Law for Business Summative assessment

Law for Business Summative assessment (LO 1c, d) A. B. Ritchie

Sharon Dim and Nu2Yu

Section 12-15 of the Sale of Goods Act (1979) (hereafter known as the Act) operate to incorporate by implication into a contract of sale of goods certain terms which protect the buyer. These implied terms are automatically part of a contract of sale of goods. The parties do not have to include these provisions as express terms in their contract

The consumer in a large department store does not say to the assistant at the cash desk “ I offer to buy this shirt and it is a material condition of the contract that Bloggs plc own the shirt and have a right to sell it; that the shirt is as described on the packet; and that the shirt is of satisfactory quality and reasonably fit for my purpose of wearing it.” The buyer does not have to make this statement. These terms are automatically part of his contract with Bloggs plc. They are incorporated into the contract as implied terms by the Act

Section 12 deals with implied terms about title. In terms of this section there are incorporated into the contract of sale of goods the following implied terms

(a) in a sale, that the seller has a right to sell the goods;

(b) In an agreement to sell, that the seller will have the right to sell the goods at the time when ownership transfers to the buyer

(c) that the goods are free from any charge or encumberance in favour of a third party, which was not disclosed to the buyer before the contract was made

(d) that the buyer will enjoy quiet possession of the goods undisturbed by the claims of any third party

The seller may not have the right to sell goods; if they have been stolen. Should the police take possession of goods because they are stolen property, the buyer may bring an action for damages against the seller for breach of the term as to title implied by s 12 of the Act

In Rowland v Divall (1923) a stolen car had to be returned to its true owner. The buyer brought an action against the seller of the car based on breach of the term, that the seller had the right to sell the car, implied by s 12. It was held that the buyer was entitled to the return of the whole purchase price even though he had enjoyed three months use of the car

I would advise Sharon Dim that the TV would have to be returned to its true owner, and that she can if she wishes bring action against the shopkeeper for damages for breach as to title implied by s 12 of the Act. She could be awarded the full purchase price of the TV despite enjoying the use of it for x amount of time.

Sophia Olivetti and Ardex

Section 13 of the Act deals with description. In terms of this section, there is implied into any contract of sale of goods which is a sale of goods by description the requirement that the goods will correspond with the description

What is a sale by description? It is evident that if goods are bought by mail order, then the sale is a sale by description. Similarly, if there is an agreement to sell future goods-

i. e. goods which still have to be manufactured or aquired by the seller-then that to will be a sale by description. The Act also makes it clear that a sale of goods which has been personally selected by the buyer may be a sale by description. Section 13(3) provides that a sale of goods is not prevented from being a sale by description just because the goods are exposed for sale and are selected by the buyer. The seller may describe the goods verbally or on a written notice and the buyer, in selecting these goods, may rely upon that description. The goods may be contained in packaging on which the goods are described. The seller may select goods because of what is said on the packet, in which case it is a sale by description

In Grant v Australian Knitting Mills Ltd (1936) G bought a pair of woollen underpants across the shop counter. The sale of the pants was held to be a sale by description because, although the goods were sold as a specific item, they were also sold by reference to a description

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For example, sheets may be wrapped in cellophane on which there is a label which states that the sheets are for a double bed. If on unwrapping the sheets, they are found to be for a single bed, the seller is in breach of the term in the contract implied by s 13 to the effect that the sheets would conform to the description on the packet

Over the years there has been a great deal of judicial discussion in relation to what the term “description” denotes. In particular, does description merely relate to the identity of the goods or should the term be construed in a wider sense to encompass particular characteristics of those goods? This is a fluid area of the law and over time case law has moved from a more liberal interpretation of description to a more restrictive viewpoint

In Border Harvesters Ltd v Edwards Engineering(Perth) Ltd (1985) there was a sale of certain equipment to be used for drying grain. The equipment was described as being capable of certain levels of performance. The buyers were dissatisfied with the performance of the drying equipment and raised an action for damages against the sellers. As part of the buyer’s case, it was claimed that the sale was a sale by description. Lord Kincraig held that it was not a sale by description stating, “what was contracted for in this case was a Kamas dryer, what was supplied was a Kamas dryer. What the dryer was capable of doing was in my judgement not part of the description of the goods supplied( in my opinion Lord Kincraig is far removed from Solomon)

Section 14 deals with satisfactory quality and reasonable fitness for purpose. As a general rule, there is no implied term about the quality of goods or there fitness for any particular purpose. Two exceptions to this are to be found in ss14(2) and 14(3)

Section 14(2)-satisfactory quality

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-except that this implied term does not extend to any matter making the quality of goods unsatisfactory:

(a) which is specifically drawn to the buyers attention before the contract is made or

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

What is meant by “satisfactory quality”

Section 14(2A)provides that 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 other relevant circumstances

Section 14(B) gives further guidance by stating that the quality of the goods includes their state and condition and – in appropriate cases-their

(a) fitness for all the purposes for which goods of that kind are commonly supplied;

(b) appearance and finish;

(d) safety; and

(e) durability

Section 14(3)- reasonable fitness for purpose;

Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes it known to the seller any particular purpose for which the goods are being bought, there is an implied term 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

(a) where circumstances show that the buyer does not rely on the skill or judgement of the seller; or

(b) where circumstances show that it is unreasonable for the buyer to rely on the sellers skill and judgement

Where the goods have only one obvious use the buyer is not required to actually (expressly) tell the seller the use which he intends to put the goods to. In such circumstances, the seller will be treated as knowing the purpose for which the goods are being bought (i.e. the seller has implied knowledge) for example in

Priest v Last a hot water bottle burst causing severe scalding. It was held that the buyer had, by implication, made his purpose known. How many uses can a hot water bottle be put to? However, should goods have several possible uses, in order to obtain the protection of s 14(3) the buyer must tell the seller what he intends to use the goods for

The sellers liability is “strict”

A point to stress is that when a seller is in breach of a term implied by s 14 his liability is said to be strict. This means that the buyer is not required to prove that a seller is at fault –i.e. has been negligent. The seller of a defective toaster cannot try to escape liability to the buyer by blaming the manufacturer. This is because s 14 operates by putting the requirement that the goods are of satisfactory quality and reasonably fit for the buyers purpose into the contract between seller and buyer. Thus if the goods sold are not of satisfactory quality, the seller is in breach of contract- fault does not come into it. Should the seller of a defective toaster be required to compensate the buyer, the seller will then have to sue the manufacturer. Sections 12,13, and 14 operate in the same way

The sellers liability is not limited to returning the purchase price. Should defective goods cause damage to other property belonging to the buyer, or injure the buyer, then the seller is required to compensate the buyer in respect of these losses also. The statute places upon the retailer primary liability to the buyer in respect of defective goods

When does the buyer have the right to reject the goods and to demand the return of the whole purchase price?

A new 15B(1) states that where the seller is in breach of any terms of a contract, whether express or implied, the buyer shall be entitled ;

(a) to claim damages, and

(b) if the breach is material –to treat the contract as repudiated and reject the goods

In terms of 15(B) where the contract is a consumer contract, a breach of the terms implied by ss 13,14 and 15 will be regarded as a material breach; Accordingly where goods are not as described, where they do not correspond with a sample, where they are not of satisfactory quality or fit for their purpose, a consumer has an automatic right to reject the goods and demand a refund

A consumer contract is defined as

one party deals in the course of a business
the other party (the consumer) does not deal in the course of a business; and
in a sale of goods contract, the goods are of a type ordinarily supplied for private use or consumption

Should the buyer intend to reject the goods he must intimate this fact to the seller. However the right to reject the goods is lost and the buyers remedy is limited to keeping the goods and claiming some compensation where the buyer is found to have accepted the goods

Section 53A(1) provides that the damages generally payable will be such as to compensate for the estimated loss directly arising from the breach

When the seller makes delivery, the buyer must be given a reasonable opportunity to examine the goods to check that they conform to the contract. In terms of s 35 where goods are delivered to the buyer and he has not previously examined them, the buyer is not treated as having accepted the goods until he has had a reasonable opportunity of examining them to ascertain that they are in conformity with the contract. Where a consumer signs a delivery note without having examined the goods, this cannot be regarded as acceptance of goods

Section 35 also provides that the buyer is deemed to have accepted the goods

(a) When he intimates to the seller that he has accepted them or

(b) when the goods have been delivered to him and he does anything with the goods which is inconsistent with the seller being the owner; or

(c) when a reasonable length of time has passed without the buyer having intimated to the seller that he is rejecting the goods

What will amount to “a reasonable time” for retention of the goods without retention is still not altogether clear but in many cases it will be measured in days rather than in months. However, the reasonable time within which goods must be rejected will start to run only once the buyer has had an opportunity to examine the goods. It is arguable under Scots Law, as far as hidden , latent defects are concerned, a buyer can use the goods for some time without being barred by acceptance from rejecting them so long as he rejects the goods quickly once the fault comes to light

The advice I would give Sylvia Olivetti as far as her getting the wrong colour of hoover, would be that Ardex are in material breach of s 13 of the Act to the effect that the hoover would conform to the description on the box and as the law has moved to a more restrictive viewpoint on what “description” actually means the court would come to this decision the seller would also be in breach of the new Section 15B(1) of the Act and she can claim a full refund ( not taking the carpet into consideration)

As the hoover made a big hole in her carpet it contravened Section 14(2B) of the Act and a material breach of the contract she had with the seller had occurred. Fault does not come into it. She can treat the contract as repudiated and claim damages for the carpet and demand a full refund. Also for her to go to the seller immediately and intimate to him that she is rejecting the goods

I would also inform her that the fact that the box said that the hoover was made in the UK to European standards and the vacuum cleaner itself was stamped “Made in China “ is an offence under The Trade Descriptions Act 1968 which provides that any person who in the course of a business

(a) applies a false trade description to any goods

(b) supplies, or offers to supply, any goods to which a false trade description is applied

is guilty of a criminal offence

Sidney “ Slick” Flashman and L for Leather

Section 18 of the Act provides five rules for ascertaining intention when this cannot be ascertained either from the terms of the contract or from the conduct of the parties. Rules 1 to 3 apply to specific goods, Rule 4 applies to goods delivered on approval and Rule 5 applies to unascertained goods

Rule 1

Where there is an unconditional contract for the sale of specific goods in a deliverable state, ownership passes to the buyer at the time the contract is made. The buyer becomes the owner when the contract is formed, even though at that time the goods may not have been delivered or paid for. Goods are said to be in a “deliverable state” when they are in such a state that the buyer would, under the contract, be bound to take delivery of them

In Tarling v Baxter (1827) There was a contract for the sale of a haystack. It was a contract for the sale of a specific goods because the buyer knew the precise stack of hay he was getting. The hay was in a deliverable state at the time the contract was formed. Under rule 1, ownership of the hay transferred to the buyer as soon as the contract was made. However the hay was not to be delivered until some time afterwards. In the period between formation of the contract and delivery, the haystack was destroyed by fire. It was held that it was the buyer’s hay at the time of the fire and, accordingly the buyers loss

I would tell SSF that under Rule 1 s18 of the Act he was the legal owner of the chair as it would be considered a sale of specific goods and to go to the liquidator with the receipt and claim it

Law for Business Summative assessment

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