Sale of Goods- basic guide to rights and obligations

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Summary

Buyers are afforded various protections under contract law when purchasing goods. When you purchase goods, whether in a shop or privately through e-bay or newspaper advert you will have a contract with the seller. It is the person with whom you have a contract that you would be looking for recompense from irrespective of whom was at fault. So if you purchase goods from a shop it is the shop that would be liable under contract. There may be concurrent liability in the law of tort for the manufacturer should the faulty goods cause a personal injury or damage to your property, but your primary right is with the retailer.

The Sale of Goods Act 1979 (SGA) provides four main protections for buyers:

1. The seller must have the right to sell the goods ( S.12)
2. Goods sold by description must correspond to the description (S.13)
3. Goods must be of satisfactory quality (s.14)
4. Goods sold by sample, the goods must correspond to the sample in quality (s.15)

The SGA applies to all contracts for the sale of goods, however, s.14 is more limited in its scope in that it only applies where goods are sold in the course of a business. Also where the goods are sold in the course of a business the provisions of the SGA are reinforced with the protection offered by the Unfair Contract Terms Act 1977 which prohibits their exclusion.

These protections are in the form of statutory implied terms. This means that the SGA will put these terms into all contracts for the sale of goods no matter what the parties themselves have agreed to in the terms and conditions of sale. A contract is for the sale of goods provided it is a contract to transfer ownership of goods (as oppose to a hire agreement) and the goods are exchanged for money. If a seller breaches one of these implied terms (often referred to as statutory rights), the buyer is entitled to a remedy. The remedy will depend upon what type of term has been breached. In contract law there are three categories of terms:

i) Conditions
ii) Warranties
iii) Innominate terms

Conditions

These are main contractual terms, something which goes to the heart of the agreement. If a condition has been breached the innocent party is entitled to claim damages (an award of money to compensate their loss) and repudiate the contract. Repudiate the contract simply means end the contract, relieving both parties of their contractual obligations.

Warranties

This is a technical legal term for minor contractual terms or those terms which are less central to the agreement. (not to be confused with a manufacturer’s warranty). Breach of warranty entitles the injured party to claim damages only.

Innominate terms

These are terms which can not be classed as either conditions or warranties by looking at the contractual term itself. It can only be classified by looking to the effect of the breach. If the consequence of the breach is slight it will be treated as a warranty, if the consequence is great it will be treated as a breach of condition.

Limitations


The normal rules of limitations applicable to contract apply to claims under the SGA. Thus claims should be brought within 6 years of the breach of contract (s.5 Limitation Act), although for reasons of proof it is preferable that claims are brought sooner rather than later.

The main provisions

1. S. 12 implied terms as to title
S. 12 applies to all contracts for sale of goods so it will cover private sales in addition to where goods have been purchased from a shop or other business.

S.12(1) covers situations where the seller is selling stolen goods (whether the actual thief or a subsequent sale in the chain). This term is a condition so enables the purchaser to end the contract and claim any damages. A buyer who treats the contract as repudiated is entitled to return of the full purchase price even if they have enjoyed use of the goods for some time. This can operate harshly on one who innocently acquires stolen goods and then sells them on as they will have to refund the purchase price but will not be entitled to receive the goods back as in law they belong to the original owner. This position of the law was confirmed in Rowland v Divall [1923] 2 KB 500 concerning the sale of a stolen car.

In addition to applying to stolen goods s.12(1) also applies where the seller does not have the right to sell the goods where to do so would be breach of trademark, patent or copyright.

s.12(2) (a) implies a term that the goods are free from any undisclosed charge or encumbrance. This applies where for example goods which are still subject to hp terms have been sold without telling the purchaser of the hp agreement or where any other debt has been secured by the goods. This term is only a warranty so whilst the purchaser can claim for any loss caused by the charge or encumbrance they can not end the contract.

S.12 (2)(b) implies a term that the purchaser will enjoy quiet possession of the goods. This acts as an ongoing assurance that no one will interfere with the buyer’s right to possess or use the goods. This term is a warranty.

2. S.13 sale by description

s.13(1) provides that where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.

It is important to note that this section only applies where the sale is solely by description. If the buyer sees the actual goods before the sale then s.13 can not be relied upon. This position was clearly stated in Harlington & Leinster Enterprises v Christopher Hull Fine Art [1991] 1 QB 564 concerning the sale of a painting described as being painted by German expressionist, Munter. The purchasers were unable to invoke s.13 when the painting turned out to be a fake because they had sent their agents to inspect the painting before making the purchase. There may, however, be an express term of the contract which may be relied upon or there could be an action for misrepresentation if the goods were seen before the purchase.
S.13 is simply concerned with description and not quality as was made clear in Re Moore & Landauer [1921] 2 KB 519. In this case there was a contract for the sale of 3,100 tins of peaches. The goods were described as being packed 30 tins to a case when in fact some of the tins were packed 24 to a case, although the same number of tins were delivered. The purchaser was held entitled to reject the goods under s.13.

The term implied by s.13 is a condition in relation to consumer sales but an innominate term in relation to non consumer sales.

3. S. 14 Implied term as to quality

S.14 only applies where the seller sells goods in the course of a business. It therefore does not apply to private sales although there may be an action for breach of an express term or misrepresentation in some circumstances. Also what is classed as a sale in the course of a business has been given quite a wide application by the courts. In Stevenson v Rogers [1999] 1 All ER 613 the court held that a fisherman who sold his fishing boat was in breach of s.14 despite the fact that he was not in the business of buying and selling fishing boats. This decision will have implications for those who for example sell a car privately where the car was used in the course of the business.

Liability under s.14 is strict and not dependant of proof of fault on the part of the seller. The relevant parts of s.14 are as follows:

(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods—

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability.

Applying this section a judge would thus consider whether a reasonable person would regard the goods as of satisfactory quality looking at the stated aspects in addition to all other relevant circumstances. Looking at fitness for purpose the judge will consider whether the goods are fit for the purpose the goods are commonly supplied so for example if you purchase a hairdryer and use it to dry your clothes, the judge is unlikely to conclude there has been a breach as the goods were not used for their common purpose. Conversely if you purchase a pair of shoes which fall apart after a few days wear, the seller cannot simply state they were fashion shoes and not intended for wearing full time.

In addition to the statutory guidance a court applies the acceptability and usability tests to help determine if the goods in question are of satisfactory quality.

The Acceptability Test – Applies to consumer transactions

The acceptability test looks at whether a reasonable purchaser would have accepted the goods at the same price had they known of the defect. This test was applied in the case of Shine v General Guarantee Corp [1988] 1 All ER 911 where a car was purchased from a second hand car dealer. After the purchase it transpired the car had been involved in an accident and had been totally submerged in water. The judge had little difficulty in deciding that a reasonable person would not have accepted the goods had they known, unless at a substantially reduced price.

The Usability Test – Applies to business to business transactions

The usability test is less generous than the acceptability test. This test requires the court to consider if a reasonable purchaser could have used the goods for purposes for which the goods were commonly supplied. The usability test was applied in the case of Aswan Engineering v Lupdine [1987] 1 All ER 135 where some plastic pails described as being heavy duty were held to be of satisfactory quality despite melting, because they had been left outside in extreme heat of up to 70%C.


S.14 (2C) provides certain limitations to the application of s.14(2) as follows:


(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory—

(a) which is specifically drawn to the buyer's attention before the contract is made,

(b) where the buyer examines the goods before the contract is made, which that examination ought to reveal, or

(c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.

S14 is a condition in a consumer sale and an innominate term in a non - consumer sale

4. S.15 Sale by Sample

S.15 applies to all sales by sample irrespective of whether it is a private sale, consumer sale or business to business sale.

S.15 (2) provides that in a contract for sale by sample there is an implied term-

(a) that the bulk will correspond with the sample in quality;

(b) that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample.

Note that s.15 only relates to quality and not to other matters such as colour. S.15 is a condition in a consumer sale and an innominate term in non- consumer sales.

Exclusion of liability

In private sales it is possible for the seller to exclude liability for the terms contained in the SGA. However, in business sales the exclusion of liability is subject to the Unfair Contract Terms Act 1977. S6 of UCTA provides that a business can never exclude liability arising from ss12-15 of the SGA in a consumer sale. However, in the instance of a business to business sale they can exclude liability but only if it is reasonable for them to do so. The burden of proof lies on the seller to prove the term was reasonable. The test of reasonableness is set out in s.11 which provides that the term must have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. Regard is also to be had the requirements set out in sch 2 of the Act:
(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having a similar term;
(c) whether the customer knew or ought reasonably to have known of the existence and the estent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);
(d) where the term excludes or restricts any relevant liability if some conditionwas not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;
(e) whether the goods were manufactured, processed or adapted to the special order of the customer.

Additional remedies for consumer sales

In addition to the normal remedies of repudiation and damages available in private sales and business to business, consumers are afforded additional remedies under part 5A SGA where the goods do not conform to the contract of sale at the time of delivery or for up to 6 months after delivery. S.61 of the Act states that the meaning of consumer for the purposes of part 5A is taken from the definition given in s.12(1) UCTA. Thus a person deals as a consumer if they do not make the contract in the course of a business where the other person does. A Business can also be treated as a consumer if it is purchasing goods which are ordinarily supplied for private use or consumption.

1. S.48B (1) Repair or replacement


S.48B provides that the buyer can require the seller to repair or replace the goods at the sellers expense. The seller is required to do so within a reasonable time. If the buyer makes this request they lose the right to reject the goods unless the seller does not comply within a reasonable time. The seller need not repair or replace the goods where this would be impossible or disproportionate to do so.

2. S48C(1) Reduction of price

The seller may be required to reduce the purchase price under s.48 C (1) where the seller has not complied with a request from the buyer to repair or replace because it would be disproportionate to do so. This is a secondary remedy and can not be requested without the buyer first making a request for repair or replacement which has not been fulfilled.

3. S. 48C (2) Rescission of the contract

This is another secondary remedy available only where a request for repair or replace has not been complied with. Rescission is putting the parties back in their pre –contractual position ie the buyer gives back the goods and the seller gives back the purchase price. However, the seller can deduct from the purchase price any value for the use the buyer may have had of the goods.