkeys. The game farm sued SAPPA who brought in their suppliers of ground nuts Grimsdale, who in turn brought in their suppliers Kendall. Both Grimsdale and Kendall were members of the London Cattle Food Traders Association. At the time of the purchase of the ground nuts by the Game Farm in 1960 there was no reason to suspect that any groundnut extractions might contain the poison which killed the turkeys. However after the nature of the contamination was discovered it appeared that some buyers were willing to buy the contaminated groundnuts for feeding to cattle. It was for this reason that they were held to be merchantable. In the following judgment Lord Pearce considers the application of s15.1 to the transaction between Kendall and Grimsdale.

Lord Pearce:The judge and the Court of Appeal held that the purpose of

Grimsdale was “a particular purpose” within section 14 (1). It was argued that such a purpose was too wide and had not enough particularity to constitute a particular purpose. I do not accept this contention. Almost every purpose is capable of some sub-division, some further and better particulars. But a particular purpose means a given purpose, known or communicated. It is not necessarily a narrow or closely particularised purpose (see Benjamin on Sale (1950), 8th ed., p. 630: “A particular purpose is not some purpose necessarily distinct from a general purpose”). A purpose may be put in wide terms or it may be circumscribed or narrowed. An example of the former is to be found in Bartlett v. Sydney Marcus Ltd. [1965] 1 W.L.R. 1013, where the purpose was that of a car to drive on the road. See also Baldry v. Marshall [1925] 1 K.B. 260 [”a comfortable car suitable for touring purposes”]. A somewhat narrower purpose was to be found in Bristol Tramsways, etc., Carriage Co. Ltd. v. Fiat Motors Ltd. [1910] 2 K.B. 831 [”an omnibus for heavy traffic in a hilly district”]. The less circumscribed the purpose, the less circumscribed will be, as a rule, the

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range of goods which are reasonably fit for such purpose. The purpose of a car to drive on the road will be satisfied by almost any car so long as it will function reasonably; but the narrower purpose of an omnibus suitable to the crowded streets of a city can only be achieved by a narrower range of vehicles. This, however, is a question of fact and degree. Lord Herschell said in Drummond v. Van Ingen, 12 App.Cas. 284, 293:

“Where the article may be used as one of the elements in a variety of other manufacturers, I think it may be too much to impute to the maker of this common article a knowledge of the details of every manufacture into which it may enter in combination with other materials.”

In general it would be wrong to say, as was suggested in argument, that a wide purpose is unfair to the seller because it purports to require fitness for every conceivable subdivision of purpose within the main purpose.

I would expect a tribunal of fact to decide that a car sold in this country was reasonably fit for touring even though it was not well adapted for conditions in a heat wave; but not, if it could not cope adequately with rain. If, however, it developed some lethal or dangerous trick in very hot weather, I would expect it to be found unfit. In deciding the question of fact the rarity of the unsuitability would be weighed against the gravity of its consequences. Again, if food was merely unpalatable or useless on rare occasions, it might well be reasonably suitable for food. But I should certainly not expect it to be held reasonably suitable if even on very rare occasions it killed the consumer. The question for the tribunal of fact is simply “were these goods reasonably fit for the specified purpose?”

“To resell in smaller quantities to be compounded into food for cattle and poultry” was, therefore, a particular purpose within section 14 (1). If a particular purpose is made known, that is sufficient to raise the inference that the buyer relies on the seller’s skill and judgement unless there is something to displace the inference. There is no need for a buyer formally to “make known” that which is already known. See Manchester Liners Ltd. v. Rea Ltd. [1922] 2 A.C. 74, 92; Cammell Laird & Co. v. The Manganese Bronze & Brass Co. [1934] A.C. 402; Mash and Murrell Ltd. v. Joseph I. Emanuel Ltd. [1961] 1 W.L.R. 862, 867 (a sale from one merchant to another). The reliance need not be exclusive. Partial reliance will suffice.

The judge considered that the inference that the buyer relied on the seller’s skill and judgement was displaced by the fact that Grimsdale and Kendall were members of the same Association, the London Cattle Food Traders Association. I do no, with respect, accept this view. The whole trend of authority has inclined towards an assumption of reliance wherever the seller knows the particular purpose. And where there are several subsales and the

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purpose is obvious, the liability is frequently passed up the line. To cut the chain of liability at one particular point is not fair unless there is some cogent reason for doing so. In the present case I see no grounds for holding that Kendall were in any relevantly different position from Grimsdale. The fellow-membership of the C.T.F.A. was irrelevant.- - - - rely on another member just as much as he relies on an outside trader. The fellow-membership may even increase his reliance.

Reliance is not excluded by the fact that the seller may not himself have seen the goods he sells. In Bigge v. Parkinson (1862) 7 H. & N. 955, 959 where it was implied that stores for troops in India must be fit for their purpose, Cockburn C.J. said:

“Where a person undertakes to supply provisions, and they are supplied in cases hermetically sealed, but turn out to be putrid, it is no answer to say that he has been deceived by the person from whom he got them.”

The seller, not the buyer, is aware of the provenance of the goods and has chosen to acquire them for disposal. It would, therefore, be no unreasonable that the buyer should rely on the seller’s “knowledge and trade wisdom” to use a phrase quoted in Australian Knitting Mills Ltd. v. Grant, 50 C.L.R. 387, 446 by Evatt J. from Ward v. Great Atlantic & Pacific Tea Co. (1918) 231 Mass. 90, 93, 94. And Walton J. in Preist v. Last (1903) 89 L.T. 33, 35, refers to the buyer’s reliance that the seller will not sell him “mere rubbish.” This expression is echoed in the evidence in the present case where Mr. Brown of Lillico said that they relied on Kendall “not to sell what they knew was rubbish” (Appendix 2, page 208).

It is argued that the width of the purpose should prevent one from inferring that there was reliance. I do not think so. The compounders of food for cattle and poultry need healthy ingredients, as the sellers knew. The parties were not considering what admixture of healthy groundnut meal would be good for particular animals or birds, but whether assuming a certain quantity of groundnut meal would be a fit ingredient, the goods delivered would be healthy or harmful groundnut meal. It was reasonable that the buyer should rely on the seller to deliver groundnut meal which would, as groundnut meal, be a healthy and not a harmful ingredient in a compound.

In my opinion, there was on the circumstances of this case sufficient to establish reliance by Grimsdale on Kendall and a resulting condition.

The condition did not mean that the food was fit, however strange or unsuitable the proportions of the compound might prove to be. It meant that the food was fit if compounded reasonably and competently according to current standards. Goods are not fit if they have hidden limitations requiring special precautions unknown to the buyer or seller. The groundnut mean

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delivered was plainly not fit for the purpose of reselling in small lots to compounders of food for cattle and poultry. It was highly toxic. It is beside the point that Kendalls were unaware of the proportions in which it was to be compounded. It was unfit for use in the normal range of proportions. The evidence shows that 10 per cent. was included in the feeding stuff for pheasants. This was not abnormal. When the toxicity had been discovered and investigated the recommendation of a reputable working party was that not more than 5 per cent. of meal with a high toxicity should be included even in cattle rations and none should be included in rations for birds. Moreover, while its toxicity was unknown, the mean was thereby far more harmful and dangerous. Even had the buyer known of its toxic qualities, it was not fit for compounding for poultry. For a compounder’s business is to mix healthy food in suitable compounds. It is quite unsuitable that he should get toxic meal which can only be used by inserting it in quantities so abnormally small that the dilution of other compounds removes its lethal effect. All the courts below have held rightly, with any dissent, that this meal was not reasonably fit for the purpose for which it was supplied by Kendall to Grimsdale.

Kendall are therefore liable in breach of the condition under section 14 (1) [Ont.15.1]

Lord Pearce indicates that the “whole trend” was towards an assumption of reliance. Why? These comments were made in the late 60s when ideas of manufacturers strict liability in tort for product defects were becoming influential. It was assumed that the manufacturer was the best risk and loss spreader (for example through insurance) in relation to defects which caused physical injuries.

Ashington Piggeries Ltd v. Christopher Hill Ltd. :Christopher Hill Ltd v. Norsildmel [1972] AC 441(HL)

In this case the owner of a mink farm, who was an expert on mink farming asked Christopher Hill Ltd. to compound for him a mink food called “King Size” in accordance with a formula which he had prepared. Christopher Hill was a well known animal food compounder but had no knowledge or experience of mink. The ingredients for the formula were to be supplied by Hill. The compound was fed to large numbers of mink, many of whom died of a hitherto unknown disease. The common factor appeared to be “King Size” and ultimately the cause was identified as toxic Norwegian herring meal, an ingredient of the compound. The herring meal had been preserved in sodium

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nitrite which rendered it toxic to animals and in particular mink. The action between Hill and Udall raised the question of the applicability of s15.1 and Hill also brought in the Norwegian supplier of the herring meal, Norsildmel.

LORD WILBERFORCE. My Lords, what caused both the death of the appellants’ mink in 1961? This was the substantial, and very difficult, issue at the trial. The appellants succeeded in proving after some fifty days that the heavy losses which occurred had been caused by the presence of dimethylnitrosamine (DMNA) in herring meal supplied to them by the respondents. This herring meal was an ingredient in a compound mink food (“King Size”) ordered, on the appellants’ behalf, by their controlling director Mr. W. T. Udall, a leading mink farmer and an expert in mink nutrition. The judge’s finding as to the cause of the mortality was upheld by the Court of Appeal and has not been challenged in this House. We are only concerned with the appellants’ rights under their contract of sale and under the Sale of Goods Act 1893 and consequentially with the respondents’ right against third parties from whom in turn the respondents acquired the meal. It is not, and cannot be, contended that because the presence of this chemical in the meal was unsuspected, and latent, at the date of the contract, and for some time after, that of itself affords a defence (other than a special defence under the fair average quality provisions) either to the intermediate sellers or to the manufacturers.

The judge decided that the respondents were in breach of each of the conditions implied by section 13, section 14 (1) and section 14 (2) of the Act but on each point his decision was reversed by the Court of Appeal. I have no doubt that under two of these headings his judgement should be restored. Because of the way in which the Sale of Goods Act has slotted the pre-existent common law remedy into compartments, it is necessary to consider separately the three relevant provisions. It is well known that there is a good deal of overlapping between them, so that this subdivision is artificial and gives rise to difficulty. But there is no avoiding this procedure....[Lord Wilberforce held that there was no breach of the condition as to description]

2. Section 14(1) of the Act: I do not think it is disputed, or in any case disputable, that a particular purpose was made known by the buyers so as to show that they relied on the sellers’ skill and judgement. The particular purpose for which “King Size” was required was as food for mink.

Equally I think it is clear (as both courts have found) that there was reliance on the respondents’ skill and judgement. Although the Act makes no reference to partial reliance, it was settled, well before the Cammell Laird case [1934] A.C. 402 was decided in this House, that there may be cases where the buyer relies on his own skill or judgement for some purposes and on that of the seller for others. This House gave to that principle emphatic endorsement.

The present is certainly such a case. In the words of Milmo J. [1968] 1 Lloyd’s Rep. 457, 480:

“On the one hand Mr. Udall was relying on his own

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judgement as to what his formula should contain and the levels at which the various ingredients in it should be included. On the other, he was relying, and had no alternative but to rely, upon the [respondents] to obtain the ingredients, to see they were of good quality and not to use ingredients which, as a result of contamination, were toxic.”

The word “toxic” will require some examination but, subject to this, consider that this passage correctly states the position as regards reliance.

The field thus left to the sellers can be described in terms of their responsibility as merchants, to obtain and deliver ingredients, and relevantly herring meal, not unfit by reason of contamination, to be fed to animals, including mink. The field reserved to the buyers, on the other hand, was that of particular or specific suitability for mink. There was no doubt that herring meal, as such, was suitable for mink; on the other hand, the particular consignments supplied in 1961 were unsuitable because of the presence of DMNA. What, then, was the nature of this unsuitability?

If mink possessed an idiosyncrasy, which made the food as supplied unsuitable for them though it was perfectly suitable for other animals, this would be the buyers’ responsibility, unless, as is not the case here, they had made this idiosyncrasy known to the sellers so as to show reliance on them to provide for it. But any general unsuitability would be the sellers’ responsibility. Although the evidence was not very complete, it is sufficiently shown, in my opinion, that mink are more sensitive to DMNA than most other animals to whom compound foods would be sold. Chicken and pigs are among the least sensitive, next cattle and then sheep, with mink at the top of the scale. So the question arises, what does the buyer, alleging unfitness, have to prove? If the fact were that the herring meal supplied, while damaging to mink, was perfectly harmless to all other animals to whom it might be fed, it would be unjust to hold the sellers liable. If, on the other hand, the herring meal was not only lethal to mink but also deleterious, though not lethal, to other animals, the sellers’ responsibility could be fairly engaged. A man can hardly claim that the product he sells is suitable, especially if that is a foodstuff, merely because it fails to kill more than one species to which it is fed.

In this case, because of the difficulty of tracing the lethal element, the evidence as to its presence, its strength and its effect was not scientifically complete. It was not until 1964 that DMNA was identified, by that time all the infected herring meal had been disposed of, and all other animals to which it had been fed had died. The critical question in this part of the appeal is whether the buyers proved enough to show that their mink died because of some general, that is, non-specific, unsuitability of the herring meal through contamination. The burden was upon the buyers to show that this was so.

The Court of Appeal, who decided against the buyers on this point, based their decision on a conclusion regarding the balance of the

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contaminated herring mean which was not used for mink food. The consignment which killed the appellants’ mink was part (8½ tons) of a total of 333½ tons, the rest of which was sold by the respondents for inclusion in feeding stuffs in the normal way. The Court of Appeal [1969] 2 Lloyd’s Rep. 425, 462 found that this balance was “perfectly suitable” as a feeding stuff for animals for whom the respondents normally compounded foods, and from this drew the conclusion that the deaths of the mink were due to some specific idiosyncrasy. I cannot accept that this conclusion was justified. The evidence certainly showed that no complaints were received from any person who received meal from the balance of the consignment, but that was all. There was no evidence in what quantities, or over what period, any of this meal was fed, nor even, accepting that no deaths resulted (and premature deaths may have occurred), was there any evidence that the animals in question were not adversely affected in weight, fertility or in damage to their livers. The absence of complaint is insufficient by itself to establish perfect suitability.

But the matter does not end with rejection of the Court of Appeal’s finding: the basic difficulty remains. Given that the buyers had to show general unsuitability and not merely specific unsuitability for mink, did they do so? It is here that the concept of toxicity becomes relevant.

Toxicity is, to some extent, a relative quality. There are few products which are lethal or even deleterious to all species, in all conditions, in whatever doses. Some “poisons” may be quite harmless to certain species if they do not exceed a threshold quantity and if they can be eliminated before afresh dose is taken: some may even be beneficial if taken in small doses but lethal if taken in large. Other products, though not immediately damaging, become cumulatively so through build-up in the tissues or cells. From this point of view the Court of Appeal was no doubt right in its reservations as to the use of the word “toxic” where quoted above: the word may involve a petitio principii.

But when this is said, it also remains true that, in certain contexts, toxicity may be an absolute quantity: particularly is this so where foodstuffs are concerned. Where an element in feeding stuffs is shown to be (i) lethal in some quantities to one or more species (ii) damaging in other quantities to one or more species and in more than one respect and (iii) when it is not suggested that in any circumstances the chemical is beneficial; when moreover the expert evidence shows that the full implication and effects of feeding it have yet to be scientifically established, then there is every justification for describing it as toxic, and, which is the relevant consideration, for placing responsibility for its exclusion firmly upon the seller.

I am satisfied that DMNA was shown to be toxic in this sense. That, in a general sense of the word, it was toxic was never disputed at the trial. The issue, fought over so many days, was whether it was shown that DMNA was present in the 8½ tons used for making food for the appellants’ mink, and whether it was DMNA that caused their death: secondarily also whether it was shown to be present in the rest of the 333½ tons consignment or in the product of

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the season 1960-61.It was not an issue, on the pleading, or, as I understood it, in

evidence, whether DMNA was toxic generally or whether the disputed herring meal was toxic only quoad the mink. The description of DMNA as toxic was that of Dr. Koppang, the expert witness called for the third parties-- the effective antagonist of the appellants. It was he who in the witness box said that all animals are sensitive to DMNA and that mink were more sensitive than others. There was evidence of the specific damage inflicted by DMNA, namely, damage to the liver: not only mink have livers, and damaged livers of other species were instanced and photographed: this is generic damage, not idiosyncratic. There was evidence of disastrous losses to Norwegian fox and mink over six years from 1957 with similar symptoms to those of a toxic hepatosis in 1961 among ruminants to whom toxic herring meal had been fed. Dr. Roe, a pathologist, showed that DMNA was particularly hazardous to man in concentrated form and that he had instructed persons carrying out examinations of poisoned mink to be extremely careful. My noble and learned friend, Viscount Dilhorne, has fully extracted the essence of this evidence.

Against this the respondents sought to rely on certain passages in the evidence to the effect that as regards other animals than mink, including pigs, chickens and cows, DMNA below a certain quantity is harmless. But such evidence would have to be of a very convincing character before it satisfied me (as it clearly did not satisfy the judge) that foodstuffs containing DMNA were suitable for their purpose, even if the concentration was low. In fact, the evidence was of a very imprecise kind. It was agreed that one species differs from another, one sub-species from another, one individual from another. As regards sensitivity to DMNA the evidence as regards the effect of feeding it was partial and far from comprehensive. The Norwegian expert admitted that scientific knowledge was imperfect. The serious ravages among ruminants and furbearers had taken place seven years or more before the trial, the opportunity for accurate research in the field did not exist. The equation is, therefore, this: that DMNA is inherently and generally toxic: that as included in the relevant herring meal it poisoned the appellants’ mink: that this poisoning was not due to any specific idiosyncrasy among mink: that its effect on other species or sub-species is not accurately known beyond that it is potentially deleterious at least to the liver and that most normal species are more tolerant of it than mink.

In my opinion, the appellants made good their case: they proved the cause of their losses to lie in the inclusion of a generally (viz. non-specific as regards mink) toxic ingredient in the food. It was not for them to show that this same food killed, or poisoned, other species. So to require would place far too high a burden on a buyer. The buyer may have no means of ascertaining what the effect on other species may be. The whole contaminated consignment may have been fed to the buyer’s animals: is the buyer to fail because he cannot show that this particular consignment killed or at least injured, other animals? He must, I think, carry his proof to the point of showing that the guilty ingredient has

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some generally (as opposed to specifically) toxic quality. But once he has done this, has he shown, at least with strong prima facie force, that a feeding stuff which contained it was unsuitable? Is he not entitled to throw on to the seller the burden of showing, if he can, that the damage to the buyer’s animals was due to some factor within the field of responsibility reserved to the buyer? I would answer yes to these questions. In the end, it is for the judge to decide whether, on the evidence, the buyers have proved their case. Milmo J.’s conclusions are expressed in three passages, one in the main action, the others in the third party proceedings (the whole case was heard together):

“Herring meal does not normally contain a poison. The herring meal which killed the English mink contained DMNA which is a poison, and it contained it at a level sufficiently high to be lethal to mink, which are animals to which herring meal can properly be fed. All animals are sensitive to DMNA poisoning, though mink are more sensitive than most.” ([1968] 1 Lloyd’s Rep. 457, 481.)

“I find that the meal which poisoned the English mink was not reasonably fit for use as an ingredient in animal foodstuffs because of the fact that it contained in substantial and significant quantities DMNA which is a toxic substance to which all animals are sensitive.” (p. 487.)

“While I accept that there was no evidence that the meal had a deleterious effect upon any animal or other type of livestock other than mink, I do not consider that it was proved affirmatively that the meal which killed the mink could have been fed with impunity to all other types of livestock.” (p. 486--emphasis supplied.)

This is precisely the position: coupled with the general finding as to toxicity (something to which all animals are sensitive, i.e., liable to suffer liver damage) it amounts to a rejection of the only line of defence open to the respondents--namely, that the relevant consignment was fit to be fed to all normal animals and only unfit to be fed to mink.

In my opinion, these findings were justified and correct.So much for the facts, but there remains one legal argument on

this part of the case. Section 14 (1) contains the words “and goods are of a description which it is in the course of the seller’s business to supply.” The respondents relied on these words and persuaded the Court of Appeal to decide that the requirement was not satisfied because, briefly, the respondents were not dealers in mink food. A similar argument was put forward on the words in section 14 (2) “where goods are bought by description from a seller who deals in goods of that description.” The Court of Appeal decided this point, too, in the

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respondents’ favour. The respondents they held, did not deal in mink food, or “King Size,” before Mr. Udall placed with them the orders which produced the defective goods. I have some doubt whether this argument is even correct on the facts, because Mr. Udall had been ordering “King Size” for several months before he ordered the fatal consignment. But we must deal with the legal argument because it is clearly of general importance. It appears never previously to have been accepted and it substantially narrows the scope of both subsections. It rests, in the first place, upon a linguistic comparison of the meaning of the word “description” in the three places where it appears and on the argument that it must mean the same in each place.

I do not accept that, taken in its most linguistic strictness, either subsection bears the meaning contended for. I would hold that (as to subsection (1)) it is in the course of the seller’s business to supply goods if he agrees, either generally, or in a particular case, to supply the goods when ordered, and (as to subsection (2)) that a seller deals in goods of that description if his business is such that he is willing to accept orders for them. I cannot comprehend the rationale of holding that the subsections do not apply if the seller is dealing in the particular goods for the first time or the sense of distinguishing between the first and the second order for the goods or for goods of the description. The Court of Appeal offered the analogy of a doctor sending a novel prescription to a pharmacist, which turns out to be deleterious. But as often happens to arguments of this kind, the analogy is faulty: if the prescription is wrong, of course the doctor is responsible. The fitness of the prescription is within his field of responsibility. The relevant question is whether the pharmacist is responsible for the purity of his ingredients and one does not see why not.

But, moreover, consideration of the preceding common law shows that what the Act had in mind was something quite simple and rational: to limit the implied conditions of fitness or quality to persons in the way of business, as distinct from private persons. Whether this should be the law was a problem which had emerged, and been resolved, well before 1893. The first indication of the point arose in Jones v. Bright (1829) 15 Bing. 533 (copper sheathing). Two of the judges regarded it as an essential allegation that the defendant should have been the manufacturer of the defective copper. Park J. in fact, at p. 546, used the words “distinguishing, as I do, between the manufacturer of an article and the mere seller.” In Brown v. Edgington (1841) 2 Man. & G. 279, 291 (the crane rope) we find a description of the defendant by Bosanquet J. as “a dealer in articles of that description,” clearly a reason for holding him liable though he was not the manufacturer. The distinction between the dealer and the private seller is clearly brought out in Burnby v. Bollet (1847) 16 M. & W. 644, where a man bought a carcase in the market but later sold it to another farmer. His exemption from liability for defects in the carcase was explicitly based on his private character; he was “not clothed with any character of general dealer in provisions” (p. 649), he was “not dealing in the way of a common trade” (p. 655). And finally in the forerunner case of Jones v. Just (1868) L.R. 3 Q.B. 197

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we find Mellor J. in his fourth and fifth categories, which anticipate respectively section 14 (1) and 14 (2) of the Sale of Goods Act 1893, referring to a manufacturer or dealer contracting to supply an article which he manufactures or produces, or in which he deals, and to a manufacturer undertaking to supply foods manufactured by himself or in which he deals, so clearly following and adopting the prior accepted division between sales by way of trade and private sales.

One asks, therefore, what difference the insertion in the Sale of Goods Act of the words “description” made to these well-accepted rules. It seems at least clear that the words now appearing in section 14 (1) “and the goods are of a description which it is the seller’s business to supply” cannot mean more than “the goods are of a kind. . . .” “Description” here cannot be used in the same sense in which the word is used when the Act speaks of “sales by description,” for section 14 (1) is not dealing with sales by description at all. If this is so, I find no obstacle against reading “goods of that description” in a similar way in section 14 (2). In both cases the word means “goods of that kind” and nothing more. Moreover, even if this is wrong, and “description” is to be understood in a technical sense, I would have no difficulty in holding that a seller deals in goods “of that description” if he accepts orders to supply them in the way of business; and this whether or not he has previously accepted orders for goods of that description.

So, all other elements being present as I have tried to show, I would hold that section 14 (1) applies to the present case. I would agree with the judge that section 14 (2) equally applies and disagree with the reasons (based on the “description” argument) which led the Court of Appeal to a contrary opinion.

...The appeal of Christopher Hill Ltd. (the respondents) against

Norsildmel (“the third parties”) raises different, and, in one respect at least, more difficult issues. The goods supplied were in this case Norwegian herring meal and they were supplied under the terms of a commodity market contract in writing. A number of points arise under it. On the following I express my concurrence with others of your Lordships, and do not think it necessary to add reasons of my own.

1. The respondents were not in breach of a term in the contract implied by virtue of section 13 of the Sale of Goods Act 1893. The goods supplied were, in my opinion, Norwegian herring meal. The words “fair average quality of the season” were not in this contract part of the description. I do not find it necessary to consider whether, if they were, there was a breach of any implied condition that the goods should correspond with this description. They were not relied upon as themselves importing a warranty; but if the contention is open, I am in agreement with my noble and learned friend, Lord Diplock, for the reasons which he gives, that they do not cover the particular defect which existed.

2. The exemption clause contained in general condition 3 does

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not exclude a claim for breach of any warranty implied under section 14 (1 ) of the Act.

This leaves the substantial question whether a term as to reasonable fitness ought to be implied under section 14 (1) of the Act. There was also raised a question as to remoteness of damage but, in the view which I take this depends on the same considerations as those necessary for determination of liability under section 14 (1). I now consider this question.

In so doing I should make it clear that, although I refer to Norsildmel the third parties, the actual contract for sale was made with a committee called Sildemelutvalget to whom Norsildmel succeeded in 1964, but a distinction has been made between these organisations. What is necessary to determine is whether any particular purpose for which the goods were required was made known by the buyers to the sellers so as to show that the buyers relied on the sellers’ skill and judgement: what the particular purpose was: finally, whether the particular purpose included feeding to mink. The particular purpose relied upon by the respondents was that the meal was required for inclusion in animal feeding stuffs to be compounded by them. They do not contend that feeding mink was explicitly stated as a purpose; but they say that feeding to mink was known to both parties as a normal user for herring meal, and that it was sold without any reservation or restriction as to the use to which it might be put. The sale was negotiated through an agent in England-- C. T. Bowring & Co. Ltd. on behalf of Sildemelutvalget, but no point had been taken as to any limitation upon their knowledge as compared with that of their principals.

The scope and application of section 14 (1) of the Sale of Goods Act 1893 was fully considered by this House in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association Ltd. [1969] 2 A.C. 31. The opinion expressed in that case endorsed a tendency which other cases (such as Manchester Liners Ltd. v. Rea Ltd. [1922] 2 A.C. 74) had shown, to expand the scope of section 14 (1) so as to cover territory which might otherwise, on a first reading, have been thought to belong to section 14 (2). I think that this tendency essentially reflects a reversion to the more general approach to questions of the seller’s liability under implied warranty adopted by the common law, as contrasted with the compartmentalisation into separate, but inevitably overlapping, provisions adopted by the Sale of Goods Act. Naturam expellars furca is a maxim which tends to apply to codifications. At any rate it is clear that this House in the Hardwick case [1969] 2 A.C. 31 accepted that the “making known” so as to show reliance which the section requires is easily deduced from the nature and circumstances of the sale, and that the word “particular” means little more than “stated” or “defined.” As Lord Pearce said in Hardwick, at p. 115: “There is no need for a buyer formally to ‘make known’ that which is already known”: and here there is no doubt that the third parties, through their selling agents C.T. Bowring & Co. Ltd., and also directly, knew what the herring meal was required for, namely, for inclusion in animal feeding stuffs to be compounded by the buyers, and no special purpose in relation to mink was relied

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on. The third parties were, moreover, a committee, or co-operative, of manufacturers of herring meal: in this case, whether one speaks of implication or presumption, the conclusion can hardly be otherwise than that of reliance by the buyers to produce a product reasonably fit for the purpose. I observe, indeed, that my noble and learned friend, Lord Guest, who felt difficulty in Hardwick as to the application of section 14 (1) against persons who were dealers in the market, said that he could well understand, where the sale is by a manufacturer to a customer, that the inference (sc. of reliance) can easily be drawn (p. 106). I agree with Milmo J. that it ought to be drawn in this case.

Then was the purpose, to be used for inclusion in animal feeding stuffs to be compounded by the buyers, a particular purpose? In my opinion, certainly yes. It is true that the purpose was wide, wider even than the purpose accepted as particular in Hardwick (for compounding into food for cattle and poultry), and, if one leaves aside a possible alternative use as fertiliser, on which there was some indefinite evidence, the purpose so made known covers a large part of the area which would be within section 14 (2). But I do not think, as the law has developed, that this can be regarded as an objection or that in accepting a purpose so defined, as a “particular purpose,” the court is crossing any forbidden line. There remains a distinction between a statement (express or implied) of a particular purpose, though a wide one, with the implied condition (or warranty) which this attracts, and a purchase by description with no purpose stated and the difference condition (or warranty) which that attracts. Moreover, width of the purpose is compensated, from the seller’s point of view, by the dilution of his responsibility: and to hold him liable under an implied warranty of fitness for the purpose of which he has been made aware, wide though this may be, appears as fair as to leave him exposed to the vaguer and less defined standard of merchantability. After all, the seller’s liability is, if I may borrow the expression of my noble and learned friend, Lord Morris of Borth-y-Gest, no more than to meet the requirement of a buyer who is saying to him “that is what I want it for, but I only want to buy if you sell me something that will do.” I think that well expresses the situation here.

The next point is whether, when the meal turned out to be unsuitable for feeding to mink, this was a matter to be treated as within the seller’s responsibility. There are two distinct points here: the first is whether feeding to mink was a normal use, within the general purpose of inclusion in animal feeding stuffs: the second is whether, assuming that the seller’s implied warranty did not extend beyond that of general suitability for animals, including possibly mink, the buyers were able to show a breach of that warranty.

The first point involves an issue of fact which received lengthy examination in the courts below. The decision on it depended to a great extent upon the view taken of two Norwegian witnesses called by the third parties, who were the assistant director of the third parties and the chief executive of a Norwegian herring oil factory at the relevant time. These witnesses were called to show that the third parties did not know in 1961 that herring meal might be fed

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to mink.Unfortunately the courts below reached different conclusions.

Milmo J. did not accept the disclaimer of the Norwegian witnesses. He found that both were aware in or before 1961 that herring meal was being fed to mink in Norway and that herring meal was a normal and well-known ingredient of the diet of mink kept in captivity in Norway and (he added) in other countries. On this basis he found that Sildemelutvalget knew of the practice of feeding herring meal to mink.

The Court of Appeal reached an opposite conclusion. They held that the respondents had failed to establish that at the date of the contract the third party should reasonably have contemplated that it was not unlikely that the herring meal, the subject-matter of the contract, might be fed to mink. On the contrary, they found on the evidence that the result of such contemplation would have been that it was highly unlikely that the herring meal would be fed to mink, and they added (though this would appear to be both an irrelevant matter and, since the meal was not known to be toxic, also factually incorrect) to which alone it would be harmful.

[Lord Wilberforce concluded that feeding to mink was a normal use in 1961 and that Hill was entitled to rely on Norsildmel to supply herring meal suitable for their purposes].

Venus Electric Ltd. v. Brevel Products Ltd.[1978] 19 O.R. (2d) 417 ONTARIO COURT OF APPEAL HOWLAND, C.J.O., DUBIN AND ZUBER, JJ.A..

APPEAL from a judgment in favour of the plaintiff in an action for breach of condition of reasonable fitness of goods for the buyer's purpose.

The judgment of the Court was delivered by

DUBIN, J.A.:__ In 1969, Venus Electric Limited entered into a contract with Simpsons_Sears Limited to supply a large volume of electric hair_dryers. The hair_dryers had been designed and produced by an American manufacturer, one Arvin Industries Inc., for the exclusive use of Simpsons_Sears in the United States. Simpsons_Sears asked Venus to assemble these dryers in Canada under an arrangement whereby the moulds or parts which required tooling would be obtained from Arvin and the other parts including the motors would be purchased in Canada. Venus subcontracted the manufacture of the motor to the defendant Brevel Products Limited. Venus assembled the component parts and delivered the same to Simpsons_Sears Limited. Approximately one_half of the hair_dryers supplied by Venus to Simpsons_Sears were returned because of defects in the hub of the fan.

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It would appear that three factors contributed to the failure of the fan. Such factors were the method of attachment which involved the design of both the fan and the shaft of the motor, the material of the fans which was made of polystyrene, and the environment in which the assembly operated which included the presence of oil coming down the shaft of the motor which had been supplied by Brevel.

This action was commenced for damages incurred by the plaintiff as a result of the return of the fans by Simpsons_ Sears. The trial Judge found the defendant liable by invoking s. 15, para. 1 of the Sale of Goods Act, R.S.O. 1970, c. 421, and assessed damages in favour of the plaintiff in the sum of $102,055. It is from that judgment that the defendant appeals.

The learned trial Judge has set forth in detail the evidence in this case, and I need only refer to such portions of it which bear directly on the issue of liability.

Prior to the entering into of the contract which forms the basis of this action, the plaintiff supplied the defendant with a sample assembly, including an electric motor, a base plate, and a plastic fan together with written specifications prepared by the plaintiff for the motor, and requested the defendant to supply sample motors which would replace the existing motors in the assembly.

The selection of the lubricant for the motor was left with the defendant, and there was no discussion between the parties as to the particular oil to be used by the defendant. The fan in the dryer was made of plastic material, but no information was given by the plaintiff to the defendant as to the specific nature of the composition used.

In the month of June, 1970, the defendant manufactured several models of the motor and submitted them to the plaintiff for testing. The lubricant selected by the defendant was of the best quality, and was one customarily used by the defendant in its manufacturing of motors, with respect to which there had been no prior difficulty. The plaintiff tested the sample motors and orally ordered a large quantity of two of the samples.

On July 3, 1970, the plaintiff gave a written purchase order which was confirmed in writing by the defendant on July 6, 1970. The confirmation delivered by the defendant stated, in part, as follows:

We will repair or replace at no charge if defective material or workmanship is demonstrated within one year of shipment. However, we do not guarantee suitability of our product for your application.

Although the motors ordered had standard shafts and did not have splines, counsel for both parties conceded that there was an understanding that the motors to be delivered were to have modified shafts and splines.

Before the motors were delivered, the plaintiff asked that there be more

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bite, which result was achieved by modification of the specifications for the splines. The defendant then submitted a further set of sample shafts with the modified splines which were approved by the plaintiff. The defendant then completed the manufacture of the motors and delivered them to the plaintiff.

On the sale by Simpsons_Sears of the dryers a substantial number of them were returned by the customer. It was subsequently ascertained that when the shaft with the splines was attached to the fan, tension was created which brought about a cracking. By reason of the way in which the motor was placed in the assembled product, some oil leaked down the shaft and came in contact with the fan. The oil being used was incompatible with the particular plastic of which the fan was manufactured and had accelerated the cracking, resulting in many of the dryers becoming inoperative.

The learned trial Judge made the following finding: On all the evidence I find that the tolerances permitted

in the Brevel design of the shaft for which it was responsible added to the stress in the plastic of the fan and initiated cracking which of itself would not have resulted in the breaking of the fans.

Although the learned trial Judge does not specifically find that the cause of the disintegration of the fans in the hair_ dryer was the oil from the motor migrating down the shaft and coming into contact with the plastic of the fans which was under stress, I think it fair to say that such a finding is implicit by reason of the result that was arrived at in this case.

The trial Judge concluded that the defendant was liable by reason of the provisions of s. 15, para. 1 of the Sale of Goods Act...

The trial Judge rejected the claim of the plaintiff that the defendant had breached s. 16(2)(a) of the Sale of Goods Act. Section 16 reads as follows:

16(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect.

(2) In the case of a contract for sale by sample, there is an implied condition,

(a) that the bulk will correspond with the sample in quality; (b) that the buyer will have a reasonable opportunity of comparing the

bulk with the sample; and

(c) that the goods will be free from any defect rendering them unmerchantable that would not be apparent on reasonable examination of the sample.

The trial Judge found that the contract in issue was a sale by sample, but that the motors that were supplied corresponded in quality with the samples that

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had been delivered. The principal submission made by Mr. Hemmerick, in a particularly

skilful argument, was that the learned trial Judge erred in holding the defendant liable by reason of the provisions of s. 15, para. 1 of the Sale of Goods Act.

It was not in issue that the goods were of such a description that it was in the course of the manufacturer's business to supply, but what is contended for is that the plaintiff did not make known to the seller the particular purpose for which the goods were required so as to show that the buyer relied on the manufacturer's skill or judgment.

The learned trial Judge found, as I have observed, that Brevel was responsible for the design of the shaft which obviously included the final product of the shaft and splines. However, with respect, I think she erred in so finding.

The motors ordered included standard shafts selected by Brevel. However, as a result of the discussions which ensued, the final shaft and the splines were modified at the request of the plaintiff, submitted to the plaintiff and approved by the plaintiff before delivery of the completed product. It is of significance that the assembly of the motors was the responsibility of the plaintiff.

It would appear that cracking was initiated because of the increased stress when the shaft was attached to the hub of the fan. The original shaft and splines supplied did not create sufficient stress. The ultimate product in this respect was redesigned at the request of the plaintiff, to whom samples were forwarded before the manufacture of the delivered product. If the delivered product created too much stress, it can hardly be said that the plaintiff had made known to the manufacturer that it was relying on the manufacturer's skill or judgment in this respect.

I am respectfully of the opinion, therefore, that the learned trial Judge erred in holding that the shafts and splines supplied were the responsibility of Brevel. In any event, the learned trial Judge appears to have accepted the evidence that, absent the oil, the cracking in itself would not have brought about a failure of the fan.

The principal contention of the plaintiff was that the failure of the fan was as a result of the incompatibility of the oil with the plastic material of which the fan was composed. When the oil came into contact with the areas of the fan which had been cracked, it accelerated the decomposition of the fan, and it was submitted that in this respect the buyer made known to the seller, expressly or by implication, that it was relying on the seller's skill or judgment.

The fans were supplied by Arvin. Having regard to the particular plastic being used for the fans, the designer specified to the American manufacturers, who were supplying motors to Arvin, that the bearing lubricant had to be compatible with the polystyrene plastic. None of these details were known by Venus, nor told to Brevel. Brevel was not asked to investigate the compatibility of the oil with the plastic, nor, like the manufacturers in the United States who supplied motors to Arvin, was it cautioned about the problem.

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The trial Judge found that the motors would have worked in other dryers and with other fans.

On this issue the trial Judge fastened liability on the defendant for the following reasons:

The seller's motors would have worked in other dryers and with other fans. If the buyer had not drawn the attention of Brevel to the fact that a plastic fan might be used, it could be doubted that Venus had imposed on Brevel the obligation to supply oil in the motors that was reasonably fit no matter what the requirements might be. By delivery, Venus had made known to Brevel that the fan was made of a certain type of plastic and the very fan itself was supplied in order that Brevel might design its motors to work with it. In the circumstances here, I find that there was an implied condition that the goods should be reasonably fit for the purpose which had been made known and they were not.

It is implicit in the reasons for judgment of the trial Judge, as I read them, that the damage to the fans resulted from a combination of the stress and the particular oil used in the motors. It does appear that the incompatibility of the oil accelerated the cracking, but in the absence of stress the oil would not have damaged the plastic.

I have already expressed the opinion that the defendant was not responsible for the cracking of the plastic material which was brought about by the particular shafts and splines selected and agreed upon by the plaintiff. Thus, even if this were a case in which it could be said that the plaintiff relied on the defendant's skill and judgment in the selection of the oil (about which I will comment later), it has not been proved that the oil caused the damage in the absence of the stress for which the plaintiff was responsible.

However, I think, with respect, that the learned trial Judge erred in concluding that the plaintiff had made known to the defendant that it was relying upon the skill and judgment of the defendant to select an oil compatible with the particular plastic material used in the fans under stress.

Unlike most cases where the application of s. 15, para. 1 of the Sale of Goods Act has been considered, there was nothing inherently defective in the motors in issue here. The unfitness was not by reason of any defect in the motor or lubricant, but was by reason of their unsuitability for use with other materials which were assembled by the buyer.

The important key to the interpretation of s. 15, para. 1 of the Sale of Goods Act is the question of reliance. It was so stated by Lord Diplock in Ashington Piggeries et al. v. Christopher Hill Ltd., [1971] 1 All E.R. 847 at p. 886, as follows:

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The key to both subsections [our s. 15, paras. 1 and 2] is reliance__the reasonable reliance of the buyer on the seller's ability to make or select goods which are reasonably fit for the buyer's purpose coupled with the seller's acceptance of responsibility to do so. The seller has a choice whether or not to accept that responsibility. To enable him to exercise it he must be supplied by the buyer with sufficient information to acquaint him with what he is being relied on to do and to enable him to appreciate what exercise of skill or judgment is called for in order to make or select goods which will be fit for the purpose for which the buyer requires them.

This consideration, in my view, throws light on two matters arising under s. 14 [our s. 15]. The first is the meaning of "particular purpose" in sub_s(1). The second is the application of the doctrine of "partial reliance" under both sub_s (1) and sub_s (2). To attract the condition to be implied by sub_s (1) the buyer must make known the purpose for which he requires the goods with sufficient particularity to enable a reasonable seller, engaged in the business of supplying goods of the kind ordered, to identify the characteristics which the goods need to possess to fit them for that purpose. If all that the buyer does make known to the seller is a range of purposes which do not all call for goods possessing identical characteristics and he does not identify the particular purpose or purposes within that range for which he in fact requires the goods, he does not give the seller sufficient information to enable him to make or to select goods possessing a characteristic which is needed to make them fit for any one of those purposes in particular, if the same characteristic either is not needed to make them fit, or makes them unfit, for other purposes within the range. A "range of purposes" case thus poses a stark question of legal policy as to whether the seller's responsibility ought to be to supply goods which are fit for at least one of the purposes within the range or to supply goods which are fit for all of those purposes unless he expressly disclaims responsibility for their fitness for any one or more of them.

With respect to partial reliance, Lord Diplock continues at pp. 887_8, as follows:

I turn next to "partial reliance". The actual words of sub_ s (1) appear to contemplate two classes of contracts only: one, where the buyer does not rely at all on the skill or judgment

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of the seller to see to it that the goods supplied are reasonably fit for a particular purpose; the other where the buyer does so rely and the other requirements of the subsection are satisfied. As a matter of linguistics it is possible to construe the expression "so as to show that the buyer relies" as referring to a reliance which was only partial, in the sense that the reliance was not the only or even the determinative factor which induced the buyer to enter into the contract. But it is not possible to extract from the language of the subsection any qualification on the implied undertaking by the seller, if there is such reliance, that the goods supplied by him shall be reasonably fit for the particular purpose for which they are required by the buyer. Yet as a result of technological advances since 1893 there are an increasing number of cases where the preparation of goods fit for a particular purpose calls for the exercise of more than one kind of expertise. The buyer may himself possess one of the kinds of expertise needed but lack another and may choose a seller who has led him to believe that he, the seller, possesses it. The only reliance by the buyer on the skill or judgment of the seller is that in the preparation or selection of the goods he will exercise that kind of expertise which he has led the buyer reasonably to believe that he possesses. The goods supplied may then be unfit for the particular purpose for which both parties knew they were required, either because of a defect which lay within the sphere of expertise of the seller or because of a defect which lay within the sphere of expertise of the buyer himself. The way in which the principle of reliance which underlies sub_ss (1) and (2) should be applied to a more complex contract of this kind, which was not in the immediate contemplation of the draftsman of the code, poses another stark question of legal policy. In large part this decision was made by your Lordships' House in 1934 in the Cammell Laird case, [1934] A.C. 402, [1934] All E.R. Rep. 1. It was there laid down that if the defect in the goods which rendered them unfit for their purposes was due to a characteristic which lay within the sphere of expertise of the seller to detect and avoid, the responsibility for their unfitness lay with the seller. The ratio decidendi leads ineluctably to the corollary that if the defect was due to a characteristic which it lay within the sphere of the expertise of the buyer to detect and avoid, the seller was not contractually responsible for it. It did not attract the implied condition under sub_s (1). The field of the seller's undertaking as to the fitness of the goods for the purpose corresponded with the field of the buyer's reliance on the skill and judgment of the seller.

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In Cammell Laird & Co., Ltd. v. Manganeze Bronze & Brass Co., Ltd., [1934] A.C. 402, referred to, Lord Wright states, at p. 423:

Such a reliance must be affirmatively shown; the buyer must bring home to the mind of the seller that he is relying on him in such a way that the seller can be taken to have contracted on that footing. The reliance is to be the basis of a contractual obligation.

He continued, at p. 424:

In dealing with these contentions, the first thing to be considered is, what is exactly the article which is the subject of the contract of sale, and what is the particular purpose for which it is required, in so far as relevant, as between the contracting parties. In some cases the matter may be very simple: the purpose for which a hot water bottle is required is easily determined and equally easy is it to determine the extent of reliance on the seller: similarly in the case of a piece of mechanism, intended to fit into a complete machine, the relevant purpose as between the buyer and the maker will normally be simply that it should be of the specified plan and, when properly fitted, work in its place: there is no reliance on the maker for the general performance of the machine as a whole. Similarly in Manchester Liners, Ld. v. Rea, Ld., [1922] 2 A.C. 74, the bunkers were to be fit to burn in the furnaces but not to raise any given head of steam. The definition of the particular purpose will vary according to the contract in question.

In my opinion the highest position at which one can place the plaintiff's case is that of a partial reliance. However, it has not been shown that the plaintiff made known to the manufacturer that it was relying on the manufacturer's skill and judgment to see that the lubricant would be compatible with the plastic of the fans selected by the plaintiff.

As Lord Sumner put it in Medway Oil & Storage Co., Ltd. v. Silica Gel Corp. (1928), 33 Com. Cas. 195 at p. 196:

It follows that the reliance in question must be such as to constitute a substantial and effective inducement which leads the buyer to agree to purchase the commodity.

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With respect, I think the trial Judge erred in holding that the mere supplying of a sample of the fan was sufficient to establish the reliance which, in her view, brought about liability. It is clear from the evidence that visual observation of the fan would not in any way alert the manufacturer as to its composition, nor its incompatibility with the lubricant used by the manufacturer. This particular knowledge was in the hands of the supplier of the fans to Venus and was information which was readily available to the plaintiff.

It could be said with equal force that the plaintiff was relying on the supplier of the fans to supply a fan compatible with a lubricant frequently used by a manufacturer of motors supplied for electric dryers. In any event, the plaintiff who purchased the fans from Arvin was in a better position to know or to learn whether the fans were compatible with the lubricant used by the defendant than the defendant was. ...

I have already referred to the contractual provision wherein the defendant provided that it did not "guarantee suitability of our product for your application". The trial Judge viewed this provision as an effort by the defendant to exclude itself from liability in the event that the motors supplied were unfit for the purpose for which they were purchased, and held that it had no such effect. With respect, I view that provision in somewhat different light. In my opinion it was directly relevant to the issue of reliance as it affected the compatibility of the motor with the assembled product. Having regard to the manner in which the contract was entered into, the provision in the contract that I have referred to is further evidence of the express or implied understanding of the parties. It has at least the minimal effect of reinforcing my conclusion that this is not a case in which the plaintiff could successfully rely on s. 15, para. 1 of the Sale of Goods Act.

In addition, as has already been noted, the trial Judge concluded that the contract in question was one of a sale by sample, and that the motor supplied corresponded in quality with the samples that had been delivered. Although there may be cases in which s. 15, para. 1 may be invoked notwithstanding that the sale was by sample, I do not think that is the case here. There was nothing inherently defective in the motors that were supplied, and they were reasonably fit for the purpose intended, apart from the question of stress and compatibility.

For these reasons, I would allow the appeal with costs, set aside the judgment below and dismiss the action. It follows that the cross_appeal on damages fails, and I would dismiss it without costs.

Appeal allowed.

James Slater and Hamish Slater

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(a firm) and ors v Finning Ltd [1996] NLOR No 3635 NLC 2960710604 House of lords

Lord Keith of Kinkel, Lord Griffiths, Lord Jauncey of Tullichettle, Lord Slynn of Hadley, Lord Steyn 4 July 1996

LORD KEITH OF KINKEL.:My Lords,[para1] This appeal turns on the true construction and application to the

facts of the case of section 14(3) of the Sale of Goods Act 1979, which provides: "Where the seller sells goods in the course of a business

and the buyer, expressly or by implication, makes known _ (a) to the seller, or (b) where the purchase price or part of it is payable by instalments and the goods were previously sold by a credit_broker to the seller, to that credit_broker, any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit_broker."

[para2] The pursuers and appellants are owners of a motor fishing vessel "Aquarius II," which they acquired second hand in 1981. The vessel was equipped with a 12 cylinder diesel engine (D398) manufactured by the Caterpillar Tractor Co., having a horsepower of 750. In 1985 the appellants decided to have the overall length of the vessel increased, so as to produce greater fish carrying capacity. The work to achieve this was carried out at a yard in Skagen, Denmark. At the same time the appellants decided to uprate the power of the engine from 750 to 850 hp, and the necessary work was carried out by Caterpillar engineers in Denmark. The vessel then returned to her home port of Fraserburgh. In September 1985 the appellants called in the defenders and respondents, who are suppliers of marine diesel engines and components manufactured by Caterpillar, because the power of the vessel's engine did not appear to have been increased. The respondent's engineer did some work on the engine and advised that it should shortly be overhauled as it was using too much oil. In March 1986 an overhaul was carried out by the vessel's own engineers, assisted by one other man. Various components were replaced and others were checked and adjusted. Later the vessel's main engine bearings failed while she was at sea and on her return to port the respondents were again called in. It was found that the crankshaft required to be replaced, and the respondents' representative advised that the camshaft should also be replaced, since it was worn to some extent and replacement could conveniently be carried out while the engine was lifted out for replacement of the crankshaft. The appellants agreed,

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and the respondents arranged for the supply of a new camshaft from Caterpillar. The old camshaft was numbered 5L2880 (5L). The new camshaft which Caterpillar supplied was numbered 1W1854 (1W), a re_designed model which had been introduced by Caterpillar for the D398 engine in February 1982. The re_ designed model had a different profile of the exhaust cams, which Caterpillar said reduced the contact stress on the cams and would lower the rate of wear and extend the service life of the camshaft. They also said that the change in design had no effect on engine performance and that the new camshaft could be used in place of the former camshaft in all earlier engines. In May 1986 the new 1W camshaft was fitted to the engine, which was reinstalled with its new crankshaft also. At the same time the gearbox was realigned by another company. Satisfactory sea trials were held and the vessel went on fishing trips but noises were heard coming from the engine, which had at the time been running for about 50 hours, and the vessel put back to Fraserburgh. The respondents were again called in, and it was found that No. 6 exhaust cam lobe was badly worn. It was decided to replace completely the newly installed camshaft and followers, and this was done with another 1W model, the work being completed on 11 June 1986. Further trouble was encountered shortly afterwards, and the followers on No. 9 and No. 11 exhaust valves, which were found to be worn, were replaced. There was a trouble_free period from the end of July till towards the end of November 1986, but then further tapping noises were heard and the vessel returned to Fraserburgh. The respondents again attended and found that No. 4 exhaust follower was badly worn. It was replaced, but then it was decided again to replace the whole camshaft with its followers and cam blocks, again with the 1W model. Extensive vibration tests were carried out in an endeavour to trace the cause of the trouble. Aquarius II set off for another fishing trip in the English Channel in January 1987 but after about four weeks at sea noises were again heard coming from the engine, and she put into Plymouth. Representatives from the respondents attended, and also Mr James Carnegy, a marine surveyor from Aberdeen. No. 6 exhaust valve was found to be worn. Mr Carnegy considered that it would be unsafe for the vessel to put to sea.

[para3] A number of meetings were held with representatives of all interested parties. including Caterpillar, but no agreement was reached as to the cause of the trouble. The respondents offered a complete overhaul of the engine free of charge, but the appellants insisted that a new engine would be the only satisfactory solution. Aquarius II was towed to Great Yarmouth, where a new Caterpillar engine of a different design was installed.

[para4] The old engine was sold and eventually found its way to South Africa, where after an extensive overhaul by the Caterpillar dealer there it was installed in a vessel called "Ocean Spray." It appears that the overhaul did not include replacement of the camshaft or followers. Thereafter the Ocean Spray went on extensive fishing trips lasting on average 54 days and logged many thousands of miles without encountering any trouble with the camshaft. There was evidence that 1W camshafts installed in hundreds of other D398 engines had

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operated without giving any trouble.[para5] The appellants raised the present action against the respondents

in April 1989, concluding for payment of some £662,500 by way of damages on the ground of breach by the respondents of the condition contained in section 14(3) of the Act of 1979. The respondents counter_claimed for the sum of some £63,700 with interest in respect of goods and services supplied by them to the appellants and unpaid for.

[para6] A proof was heard before Lord Weir, who on 22 January 1993 assoilzied the respondents from the conclusions of the summons and gave judgment in their favour for the sum counter_claimed with interest, amounting in all to £82,826. After an elaborate review of the evidence, which included expert evidence on both sides, the Lord Ordinary concluded that the cause of the failure of the camshafts was excessive torsional resonance excited by some cause external to the engine and the camshafts themselves. The Lord Ordinary accepted the evidence of the witness Dr. Halleen, an employee of the Caterpillar Co., of which he said this:

"The effect of Dr. Halleen's evidence was that in his view whatever caused the torsional resonance to be excited and so leading to damage it was not the 1W camshaft, which were supplied by the defenders but that the cause had to be an external one. It is important to observe that there was no suggestion at any time that external forces could not have been responsible. The inability to establish what precisely was the external force is, in my opinion, immaterial. The mystery might have been unravelled if further examination of the engine and its associated parts had taken place before it had been removed from the Aquarius. This did not occur so the problem to that extent remains unsolved. But what has been established quite convincingly is that whatever the cause, it was not due to excitation coming from within the engine or any part of it which, added to the torsional frequency inherent in the engine, could have led to resonance and so to the failures. In particular, in my judgment, the fitting of these camshafts were not responsible for the failures which were observed."

[para7] Later, under reference to the terms of section 14(3), the Lord Ordinary said:

"The question which has to be borne in mind is, 'What was the specified purpose?' The purpose for which the camshafts and followers were supplied was for use as component parts of the engine of the pursuers' fishing vessel. No question arises as to the manner in which these parts were installed. This case is not concerned with a contract of services. There is no evidence that the defenders were told of any special circumstances

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concerning this engine which would have made the requirement for a new camshaft any different from that of any other D398 engine. The defenders supplied the pursuers with the camshaft and followers appropriate to this type of engine in 1986. The proper question is whether the inference can be drawn that they themselves were unfit for their intended purpose. The answer to that question is to be derived from my analysis of the evidence, and, in my opinion, the evidence demonstrates that the camshafts and their followers were in fact fit for their purpose. The damage observed in them time to time was not due to their unfitness to fulfil the purpose, but were the consequences of external factors. But for these factors, they would not have failed. That, in my judgment, is a complete answer to the pursuers' case."

[para8] The appellants reclaimed, and on 30 November 1994 the Second Division (Lord Justice_Clerk Ross, Lord Clyde and Lord Morison) refused the reclaiming motion and affirmed the interlocutor of the Lord Ordinary, subject to an agreed adjustment of the interest element in his award in favour of the respondents. The appellants now appeal to your Lordships' House.

[para9] The argument for the appellants did not involve any challenge to the Lord Ordinary's findings in fact. It was accepted that the excessive torsional resonance which resulted in damage to the camshafts was caused by some unascertained force external to the engine and the camshafts themselves. It was argued, however, that the condition to be implied by section 14(3) of the Act of 1979 was properly to be related to Aquarius II as a vessel having its own peculiar characteristics, including the possession of a tendency to give rise to excessive torsional resonance in the engine camshaft. The appellants had made known to the respondents that the camshafts were being bought for the specific purpose of installation in Aquarius II. The respondents therefore took the risk that Aquarius II might have some unknown and unusual characteristic such as would cause the camshafts to be subjected to excessive wear. In the event the camshafts proved not to be reasonably fit for use as part of the engine of Aquarius II.

[para10] Counsel for the appellants relied on Cammell Laird & Co Ltd v The Manganese Bronze and Brass Co Ltd [1934] A.C. 402. In that case the defendants had contracted to supply for two ships under construction by the plaintiffs two propellers according to specifications provided, and to the entire satisfaction of the plaintiffs and the shipowners. On trials the propeller fitted to one of the ships made so much noise that the vessel could not be classed A1 at Lloyds, though it worked perfectly well on the other ship. A second propeller was made for the first ship and proved equally unsatisfactory. A third propeller, however, worked quite silently. The plaintiffs sued the defendants for breach of contract, founding inter alia on section 14(1) of the Sale of Goods Act 1893, the statutory predecessor of section 14(3) of the Act of 1979. This House held that the defendants had been in breach of section 14(1). There was an implied condition that the propeller should be reasonably fit for use on the particular ship

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for which it was required, and it was not.[para11] The case does not however, in my opinion, assist the appellants.

The propeller was not a standard part to be fitted to a standard propulsion plant. It was specifically manufactured for a specific ship. Lord Macmillan, at p. 418, in dealing with the plaintiffs' case that the propeller was not to their satisfaction nor that of the shipowners, said:

"The appellant wanted a propeller that would work. How could they know whether it was satisfactory until they had tried it? It has been proved that the unsatisfactory operation of the two discarded propellers was not due to the terms of the specification or to the way in which they were fitted to the ship or to any peculiarity in the ship itself or its engines, for at the third attempt the respondents supplied a propeller made to the same specification, which, when similarly fitted to the ship, worked satisfactorily; and a propeller made by the respondents to a practically identical specification for a sister ship also worked satisfactorily. The experts appear to have found great difficulty in ascertaining why the first two propellers worked unsatisfactorily; but it is, I think, demonstrated that the cause resided in the propellers themselves."

[para12] In the present case the Lord Ordinary has found that cause of the trouble did not lie in the camshafts themselves but in some external feature peculiar to Aquarius II.

[para13] The case of Griffiths v Peter Conway Ltd [1939] 1 All E.R. 685 is closer to the point. There the plaintiff had purchased from the defendants a Harris tweed coat, which had been specially made for her. Shortly after she had begun to wear the coat she contracted dermatitis. She sued the defendants for damages, claiming breach of section 14(1) of the Act of 1893 in that the coat was not reasonably fit for the purpose for which it was supplied. It was proved that the plaintiff's skin was abnormally sensitive, and that there was nothing in the coat which would have affected the skin of a normal person. The defendants were not aware of the plaintiff's abnormal sensitivity, and the plaintiff herself was also unaware of it. Branson J. dismissed the action and his judgment was affirmed by the Court of Appeal. Sir Wilfrid Greene M.R. quoted the relevant findings of the trial judge and continued, at p. 691:

"That finding is, of course, that no normal skin would have been affected by this cloth. There was nothing in it which would affect a normal skin, but the plaintiff unfortunately had an idiosyncrasy, and that was the real reason why she contracted this disease. On the basis of that finding, which is not challenged, Mr Morris says: 'Take the language of the section, and the present case falls within it." He says that the buyer, Mrs. Griffiths, expressly made known to the defendants the particular

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purpose for which the coat was required _ that is to say, for the purpose of being worn by her, Mrs. Griffiths, when it was made. Once that state of affairs is shown to exist, Mr Morris says that the language of the section relentlessly and without any escape imposes upon the seller the obligation which the section imports.

It seems to me that there is one quite sufficient answer to that argument. Before the condition as to reasonable fitness is implied, it is necessary that the buyer should make known, expressly or by implication, first of all the particular purpose for which the goods are required. The particular purpose for which the goods were required was the purpose of being worn by a woman suffering from an abnormality. It seems to me that, if a person suffering from such an abnormality requires an article of clothing for his or her use, and desires to obtain the benefit of the implied condition, he or she does not make known to the seller the particular purpose merely by saying: 'The article of clothing is for my own wear.' The essential matter for the seller to know in such cases with regard to the purposes for which the article is required consists in the particular abnormality or idiosyncrasy from which the buyer suffers. It is only when he has that knowledge that he is in a position to exercise his skill or judgment, because how can he decide and exercise skill or judgment in relation to the suitability of the goods that he is selling for the use of the particular individual who is buying from him unless he knows the essential characteristics of that individual? The fact that those essential characteristics are not known, as in the present case they were not known, to the buyer does not seem to me to affect the question. When I speak of 'essential characteristics,' I am not, of course, referring to any variations which take place and exist within the class of normal people. No two normal people are precisely alike, and, in the matter of sensitiveness of skin, among people who would be described as normal their sensitiveness must vary in degree."

[para14] The reasoning contained in that passage is directly applicable to the facts of the present case. The particular purpose for which the camshafts were here required was that of being fined in the engine of a vessel which suffered from a particular abnormality or idiosyncrasy, namely a tendency to create excessive torsional resonance in camshafts. The respondents, not being made aware of that tendency, were not in a position to exercise skill and judgment for the purpose of dealing with it. Nor were they in a position to make up their minds whether or not to accept the burden of the implied condition, a matter to which the Master of the Rolls alludes at p. 692. It is to be noted that the Master of the Rolls specifically mentions that the plaintiff was unaware of her abnormal sensitivity.

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[para15] In Christopher Hill Ltd v Ashington Piggeries Ltd [1972] A.C. 441 a firm of mink breeders had contracted with certain sellers for the supply of animal feedstuff. The feedstuff supplied caused thousands of mink to die because one of the ingredients, Norwegian herring meal, contained a toxic chemical agent called "DMNA." This House, reversing the Court of Appeal, held that the sellers were liable to the buyers inter alia for breach of section 14(1) of the Act of 1893. It was proved that herring meal containing DMNA was deleterious to a wide variety of animals, not only to mink. On the other hand mink were more sensitive to it than other animals. Lord Wilberforce said, at p. 490:

"If mink possessed an idiosyncrasy, which made the food as supplied unsuitable for them though it was perfectly suitable for other animals, this would be the buyers' responsibility, unless, as is not the case here, they had made this idiosyncrasy known to the sellers so as to show reliance on them to provide for it. But any general unsuitability would be the sellers' responsibility. Although the evidence was not very complete, it is sufficiently shown, in my opinion, that mink are more sensitive to DMNA than most other animals to whom compound foods would be sold. Chicken and pigs are among the least sensitive, next cattle and then sheep, with mink at the top of the scale. So the question arises, what does the buyer, alleging unfitness, have to prove? If the fact were that the herring meal supplied, while damaging to mink, was perfectly harmless to all other animals to whom it might be fed, it would be unjust to hold the sellers liable. If, on the other hand, the herring meal was not only lethal to mink but also deleterious, though not lethal, to other animals, the sellers' responsibility could be fairly engaged. A man can hardly claim that the product he sells is suitable, especially if that is a foodstuff, merely because it fails to kill more than one species to which it is fed."

[para16] This passage is in line with the opinion expressed by Sir Wilfrid Greene M.R. in Griffiths v Peter Conway Ltd [1939] 1 All E.R. 685, which was thus referred to in the speech of Lord Hodson, at p. 468:

"The defendants have proved a general defect and that their animals were poisoned thereby. The expert called by the third parties, Nils Koppang, an expert from the Department of Pathology, Veterinary College of Oslo, Norway, described the disease which had existed as early as 1957. He himself referred to toxic doses in connection with DMNA in such a way that it appears that the toxic condition was not a peculiar one such as is illustrated by the case of Griffiths v Peter Conway Ltd [1939] 1 All E.R. 685, a case relied upon as a decision in favour of the seller. That was a case concerning the purchase of a Harris tweed

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coat by a woman with an abnormally sensitive skin who did not disclose the fact to the seller. She failed in her action because the unsuitability of the article arose from the special state of affairs relating to the buyer, of which the seller was not aware. It is otherwise here, where DMNA is shown to have been toxic to all animals, not only to mink."

[para17] As matter of principle, therefore, it may be said that where a buyer purchases goods from a seller who deals in goods of that description there is no breach of the implied condition of fitness where the failure of the goods to meet the intended purpose arises from an abnormal feature or idiosyncrasy, not made known to the seller, in the buyer or in the circumstances of the use of the goods by the buyer. That is the case whether or not the buyer is himself aware of the abnormal feature or idiosyncrasy.

[para18] In the course of argument my noble and friend Lord Griffiths put the illustration of a new front wheel tyre being purchased for a car which unknown to the buyer or the seller had a defect in the steering mechanism as a result of which the tyre wore out after a few hundred miles of use, instead of the many thousands which would normally be expected. In these circumstances it would be totally unreasonable that the seller should be liable for breach of section 14(3). The present case is closely analogous. Aquarius II suffered, unknown to the respondents, from a defect in the shape of an unusual tendency to produce excessive torsional resonance in the camshafts, with the result that the camshafts became badly worn and unserviceable much sooner than would otherwise have been the case.

[para19] My Lords, for these reasons I would dismiss this appeal.

LORD STEYN.:My Lords,[para23] My Lords, the central issue is whether a dealer, who on three

occasions sold and delivered component parts of an engine manufactured by the Caterpillar Tractor Co. to the owners of a fishing vessel, was in breach of the implied condition imputed to a seller by section 14(3) of the Sale of Goods Act 1979. While it is a Scottish appeal, the relevant law of Scotland and England have been assimilated by statute. Moreover, the questions debated in this case can arise in international and domestic sales as well as in commercial and consumer sales. Given this broad context I regard the analysis and disposal of this appeal as being of general importance to our sales law. Accordingly, I propose to explain briefly why I agree that the appeal ought to be dismissed.

[para24] The findings of fact of the Lord Ordinary are not challenged. The principal facts can therefore be taken quite shortly from the careful judgment of the Lord Ordinary. The pursuers owned a fishing vessel with a Caterpillar engine. In 1985 the pursuers arranged for the length of the vessel to be increased and the engine to be uprated. Subsequently the main engine bearings failed. The pursuers called in the defenders who were dealers in marine engines. The

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defenders advised that the camshaft should be replaced. In May 1986 they supplied a new type of camshaft and undertook the work of replacement. The replacement was not a success. In June 1986 the defenders supplied and fitted a second camshaft. Again, there were problems.

[para25] In November 1986 the defenders supplied and fitted a third camshaft. The problems persisted. In 1987 the pursuers gave up and sold the engine.

[para26] Taken in isolation the repeated failure of the camshafts tended to suggest that the problem lay in the unsuitability of the camshafts supplied by the defenders. There was, however, strong evidence the other way. In particular the erratic pattern of the problems experienced, the fact that the engine operated normally for several months after the second new camshaft was fitted, and the fact that the engine after it was sold apparently operated normally in South Africa, tended to suggest an extraneous explanation. That view was reinforced by the fact that there was evidence that the new type of camshaft had been installed in engines on many fishing vessels and caused no problems. In any event, the preponderance of reliable expert opinion was largely one way, and established that the excessive torsional resonance experienced by the vessel after installation of the new type of camshaft was caused by excitation forces generated by the vessel, which were external to the camshaft and the engine.

[para27] Before the Lord Ordinary no question arose as to the manner in which the camshafts were installed. No claim was advanced on a contract or contracts of services. The sole cause of action was for breach of the implied condition of fitness for purpose under section 14(3) under the Sale of Goods Act 1979. Succinctly, the Lord Ordinary concluded:

"The defenders supplied the pursuers with the camshaft and followers appropriate to this type of engine in 1986. The proper question is whether the inference can be drawn that they themselves were unfit for their intended purpose. The answer to that question is to be derived from my analysis of the evidence, and, in my opinion, the evidence demonstrates that the camshafts and their followers were in fact fit for their purpose. The damage observed in them time to time was not due to their unfitness to fulfil the purpose, but were the consequences of external factors. But for these factors, they would not have failed. That, in my judgment, is a complete answer to the pursuers' case."

[para28] That was the finding which the pursuers unsuccessfully challenged in the Second Division of the Court of Session.

[para29] Mr C.M. Campbell Q.C. for the appellants submitted in opening the appeal to your Lordships' House that on the findings of fact of the Lord Ordinary the buyers had established a breach of the implied term under section 14(3). Central to his submission was the proposition that to the knowledge of the sellers the buyers bought the camshafts for installation in a particular vessel. He

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emphasized that the buyers were unaware of any unusual feature of the particular vessel. He argued that under section 14(3) a seller who undertakes to supply equipment suitable for use in a particular vessel takes the risk that performance of the goods may be adversely affected by an unanticipated and unusual feature of the vessel.

[para30] One is entitled to assess the submission of counsel in the light of the results which would follow from its adoption. In argument illustrations of various far_reaching consequences were given. I thought the most telling was the example given by my noble and learned friend, Lord Griffiths. Postulate a firm specialising in the supply of motor car tyres. A customer walks in and asks for a tyre suitable for his car which is parked on the forecourt. The firm supplies a tyre. The car breaks down due to the collapse of the tyre. There was nothing wrong with the tyre. But a defect in the steering mechanism caused the problem. Is the supplier, who was ignorant of the steering problem, liable to the customer because the tyre was unfit for the particular vehicle? If the answer is in the affirmative, such a supplier (if he is unable to disclaim liability) may be forced to resort to time_consuming and expensive investigations of cars to which tyres are to be fitted. Such a view of the law would therefore tend to complicate commonplace transactions. Considerations of everyday commerce militate against the adoption of the argument, It also seems to lead to an unjust result. The submission of counsel generates an initial and provisional sense of incredulity.

[para31] What then is the correct analysis? One must first turn to the words of section 14(3) of the Act of 1979....

[para32] But section 14(3), and indeed 14(1) and (2), are not to be construed as a virginal text. Substantially the same statutory principles have been judicially interpreted over the last hundred years. About those principles as they appeared in section 14 of the Sale of Goods Act 1893, it was observed that the old rule of caveat emptor has become the rule of caveat venditor in order to meet the requirements of modern commerce and trade: Grant v Australian Knitting Mills Ltd. [1936] A.C. 85, 98, as per Lord Wright; see also Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 A.C. 31, 123. While the implied condition that the goods are reasonably fit is inherently a relative concept, it is well established that the liability under section 14(3) is strict in the sense that the seller's liability does not depend on whether he exercised reasonable care.

[para33] Given a seller who sells goods in the ordinary course of business, section 14(3) provides that the implied condition is only applicable in cases where the buyer "expressly or by necessary implication, makes known... any particular purpose for which the goods are bought." Originally, the buyer additionally had to prove reliance on the seller's skill and judgment. In 1973 the legislature reversed the burden on this issue. Under section 14(3), in a case where the buyer made known his purpose, there is prima facie an implied condition of fitness which the seller can defeat only by proof that the buyer did not rely, or that it was unreasonable for him to rely, on the skill or judgment of the seller.

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While section 14(3) focuses on two separate issues, i.e. the buyer making known his purpose to the seller and reliance, and provides for different burdens of proof on them, there is a close link between the two concepts. After all, if the buyer's purpose is insufficiently communicated, the buyer cannot reasonably rely on the seller's skill or judgment to ensure that the goods answer that purpose.

[para34] That brings me to the interpretation of the words in section 14(3), which are of critical importance in the present case, namely that "the buyer, expressly or by implication, makes known... to the seller... any particular purpose for which the goods are being bought." The courts have consistently given a broad and liberal interpretation to these words, consistent with the reasonable and effective protection of the buyer. Thus the courts have refused to hold that the word "particular" purpose conveys the opposite of general: instead they have construed "particular" as signifying a specified purpose, which may be very general, e.g. a bicycle to ride on the road. Similarly, the courts have adopted a non_ technical approach to the manner in which the buyer must communicate the purpose to the seller. No conceptual difficulty arises in cases of express communication, but usually there will not be an express communication. One then turns to the process of implication. In the context a practical and flexible approach has prevailed. That is best demonstrated by the observations of Lord Wright in Grant v Australian Knitting Mills Ltd [1936] A.C. 85. In dealing with the implication of the purpose for which the goods are bought, Lord Wright in giving the judgment of their Lordships said, at p. 99:

"It will usually arise by implication from the circumstances: thus to take a case like that in question, of a purchase from a retailer, the reliance will be in general inferred from the fact that a buyer goes to the shop in the confidence that the tradesman has selected his stock with skill and judgment: the retailer need know nothing about the process of manufacture: it is immaterial whether he be manufacturer or not: the main inducement to deal with a good retail shop is the expectation that the tradesman will have bought the right goods of a good make: the goods sold must be, as they were in the present case, goods of a description which it is in the course of the seller's business to supply: there is no need to specify in terms the particular purpose for which the buyer requires the goods, which is none the less the particular purpose within the meaning of the section, because it is the only purpose for which any one would ordinarily want the goods. In this case the garments were naturally intended, and only intended, to be worn next the skin."

[para35] It is sufficient that the seller was aware of the buyer's purpose. On the other hand, it must be borne in mind that our law generally subscribes to an objective theory of contract. What matters in this context is how a reasonable person, circumstanced as the seller was, would have understood the buyer's

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purpose at the time of the making of the contract: Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 A.C. 31, 81.

[para36] In the present case the buyers did not expressly communicate their purpose to the sellers. The question is what could the sellers fairly have been expected to infer about the buyers' purpose from the circumstances of the case. Neutrally, it is obvious that the sellers would have inferred that the buyers' only purpose was to buy the camshafts as working component parts in the engine of their fishing vessel. It is therefore not a case where the buyer had more than one purpose. The correct approach is well settled. Professor Roy Goode, Commercial Law, 2nd ed., (1995), p. 335 explains:

"The seller is entitled to assume that the goods are required for their normal purpose, or one of their normal purposes, unless otherwise indicated by the buyer. Accordingly, if the buyer requires the goods for a non_ normal purpose, he must take steps to acquaint the seller of this fact before the contract is made, otherwise the seller, if unaware of the special purpose for which the goods are bought, will not be considered to undertake that they are suitable for that purpose."

[para37] In other words, the implication will normally be that the goods are fit for the purpose for which the goods would ordinarily be used. For example, if a contractor in England buys pipes from a dealer for use in a pipe_laying project the seller would normally assume that the pipes need merely be suitable to withstand conditions in our moderate climate. If the contractor wishes to use the pipes in arctic conditions for a Siberian project, an implied condition that the pipes would be fit to withstand such extreme weather conditions could only be imputed to the seller if the buyer specifically made that purpose known to the seller. Applying this approach to the facts of the present case, the seller was entitled to assume that the camshafts would be used in a Caterpillar engine in an ordinary vessel. And the implied condition must be so limited in scope. The particular purpose for which the buyers ordered the new camshafts was for installation in a vessel which was in fact afflicted by an abnormal tendency to resonate excessively. It follows that on the facts found by the Lord Ordinary there was no breach of the implied condition.

[para38] While the application of first principles persuades me that the buyers' claim is unsustainable, that conclusion is reinforced by the decision of the Court of Appeal in Griffiths v Peter Conway Ltd [1939] 1 All E.R. 685. The plaintiff contracted dermatitis from a Harris Tweed coat which she had bought from the defendant. The judge found that the plaintiff had an unusually sensitive skin and that the coat would not have harmed an ordinary person. The Court of Appeal dismissed an appeal by the plaintiff against the judge's dismissal of her claim. Sir Wilfrid Greene, M.R., explained that if a person suffering from such an abnormality desires to obtain the protection of the implied condition, at p. 691:

"The essential matter for the seller to know... consists in

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the particular abnormality or idiosyncrasy from which the buyer suffers. It is only when he has that knowledge that he is in a position to exercise his skill or judgment... The fact that those essential characteristics are not known... to the buyer does not seem to me to affect the question."

[para39] Contrary to the submission of counsel for the appellants on the present case, the Court of Appeal held that it is no answer to argue that the buyer was unaware of the abnormality. Given that the enquiry is as to what the buyer made known to the seller in order to enable the seller to use his skill or judgment to select suitable goods, that holding must be right. Counsel for the appellants accepted that Griffiths v Peter Conway Ltd. was correctly decided but he said that the reasoning was wrong. He said the Court of Appeal should have decided the case on the ground of lack of reliance by the plaintiff. I disagree. The particular purpose for which the plaintiff required the coat was for wear by a person with an abnormally sensitive skin: failure to make this known to the seller was fatal to the claim. This decision fits in exactly with the approach indicated by first principles. And I would hold without hesitation that the reasoning of Sir Wilfrid Greene, M.R., was correct. See also Christopher Hill Ltd. v Ashington Piggeries Ltd [1972] 1 A.C. 441, at p. 490 F _ H, per Lord Wilberforce.

[para40] Outside the field of private sales the shift from caveat emptor to caveat venditor in relation to the implied condition of fitness for purpose has been a notable feature of the development of our commercial law. But to uphold the present claim would be to allow caveat venditor to run riot.

[para41] For these reasons I agree that the appeal should be dismissed.

Patent or Trade Name Exception

Baldry v Marshall [1925] 1 KB 260 (CA)

BANKES L.J. This is an appeal from a judgment of Greer J., and upon the facts as found by the learned judge his conclusion was in my opinion quite right. It appears that the plaintiff wrote to the defendants, "Can you tell me if the Bugatti eight cylinder is likely to be on the market this year, if so will you send particulars?" indicating that according to his impression this was a new type of

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car that was going to be put on the market. In their reply the defendants said: "As no doubt you are already aware, we specialize in the sale of these cars, and are in a position to supply you with all information necessary,” thereby intimating that the plaintiff might regard them as persons upon whose skill and judgment he could safely rely. Those letters were followed by an interview at which the plaintiff made plain to the defendants the purpose for which he required the car. Then came the contract, which was on a printed form. It was in the form of a request by the plaintiff to the defendants to supply him with "one eight cylinder Bugatti car fully equipped and finished to standard specification as per the car inspected." On the back of the contract there was printed "The company reserves the right to Withdraw any model or alter specifications or prices without notice. Illustrations and specifications must be taken as a general guide and not as binding in detail," and under the heading "Guarantee" the words, "The same as received by us from the manufacturers." The guarantee which they had so received from the manufacturers was expressed to be "against any breakage of parts due to faulty material," and contained the following clause: "Cars are sold on condition that the foregoing guarantee is accepted instead of and expressly excludes any other guarantee or warranty, statutory or otherwise." It is said that by the use of that language the defendants meant to exclude conditions as well as warranties; but they have not done so, and if there is one thing more clearly established than another it is the distinction which the law recognizes between a condition and a warranty. In Wallis v. Pratt (1) the sellers by a clause stating that "Sellers give no warranty express or implied" endeavoured to exclude the condition implied under s. 13 of the Sale of Goods Act, that the goods sold should correspond with the description, but the House of Lords held that they had not used apt words to effect that purpose. So here the defendants have not used the necessary language to exclude the implied condition which arises under s. 14 as to fitness for the particular purpose of which the plaintiff had given them notice. But then it is said that even it the implication of that condition is not excluded by the terms of the contract-it is excluded by the proviso to sub-s. 1 on the ground that the car was sold under its trade name. It is however clear to my mind upon the evidence that it was not in fact sold under a trade name within the meaning of the proviso. The mere fact that an article sold is described in the contract by its trade name does not necessarily make the sale a sale under a trade name. Whether it is so or not depends upon the circumstances. I may Illustrate my meaning by reference to three different cases. First, where a buyer asks a seller for an article which will fulfil some particular purpose, and in answer to that request the seller sells him an article by a well-known trade name, there I think it is clear that the proviso does not apply. Secondly, where the buyer says to the seller, "I have been recommended such and such an article" -mentioning it by its trade name– “will it suit my particular purpose?" naming the purpose, and thereupon the seller sells it without more, there again I think the proviso has no application. But there is a third case where the buyer says to a seller, "I have been recommended so and so" -giving its trade name- "as suitable for the particular

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purpose for which I want it. Please sell it to me." In that case I think it is equally clear that the proviso would apply and that the implied condition of the thing's fitness for the purpose named would not arise. In my opinion the test of an: article having been sold under its trade name within the meaning of the proviso is: Did the buyer specify it under its trade name in such a way as to indicate that he is satisfied, rightly or wrongly, that it will answer his purpose, and that he is not relying on the skill or judgment of the seller, however great that skill or judgment may be? Here there is nothing to show that the plaintiff when describing the car in the contract as an "eight cylinder Bugatti car," after he had communicated to the defendants the purpose for which he wanted it, meant to intimate that he was not relying on their Skill and judgment. The evidence seems to be all the other way. In my opinion the appeal must be dismissed.

SARGANT L.J. I am of the same opinion, and I will confine my observations to the meaning of the proviso to s. 14, sub-s. 1. It seems to me that the articles which are dealt with in that proviso are primarily things like patent medicines and common articles sold under well-known trade names. In my judgment the proviso does not apply to an article like a motor car, which is sold under a very elaborate and specific description. The proviso rather applies to a "sale of a specified article under its patent or other trade name," and it seems to me that the sort of mischief it was intended to prevent was this:-It is well known that patent medicines and articles sold under trade names are often sold under puffing or laudatory names, which imply that the article will perform a definite function satisfactorily. Suppose a hosier were to offer for sale some hose as "holeproof hose," and a purchaser were to send him an order for holeproof hose, I think it is clear that the purchaser would under ordinary circumstances be relying on the skill and judgment of the vendor to sell him an article which would have the quality implied in its name. But if there is on the market a well-known article known as holeproof hose, then it seems to me that the proviso is aimed at preventing an order of that article under its laudatory name from raising the implication that the buyer is asking the seller to supply him with something which will fulfil the requirements indicated by the name. I do not say that that is the only purpose of the proviso, but I think it is the main purpose.

But apart from that I think that too much importance has been attached to the proviso in the argument for the appellant, because it seems that it is only to apply in the absence of anything to the contrary, that is to say, it is only on the mere ordering of an article by its trade name that the implied condition is excluded. In my judgment, although a person may order an article under a patent or trade name within the meaning of the proviso, yet if at the same time that the order is given he makes it clear to the vendor that he is relying on his skill and judgment to ensure that the article shall be fit for the particular purpose, the proviso has no application, and the buyer is entitled to the benefit of the provisions of sub-s. 1. I agree that the appeal should be dismissed.

Appeal dismissed.

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5. Applications beyond the Sale of Goods Act: Services, Hybrids and computers

Borek v. Hooper 18 O.R. (3d) 470 [1994]

Ontario Court (General Division), Divisional Court, Southey J. May 4, 1994

APPEAL of a Small Claims Court judgment awarding the plaintiff damages for breach of an implied condition under the Sale of Goods Act, R.S.O. 1990, c. S.1.

SOUTHEY J.: __ This is an appeal from a judgment of His Honour Judge Lamb, pronounced in Small Claims Court on June 21, 1993, in which he awarded the plaintiff damages of $2,000, plus court costs and added disbursements of $976.93, for breach of an implied condition of merchantable quality under s. 15, para. 2 of the Sale of Goods Act, R.S.O. 1990, c. S.1, in respect of a painting commissioned by the plaintiff from the defendant, a professional artist.

The case is one of first impression. Although counsel referred to several decided cases involving the contractual rights and obligations of artists, none dealt with problems of defective work or materials. The learned trial judge gave careful written reasons for his decision, and it is with regret that I find myself unable to agree with him. He was at a considerable disadvantage, because neither party was represented by counsel before him. I, on the other hand, had the benefit of able submissions from counsel on both sides.

The painting is large. Its dimensions are five feet by eight feet, with the horizontal being the longer edge. It was created expressly to fit a specific space in the plaintiff's home, and to fulfil her wish for a predominantly white painting to hang on a white wall. The painting is abstract. Its composition might be described, albeit crudely, as a relatively narrow, irregular shaped slash or splash of colour across a broad white background.

The artist created the painting in about three weeks. When he delivered it to the plaintiff and hung it, she was thrilled with it and paid him $4,000, which was the price that had previously been agreed upon. About three years later, in

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1987, she noticed that the white areas in the painting were yellowing. In addition, by 1991, when the action was commenced, the surface of the painting had cracked and some flaking had occurred in the lower right portion. The plaintiff took the position that the painting she was left with was not the painting she had contracted for.

The learned trial judge found that the painting was of merchantable quality when delivered, but that it maintained its original characteristics for barely five years instead of an expected 10_year economic life, which he found would not have been unreasonable. This was the basis of his judgment for the plaintiff for 50 per cent of the purchase price.

It was held by the Court of Appeal in England in Robinson v. Graves, [1935] 1 K.B. 579, [1935] All E.R. Rep. 935, that the oral commissioning of the plaintiff, an artist, to paint a portrait was not a contract for the sale of goods, but was a contract for work and labour. The defendant customer in that case repudiated the contract after the plaintiff had commenced to paint the portrait. The portrait was never completed, but the plaintiff was found to be entitled to recover damages for breach of contract, despite the absence of any memorandum in writing of the contract, as would have been required under the Sale of Goods Act. Greer L.J. said at p. 584:

I can imagine that nothing would be more surprising to a client going to a portrait painter to have his portrait painted and to the artist who was accepting the commission than to be told that they were making a bargain about the sale of goods. It is, of course, possible that a picture may be ordered in such circumstances as will make it an order for goods to be supplied in the future, but it does not follow that that is the inference to be drawn in every case as between the client and the artist. Looking at the propositions involved from the point of view of interpreting the words in the English language it seems to me that the painting of a portrait in these circumstances would not, in the ordinary use of the English language, be deemed to be the purchase and sale of that which is produced by the artist. It would, on the contrary, be held to be an undertaking by the artist to exercise such skill as he was possessed of in order to produce for reward a thing which would ultimately have to be accepted by the client. If that is so, the contract in this case was not a contract for the sale of goods within the meaning of s. 4 of the Sale of Goods Act, 1893.

At p. 585, he quoted with approval from the decision of Pollock C.B. in Clay v. Yates (1856), 1 H. & N. 73 at p. 78, 25 L.J. Ex. 237: "My impression is, that in the case of a work of art, whether in gold, silver, marble or plaster, where the application of skill and labour is of the highest description, and the material is

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of no importance as compared with the labour, the price may be recovered as work, labour and materials."

Greer L.J. continued at pp. 587_88: But if the substance of the contract, on the other hand, is

that skill and labour have to be exercised for the production of the article and that it is only ancillary to that that there will pass from the artist to his client or customer some materials in addition to the skill involved in the production of the portrait, that does not make any difference to the result, because the substance of the contract is the skill and experience of the artist in producing the picture.

For these reasons I am of opinion that in this case the substance of the matter was an agreement for the exercise of skill and it was only incidental that some materials would have to pass from the artist to the gentleman who commissioned the portrait. For these reasons I think that this was not a contract for the sale of goods within the meaning of s. 4 of the Sale of Goods Act, 1893, but it was a contract for work and labour and materials.

Slesser L.J. and Roche L.J. gave reasons to the same effect. During the course of his reasons, Roche L.J. said, at p. 593:

. . . I have no doubt that the proper conclusion to be drawn is that this was a contract not for the sale of goods but for the employment of an artist to do work which the defendant desired that he should do.

I am satisfied for the reasons given in Robinson v. Graves that the contract in the case at bar was not a contract to which the Sale of Goods Act applied, but was a contract for work and labour and materials.

The distinction between the two types of contract may be of no significance in the case at bar, because "a person contracting to do work and supply materials warrants that the materials which he uses will be of good quality and reasonably fit for the purpose for which he is using them, unless the circumstances of the contract are such as to exclude any such warranty" (per du Parcq J. in G.H. Myers & Co. v. Brent Cross Service Co., [1934] 1 K.B. 46, applied in the House of Lords in Young & Marten Ltd. v. McManus Childs Ltd., [1969] 1 A.C. 454 at pp. 468 and 471, [1968] 2 All E.R. 1169).

There was ample evidence to support the finding of a breach of the implied condition of merchantability, if the Sale of Goods Act had been applicable. That same evidence would support a finding of a breach of the warranty I have found to have existed that the materials used by the defendant

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would be of good quality and reasonably fit for a purpose for which he used them. The uncontradicted evidence of the plaintiff was that the defendant, when he saw the yellowing after three years, acknowledged its existence and told the plaintiff that the painting should not do that. The evidence of expert witnesses called by the plaintiff was that the yellowing resulted from the defendant's choice of materials and that the cracks were caused by the materials and techniques of the artist.

In my opinion, the learned trial judge was right in holding the defendant liable to the plaintiff for damages, but I find for the reasons given above that the contractual provision breached was different from the one found by the learned trial judge.

Judgment for plaintiff; case remanded to trial judge for assessment of damages

The possibility of arguing for the applicability of the implied conditions in product liability suits is attractive because of the strict liability associated with the sections. For example, in Gee v. White Spot (1987) 32 DLR (4th.) 238 (BCSC) the court construed the purchase of a meal offered on a menu for a fixed price in a restaurant as essentially the purchase of a finished product i.e. food, rather than the provision of services. This permitted the application of the conditions from the Sale of Goods Act rather than negligence standards. The courts have not always been willing however to permit their use in cases of the provision of services. Consider the following recent Supreme Court case of Ter Neuzen v. Korn [1995] 3 SCR 674 where the Supreme Court refused to imply a strict obligation analogous to those of the Sale of Goods Act. In this case, a woman who had undergone artificial insemination subsequently discovered that the semen was infected with AIDS and she became HIV positive. In her suit against the doctors she advanced theories of liability based on negligence, the sale of goods act and implied warranties. She had been undergoing treatment for four years, from 1981 to 1985, and it appears that it was not until after the end of the treatment, in 1985, that there was an awareness that this procedure could transmit AIDS. There was clearly going to be problems in attempting to recover on a negligence theory and this is one of the reasons why she argued the applicability of the sale of goods act. Under the latter argument it would not matter that the doctor was not aware at the time of the dangers of infected blood. In this case the Supreme Court refused to construe the transaction as a sale of goods, because the primary purpose here was the professional services of the obstetrician and the goods were merely an incident of the service contract. They then considered the next issue, which is whether, even accepting that this is not not a sale of goods, is it possible to argue that there should be an obligation of strict liability in relation to the goods supplied with the services.

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G. Ford Homes Ltd. v. Draft Masonry (York) Co. (Ont. C.A.) [1983] O.J. No. 150 Supreme Court of Ontario - Court of Appeal Toronto, Ontario

Blair, Morden and Cory JJ.A. Heard: September 29, 1983. Oral Judgment: September 29, 1983. Released: October 21, 1983. D.J. McGhee, for the Defendant (Appellant).D.H. Creighton, for the Plaintiff (Respondent).

--------------------------------------------------------------------------------

The judgment of the Court was delivered by

¶ 1 CORY J.A. (orally, allowing the appeal):— The respondent, G. Ford Homes, orally agreed to supply and install two circular staircases for two homes which the appellant, Draft Masonry, was building. The point in issue on this appeal is whether there was an implied term of the contr&ct for the supply and installation of the staircases that they would comply with the requirements of the Ontario Building Code.

Factual Background

¶ 2 Something must be said of the facts of this case to understand the problem.

¶ 3 The appellant was building two single family two-storey homes on adjacent lots in the Township of Scugog. These were large homes having a floor area of approximately 3,000 square feet; they were priced at $239,900.00 and they were described by both parties as luxury homes. The appellant contractor had earlier built a number of homes following the same plans. In none of these homes had there been any problem with the stairs. The architect's plans for the home were available on the site.

¶ 4 The respondent fabricates and installs residential staircases. Mr. Di Donato, an officer of the appellant company, called Mr. Ford, an officer of the respondent (Ford) to see if it could provide and install circular staircases in the homes. Mr. Ford attended at the homes. At that time they had reached a stage of

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the construction where they were framed in. Di Donato offered to show the architectural plans for the homes to Ford. He declined to see those plans. It is significant that the plans clearly indicate the required headroom at the top of the stairs, which would comply with the Ontario Building Code requirements. Mr. Ford did, however, make some measurements. He offered a selection of three types of staircases to Mr. Di Donato. Mr. Di Donato selected one of the three. The price was agreed upon as were certain minor structural changes necessary to permit the stairs be installed.

¶ 5 The stairs were, in due course, delivered and installed. There is no fault found with the material used in the stairways. Unfortunately they did not comply with the Ontario Building Code regulation for the headroom was one and one-half inches short of the specified minimum. As a result, the appellant was required by the building inspector to take out the staircases and install others which complied with the Ontario Building Code. The removal of the staircases and the installation of new ones gave rise to this claim.

Result at Trial and in the Divisional Court

¶ 6 Ford brought a action to recover the cost for the supply and installation of the services. At trial the Ford claim for the two circular staircases was dismissed.

¶ 7 Ford then appealed the result to the Divisional Court. That Court gave effect to Ford's contentions and allowed it the full amount of its claim together with interest. It held that there could be no obligation upon the respondent Ford unless the appellant placed reliance upon it with regard to the staircases and made Ford aware of that reliance. On the facts the Divisional Court found that "this record is almost completely bereft of any evidence that would support either inference."

¶ 8 With deference, we cannot agree with either of the conclusions of the Divisional Court.

Implied Terms of Contracts

¶ 9 When may a term be applied on a contract? A court faced with that question must first take cognizance of some important and time-honoured cautions. For example, the courts will be cautious in their approach to implying terms to contracts. Certainly a court will not rewrite a contract for the parties. As well, no term will be implied that is inconsistent with the contract. Implied terms are as a rule based upon the presumed intention of the parties and should be founded upon reason. The circumstances and background of the contract, together with its precise terms, should all be carefully regarded before a term is

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implied. As a result, it is clear that every case must be determined on its own particular facts. With these principles firmly in mind it is appropriate to consider some texts and recent cases dealing with the issue.

¶ 10 For almost a century it has been recognized that a term will be implied in a contract in order to give it business efficacy. See The Moorcock (1889), 14 P.D. 64. The basis upon which a term of a contract will be implied has been extended by decisions of the English Court of Appeal and the House of Lords. Hudson's on Building Contracts, 10th ed., pp. 274-5 gives us a useful summary of the law pertaining to when terms will be implied in a contract:

It is submitted that a contractor undertaking to do work and supply materials impliedly undertakes:

(a) to do the work undertaken with care and skill or, as sometimes expressed, in a workmanlike manner;

(b) to use materials of good quality. In the case of materials described

expressly this will mean good of their expressed kind. (In the case of goods not described, or not described in sufficient detail, it is submitted that there will be reliance on the contractor to that extent, and the warranty in (c) below will apply);

(c) that both the work and materials will be reasonably fit for the

purpose for which they are required, unless the circumstances of the contract are such as to exclude any such obligation (this obligation is additional to that in (a) and (b), and only becomes relevant, for practical purposes, if the contractor has fulfilled his obligations under (a) and (b)).

(Emphasis added.)

¶ 11 Young and Marten Ltd. v. McManus Childs, Ltd., [1968] 2 All E.R. 1169, is a decision of the House of Lords. Two principles emerge from the speeches given in the course of that case. The first is that the common law principles codified in the Sale of Goods Act apply to contracts for the provision of work and materials sometimes referred to as contracts for work and services. Thus, the provisions pertaining to the Sale of Goods Act and codified in that Act are equally applicable to contracts for the provision of work and materials. Secondly, it is determined that unless the circumstances of a particular case are sufficient to specifically exclude it, there will be implied into a contract for the supply of work and materials a term that the materials used will be of

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merchantable quality and that those materials will be reasonably fit for the purposes for which they were intended.

¶ 12 Independent Broadcasting Authority v. EMI Electronics Ltd. and BICC Construction Ltd. (1980), 14 B.L.R. 1 was a further decision of the House of Lords. That decision followed Young and Marten, supra, and added something further. It was to the effect that in the absence of any term (express or implied) negativing the obligation, one who contracts to design a article for a purpose made known to him undertakes that the design is reasonably fit for the purpose. Such a design obligation was said to be consistent with the statutory law regulating the sale of goods.

¶ 13 The principle enunciated in Young and Marten Ltd., supra, has been considered and adopted in appellate courts in Canada. In Ontario, in Hart v. Bell Telephone (1976), 26 O.R. (2d) 218 (on the general issue of when warranties will be implied). In Laliberte v. Blanchard (1980), 31 N.B.R. (2d) 275, Chief Justice Hughes specifically followed Young and Marten Ltd. and relied upon a quotation from Lord Justice DuParcq, which was favourably referred to in that case. The words of Lord Justice DuParcq appear in Myers v. Brent Cross Service Co., [1934] 1 K.B. 46:

... the true view is that a person contracting to do work and supply materials warrants that the materials which he uses will be of good quality and reasonably fit for the purpose for which he is using them, unless the circumstances of the contract are such as to exclude any such warranty.

The foregoing principles are most attractive and compelling.

¶ 14 On behalf of the respondent reliance was placed on CCH Canadian Ltd. v. Mollenhauer Contracting Co. Ltd. et al. (1975), 51 D.L.R. (3d) 638. The reasons given by the Supreme Court of Canada do not include a reference to the Young & Marten decision. In our view, the scope of the decision in the CCH case is narrow. It determined that the contract under consideration by the Court, by its terms and its reference to the use of a specific type of brick, excluded an implied term that those bricks would be fit for the purposes intended. In the case before us it cannot be said that the appellant specified a particular staircase, but rather, he was simply offered a choice of three by the respondent, one of which he chose. In our opinion, the CCH case is not applicable to the facts presently before us.

Application of Principles to this Case

¶ 15 In applying the principles to this case it is important to bear in

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mind the following. In this case the appellant contractor acquired material and services from Ford, the respondent sub-contractor. It was the sub-contractor that was "expert" in the manufacture and installation of stairs. When the contract was negotiated the house plans were offered to Ford who chose to ignore them. The houses were framed in so that measurements could be taken to ensure that the stairs complied with the provisions of the Ontario Building Code. The respondent was, as it should have been, fully aware of the requirements of the building code. No one would have a better knowledge of the dimensions of its products than Ford. No one else could better appreciate whether they could be installed in the house and comply with the Code. It would be natural and reasonable in the circumstances of this case for the appellant to rely upon Ford to supply and install the staircases in compliance with the Ontario Building Code. It would be unrealistic to come to any other conclusion. The trial judge inferentially found that there was such a reliance. That can be ascertained from the following excerpts from his reasons. At p. 230 he said:

It is a most unfortunate situation but I place the fault on the plaintiff [Ford] for failing to have the stairs installed in such a manner that they do not contravene the Building Code.

Further, the following appears at p. 231:

The houses in question were luxury type homes of approximately three thousand square feet and the selling price was two hundred and thirty nine thousand dollars odd if I recollect correctly; two hundred and thirty nine thousand nine hundred dollars. This being so I am of the opinion that the defendants were entitled to have the staircase installed which was satisfactory and which would not interfere or would not contravene the structural requirements of the Building Code and also that any structural change that was required might interfere with the proper installation of a railing or banister on the upper floor and over all the visual or cosmetic effect of this defect.

And lastly, at p. 231:

...in my view the defendants were entitled to insist on strict compliance ... that is their entitlement...

¶ 16 These findings were well substantiated by the evidence. In those circumstances the Divisional Court, sitting as an appellate court, was not justified in ignoring those findings; rather, it was bound to accept them. See, for example, Lewis v. Todd, [1980] 2 S.C.R. 694.

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¶ 17 On the facts of this case there must of necessity be an implied term that the staircase could be and would be installed so as to comply with the Ontario Building Code. There could be no business efficacy to the contract without such a term. It is no contract to have stairs installed that must, by requirements of the law, be taken out for failure to comply with the Code. To sanction the installation of such a staircase in contravention of the Code would be tantamount to sanctioning an illegal contract. On the basis of the principle enunciated in the Moorcock case, supra, the term should be implied in the contract that the stairs would comply with the Code.

¶ 18 Alternatively or additionally a term should be implied that both the work and materials will be reasonably fit for the purpose for which they were required. Such a term must be implied unless the circumstances of the contract are such as to exclude any such obligation. See Young and Marten, supra. No such exclusion appears, from the circumstances of the contract, in this case. The work and materials supplied could not be reasonably fit for the purpose for which they were required unless they complied with the provisions of the Ontario Building Code.

¶ 19 In the circumstances, the appeal will be allowed with costs here and in the Divisional Court. The order of the Divisional Court will be set aside and the judgment at trial restored.

CORY J.A.BLAIR J.A.MORDEN J.A.

Ter Neuzen v. Korn [1995] 3 SCR 674

Sopinka J.B. Warranty Issues

[para63] As an alternative ground of appeal, the appellant contends that the respondent breached a warranty that the semen provided by the donor would be of merchantable quality and fit for its purpose. In other words, she claims that the respondent warranted that the semen would not be contaminated with any STDs, including HIV, such that it would injure the appellant. Under this theory, even absent any negligence, the respondent would be held strictly liable under contract for failing to provide uncontaminated sperm. The appellant puts forward three bases for the existence of a warranty. First,she

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claims that there was an express contractual warranty found in the Information Sheet provided to the appellant where the respondent promised that no donor was a homosexual or drug abuser. Secondly, the appellant relies on the Sale of Goods act, s. 18, which imposes liability on a seller of a good if the good is not fit for its purpose. This warranty is statutorily implied into contracts of sale. Finally, the appellant argues that there was an implied warranty at common law that the good provided in a contract for goods and services would not be defective. I will deal with each ground in turn.

(1) Express warranty in the Information Sheet[para64] The appellant asserts that, in the Information sheet provided, the

respondent promised that the donor would not be homosexual or a drug abuser and that these statements were made to assure her that the respondent had taken precautions to ensure that the semen would be free from contamination. The appellant claims that the doctor breached this express warranty.

[para65] In my view, this ground of appeal must fail. There is no indication that there was any intention on the part of either of the parties that there should be contractual liability in respect of the statement in the Information sheet. In fact, it appears that the appellant did not have any recollection of receiving any written information from the respondent regarding the AI procedure. It is apparent that the purpose of the Information Sheet was precisely what the name suggests. That is, to provide general information to the patient. There was no intention that the statements contained therein constitute an express warranty that the donor would not be a homosexual.

... (2) Warranty under the Sale of Goods Act

[para67] In order for the Sale of Goods Act to apply, a contract must primarily be for the purpose of selling goods. If the sale of a good is merely incidental to what is primarily a contract for services, then the statute will not imply a warranty. As Legg J. observed in Gee v. White SpotLtd. (1986), 7 B.C.L.R. (2d) 235 (S.C.), in order to come within the Sale of Goods Act, a contract need not be one exclusively for the sale of goods. However, the sale of a good must be the primary purpose of the contract. Whether a contract is primarily one for the sale of goods or primarily one for services depends upon the essential character of the agreement...

[para68] Thus, the preliminary question that arises is whether the AI procedure performed by the respondent primarily involved a contract for the sale of semen, or was it primarily a contract for medical services. If the procedure is properly characterized as the latter, then the appellant's argument under the Sale of Goods Act must fail. As the Court of Appeal did, I intend to address this issue assuming that there was in fact a sale of semen between the appellant and respondent. However, I note that it is not entirely clear that this was the case.

...[para71] The jury correctly concluded that the contract to perform the AI

procedure on the appellant was primarily a contract for medical services and not

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a sale of semen. To hold otherwise would be to distort the true nature of the whole agreement between the parties. The provision of the semen was obviously an important component to the AI procedure; however the primary reason the appellant went to a gynaecologist was for professional medical services and expertise. As the respondent argues, he provided medical services to the appellant in order to assist her to become pregnant by way of AI. Although donor semen was a necessary component of this process, the contract was not primarily fora sale of semen.

[para72] It is not relevant that the actual AI procedure was relatively simple and quick. The appellant still relied on the respondent's expertise in the screening process for donors, the collection of the semen, the insemination procedure itself, and the provision of medical advice and information concerning any risks and the possibility of success of the AI procedure. It cannot be contended that the contract was one primarily for the sale of semen such as to attract the application of the Sale of Goods Act.

(3) Warranty implied by the common law[para73] The fact that the contract was primarily one for services does

not end the possibility that there was an implied warranty that the semen would not be contaminated with HIV. The appellant also bases her claim under the common law by virtue of which a warranty may be implied in a contract for goods and services.

[para74] In the charge to the jury, the trial judge instructed that under the common law, where a contract is primarily for medical services, the doctor simply warrants to meet the standards of a reasonably competent person practising in the field. The trial charge explained to the jury that the warranty under common law required the jury to determine whether the respondent was negligent in failing to detect or remove the defect from the semen. In other words, the charge to the jury was to the effect that the implied warranty under common law was the same as the test for negligence in these circumstances.

[para75] In order to determine whether a common law warranty ought to be implied in the circumstances of this case and if so, whether the trial judge erred by equating the content of that warranty to negligence, it is necessary to review the authorities in this area in some detail.

[para76] In England, strict liability is imposed for implied warranties of fitness for defective products supplied under contracts for work and materials as well as under contracts for sale. The purchaser has a remedy against the business seller, even absent negligence. The seller can always recover, up the chain of production, from the manufacturer.

[para77] A leading English case in this area is G. H.Myers and Co. v. Brent Cross Service Co., [1934] 1 K.B. 46.That case involved the installation of faulty connecting rods in an automobile. One of the rods had a latent defect that the repair dealer could not have detected by reasonable care. Du Parcq J. held that, at common law, the dealer was liable under an implied warranty that in a contract for work done and material supplied, the material would be fit for its

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purpose. It was held that there should not be any distinction between a contract where goods are supplied only and a contract where goods are supplied in the course of a contract to perform services as this would be an arbitrary distinction...

[para78] Thus, the court held that an individual who agrees to do work and provide goods has no lesser obligation than an individual who simply contracts to provide the goods. However, it was recognized that not all contracts for goods and services will contain an implied warranty that the materials will not be defective. At page 55, du Parcq J.noted the following:

That depends upon the terms of the contract, and I think that the true view is that a person contracting to do work and supply materials warrants that the materials which he uses will be of good quality and reasonably fit for the purpose for which he is using them, unless the circumstances of the contract are such as to exclude any such warranty. [Emphasis added.]

The foregoing passage contemplates that there may be certain circumstances such that a contract to supply goods and services will not contain an implied warranty that, regardless of any negligence, the goods will not be defective.

[para79] The decision in G. H. Myers was cited with approval by the House of Lords in Young & Marten Ltd. v. McManus Childs Ltd., [1969] 1 A.C. 454 (H.L.). That case dealt with contractors who were building a house and subcontracted the roofing work. The roofing tiles which were used contained a latent defect which was not apparent upon inspection. As a result, the contractor suffered damages and claimed that there was an implied warranty of quality or fitness. Lord Reid observed that, in such cases where there is no evidence of negligence by the manufacturer, unless the owners of the house could recover from the subcontractor, they would be without a remedy. However, if the subcontractors were held liable, they could generally recover from the manufacturer under the Sale of Goods legislation. The court adopted the general rule which was laid down by du Parcq J. in G. H. Myers. Lord Reid also made the following relevant observation (at p. 468):

It appears to me that less cogent circumstances may be sufficient to exclude an implied warranty of quality where the use of spare parts is only incidental to what is in essence a repairing operation where the customer's main reliance is on the skill of the tradesman, than in a case where the main element is the supply of an article, the installation being merely incidental.

[para80] In the result, the court affirmed that, in the circumstances of that case, the common law implied a warranty and the subcontractor was liable for the defective tiles. It was not conclusive that there was an element of services along with the supply of goods.

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[para81] The principles espoused in the English case law have also been adopted in Canada. A leading case is G. Ford Homes Ltd. v. Draft Masonry (York) Co. (1983), 43 O.R. (2d)401 (C.A.). In that case, the plaintiff supplied and installed staircases in two houses being constructed by the defendant. It turned out that the staircases contravened the Ontario Building Code and had to be replaced. The issue was whether there was an implied term in the contract that the staircases would conform to the Building Code. Cory J.A., as he then was, delivered the decision for the court. At page403, he remarked:

When may a term be implied in a contract? A court faced with that question must first take cognizance of some important and time-honoured cautions. For example, the courts will be cautious in their approach to implying terms to contracts. Certainly a court will not rewrite a contract for the parties. As well, no term will be implied that is inconsistent with the contract. Implied terms are as a rule based upon the presumed intention of the parties and should be founded upon reason. The circumstances and background of the contract, together with its precise terms, should all be carefully regarded before a term is implied. As a result, it is clear that every case must be determined on its own particular facts. [Emphasis added.]

[para82] Cory J.A. reviewed the decisions in Young &Marten Ltd. and G. H. Myers and noted that the warranties implied at common law apply to contracts for goods and services. Thus, unlike the Sale of Goods Act, such warranties are equally applicable to contracts for the provision of work and materials. Secondly, unless the circumstances of the case are sufficient to exclude the warranty, there will be an implied term "that the materials used will be of merchantable quality and that those materials will be reasonably fit for the purposes for which they were intended" (p. 404).

[para83] Accordingly, it is apparent that apart from the Sale of Goods Act, a court must consider whether a common law warranty of fitness and merchantability should be implied into the contract which includes services as well as the provision of materials. However, such a warranty will not be implied in all circumstances. The court must examine the specific nature of the contract and the relationship between the parties in order to assess whether it was the intention of the parties that such a warranty be implied. As Cory J.A. observed, courts must be very cautious in their approach to implying contractual terms.

[para84] It is important to note that a rationale for implying warranties in contracts of goods and services is that a supplier of goods generally has recourse against the manufacturer under the Sale of Goods Act as a result of the statutory conditions imposed. Thus, one can always proceed up the chain of production and ultimately recover from the one who should bear responsibility for the production of faulty goods. From time to time, the supplier will be unable to recover from the manufacturer, for example, owing to insolvency or limitation

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periods. However, arguably it is better that the purchaser be compensated and the supplier occasionally bear the cost of defects than leaving the consumer without a remedy. It is important to keep this policy rationale in mind when considering whether such a warranty should be implied in the context of this case, which deals with biological substances.

[para85] Thus, the question that must be addressed in this appeal is whether, in the circumstances of this case, where there is a contract to conduct a medical procedure involving the use of biological material (semen), it is appropriate to imply a term that the semen was warranted to be without any defects (HIV contamination). Secondly, if it is appropriate to imply a term into the contract for medical services was the trial judge correct in holding that the respondent only warranted to take reasonable care to ensure that semen would not be used if it were contaminated with any STDs. In this regard, one must consider whether the nature of the contract at issue in this appeal is analogous to the commercial contracts which were dealt with in the English and Canadian cases discussed above. It is important to address any policy considerations and the implications of imposing warranties in these circumstances.

[para86] In answering these difficult questions, it is useful to survey some of the American jurisprudence which has dealt with this issue more frequently, in the context of warranties for the supply of blood. In my view, these cases are directly analogous to the supply of semen in an AI practice.

[para87] The leading American authority on this issue, which has been followed many times subsequently, is Perlmutterv. Beth David Hospital, 123 N.E.2d 792 (N.Y. 1954). In that case, a patient received a blood transfusion during the course of a medical procedure performed at the hospital. The blood contained jaundice viruses and as a result the plaintiff became infected. There was no question of any negligence on the part of the hospital as there were no means available for detecting the contamination in the blood. The plaintiff sought recovery under the Sales Act arguing that there was an implied warranty that the blood would be fit for its purpose and of merchantable quality. The issue turned on whether the transaction constituted a sale under the legislation. It must be observed at this point that the plaintiff did not argue that there was an implied warranty under the common law for material supplied under a contract for service and material. Nonetheless, much of the discussion on the Sales Act is relevant to the case at bar.

[para88] The majority of the court examined the nature of the contract between the hospital and held (at p. 794):

The essence of the contractual relationship between hospital and patient is readily apparent; the patient bargains for, and the hospital agrees to make available, the human skill and physical materiel of medical science to the end that the patient's health be restored. Such a contract is clearly one for services, and, just as clearly, it is not divisible. Concepts of purchase and sale cannot separately be attached to the healing

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materials - such as medicines, drugs or, indeed, blood - supplied by the hospital for a price as part of the medical services it offers. That the property or title to certain items of medical material may be transferred, so to speak, from the hospital to the

patient during the course of medical treatment does not serve to make each such transaction a sale. "'Sale' and 'transfer' are not synonymous", and not every transfer of personal property constitutes a sale.... It has long been recognized that, when service predominates, and transfer of personal property is but an incidental feature of the transaction, the transaction is not deemed a sale within the Sales Act.

[para89] It should be observed that the majority focused on the sharp distinction between a contract of sale and one for services that exists in this context. While this is important for determining whether sale of goods legislation is applicable, it is not as crucial in the context of implied warranties under the common law which are also available for contracts of service where a good is furnished. Nonetheless, the remarks in Perlmutter are highly relevant since, as was noted by Lord Reid in Young & Marten Ltd., it will be less likely that such a warranty will be implied in a contract which is primarily for services where the transfer of the good is merely incidental.

[para90] In Perlmutter, it was held that the supplying of blood was entirely subordinate to the main purpose of the hospital, which was providing trained professionals and specialized facilities to care for the patient's health. The patient does not bargain for blood. Rather, it is the skill of the medical staff and the facilities which is sought. FuldJ. concluded that supplying the blood was entirely incidental to the services performed. In my view, the same can be said of the semen in the present case, as I discussed earlier in respect of the Sale of Goods Act.

[para91] In examining the nature of the contract at issue, Fuld J. noted some of the policy considerations which are relevant in this context. At page 795, the following was observed:

If, however, the court were to stamp as a sale the supplying of blood - or the furnishing of other medical aid - it would mean that the hospital, no matter how careful, no matter that the disease-producing potential in the blood could not possibly be discovered, would be held responsible, virtually as an insurer, if anythingwere to happen to the patient as a result of "bad" blood.... .

[para92] Although these comments were made in the context of sale of goods legislation, they apply equally to the situation of an implied warranty under common law. In either situation, a medical practitioner would be held strictly liable for the biological products employed in the medical procedures,

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notwithstanding that it may be impossible for the doctor to detect any risks. This would have the effect of making physicians insurers of the biological substances that are used in medical procedures.

[para93] While it is true that the primary purpose of the implied warranty is to hold the supplier of goods liable notwithstanding the absence of negligence, different considerations apply in the context of the medical profession than in the ordinary commercial context. As Fuld J. observed(at p. 795):

The art of healing frequently calls for a balancing of risks and dangers to a patient. Consequently, if injury results from the course adopted, where no negligence or fault is present, liability should not be imposed upon the institution or agency actually seeking to save or otherwise assist the patient.

[para94] Furthermore, it should be noted that unlike in the ordinary commercial context, the doctor cannot trace the liability back to the initial manufacturer. Biological products are not manufactured goods in the same sense as commercial goods. The underlying rationale for the strict liability imposed under the Sale of Goods Act or by virtue of an implied warranty at common law does not apply to goods which are not manufactured in the ordinary sense. Absent negligence on the part of the donor (for example, if he knew he had AIDS), one would hardly expect that the respondent, in the present case, could recover from the donor for the semen contaminated with HIV, either under the Sale of Goods Act or under an implied warranty at common law. This is unlike a commercial contract where it would be open to a supplier to sue the manufacturer, even absent negligence on its part.

[para95] Moreover, it must be recognized that Biological products such as blood and semen, unlike manufactured products, carry certain inherent risks. In some ways, these substances are inherently dangerous, although they are essential to medical procedures. Whether a doctor is trying to save a patient's life via a blood transfusion, or is simply attempting to assist a patient to become pregnant by AI, the physician cannot control the safety of these products beyond exhibiting the reasonable care expected of a professional to ensure that the biological substance is free from harmful viruses. By contrast, in the commercial world, the manufacturer has control over the goods. If they cannot be manufactured to be safe, then the products ought to be removed from the market. In medicine blood is essential to a variety of procedures in order to save lives. While arguably, AI is not in the same category as other life saving techniques, it is nonetheless a very important medical procedure. As long as the entire procedure does not amount to an unreasonable risk such that it ought not to be offered at all, the patient is entitled to weigh those risks and elect to proceed.

[para96] In Fisher v. Sibley Memorial Hospital, 403 A.2d1130 (D.C. 1979), an action was commenced for injury suffered when a patient contracted

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hepatitis after a blood transfusion supplied by the hospital. It was not possible to detect the virus in the blood. The Court of Appeal held that the theories of implied warranty and merchantability and strict liability in tort had no place in the context of a hospital furnishing blood. At pages 1132-33, Gallagher J. held as follows:

"The activities involved in the transfusion of whole blood, a component of the living body, from one human being to another may be characterized as sui generis in that the sequence of events involve acts common to legal concepts of both a sale and a service. Moreover, it seems to us that under the facts in the case before us it would be unrealistic to hold that there is an implied warranty as to qualities of fitness of human blood on which no medical or scientific information can be acquired and in respect to which plaintiff's physician has the same information, knowledge, and experience as the supplier." (Balkowitsch v. Minneapolis War Memorial Blood Bank, Inc., 270 Minn. 151, 132 N.W.2d 805, 811(1965).) We agree with those courts which hold that the furnishing of

blood is more in the nature of a service than of a sale of goods. Treating blood transfusions as an incidental service performed by hospitals comports with reality, and with the policies underlying merchantability liability. Although theoretically a seller's inability to discover defects in the goods he sells is not relevant to a warranty cause of action, we cannot ignore the difficulty of detecting hepatitis in blood given the current state of medical knowledge. To characterize as a sale the supplying of blood would mean that the hospital, no matter how careful, would be held responsible, virtually as an insurer, if the patient were harmed as a result of impure blood. After balancing thesafety of the individual with the interests of the hospital (in light of the absence of an adequate test to determine the presence of hepatitis in the blood) and the public interest in assuring the ready availability of blood for medical treatments, we are reluctant to extend ... merchantability liability to a non sale transaction by analogy or by characterizing the transaction as a sale.

[para97] The court was of the view that it was unnatural to force a blood transfusion into the commercial sales mould since the main object of the hospital is health care and treatment. It was also noted that blood products are"unavoidably dangerous" (p. 1134) and the patient relies on the doctor's skill rather than any warranties of fitness.

...[para99] Although the majority of American cases have followed

Perlmutter, a few have criticized the policy analysis conducted. For example, in Cunningham v. MacNeal MemorialHospital, 266 N.E.2d 897 (Ill. 1970), the court again considered the situation of a patient who contracted hepatitis through a blood transfusion. The court rejected the idea that an implied warranty did not

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arise because no "sale" was involved. Notwithstanding that blood is not a manufactured article of commerce, the court considered it a product which is distributed for consumption. The blood was sold in a container and the court felt it was unreasonable not to conclude that there was a sale of goods which was divisible from the contract for services.

[para100] However, the vast majority of American cases have agreed that the policy considerations dictate that, in the context of the provision of medical services, medical professionals should not be held strictly liable underwarranty for goods used in the provision of those services. In my view, the reasoning of the majority in Perlmutter, and the line of cases which follow it, is more apt in the Canadian context with respect to implied warranties at common law. Although, the American decisions did not deal with exactly this issue, the remarks made with respect to warranties under sale of goods legislation provide support for the view that it is inappropriate to imply a warranty in these circumstances under the common law.

[para101] I am, therefore, in agreement with the Court of appeal's conclusion in the present case that it would be inappropriate to imply a warranty of fitness and merchantability in the circumstances of this case. As CoryJ.A. observed in G. Ford Homes, courts should be very wary about implying terms of contracts and there may be circumstances which ought to exclude such a warranty. In the present case, the action against the respondent for injury resulting from the AI procedure should be confined to negligence. I would adopt the following conclusion of the court of Appeal at p. 85:

In the face of the American experience, we are unable to identify any policy reason why a physician should face

stricter liability for "goods" which are furnished to a patient in the course of medical service than he or she would be for any lack of professional care and skill which must be brought to every healing or treating engagement.

[para102] I note that even if I am wrong in my conclusion that a warranty should not be implied in the circumstances of this case, I would hold, as the trial judge did, that any warranty would simply be to take reasonable care. In other words, if the parties intended that there be any contractual warranty, the nature of the warranty in this case would simply be to the effect that the respondent exercise diligence and care in performing the AI and selecting the donors. The contract was primarily one for medical services and parties would not have contemplated that the respondent would warrant the success of the procedure nor that the semen would not be contaminated with an STD. As the trial judge stated, the respondent "undertakes to meet the standards of a reasonably competent person practicing in his field". It would be unreasonable to hold the respondent to any higher standard.

[para103] In the result, the appellant's argument that there was an

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implied warranty at common law that the donor’s semen would not be infected with HIV must also fail.

St Alban's City and District Council v International Computers Ltd [1996] NLOR No 3758 NLC 2960712303

England Supreme Court of Judicature Court of Appeal (Civil Division) Royal Courts of Justice, London

Lord Justice Nourse, Lord Justice Hirst, Sir Iain Glidewell 26 July 1996.

[para1] LORD JUSTICE NOURSE: On 3rd October 1994, in a judgment reserved after a ten day trial in July of that year, Mr Justice Scott Baker awarded the plaintiffs, St. Alban's City and District Council, damages of £1,314,846 against the defendant, International Computers Ltd., and judgment was entered accordingly. The basis of the award was that the defendant had breached its contract to supply the plaintiffs with a computer system to be used in their collection of community charge by providing faulty software which significantly overstated the relevant population of their area and thus caused them to suffer a loss of revenue. The defendant now appeals to this court...

[para51] SIR IAIN GLIDEWELL.: I have read in draft the judgment prepared by Nourse LJ and, like Hirst LJ, I agree with him that Scott Baker J was right in concluding that I.C.L. were in breach of an express term of their contract with St. Albans, that in the alternative the contract was subject to an implied term as to the fitness for purpose of the COMCIS program of which I.C.L. were also in breach, and that they are not saved from the consequences of such breach by any terms of exclusion or limitation of liability in the contract. It follows that I agree with My Lords that I.C.L. are, as the Judge held, liable in damages to St. Albans. I too would therefore dismiss this part of the appeal.

[para52] However, before I turn to the subject of damages there is one aspect of the case on liability on which I wish to express my own opinion. This is the second issue to which I have already referred, namely, was the contract between the parties subject to any implied term as to quality or fitness for purpose, and if so, what was the nature of the term? Consideration of this question during argument led to discussion of a more general question namely, "Is software goods?" To seek to answer this question, it is necessary first to be clear about the meaning of some of the words used in argument.

[para53] In his judgment, Scott Baker J adopted a description for a computer system which contains the following passage which I have found

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helpful: "By itself hardware can do nothing. The really

important part of the system is the software. Programs are the instructions or commands that tell the hardware what to do. The program itself is an algorithm or formula. It is of necessity contained in a physical medium.

A program in machine readable form must be contained on a machine readable medium, such as paper cards, magnetic tapes, discs, drums or magnetic bubbles."

[para54] In relation to COMCIS the property in the program i.e. the intangible "instructions or commands", remained with ICL. Under the contract, St. Albans were licensed to use the program. This is a common feature of contracts of this kind. However, in order that the program should be encoded into the computer itself, it was necessarily first recorded on a disc, from which it could be transferred to the computer. During the course of the hearing, the word "software" was used to include both the (tangible) disc onto which the COMCIS program had been encoded and the (intangible) program itself. In order to answer the question, however, it is necessary to distinguish between the program and the disc carrying the program.

[para55] In both cases the Sale of Goods Act 1979 s 62 and the Supply of Goods and Services Act 1982 s.18 the definition of "goods" is "includes all personal chattels other than things in action and money.... clearly a disk is within this definition. Equally clearly, a program, of itself, is not.

[para56] If a disc carrying a program is transferred, by way of sale or hire, and the program is in some way defective, so that it will not instruct or enable the computer to achieve the intended purpose, is this a defect in the disc? Put more precisely, would the seller or hirer of the disc be in breach of the terms as to quality and fitness for purpose implied by s.14 of the Sale of Goods Act and s.9 of the Act of 1982? Mr Dehn, for I.C.L., argues that they would not. He submits that the defective program in my example would be distinct from the tangible disc, and thus that the "goods" _ the disc _ would not be defective.

[para57] There is no English authority on this question, and indeed we have been referred to none from any Common Law jurisdiction. The only reference I have found is an article published in 1994 by Dr. Jane Stapleton. This is to a decision in Advent Systems Ltd v Unisys Corporation 925 F 2d 670 that software is a "good"; Dr Stapleton notes the decision as being reached "on the basis of policy arguments." We were referred, as was Scott Baker J, to a decision of Rogers J in the Supreme Court of New South Wales, Toby Construction Ltd v Computa Bar (Sales) Pty Ltd (1983) 2 NSWJR 48. The decision in that case was that the sale of a whole computer system, including both hardware and software, was a sale of "goods'' within the New South Wales legislation, which defines goods in similar terms to those in the English statute. That decision was in my respectful view clearly correct, but it does not answer the present question.

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Indeed Rogers J specifically did not answer it. In expressing an opinion I am therefore venturing where others have, no doubt wisely, not trodden.

[para58] Suppose I buy an instruction manual on the maintenance and repair of a particular make of car. The instructions are wrong in an important respect. Anybody who follows them is likely to cause serious damage to the engine of his car. In my view the instructions are an integral part of the manual. The manual including the instructions, whether in a book or a video cassette, would in my opinion be "goods" within the meaning of the Sale of Goods Act, and the defective instructions would result in a breach of the implied terms in s.14.

[para59] If this is correct, I can see no logical reason why it should not also be correct in relation to a computer disc onto which a program designed and intended to instruct or enable a computer to achieve particular functions has been encoded. If the disc is sold or hired by the computer manufacturer, but the program is defective, in my opinion there would prima facie be a breach of the terms as to quality and fitness for purpose implied by the Sale of Goods Act or the Act of 1982.

[para60] However, in the present case, it is clear that the defective program 2020 was not sold, and it seems probable that it was not hired. The evidence is that in relation to many of the program releases an employee of I.C.L. went to St. Albans' premises where the computer was installed taking with him a disc on which the new program was encoded, and himself performed the exercise of transferring the program into the computer.

[para61] As I have already said, the program itself is not "goods'' within the statutory definition. Thus a transfer of the program in the way I have described does not, in my view, constitute a transfer of goods. It follows that in such circumstances there is no statutory implication of terms as to quality or fitness for purpose.

[para62] Would the contract then contain no such implied terms? The answer must be sought in the Common Law. The terms implied by the Sale of Goods Act and the Act of 1982 were originally evolved by the Courts of Common Law and have since by analogy been implied by the courts into other types of contract. Should such a term be implied in a contract of the kind I am now considering, for the transfer of a computer program into the computer without any transfer of a disc or any other tangible thing on which the program is encoded?

[para63] The basis upon which a court is justified in implying a term into a contract in which it has not been expressed is strict. Lord Pearson summarised it in his speech in Trollope & Colls Ltd v NW Metropolitan Regional Hospital Board 1973 1 WLR 601 at 609 when he said:

"An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract; it is not enough for the court to find that such a term would have been adopted by the parties as

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reasonable men if it had been suggested to them; it must have been a term that went without saying, a term which, though tacit, formed part of the contract which the parties made for themselves."

[para64] In my judgment a contract for the transfer into a computer of a program intended by both parties to instruct or enable the computer to achieve specified functions is one to which Lord Pearson's words apply. In the absence of any express term as to quality or fitness for purpose, or of any term to the contrary, such a contract is subject to an implied term that the program will be reasonably fit for i.e. reasonably capable of achieving the intended purpose.

[para65] In the present case if, contrary to my view, the matter were not covered by express terms of the contract, I would hold that the contract was subject to an implied term that COMCIS was reasonably fit for, that is, reasonably capable of achieving the purpose specified in the "Statement of User Requirements" in Chapter 5 of St. Alban's Invitation to Tender, and that as a result of the defect in release 2020 I.C.L. were in breach of that implied term....

6. Manufacturer Liability: Privity and NegligenceThe issue of manufacturer liability to a remote purchaser remains

unsettled in Canadian law. It is accepted that a remote purchaser may bring an action against a manufacturer in negligence for injuries caused by negligently manufactured products. However it is not clear whether a remote purchaser may recover in negligence from a manufacturer where the product causes pure economic loss. This would include the “lemon” automobile where the purchaser has received a bad bargain and any other economic losses suffered as a consequence of the purchase. Why do you think the law has hesitated to extend liability for pure economic loss [but not for physical injuries]?

In approaching this question of pure economic loss you may wish to consider whether any distinction should be drawn between commercial and consumer purchasers in relation to their rights against a manufacturer for economic loss. In the recent case of Winnipeg Condominium Corp. No 6 v. Bird Construction (1995) 121 DLR (4th.) 193 the Supreme Court of Canada upheld liability of a builder to a subsequent owner where the owner was required to repair cladding on the building which was potentially dangerous. The builder was therefore liable for the cost of repairing the potentially dangerous building. This decision followed the minority judgment of Laskin J. in Rivtow Marine Ltd v. Washington Iron Works (1973) 40 DLR (3d) 530. It also reiterated the principle stated in Canadian National Rlwy Co. v. Norsk Pacific Steamship Co. [1992] 1 SCR 1021 which embraced a general principle of liability in negligence for foreseeable losses unless there were policy reasons against recovery. While the decision dealt with real property rather than chattels the arguments may be transferable to any future litigation over defective products. Consider the

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following arguments of La Forest J. on the policy reasons against recovery and assess their cogency in the context of manufacturer liability to remote purchasers for economic loss.

Winnipeg Condominium Corp. No 6 v. Bird Construction Co Ltd (1995) 121 DLR (4th) 193 (SCC)

LaForest J....[para37] Apart from the logical force of holding contractors liable for the

cost of repair of dangerous defects, there is also a strong underlying policy justification for imposing liability in these cases...[t]he plaintiff who moves quickly and responsibly to fix a defect before it causes injury to persons or damage to property must do so at his or her own expense. By contrast, the plaintiff who, either intentionally or through neglect, allows a defect to develop into an accident may benefit at law from the costly and potentially tragic consequences. In my view, this legal doctrine is difficult to justify because it serves to encourage, rather than discourage, reckless and hazardous behaviour. Maintaining a bar against recoverability for the cost of repair of dangerous defects provides no incentive for plaintiffs to mitigate potential losses and tends to encourage economically inefficient behaviour. ... Allowing recovery against contractors in tort for the cost of repair of dangerous defects thus serves an important preventative function by encouraging socially responsible behaviour.

[para38] This conclusion is borne out by the facts of the present case, which fall squarely within the category of what I would define as a "real and substantial danger". It is clear from the available facts that the masonry work on the Condominium Corporation's building was in a sufficiently poor state to constitute a real and substantial danger to inhabitants of the building and to passers_by... I conclude that the law in Canada has now progressed to the point where it can be said that contractors (as well as subcontractors, architects and engineers) who take part in the design and construction of a building will owe a duty in tort to subsequent purchasers of the building if it can be shown that it was foreseeable that a failure to take reasonable care in constructing the building would create defects that pose a substantial danger to the health and safety of the occupants. Where negligence is established and such defects manifest themselves before any damage to persons or property occurs, they should, in my view, be liable for the reasonable cost of repairing the defects and putting the building back into a non_dangerous state.

Are There Any Considerations that Ought to Negate (a) the Scope of the Duty and (b) the Class of Persons to Whom it is Owed or (c) the Damages to which a Breach of it May Give Rise?

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[para44] There are two primary and interrelated concerns raised by the recognition of a contractor's duty in tort to subsequent purchasers of buildings for the cost of repairing dangerous defects. The first is that warranties respecting quality of construction are primarily contractual in nature and cannot be easily defined or limited in tort. Sidney Barrett, in "Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis" (1989), 40 S.C. L. Rev. 891, at p. 941, makes this argument in the following terms:

Perhaps more than any other industry, the construction industry is "vitally enmeshed in our economy and dependent on settled expectations". The parties involved in a construction project rely on intricate, highly sophisticated contracts to define the relative rights and responsibilities of the many persons whose efforts are required __ owner, architect, engineer, general contractor, subcontractor, materials supplier __ and to allocate among them the risk of problems, delays, extra costs, unforeseen site conditions, and defects. Imposition of tort duties that cut across those contractual lines disrupts and frustrates the parties' contractual allocation of risk and permits the circumvention of a carefully negotiated contractual balance among owner, builder, and design professional.

[para45] The second concern is that the recognition of such a duty interferes with the doctrine of caveat emptor which, as this Court affirmed in Fraser_Reid, supra, at p. 723, "has lost little of its pristine force in the sale of land". The doctrine of caveat emptor dictates that, in the absence of an express warranty, there is no implied warranty of fitness for human habitation upon the purchase of a house already completed at the time of sale. ... [para46] In my view, these concerns are both merely versions of the more general and traditional concern that allowing recovery for economic loss in tort will subject a defendant to what Cardozo C.J. in Ultramares Corp. v. Touche, 174 N.E. 441 (N.Y.C.A. 1931), at p. 444, called "liability in an indeterminate amount for an indeterminate time to an indeterminate class." In light of the fact that most buildings have a relatively long useful life, the concern is that a contractor will be subject potentially to an indeterminate amount of liability to an indeterminate number of successive owners over an indeterminate time period. The doctrines of privity of contract and caveat emptor provide courts with a useful mechanism for limiting liability in tort. But the problem, as I will now attempt to demonstrate, is that it is difficult to justify the employment of these doctrines in the tort context in any principled manner apart from their utility as mechanisms for limiting liability.

The Concern with Overlap Between Tort and Contract Duties[para47] Turning to the first concern, a duty on the part of contractors to

take reasonable care in the construction of buildings can, in my view, be

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conceptualized in the absence of contract and will not result in indeterminate liability to the contractor. As I mentioned earlier, this Court has recognized that a tort duty can arise concurrently with a contractual duty, so long as that tort duty arises independently of the contractual duty... As I see it, the duty to construct a building according to reasonable standards and without dangerous defects arises independently of the contractual stipulations between the original owner and the contractor because it arises from a duty to create the building safely and not merely according to contractual standards of quality. It must be remembered that we are speaking here of a duty to construct the building according to reasonable standards of safety in such a manner that it does not contain dangerous defects. As this duty arises independently of any contract, there is no logical reason for allowing the contractor to rely upon a contract made with the original owner to shield him or her from liability to subsequent purchasers arising from a dangerously constructed building. ... [para48] The tort duty to construct a building safely is thus a circumscribed duty that is not parasitic upon any contractual duties between the contractor and the original owner. Seen in this way, no serious risk of indeterminate liability arises with respect to this tort duty. In the first place, there is no risk of liability to an indeterminate class because the potential class of claimants is limited to the very persons for whom the building is constructed: the inhabitants of the building. The fact that the class of claimants may include successors in title who have no contractual relationship with the contractors does not, in my view, render the class of potential claimants indeterminate...

[para49] Secondly, there is no risk of liability in an indeterminate amount because the amount of liability will always be limited by the reasonable cost of repairing the dangerous defect in the building and restoring that building to a non_dangerous state. Counsel for Bird advanced the argument that the cost of repairs claimed for averting a danger caused by a defect in construction could, in some cases, be disproportionate to the actual damage to persons or property that might be caused if that defect were not repaired. For example, he expressed concern that a given plaintiff could claim thousands of dollars in damage for a defect which, if left unrepaired, would cause only a few dollars damage to that plaintiff's other property. However, in my view, any danger of indeterminacy in damages is averted by the requirement that the defect for which the costs of repair are claimed must constitute a real and substantial danger to the inhabitants of the building, and the fact that the inhabitants of the building can only claim the reasonable cost of repairing the defect and mitigating the danger. The burden of proof will always fall on the plaintiff to demonstrate that there is a serious risk to safety, that the risk was caused by the contractor's negligence, and that the repairs are required to alleviate the risk.

[para50] Finally, there is little risk of liability for an indeterminate time because the contractor will only be liable for the cost of repair of dangerous defects during the useful life of the building. Practically speaking, I believe that

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the period in which the contractor may be exposed to liability for negligence will be much shorter than the full useful life of the building. With the passage of time, it will become increasingly difficult for owners of a building to prove at trial that any deterioration in the building is attributable to the initial negligence of the contractor and not simply to the inevitable wear and tear suffered by every building...

The Caveat Emptor Concern

[para51] Turning to the second concern, caveat emptor cannot, in my view, serve as a complete shield to tort liability for the contractors of a building.. ... [para52] In Fraser_Reid, Dickson J. (as he then was) observed that the doctrine of caveat emptor stems from the laissez_faire attitudes of the eighteenth and nineteenth centuries and the notion that purchasers must fend for themselves in seeking protection by express warranty or by independent examination of the premises (at p. 723). The assumption underlying the doctrine is that the purchaser of a building is better placed than the seller or builder to inspect the building and to bear the risk that latent defects will emerge necessitating repair costs. However, in my view, this is an assumption which (if ever valid) is simply not responsive to the realities of the modern housing market. In Lempke, supra, at p. 295, the Supreme Court of New Hampshire made reference to a number of policy factors that strongly militate against the rigid application of the doctrine of caveat emptor with regard to tort claims for construction defects:

First, "(c)ommon experience teaches that latent defects in a house will not manifest themselves for a considerable period of time . . . after the original purchaser has sold the property to a subsequent unsuspecting buyer." . . . Second, our society is rapidly changing.

"We are an increasingly mobile people; a builder_ vendor should know that a house he builds might be resold within a relatively short period of time and should not expect that the warranty will be limited by the number of days that the original owner holds onto the property."

. . . Furthermore, "the character of society has changed such that the original buyer is not in a position to discover hidden defects. . . ."

Third, like an initial buyer, the subsequent purchaser has little opportunity to inspect and little experience and knowledge about construction. "Consumer protection demands that those who buy homes are entitled to rely on the skill of a builder and that the house is constructed so as to be reasonably fit for its intended use." . . .

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Fourth, the builder/contractor will not be unduly taken unaware by the extension of the warranty to a subsequent purchaser. "The builder already owes a duty to construct the home in a workmanlike manner. . . ." . . . And extension to a subsequent purchaser, within a reasonable time, will not change this basic obligation.

Fifth, arbitrarily interposing a first purchaser as a bar to recovery "might encourage sham first sales to insulate builders from liability."

Philip H. Osborne makes the further point in "A Review of Tort Decisions in Manitoba 1990_1993", [1993] Man. L.J. 191, at p. 196, that contractors and builders, because of their knowledge, skill and expertise, are in the best position to ensure the reasonable structural integrity of buildings and their freedom from latent defect. In this respect, the imposition of liability on builders provides an important incentive for care in the construction of buildings and a deterrent against poor workmanship.

[para53] My conclusion that a subsequent purchaser is not the best placed to bear the risk of the emergence of latent defects is borne out by the facts of this case. ...For this Court to apply the doctrine of caveat emptor to negate Bird's duty in tort would be to apply a rule that has become completely divorced, in this context at least, from its underlying rationale.

Conclusion[para54] I conclude, then, that no adequate policy considerations exist to

negate a contractor's duty in tort to subsequent purchasers of a building to take reasonable care in constructing the building, and to ensure that the building does not contain defects that pose foreseeable and substantial danger to the health and safety of the occupants. In my view, the Manitoba Court of Appeal erred in deciding that Bird could not, in principle, be held liable in tort to the Condominium Corporation for the reasonable cost of repairing the defects and putting the building back into a non_dangerous state. These costs are recoverable economic loss under the law of tort in Canada. ... [para56] I would allow the appeal, reverse the decision of the Court of Appeal and make the following orders: that the losses alleged in the statement of claim, to the extent that they may be found to constitute pure economic loss flowing from the negligence of the respondent, be recoverable from the respondent, and that the order of the learned motions judge, that the within action proceed to trial against the respondent Bird Construction Co. Ltd. with respect to the remaining issues raised in the statement of claim, be reinstated. The appellant is entitled to its costs throughout.

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It should be noted that under the Quebec Civil Code the Supreme Court of Canada held a manufacturer directly liable to a consumer for latent defect in a new automobile purchased by the consumer from one of the manufacturers dealers. See General Motors v. Kravitz [1979] 1SCR 790. In addition, the Saskatchewan Consumer Products Warranties Act imposes obligations of merchantability and fitness for purpose on manufacturers in relation to remote purchasers of their products.

In the US, jurisdictions are divided on their willingness to abolish privity in relation to claims for pure economic loss. The following case outlines the arguments in favour of the abolition of privity.

Joseph R. MORROW and Nikki Morrow, Appellants, v NEW MOON HOMES, INC., and Golden Heart Mobile Homes, Inc., Appellees. Supreme Court of Alaska. (1977) 548 P.2d. 279

Before RABINOWITZ, C. J., and CONNOR, ERWIN, BOOCHEVER, and BURKE, JJ.

RABINOWITZ, Chief Justice. This appeal raises questions concerning personal jurisdiction over, and the liability of, a nonresident manufacturer of a defective mobile home that was purchased in Alaska from a resident seller. In October of 1969, Joseph R. and Nikki Morrow bought a mobile home from Golden Heart Mobile Homes, a Fairbanks retailer of mobile homes. A plaque on the side of the mobile home disclosed that the home had been manufactured in Oregon by New Moon Homes, Inc. The Morrows made a down payment of $1,800, taking out a loan for the balance of the purchase price from the First National Bank of Fairbanks. The loan amount of $10,546.49, plus interest of 9 percent per year, was to be repaid by the Morrows in 72 monthly installments of $190.13 each. At the time of the purchase, the Morrows inspected the mobile home and noticed that the carpeting had not been laid and that several windows were broken. Roy Miller, Golden Heart's salesman, assured them that these problems would be corrected and later made good his assurances. Miller also told the Morrows that the mobile home was a 'good trailer', '. . . as warm as . . . any other trailer.' After the sale, Miller moved the Morrows' mobile home to Lakeview Terrace, set it up on the space the Morrows had rented, and made sure that the utilities were connected. Then the troubles started. On the first night that the mobile home's furnace was in use, the motor went out and had to be replaced. The electric furnace installed by the manufacturer had been removed by someone who had replaced the original with an oil furnace. The furnace vent did not fit, and consequently the 'stove pipe' vibrated when the furnace was running.

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Subsequent events showed the furnace malfunction was not the primary problem with the mobile home. About four days after the mobile home had been set up, the Morrows noticed that the doors did not close all the way and that the windows were cracked. The bathtub leaked water into the middle bedroom. In March of 1970 when the snow on the roof began to melt, the roof leaked. Water came in through gaps between the ceiling and the wall panels, as well as along the bottom of the wallboard. A short circuit developed in the electrical system; the lights flickered at various times. When it rained, water came out of the light fixture in the hallway. Other problems with the mobile home included the following: the interior walls did not fit together at the corners; the paneling came off the walls; the windows and doors were out of square; the door frames on the bedroom doors fell off and the closet doors would not slide properly; the curtains had glue on them; and the finish came off the kitchen cabinet doors. Despite all these problems, the Morrows continued to live in the mobile home and make the loan payments. Golden Heart Mobile Homes was notified many times of the difficulties the Morrows were having with their mobile home. Roy Miller, the Golden Heart salesman with whom the Morrows had dealt, did put some caulking around the bathtub, but otherwise he was of little assistance. Finally, sometime before April 1, 1970, Nikki Morrow informed Miller that if Golden Heart did not fix the mobile home the Morrows wanted to return it. Miller said the Morrows would '(h)ave to take it up with the bank.' Subsequently, Golden Heart went out of business. The First National Bank of Fairbanks was more sensitive to the Morrows' plight. Upon being informed by the Morrows that they intended to make no further payments on the mobile home, bank personnel went out and inspected the home several times. In addition, on May 27, 1970, the bank wrote to New Moon Homes, Inc. in Silverton, Oregon. Its letter informed New Moon of the problems the Morrows were having with their New Moon mobile home and asked whether New Moon expected to send a representative to Fairbanks since Golden Heart, the dealer, was no longer in business. Apparently, New Moon did not respond to the bank's letter. A short time later the Morrows' counsel wrote a letter to New Moon Homes notifying New Moon that the Morrows intended to hold the company liable for damages for breach of implied warranties. About a month later the Morrows separated, with Nikki Morrow continuing to live in the mobile home. She continued to make payments to First National because she 'couldn't afford Alaskan rents.' Nikki Morrow eventually moved out of the mobile home but made no effort to sell or rent it because she considered it 'not fit to live in.' In October of 1971 the Morrows filed this action against both New Moon Homes and Golden Heart Mobile Homes, alleging that defendants had breached implied warranties of merchantability and fitness for particular purpose in manufacturing and selling an improperly constructed mobile home. The complaint further alleged that New Moon 'is a foreign corporation doing business in the State of Alaska.' Although the record does not disclose the method by which New Moon was informed of the pending action, apparently the Morrows served a copy of the summons and complaint upon the

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Commissioner of Commerce, who forwarded the papers to New Moon in Oregon. In its answer New Moon inter alia raised the 'affirmative defenses' of lack of personal jurisdiction and improper service of process.

[1] The heart of this appeal concerns the remedies which are

available to a remote purchaser against the manufacturer of defective goods for direct economic loss. The superior court held that the Morrows had no legal claim against New Moon because they were not in privity of contract with New Moon. The first argument advanced here by the Morrows amounts to an end run around the requirement of privity. The Morrows contend that their complaint asserted a theory of strict liability in tort. They further argue that they should have prevailed irrespective of any lack of privity of contract between New Moon and themselves, because lack of privity of contract is not a defense to a strict tort liability claim. It is true that in Bachner v. Pearson, 479 P.2d 319 (Alaska 1970), we held:

that implied warranty and strict products liability are sufficiently similar to require that a complaint worded in terms of the former theory should be deemed to raise a claim under the latter theory.[ffn3]

Thus, although the Morrows' complaint sounded in breach of implied warranties, it also raised a strict liability claim if such a claim is legally cognizable against New Moon.

[2] In Clary v. Fifth Avenue Chrysler Center, Inc., 454 P.2d 244 (Alaska 1969), Alaska adopted the Greenman v. Yuba Power Products, Inc.,[ffn4] rule of strict products liability, which provides that

(a) manufacturer is strictly liable in tort when an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being.

By its terms the Greenman formulation applies only when the defective product causes personal injury. Since the Morrows did not sustain any personal injuries which were caused by the defects in their mobile home, strict liability is seemingly unavailable to them in the instant case. However, the Morrows argue that strict liability should nonetheless apply in the situation where a consumer sues a manufacturer solely for economic loss attributable to the manufacturer's defective product. This precise contention presents a question of first impression in Alaska. The issue whether strict liability in tort should extend to economic loss has prompted no small amount of discussion in legal journals. The two leading judicial opinions are probably Santor v. A. and M. Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965), and Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). In the former case, Santor purchased from a

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retailer certain carpeting manufactured and advertised by Karagheusian. Almost immediately after the carpet was laid, Santor noticed an unusual line in it. As the pile wore down, the line became worse and two additional lines appeared. Since the retailer had gone out of business, Santor sued the manufacturer for damages for breach of the implied warranty of merchantability. In a unanimous decision, the Supreme Court of New Jersey held that the plaintiff, as the ultimate purchaser of defective carpeting, could maintain an action against the manufacturer on either of two theories, breach of implied warranty of reasonable fitness or strict liability in tort. Privity of contract was not necessary in order to pursue either theory, although damages were limited to loss of value of the carpeting. Although the opinion emphasized the widespread advertising carried on by Karagheusian, the Santor court made clear that 'strict liability in tort is not conditioned upon advertising to promote sales.'

Barely four months after Santor came down, its strict liability holding was rejected by the Supreme Court of California in Seely v. White Motor Co., supra. Seely purchased a truck manufactured by White Motor Co. for use in his heavy duty hauling business. Upon taking possession of the truck, Seely found that it bounced violently. This 'galloping' continued for 11 months until the truck's brakes failed and the truck overturned, sustaining in excess of $5,000 in damages. Selly was not injured in the incident. Seely sued White Motor Co. seeking damages for the cost of repairing the truck and for both the money paid on the purchase price and the profits lost in his business because he was unable to make normal use of the truck. The Supreme Court of California affirmed the trial court's award of damages in the amount of the payments made plus lost profits, on the grounds that White Motor Co. had breached an express warranty to Seely, the ultimate purchaser. The majority opinion, written by Chief Justice Traynor, condemned in broad dicta Santor's application of strict liability principles to a case involving only economic loss:

The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the 'luck' of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will.

Seely appears to enjoy the support of the vast majority of the other

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courts which have considered the question whether strict liability in tort should extend to instances of economic loss. We also prefer the result in Seely, although our reasoning differs slightly in emphasis from that of the Seely court. Under the Uniform Commercial Code the manufacturer is given the right to avail himself of certain affirmative defenses which can minimize his liability for a purely economic loss. Specifically, the manufacturer has the opportunity, pursuant to AS 45.05.100, to disclaim liability and under AS 45.05.230 to limit the consumer's remedies, although the Code further provides that such disclaimers and limitations cannot be so oppressive as to be unconscionable and thus violate AS 45.05.072. In addition, the manufacturer is entitled to reasonably prompt notice from the consumer of the claimed breach of warranties, pursuant to AS 45.05.174(c)(1).[ffn11]

In our view, recognition of a doctrine of strict liability in tort for economic loss would seriously jeopardize the continued viability of these rights. The economically injured consumer would have a theory of redress not envisioned by our legislature when it enacted the U.C.C., since this strict liability remedy would be completely unrestrained by disclaimer, liability limitation and notice provisions. Further, manufacturers could no longer look to the Uniform Commercial Code provisions to provide a predictable definition of potential liability for direct economic loss. In short, adoption of the doctrine of strict liability for economic loss would be contrary to the legislature's intent when it authorized the aforementioned remedy limitations and risk allocation provisions of Article II of the Code. To extend strict tort liability to reach the Morrows' case would in effect be an assumption of legislative prerogative on our part and would vitiate clearly articulated statutory rights. This we decline to do. Thus, we hold that the theory of strict liability in tort which we recognized in Clary does not extend to the consumer who suffers only economic loss because of defective goods.

The principal theory of liability advocated by the Morrows at trial was the New Moon has breached statutory warranties which arose by operation of law with the manufacture and distribution of this mobile home. Specifically, the Morrows rely upon AS 45.05.096 and AS 45.05.098 of the Uniform Commercial Code as enacted in Alaska. The former section provides for an implied warranty of 'merchantability' in the sale of goods governed by the Code;[ffn14] the latter establishes an implied warranty that the goods are fit for the particular purpose for which they were purchased. The superior court was of the view that these Code warranties operated only for the benefit of those purchasing directly from a manufacturer or seller. Since the Morrows were not in privity of contract with New Moon, the superior court concluded that a warranty theory based on AS 45.05.096 and AS 45.05.098 could not serve as a basis for liability.

[6][7] It is... clear that in this jurisdiction the Morrows, as immediate purchasers, can recover against their seller for breach of the Code's implied warranties. Indeed, this was the theory upon which the default judgment

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against Golden Heart Mobile Homes was predicated. The critical question in this case is whether the Morrows, as remote purchasers, can invoke the warranties attributable to the manufacturer which arose when New Moon passed title of the mobile home to the next party in the chain of distribution. In other words, do the implied warranties of merchantability and fitness run from a manufacturer only to those with whom the manufacturer is in privity of contract?

[8][9] Although sometimes criticized, the distinction between horizontal and vertical privity is significant in this case. The issue of horizontal privity raises the question whether persons other than the buyer of defective goods can recover from the buyer's immediate seller on a warranty theory. The question of vertical privity is whether parties in the distributive chain prior to the immediate seller can be held liable to the ultimate purchaser for loss caused by the defective product.[ffn23] The Code addresses the matter of horizontal privity in AS 45.05.104, extending the claim for relief in warranty to any '. . . person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that the person may use, consume, or be affected by the goods . . ..' With regard to vertical privity, the Code is totally silent and strictly neutral, as Official Comment 3 to AS 45.05.104 makes eminently clear. The Code leaves to the courts the question *288 of the extent to which vertical privity of contract will or will not be required.

This court has never previously confronted the question whether a requirement of privity of contract will preclude a purchaser from recovering against the original manufacturer on a theory of implied warranties. As mentioned previously, we expressly held in Clary v. Fifth Avenue Chrysler Center, Inc., 454 P.2d 244 (Alaska 1969), that a manufacturer is strictly liable in tort for personal injuries attributable to his defective goods. In approving a theory based on strict liability in tort, we stressed the efficacy, simplicity, and comprehensiveness of that theory. Appellees in Clary had urged this court to limit the consumer's source of redress to possible application of the statutory provisions governing sales warranties, particularly AS 45.05.096. This we declined to do. As we have noted, under the statutory scheme an injured consumer is required to give notice of the defect to the warrantor within a relatively short period of time, and potential liability may be circumscribed by express disclaimers from the manufacturer. The Clary court was concerned that such provisions might operate as a trap for the unwary, and it expressed a preference for a tort theory more solicitous of the needs of the consumer in the modern, prepackaged, mass merchandised market place. However, this preference was never intended to imply that reliance on the statutory warranty provisions was not available as an alternative vehicle for relief. There is nothing incompatible in affording parallel consumer remedies sounding in tort and in contract, and several jurisdictions which have adopted strict liability in tort also make available an implied warranty theory without regard to privity of contract.

The dispute here is whether the requirement of vertical privity of

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contract should be abolished in Alaska. This battle has already been waged in many jurisdictions, and the results are well known: the citadel of privity has largely toppled. The course of this modern development is familiar history and we need not recount it at length here. Contrived 'exceptions' which paid deference to the hoary doctrine of privity while obviating its unjust results have given way in more recent years to an open frontal assault. The initial attack came in Spence v. Three Rivers Builders & Masonry Supply, Inc., 353 Mich. 120, 90 N.W.2d 873 (1958), but the leading case probably remains Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960), in which the New Jersey Supreme Court held liable for personal injuries and property damages both the manufacturer of an automobile and the dealer who sold the vehicle. The rationale for the widespread abolition

of the requirement of privity stems from the structure and operation of the free market economy in contemporary society; it was succinctly summed up not long ago by the Supreme Court of Pennsylvania:

Courts and scholars alike have recognized that the typical consumer does not deal at arms length with the party whose product he buys. Rather, he buys from a retail merchant who is usually little more than an economic conduit. It is not the merchant who has defectively manufactured the product. Nor is it usually the merchant who advertises the product on such a large scale as to attract consumers. We have in our society literally scores of large, financially responsible manufacturers who place their wares in the stream of commerce not only with the realization, but with the avowed purpose, that these goods will find their way into the hands of the consumer. Only the consumer will use these products; and only the consumer will be injured by them should they prove defective.[10] The policy considerations which dictate the abolition of

privity are largely those which also warranted imposing strict tort liability on the manufacturer: the consumer's inability to protect himself adequately from defectively manufactured goods, the implied assurance of the maker when he puts his goods on the market that they are safe, and the superior risk bearing ability of the manufacturer. In addition, limiting a consumer under the Code to an implied warranty action against his immediate seller in those instances when the product defect is attributable to the manufacturer would effectively promote circularity of litigation and waste of judicial resources. Therefore, we decide that a manufacturer may be held liable for a breach of the implied warranties of AS 45.05.096 and AS 45.05.098 without regard to privity of contract between the manufacturer and the consumer.

[11] The more difficult question before this court is whether we should extend this abolition of privity to embrace not only warranty

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actions for personal injuries and property damage but also those for economic loss. Contemporary courts have been more reticent to discard the privity requirement and to permit recovery in warranty by a remote consumer for purely economic losses. In considering this issue we note that economic loss may be categorized into direct economic loss and consequential economic loss, a distinction maintained in the Code's structure of damage remedies. One commentator has summarized the distinction:

Direct economic loss may be said to encompass damage based on insufficient product value; thus, direct economic loss may be 'out of pocket'_the difference in value between what is given and received_or 'loss of bargain'_the difference between the value of what is received and its value as represented. Direct economic loss also may be measured by costs of replacement and repair. Consequential economic loss includes all indirect loss, such as loss of profits resulting from inability to make use of the defective product.

The claim of the Morrows in this case is one for direct economic loss. A number of courts recently confronting this issue have declined to overturn the privity requirement in warranty actions for economic loss. One principal factor seems to be that these courts simply do not find the social and economic reasons which justify extending enterprise liability to the victims of personal injury or property damage equally compelling in the case of a disappointed buyer suffering 'only' economic loss. There is an apparent fear that economic losses may be of a far greater magnitude in value than personal injuries, and being somehow less foreseeable these losses would be less insurable, undermining the risk spreading theory of enterprise liability.

[12] Several of the courts which have recently considered this aspect of the privity issue have found those arguments unpersuasive. We are in agreement and hold that there is no satisfactory justification for a remedial scheme which extends the warranty action to a consumer suffering personal injury or property damage but denies similar relief to the consumer 'fortunate' enough to suffer only direct economic loss. Justice Peter's separate opinion in Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 24, 403 P.2d 145, 152 (1965), persuasively establishes that the cleavage between economic loss and other types of harm is a false one, that each species of harm can constitute the 'overwhelming misfortune' in one's life which warrants judicial redress. The Supreme Court of New Jersey is also in complete agreement with this view:

From the standpoint of principle, we perceive no sould reason why the implication of reasonable fitness should be attached to the transaction

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and be actionable against the manufacturer where the defectively made product has caused personal injury and not actionable when inadequate manufacture has put a worthless article in the hands of an innocent purchaser who has paid the required price for it. In such situations considerations of justice require a court to interest itself in originating causes and to apply the principle of implied warranty on that basis, rather than to test its application by whether personal injury or simply loss of bargain resulted in the breach of the warranty. True, the rule of implied warranty had its gestative stirrings because of the greater appeal of the personal injury claim. But, once in existence, the field of operation of the remedy should not be fenced in by such a factor.

The fear that if the implied warranty action is extended to direct economic loss, manufacturers will be subjected to liability for damages of unknown and unlimited scope would seem unfounded. The manufacturer may possibly delimit the scope of his potential liability by use of a disclaimer in compliance with AS 45.05.100 or by resort to the limitations authorized in AS 45.05.230. These statutory rights not only preclude extending the theory of strict liability in tort, supra, but also make highly appropriate this extension of the theory of implied warranties. Further, by expanding warranty rights to redress this form of harm, we preserve '. . . the well developed notion that the law of contract should control actions for purely economic losses and that the law of tort should control actions for personal injuries.] We therefore hold that a manufacturer can be held liable for direct economic loss attributable to a breach of his implied warranties, without regard to privity of contract between the manufacturer and the ultimate purchaser. It was therefore error for the trial court to dismiss the Morrows' action against New Moon for want of privity.

[13] Our decision today preserves the statutory rights of the manufacturer to define his potential liability to the ultimate consumer, by means of express disclaimers and limitations, while protecting the legitimate expectation of the consumer that goods distributed on a wide scale by the use of conduit retailers are fit for their intended use. The manufacturer's rights are not, of course, unfettered. Disclaimers and limitations must comport with the relevant statutory prerequisites and cannot be so oppressive as to be unconscionable within the meaning of AS 45.05.072. On the other hand, under the Code the consumer has a number of responsibilities if he is of enjoy the right of action we recognize today, not the least of which is that he must give notice of the breach of warranty to the manufacturer pursuant to AS 45.05.174(c)(1). The warranty action brought under the Code must be brought within the statute of limitations period prescribed in AS 45.05.242. If the action is for breach of the implied warranty of fitness for particular purpose, created by AS 45.05.098, the consumer

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must establish that the warrantor had reason to know the particular purpose for which the goods were required and that the consumer relied on the seller's skill or judgment to select or furnish suitable goods. In the case of litigation against a remote manufacturer, it would appear that often it will be quite difficult to establish this element of actual or constructive knowledge essential to this particular warranty.

Consequently, we order that this cause be remanded for a new trial in

which Morrows will have the opportunity to establish every element of their case, including personal jurisdiction over New Moon. Reversed and remanded for a new trial in accordance with this opinion.

ERWIN, Justice (concurring). While I concur with the opinion, I would extend the concept of strict liability to cover 'economic loss' rather than use the warranty theory advanced by the majority. The history of products liability law does not justify a distinction between personal injury and property damage. The primary purpose of the strict liability rule is to insure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the consumers who are powerless to protect themselves. Those in favor of the dichotomy between 'economic loss' and other types of damage argue that an abolition of the distinction would result in manufacturers being liable for damages of unknown and unlimited scope. This concept is embraced by the majority, which notes that the manufacturer who may now minimize liability by relying on certain provisions in the Uniform Commercial Code, would be unable to do so if the doctrine of strict liability were applied. In essence, this position intimates that manufacturers' rights under the Uniform Commercial Code should be maintained in order to assure the predictability of their potential liability.

I agree with Justice Peters of the California Supreme Court, who in his separate opinion in Seely v. White Motor Co., noted that the concerns expressed by the majority in this case would for all intents and purposes be eliminated if the notion of 'defective' in the strict liability doctrine is viewed as co_extensive with the concept of 'unmerchantability' in the implied warranty field. The term has been well defined by case law and has a fixed meaning so far as the Uniform Commercial Code is concerned.

If the doctrine of strict liability were adopted for cases such as the present one, the ordinary consumer, whose bargaining power is seldom equal to the manufacturers', would have the opportunity to bring an action against the original wrongdoer, instead of the local retailer who served as little more than a conduit for the defective product. The costs of such an action would properly be borne by the manufacturer. This procedure recognizes the average consumer's lack of sophistication with respect to the complex world of commerce and the Uniform Commercial Code.

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7. Buying for use, consumers and access to justice

Both commercial actors and consumers may buy equipment or products which are intended to be used over a relatively long period of time. In many cases of complex equipment there will be “teething” problems and serious problems with the product may not appear until it has been in use for some time. For example, a computer monitor may suddenly develop major problems after 12 months. In this type of situation many buyers would like to have a clear idea of their rights. Unfortunately the Sale of Goods Act does not provide a very sharp series of guidelines. Undoubtedly there will often be a warranty accompanying the product but in many cases this will be for a limited period of time and will not entitle the consumer to reject high priced items such as automobiles. The following cases outline some of the issues here, primarily in relation to automobiles. In assessing the role of the law in this area you should remember that the rules will be primarily used by the parties “bargaining in the shadow of the law” since few consumers will wish to go to court.

Merchantability, fitness for purpose and automobiles

The following case is a useful guide to some of the relevant factors in relation to the determination of merchantability in automobiles.

Rogers And Another v Parish (Scarborough) Ltd And Another[1987] 1 QB 933, [1987] 2 All ER 232, [1987] 2 WLR 353,

MUSTILL LJ: This is an appeal by plaintiffs against a judgment given in favour of two defendants by Judge Herrod QC, sitting as a High Court judge in Leeds. The first plaintiff is a Yorkshire businessman; the first defendant is a motor dealer with a franchise for the sale of Range Rovers; and the second defendant is a finance house. During May 1980 two Range Rovers were delivered by the manufacturers to the first defendant's premises. The particulars of their registration numbers are immaterial; it is sufficient to say that one of the vehicles was coloured green and the other yellow.

For a number of months the vehicles were stored in an open compound. Afterwards they were moved to a showroom indoors. It proved necessary as a consequence of their prolonged storage to clean up some rust on the wheels of the vehicles and to touch up the paintwork to take account of minor damage during delivery.

On 6 November 1981 the green Range Rover was sold under a conditional sale agreement to the plaintiffs. The transaction took a conventional

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shape, the vehicle being sold by the dealer to the finance house and then re_sold by the latter to the plaintiffs....

It appears that at the time of the sale, or perhaps at the time of delivery under the sale, the first plaintiff was handed a warranty document. This document, so far as material to the present dispute, reads:

"Should any part of the vehicle require repair or replacement as a result of a manufacturing or material defect within 12 months from the date on which the vehicle was handed over to the first owner, the part will be repaired or replaced completely free of charge by your authorised dealer, regardless of any change of ownership during the period covered. Any part so repaired or replaced will benefit from these arrangements for the balance of the period applicable to the vehicle."

After certain exclusions the document went on: "your statutory rights and obligations as against the supplier are not in any way affected by this statement."

The warranty document also prescribed a procedure which the purchaser was to follow if he wished to take advantage of the warranty, and this included a liberty to take the vehicle to another franchised dealer if it was inconvenient to return it to the vendor for repair. It does not appear from the documents before us whether this warranty was signed or precisely what its contractual status was intended to be, but primarily at least it must have constituted an engagement by the manufacturers collateral to the sale contract itself.

The price at which the vehicle was sold was some L14,000. After a few weeks' use it proved unsatisfactory and was returned by the plaintiffs to the dealers. By agreement between the parties a yellow vehicle of the same type was substituted for the original subject matter of the sale. The parties were thereafter content to have their relationship governed by the same contractual terms as had applied to the original purchase and sale. All the proceedings in the present action have gone forward on that basis.

Unfortunately it proved that the yellow vehicle was no more satisfactory than its predecessor. It is now known, as the judge found in his judgment, that by the time the vehicle was sold to the plaintiffs it had deteriorated to the extent that oil seals at vital junctions were no longer sound and that the defective seals permitted the loss of significant quantities of oil. It also proved to be the case that the engine and the gearbox of the vehicle had defects at the time of sale. After a series of inspections and attempts at repair it was found as late as June 1982, some six months after the delivery of the second vehicle, that the engine was still misfiring at all road speeds and that excessive noise was emitting from the gearbox and the transfer box. In addition the vehicle was suffering, as the judge has found, from substantial defects as regards the

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bodywork. In all, the condition of the vehicle was such that, as the judge has found, "it must be said that the defects to the engine, the gearbox and the bodywork reflect great discredit upon the inspection procedures at the Land Rover factory."

As I have already said, the vehicle had been subjected to a number of inspections during the months following its delivery and also to attempts to put it right. During this period the first plaintiff had been able to drive it for upwards of 5,500 miles, albeit in a manner which gave him no satisfaction. In the end, however, he lost patience, and during May 1982 he gave notice to the dealer that the car was rejected. We are told that thereafter it has remained in the possession of the plaintiffs since the defendants were unwilling to take it back.

In due course the plaintiffs instituted the present action against both the dealer as first defendant and the finance house as second defendant. The latter was plainly party to a direct contract of sale with the plaintiffs. The position of the first defendant might be more complex, but it is content to have the issue of liability dealt with on the basis that it is in privity with the plaintiffs and that its liabilities are to be assessed in precisely the same manner.

In these circumstances two questions arise: first, whether the defendants were in breach of an express promise that the vehicle was new: and second, whether they were in breach of an express or implied promise that the car would be in merchantable condition. I say "express or implied" because there was, as I have already indicated, an express promise by the second defendant. In the event, however, both the defendants and the plaintiffs have been content to treat this case as if it were governed by the provisions relating to implied terms created by section 14 of the Sale of Goods Act 1979, and in particular by the definition of the words "merchantable quality" which are to be found in section 14(6) of that Act.

It is convenient to deal first with the contention that the goods were unmerchantable at the time of delivery and that the plaintiffs were accordingly entitled to reject them. An implied term as to merchantability has been governed by statute since the Sale of Goods Act 1893. It was, however, subject to important modification by the Supply of Goods (Implied Terms) Act 1973, as regards both a change in the wording of section 14(2) itself and the addition of a new definition of merchantable quality. These were re_enacted, with a minor alteration as regards the definition, in section 14 of the Sale of Goods Act 1979, the material parts of which read:

"(2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition __ (a) as regards defects specifically drawn to the buyer's attention before the contract is made; or (b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal. . . . Goods of any kind are of merchantable quality within the meaning of

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subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances."

In the course of argument before us our attention was drawn to various expressions of opinion in cases decided before the enactment of the 1973 legislation as to the precise significance of the terms "merchantable quality." In my judgment this is not a practice to be encouraged. The Act of 1973 was an amending Act and it cannot be assumed that the new definition was included simply because the draftsman saw a convenient opportunity to reproduce in more felicitous and economical terms the gist of the speeches and judgments previously delivered. The language of section 14(6) is clear and free from technicality, and it should be sufficient in the great majority of cases to enable the fact_finding judge to arrive at a decision without exploring the intricacies of the prior law. In my judgment the present is not one of those exceptional cases where it may be necessary to have recourse to the former decisions in order to give a full meaning to the words of the subsection.

Against this background we must look to see how the matter was dealt with by the judge at first instance. He said:

"I do not take the view that any of the defects in this case were such as to render the vehicle unroadworthy, unusable, or unfit for any normal purposes for which a Range Rover might be used. It is true that there were a number of defects on this vehicle at the time of sale and delivery, defects which manifested themselves very shortly after the plaintiffs took delivery, and defects which must have been infuriating to the plaintiffs. However, the defects were capable of repair, and the defendants attempted to repair them at no cost to the plaintiffs. When those repairs did not meet with the plaintiffs' approval the vehicle was returned to the factory, it was examined, and further work was then done upon it by the first defendant. Ultimately, by the time the vehicle was examined by the AA inspector on 28 April 1982, all repairs had been carried out to an acceptable standard, and the mechanical performance was within the manufacturers' tolerances. Some of the defects did recur by 9 June 1982, but the fact that these defects had been satisfactorily dealt with on one occasion can only mean that they were susceptible to further repair, and if the first plaintiff had lost confidence in the ability of the first defendant to repair his vehicle, his proper remedy was to take it to some other Range Rover dealer, as he was entitled to

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do under the terms of the vehicle warranty. I do not take the view that this is one of the so_called 'congeries of defects' cases, which destroy the workable character of a machine. Indeed, the very fact that during the first six months of its life the plaintiffs were able to use the vehicle for a distance in excess of 5,000 miles demonstrates that it had plenty of use. Accordingly, the plaintiffs must also fail in their allegations that the vehicle was not of merchantable quality and unfit for the purposes for which it was required."

If the approach to this problem adopted by the judge were correct, this court should be slow indeed to interfere with the conclusion which he reached, since it seems to me that the intent of section 14(6) was to make an issue of merchantable quality into very much a jury question. In the present case, however, I feel bound to say that the approach adopted by the judge was not correct. In the first place, he did not expressly direct himself in accordance with section 14(6) and indeed did not mention the subsection in his judgment, possibly because it was given less prominence at the trial than during the argument before us.

This in itself could not be conclusive, for the judge could in fact have applied section 14(2) correctly, without saying so in so many words. There are two respects in which the judge in my opinion applied a test which was not that of section 14(6). In the passage already quoted he gave much weight to the fact that the defects were capable of repair and that the first defendant had in some measure been able to repair them. Yet the fact that a defect is repairable does not prevent it from making the res vendita unmerchantable if it is of a sufficient degree see: Lee v York Coach and Marine [1977] RTR 35. The fact, if it was a fact, that the defect had been repaired at the instance of the purchaser, which in the present case does not appear to be so, might well have had an important bearing on whether the purchaser had by his conduct lost his right to reject, but it cannot in my view be material to the question of merchantability which falls to be judged at the moment of delivery. Furthermore, the judge applied the test of whether the defects had destroyed the workable character of the car. No doubt this echoed an argument similar to the one developed before us that if a vehicle is capable of starting and being driven in safety from one point to the next on public roads and on whatever other surfaces the car is supposed to be able to negotiate, it must necessarily be merchantable. I can only say that this proposition appears to have no relation to the broad test propounded by section 14(6) even if, in certain particular circumstances, the correct inference would be that no more could be expected of the goods sold.

This being so, I think it legitimate to look at the whole issue afresh with direct reference to the words of section 14(6). Starting with the purpose for which "goods of that kind" are commonly bought, one would include in respect of any passenger vehicle not merely the buyer's purpose of driving the car from

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one place to another but of doing so with the appropriate degree of comfort, ease of handling and reliability and, one might add, of pride in the vehicle's outward and interior appearance. What is the appropriate degree and what relative weight is to be attached to one characteristic of the car rather than another will depend on the market at which the car is aimed.

To identify the relevant expectation one must look at the factors listed in the subsection. The first is the description applied to the goods. In the present case the vehicle was sold as new. Deficiencies which might be acceptable in a secondhand vehicle were not to be expected in one purchased as new. Next, the description "Range Rover" would conjure up a particular set of expectations, not the same as those relating to an ordinary saloon car, as to the balance between performance, handling, comfort and resilience. The factor of price was also significant. At more than L14,000 this vehicle was, if not at the top end of the scale, well above the level of the ordinary family saloon. The buyer was entitled to value for his money.

With these factors in mind, can it be said that the Range Rover as delivered was as fit for the purpose as the buyer could reasonably expect? The point does not admit of elaborate discussion. I can only say that to my mind the defects in engine, gearbox and bodywork, the existence of which is no longer in dispute, clearly demand a negative answer.

It is however also necessary to deal with an argument based on the fact that the vehicle was sold with the benefit of a manufacturer's warranty, a fact which was relied upon to show that the buyer was required to take in his stride to a certain degree at least the type of defects which would otherwise have amounted to a breach of contract. Speaking for myself, I am far from satisfied that this argument is open to the defendants at all, having regard to the express disclaimer in the contract of sale, and also in the warranty, of any intention to vary the buyer's rights at common law, and also having regard to section 6 of the Unfair Contract Terms Act 1977. Nor am I convinced that this objection can satisfactorily be answered by saying that the argument founded on the warranty operates not to deprive the buyer of his common law rights but rather as a relevant circumstance for purposes of section 14(6) operating simply to diminish the reasonable expectation of the buyer.

Moreover, I am not clear about the logic underlying the argument. Assume that on an accurate balancing of all the relevant circumstances it could be said that the buyer of a new Range Rover could reasonably expect it to have certain qualities and that accordingly he has a contractual right to receive a vehicle possessing those qualities and to recover damages, including damages for any consequential loss, if it does not possess them. Can it really be right to say that the reasonable buyer would expect less of his new Range Rover with a warranty than without one? Surely the warranty is an addition to the buyer's rights, not a substraction from them, and, it may be noted, only a circumscribed addition since it lasts for a limited period and does not compensate the buyer for

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consequential loss and inconvenience. If the defendants are right a buyer would be well advised to leave his

guarantee behind in the showroom. This cannot be what the manufacturers and dealers intend or what their customers reasonably understand.

Assume, however, that I am wrong in all this and that the presence of the warranty did in some degree have the effect of diminishing the standard of expectation and hence the vendor's required standard of performance. Even so, I can only say that, after re_balancing the relevant circumstances, I would again conclude that these defects lie well outside the range of expectation and that the vehicle was not merchantable.

Finally I should mention that the defendants sought to contend, on the argument of the appeal, that even if there had been a breach of section 14 the first plaintiff had, by his conduct, precluded himself from rejecting the car. This point was not pleaded by either defendant, nor was it mentioned in the judgment in the court below or raised by either defendant in a respondent's notice. Since the argument could not in any event have been explored by this court in the absence of findings about the entire course of dealings between the parties between the dates of delivery and rejection we considered it inappropriate to allow this matter to be raised before us.

In the result I would allow the appeal. SIR EDWARD EVELEIGH: Whether or not a vehicle is of merchantable quality is not determined by

asking merely if it will go. One asks whether, in the condition in which it was on delivery, it was fit for use as a motor vehicle of its kind. A vehicle with defective seals, gearbox and an engine in an unsatisfactory condition, all of which needed attention to bring it up to a standard normally found in such a vehicle, indicates to my mind that it was not of merchantable quality. The fact that the plaintiff was entitled to have remedial work done under the warranty does not make it fit for its purpose at the time of delivery.

I turn to consider the precise terms of section 14(6) in order to see whether in this case this vehicle is entitled, by virtue of that subsection, to be held to be of merchantable quality. I have no hesitation in saying that this vehicle does not comply with the ingredients set out in subsection (6). It was described as a new car. It was sold for a normal, substantial price, and the existence of the warranty does not indicate that the buyer was expecting, or ought reasonably to expect, a vehicle of a lower standard than that which he would have been entitled to expect without that warranty.

I agree that this appeal should be allowed.

In other cases courts have noted that a cumulative series of defects,

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although small individually, would render a car unmerchantable. This was the case in Lightburn v Belmont Sales (1969) 6 DLR (3d) 692 (electrical system, brake trouble, oil pump assembly) See also Findlay v. Metro Toyota (1977) 82 DLT (3d) 440. In addition, if a defect renders a car incapable of being driven safely then it would be unmerchantable, see Bartlett v. Sidney Marcus [1965] 2 AER 753. There is clearly some vagueness to the application of the standard of merchantability. In many cases an individual will allow the retailer to repair the goods initially and may tolerate minor problems. An important question is the impact of this on the buyer’s remedy of rejection. Llewellyn called rejection a consumer remedy since most consumers do not want to retain a defective automobile and receive damages. Rejection is straightforward and it can be exercised without going to court. However there is the danger that by permitting repair and continuing to use the goods a consumer may lose the right to reject under the Sale of Goods Act. Note the bars to rejection in 12(3) and 34. The first bar, property passage in specific goods, is an anachronism which has no functional relationship to consumer rejection rights. It has been abolished in many jurisdictions and courts avoid it through devices such as an implied term to defer property passage until acceptance. See e.g.Wojakowski v. Pembina Dodge Chrysler [1976] 5 WWR 97. The bars in section 34 are more problematic. The structure of the Sale of Goods Act did not contemplate the possibility of a long term right of rejection since its model of sale was a commodity contract where the buyer made the decision to accept or reject at the time of delivery of the goods. The courts in Canada have developed generally a more generous period for rejection in relation to goods such as tractors, complex pieces of equipment and automobiles (for a review of the cases see Fridman, Sale of Goods 4th ed at 255-257). The courts have developed several theories to justify this longer period of rejection: (a) the buyer was “trying out” the equipment to discover whether it was in accordance with the contract. This is not evidence of acceptance. This approach is based on a relatively frequently cited Ontario case Alabastine Co. v. Canada Producer & Gas Engine (1914) 30 OLR 394 (b) the buyer was deferring her right of rejection based on the representations of the seller that they would repair it as new and (c) the seller is estopped from arguing that the buyer has lost the right to reject since she induced the buyer to hold off on representations that the goods could be made as new. See e.g. Rafuse Motors v. Mardo Construction (1963) 41 DLR (2d) 340. Canadian cases often permit buyers to reject after six months or even longer in some instances. For example in Lightburn the period was eight months (buyer was “endeavouring to give it a reasonable chance to perform”)

If a buyer rejects goods the seller may refuse to accept the rejection. In these circumstances may the buyer continue to use the goods until her claim to reject is finally adjudicated or will continued use be deemed to constitute acceptance? This is an important issue for consumers since, in the case of an item like an automobile, they will rarely have income to purchase or rent a second car during the period of the dispute. The following case discusses the

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issue in the context of the Business Practices Act but its principles have been applied in sales cases.

Lasby v. Royal City Chrysler Plymouth 59 O.R. (2d) 323Also reported at 37 D.L.R. (4th) 243

ONTARIO HIGH COURT OF JUSTICE DIVISIONAL COURTSAUNDERS, HOLLINGWORTH AND SUTHERLAND JJ.18TH FEBRUARY 1987

*Leave to appeal to the Ontario Court of Appeal was refused (Blair, Goodman and Cory JJ.A.) April 27, 1987.

APPEAL from a judgment of McNeely D.C.J. in favour of the plaintiff in an action for rescission of a contract for the sale of a car.

The judgment appealed from is as followsOctober 31, 1985.

MCNEELY D.C.J.:__ The plaintiff claims a declaration that a contract for the purchase of a used 1983 Dodge 600 from the defendant has been rescinded and damages in the amount of $10,906.25. The basis of her claim is that when she purchased the car in December, 1983, she did so only because of false and deceptive representations as to the car made to her by the plaintiff's salesman.

The plaintiff is a 50_year_old factory worker with a grade 8 education. Her husband is 76 years old and his only income is from his pension and Old Age Security. In the fall of 1983, the plaintiff was driving a 1976 Valiant with about 100,000 miles on it and was toying with the idea of replacing it. With her husband she visited the defendant's car lot and met salesman Bill MacDonald. They told him they were thinking of another car and wanted another six_cylinder car. He asked whether they would be interested in a K car and they said no. They found nothing that interested them and left.

Later in the fall salesman MacDonald telephoned to say that he had a nice car for them. The plaintiff's husband went to the lot and found that the car was a K car. He was not interested. On December 6, 1983, salesman MacDonald telephoned again. He told Mrs. Lasby that he had a good used car, an executive_ driven six_cylinder with not too many miles. Mrs. Lasby and her husband went to the car lot.

They were shown a gray Plymouth with a 2.6_litre engine and test_drove this car. Mr. MacDonald who was well aware that they wanted a six_cylinder engine and were concerned about engine size, told them that they would notice that the car did not have as much power as their Valiant but that it was equal to the Valiant because the Caravelle was a lighter car. The test drive

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was satisfactory and according to Mrs. Lasby they "dickered on it" but Mrs. Lasby finally decided not to purchase because of the colour of the car which she did not like.

Mr. MacDonald then said he had another car which was being worked on and which was identical to the Caravelle except for the name. It was the 1983 brown Dodge 600 which the plaintiff eventually purchased. The question of a test drive was raised and salesman MacDonald told them there was no point in test_ driving the Dodge because the car was the same as the Caravelle they had already test_driven. He said the engine was the same engine as in the Chrysler New Yorker which was on the showroom floor. Mrs. Lasby said that Mr. MacDonald convinced her the car was a good buy. She said she felt that if the engine was the same as that in the New Yorker which she considered their top car, she would buy. She says she would not have bought if she had known that the car was a leased car and had a four_cylinder engine. The 1983 Dodge which the plaintiff purchased had, in fact, a four_cylinder, 2.2_litre engine and was not an executive car. Both the Caravelle which she had driven and the New Yorker on the salesroom floor, had 2.6_litre engines.

The day following the purchase the plaintiff's husband lifted the hood of the car and noticed that there was only four spark plugs and that the engine was a four_cylinder engine. The plaintiff telephoned salesman MacDonald because she believed she had purchased a six_cylinder engine. Mr. MacDonald told her that Chrysler did not make six_cylinder engines and that the four_cylinder engine in the Dodge was the biggest four_cylinder engine made. Mrs. Lasby did not pursue the matter further. Three months later she had a problem with the car and took it to her mechanic. She mentioned that she had a "big engine" but the mechanic upon opening the hood told her that she had the small 2.2_litre engine rather than the larger 2.6_litre engine, which salesman MacDonald told her was in the car.

Mrs. Lasby again telephoned salesman MacDonald. He assured her again that she had the bigger engine. She drove to the defendant's place of business with her friend Mrs. Teeter and told MacDonald that she wanted what she had paid for. He asked if she wanted her money back. She said yes. He told her she would have to see the sales manager. She and Mrs. Teeter saw the sales manager and the sales manager advised her that she had bought a used car and "that was it". Her lawyer then wrote to the defendant enclosing an election signed by Mrs. Lasby rescinding the contract. The defendant refused to take the car back and refused to return Mrs. Lasby's purchase money. Without the refund of the purchase money the plaintiff was not able to buy another car. Financial necessity compelled her to continue to drive the car until trial.

The choice between the evidence of the plaintiff and her witness Mrs. Teeter as to what went on, and the evidence of Mr. MacDonald and the sales manager Mr. Dom must be made on the basis of credibility. According to Mr. MacDonald, he never told Mrs. Lasby that she had a six_cylinder car; he never told her that the car was an executive car, but rather told her that it was one of a number of cars which had been bought at an auction. He said he explained that

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the car only had the balance of a two_year warranty because only executive_driven cars have a five_year warranty. He said he pointed out this warranty clause in the contract on December 6th although an examination of the document which was in existence on that date shows that the clause was not included in it. It appears only in a rewritten copy of the contract made at a later date. Mr. MacDonald denied that he ever said the engine in the Dodge 600 was identical to the engine in the Caravelle and the New Yorker. On virtually every factual issue of consequence he denied making the statements relied on by Mrs. Lasby and with respect to some of the matters he says that he in fact told her the exact opposite. I believe that Mrs. Lasby, supported as to part of her evidence by the witness Mrs. Teeter, is a truthful and accurate witness and I accept her evidence in preference to that of Mr. MacDonald on all essential matters.

I find as a fact that Mrs. Lasby purchased the car only because of the following representations made by the salesman MacDonald, which representations were false and were known to be false by him when they were made:

(1) that the engine was identical with the engine of the Caravelle and the New Yorker, both of which had a 2.6_litre engine;

(2) that the car was an executive_driven car and carried the balance of a five_year warranty.

I find further that the representations were made by Mr. MacDonald for the purpose of having Mrs. Lasby rely on them in purchasing the car and that she did purchase the car as a result of the said representations and would not have purchased the car had the representations not been made.

Deceived as the plaintiff was, the evidence at trial discloses that the car she purchased was a good, reliable used car. It did not have the large 2.6_litre engine and did not have the balance of a five_year warranty which an executive car would have had. The plaintiff found that the car "lacked guts" in comparison with her 1976 Valiant but the evidence at trial suggests that the performance characteristics of cars with the 2.2_ and 2.6_litre engine do not differ greatly. The plaintiff has had a relatively trouble_free experience with the car since she acquired it in December, 1983. She has had the car for some 22 months and in that period has driven it some 40,000 kilometres.

But the plaintiff is not content. She bought the car only because of the deception practised on her. She did not want and would not have bought a car with a smaller engine and without the warranty which she was told the car had. It is of no consequence to her that other people think the 2.2_litre engine is as good or almost as good as the 2.6_litre engine. Other people were not buying the car. Mrs. Lasby was. As Boyd C. said of the lady who purchased a car that was represented as new only to find that it was second_hand in Addison v. Ottawa Auto & Taxi Co. (1913), 30 O.L.R. at p. 52, 16 D.L.R. at p. 319 (at p. 54 O.L.R., p. 321 D.L.R.):

... the witnesses say that it was made as good as new. Well,she was the

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person to judge whether that was so or not,having been told these facts. She did not want something asgood as new; she wanted a new machine. She did not want anequivalent for the machine she was getting; she wanted onethat was quite absolutely new, did not want something thatwas equivalent to a

new one.The plaintiff in the present case on learning that she had been deceived

into buying a car which she never would have bought rescinded. She did so pursuant to the Business Practices Act, R.S.O. 1980, c. 55. Section 4 of this Act reads as follows:

4(1) Subject to subsection (2), any agreement, whether oralor implied, entered into by a consumer after a consumerrepresentation that is an unfair practice and that inducedthe consumer to enter into the agreement,

(a) may be rescinded by the consumer and the consumer isentitled to any remedy therefor that is by law available,including damages; or

(b) where rescission is not possible because restitution isno longer possible, or because rescission would deprive athird party of a right in the subject_matter of the agreementthat he has acquired in good faith and for value, theconsumer is entitled to recover the amount by which theamount paid under the agreement exceeds the fair value of thegoods or services received under the agreement or damages, or both.

(2) Where the unfair practice referred to in subsection (i)comes within clause 2(b) the court may award exemplary orpunitive damages.

It is to be noted that the Act confers a right to rescind on the consumer. The consumer need not commence an action for rescission or indeed any action at all. Section 4(5) states that:

4(5) A remedy conferred by subsection (1) may be claimed bythe giving of notice of the claim by the consumer in writingto each other party to the agreement within six months afterthe agreement is entered into.

The plaintiff in the present case gave such notice in writing on April 25, 1984, within the six_month period.

The nature of the remedy of rescission is that the contract is cancelled and the parties are restored to the position they occupied before the contract. But

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it is not necessary that the restitution of the parties be complete or exact. In F. & B. Transport Ltd. v. White Trucks Sales Manitoba Ltd. (1964), 47 D.L.R. (2d) 419, a plaintiff purchased a 1956 truck from a dealer who fraudulently represented it as a 1958 model. The purchaser used it for nine months and drove it some 30,000 to 40,000 miles before discovering the fraud and suing for rescission. Dickson J. of the Manitoba Court of Queen's Bench, as he then was, confirmed the plaintiff's right to rescission, directed the defendants return the purchase money plus financing charges and repair costs, less an amount which he assessed for the use of the truck by the plaintiff in the interval before trial. In Addison v. Ottawa Auto & Taxi Co. the lady who purchased the car that was represented as being new when it was, in fact, only "as good as new" was found entitled to rescind despite having driven the car in the interval before trial. Chief Justice Meredith speaking for the Appellate Division of the Ontario Supreme Court in affirming the decision of Boyd C. [O.L.R. loc. cit., p. 51, D.L.R. loc. cit., p. 318], in that case provides a useful insight as to why anything like exact restitution is no longer required before rescission is granted. He said [at pp. 58_9 O.L.R., p. 324 D.L.R.]:

The cases cited by Mr. Henderson on this branch of the casehave, in my opinion, no application now that both law andequity are administered in the Court and the rules of equityprevail. The reasons for the decisions in the cases cited arepointed out by Lord Blackburn in Erlanger v. New SombreroPhosphate Co. (1878), 3 App. Cas. 1218, 1278_9, where he says: "It would be obviously unjust that a person who has been in possession of property under the contract which he seeks to repudiate should be allowed to throw that back onthe other party's hands without accounting for any benefit hemay have derived from the use of the property, or if the property, though not destroyed, has been in the interval deteriorated, without making compensation for thatdeterioration. But as a Court of Law has no machinery at its command for taking an account of such matters, the defrauded party, if he sought his remedy at law, must in such caseskeep the property and sue in an action for deceit, in which the jury, if properly directed, can do complete justice by giving as damages a full indemnity for all that the party has lost: see Clarke v. Dickson, E.B. & E. 148, and the casesthere cited. But a Court of Equity could not give damages,and, unless it can rescind the contract, can give no relief. And, on the other hand, it can take accounts of profits, and make allowance for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state that they

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were in before thecontract."

In Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch.392, 456_7, Rigby, L.J., referring to this statement of the law with approval, says (p. 457): "The obligation of thevendors to take back the property in a deteriorated conditionis not imposed by way of punishment for wrongdoing, whether fraudulent or not, but because on equitable principles it is thought more fair that they should be compelled to accept compensation than that they should go off with the fullprofit of their wrongdoing. Properly speaking, it is not now in the discretion of the Court to say whether compensation ought to be taken or not. If substantially compensation can be made, rescission with compensation is ex debito justitiae."

The right of the plaintiff to rescission referred to as "ex debito justitiae" if substantially compensation can be made is now further strengthened by the express statutory provisions of the Business Practices Act.

On occasion courts have been reluctant to recognize rescission as a remedy available to the purchaser who has continued to use the car after a vendor's failure to acknowledge his right of rescission: see Hillis v. Ross Wemp Motors Ltd. et al. (1984), 47 O.R. (2d) 445). There are, however, cogent reasons why the purchaser's right of rescission should be recognized and enforced by the courts in cases such as the present where financial necessity obliges the purchaser to continue use of the vehicle in the face of the defendant's wrongful refusal to acknowledge the rescission and return the purchase price. The statute intends to confer on the purchaser an effective remedy which the purchaser himself can exercise. Rescission would be an oddly ineffective and meaningless remedy if the vendor by a wrongful refusal to accept rescission could deprive the plaintiff of the remedy and invoke the aid of the courts to hold the purchaser to a contract obtained by means of the very unfair and unconscionable business practices which the legislation was intended to prevent. A refusal by the courts to recognize and enforce a purchaser's right of rescission would encourage vendors to wrongfully resist legitimate acts of rescission in hopes that the alternative remedies set out under s. 4(b) would be less onerous on them as they would be in many cases. It seems to me that an interpretation of the Act which gives meaning and effectiveness to the remedy conferred by the statute and which thereby encourages prompt resolution by the parties themselves without the necessity of recourse to the courts is to be preferred to a view of the law which works to the opposite effect.

Accordingly, there will be a declaration that the contract was properly rescinded by the purchaser in accordance with the Business Practices Act as of April 25, 1984. The purchaser shall have judgment against the defendant for $10,512.25 being a refund of the purchase price including sales tax and transfer fee. The plaintiff upon receiving the said refund shall deliver up the car to the defendant. The plaintiff shall have her costs of this action against the defendant.

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There will be no prejudgment interest.The defendant has had use of the plaintiff's money since December of

1983, and the plaintiff has had the use of the car, such use having been forced on her by the refusal of the defendant to recognize her rescission of the contract and return the purchase price. In the circumstances I am satisfied, as was the court in Addison v. Ottawa Auto & Taxi Co., that no further adjustment is needed to satisfy the requirements of equity, particularly in view of the fact the defendant is in the business of obtaining and selling used cars and can readily resell the car when it regains possession of it.

Had I arrived at the conclusion that rescission was not a remedy available to the purchaser, I should in that event have awarded substantial exemplary damages in addition to the other damages to which the plaintiff would have been entitled.

[An appeal to the Ontario Divisional Court was endorsed on the appeal record as follows:]

February 18, 1987. We are not persuaded that the findings of liability should be disturbed.

There was evidence to support the conclusion of the learned trial judge that misrepresentations were made by the defendant entitling the plaintiff to the remedy of rescission.

Faced with the circumstances before him, the learned trial judge fashioned a solution, which, although on balance might have favoured the plaintiff, was not, in our view, unreasonable in the context of the situation which he was called upon to resolve.

The appeal is dismissed with costs. Appeal dismissed.

The issues raised by Lasby have been discussed at some length in the US. It has been suggested that courts which have permitted a reasonable use after rejection have been affected by the following factors:

“(1) Whether seller, after receiving the buyer’s notice of rejection...cooperated in taking back the goods

(2) whether buyer or seller acted in bad faith;(3) the degree of hardship that the buyer would have suffered by

discontinuing use of the goods(4) the reasonableness of buyer’s use after revocation as a

method of mitigating damages(5) whether seller was unduly prejudiced by the use(6) whether, during the period of use, seller persisted in assuring

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buyer that all non conformities would be cured or that provision would otherwise be made to recompense buyer for the dissatisfaction and inconvenience caused by the non conformities

....A primary reason for the move away from a no-use rule by some courts has been the belief that the buyer should not lose a vital code remedy because of circumstances beyond the buyers control. Particularly, the buyer should not lose remedies because of the seller’s breach and subsequent refusal to take back the goods. Consequently, many courts have considered the seller’s failure to take back the goods to be a major factor in determining that the buyer’s post-rejection or post revocation use was justified”.

J. R Bates, “Continued Use of Goods after rejection or revocation of acceptance: the UCC rules revealed, reviewed and revised” (1993) Rutgers Law Journal 1 at 43-44.

6. Alternatives: Lemon Laws and CAMVAP

Ramsay, Small Claims Court: A Review in Ontario Law Reform Commission, Civil Justice Review Vol 2

Automobile Arbitration Programmes

Disputes concerning defective or "lemon" automobiles comprise the majority of reported consumer litigation in the Law reports and provides a useful example of the problems of consumer redress. Automobiles are a high-priced item and disputes concerning them may be beyond the existing jurisdiction of the small claims courts. The costs of using the regular courts may be prohibitive for a consumer. Disputes may often require expert evidence and the existing, substantive legal standards for redress are vague and imprecise. i

Two US developments form the background to the development of automobile arbitration in Canada. The first is the Federal Magnuson-Moss Warranty Act ii which introduced informal dispute settlement in warranty disputes. Consumers must have recourse to mechanisms established by manufacturers before going to court, provided the mechanisms met certain standards. These standards includeiii: no charge for use: ensuring the redress mechanism is independent of the manufacturer; requiring settlement of the dispute within 40 days of notification: maintaining a record of the brand and make of product involved and other statistical information: the consumer is entitled to go to court if dissatisfied with the decision of the mechanism.

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In response to dissatisfaction with the scope of Magnuson Moss several states enacted "Lemon Laws"iv. These laws established sharper standards for deeming a car to be a “lemon”, entitling a consumer to a refund or replacement. In addition, a number of states were dissatisfied with the industry mechanisms established pursuant either to Magnuson Moss or lemon laws and enacted their own arbitration programme.

In Canada, the major initiative in this area was the development of the Ontario Motor Vehicle Arbitration Programme in 1985. This has now become, with relatively minor modifications, the Canadian Motor Vehicle Arbitration Programme, which is available in several provinces. The Ontario programme developed as a response by the auto industry to the fear of introduction of Lemon Law. The original Ontario programme was established as a hybrid form of non-statutory organization, presided over by a Board composed of representatives of the government, the automobile industry, arbitrators, the Better Business Bureau and consumer representatives. The programme is financed by the automobile industry and is free to consumers. Consumers who wish to use the service must normally exhaust the internal complaint mechanisms of the manufacturer before using the plan. The jurisdiction of the plan includes new and used cars purchased from authorized dealers, and applies to defects in workmanship or material in the vehicle. It does not apply to claims for personal injuries or property damage. The arbitrator may award vehicle repairs, a buy back or replacement, and limited financial compensation for out of pocket expenses. The arbitrations are private, all information documents and testimony are treated as confidential, the consumer gives up their right to go to court and the decision of the arbitrator may only be overturned based on the grounds available for judicial review of arbitration awards. The agreement for arbitration does not establish any standards for decision making. The company agrees to implement the award within thirty days. The carrier for the original OMVAP program was the Better Business Bureau.

A review of the operation of the plan was conducted in 1988 and published in 1989v. While there were limitations in the scope of the report it did provide some useful data on the demand for the programme, the nature of cases being brought to the mechanism and consumer perceptions of the programme. The data show that although the programme receives a large # of inquiries the number of arbitrations were only 381 and 311 in 1988 and 1987 respectively. Few consumers obtained a buy back or a cash refund, the majority receiving some form of cash adjustment. Interviews with consumers who had used the programme indicated that before turning to the programme they had experienced on average 9 repairs, with the average time from when the problem first arose until turning to the plan being 11 months. Almost three quarters experienced out of pocket losses of $1000 (plan limit$350).

The average waiting time from signing the arbitration agreement until the hearing was 8 weeks. (CAMVAP appears to be faster: the average time is 61 days). The vast majority represented themselves at the hearings (93%).

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Forty percent of those who responded did not think the hearing was conducted in a fair manner (primarily respondents feeling intimidated), only 30% of the respondents felt that the award was fair and only 41% were satisfied with the process. Yet surprisingly 56% stated that they would use the process again. It is difficult to extrapolate too much from these raw data, but they suggest a significant level of consumer concern about the process. The individual consumer in the arbitration is pitted against a repeat player representative from the company and this perhaps accounts for the finding in the Report that "although the process is relatively informal, respondents still feel intimidated".vi

There is also reason for concern when the performance of the Ontario plan is compared to that of the New York State lemon law arbitration programme.vii Under this programme the number of buy-backs and refunds are significantly higher. In under 10% of the Ontario cases did consumers obtain this form of relief whereas this was the outcome in 66% of the New York cases. This might be partly accounted for by the sharper standards to be applied in the New York Programme.

It is also important to assess the impact of these schemes on “bargaining in the shadow of the law”. To the extent that there are clearer standards in the lemon law arbitration this may provide a better signal to the parties concerning a potential decision, thereby enhancing the likelihood of settlement. In this respect the New York law is superior to the Ontario provision. A comparison of the OMVAP programme with the courts would have to account not only for the comparative costs of arbitration and litigation but also the impact of the threat of litigation on incentives to settle.

It is not clear what the impact of OMVAP has been on manufacturers’ production practices. The Annual Report of the New York programme lists the makes of automobiles involved in arbitrations and their success rates. It is possible that this form of publicity may have some impact on production practices and could be a useful method for detecting patterns of problems.

The experience of the automobile arbitration plan suggests that reforms might be directed towards the establishment of clearer standards which might have an impact on bargaining. There is also the issue of expert evidence which may be necessary in these cases. CAMVAP itself does not provide independent expert advice and arbitrators are not experts. Consumers must pay for their own expert.

The development of the automobile arbitration plan reflects a political compromise between various interest groups.viii Government interest at the time of its introduction appeared to be in seeking alternatives to legislative regulation, reducing the congestion in the courts and in seeking partnership solutions. The most active consumer group in this area[The Automobile Protection Association] was sceptical about the arbitration scheme, but the Consumer Association of Canada supported it. The industry viewed it as a method of preventing legislative regulation. Mercer indicates that they accepted

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the "program grudgingly as a major goal of industry was (and is) to avoid being subjected to lemon laws." When the programme was introduced consumerism was not a powerful force in Ontario, the automobile industry is the largest manufacturing industry in the province and the government may have identified the need to be responsive both to a diffuse but not strongly articulated consumer concern and the interests of a powerful provincial industry All of these factors were set against a general ideological background of deregulation. The industry seems to have been relatively successful since a number of the provisions of the programme might suggest that the mechanism is a means of "defusing" potential consumer dissatisfaction [confidentiality, no clear standards, no “scorecard” identifying manufacturers]. There has also been concern expressed that the board of OMVAP was dominated by industry with one member of the board arguing that the presence of consumer members on the board was mere “window dressing”.ix[The current CAMVAP board has 5 industry representatives, three government representatives and two consumer members. Its publicity material indicate that it now has “very effective and very strong consumer representation”.]

Footnotes

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i Under the Sale of Goods Act, sellers of automobiles must provide the purchaser with an automobile which is of merchantable quality and fit for the particular purpose. Breach of these obligations entitles the consumer to a prima facie right to reject the goods. The uncertainty in the application of these standards means however that a consumer has no clear standard to appeal to in bargaining with a dealer. Moreover while a manufacturer may provide a warranty, it will always limit the consumer’s right to reject the automobile and get their money back. Moreover, if the consumer rejects the automobile, and the seller refuses to return the price or retake the automobile then the consumer is in a difficult position, since continued use may jeopardize the right to reject but few individuals will be willing or able to pay for a substitute while the dispute is processed.

ii Magnuson-Moss Warranty Act, Pub. L. No. 93-637, Title 1, 88 Stat.2183 (1975) (codified at 15 U.S.C. 2301-12.)

iii See 16 CFR 703 (1985)iv The Lemon laws eliminate privity between a purchaser and manufacturer: require a refund or replacement after a

reasonable number of attempts to repair, regardless of warranty limitation, specify the number of repairs that will constitute a reasonable opportunity to repair: encourage arbitration. See D.Pridgen, Consumer Protection at 15-01. New York State presumes an automobile to be a lemon after 4 attempts at repair or 30 days in the garage and the coverage is 2 years or 18,000 miles.

vP.Mercer, "Two Year Review of the Ontario Motor Vehicle Arbitration Plan" (1989).vi Mercer at 81.viiThe following based on Annual Reports of New York state arbitration boards.viii The following is based on the account by Mercer.ix Mercer at 60, noting the perception of "Board being run by industry".

For details on the current CAMVAP programme see http://www.camvap.ca/