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Accident Compensation

Analyses in Contract & Sale of Goods
Implied Terms

Drafted 9th August 2009
Mike Semple Piggot

Facts

Sam sold Bert an AC Mamba to the "Manufacturer specification" the specification covering engine capacity, power, weight, among other matters. The car delivered was heavier than the manufacturer specification. The car did not perform to the to the level Bert expected in weekend kit car racing meets. The power to weight ratio of the car delivered resulted in a loss of 2.5 seconds per lap at Brands Hatch.

Bert phoned Sam two weeks later after testing the car thoroughly to say that he was not happy with the car as delivered and that he was rejecting the car. Sam offered to take car back and reduce the weight to manufacturer specification, arguing that the weight specification in the manufacturerer specification was not part of the description and the car was of satisfactory quality and fit for the purpose. Bert rejected this idea as impractical.

Bert seeks your advice as to whether he may reject the car and claim damages for breach of contract, including a claim that he had a reasonable prospect of a podium finish in a race which he had to miss because the car delevered was not competitive as a result of the increased weight.

1. This is a contract for the sale of goods between Sam ("The Seller") and Bert ("The Buyer") with an express term that the AC Mamba ("The Car") complied with the manufacturer specification. The contract is governed by the Sale of Goods Act 1979 and, in particular, the implied terms provision as to compliance with description (s. 13(1) and, satisfactory quality and fitness for purpose (s.14) The buyer's remedy of rejection and a claim in damages will depend on whether he is held to have accepted the goods after three weeks under ss 34 and 25; the doctrine of acceptance.

The Express Term

2. The car was sold to "Manufacturer specifications" which included the weight provisions; a term which has clearly been broken in the car as delivered.There can be no doubt in the present case that the 'manufacturer specification' is incorporated as a term of the contract. It is not immediately apparent that such a term goes necessarily to the root of the contract, sufficient to be defined as a condition of the contract, breach entitling the buyer subject to affirmation to accept the repudiatory breach, terminate the contract and claim damages. (Photo Production Ltd v Securicor Ltd [1980] AC 827 ) It seems clear that the parties did not define such an obligation, as is their right in law, as a condition. (Lombard North Central PLC v Butterworth [1987] QB 527 ) It is likely, therefore, that the court will treat this term as innominate and assess the effect of the breach in determing remedy. If the court regards the breach as serious they will allow the buyer to repudiate subject to affirmation (below) and claim damages (Infra) . If the breach is regarded as minor the buyer will not be able to reject and will be limited to a claim in damges.

3. There is some risk here that a court would regard the weight specification breach as not going to the root of the contract, given compliance with the remaining parts of the manufacturer's specification, and the buyer would be better advised to pursue remedy under the Sale of Goods Act 1979 rather than run this risk at common law with an unfavourable application of the law on innominate terms - the court classifying the breach as entitling the buyer only to a claim in damages. For that reason, I do not propose to consider this remedy further.

The Implied Terms

4. The first issue is whether the car as delivered complied with s.13 Sale of Goods Act 1979.

Sale by description

(1) Where there is a contract for the sale of goods by description, there is an implied that the goods will correspond with the description.

(1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition.

The first issue is whether s. 13 has any effect on the traditional common law distinction between representations and terms. Atiyah notes (Sale of Goods 11th edition at p149) that 'at first blush it might seem that s.13 does away with this distinction in the case of sale by description since the section states that there is an implied term (s.13 (1A) a condition) that the goods shall correspond with the decsription. Aityah continues by observing that if the section applied only to those parts of the description which amounted to contractual terms in any event, it would seem to be performing the somewhat odd (and redundant) function of declaring that it is an implied term that the seller must comply with the express terms of the contract.

5. The seller will seek to argue that 'manufacturer specification' does not form part of the description of the goods. The buyer will argue that an AC Mamba is, in practical terms, defined by the specification. It is unlikely, therefore, in the present case that the court would regard 'manufacturer specification' as a representation and therefore the 'manufacturer specification' will be part of the description of the car in that it goes to the identity of the car sold. In a sports car the power to weight ratio will be a significant factor in the very nature of the car being sold and not peripheral to the identity or nature of the goods sold. For that reason Oscar Chess v Williams [1957] and Harlingdon & Leinster Enterprises v Christopher Hull Fine Art Ltd [1991] are unlikely to persuade a court here that the weight issue was merely a representation. In any event, the case of Beale v Taylor [1967] indicates the preparedness of courts to come very close ignoring the distinction between representations and contractual terms and if this argument holds it is likely that 'manufactuer specification'will be a description and failure to comply will be a breach of s.13, as here.

6. While Lord Diplock and Lord Wilberforce expressed dissatisfaction with the 'excessive technicality' of some of the cases under s.13 such as Re Moore & Co v Landauer [1921] it is clear from Arcos v Ronaasen & Son [1933] AC 470 and now s. 13(1A) of The Sale of Goods Act 1979, defining the implied term as a condition, that compliance with description is strict.

Lord Atkin observed in Arcos:

" It was contended that in all commercial contracts the question was whether there was a 'substantial' compliance with the contract: there must always be some margin: and it is for the tribunal of fact to determine whether the margin is exceeded or not. I cannot agree. If the written contract specifies conditions of weight, measurement and the like, those conditions must be complied with. A ton does not mean about a ton, a yard about a yard. Still less when you descend to minute measurements does half an inch mean about half an inch. If the seller wants a margin he must and in my experience does stipulate for it..."

7. It is likely that the court will permit rejection of the goods, subject to acceptance (infra) and a claim in damges. I take some comfort for this view from the recent judgment of Lady Justice Hale in Clegg v Olle Andersson T/A Nordic Marine [2003] EWCA Civ 32 where she said, expressing some criticism of the way the case was argued, "I agree and would only add that at times the argument before us seemed to lose sight of the real issues in the English law of sale of goods. These are not whether either party has behaved reasonably. The defendant may well feel that he and the manufacturers Malo did their best to put right what had gone wrong and that the claimant purchaser should have taken up one of the options which they advised. If it is established that the seller is in breach of a condition of the contract, however, the choice does not lie with him." In the light of the seller's argument that he offered to reduce the weight of the car, this statement will lend support for what follows in relation to acceptance and remedy.

8. Turning to the issue of breach of S.14 of The Sale of Goods Act 1979: the claim that the goods are not of satisfactory quality or fit for the purpose, which may not need to be argued if the claim under s.13 is sustained, the law is as complex and problematic in application.

s. 14 Satisfactory quality

Implied terms about quality or fitness

(1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied [ F1 term ] about the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(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.

(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.

It is clear from Arcos v Ronaasen & Son [1933] AC 470 that goods may be of satisfactory quality and fit for their purpose, yet not correspond with the description.

9. Atiyah expresses the view 'that the implied term that goods be of satisfactory quality ...is in many respects the most important part of the law of sale of goods. It is here that the seller's obligations as to the quality of the goods supplied must be found, and this is the very heart of the law of sale. So it is not surprising that there has been a great deal of caselaw on this subject, and that there have been several attempt to reform the law culminating in the 1994 act.'

10. The original 'merchantable quality' provision in the 1893 act and carried through to the 1979 act contained no definition of 'merchantable quality' - now 'satisfactory quality'. Atiyah notes that concepts of merchantability were probably well known to the judges of the time - a rather wry remark given the very substantial caselaw which developed and, for reasons of the sheer scale of types of goods within sale, no single judicial definition developed. Despite calls for a definition - which many believe to be a hopeless quest - we are unlikely ever to get a single definition of satisfactory quality and must work within ther 'zone of uncertainty' as best we can by having regard to the factors to determine satisfactory quality in the section. (Supra) The Court of Appeal in Aswan Engineering Establishment Co v Lupdine Ltd [1987] 1 WLR 1 analysed the cases at length and then proceed to the statutory definition and, as Atiyah notes, clearly thought this was the apprpriate procedure.

11. In Rogers v Parish (Scarborough) Ltd [1987] QB 933 another panel of the Court of Appeal insisted that the then recent definition of merchantability set out in s.14(6) of the Sale of Goods Act 1979 was in "simple language which could easi;y be applied to a variety of cirumstances without difficulty... they deprecated the practice of looking at the old caselaw, and insisted that the new definition should be applied without reference to the prior law" (Atiyah). The 1994 act reflects the Law Commission view that it was possible to lay down a statutory test of 'acceptable' quality (changed to 'satisfactory' quality in the act) and Atiyah argues that some recourse to old caselaw will still be necessary and notes the relaxation of the rule prohibiting the courts from referring to parliamentary material 'as an aid to statutory construction which is the result of the House of Lords decision in Pepper (Inspector of Taxes) v Hart [119] 1 All ER 42.

12. Examing the facts in the present case, delivering a car which is significantly heavier than contracted for in the manufacturer specification is, clearly unacceptable to the buyer but will it fall within s.14 (2) of The Sale of Goods Act to provide him with a remedy for breach? It would appear that thre buyer is likely to persuade the court that there has been a breach of s.14(2) in delivering a car significantly heavier than contracted for, especially given the standard that a reasonable person would expect having regard to desceription, freedom from minor defects, fitness for the purpose which goods of this type are commonly supplied and there may well (we have no evidence on the facts) be an issue as to safety. A car significantly heavier than manufacturer specifications and tolerances may well render the car defective and if this is proved it will put the matter beyond doubt. On the bare facts there is a reasonably strong case to be put that the car is defective and not of satisfactory quality by being heavier than specified and on that premise I am of the view that there is a good prospect of a claim under s.14(2) being sustained.

13. S.14 (3) where the buyer expressly or impliedly makes known to the seller the purtpose for which the goods are being bought may be more difficult to sustain. One could argue that by buying an AC Mamba to manufacturer specification that the buyer is impliedly making known his particular purpose in buying a high performance car and the seller in delivering a car substantially heavier than the manufacturer specification for an AC Mamaba is not delivering goods fit for the buyer's particular prupose. Whether this argument could be sustained to the further issue that the buyer impliedly made known (for there appears to be no express notice) that he wanted to buy a car fit for the particular purpose of racing is more problematic on the facts. If the arguments above in relation to s.13 and s. 14(2) are right then s.14(3) will not need to be in issue at trial.

The doctrine of Acceptance

14. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound on request to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract - s. 34 Sale of Goods Act 1979 The buyer has the right to examine the car on delivery to ascertain whether it is in conformity with the contract.

15. Given the breaches of s.13 and s. 14(2) (Supra) the issue of remedy turns on whether he has or has not lost the right to reject. The buyer will, in any event, have a right to claim damages in contract for loss sustained, provided that it is not too remote.

s. 35 Sale of Goods Act

Acceptance

(1) The buyer is deemed to have accepted the goods [ F1 subject to subsection (2) below—

(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 any act in relation to them which is inconsistent with the ownership of the seller.

(2) Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose—

(a) of ascertaining whether they are in conformity with the contract, and

(b) in the case of a contract for sale by sample, of comparing the bulk with the sample.

(3) Where the buyer deals as consumer or (in Scotland) the contract of sale is a consumer contract, the buyer cannot lose his right to rely on subsection (2) above by agreement, waiver or otherwise.

(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.

(5) The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above.

(6) The buyer is not by virtue of this section deemed to have accepted the goods merely because—

(a) he asks for, or agrees to, their repair by or under an arrangement with the seller, or

(b) the goods are delivered to another under a sub-sale or other disposition.

16. Where, as here, the buyer has not previously examined the goods he must enjoy a reasonable opportunity of examining them for the purpose of ascertaining whether they arein conformity with the contract. A reasonable time is a question of fact in the circumstances of the case.

17. The seller may seek to argue that he offered to repair the car and, thereby, the buyer cannot reject, but we have seen from Lady Justice Arden's judgment in Hale in Clegg v Olle Andersson T/A Nordic Marine [2003] EWCA Civ 32 that a buyer cannot be compelled to accept repair. Lady Justice Hale stated:

"I agree and would only add that at times the argument before us seemed to lose sight of the real issues in the English law of sale of goods. These are not whether either party has behaved reasonably. The defendant may well feel that he and the manufacturers Malo did their best to put right what had gone wrong and that the claimant purchaser should have taken up one of the options which they advised. If it is established that the seller is in breach of a condition of the contract, however, the choice does not lie with him."

18. The issue is whether the buyer has performed any act of acceptance within s.35 of the Sale of Goods Act 1979. The buyer has not intimated that he will accept the goods; quite the opposite, he told the seller that he wished to reject the goods. s. 35(4) provides that "The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them." The issue of reasonable time will depend on the nature of the goods but in the present case it will be necessary for the buyer to drive the car and get the feel of it. It could be argued, not unreasonably, that the buyer would not immediately become aware of the power and handling being less than anticipated and that two weeks to discover that the car was significantly heavier than manufacturer specification connotes that some specialised inspection was needed. It is doubtful that a court, in the circumstances, would regard two weeks as being excessive and if that is th case the buyer will not lose his right to reject the goods.

s. 36 Buyer not bound to return rejected goods

Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to accept them, having the right to do so, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them.

19. Where, as here, the buyer rejects the goods and repudiates the contract, having the right to do so for breach, he can of course refuse to pay the price or, if he has paid it, he can recover it. In adddition he may maintain an action for damages, for if the buyer acts within his rights in rejecting the foods tendered, he can normally hold the sller lianle in non-delivery under s.51 Sale of Goods Act 1979 (Atiyah) (Millar's Machiner Co Ltd v David Way & Son 91934) 40 Com Cas 204)

20. Damages fall to be assessed under s.51 Sale of Goods Act 1979

Damages for non-delivery

(1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.

(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller's breach of contract.

(3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver.

21. As to the issue of the loss of an opportunity to get a podium finish, this may be too remote as not being within the contemplation of both parties as likely to arise in the event of breach.

See Hadley v Baxendale (1854) 9 Exch 341 at 354 | Victoria Laundry v Newman Industries Ltd [1949] 2 KB 528. | The Heron II [1969] 1 AC 350, et al

Aliter, if the buyer told the seller that he was buying the car with a view to racing and had a good prospect of success.