Comparison of Hire Purchase and Sales Contracts: Hire Purchase Act vs. Naples Civil Code, Study notes of Law

Download Comparison of Hire Purchase and Sales Contracts: Hire Purchase Act vs. Naples Civil Code and more Study notes Law in PDF only on Docsity! 79 The duties of the seller SOCIAL SCIENCES & HUMANITIES AND LAW & MANAGEMENT Research Journal - Volume 2 - 1999 University of Mauritius, Réduit, Mauritius. THE DUTIES OF THE SELLER UNDER THE CIVIL CODE AND UNDER THE HIRE PURCHASE AND CREDIT SALE ACT - AN UNNECESSARY DUPLICATION ? by D. FOKKAN Department of Law, Faculty of Law and Management University of Mauritius, Réduit, Mauritius (Received May 1999 – Accepted June 1999) ABSTRACT This paper examines the duties of the seller under the Hire Purchase and Credit Sale Act 1964 (‘the Act’) and under the Civil Code respectively as to the quiet enjoyment of the goods purchased, the right of the seller to sell them and the duty of the seller as to their merchantable quality. A comparison is made between these legislative provisions and we shall establish that there is an overlap between them if not complete correspondence. Our submission is that the provisions in the Act may be redundant. Keywords : Contract of sale, hire purchase, duties of seller, merchantability, hidden defects, duty as to title, quiet possession. 80 D. FOKKAN INTRODUCTION The Hire Purchase and Credit Sale Act 19641 regulates hire purchase and credit sales and imposes upon the seller a number of duties. Among these are to be found the duty of the seller as to quiet enjoyment of the goods purchased by the buyer, the right of the seller to sell the goods at the time when the property is to pass to the buyer and the duty as to merchantable quality of the goods 2 . These provisions were modeled on the English Hire Purchase Act 19383 . To readers of the Civil Code4 , these provisions have a ring of familiarity. One way or the other these duties are indeed already provided for by the Code and one may be excused for asking why the legislature deemed it fit to enact them. The overlap between the Act and the Code in that respect did not escape the attention of the legislature. It was in fact intended. This is how the issue was addressed at the Committee stage: “A member of the Crown law Office and myself (i.e. Mr Koenig) were tempted to refer purely and simply to the article of the Civil Code dealing with this matter and do away completely with the warranties which we have been referring to in Clause 9 because we have got a series of principles in the Civil Code dealing with these warranties which either the bailer or the vendor have to give to the hirer or to the purchaser as the case may be, when dealing with either leases or sales. But we have considered carefully the provisions of this clause and have come to the conclusion that it gives more guarantees to the hirer than the corresponding ar- ticles in the Civil Code. According to the Civil Code the parties can contract out of all these guarantees which are prescribed by that law whereas the parties can- not contract out of the provisions of this law. That is why, although we have re- tained the principle of the original draft, yet there are certain nice secondary points which must be provided for, we have added this new paragraph (4) ‘The warran- ties and conditions set out in subsection (1) shall be governed by the same prin- ciples as those governing warranties and conditions of similar nature provided for by the Code Napoléon in the matter of sales of movables’. ”5 A number of points may be made with regard to these comments of Mr. Koenig. Subsection (4) was deemed to be necessary in order to harmonise the provi- sions of the Act with those of the Civil Code. The reference to “warranties and conditions of similar nature provided for by the Code Napoleon in the matter of sales of movables” is, however, rather unfortunate. Firstly there are no pro- visions in the Civil Code relating solely to sales of movables. Those relating to contract of sale apply to all sales whether it be sale of a movable or sale of an immovable. Secondly the Civil Code does not know the distinction between warranties and conditions and it is rather confusing to refer to “warranties and conditions of similar nature provided for by the Code Napoleon”. Further Mr Koenig considered these implied conditions and warranties to be important as 83 The duties of the seller The Act does not define what is meant by merchantable quality and there is no Mauritian case-law on this aspect of the Act. Guidance will have to be sought from English case-law, more particularly from English case-law dealing with that concept in the context of the sale of goods from which in any case it was borrowed. We shall try to determine to what extent the concept of merchant- ability also requires the presence of the two conditions required under the Code, namely proof of a defect and the unsuitability of the thing for its purpose.There is unfortunately no easy definition of what is meant by mer- chantable quality. None of the cases dealing with this issue has actually de- fined it. For a proper understanding of this concept, it is submitted that we need to go back to the scheme of the original Sale of Goods Act, that of 1893, where it was first used. Under the Sale of Goods Act 1893, the issue of fitness of purpose was a gen- eral rule applicable to all types of contract, including, therefore, sale of spe- cific goods, whereas the criterion of merchantability, was only relevant to sale by description. In order to extend the application of the criterion of merchant- ability to sale of specific goods as well, the distinction between sale of spe- cific goods and sale by description was blurred11 . This also led to a blurring of the distinction between merchantability itself and fitness for purpose. It is said that there were two approaches to determine the merchantability of the goods12 . The first test was the “acceptability test” as expounded in Australian Knitting Mills Ltd v Grant13 : “ [the goods] should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden de- fects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms”. The second was the “usability test” in that the merchantability of the goods was determined in accordance as to whether it was of “use for any purpose for which goods which complied with the description under which these goods were sold would normally be used”14 . It is submitted that as far as quality is concerned the only useful test is the usability one. If under the “acceptability test” the seller was not liable, it was not so much because the goods were merchantable but because the buyer ob- tained what he bargained for. Indeed if a buyer, with full knowledge of all the facts, accepted to take the goods, it was because they fell within the contrac- tual terms. The acceptability test thus does not deal at all with the issue of merchantability but merely determines what was the object of the contract. Indeed if merchantability is to be defined in terms of the acceptability test, the result would be that two different issues, the implied term as to quality and 84 D. FOKKAN that as to correspondence with description would in fact be run together. There may indeed be an overlap between these two categories but they are certainly not the same thing. But then the usability test has been criticised as being too narrow as it covers only those defects which interfere with the use of the article and the example of a new car delivered with an oil stain on the carpet is given15 . As submitted above the acceptability test has nothing to be with merchantability as such, and the stained carpet as well has nothing to do with merchantability. It is merely a question of delivery of non-conforming goods, since no one when he purchases a new car expects to receive one with a stained carpet. The difficulty stems from a failure to determine the real legal category within which the prob- lem falls. The other criticism of the usability test is that it is uncertain whether it would cover minor defects16 . It is submitted that the issue here merely relates to a question of degree. There is no doubt that there are different degrees of usabil- ity. It is up to the legislature to specify the range of degrees that would be acceptable. From that angle there is thus nothing wrong with the test itself. The 1893 Act was amended by the Supply of Goods (Implied Terms) Act 1973 and merchantability was then made the main criterion. What is, however, in- teresting is that merchantability was defined by that Act in terms of fitness for purpose. S.14(6) indeed provided that “goods of any kind are of merchantable quality within the meaning of subsection (2) above if they are fit for the pur- pose or purposes for which goods of that kind are commonly bought ...”. S.14(3) then provided for fitness for a particular purpose. The overriding criterion was clearly that of fitness for purpose. The 1973 amendment, therefore, confirms our reading of the 1893 Act. But then unfitness per se as a cause of unsatisfactory quality is a notion that is impossible to comprehend. It is submitted that before a seller can become li- able on grounds of merchantable quality the goods must have some form of structural or pathological problem. Interestingly this is how the warranty of merchantability in American law is presented in Corpus Juris Secundum17 : “The warranty of merchantability is based on a buyer’s reasonable expectation that goods purchased from a merchant with respect to goods of that kind will be free of significant defects and will perform in the way goods of that kind should perform” (Emphasis added). Indeed the unfitness must have some cause and this in the context of the implied terms as to quality, can only be a defect. If it were to be otherwise then the case does not fall to be considered under the 85 The duties of the seller provision as to merchantability at all but probably under that dealing with cor- respondence of the goods with their description. Goods that are unfit, not be- cause of any defects, can only be so because they fail to meet certain require- ments and, therefore, fail to correspond with the description. If the provision as to correspondence to description still does not apply, then the rule of caveat emptor should be applied. We would argue that in those cases that were de- cided under the heading of fitness for purpose, the presence or not of a defect was crucial. In Henry Kendall & Sons v William Lillico & Sons Ltd18 the animal feed was merchantable not so much because of fitness of purpose per se but because the ground nut extraction did not contain any defect, being a perfectly natural sub- stance. The provision as to correspondence with description not being appli- cable as well, the rule of caveat emptor clearly applied. On the other hand, it is submitted that goods containing defects can only be considered to be of unmerchantable quality in relation to the purpose for which the goods were intended. There is indeed no such thing as an absolute notion of quality, however defined. We only need to examine a few cases to establish that point. In the case of Rogers v Parish (Scarborough) Ltd19 it was held that a new Range Rover cost- ing more than £16,000 was unmerchantable because it had many minor defects in the engine, gear box and in the body work. The Court correctly held that these defects rendered the car unmerchantable because of the “buyer’s purpose of driving the car from one place to another.... with the appropriate degree of comfort, ease of handling and reliability and of pride in the vehicle’s outward and interior appearance”20 . Let us now take a case that is usually cited in the context of durability, the case of Mash and Murrell v Joseph I Emmanuel21 . Sellers sold potatoes c & f Liverpool. The potatoes were sound on shipment but arrived in a rotten state. Was it the ‘undurable’ state of the goods which rendered them unmerchant- able? The answer is no. What rendered them unmerchantable was that they were intended to be shipped to Liverpool and it was thus within the contempla- tion of the parties that the potatoes should be able to endure the voyage. This is put very clearly by Lord Diplock; the goods must be loaded in “such a state that they could endure the normal journey and be in a merchantable condition on arrival”22 . Once more it was the purpose of the buyer that clinched the case not the issue of the durability of the goods per se. 88 D. FOKKAN purposes. As the Code shows, the latent character of the defect can perfectly be determined solely in relation to the knowledge of the buyer, that of the seller being irrelevant at this stage. It should indeed not be forgotten that even under the Act, it is the knowledge of the buyer that is relevant in determining whether the seller will be liable or not. That of the seller is irrelevant. It is not a question of what the buyer should hypothetically have known but what in the circumstances he should have known. If, in the circumstances, he would not have known of the defect, there is no justification in law for implying that he hypothetically knew about it. It is thus submitted that the fact that the defect is hidden is also relevant in English law. It may appear severe to impose liability upon a seller who is of good faith. The justification of this rule is probably to be found in what the French refers to as the notion of risk. The seller is liable not because he is at fault but because it is he who brought that thing into circulation. Admittedly he does not deserve to be treated as severely as the seller of bad faith. The remedy of the buyer is thus different according to whether the seller actually knew of the defect or not. Under the Code where the seller did not know of the defect, he is liable only for the costs occasioned by the sale and at the option of the buyer either the restitution of the price or the return of part of the price, the buyer keeping the good purchased in the latter case35 . The objective here is merely to re-estab- lish the equilibrium between buyer and seller. Where the seller knew of the defect, he is in addition liable for all damages incurred by the buyer36 . It might be thought that such a rule would encourage the seller to close his eyes. But then the courts have here implied an irrebuttable presumption that professional sellers, i.e. those selling in the course of business, and manufacturers are al- ways deemed to be aware of the defects37 . Under the Act, in the case of a breach of the duty as to quality, the buyer would have the choice between rejecting the goods or asking for damages for breach of warranty. In addition he may ask for damages for consequential losses. The seller will be liable for such losses whether he was acting in good faith or in bad faith provided causation is established. The good or bad faith of the seller will, however, make a difference as far as the quantum of damages concerned. The premise adopted here is different from that adopted under the Code. Once the seller is in breach, the normal consequences of liability follows. If justice is to be done, it is to be done at the level of the quantum of damages recovered. The good faith of the seller does not, as under the Code, close the door to a head of liability, namely the consequential loss. 89 The duties of the seller The Procedural Conditions Our analysis so far leads us to submit that there is not much difference be- tween the concept of merchantability under the Act and that of hidden defect under the Code. If from the point of view of substance there is not much differ- ence between the two legislation in that respect, there is admittedly a major difference from the procedural point of view. This relates to the time within which a claim against the seller concerning the quality of the goods purchased must be brought by the buyer. There is no specific rule in the Act. The Civil Code, for its part, requires that such claims be brought within a “brief delay” as from the point of discovery of the defect by the buyer38 . The Civil Code does not define what is meant by brief delay. It is basically a question of fact to be determined by the judge of first instance according “to the nature of the redhibitory defect and the customs of the place where the sale was made”39 . It may thus vary from a few weeks to a few months according to the circum- stances of the case40 . One such circumstances will, for example, be negotia- tions entered into by the buyer with the seller in order to settle the matter41 . In such cases the buyer will be justified in waiting for the outcome of such nego- tiations before starting court proceedings. In that respect the buyer is in a bet- ter position under the Act than under the Code. It was precisely in order to get round the problem of the brief delay that the courts in France for some time started to analyse cases that under conventional wisdom should fall under the guarantee for hidden defects as cases of delivery of non-conforming goods 42 . Conceptually, non-conformity is a difference be- tween the thing delivered and the one that was within the contemplation of the parties, the thing being otherwise perfectly all right. For a time the courts adopted a functional approach to the duty to deliver and interpreted it as im- posing a duty on the part of the seller to deliver a thing fit for the use for which it was intended43 . This is precisely the domain of the duty as to quality. Pro- tection of the consumer was the objective of this new line of case-law. Some authors believe that this was done at the expense of sound legal principle44 . The courts would often simply have recourse to the notion of non conforming delivery in order to get round the problem of brief delay or even the apparent nature of the defect45 . This extension was such that a point had been reached where “it was enough for the buyer to wave the magical wand of non-conform- ing delivery to win his case”46 . A series of decisions47 has, however, been considered by Prof A. Bénadent as clarifying the situation in French law. This clarification consists in a return to the conceptual approach. There is non conforming delivery where the thing 90 D. FOKKAN delivered does not correspond with the specifications agreed upon by the par- ties. If the non conformity consists in the diminished use or unsuitability of the thing then it is the guarantee for defects that apply. This appears to be a return to orthodoxy. There is indeed very good justification for the legislature to have provided for the condition of the brief delay. One of the conditions of the guarantee is the existence of a defect. Dealing as we are with consumable, proving or disprov- ing such defect becomes more difficult with the passage of time. Hence the requirement that the case be brought before the court within the brief delay. The issue here is indeed not so much a question of the protection of the con- sumer as that of ensuring that justice be done. If in certain type of contract it is the consumer protection aspect that is to predominate, nothing prevents the legislature from varying this procedural rule, while preserving the same sub- stantive rule for all contracts of sale. DUTY AS TO TITLE The Act provides that “there is an implied term on the part of the dealer that he shall have a right to sell the goods at the time when the property is to pass”48 . As pointed out by Prof. Atiyah49 the issue here is not so much that the seller should have property in the goods so as to pass it on to the buyer but merely that he should have a right to sell the goods. It is thus quite possible for a seller to sell goods of which he is not the owner. Such was the case in Karlhamns Oljefabriker v Eastport Navigation (The Elafi)50 where the buyer obtained title directly from a third party. Conversely, as in the case of Niblett v Confection- ers’ Materials Co.51 , a seller may very well be the owner of the goods and yet not have the right to sell them. Such an interpretation is quite sensible since we are here dealing with the duties of the seller and not with the quality that the goods should possess, which would have been the case had the section been interpreted as a requirement that the seller should actually be the owner of the goods. The equivalent rule in the Civil Code appears to be Art.1599 which provides that “the contract of sale of a thing belonging to someone else is voidable”. This Article is, however, not to be found in the chapter dealing with the duties of the seller but in Chapter 3 dealing with the “things that can be sold”. The Civil Code does not approach the issue from the angle of the duty of the seller but from that of the quality that the goods must possess. But this is true only where the buyer believes that his seller is the owner of the thing sold and that 93 The duties of the seller FOOTNOTES 1 The title of the Act was amended by Act No.1 of 1995 to Hire Purchase and Credit Sale Act. We shall henceforth refer to the Hire Purchase and Credit Sale Act as the Act. 2 S.9 of the Act. 3 These provisions are in fact similar to those to be found in the Sale of Goods Act 1893. This Act has now been repealed and replaced by the Sale of Goods Act 1979. 4 Henceforth referred to as the Code. 5 Debates 1964, Vol. 1, 21 April 1964, p.418 6 Art.1643. 7 Cass. Civ., 3ème, 3 January 1984, Bull.Civ. III, No.4. 8 The concept of merchantable quality has now been replaced in the 1979 Eng- lish Sale of Goods Act by that of satisfactory quality. 9 Art.1641. Unless otherwise stated Art. refers to articles of the Civil Code. To add to the confusion a Consumer Protection Act was promulgated in 1991 in order to provide for safety norms with which goods will be required to con- form. To a large extent safety requirements are in fact aspects of quality and it would have been desirable that such provision be incorporated in the Civil Code rather than be enacted separately. We shall not, however, examine this aspect in the present article. 10 See Traité des Contrats, La Vente, J.Ghestin & B.Desché, L.G.D.J., 1990, No.724; Contrats Civils et Commerciaux, F.Collart Dutilleul & P.Delebecque, Precis Dalloz, 1993, No. 268. 11 Benjamin, Sale of Goods, 9th ed., Sweet & Maxwell,para.11-006. 12 See Law Commission Report on Sale and Supply of Goods, Cm.137, 1987, para.2.7; Benjamin, op. cit., para. 11-038 et seq. 13 Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387. 14 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31. 15 See Law Commission Report, op.cit., para.2.11 16 See Law Commission Report, op.cit., para.2.13 17 Vol.77A, V° Sales, § 254 18 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31. 19 Rogers v Parish (Scarborough) Ltd [1987] QB 933. This case is typical of the overlap between the issue of satisfactory quality and correspondence with description. 20 per Mustill LJ, at p.944. 21 Mash and Murrell v Joseph I Emmanuel [1961] 1 All ER 485, [1962] 1 All ER 77. 22 per Diplock at p.488 94 D. FOKKAN 23 See F.Collart Dutilleul & P. Delebecque, op. cit., No. 269. 24 Business Specialists Ltd v Nationwide Credit Corp Ltd [1988] RTR 332. 25 Cour d’appel de Nîmes, 18 December 1980, D.1983.29. 26 See, for example, Cass.Com. 10 December 1973, D.1975.122, in relation to sale of tomatoes where it was held that the buyer has not proved that the defect existed at the delivery of the goods sold. 27 Per Lord Diplock in Lambert v Lewis [1981] 1 All ER 1185, at p. 1191. 28 Art.1642. 29 Art.1643. 30 Cass.Civ. 18 December 1962, D.63.114. 31 Goode R., Commercial Law, 2nd, Penguin, p. 329. 32 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31. 33 [1969] 2 AC 31, at p. 75. 34 The Sale of Goods, P.S.Atiyah, 9th Ed. by J.Adams, Pitman, p. 147. 35 Art.1644 & Art.1646. 36 Art.1645. 37 Cass.Civ., 1er, 19 January 1965, D.1965.389. 38 Art.1648. 39 Art.1648. See Mallet v Jamet 1885 MR 100. 40 See Pegayamgeer v Dyrr 1870 MR 150. 41 See Heerasing v Seegobin SCJ No. 277 of 1984. 42 Incidentally it is to be noted that the Act does not provide for this duty. 43 Cass.Com. 28 October 1968, Bull.Cass. 1968, 4, no.295. 44 See Les prétendus concours d’actions et le contrat de vente (erreur sur la substance, défaut de conformité, vice caché), O.Tournafond, D.1989.237 for whom, at p.241, this approach “takes certain dangerous liberties with the letter and spirit of the institutions of the Civil code”. 45 See cases given by Tournafond, Loc.cit. , at p.239. 46 L’Equilibre renaissant de la vente, C.Atias, D.1993.1, at p.2 47 Cass.civ., 1er, 16 June, 13 October, 27 October and 8 December 1993, D.1994.210. 48 S.9(1)(b) 49 Atiyah, op.cit., p.77 50 Karlhamns Oljefabriker v Eastport Navigation (The Elafi) [1982] 1 All ER 208 51 Niblett v Confectioners’ Materials Co. [1921] 3 KB 387 52 See Leçons de Droit Civil, Tome II/ Premier Volume, Obligations, Théorie Générale, 8th Ed. by F.Chabas, Montchrestien, no.238 53 S.9(1)(a). 54 Atiyah, op.cit., p.84 55 Microbeads A.G. v Vinhurst Road Markings Ltd [1975] 1 WLR 218 95 The duties of the seller 56 “S.12(1) deals with the questions of defects of title existing at the time of the sale”, per Lord Ackner, Empresa Exportadora De Azucar v Industria Azucarera Nacional S.A., The Playa Larga [1983] 2 Lloyd’s Rep. 180. 57 See La garantie d’éviction dans les ventes commerciales, M-A. Coudert, D.1973.113