Statutory Implied Terms in Sale and Supply Contracts: Joint Report by Law Commissions, Exercises of Law

Download Statutory Implied Terms in Sale and Supply Contracts: Joint Report by Law Commissions and more Exercises Law in PDF only on Docsity! The Law Commission REPORT ON A REFERENCE UNDER SECTION 3(l)(e) OF THE LAW COMMISSIONS ACT 1965 and The Scottish Law Commission (LAW COM. No. 160) (SCOT. LAW COM. No. 104) SALE AND SUPPLY OF GOODS Presented to Parliament by the Lord High Chancellor and the Lord Advocate by Command of Her Majesty May 1987 LONDON HER MAJESTY’S STATIONERY OFFICE f9.20 net Cmnd. 137 - The Law Commission and the Scottish Law Commission were set up by the Law Commis- sions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are- The Honourable Mr. Justice Beldam, Chairman Mr. Trevor M. Aldridge Mr. Brian J. Davenport, Q.C. Professor Julian Farrand Professor Brenda Hoggett J The Secretary of the Law Commission is Mr. J.G.H. Gasson and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London, WClN 2BQ. The Scottish Law Commissioners are- The Honourable Lord Maxwell, Chairman Dr. E.M. Clive Professor Philip N. Love, C.B.E. Mr. J. Murray, Q.C. Sheriff C.G.B. Nicholson, Q.C. The Secretary of the Scottish Law Commission is Mr. R. Eadie and its offices are at 140 Causewayside, Edinburgh, EH9 1PR. .* 11 Fitness for purpose State or condition Appearance, finish, and freedom from minor defects Safety Durability Suitability for immediate use Spare parts and servicing facilities B. Other contracts for the supply of goods Paragraph 3.31 3.37 3.38 3.44 3.47 3.62 3.66 3.67 PART 4: RECOMMENDATIONS ON REMEDIES 4.1 A. Sale of goods 4.1 1. Consumers and non-consumers 4.1 3. Policy for non-consumers 4.16 4. Summary of principal recommendation 4.25 5. Relationship between consumer and non-consumer transactions 4.26 B. Other contracts for the-supply of goods 4.31 2. Policy for consumers 4.9 PART 5: RECOMMENDATIONS ON LOSS OF THE RIGHT TO REJECT THE GOODS AND TERMINATE THE CONTRACT A. Sale of Goods 1. Introduction 2. Should there be a long-term right to reject in contracts of sale? 3. Fixed period for rejection and the length of a “reasonable time” 4. Proposed alterations to the existing rules on loss of the right to reject (a) Intimation of acceptance and the right to examine (b) Buyer seeking cure of defective goods (i) Inconsistent act or intimation of acceptance (ii) Lapse of a reasonable time (c) An act inconsistent with the ownership of the seller Matters raised in the Consultative Document but upon which we do not now make recommendations (a) Damaged or destroyed goods (b) History of defects in goods Contracts of supply other than sale 1. Hire-purchase and conditional sale agreements 2. Other contracts of supply 5. B. 5.1 5.1 5.1 5.6 5.14 5.20 5.20 5.26 5.27 5.30 5.32 5.39 5.39 5.41 5.43 5.43 5.47 Page 27 29 29 30 31 33 34 34 36 36 36 38 40 42 43 43 45 45 45 46 47 49 49 50 50 51 51 52 52 53 53 53 54 PART 6: MISCELLANEOUS MATTERS 6.1 56 A. Remedies for breach of the implied terms as to title, encum- brances and quiet possession in contracts for the sale and supply of goods 6.1 56 B. Partial rejection 6.6 58 1. General proposal 6.6 58 2. The commercial unit 6.12 59 3. Instalment and severable contracts 6.14 59 V . . Paragraph C. Remedies for delivery of the wrong quantity 6.17 D. Sales by sample 6.24 PART 7: STATUTORYIMPLIED TERMS IN CONTRACTS FOR THE SUPPLY OF GOODS: SCOTLAND 7.1 PART 8: SUMMARY OF RECOMMENDATIONS 8.1 Appendix A: Draft Sale and Supply of Goods Bill with Explanatory Notes AppendixB: Text of sections ll-15B, 30,3435A and 53Aof the Sale of Goods Act 1979 as they would be after amendment by the Draft Sale and Supply of Goods Bill Appendix C: List of persons and organisations who submitted com- ments on Working Paper No. 85/Consultative Memo- randum No. 58 Page 60 62 64 66 I 69 118 124 . I x vi THE LAW COMMISSION AND THE SCOTTISH LAW COMMISSION (Report on a reference to the Law Commission under section 3(l)(e) of the Law Commissions Act 1965) (Item 2 of the First Programme of the Scottish Law Commission) SALE AND SUPPLY OF GOODS To the Right Honourable the Lord Hailsham of St. Marylebone, C.H., Lord High Chancellor of Great Britain, and the Right Honourable the Lord Cameron of Lochbroom, Q.C. , Her Majesty’s Advocate PART 1 INTRODUCTION Terms of reference Act 1965, the Lord Chancellor asked the Law Commission to consider: 1.1 On25January 1979,in exerciseof powers under section 3( l)(e)of the Law Commissions “(a) whether the undertakings as to the quality and fitness of goods implied under the law relating to sale of goods, hire-purchase and other contracts for the supply of goods require amendment; (b) the circumstances in which a person, to whom goods are supplied under a contract of sale, hire-purchase or other contract for the supply of goods, is entitled, where there has been a breach by the supplier of a term implied by statute, to (i) reject the goods and treat the contract as repudiated; (ii) claim against the supplier a diminution or extinction of the price; (iii) claim damages against the supplier; (c) the circumstances in which, by reason of the Sale of Goods Act 1893, a buyer loses the right to reject the goods; and to make recommendations.” 1.2 Item 2 of the First Programme of Reform of the Scottish Law Commission, which was approved on 21 October 1965, refers to obligations. Accordingly it has not been necessary for the Scottish Law Cornmission to have a special reference to cover the matters under discussion in this Report. 1.3 This Report is concerned only with contracts for the sale and supply of goods made between the supplier of goods and the customer. We therefore do not deal with claimswhich some other person may have against the supplier-for example, a person to whom the buyer of goods has given them as apresent. Equally, we do not dealwith any claimagainst somebody other than the supplier-for example, any claim in tort or delict by the buyer directly against the manufacturer.’ This does not mean that the matters considered in this Report have little practical significance. There must be many millions of transactions made each day to which the Sale of Goods Act 1979applies. This Report is relevant to every one of those transactions. The background to this Report 1.4 This Report is neither a comprehensive review of the law of sale and supply of goods, nor does it recommend a codification of those areas of the law of sale covered by the Law Commission’sterms of reference. The task which we have carried out is narrower than that. It has nevertheless given rise to some peculiar difficulties. In order to understand why, it is I In addition we do not deal with contracts which are intended to operate by way of mortgage, pledge, charge or other security. Any transaction in the form of a contract of sale which is intended so to operate is excluded from the 1979 Act by s. 62(4). Contracts enforceable in English law only because made under seal are not covered in this Report because ri5t falling under the 1979 Act (see ss. l(1) and 2(1)). 1 instances rather narrower than the proposals in the Consultative Document, Our reasons are explained at the relevant points in the succeeding pages, but there were two matters which gave rise to particular difficulty. 1.13 One of these explains why some of the recommendations relating to England and Wales aredifferent in form from those relating to Scotland.The Sale of Goods Act 1979refers to terms in contracts of sale as either “conditions” or “warranties”. This legal terminology is of English origin. It has no meaning in Scots common law. The recommendations of the Scottish Law Commission therefore relate not only to reform of the substance of the law but also to removing this terminology for Scotland. For the most part, however, the Law Commission and the Scottish Law Commission are agreed on what the result should be in any particular set of circumstances. What is sometimes different is the way of arriving at that result. 1.14 The second matter is that notwithstanding-or even because of-the limited nature of the present exercise, we have found it one which has been difficult to complete. The difficulty arose from two main causes. The first is illustrated by the well-known problem of patching old cloth with new material. The task of putting “patches” into the Sale of Goods Act has proved hard. In part, the Act uses legal concepts which are not fully accepted today. In other parts, the concepts which Chalmers had in mind are uncertain. There are many questions which can be asked to which the Act gives no answer and which no case has yet decided. We have had to ask ourselves how far it is now desirable to resolve what has hitherto been unresolved, but which appears to give rise to little difficulty in practice.Is The second difficulty was that, as is apparent from the proposals in the Consultative Document, both Commissionsstarted by considering more ambitious proposals for reform. The Law Commis- sion, however, decided not after all to attempt to spell out the buyer’s remedies exhaustively. The Scottish Law Commission, partly because of the need to replace provisions expressed in the exercise. This proved to be difficult and time consuming. It resulted in rules which, in attempting to deal with all the combinations of rejection, rescission, damages and specific implement, were inevitably long and complicated. In the end the Scottish Law Commission decided reluctantly that this complicated scheme would not be likely to be welcomed by the users of the Act and it also decided not to attempt to spell out the buyer’s remedies in a comprehensive way. Iin terms of “conditions” and “warranties”,persevered with such an attempt until a later stage I ~ 1.15 These difficulties have led us to the conclusion that it is doubtful how far a process of “patching” the Sale of Goods Act can continue. If further alterations to our law of sale of goods are required, it might prove to be necessaryto start from theproposition that it would be better to have a new Act or Acts rather than the old Act with amendments. This, however, is a matter which goes beyond the present exercise and we do not pursue it. It is possible, at least to some extent, that the future shape of the law may be dictated by outside events. For example,if the United Kingdom decides to become a party to the Vienna Con~ention,’~ the terms of most international trading contracts will be laid down for us. There may be other international conventions,perhapsrelatingtoconsumer law,whichmayhereafter be relevant. We cannot see the way ahead with any clarity, but the law does not stand still and no-one should suppose that even such reforms as we now propose can be the last word for more than a few years. If anything very much more substantial is thought to be necessary, we think that a very different exercise will be required from that upon which we have been working. Such an exercise would have not only to consider the rules relating to domestic transactions, but also (and perhaps more difficult) to consider whether, and if so how, to codify the practice in international transactions. ~ Structure of this Report 1.16 This Report has the following sections: Part 2-an examination and assessment of the existing law relating to the implied terms as to quality and fitness; the remedies for breach of the implied terms as to I* One of those we consulted, sympathising with our difficulties in making minor alterations to what is essentially the 1893Act, pointed out that a reason for those difficulties may also be that the Act means all things to all men. Iy The United Nations Convention on Contracts for the International Sale of Goods (1980). See J.O. Honnold, Uniform Law for International Sales under the I980 United Nations Convention (1982). We understand that the Convwtion has been ratified by Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syria, the United States of America, Yugoslavia and Zambia, and that it will come into force on 1January 1988. 4 . .. ... - - quality, fitness, description and sample; and the circumstances in which the customer loses his right to reject the goods and treat the contract as terminated. Part S t h e joint recommendations of the Law Commission and the Scottish Law Com- mission on the reformulation of the implied term as to quality in contracts for the sale and supply of goods. Part &the joint recommendations of the Law Commissionand the Scottish Law Com- mission on remedies for breach of the implied terms as to quality, fitness, description and sample; and the recommendations of each Commission on the implementation of those recommendations. Part 5-the joint recommendations of the Law Commission and the Scottish Law Com- mission on the circumstances in which the customer loses his right to reject the goods and treat the contract as terminated. Part &the joint recommendations of the Law Commission and the Scottish Law Com- mission on the rules which apply where the supplier of goods has no title to them; on partial rejection; on the rules which apply when a wrong quantity of goods is delivered; and on one small matter relating to the sale or supply of goods by sample. Part 7-the recommendation of the Scottish Law Commission on the enactment for Scotland of provisions equivalent to Part I of the Supply of Goods and Services Act 1982. Part 8-a summary of our recommendations. Appended to our Report are: A. A draft Bill which would give effect to our recommendations; B. A text of sections 11to 15B, 30, 34 to 35A and 53A of the Sale of Goods Act as they would be after our Bill came into force; C. A list of those who commented on the Consultative Document. Acknowledgments 1.17 We aregratefulto allthosewho sentustheir commentson ourConsultative Document. They are listed in Appendix C to this Report. We are also grateful to Sir Wilfrid Bourne, K.C.B., Q.C., who prepared an analysis of the consultation for us. We also derived much assistancefrom a seminar on the reform of sale lawin commercial transactions, with particular reference to our ConsultativeDocument,whichwas held inNovember 1984underthe auspices of the Centre for Commercial Law Studies, Queen Mary College, London;and from a seminar on our Consultative Document held in November 1983at the Faculty of Law, University of Edinburgh. 1.18 We should like tdexpress our particular thanks to Dr. F.M.B. Reynolds, Fellow of Worcester College and Reader in Law in the University of Oxford, who has been the Law Commission’sconsultant for this project both at the Consultative Document stage and-during the preparation of this Report. Although he would not necessarily agree with all the recom- mendations that we have made, his assistance and advice have been invaluable throughout. 5 PART 2 ASSESSMENT OF THE PRESENT LAW A. INTRODUCTION 2.1 In this Part of this Report we shall examine someof the aspects of the present lawwhich arerelevant to the changes which werecommend below. l There are many workswhichexplain the present law. We do not propose to duplicate those works; because of them our assessment of the present law need not be an exhaustive account. 2.2 There are three closely related questions considered in this Report. First, what terms as to the quality of the goods should the law imply into supply contracts? Secondly, if the supplier is in breach of one of those terms, what should the customer’s rights be? Thirdly, should the right to reject the goods if one of the terms is broken continue for a long time or be lost soon after delivery (as at present in the case of sale), always leaving the customer his right to damages to compensate him for any loss? 2.3 In this Report we consider (as we must for the sake of clarity) each of the above matters separately. However, in order to assess whether the final balance between supplier and customer is fair to both, the totality of rights and duties of the parties should be looked at. Our recommendations should therefore be considered as awhole; concentration on individual aspects may lead to a distorted view. 2.4 We shall first assess the implied terms of quality and fitness for purpose incorporated by statute into contracts for the sale of goods,2into contracts for the hire-purchase of goods3 and (except in Scotland) into other contracts for the supply of For convenience we base the discussion on the provisions in the legislation on the sale of goods, but the statutory implied terms of quality and fitness for purpose are virtually identical in the other contracts for the supply of goods’ and the same considerations and criticisms apply. We also assess the terms implied by the common law of Scotland in these other contracts. B. THE IMPLIED TERMS AS TO QUALITY AND FITNESS FOR PURPOSE 1. The statutory implied term as to merchantable quality 2.5 The present statutory provisions. The Sale of Goods Act 1979 provides as follows: “14(1) Except as provided by this section and section 15below and subject to any other enactment, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract of sale. (2) Where the seller sellsgoodsin thecourseof abusinessthere isanimplied condition that 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 goodsbefore thecontract ismade, asregardsdefects 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. 15(2) In the case of a contract for sale by sample there is an implied condition . . . (c) that the goods will be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. I See Parts 3 to 7. Sale of Goods Act 1979, s. 14. See also s. 15. Supply of Goods (Implied Terms) Act 1973, ss. 10 and 15. Supply of Goods and Services Act 1982,ss. 4 and 9. This Act does not extend to Scotland: see para. 2.20below. The implied term as to quality is also incorporated into trading stamp transactions: Trading Stamps Act 1964, s. 4(l)(CZ These terms are not implied in Scotland in the contracts covered by the 1982 Act. 6 for some purpose or purposes. This “usability” test, it has been argued, seems to cover only those defects which interfere with the use or uses of the article. For example, a new car delivered with an oil stain on the carpet is still fit for performing its primary function of being driven in comfort and safety. Yet the oil stain should not be present. A second difficultyabout the present definition is that by stating that goods are of merchantable quality if they are as fit for the purpose or purposes . . . “as it is reasonable to expect . . .”, the definition may have lowered the standard of merchantable quality where the seller is able to establish that goods of the particular type, such as new cars, can reasonably be expected to possessa number of minor defects on delivery. If this be so, then as defects increase both in number and frequency the chance of there being held to be a breach of contract diminishes. It might therefore be argued that a general deterioration in the standard of manufacture of a particular kind of article would result in a corresponding decline in the standard of merchantable quality for that article. 2.12 Tworecent casesconcerning thesaleof new cars illustrate these diffi~ulties.~~InMillurs of Fulkirk Ltd. v. TurpieZra car was delivered with a slight oil leak in the power-assisted steering system. Thiswould almost certainly have been put right long before the systemceased to function and, even if it did so cease, no danger would have resulted. The repair would, at most, have cost about 225. The buyer rejected the car on the ground that it was not of merchantable quality. The Inner House of the Court of Session unanimously upheld the decision of the sheriff that the car was of merchantable quality. Lord President Emslie said that the relevant circumstances included, in particular, that (i) the defect was a minor one which could readily and very easily be cured at very small cost;.(ii) the dealers were willing and anxious to cure it; (iii) thedefect was obvious and any risk created was slight; (iv) many new cars had some defects on delivery and it was not exceptional for a new car to be delivered in such a condition. It seems that the car was sold with a manufacturer’s “repair warranty” and that, if this had been produced and relied upon, it might have been a further factor which the Court would have taken into account. In Rogers v. Purish (Scarborough)Ltd.26a car was delivered with vital oil seals leaking, which permitted the loss of significant quantities of oil, and with other defectsin the engine, the gear box and the bodywork. Thejudge at first instance held that the car was of merchantable quality: the defects were capable of being repaired and were (at least for a short time) actually repaired. These repairs were carried out at no cost to the buyers who had been able to drive the vehicle more than 5,000 miles. The Court of Appeal reversed this decision. The fact that a defect could be repaired did not prevent it from rendering the goods unmerchantable if it was of a sufficient degree. That it had actually been repaired was irrelevant to the question of the quality of the vehicle on delivery; moreover, (as appeared to have been accepted by the judge at first instance) it was incorrect to argue that if a vehicle was capable of starting and being driven in safety from one point to another it must necessarily be merchantable. In relation to section 14(6) Mustill L.J. said: “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 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 upon the market at which the car is aimed”.27 The Lord Justice pointed out that the car was described as new and that the price was well above that of the ordinary family saloon. “The buyer”, he said, “was entitled to value for his Mustill L.J. doubted whether the fact that the vehicle was sold with the benefit of a manufacturer’s warranty was relevant, and Sir Edward Eveleigh said that “[tlhe fact that the plaintiff was entitled to have remedial work done under the warranty does not make [the car] fit for its purpose at the time of delivery”.29The existence of the warranty, he said, did 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. 24 Cars, it seems, are sufficiently expensive to justify litigation. They contain a large number of parts, most of which can be repaired or replaced. Their value second-hand is usually well below their new price and questions of rejection therefore achieve real importancefor the seller, while the buyer may have strongly-feltemotional reasons for his actions. 25 1976 S.L.T. (Notes) 66. 26 [1987] 2 W.L.R. 353. 27 Ibid,at p. 359F. 2R Ibid,at p. 3 5 9 a 2q Ibid,at p. 362D. - 9 2.13 While the decision in Rogers v. Parish (Scarborough) Ltd. does put to rest some of the doubts which had earlier been expressed as to whether a car could be said to be unmerchantable if it was capable of being safely driven from place to place,3othe question remains whether every small matter which might be required to be corrected in a complicated new artefact, such as a car, renders the goods “unmerchantable”. Certainly, every buyer of a new car would expect all mechanical and (probably) all cosmetic defects to be corrected and would assert that they should all have been corrected before delivery. In practice, however, what generally seems to happen is that although new cars are frequently delivered with such minor “defects”, buyers do not seek to reject because of their presence, but ask the garage to put them right free of charge under the manufacturer’s warranty. It certainly seems that buyers of most new cars must nowadays expect that there may be some minor “defects” present on delivery. Do the words “as it is reasonable to expect . . .” in section 14(6) really mean that these defects do not render the car unmerchantable within section 14(2)? If the car is not unmerchantable, the seller has not broken the contract and is not obliged to do any further work on it or compensate the buyer for any loss or inconvenience On the other hand, if such minor defects in a new car mean that the car is unmerchantable, then the buyer has the right to reject the car, however quickly and easily the defects can be put right,bythe garage.32This dilemma is central to the matters considered in this Report. (iii) Durability 2.14 Although it seems clear that the term as to.quality falls to be satisfied at the time of delivery and not-a1 some later date, it also seems clear in law that goods will not be of merchantable quality unless they are of reasonable d~rab i l i t y .~~What is reasonable durability will, of course, depend on the nature of the goods and the other circumstances of the case. The courts will, where relevant, examine later events in order to determine whether the goods measured up to the appropriate standard at the time of delivery. 2.15 There is, however, no express reference in the Act to the concept of durability or to the time when the term as to quality must be satisfied. It may not therefore be sufficiently clear outside the higher courts that the goods must be of reasonable durability and, in the absence of any such statutory provision, there is some uncertainty, at least in the context of consumer complaints. It appears that complaints and queries are frequently raised with consumer protection agencies and associations concerning such goods as carpets, shoes and sofas which wear out, beyond any hope of repair or refurbishing, in an unreasonably short time. Cases arising from such complaints are rarely heard by the higher courts and it is said that judicial attitudes expressed in some of the lower courtson the question of durability make it hard for consumers to achieve a satisfactory settlement. It is true that there are codes of practice governing the general standard, includingthe durability, of certain consumer articles but the observance of a code by a manufacturer is generally voluntary and cannot be enforced by a consumer.34In its Report on Implied Terms in Contracts for the Supply of Goods35the Law Commission recommended the introduction of an express provision on durability into the Sale of Goods Act. Both Commissions now take the view that the absence of an express reference to durability constitutes a justifiable criticism of the present law and that the provision of such a reference should make it easier in many cases for a consumer to establish a breach of contract.36 3n The matter was considered, for example, in Merchantable Quality-What does it mean? published by the Consumers’ Association in November 1979. However, R.M. Goode, Commercial Law, (1982), p. 262 expresses a very similar view about the meaning of s. 14(6) as was expressed by the Court of Appeal in Rogers. 31 In Millars of Falkirk Ltd. v. Turpie 1976 S.L.T. (Notes) 66 the buyer was not entitled even to damages for the defect in his car. )* This problem is not new nor is it confined to Great Britain. In International Business Machines Co. Ltd. v. Shcherban (1925) 1 D.L.R. 864 a Canadian court held that a machine costing $284 was unmerchantable because the glass (costing a few cents) covering a dial was broken. In Winsley Bros. v. Woodfield Importing Co. [1929] N.Z.L.R. 480 it was held that a machine costing E90 was unmerchantable because of a defect which cost E l to repair. 33 See Lambert v . Lewis [1982] A.C. 225, especiallyper Lord Diplock at p. 276; Crowther v. Shannon [1975] 1 W.L.R. 30. For a survey, see W.C.H. Ervine, “Durability, Consumers and the Sale of Goods Act”, 1984 J.R. 147. 34 Under some codes there is provision for arbitration and conciliation procedures. 35 (1979) Law Com. No. 95, para. 113. ’ 6 See R.M. Goode, Commercial Law, (1982), pp. 288-290. A term of reasonable durability has been accepted in some Canadian Provinces: see the Nova Scotia Consumer Protection Act R.S.N.S. 1967 c. 53 as amended by S.N.S. 1975 c. 19, s. 20C (3)(j); the Saskatchewan Consumer Products Warranties Act 1977, s. ll(7). 10 (iv) Safety 2.16 Although the safety of goods when in use is clearly an important aspect of fitness for purpose in almost all cases,37it may be thought to be a criticism of the present law that it doesnot spell out in clear terms that the impliedterm asto quality includes, where appropriate, a requirement that the goods should be reasonably safe. This is such an important matter that it may be thought it should not be left to implication. 2. The statutory implied term of fitness for a particular purpose 2.17 Section 14(3) of the Sale of Goods Act 1979 provides that: “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 anyparticular purpose forwhich the goodsare 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.” 2.18 In order for the term as to fitness to be implied, a buyer must make known to the seller, either expressly or by implication, anyparticular purpose for which the goods are being bought. The purpose need not be expressly mentioned in the contract of sale, provided the customer otherwise makes it plain to the seller.39Sometimes it may be reasonably inferred by the seller from the contract, as it was in one case@where a propeller was ordered for a specific ship under construction. More importantly i t may often be reasonably inferred by the seller where the article has only one ordinary and obvious use.4LThis has led to section 14(3) being frequently relied upon when section 14(2) might seem more appropriate. But where the customer intends that goods whichhe plans to buy should have some specialquality, enabling him to use them for some special purpose of his own, he must reveal that purpose to the seller.” Unless the buyer indicates a specialpurpose, the goods need only be reasonably fit for a purpose which the seller might reasonably have foreseen.43The seller does not guarantee that his goods are absolutely suitable, only that they are reasonably suitable. It is a question of fact in each case. Thus a second-hand car was held to be reasonably fit for its purpose although it was known to require repairs at the time it was bought.” previously sold by a credit-broker to the seller, to that credi t -br~ker ,~~ 2.19 There is an overlap between the implied terms as to fitnessfor purpose and merchant- able quality, but this, in our view, is immaterial. What matters is that the implied term of quality applies in every contract of sale (except where the seller does not sell the goods in the course of a business), irrespective of whether the buyer has indicated a particular purpose. The Law Commissions re-examined the implied term as to fitness in their First Report on Exemption Clause~,~’and our recommendations were implemented by the Supply of Goods (Implied Terms) Act 1973. On consultation no criticism of section 14(3)was expressed such as to cause us to reconsider its wording. 37 Cf. Lambert v. Lewis [1982]A.C. 225. Certain goods, such as cigarettes, may be inherently unsafe even when used for the purposes for which they are commonly bought. The Consumer Protection Bill will, if enacted, make further provision for safety, first by implementing the European Community Directive on Product Liability and, secondly, by creating an offence ofsupplying consumer goods which fail to comply with a general safety requirement. InA “credit-broker” is defined by s. 61(1) of the 1979Act as “a person acting in the course of a business of credit brokerage carried on by him, that is a business of effecting introductions of individuals desiring to obtain credit- (a) to persons carrying on any business so far as it relates to the provision of credit, or (b) to other persons engaged in credit brokerage”. 39 Bristol Tramways v. Fiat Motors Ltd. [1910] 2 K.B. 831. 4 1 Preist v. Last [1903] 2 K.B. 148. 42 See Grifiths v. Peter Conway Ltd. [1939] 1All E.R. 685; Baldry v. Marshall [1925] 1K.B. 260. See, recently, 43 See Frost v. Aylesbury Dairy Co. Lfd . [1905] 1K.B. 608. 4s (1969) Law Com: No. 24; Scot. Law Com. No. 12. Cammell Laird v. Manganese Bronze and Brass [1934] A.C. 402. MIS Aswan Engineering Establishment Co. v. Lupdine Ltd. [1987] 1 W.L.R. 1. Bartlett v. Sidney Marcus Ltd. [1965] 1 W.L.R. 1013. 11 a term depends on the intention of the parties, as ascertained from the construction of the contract. 2.26 A criticism of the classification of most of the implied terms in the Sale of Goods Act as “conditions” is that it leads to inflexibility and to a danger that the obligation of the seller to supply goods of the appropriate quality will be watered down. If a defect is a minor one the court may be reluctant to allow rejection and so, under the present law, may be tempted to hold that there is no breach at all of the implied term as to quality. This is illustrated by two recent cases to which we have already referred. In Millars of Falkirk Ltd. v. T ~ r p i e ~ ~ it was held that it was not a breach of contract to deliver a car in a condition which was admittedlydefective and required repair; while in CehaveN . V.v. Bremer Handelsgesellschaft na.b.H. Lord Denning M.R. saida that the implied condition was broken only if the defect was so serious that a commercial man would have thought that the buyer should be able to reject the goods. These cases illustrate the difficulties to which the rigid classification gives rise, and lower courts are bound by the precedents thus created. There has, moreover, been express criticism69of the inflexibility of the present law as to compliance with description. In several earlier cases70the court, in deciding whether the buyer should be entitled to terminate the contract, concentrated entirely on whether there had been a breach of the implied term as to description and not at all on the effect that such a breach had had on the contract as a whole. In one of these cases’l it was expressly found that the goods were commercially within the specification. Some of these decisions have now been described in the House of Lords as “excessively technical”.’* (b) Scots Law - (i) Need for separate treatment of Scottish position 2.27 It is necessary to deal separately with the remedies of the buyer, or other person supplied with goods, in Scots law for two reasons. First, the general law is different -most significantlyin that it does not make use of the distinction betwe5n conditions and warranties used in the Sale of Goods Act. Secondly, the existing provisions on remedies in the Sale of Goods Act and Supply of Goods (Implied Terms) Act 1973 are different for Scotland and for England. These differences in the common law and the statutory provisions are not merely cosmetic. They are such that the statutory scheme of remedies is not only incompatible with the background Scottish law but also not easy in every case to justify on policy grounds. From the point of view of Scots law an important function of this law reform project is to remedy what has long been regarded as an inappropriate set of statutory rules. (ii) Buyer’s remedies in sale of goods 2.28 The statutory distinction between conditions and warranties. The Sale of Goods Act classifies the statutory implied terms as conditions or warranties for Scots law as well as for English law but, because a distinction between conditions and warranties has never been recognised inScots law,73the Act doesnot definethese termsfor Scotland.74Instead it provides that: “In Scotland, failure by the seller to perform any material part of a contract of sale is a breach of contract, whichentitlesthe buyer eitherwithin areasonable time after delivery to reject the goods and treat the contract as repudiated, or to retain the goods and treat the failure to perform such material part as a breach which may give rise to a claim for compensation or damage^."^' The main purpose of this provision was to change the rule of the Scottish common law which prevented a buyer who retained the goods fromfounding on a breach of contract by the seller to obtain a diminution of the Its drafting has, however, been criticised because it ~ 67 1976 S.L.T. (Notes) 66: see para. 2.12 above. 69 Reardon Smith Line Ltd. v. Hansen-Tangen [1976] 1 W.L.R. 989, per Lord Wilberforce at p. 998. 70 See e.g. Arcos Ltd. v. Ronaasen & Son [1933]A.C. 470 and Re Moore & Co. Ltd. and Landauer & Co. [1921] 71 Arcos Ltd. v. Ronaasen & Son [1933] A.C. 470. 72 Reardon Smith Line Ltd. v. Hamen-Tangen [1976] 1 W.L.R. 989, per Lord Wilberforce at p. 998. 73 See Nelson v. William Chalmers & Co. Ltd. 1913 S.C. 441. But cf. Wade v. Waldon 1909 S.C 571. 74 Subsections (2) to (4) of s. 11(conditions and warranties) do not apply to Scotland. Neither does the definition 7s.Section 11(5 ) . 76 McCormick v. Rittmeyer (1869) 7 M . 854. [1976] Q.B. 44, 62: see para. 2.25 above. 2 K.B. 519. of “warranty” in s. 61(1). 14 applies the concept of materiality to the terms of the contract rather than to the breach.n In effect therefore it appears to introduce the Englishconcept of a “condition” into the Scots law on sale. 2.29 “Warranty” is not defined for Scots law by the Sale of Goods Act but section 61(2) “As regards Scotland a breach of warranty shall be deemed to be a failure to perform a material part of the contract.” Section 53, which deals with damages for breach of warranty by the seller, concludes by providing that: “(5) Nothing in this sectionprejudices or affectsthe buyer’sright of rejection in Scotland 2.30 E’ect of the statutory distinction. It will be seen that, although the Act uses the terms “condition” and “warranty” in enacting the implied terms for Scots law, the distinction between them is meaningless. Breach of an implied condition is presumably a breach of a material part of the contract. Breach of an impliedwarranty isexpresslydeemed to be a breach of a material part of the contract. The result in terms of the Act would seem to be that, in both cases, the buyer is entitled to reject the goods and treat the contract as rep~diated.’~ Some doubt on this conclusion is, however, raised by the case of Millars of Falkirk Ltd. v. T ~ r p i e ~ ~where it was questioned whether the application of section ll(5) (as it now is) had: “ever been properly considered in circumstancesin which breach of an impliedcondition may be an entirely proper finding, and yet the defect in the article which leads to that finding being made is both minor and readily remediable by a willing seller”.s0 The court did not, however, have to consider this question directly as it was held that there was no breach of the implied term as to merchantable quality. of the 1979 Act provides that: as declared by this Act.” 2.31 Assessment of the statutory distinction. The classification of the implied terms as conditionsorwarranties isentirelyunsuitableforScotslawwhichdoesnot usethisterminology in this way. The Act is even more inconsistentwith the general Scotslaw in this respect than it is with English law as recently developed.s’It appears to have the unfortunate effect, at least if read literally, of allowing the extreme remedies of rejection and rescission, even in commercial cases, for minor and insignificant breaches. The Scottish Law Commission has therefore concluded that, whatever may be done in relation to the law of England and Wales on this subject, the statutory regime of conditionsand warranties should be replaced in Scots law by new provisions stating the buyer’s remedies in a way which is compatible with the general law of Scotland. 3. Other contracts for the supply of goods (a) Remedies of the customer: English law 2.32 The customer in a contract of barter, hire, hire-purchase or for work and materials may seek to reject the goods supplied and terminate the contract on the ground that the supplier has broken one or more of the terms implied by statute. In order to do so he must, in the same way as a buyer under a contract of sale, show that there has been a breach of an implied term that has been classified as a condition either, in the case of hire-purchase contracts, by the Supply of Goods (Implied Terms) Act 1973 or, in the case of the other contracts for the supply of goods, by the Supply of Goods and Services Act 1982.**The expressions “condition” and “warranty” are not defined in either the 1973or the 1982Acts. It is, however, likelys3that a similar interpretation of these expressions would be adopted in the 1973 and 1982 Acts as has been applied in the Sale of Goods Act. - TI J.J. Gow, The Mercantile and Industrial Law of Scotland, (1964). p. 207. 7R See M.G. Clarke, “The Buyer’s Right ofRejection”, 1978 S.L.T. (News) 1at pp. 56;W.A. Wilson, The 7q 1976 S.L.T. (Notes) 66. Ro Ibid., at p. 68. See para 2.25 above. R2 The Supply of Goods (Implied Terms) Act 1973 implies into hire-purchase contracts conditions as to title, description, quality, fitness and sample which correspond to those in the Sale of Goods Act. The Supply of Goods and Services Act 1982jmplies similar terms into contracts for barter, for hire and for work and materials. Law of Scotland Relating to Debt, (1982), p. 22. R3 See Halsbury’s Laws of England 4th ed., (1979), Vol. 9, para. 543, n. 2. B 15 2.33 Where there has not been a total failure of consideration the innocent party may not be able to recover all (or any) money previously paid under the contract, although he is still entitled to reject the defective goods, terminate the contract and suefor damages.841nYeoman Credit Ltd. v. Appsn5the defendant entered into an agreement for the hire-purchase of a second-hand car which was so seriously defective that he was held to be entitled to reject it, terminate the contract and claim damages. However, because there had been no total failure of consideration he could not recover his deposit and the instalments he had already paid.& In two subsequent hire-purchase cases the hirer was held to be entitled to reject the goods and recover the money paid under the contract despite obtaining some enjoyment from the goods. In Charterhouse Credit v. T011yn7it was conceded that the hirer’s use of a car, which was substantial, precluded a total failure of consideration. He was held to be entitled to sue fordamageswhich consisted of themoney hehad paid under thecontract lessasmall deduction for his use of the car. In Farnworth Finance Facilities Ltd. v. AttrydP a defective motor bicycle had been driven for 4,000 miles. Despite such substantial use the question whether there was a total failure of consideration was not raised and the hirer recovered all the money he had paid under the contract. Because of the inconvenience he had suffered the Court of Appeal made no deduction for his use of the motor bicycle. In both these cases the hirer’s damages were calculated by reference to what he had paid out less an allowance for any use of the goods which he had had (if justified on the facts, as in the Charterhouse case). 2.34 It is difficult to reconcile the method of calculation adopted in Yeoman Credit v. Apps with the method used in the Charterhouseand Farnworthcasesand no clear principlesemerge. (b) 2.35 There isa clear need for astatutory statement of theremedies, in Scotslaw,of someone supplied with the wrong, or defective, goods under a contract of hire-purchase,part-exchange or barter. Remedies of the customer: Scots law 2.36 Implied terms as to description, quality, fitnessfor purpose and correspondence with sampleareincorporated into hire-purchasecontractsby the Supplyof Goods (ImpliedTerms) Act 1973.n9They are also described as “conditions” in the Act. However, section 15(1) of the Act provides that: “ ‘condition’and ‘warranty’,in relation to Scotland, mean stipulation, and any stipulation referred to in [the relevant sections] shall be deemed to be material to the agreement”. The result is that, instead of the “material part” formula of sections 11(5)and 61(2) of the Sale of Goods Act, there is here a new concept of a “material stipulation”. There is, however, no express reference to any right to treat the contract as repudiated for breach of a “material stipulation”, and it may be, therefore, that in accordance with the general law there would be no such right unless the breach were material. 2.37 The contracts of barter and part-exchange are governed by the common law. There is little authority relating specifically to the remedies available in the event of a breach of a contract of barter. It would appear, however, that the common law rules relevant to sale apply.” Under these rules the remedy on the delivery of defective goods was somewhat limited. The buyer could only reject the goods and rescind the contract-the general rule was that defective goods could not be retained subject to a claim for diminution of the price.g1 Under a contract of barter a party rejecting goods would require the return of the goods he himself had delivered. The common law remedies in contracts of sale, and therefore also of barter, were wider, however, when the party to whom defective goods had been delivered discovered after some time that the goods had latent defects and it was no longer possible to reject them. In such instances, a claim for damages was competent. This remedy would See Lord Goff of Chieveley and G. Jones, The Law ofRestiiuiion 3rd ed., (1986), pp. 458-465. It may be that in the case of sale a total failureof considerationis presumed when the buyer is entitled to, and does, terminate the contract for breach of a condition by the seller. 85 [1962] 2 Q.B. 508. R6 Ibid., per Holroyd Pearce L.J. at p. 521. R7 [1963] 2 Q.B. 683. R8 [I9701 1 W.L.R. 1053. 89 Sections 9, 10 and 11. 9o Erskine 111, 3, 4; Urquhari v. Wylie 1953 S.L.T. (Sh. Ct.) 87; and see also Widenrneyer v. Burn, Stewart & 91 McCorrnick v. Ritirneyer (1869) 7 M. 854, per Lord President Inglis at p. 858. Co. Ltd. 1967 S.C. 85. 16 i will simply sign such notes without qualification, and, by doing so, may expressly accept the goods because thereby “intimating” their acceptance within section 35.’” Buyers may in this way deprive themselves of the right subsequently to reject the (ii) Acts “inconsistent with the ownership of the seller” 2.46 The buyer is deemed to have accepted the goods when he has received delivery of them and has dealt with them in a manner “inconsistent with the ownership of the seller”.’” There are three points which should be noted. First, section 35 is in this respect expressly made subject to section 34 of the Act.’”’ Secondly, property in goods may pass to a buyer before he takes delivery of them.’08In this situation it might appear difficult to see how the buyer can be said to act inconsistently with the ownership of the seller because the seller will have ceased to own the goods before they are delivered to the buyer. The wording of section 35(1) does not appear to be apt to deal with this situation.’mIt seems, however, that the problem has been solvedby thecourts: thewords “ownership of theseller” should be construed as referring to a conditional ownership, the condition being that the goods will comply with the terms of the contract and are not rejected by the buyer.”O Thirdly, the Act does not expressly contemplate documents (such as bills of lading) and is not altogether easy to apply to them.”’ It appears that the buyer has separate rights to reject the documents and to reject the goods, and that the loss of the former right will not stop the buyer from exercising the latter right, unless the defects in the goods are apparent on the face of the documents.”* 2.47 The 1979 Act does not say what acts are “inconsistent with the ownership of the seller”. Probably the most common one, however, is the re-sale and delivery of the goods to a s~b-buyer.”~Beyond this it i s not easy to state in general terms what acts will be held to be inconsistent with the ownership of the seller. Examples are using more of the goods than was necessary fortesting them,’I4and incorporatingthegoodsinto a structure from which they could not easily be removed.115In these cases the underlying principle may be that the goods cannot be rejected if they cannot physically be returned to the seller. As we said in the Consultative Document, it is also possible (though unlikely) that a buyer does an incon- sistent act when he asks his seller to try to repair to the goods, or agrees to the seller’s offer to do SO."^ (iii) Lapse of time 2.48 The buyer is deemed to have accepted the goods when he retains themfor a reasonable time after delivery, without intimating to the seller that he has rejected them. What is a reasonable time is a question of fact.”’ It is apparent from the cases that, once the defect has come to the attention of the buyer, he should exercisehis right to reject within a reasonably short space of time.’18He is, however, entitled during that time “to make inquiries as to the commercial possibilities in order to decide what to do on learning for the first time of the breach of condition which would entitle him to r e j e~ t” . ”~Because everything will turn on IO4 See Benjamin’s Sale of Goods 2nd ed., (1981), para. 918. But it may be that I ‘ . . . a consumer who signs a receipt merely acknowledging delivery will not be accepting a product”: R. Cranston, Consumers and the Law 2nd ed., (1984), p. 122. InsSections 13 and 25(3) of the Unfair Contract Terms Act 1977 are designed to limit the effect of exemption clauses which exclude or restrict the remedies of the customer. However it is doubtful if these sections cover acceptance notes because such notes may not constitute contractual terms, to which the sections are confined. IO6 Section 35(1). I m This was enacted by s. 4(2) of the Misrepresentation Act 1967. Previously there was uncertainty as to the IOR Sections 17 and 18 of the Sale of Goods Act. IO9 Cf. R.M. Goode, Commercial Law, (1982), p. 305, where the contrary view is expressed. relationship between ss. 34 and 35. Kwei Tek Chao v. British Traders and Shippers Ltd. [1954] 2 Q.B. 459; see also Nelson v. William Chalmers See Benjamin’s Sale of Goods 2nd ed., (1981), para. 1722. Panchaud Frkres S.A. v. Etablissements General Grain Co. [1970] 1Lloyd’s Rep. 53. Hardy & Co. v. Hillerns and Fowler [1923] 2 K.B. 490. I I 4 Harnor v. Groves (1855) 15 C.B. 667; Heilbutt v. Hickson (1872) L.R. 7 C.P. 438, 451. Mechan & Sons Lid. v. Bow, McLachlan & Co. Ltd. 1910 S.C. 758. I l 6 Consultative Document, para. 2.56. Further discussion of the nature of an inconsistent act can be found in Benjamin’s Sale of Goods, 2nd ed. (1981), para. 919; R.M. Goode, Commercial Law, (1982), pp. 307-309; and P.S. Atiyah, The Sale of Goods 7th ed., (1985), pp. 39S399. & Co. Ltd. 1913 S.C. 441. This is expressly provided by the Act, s. 59. 118 See Flynn v. Scott 1949 S.C. 442, where it was held that rejection could not be made 3 weeks after a van had broken down when it should have been made “within a very few days” (see p. 446); and, recently, Bernstein v. P a m o m Motors (Golders Green) Lfd . , The Times, 25 October 1986, where the buyer of a car was held not to be entitled to reject it after 3 weeks. This decision is under appeal. Il9 Fisher, Reeves a Co. Ltd. v. Armour & Co. Lfd. [1920] 3 K.B. 614, per Scrutton L.J. at p. 624. 19 the question of reasonableness, there is no limit on the number of factors which the court is entitled to take into account when deciding what period of retention is reasonable.1zo 2.49 It has been suggested121that the lapse of time rule may be subject to section 34(1)- i.e. that, however long the buyer retains the goods, he is not to be deemed to have accepted them until he has had a reasonable opportunity to examine them. Although the point is not free from doubt, it seems likely that only acts “inconsistent with the ownership of the seller” aresubject tothebuyer’sreasonable opportunity toexaminethegoodsandthatthe “difference in practice would in any case be slight”.122It is difficult to imagine many situations in which the buyer will have retained the goods for any length of time without having had a reasonable opportunity to examine them.123 2. (a) English law: affirmation 2.50 In this section we are concerned not only with contracts of hire, hire-purchase, barter and for work and materials but also with consumer conditional sale agreements, which are equated with hire-purchase agreements for the purpose of and are subject to the same common law principle of affirmation. 2.51 Unlike a buyer, the customer in any of the other contracts for the supply of goods does not lose his right to bring the contract to an end by virtue of provisions similar to those contained in the Sale of Goods Act, but by virtue of the common law doctrine of affirmation. If he is held to have affirmed the contract he can.thereafter only sue for damages. The followingprinciples have emerged in the general law of contract and appear to be of general application:Is (i) on discovering the breach, an innocent party must elect between his available remedies;’26 (ii) it seems that as a general rule an innocent party cannot be held to have affirmed the contract, unless he had knowledge of the breach;’27 (iii) affirmation may be express if the innocent party expresslyrefuses to accept the other party’s repudiation of the contract;128 (iv) affirmation may be implied if the innocent party does some act such as pressing for the performance of the contract from which it may be inferred that he recognises the continued existence of the contract;12g (v) mere inactivity by the innocent party after discovering the breach will not of itself constitute affirmation, unless (a) the other party would be prejudiced by the delay Other contracts for the supply of goods Izo Examples where rejection was permitted include: Hammer and Barrow v. Coca Cola [1962] N.Z.L.R. 723 (instalment retained for 25 days while correspondence took place); Munro & Co. v. Bennet & Son 1911 S.C. 337 (seller assured buyer that the goods would be satisfactory after adjustment); Burroughs Business Machines Lid. v. Feed-Rite Mil.5 (1962) Ltd. (1973) 42D.L.R. (3d)303, affd. (1976) 64D.L.R. (3d)767and Finlayv.Metro Toyota Lid. (1977) 82 D.L.R. (3d) 440 (seller unsuccessfully attempted to repair computer system and car respectively). Examples where rejection was not permitted include: Milner v. Tucker (1823) 1C. & P. 15 (chandelier inadequate to lightpremises retained for 6 months); Morrison &Mason Lid. v. ClarksonBros. (1898) 25 R. 427 (buyer’sconduct indicated that he was relying only on a right to damages); and Bernstein v. Pamsons Motors (Golders Green) Ltd., The Times, 25 October 1986. P.S. Atiyah and G.H. Treitel, “Misrepresentation Act 1967”, (1967) 30 M.L.R. 369, at p. 386; P.S. Atiyah, The Sale of Goods 7th ed., (1985), p. 394. Benjamin’s Sale of Goods 2nd ed., (1981), para. 925. See Hyslop v. Shirlaw (1905) 7 F. 875 where paintings could not be rejected as fakes 18 months after they had been delivered; contrast Burrell v. Harding’s Executrix 1931S.L.T. 76 where a purported “antique” had been possessed for over 2 years and the buyer sought to reject the article when an expert had claimed it to be in fact modern. In the former case the paintings had been openly hanging on walls, in the latter case the article had been I in store. I I Iz4Supply of Goods (Implied Terms) Act 1973, s. 14. 125 See The Athos [1981] 2 Lloyd‘s Rep. 74,87-89per Neill J. (affirmed [1983] 1Lloyd‘s Rep. 127 (C.A.)); and also Peyman v. Lanjani [1985] Ch. 457. Iz6 Kammins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd. [1971] A.C. 850, per Lord Diplock at p. 883. lZ7See however Panchaud Fr2res S.A. v. Etablissements General Grain Co. [1970] 1Lloyd’s Rep. 53, where the Court of Appeal, stressingthe need for finality in commercial transactions, created a limited exception of uncertain ambit to the general rule. It held that a buyer who rejected shipping documents on an inadmissible ground could not subsequently justify this on grounds which he could have detected, but did not detect at the time and which he only discovered 3 years later. White and Carter (Councils) Ltd. v. McGregor [1962] A.C. 413. IZ9_SuisseAtlantique Socidti d’Armement Maritime S.A. v. N.V.Rotterdamsche Kolen Centrale [1967] 1A.C. 361. 20 in treating thecontract asrepudiated, or (b) thedelayisof suchlength asto constitute evidence of a decision to affirm the contract;1M (vi) affirmation must be total in the sense that the innocent party cannot affirm part of the contract and disaffirm the 2.52 In applying the doctrine of affirmation to hire-purchase agreements the tendency of thecourts has been whereverpossible to protect the right of the hirer to reject defective goods. There are no reported cases in which the doctrine of affirmation has been applied to contracts of barter or for work and materials, but there is no reason to suppose that it would not be applicable. The doctrine appears to have been applied in a contract of hire.132 (b) Scots law: personal bar 2.53 It is thought that in Scots law the provisions on acceptance contained in the Sale of Goods Act apply to all conditional sale agreements. In the case of the other contracts for the supply of goods, it is a matter of doubt as to when the customer loses his right to bring the contract to an end. This right would be subject to general considerations of the law of personal bar. It would also be subject to the law on waiver.133 2.54 Under the Sale of Goods Act, which in section 35 merely adds further qualification to or reflects the common law, the Scottish courts in exceptional cases have been prepared to allow the purchaser to reject goods although a substantial period of time has elapsed since delivery, or even when the goods have been used.IMMuch will depend upon the particular circumstances of the contract. Considerations such as whether the purchaser was aware of the defect, and the nature of the action taken by the purchaser when he was in fact aware of the defect, have been factors taken into account in determining whether the right to reject has been lost. Such factors would often be relevant when considering whether or not a party was personally barred from rejecting, or had waived his right to reject, goodshe had obtained under another supply contract. The continuing relationship between the parties in contracts such as hire and hire-purchase would be a relevant factor. lY1 Allen v. Robles [1969] 1W.L.R. 1193. I3l Suisse Atlantique case [1967] 1A.C. 361. 13* Guarantee Trust of Jersey Ltd. v. Gardner (1973) 117 S.J. 564. 133 “The word ‘waiver’connotes the abandonment of a right. . . .The abandonment may be express, or it may be inferred from the facts and circumstancesof the case. . . . [Clertain of the Scottishcases . . . are . . .cases where one party to a contract had plainly accepted as being conform to contract performance tendered by the other party which he might, if so minded at the time, have rejected as defective. . . .[T]hequestion whether or not there has been waiver of a right is a question of fact, to be determined objectively upon a consideration of all the relevant evidence”: Armia Ltd. v. Daejan Developments Ltd. 1979 S.C. (H.L.) 56,per Lord Keith of Kinkel at p. 72. See also Lord Fraser of Tullybelton at pp. 68-69: “. . . the case on waiver can not, in my opinion, be disposed of simply on the ground that the respondents, who seek to rely on waiver, did not aver or prove that they had suffered prejudice or acted to their detriment in reliance on the appellants’ conduct.” See Burrell v. Harding’s Executrix 1931 S.L.T. 76; Aird & Coghill v. Pullan & A d a m (1904) 7 F. 258; and Munro & Co. v. Benget & Son 1911 S.C. 337. Cf. Flynn v. Scott 1949 S.C. 442. 21 he dealt as a consumer or not. However, our proposals regarding the consumer buyer’s rights on a breach of contract by the seller are justified only by an overriding policy consideration that he needs a regime which favours him if he is not to be disadvantaged in his dealings with a seller who has broken the contract. In the case of the implied term as to quality, we can see no special justification for putting the consumer buyer in a different position from other buyers. To do so would carry with it the obvious danger that the shopkeeper would buy from his wholesaler under a contract containing a different implied term from that under which he sells to his customer. The shopkeeper might find that there has been no breach of contract by the wholesaler but that he himself is in breach of contract as against the consumer who bought from him. This is a situation which we wish to avoid as far as possible. We propose below that the remedies available to a consumer on a breach by the seller may differ from those available to a shopkeeper, but we think that the question whether there was a breach of contract at all should be answered in the same way for both. 3.10 A further ground which leads us not to recommend that there should be a special implied term for a buyer who deals as a consumer isthat the circumstancesin which consumers buy goods vary enormously, just as do the circumstances in which buyers generally buy goods.’’ They can buy low quality as well as high quality goods, new or second-hand, from the manufacturer or from the shop round the corner. Consumer transactions, such as the purchase of a motor car, may involve large sums of money and complicated objects with hundreds of parts which may go wrong. No particular term seemed especially appropriate for consumer transactions, and organisationswhich represented consumers7interests did not press us for a special implied term relating to consumers. We have decided not to recommend such a term. 3.11 The decision to recommend a single implied term as to the quality of goods to be supplied under all types of contract brings with it certain consequences. There is no one word which we have found or which has been suggested to us by which the appropriate standard can be defined. The term must be sufficiently flexibleto be able to apply to all the many types of sale which can take place. Above all, there is no “magic” formula which will provide an instant answer in every case to the question whether goods meet the standard of quality which they should have. (Even if there were, this would not resolve most disputes about defective goods, since most disputes are not about the law but about the facts.) 3.12 In the Consultative Document’*we suggested that the new definition of quality should consist of two elements: (i) a basic principle formulated in language sufficiently general to apply to all kinds of goods and all kinds of transaction; this principle would also refer, as at present, to the description of the goods, their price, and anyother relevant circumstances, which are factors which would be taken into account in determining how stringent the quality requirement should be in any particular case; and (ii) a listof aspects of quality, any of which could be important in a particular case; the list would, however, not be exhaustive. This approach was generally supported on consultation and is the one which we now recom- mend. The definition which we shall propose is longer and more complex than the existing one. For the reasons which we have set out, we do not believe this is avoidable. What follows is a more detailed discussion of the two elements of the new definition which we propose. ~ (b) Formulation of the implied term (i) The first element: the basic principle 3.13 In the Consultative Document we canvassed three ways in which the basic principle -that the basic principle should simply require the goods to comply with a standard expressed as a qualitative adjective such as -that the basic principle should create a standard expressed as a neutral adjective such as “proper”,which would rely for its meaning on the other elements of the definition;14 could be formulated. These were: See para. 3.7 above. l2 Para. 4.7. I3 Consultative Document, para. 4.9. I4-7bid.,para. 4.12. 24 -that the basic principle should require the goods to be fully a~ceptab1e.l~ In all cases this basic principle would, of course, be amplified by the list of aspects of quality and the factors affecting the required standard; these are discussed below. A qualitative standard based on a single adjective (e.g. “good” quality) 3.14 Under this option the basicprinciple would simplystate that the goods supplied under the contract must be of “good” quality, or “sound” quality-r some other adjective which created a minimum standard, but without further explanation. The principal difficulty with that approach, as we saw it in the Consultative Document, is that we do not think that there exists a single adjective which is appropriate for all cases and which also gives a helpful indication of what standard it is laying down. Indeed, because the required quality must differ according to the transaction in question, we doubt whether a singlequalitative adjective could exist which was appropriate and meaningful. None was suggested on consultation. Although or “sound” might be suitable for some cases, clearly they would not be appropriate for others-for example, where a motor car was sold for scrap, or where poor quality or unsound goods were sold as “rejects” or “seconds” at a suitably low price. On the other hand a phrase such as “reasonable” quality might imply4hat goods never had to be of good or high quality. 3.15 On consultation there was general agreement that this was not the approach to pursue and we do not now recommend it. A neutral standard based ona-single adjective (e.g. “proper” quality) 3.16 Another of the three options we put forward was that the basic principle should state that the goods sold under the contract should be of “proper”, or “appropriate”, or “suitable” quality, or some other similar adjective. The adjective would not of itself imply any particular level of quality: the required quality would therefore be judged by reference to the list of aspectsof quality which would followasthe secondelement of the definition, andby reference to all the other factors (such as price and description). 3.17 The arguments in favour of this approach are principally that: (i) the disadvantages of the qualitative adjective approach discussedabove are avoided, since “proper”, “suitable” and “appropriate” do not imply any particular standard and are therefore much more flexible; and (ii) this approach will make sure that the main concentration will be, as it should be, on the list of relevant aspects of quality, and factors such as price and description. It is these which should be taken into account when deciding whether the goods are of the required quality. This approach was suppor$ed by many of those who commented on the Consultative Docu- ment, although not by a majority (the majority favoured the approach we shalldescribe next). Those who supported this approach did so essentially on the grounds put forward in the Consultative Document and summarised in the preceding paragraph. 3.18 The arguments against the “neutral adjective’, approach were also set out in the Consultative Document; and on further consideration we arepersuaded by them. We pointed out in the Consultative Document that a word such as “appropriate”, “proper” or “suitable” would be almost meaningless by itself; it could be given meaning only by reference to the other elements of the definition of quality. But even taken as a whole, a definition using a neutral adjective would not answer the question whether the goods in question were, or were not, of the right quality. We have little doubt that a court could operate such a test without difficulty, but we do not think such a test would be sufficiently helpful outside a court. A standard of acceptability 3.19 The third option which we proposed in the Consultative Document for the basic principle of the implied term was that the quality of the goods sold under the contract should be such as would be fully acceptable to a reasonable person, bearing in mind the description of the goods, their price, and all the other circumstances. Ibid.,paras. 4.101-4.11. 25 3.20 Like the other tests discussed above, and like the present standard of quality in section 14(6) of the 1979 Act, this test is an objective one because it turns on what is acceptable to a reasonable person. The goods in question may not be acceptable to the actual buyer, but this will not be sufficient to justify a claim for breach of contract. 3.21 The introduction of the notion of the reasonable person was said in the Consultative Document to be the principal argument against this option. It was said that the reasonable person, being a fiction, was unnecessary and might complicate the implied term and make it more difficult to apply. The non-lawyer might think that the only requirement was that the buyer should act in a reasonable manner; or that the seller could not reasonably be expected to be liable for latent defects. This, of course, is not what is intended. We intend simply to create an objective standard of quality. However, a majority of those who commented on this proposal in the Consultative Document preferred the “full acceptability” definition of quality. In one sense any objective test which does not depend on the viewpoint of the actual buyer must contain some concept of reasonableness whether it is made express or not. An inevitable distinction will have to be drawn between the buyer’s actual claim and what it is reasonable that he should be entitled to claim. The courts will therefore have to apply some standard of what is reasonable in any event. It seems preferable to us that this should be brought into the open, as it is in the existing definition in section 14(6) of the 1979 Act. 3.22 A further argument in favour of this option is that the basic principle does have some real content, unlike the “neutral adjective” test discussed immediately above. This basic principle asks a question: would the reasonable person regard the quality of the goods as meeting an acceptable standard in the circumstances? This question does not, of course, lay down an objectively ascertainable standardof quality, but it is a question whichhas a meaning, and one which it is possible to answer. We think therefore that this test is a more helpful one for retailers, consumersand their adviserswhileremaining appropriate for more sophisticated buyers and sellers. We accordingly recommend the adoption of such a test as the first element in our proposed re-definition of the required standard of qualityfor the purposes of the implied terms in the Sale of Goods Act.’6 3.23 There are some points which it is convenient to make here by way of amplification of this basic principle. 3.24 First, this new test moves away from the extreme reliance on “fitness for purpose” which is a principal defect of the words of the present test in section 14(6) of the 1979 Act, and away from the “usability” test formulated by Lord Reid in Kendall v. Lillico,” towards the approach of Dixon J. in Australian Knitting Mills Ltd. v. Grant.’*It has been pointed out that “fitness for purpose” is not confined to mere functional fitness,I9and we intend that the new definition of quality should make this clear by not concentrating to the same extent as the present one on the fitness of goods for their common purposes. We intend that this shift in emphasis will make it clearer that other types of defect are breaches of contract, including minor or cosmetic imperfectionswhich are not functional in that they do not impede the main use of the goods in question.20The “reasonable person” would not, in general, find the standard of goods to be “acceptable” if they had minor or cosmetic defects-certainly if the goods were new. But the test of the reasonable person would also permit a lower standard where only a lower standard could reasonably be demanded-for example, where the goods were second-hand, or “seconds” sold at a suitably low price. 3.25 Secondly, we intend that in deciding whether the actual goods meet the standard acceptable to a reasonable person, all the defects in the goods must be taken into account, even though some of them might not have been apparent at the time of sale. A reasonable person who had already bought goods might be tempted to keep them simplythrough inertia, rather than reject them, despite a defect which appeared in them. This is not the test we intend. Thetest iswhether the goods meet a standard that would be acceptable to areasonable person as performance of the contract. The question which the definition asks is not whether the reasonable person would find the goods acceptable; it is an objective comparison of the l6 See the proposed s. 14(2A) in cl. l(1) of the draft Bill annexed to this Report. [I9691 2 A.C. 31, and see para. 2.7 above. (1933) 50 C.L.R. 387 (affd [1936] A.C. 85), and see para. 2.7 above. l9 Rogers v. Parish (Scarborough) Ltd. I19871 2 W.L.R. 353. *O.Ourrecommendations on the second element of the definition, at paras. 3.38-3.43 below, are also intended to encourage this shift of emphasis. 26 3.36 Although not without doubt on the part of some of us, we have reached the conclusion that the latter view is preferable, and that goods of a particular description and price should be fit for all their common purposes unless there is an indication to the contrary. If the buyer has a particular uncommon purpose in mind it is always open to him to make this known to the seller, and rely on section 14(3) of the 1979 Act. If, on the other hand, the seller knows that his goods are not fit for one or more of the purposes for which goods of that kind are commonly supplied, he may ensure that the description of the goods excludes any common purpose for which they are unfit, or otherwise indicates that the goods are not fit for all their common purposes. If he does not do so, and it is not clear from the other circumstances, then the seller may be in breach of the implied quality term if he sells goods which are commonly supplied for two purposes but which are fit for only one. State or condition 3.37. The state or condition of goods is included in “quality” under the present law.34We suggested no change in the Consultative Document and we suggest none here, except that the reference to “state or condition” should in our view be brought forward and included in the implied term as to quality, instead of being found only at the end of the Act in the definition Appearance, finish, and freedom from minor defects 3.38 We suggested in the Consultative Document that the new definition of quality should specificallyrefer to appearance, finish,and freedom from minor defects asan aspect of quality. On consultation this proposal wasgenerally supported, particularly as regards minor defects, and we therefore recommend that such a reference should be included in the new def in i t i~n .~~ 3.39 On consideration, however, we now propose that “appearance and finish” be sepa- rated from “freedom from minor defects”, and that these two matters be referred to separately instead of together in the new definition. Thiswill avoid anypossible implication that a “minor defect” must be a defect in appearance or finish. Minor defects may, of course, relate to appearance or finish, but they may also be (for example) minor malfunctions in the operation of a machine and have nothing to do with appearance or finish. 3.40 Both of these proposed references may be relevant more to new goods than to second- hand goods, and perhaps more to consumer purchases than to business purchases. One of the criticismsof the present law is that the extent to which minor imperfections in appearance, finish, or functioning are a breach of contract is no longer clear.” These references to appear- ance and finish and to freedom from minor defects as aspects of quality are intended to show that in appropriate cases the buyer (in particular, the buyer of new goods) is entitled to expect that the goods will be free from even small imperfections. Thus dents, scratches, minor blemishes and discolourations, and small malfunctions will in appropriate cases be breaches of the implied term as to quality, provided they are not so trifling as to fall within the principle that matters which are quite negligible are not breaches of contract at all.’* Whether or not any particular defect or blemish is a breach of contract will depend on the facts of the case. For example, second-hand goods might be expected to have some marks or minor defects: these may not be breaches of contract, and the price of the goods may reflect this. Another example which was put to us on consultation was articles made of earthenware or pottery, or natural products in general. These will always contain what some might argue to be slight inconsistencies or imperfections, but we do not intend these necessarily to be breaches of contract. Where it is in the nature of the goods in question that small differences or inconsistencies will occur from place to place in the body of the material used or from article to article, such differences or inconsistencies may not be defects or imperfections at all. 34 1979 Act, s. 61(1). 35 See the proposed s. 14(2B) in cl. l(1) of the draft Bill annexed to this Report. 36 Ibid. 37 The recent case of Bernstein v. P a m o m Motors (Golders Green) Ltd., The Times, 25 October 1986, has not dispelled these doubts, and indeed certain obiter remarks of Rougier J. in that case appear to imply that some types of defect common in new cars are not breaches of contract. This case should however be contrasted with Rogers v. Parish (Scarborough) Ltd. [1987] 2 W.L.R. 353. 3R Commonly expressed as “de minimis non curat lex”. This is to be contrasted with the restriction which we propose below (in Part 4) on the non-consumer’s right to terminate the contract and reject the goods. In the latter case there will still be a breach of contract, but the buyer will be deprived of one of the available remedies and will be confined to hisremedy in damages. 29 3.41 Further, it will not always be appropriate to judge quality by reference to appearance and finish or to the existence of minor defects. For example, appearance and finish and the existence of minor defects are plainly irrelevant in the case of a car sold for scrap, or of the purchase of a hundredweight of manure. The references to appearance and finish and to freedom from minor defects will, on the other hand, be particularly relevant in the case of new consumer goods such as cars, “white goods” and clothes. 3.42 We do not propose that “minor defect” or “appearance and finish”should be defined. The possible variations of circumstances are sogreat that any attempt to do sowould be either so vague as to be practically useless, or so detailed that it would be unhelpfully cumbersome; and in our view no definition could adequately cover all the possible cases. The category of minor defects and of defects in appearance and finishwill therefore remain somewhat impre- cise, and doubts will have to be resolved from case to case. In particular, it should be emphasised that the reference to minor defects will not guarantee that goods which contain minor defects will alwaysfail the test of acceptable quality. In order to guarantee this it would be necessary to lay down an absolute rule that goods should never contain minor defects. Sincesomegoods (for example, “seconds” or second-hand goods) will be expected to contain minor defects, such an absolute standard would be inappr~priate .~~All the Act can do is indicate that the existence of minor defects is a relevant factor in determining whether or not the goods match the required standard of quality. 3.43 Thereferences whichwepropose to minor defects andto appearance and finishshould make it easier for a court faced with the facts of (for example) Millars of Falkirk Ltd. v. TurpiP to reach a different conclusionfrom that whichwasreached in that case onthe existing wording of section 14(6), although (as explained in the preceding paragraph) this cannot be absolutely guaranteed. In that case the buyer was left with no remedy at all for a leak in the power-assisted steering system of his new car. We do not think that in such a case the buyer should have to put up even with minor defects without a remedy (apart,of course, from those defects of which he should have been aware at the time of sale, or which were specifically drawn to his attention). In our view the references to appearance and finishand (in particular) to minor defects should help to emphasise that the requirement of quality does not depend entirely on fitness for purpose. Safet-r 3.44 In the Consultative Documentwe pointed out that it was clearly an important element in the implied term that goods should be reasonably safe when used for any of their normal purposes. We did not propose any alteration in the law here, but asked whether a specific provision on safety should be incorporated in the statute. 3.45 On consultation there was general support for such a provision, for the reasons set out in the Consultative Document. These may be summarised as follows: (i) A reference to safety might make clear that hazardous things or substances, which can be safely used only when unusual precautions are taken, will not be of the required standard of quality if appropriate warning is not given or if they are more hazardous than they should be. (ii) A reference to safety may help to answer any argument that safety is not a relevant consideration because if it had been it would have been included in the statute. (iii) To omit reference to safety would be odd especiallysince safety is such an important part of the quality of many modern consumer goods such as electrical appliances and cars. 3.46 Our view is, therefore, that safety should be included in the list of aspects of quality which we propose as part of the new def in i t i~n .~~Although this may result in some overlap with Parts I and I1of the Consumer Protection Bill (if enacted in its original form), that Bill would perform an essentially different function, andwe therefore donot think that a reference to safety should after all be omitted from the Sale of Goods Act. 39 It would, of course, be possible to say that the imperfections in “seconds” or second-hand goods were not “defects” within the meaning of the Sale of Goods Act, but this would require a special technical meaning of the word “defect”, which would probably then require definition in the Act. We do not think this would be practicable. 4o 1976 S.L.T (Notes) 66: see para. 2.12. above. 41 See the proposed s. 14(2B) contained in cl. l(1) of the draft BiU annexed to this Report. 30 Durability 3.47 We have discussed the present law on durability in Part 2, above,42where we have also noted the criticism that the present implied term as to quality does not expressly require that the goods should be reasonably durable. This was discussed in the Law Commission’s Report on Implied Terms in Contracts for the Supply of where it was concluded that an express obligation as to durability should form part of the supplier’s obligations to supply goods which are of merchantable quality and fit for their purpose.44The method was left to be considered in this Report. More recently, the Scottish Consumer Council, among others, have argued that the Sale of Goods Act should contain a specific reference to dur- ability.45 3.48 There are three issues, in particular, which must be resolved in connection with an (i) Shouldthe requirement be that the goodsshould last for a reasonabletime, or should (ii) Should the requirement be broken at the time of supply or at the later time when (iii) Should the requirement be part of the implied term as to quality or should it be a implied requirement about how long goods should last: it lay down a specific length of time for which goods should last? the goods are shown not to have lasted as long as they should? separate implied term? We discuss these questions in turn. 3.49 Duration or durability requirement? We do not think it would be possible to provide a definite indication of how long goods should last or in what condition. First, how long goods last will generally depend very much on the treatment they get. It would be unreasonable to insist that goods which are treated badly should last as long as the same goods treated well. Although this may make it hard for a court to say whether the requirement of durability has been broken, especially if a long time has passed since the sale, we think this is unavoidable. Secondly, different types of goods have different life expectancies; and different grades of the same type of goods also (and quite properly) have different life expectancies. Thirdly, the length of time for which complex goods should last will often depend on what component is in question. Clearly the buyer should not be entitled to complain about a watch if its battery runs down after its normal life expectancy-though he should be able to do so if it runs down sooner. If it is not the battery but part of the mechanism of the watch that wears out, the buyer will be entitled to complain after a much longer period. 3.50 We raised in the Consultative Document the question whether a statement of life expectancyincluded in a code of practiceshould be expresslyincluded in thestatute asrelevant to durability. We gave two reasons for not proposing a reference to codes of practice. We thought that the relevance of a code of practice should be left to be decided from case to case; and we thought that if any express reference were made to such codes (which are entered into voluntarily) there would be a danger that manufacturers and trade associations would object to their code being used for a purpose for which it was not intended; they would be less willing than they are at present to enter into such voluntary arrangements. After consultation this remains our view. Some commentators pointed out that a statement of life expectancy might not be contained in a code of practice-it might, for example, be included in the manufacturer’s advertising-but we have concluded that no express statutory reference should be made to statements of life expectancy even if they are not included in a code of practice. It would be open to a judge to take them into account in any particular case, or even to hold that a statement of life expectancy was an express term of the contract if it had been adopted by the seller, but not all such statements should in our view be relevant. Examples of statements of life expectancy whichwe should not expect to be taken into account are statements which come to the buyer’s notice only after he has bought the goods, or vague general claims in advertisements. 3.51 Our conclusion, therefore, is that a requirement of durability should be such that the goods would be required to last for a reasonable time. This would make it possible to apply C 42 Paras. 2.14-2.15. (1979) Law Corn. No. 95. Op. cif., paras. 11S114. 45 Review of the Lu’w of Sale of Goods in Scotland (Nov. 1981), para. 8.5. 31 be built: the kit would be fit for its purpose, namely that of being assembled. But the goods would have to be in a condition in which they could be assembled. 3.63 There was some support on consultation for including suitability for immediate use in the list of aspects of quality, but reservations about doing so have also emerged. 3.64 The argument which was pointed out on consultation against includingsuitability for immediate use in the list of aspects of quality is that there are many cases where goods are quite properly sold when they are not suitable for immediate use. There are two main cases of such goods. The first is where the buyer would normally expect to have to do something to the goods. For example, electrical goods are frequently sold without plugs; cooking utensils are often sold with the handle detached, and the buyer must screw it on; washing machines are supplied with locking pins which secure the drum and which must be removed before the machine is used. The second case is that of goods which are intended to develop or mature and to be used later: for example, an avocado pear which will take a few days to ripen, or wine which will not be mature for a year or more. There are so many examples of goods which are not suitable for immediate use that it might be not merely unhelpful but positively misleading to include the matter in a list of aspects of quality. Further, it was thought that mentioning suitability for immediate use was unnecessary because this was part of fitness for purpose: goods that should be but were not immediately usable would not be fit for their purpose, and would fail the test of quality on that account anyway.52Suitabilityfor immediate use might also be covered by the definition of quality as including state-orcondition. 3.65 Although not allof us arewithout regret onthematter, wehavereached the conclusion that suitability for immediate use should not be included in the list of aspects of quality. To the extent that the goods must be suitable for immediate use, the other implied terms achieve the desired result. Spare parts and servicing facilities 3.66 When goods break down or are damaged they may become useless unless they can be repaired and unless spare parts are available. However, there appears to be no legal obligation on the seller or supplier to maintain stocks or to provide servicingfa~i l i t ies .~~The question arises whether such obligation should be created. This matter was considered by the Law Commission in its Report on Implied Terms in Contracts for the Supply of and it was concluded that it would be wrong to create any such obligation. Hardly any support for this idea was received on consultation and it was thought that if such an obligation applied to all kinds of contracts involving all kinds of goods it could, in many cases, impose hardship on the retailer, particularly the small shopkeeper. It was feared the cost of providing such extra stocks and facilities, which might be considerable, would have to be passed on to the consumer. Further problems arose. Should the obligation continue even if the manufacturer went out of business? Should periods be laid down, product by product, for the time over which spare<should be maintained? Should the obligation apply equally to custom-made goods and second-hand goods? Should there be a distinction between “functional” parts and “non-functional” parts? It was thought that if these problems were avoided by an obligation on the retailer couched in general terms it would be so imprecise as to be of no real value to the customer. It seems to us that such a conclusion remains valid. The existence of a manufacturer’s code of practice settled under the auspices of the Office of Fair Trading, and making special reference to the provision of spare parts and servicingfacilities, is much more likely to benefit the consumer. B. 3.67 We mentioned in Part 2 above55that the definition of “merchantable quality” in the Sale of Goods Act 1979 is applied also to contracts of hire-purchase and the redemption of 52 In the Consultative Document we suggested that goods sold without adequate instructionswould be unlikely to meet the required standard of quality. It has now been held in Wormell v. R.H.M.Agriculture (East) Lid. [1986] 1 W.L.R. 336 that the “goods”in that case included the instructions, and that since the instructionswere misleading the defendants had supplied goods which were not fit for their purpose within the meaning of s. 14(3) of the 1979 Act. For a note on this decision see Ervine, “Retailer’s liability for misleading instructionson goods”, 1987 S.L.T. 132. 53 It appearsthatthisisso from L. Gent&Sonsv. EastmanMachineCo. Lrd. (C.A.,7February1985,unreported). s441979)Law Com. No.95, para. 115. 55 Para. 2.4. OTHER CONTRACTS FOR THE SUPPLY OF GOODS 34 trading stamps in return for goods and also (in England and Wales)56to other contracts for the supply of goods (such as contracts for hire, part-exchange and barter). The criticisms of the definition in the 1979Act apply equally to these other contracts for the supply of goods. Indeed, as we noted in the Consultative Document, these criticismsapply especially to some of those other contracts-for example, hire-purchase, which is often used by consumers to acquireexpensive items such as cars, which areespeciallylikely to have thecosmeticand other minor defects which are the subject of uncertainty under the present law. 3.68 In the Consultative Document we said57that the options available for reforming the implied term as to quality in contracts of supply other than sale were the same as those for sale itself. We have discussed these options in the preceding section of this Part of our Report. We also said that whatever solution is adopted for sale should also be adopted for other contracts of supply. The reason for this was that it seemed to us to be clearly desirable where possible to avoid creating complex and artificialdistinctions between the various types of sale and supplycontract especiallyin an area ofthelawwhichwasofgreat importancetoconsumers. 3.69 On consultation those who commented on this proposal universally agreed with us that no distinction should be created between sale and other supply contracts as far as the implied term as to quality is concerned. We therefore recommend that the new definition of “acceptablequality”should replace the existing “merchantable quality” in all the other supply As regards Scotland this recommendation will apply only in respect of hire- purchase and trading stamp transactions, given that the Supply of Goods and Services Act 1982currently does not apply to Scotland. In Part 7 below, provision for Scotland equivalent to Part I of the 1982 Act in comparable reformed terms is ons side red.^^ 3.70 One point which we should mention for the sake of clarification is how the express reference to durability in the new implied term as to quality will work in cases of hire and hire-purchase.@’ No change in the law is intended here. The express reference to durability is intended to mean the same as for contracts of sale. It does not mean that throughout the period of the hiring the goods must necessarily remain in the same condition as when they were supplied. Exactly how durable the goods must be will depend on all the circumstances.61 However, the length of the period of hire and the type of hiring involvedmay well be relevant. For example, a suit hired for one evening should remain in good condition for the whole evening, but a car hired for two years would be expected to show signs of wear by the end of the hiring, and certain parts would no doubt be expected to wear out and be replaced. 56 In Part 7 below it is recommended that the statutory implied terms which currently apply in contracts for the sale of goods should be applied also in Scotland (as they already are in England and Wales) to variousother contracts for the supply of goods. 57 At para. 5.2. 58 Schedule 2 of the draft Bill annexed to this Report. 59 And see Sched. 1 of the draft Bill annexed to this Report. N.E. Palmer, (1983)46M.L.R.619,626;N.E. Palmer, “Contractsof hireand theSupplyofGoodsandSewices Act 1982”, [1983] L.M.C.L.Q. 377, 385. InA.S. James Pty. Ltd. v. C.B. Duncan [1970] V.R. 705, McInerney J. said at p. 717 that “the warranty [of reasonable fitness for purpose] in cases of contracts for the hire of a chattel may, in appropriate circumstances,be a continuing warranty, i.e. as to fitness throughout the period of the hire . . .”.He contrasted this with a warranty as to seaworthiness, which is “fulfilled or broken (as the case may be) at the commencement of the relevant stage of the voyage.” These observations appear however to relate to the content of the relevant terms; not to the time at which they are broken. See para. 3.56 above. 35 PART 4 RECOMMENDATIONS ON REMEDIES A. SALE OF GOODS 1. Consumers and non-consumers 4.1 The Sale of Goods Act 1979 classifies as “conditions” the implied promises given by the seller concerning the quality of goods and also his implied promise that he has the right to sell them. According to English law, “[ulpon the occurrence of any breach of condition, the injured party can elect to terminate and claim damages, whatever the gravity of the breach”.’ Scottish common law does not use the word “condition” in this sense although it is generally thought that section ll(5) of the 1979Act gives the word a similar effect in Scots law as it has in English law.*In both England and Wales and in Scotland the classification of the statutory implied terms as “conditions” has given rise to difficulty. The first reason applies only to Scotland: the terminology of the Act does not fit into the background of Scots law. We have discussed this matter above.’ A second difficulty arises from the nature of a “condition”. The terms implied by sections 13 to 15 of the 1979 Act are capable of being broken in ways some of which may be very serious but some of which may be very slight. The classification of a term with such a flexible content as a “condition” with the inflexible result that in all cases the buyer has the right to terminate the contract aswell as claimdamages can give rise to unfairness. On the one hand, the right to terminate a contract for a very slight breach which can easilybe remedied may seem unjust onthe seller whoselossmightfar exceed the cost of remedying the defect. On the other hand; the remedy of rejection is so powerful that it can be counterproductive. A court faced with a claim to reject which it considers thoroughly unreasonable may come to the conclusion that there was no breach of contract at all: the buyer cannot then even recover damages. What the court cannot do in the case of breach of condition is to award damages but at the same time decide that the breach was too slight to entitle the buyer to reject the It is a case of “rejectability or nothing”. Thus the strength of the buyer’s remedy may actually work against his interests. 4.2 We considered in the Consultative Document whether the solution to this problem was to recommend the creation of a new term that goods would be free from all minor defect^.^ Breach of this term would give rise only to a right to damages. We rejected that solution in the ConsultativeDocument and consultation has confirmedus in that view. Such aterm would be undesirable where the buyer was a consumer because it would weaken his bargaining position excessively, and for consumers and non-consumers alike there would be too much uncertainty about what was a “minor defect”. 4.3 The question then asked by the Consultative Document was what the remedy should be when there was a breach of one of the statutory implied terms as to quality. Here, we suggested, there was a distinction to be drawn between the interests of the consumer and those of the non-consumer. In the light of consultation, and not without doubts on the part of some of us, we have decided to confirm our provisional view and recommend a divergence between the remedies available to consumers and those available to non-consumers. We consider below the question of how to define a “consumer” and a “non-con~umer”.~ 4.4 We suggested in the Consultative Document that the consumer is almost alwaysbuying goods for domesticuse or consumption and not for the purpose of making a profit out of them; he will not usually be content with defective goods when he intended to buy perfect goods, even if the price were reduced or he were compensated in some way. If he wants to retain defective goods he can alwayskeep them and claimdamages.But should he ever be prevented from rejecting the goods and terminating the contract when this is what he wants to do? The consumer will not usually be in a position easily to dispose of defective goods and if he keeps Lombard North Central P.L.C. v. Butterworth [1987]2 W.L.R. 7 , 13per Mustill L.J. See M.G. Clarke, “The Buyer’s Right of Rejection”, 1978 S.L.T. (News) 1 at pp. 5-6; Wilson, The Law of Scotland Relating to Debt, (1982),p. 22. This point was, however, left open by the court in Millars of Falkirk Ltd. v. Turpie 1976 S.L.T. (Notes) 66. Paras. 2.28 ff. In Millars of Falkirk Ltd. v. Turpie 1976 S.L.T. (Notes) 66 the Court of Session reversed the decision of the Sheriff Court which had held that the buyer was entitled to E25 as damages but not to terminate the contract: the Court of Session disallowed the claim for damages (see also para. 2.26 above). Para. 4.27. 6 Psras. 4.7-4.9. 36 buyers who would insist on rejecting the goods no matter how hard that would be on the seller was a risk which we thought would have to be accepted: our proposal for a limited right to cure would minimisethe risk, but we considered that it wasin the interests of consumer buyers generally that they should never be left with defective goods in their hands, and that their bargaining position as against their sellers had to be a strong one if they were to be adequately protected. The risk of injustice for a few sellers was the inevitable price which had to be paid for the benefit of achieving a fair result for the overwhelming majority of consumer buyers. 4.13 On consultation there was much support for our suggested scheme of “cure”. How- ever, two principal, and formidable, lines of objection emerged. First, it was suggested that the scheme was generally too adverse to consumers’ interests because it gave the supplier a ground upon which he could argue that the buyer was not entitled to return defective goods and claim the price back. Secondly, we had recognised in the Consultative Document that the scheme left many questions unanswered. We said that if the schemewere to try to answer in advance all the many questions which would arise, it would become so complicated as to be unacceptable. However, because consumer sale transactions almost always fell into a recognised pattern, we felt justified in putting such a simple scheme forward for consultation. On consultation and in our reconsideration of this subject many of the unanswered questions were raised. For example, did the seller have to redeliver the “cured” goods to the buyer or did the buyer have to collect them? What if by this time the buyer had moved far away? How promptly should the cure be effected? At whose risk were the goods while the cure was in progress? At whose risk were they to be while being redelivered to the buyer? These were but a few of the many practical problems which, it was pointed out, would be likely to arise under this entirely new scheme of remedies, which would probably have to apply to a very great many transactions. It was suggested that although the scheme sounded superficially attractive, when it was exposed to the derciless test of being put into practice, it was likely toprove abreeding groundfor disputeandnncertainty ,ultimately leadingtoamoreunsatisfac- tory situation than exists at present and almust certainly being to the detriment of consumers. 4.14 We have decided not to recommend a “cure” scheme for consumer transactions, although not all of us are without regret on the matter. We are, in short, not sufficiently confident that such a scheme would be moreaeneficial to buyers and sellers generally than is the present law. The number of instances of consumers who at present unreasonably seek to reject goods is, we believe, very small. Obviously there are some, but their number is negligiblecompared with the overwhelminglygreater number who attempt to act reasonably. Likewise, we recognise that in a very large number of cases the seller, too, is reasonable and does what he can to ensure that the buyer goes away contented. Sellersdosonot only because, like buyers, they are generally reasonable people but also because it is commerciallysensible soto behave. Although not all buyers areeven honest in making their complaints, many sellers ask no questions and repair or replace as a matter of policy. All this goes to show that, as we have said above, buyers and sellers alike almost always come to a sensible decision when faced with goods which are said to be defective. The primary task of the law in this situation (and the law is hardly ever directly invoked) is to provide a regime against which potential disputes can be most satisfactorily resolved. And in this resolution the generally weak bar- gaining position of the buyer is an essential consideration: this is the very basis of modern consumer law. We have reached the conclusion, therefore, that, for theconsumer transaction, the regime which applies must be a simple one. Such is the present law. In legal theory the consumer has the absolute right to reject for any defect. True, he may seldom exercise that right, almost always being prepared to accept repair or replacement. However, if the seller is unreasonable it is against that legal background that the discussion takes place. Any legal ground upon which rejection might arguably be resisted, however weak such ground might be on the facts, gives the seller a potential weapon with which to undermine the position of the ordinary consumer. Sometimes,moreover, what the lawisbelieved tobeismoreimportant than what it is. There should be no ambiguity or misunderstanding about the rights of the consumer buyer. 4.15 We have therefore decided to recommend the retention of the present law14so far as concerns the consumer buyer’s right to reject the goods and terminate the contract for breach of the statutory implied terms in sections 13 to 15of the Sale of Goods Act. In English law this result can best be achieved by retaining the classification of these implied terms as ~ l 4 Or, in Scotland,-what is generally thought to be the present law (see n. 2 above). 39 “conditions” of thecontract.151nScotslawadifferent techniquemust be adopted. Asexplained above,16use of the word “condition” in the present context has long caused difficulty. According to Scots common law the innocent party to a contract, upon breach by the other party, is entitled to terminate the contract if that breach is “material”. Rather than continue the use of the inappropriate English terminology in Scotland, the Scottish Law Commission considers that it will be more satisfactory to relate breaches of the statutory implied terms to existing concepts of Scots common law. As a matter of drafting, therefore, the statutory implied terms which we are here considering would under our recommendations be classified as “condition~~~only in English law. For Scots law it would be provided that, in consumer contracts, every breach of one of those terms is a “material” breach. This difference is essentially oneof legal technique only, designed to ensure that the law relating to sale of goods is now in harmony with the background common law of each jurisdiction rather than being inherently unsatisfactory for one of them. It is important in this context, we think, to bear in mind that contracts for thesupplyof goodsmay wellcontain expressterms and other implied terms and that the classificationof the statutory implied terms should harmonise with the rest of the law in which they exist. 3. Policy for non-consumers 4.16 In our discussion of the rights of the consumer buyer on breach of one of the statutory implied quality terms, we said that in the Consultative Document we had reached the conclu- sion that as a matter of policy a consumer buyer should not be bound to accept defective goods. The seller might be entitled to “cure” the defect but the consumer buyer would, at the end of the day, be entitled to conforming goodsor to terminate the contract. In this Report we have instead recommended” that the consumer buyer should have an absolute right to reject defective goods’*and that the seller should have no statutory entitlement to “cure” any defect if the buyer insists on rejecting the goods. As explained above, we have reached this decision as a matter of policy because of the particular position of consumer buyers. So far as non-consumer buyers are concerned, however, our conclusions are different. The reasons of policy applicable to consumers do not apply to non-consumers. Such buyers cannot as a general rule be presumed to be in a weak bargaining position as against their sellers, and there is less objection to leaving them with non-conforming goods in their hands in an appropriate case, especially because they will still have a claim for damages (which in many cases will be fairly easy to quantify). 4.17 In the Consultative Document we discussed a number of possible ways of modifying the rights of the non-consumer buyer.lg Of these we provisionally rejected all but one, and those we rejected received little support on consultation. First, we rejected the idea that there should be a list of the circumstances in which rejection or (as the case may be) non-rejection would be permitted. The circumstances of sale transactions are so infinitelyvariable that any set of rules would both be extremely lengthy and yet incomplete. Secondly, we rejected any idea of a statutory right to “cure”, aswe had provisionallyproposed for consumers. Now that we are not recommending such a regime for consumers, the case for recommending it for non-consumers is even weaker than it was at the time we made our provisional recommenda- tions. We do not wish to do anything to stop non-consumers from coming to their own agreement about “curing” defectsand,indeed, cure provisions (sometimes very detailed) are common in many types of commercial contract. The question, however, was whether there should be a statutory “cure7’regime in all cases and, for the reasons given in the Consultative Document, which were largely endorsed on consultation, we make no such recommendation. Thirdly, we rejected the idea that a non-consumer buyer shouid be entitled to reject goods only where damages would not be an adequate remedy. The effect of such a recommendation would be, we thought, that rejection would hardly ever be permissible; damages would in almost all cases be held to be an adequate remedy for a commercial buyer. Not only had there Is Now that a regime of “cure” is not being recommended by either Commission but an absolute right to reject is being preserved for consumers, the need to devise new terminology for England and Wales has disappeared. Furthermore, the Law Commission considers that any attempt to do so would not be as helpful to the user of the Act as to retain the well-understood concept used at present, which seems to give rise to no difficulty in practice. l6 Paras. 2.27 ff. l7 Paras. 4.144.15 above. See the proposeds. 15B(2) of the 1979Actinserted by cl. 5(1) of the draft Bill annexed Is Where there has been a breach of a condition in England and Wales, or in Scotland there has been a material I9 Paras. 4.52-4.58. to this Report. breach of contract, whether deemed so or otherwise. 40 4 been no call for such a drastic change in the policy of the Act but we ourselves did not think such a change was desirable. Fourthly, we considered whether non-consumers should be entitled to reject only when the breach was very serious. For example, the test could have been taken from the Hongkong Fi?O case: was the breach so serious as to frustrate the contract? Such a test would in substance be a reversal of the present law for rejection would be permissible only in the most extreme cases. Notwithstanding that an express term relating to the quality of goods has been held by the Court of Appeal to carry these remedies,2I in the Consultative Document we expressed the provisional view that so severe a test was not appropriate for the statutory implied terms. This view has been confirmed on consultation and we donot recommend themajor alteration of thelawwhichwouldresult from itsadoption. 4.18 We did not think, therefore, tha? there was need for more than a slight change in the law. What was required was no more than a modification which would, in substance, prevent rejection in bad faith, where the breach was really so insignificant that, as a matter of justice, rejection should not be permitted. To introduce a general duty of good faith into the law relating to the sale of goods might perhaps be desirable but could not be justified by the particular problem which we had under examination. Moreover, if such a duty were to be introduced the question would also have to be asked whether the duty should not extend across the entire range of contract law. 4.19 Theproposalwefavoured in the Consultative Document aimed topreservethe present law as far as possible whilst lessening the risk of its abuse. Our provisional proposal was that in a non-consumer sale “the buyer ought to be entitled to reject the goods for breach of any one of the terms implied by section 13 to 15 of the Sale of Goods Act unless the seller can show that the nature and consequences of the breach are so slight that rejection would be ~nreasonable”.~~In making this proposal we stressed that the buyer’s motive in seeking to reject the goods and treat the contract as repudiated would not be relevant. 4.20 In the Consultative Document we said that we were concerned lest any such mod- ification of the absolute right to reject defective goods should create undesirable uncertainty. Consultation has not affirmed this concern. Our conclusion is that some such modification of the absolute right to reject in a non-consumer sale is desirable in order that justice may be done in cases where otherwise a buyer would be entitled to reject for some unimportant reason which made it unreasonable to do so. As in the case of consumers, the common law background of the two jurisdictions means that a different technique to achieve a like result is recommended by the Law Commission and by the Scottish Law Commission. 4.21 The Law Commission’srecommendationsapply to England and Wales. They are that for the non-consumer the statutory implied quality terms should remain as conditions but that the Act should provide that where the breach is so slight that it would be unreasonable for the buyer to reject the goods, the breach is not to be treated as a breach of condition but may be treated as a breach of warranty.23The effect of this will be that the buyer will not be able to reject the goods but will only be able to claim damages. Use of this technique should help to make it clear that the modification of the right to reject is not intended as a-major alteration in the law but one which will apply only where the breach is slight and it is unreasonable for the buyer to reject the goods. 4.22 For Scotland, the Scottish Law Commissionrecommendsan approachmoreconsistent with the existing common law. It already is the general position in Scotland that a breach of contract justifies rescission of the contract only if the breach is “material”. There is no reason why this general rule should not be applied to contracts for the sale of goods. The desired policy in the case of consumer buyers could then be implemented, as noted above, by deeming breaches of the implied terms as to quality, fitness for purpose, description and 2o [1962] 2 Q.B. 26. z1 Cehave N.V. v. Bremer Handelsgesellschaff m.b.H. [1976] Q.B. 44. 23 This test is broadly similar to that suggested in the Consultative Document save that the Law Commission considers that it would be better not to refer to “the consequences” of the breach. Such a test, as was pointed out on consultation, might admit an element of subjectivity which the Law Commission considers (as stated in the Consultative Document) to be undesirable. Our recommendationis implemented by cl. 4(1)of the draftBill annexed to this Report, whichwould insert a new s. 15A into the 1979 Act. Para. 4.59. 41 for sale contracts a qualification on the right to reject the goods and treat the contract as repudiated both for consumers and non-con~umers.~~In this Report we propose such a qualification in the case of non-consumers only.33Our conclusionfor other contractsof supply is similarly altered, for the same reasons. We consider that the qualification on the non- consumer’s right to reject the goods and treat the contract as repudiated which we have recommended for sale contracts should apply also to other contracts, and we so recommend. 4.32 For England and Wales, the Law Commissiontherefore recommendsthe introduction of an express qualification to the non-consumer’s right to reject the goods in the same terms as that recommended for sale contracts? where the seller is in breach of one of the statutory implied terms about quality, fitness for purpose, description or sample, but the breach is so slight that it would be unreasonable for the person supplied with goods to reject them, then breach of a condition is to be treated as breach of a warranty.3s 4.33 In order to achieve the same policy result for Scotland, the Scottish Law Commission recommends the adoption of the same technique as has been recommended for sale.36The application of the same remedies to supply contracts as in sale was generally supported on consultation. This would entail specifying the remedies that should be available for breach of contracts of hire-purchase, part-exchange and barter, as well as removing inappropriate terminology in current statutory wording. At present in contractsof part-exchange and barter the remedies for breach are governed by the common law, which does not generally allow a claim for damages for defective goods if the goods are retained.37This is clearly quite inappropriate. Also, in the case of contracts of hire-purchase, the present legislation refers to the implied termsas “material stipulations”, whereas the factor normally relevant in Scots law is the materiality of the breach of The effect of the reform recommended for Scots law, apart from removing inappropriate terminology, would be that on the supplier’s breach the person supplied with the goods would always be entitled to damages for any loss even if he retained defective goods (thus changing the common law rule) and would also, if the breach were material, be entitled to reject the goods and treat the contract asrepudiated. In consumer contracts, breach of any of the implied terms relating to quality, fitness for purpose, description, or sample39(and of any express terms on the same matters) would be deemed to be material, as in sale. With non-consumer contracts the buyer would have to establish a material breach to be entitled to reject the goods and treat the contract as repudi- ated. The consequencesof rejecting the goods and treating the contract as repudiated would, as in the case of sale and as in the case of these other contracts at present, be governed by common law.4oSo would the question of the loss of the right to reject. 4.34 In the case of contracts for the hire of goods there is no need to change the present Scotslaw, There are no inappropriate statutory rules (as in the case of sale and hire-purchase) and no inappropriate common law rules (as in the case of barter and part-exchange). The common law rules are adequate and appropriate. The person supplied with the goods can insist on the- contract being performed according to its terms-and could therefore, for example, require a defective television set to be repaired or replaced in terms of the contract. He can claim damages for any loss. If,the breach is material he can bring the contract to an end. There is no need to change these rules and the Scottish Law Commission accordingly does not recommend any new statutory provision on remedies for breach of a contract of hire. 32 Paras. 4.24-4.62. 33 Paras. 4.14-4.24 above. 34 Para. 4.21 above. 35 This recommendation is implementedin Sched.2 to the draft Bill annexed to this Report. A slightmodification of this formulais proposedfor contractsgovernedby the Supply of Goods and ServicesAct 1982. While the reference to rejection is appropriate for contracts of hire-purchaseand for conditional sales, in the cases of transfer of goods and hire the remedies for breach of condition are not at all clear and cases might arise where there was a right to reject goods but not to treat the contract as repudiated. The mischief which we seek to prevent by means of the restriction on the non-consumer’srights is the termination of contracts on unreasonable grounds, not the rejection of goods where such rejection is not accompanied by termination of the contract(if this be possible under the present law). The restriction which we propose for contracts of transfer of goods and hire is therefore phrased in terms of the reasonableness of treating the contract as repudiated, not the reasonableness of rejection: see Sched. 2, paras. 4(5) and 4(9). 36 See paras. 4.224.24 above. 3’See paras. 2.35 ff. above. 38 See-para.2.36 above. 39-0nthese implied terms, see Part 7 below. 4o See Cantiire San Rocco S.A. v. Clyde Shipbuilding and Engineering Co. Ltd. 1923 S.C. (H.L.) 105. 44 I PART 5 RECOMMENDATIONS ON LOSS OF THE RIGHT TO REJECT THE GOODS AND TERMINATE THE CONTRACT A. SALE OF GOODS 1. Introduction 5.1 If goods sold under acontract of sale donot conform totherequirements of thecontract, the buyer has a claim against the seller. Initially, before the buyer has “accepted” the goods, he has the right to reject them, and recover his money. He also has a claim for damages. After the buyer has accepted the goods he can no longer reject them and recover his money,’ although he still has a claim for damages. Clearly, it is important to decide whether or not the buyer has “accepted” the goods. Therules about acceptance arecontained in section 35(1) of the Saleof Goods Act 1979.We have described the operation of these rules in Part 2 above.2 5.2 The statutory rule that the buyer may not reject the goods and treat the contract as repudiated if he has “accepted” them applies only to contracts of sale.3It does not apply to other contractsfor thesupplyof In thosecontracts thestatutory notion of “acceptance” has no place.5Instead, the person to whom the goods are supplied loses his right to terminate the contract only by the operation of the common law. In England and Wales he may affirm the contract, or (if this is different) waive his right to terminate the contract, or be estopped from relying on the breach of contract as a ground for terminating. In Scotland he may waive his right to terminate or be personally barred from terminating. All of these doctrines in principle require knowledge of the defect: for example, the customer “affirms” the contract only when he knows of the defect and yet chooses not to terminate the contract. Where the customer is entitled to terminate the contract, it is not clear whether he is automatically entitled to recover any money he has paid under the contract. He is, however, entitled to damages, but these may not add up to as much as he has paid the supplier. 5.3 Under the present law of sale, therefore, it is clear that there is no general long-term right to reject. After a while the buyer will lose his right to reject the goods and terminate the contract, although defects in the goods may appear later. These defects are still breaches of contract, but the buyer’s remedy is damages and not rejection of the goods. In contracts of supply other than sale,6however, the customer does not lose the right to terminate the contract before he knows of the defect. Where the goods contain a latent defect, the customer in a non-sale case will therefore be better off, in one way, because he will not lose his right to terminate until the defect appears and he becomes aware of it.’ 5.4 An initial question which arises is whether the rules on the loss of the right to terminate the contract should be the same for all types of contract of sale and supply of goods. This could be achieved by abolishing the statutory notion of “acceptance” in sale cases and making the sale rules the same as ihe common law rules which apply to other contracts. We consider that possibility in the immediately succeeding paragraphs. The alternative is to introduce the statutory sale rules for the other contracts as well. We discuss that possibility at paragraphs 5.44 to 5.46 and 5.49 below. 5.5 Our conclusion in the Consultative Document was that the existing statutory rules which apply to contracts of sale should remain broadly the same. After considering the comments we received, we remain essentially of the same view. Sale of Goods Act 1979, s. ll(4). In Scotland, this rule depends on case law: see Mechans Ltd. v. Highland Marine Charters Ltd. 1964 S.C. 48. * Paras. 2.44 ff. But not, in England and Wales, to consumer conditional sale agreements: Supply of Goods (Implied Terms) Act 1973, s. 14, as now substituted by Consumer Credit Act 1974, Sched. 4, para. 36. That is, hire-purchase, hire, and contracts for the transfer of goods (as defined by the Supply of Goods and Services Act 1982). The latter include barter and contracts for work and materials. Not, that is to say, during the currency of the hire-purchase agreement. However, when the hirer exercises his option to purchase, there is a sale to which the Sale of Goods Act acceptance rules presumably apply: see R.M. Goode, Hire-purchase Law and Practice 2nd ed., (1970), pp. 53-54. In England and Wales, there is also no loss of the right to reject by virtue of “acceptance” if the contract is a consumer conditional sale agreement: see n.3 above. And, in England and Wales, consumer conditional sale agreements: see n.3. above. He may, however, be confined to a remedy in damages, which may amount to less than the amount he has paid the supplier under the contract. 45 2. Should there be a long-term right to reject in contracts of sale?* 5.6 The provisional view we expressed in the Consultative Documentgwas that no long- term right to reject in contracts of sale should be introduced. This provisional view attracted considerable comment and was generally, although not universally, supported. Our conclu- sion in the light of the consultation is that, essentially for the same reasons as those contained in the Consultative Document, there should be no new long-term right to reject in sale transactions. The present policy of the Sale of Goods Act favours finality and in our view it is right to do so. 5.7 In the first place, although it is true that defects may not manifest themselves (or their severity become apparent) until after a long time, the complications of introducing a long- term right to reject would be very considerable. In our view it would not be fair on a seller to require him to refund the purchase price to a buyer if the buyer did not reject the goods until long after delivery: it would be necessary to provide that the buyer should give some credit for the use and enjoyment which he had had from the goods. Although there are reported English cases concerning hire-purchase’Oin which such credit was awarded by the courts, no principles on thevaluation of use and enjoyment have emerged. We doubt whether any meaningful principles or formulae could be devised which did not depend upon criteria so uncertain as almost to invite dispute. Furthermore, we think that giving credit for use and enjoyment would take away much of the force of the consumer buyer’s bargaining position. We propose that he should continue to have the remedy of “rejection and money back”. If a buyer did not always have the right to get his money back in full on rejection of the goods, we think that it is inevitable that some sellers would claim to be entitled to take something off the price when it was repaid to the buyer. In our view it is preferable to retain a relatively short-lived right to reject with acorresponding automatic right to return of the purchase price. This way the rights and duties of each party are clear. Particularly from the consumer’s point of view the absolute nature of his right is an important factor in his ability to bargain from his position of relative weakness as against the retailer. 5.8 The fact that in contracts of supply other than sale the right to terminate the contract persists until the customer knows of the defect does not persuade us that the same should be true in sale. The analogy is not as strong as may appear at first sight. In a case of hire, unlike the case of sale, there is a continuing relationship between the parties. The goods still belong to the owner, who may be under an obligation to replace or repair the hired goods if theybreak down. Further,in hire there isaconvenient method of valuinguse andenjoyment: the hire charge itself can be taken as a basis for the valuation. 5.9 It is true that a contract of hire can be used to achieve practical objectives not unlike those of a sale contract, but this does not in our view mean that the law relating to loss of the right to reject in sale should be changed. The device of financing the supply of goods by means of a leasing agreement was not evolved in order to avoid the sale rules on loss of the right to reject. The fact that a different legal form has different legal implications although used to achieve a similar purpose is only to be expected. The same argument applies as far ashire-purchaseisconcerned, except that thehire-purchase deviceisinvariablyused to finance the eventual transfer of property in goods. It ispurely a matter of technique whether the goods are supplied on a credit sale or a hire-purchase arrangement and it probably matters little to the customer which device is used. The fact that his legal rights will be different might therefore be seen as unsatisfactory. But in our view this does not amount to an argument for changing the sale rules generally.” 5.10 Several specificpoints concerning a long-term right to reject were made on consult- ation and we now proceed to consider these. The question which we discuss here is different from the question what is the length of the “reasonable time” Paras. 4.66-4.72. See Yeoman Credit Lfd.v. Apps [1962]2 Q.B. 508; Charterhouse Credit v. Tolly [1963] 2 Q.B. 683; Furnworth Finance Facilities v. Attryde [1970] 1W.L.R. 1053. See paras. 2.33-2.34 above. If anything, the argument is to the contrary. The rules relating to consumer conditional sale agreements have in England and Wales been assimilated to those relating to hire-purchase (see s. 14 of the 1973 Act), but in the Law Commission’sview conditional sale and hire-purchase in practice have more in common with each other than either has with pure sale. We discuss at paras. 5.44-5.46,5.49 below whether the statutory notion of “acceptance” should be introduced into areas apart from sale. provided for by s. 35 of the 1979 Act. That we discuss below (at paras. 5.14-5.19). 46 5.19 In recommending that the right to reject be lost after a reasonable time has elapsed, we are doing no more than recommending the continuance of a rule which appears to have given rise to almost no reported disputes. We are, of course, well aware that the concept of a “reasonable time” does not provide a certain answer which can be applied in every case.I9 No one on consultation was, however, able to offer a better solution than at present. We are not aware of any common law system which provides a better answer than does the present law. The search for some formula which will achieve certainty is, we are forced to conclude, a search for something which is not there to be found. Under the existing provision, what is a reasonable time is a question of fact.20Although there is little authority on the matter, thispermits awideflexibilityin taking into account all the circumstances. What is “reasonable” in onecase may not be reasonable in another, and in determining what is reasonable it appears that the interests of both the buyer and the seller may be taken into account. The existing provision is therefore not directed to what is reasonable for either the buyer or the seller to the exclusion of the other, and permits (although of course it does not guarantee) a result which isfair to both parties. A more rigid provision, if intended to apply to all types of goods, would almost inevitably create certainty at the expense of justice.21 4. (a) Intimation of acceptance and the right to examine 5.20 We referred in the Consultative Document to the problems caused by so-called “acceptance notes”. Sometimes when goods are delivered the buyer is asked to sign a paper. This might be merely a receipt, but it may go further and declare that the goods were received in good condition-r it might go yet further and state that the buyer “accepts” the goods. This is an “acceptance note”, and the buyer may be asked to sign it before he has had an opportunity to examine the goods. Under section 35(1) of the Sale of Goods Act 1979, the buyer is deemed to have accepted the goods (and therefore cannot then reject them but is confined to a claim for damages for any breach of contract) if “he intimates to the seller that he has accepted them”. If the buyer signs an “acceptance note” this may amount to an intimation of acceptance of the goods for the purposes of section 35(1) of the Sale of Goods Act 1979.The buyer may therefore find that he has unwittingly deprived himself of the right to reject the goods even if he has not yet had an opportunity to examine them. The proposal we made in the Consultative Document was that a consumer should not by his signature of an acceptance note lose his right to reject unless he had in fact had a reasonable opportunity to examine the goods. 5.21 This proposal was supported on all sides on consultation and we recommend such a reform. We did not propose in the Consultative Document that this reform should extend to non-consumer sales. However, the view was expressed on consultation that such a reform should extend to all sales. On reconsidering the matter we have come to the conclusion that this should indeed be so. In the Consultative Document we suggested that non-consumers did not need this protection, but the protection which we proposed for consumers now seems to us to be appropriately extended to non-consumers also. For example, the person who receives and signs for goods on behalf of a non-consumer may well be a junior employee who is persuaded by the delivery man to do so, but who is unaware of the significance of his signature. This would also help to keep to a minimum the areas in which a distinction is made between consumers and non-consumers. Proposed alterations to the existing rules on loss of the right to reject 5.22 As we pointed out in the Consultative Document, however, it is not sufficientsimply to make provision covering acceptance notes, since it is possible to intimate acceptance of goods in other ways-for example by an oral statement to the same effect as an acceptance note. Our recommendation, therefore, extends to all types of intimation of acceptance. 5.23 The way in which we propose that this recommendation should be implemented is as follows. Section 34 of the .Actprovides for the buyer’s reasonable opportunity to examine the goods. Section 35provides for the three cases when the buyer is deemed to have accepted l 9 We considered, but quickly rejected, the idea of recommending the introduction of statutory guidelines with a view to providing assistance as to the length of the reasonable time in any particular case. The guidelines had to be so general that they were both obvious and unhelpful. The more the guidelines provided guidance in some cases the more inappropriate and misleading they became for others. *” Sale of Goods Act 1979, s. 59; see para. 2.48 above. 21 See generally, Betjamin’s Sale of Goods 2nd ed., (1981), para. 925; R.M.Goode, Commercial Law,(1982), pp. 309-310. Compare also para. 5.15 above. 49 the goods. Already in one of those three cases there can be no acceptance under section 35 until the buyer has had the reasonable opportunity to examine the goods which is provided by section 34.22We propose that this technique should be extended to cover also the buyer’s intimation of acceptance.u The result of this change would be that unless the buyer and seller agreed otherwise, the buyer would have the right to a reasonable opportunity to examine the goods before any intimation of acceptance by him was effective. 5.24 The question which remains, however, is how far the buyer and the seller should be free to agree otherwise. If there were a term in the contract of sale itself which deprived the buyer of his right to a reasonable opportunity to examine the goods, our recommendation is that such a term should be wholly ineffective in a consumer sale. We do not however see any reason why a non-consumer should be absolutely prohibited from contracting out of the reasonable opportunity to examine, andwe therefore recommend that suchanexclusioncould be effective in a non-consumer sale, subject only to satisfyingthe requirements of the Unfair Contract Terms Act 1977.24Our view is also that the consumer should not be deprived of his right of examination after the contract has been made by the application of any of the common law rules, such as waiver, estoppel or personal bar.25His right to a reasonable opportunity should be a right whichhe cannot lose.26Sofar as the non-consumer is concerned, we do not see why the common law rules should be disapplied. 5.25 The remaining question which arises is whether it would be right to recommend that unless the buyer had had a reasonable opportunity to examine the goods he should not be deemed to have accepted the goods in the third case provided for by section 35 as well as in the first and second cases-that is, even if “after the lapse of a reasonable time [he] retains the goods without intimating to the seller that he has rejected them”.” Our conclusion is that it would not be right to do so. What is a reasonable time is a question of fact.%Although the question whether the buyer had had a reasonable opportunity to examine the goods will frequently be relevant in deciding whether a reasonable time has elapsed, we think that ultimately the expiry of a reasonable time should provide a final point after which the buyer would be deemed to have accepted the goods whether or not he had had a reasonable opportunity to examine them, and the seller would therefore not have to take the goods back if they proved defective (although he may still be liable to pay damages). (b) 5.26 In the Consultative Document we mentioned two possible problems which may be caused when the buyer seeks to have defects in goods remedied, or asks the seller to replace them. The first problem is that this may be an implied intimation of acceptance by the buyer or an “inconsistent act”,29both of which would prevent him from rejecting the goods. The second problem is that it is not wholly clear whether or not time spent in repairing goods counts towards the running of a “reasonable time” for the purposes of section 35(1) of the Sale of Goods Act 1979. Buyer seeking cure of defective goods (i) Inconsistent act or intimation of acceptance 5.27 The proposal in the Consultative Document was that a request for cure, or an agree- ment that cure should be attempted, should not of itself affect the buyer’s right to reject the goods. A buyer may still wish to reject defective goods if the attempted cure fails. It has been suggested that at present the buyer may lose the right to reject if he asks the seller to cure a defect in the goods or agrees to allow him to do so. This is because the agreement or request might amount to an intimation of acceptance or an act inconsistent with the seller’sownership of the goods. If this be so, then buyers would be best advised not to allow the seller to try 22 At present, s. 35(1) of the Sale of Goods Act 1979 provides that a buyer who does an act inconsistent with the seller’s ownership will not be deemed to have accepted the goods, unless he has had a reasonable opportunity to examine them. 24 The Unfair Contract Terms Act 1977, s. 6(2), regulates for England and Wales the exclusion or restriction of “liability for breach of the obligations arising from” ss. 13, 14 and 15 of the Sale of Goods Act 1979. Section 13(l)(b) of the 1977 Act provides that exclusion or restriction of liability extends to “excluding or restricting any right or remedy in respect of the liability . . .”. Sections 20(2) and 25(3) make equivalent provision for Scotland. 25 The phrase “agreement,waiver or otherwise” in the proposed s. 35(3) of the 1979 Act, as inserted by cl. 2(1) of the draft Bill annexed to this Report, is intended to include all these doctrines. 26 See the proposed s. 35(3) of the 1979 Act, as inserted by cl. 2(1) of the draft Bill annexed to this Report. 27 1979 Act, s. 35(1). 28 1979 Act, s. 59. 29 Discussed in greater detail at paras. 5.32-5.38 below. ~ See cl. 2(1) of the draft Bill annexed to this Report. 50 to put the goods right, but to insist on rejecting the goods and to claim their money back even where the seller was willing to repair the goods. This does not seem a reasonable state for the law to be in; and frequently buyers are quite content to allow the seller to repair defective goods even though strictly they might be entitled to reject them. 5.28 Although we are not now recommending the formal right to cure goods which was proposed in the Consultative Document, we still think that informal attempts at cure should be encouraged. On consultation there was support for our suggestion that attempts at cure should not of themselves deprive the buyer of his right to reject the goods and in our view it would be helpful to clarify the Sale of Goods Act in this way. 5.29 We recommend, therefore, that the Sale of Goods Act should be amended so as to provide that if the buyer asksfor or agreesto attempts beingmadeto repair thegoods (whether by the seller or under an arrangement with him), then this does not of itself amount to acceptanceof the goods by the b~yer.~OTheremay of coursebe other things done by the buyer which indicate that he has in fact accepted the goods, but in future he will safely be able to ask for or agree to repairs without reserving his right to reject the goods later. It does not in our view matter whether it is the seller or someone else who will attempt the repair. For example, the seller might repair the goods himself; he may have no repair facilities and send the goods away; or he may suggest that the buyer try some remedy himself (for example, changing a fuse, or replacing a battery). (ii) Lapse of a reasonable time 5.30 The second question which may arise when an attempt is made to repair the goods is whether the time spent counts towards the running of a “reasonable time” for the purposes of section 35(1) of the Sale of Goods Act 1979. The buyer is deemed to have accepted the goods, and loses his right to reject them, after the expiry of this “reasonable time”: it would clearly be wrong if the clock remained running while (for example) the goods were with the seller being repaired. By the time the repair was finished the “reasonable time” might have run out, and the buyer would then be unable to reject the goods even if they had not been properly repaired. .5.31 This question was raised in the Consultative Document but we now consider that it is not necessary to amend the Sale of Goods Act to deal with the point. The Act already states that what is a reasonable time is a question of fact.31It is therefore already open to a court to take into account time spent in attempting to cure goods. If the Sale of Goods Act is to be amended, as we have proposed, to make it clear that attempts at cure do not of themselves amount to acceptance, we do not think that a court would count time taken in repairing the goods when deciding whether or not a “reasonable time” had elapsed. (c) An act inconsistent with the ownership of the seller 5.32 The 1979Act provides that the buyer of goods is deemed to have accepted them (and therefore loses his right to reject them and terminate the contract) if the goods have been delivered to him and he has had a reasonable opportunity of inspecting them and he then: “does any act in relation to them which is inconsistent with the ownership of the ~eller”.3~ We refer to this rule as the “inconsistent act rule”. 5.33 We pointed out in the Consultative Document” that the underlying policy of this rule was not wholly clear; that in the context of consumer transactions there was little authority on what constituted an inconsistent act; and that in any event the words of section 35 appear to suppose that the property in the goods has not yet passed to the buyer, whereas in fact the buyer can do an inconsistent act even though the property has passed to him.34 5.34 There appear to be two main strands of authority on what constitutes an inconsistent act.35One is that the buyer has destroyed, damaged or used the goods or incorporated them 30 See the proposed s. 35(5)(a) of the 1979 Act, as inserted by cl. 2(1) of the draft Bill Annexed to this Report. 31 Section 59. We do not propose any change in this provision: see paras. 5.14-5.19 above. ’*1979 Act, s. 35(1). 33 Paras. 2.54-2.56. 34 It was explained in Kwei Tek Chao v. British Traders and Shippers Lld. [1954] 2 Q.B. 459 that the words “ownership of the seller” referred to the possible reversion of ownership to the seller if the goods were rejected. See para. 2.46 above. 35 See above, paraf2.47. 51 the other contracts for the supply of goods,40of which the most important is probably hire- purchase. Under a hire-purchase contract4Ithe hirer does not lose his right to terminate the contract by “accepting” the goods. Instead, he loses his right to terminate only when he becomes aware of the defect in the goods and then affirms the contract, or waives his right to terminate, or is estopped or (in Scotland) personally barred from relying on his right to terminate. These common law doctrines may therefore permit the customer to terminate the contract after a longer time than would have been possible under the Sale of Goods Act. The rules relating to other contracts may therefore be more favourable to the customer than the sale rules are to the buyer. 5.44 We have discussed above” whether the rules which apply to other contracts should apply alsotosale,andconcluded that they should not. Herewe consider theconversequestion: whether the sale rules should be extended to cover also hire-purchase and (for England and Wales) consumer conditional sale agreements. Indeed, in Scotland, the sale rules on the loss of the right to reject do apply already to consumer conditional sale agreements. However, the provisional view expressed in the Consultative Document was that the rules governing the loss of the right to reject in sale should not be further extended to cover other contracts as well. There was little comment on this proposal on consultation and among those who did comment no general agreement emerged. 5.45 We see no reason to depart from the views expressed in the Consultative Document. A change in the law in this area would deprive customers (and particularly consumers) of the regime which they enjoy at present and would substitute the less favourable rules of the Sale of Goods Act. We are not aware of any demand for this. 5.46 It is true that hire-purchase is a device for financing what in the end will amount to a sale. We are, however, not persuaded that this means that the acceptance rules of sale contracts should also apply to hire-p~rchase.~~A pattern of rights and duties has grown up and we do not think this pattern should be disturbed unless there are compelling reasons to do so. Our view as expressed in the Consultative Document was that “. , . a very strong case would have to be made out for removing from the customer part of his existing legal rights.”“ No such case has been made out, and we recommend no change in the law in this area for either juri~diction.~~ 2. Other contracts of supply 5.47 The other contracts of supply are essentially contracts of hire and contracts for the transfer of goods,& (including barter, trading-in4’ and contracts for work and materials). 5.48 The provisional view expressed in the Consultative Document was that no changes should be made to the loss of the right to terminate the contract in contracts of hire and of work and materials, since no difficulties in this area of the law appeared to have arisen. Consultation-appears to confirmour provisional view and accordinglywe make no recommen- dations for change in this area. 5.49 As far as contracts of barter and trading-in are concerned, our provisional view was that it would be appropriate to extend to them the Sale of Goods Act rules on loss of the right to terminate the contract, instead of leavingthe matter to the common law, as atpresent. On consideration, however, we do not make such a recommendation. We have changed our mind for three reasons. First, we made provisional proposals in the Consultative Document for altering not only the rules on loss of the right to terminate the contract in barter and trading-in cases, but also the remedies available in such cases. However, we are not now making any such recommendations on remedies (except, for special reasons, for Scotland)4B ~ See n. 39 above. 41 And, in England and Wales, consumer conditional sale agreements. 42 See paras. 5.65.9. 43 Neither are we persuaded of the converse: see para. 5.9 above. 45 Thus, for Scotland, the acceptance rules as in sale would continue to apply to consumer conditional sale agreements as they do at present. 46 Regulated in England and Wales by Part I of the Supply of Goods and Services Act 1982. The Scottish Law Commission proposes that provision equivalent to Part I of the 1982 Act be made for Scotland: see Part 7 below. 47 It is not clear whether a trading-in transaction is a barter or a sale of goods, or should be classifiedin some other-w ay. 48 See para. 4.33 above. Consultative Document, para. 5.16. 54 and we do not think it would be desirable to single out contracts of barter and trading-in for the sole purpose of altering or clarifyingthe rules relating to the loss of the right to terminate the contract. Secondly, transactions in this area can be extremely complicated:" for all such transactions it would be very difficult to draw up rules in advance. Thirdly, on consultation there was very little comment on our provisional view, and even that was not unanimous. We are not aware that there is any particular difficulty in practice about this area of the law and we therefore feel that the present position should not be disturbed. 49 For example, a contract may provide goods and services to another in return for some cash, use of land and the loan of a motor car. Advance classification of such contracts is impossible. 55 PART 6 MISCELLANEOUS MATTERS A. REMEDIES FOR BREACH OF THE IMPLIED TERMS AS TO TITLE, ENCUMBRANCES AND QUIET POSSESSION IN CONTRACTS FOR THE SALE AND SUPPLY OF GOODS 6.1 In the Consultative Document we considered whether any change should be made in the present law regarding the buyer’s rights on termination of a contract of sale for breach by the seller’ of the implied terms to title.*In English law, where a supplier under a contract forthe sale of goods or a contract of hire-purchaseisunable to transfer ownership of the goods by virtue of a defect in his title,3then, despite the fact that the customer may have had use of the goodsfor a considerableperiod of time, the courtshave held that there has nevertheless been a total failure of c~nsideration.~The effect of this in a contract of sale has been that the rules on the loss through acceptance of the right to reject do not apply, so that the buyer will not be deemed to have “accepted” the goods through their use even over a prolonged p e r i ~ d . ~It is thought that the same result would also be achieved under Scots law.6The customer will be able, therefore, to recover from the seller all money paid by him under the contract and in addition recover damages where appropriate .’ Moreover, the buyer has these remedies even though he cannot restore the goods to the seller because they have been repossessed by the true owner.8 6.2 It is therefore argued that the rights of the buyer in cases of breach of the implied term as to title could result in unjust enrichment for him, in that he might have prolonged use of the goods in question yet as regards the seller would not be required to pay for this, given his entitlement to claim all his money back.gAs regards England and Wales this view was expressed by the Law Reform Committee.lo The Law Commission has also considered the matter before, in particular in its Working Paper No. 65 (1975), where a number of proposals were made about the valuation of the unjust enrichment.” These proposals were thought on consultation to be too complex, and the matter wasreserved for reconsideration to the present exercise.l2 6.3 Accordingly, in the Consultative Document we considered ways in which the buyer’s rights could be modified so as to take into account any significant use and possession by him of the goods. We suggested that the buyer should not in future automatically recover the whole price from the seller in such circumstances, although this was his entitlement at present. However, we considered that it would be unsatisfactory to base a test for the restriction of I We use the term “seller” but analogous arguments apply also to other contracts for the supply of goods. Paras. 6.1-6.21. The implied term as to title is contained in s. 12(1) of the Sale of Goods Act 1979 in terms that: “there is an implied condition on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass”. An analogous term is impliedinto contracts of hire-purchase (Supply of Goods (Implied Terms) Act 1973, s. 8) and, in England and Wales and Northern Ireland, into other contracts for the supply of goods (Supply of Goods and Services Act 1982, ss. 2 and 7). It seems to have been argued in the recent case of National Employers Mutual General Insurance Association Lrd. v. Jones, The Times, 6 April 1987, that “. . .where A. . . . having no property in the goods, purported to sell them on to B who received them in good faith and without notice of the absence in A of any property in them, the transaction was not a ‘sale’within the definitionin the 1979Act . . .”.Sucha propositionwould have far-reaching results, one of which would be that, paradoxically, s. 12 of the 1979 Act would appear to have no application to cases where the “seller” had no title. Likewise there would be no statutory implied terms as to quality. Although it is true that in Rowland v. Divall [1923] 2 K.B. 500, 506 Atkin L.J. said that “. . . there can be no sale at all of goods which the seller has no right to sell”, it seems clear from the rest of his judgment that he did not imply that the Sale of Goods Act therefore had no application to such a transaction. Warman v. Southern Counties Car Finance Corpn. Ltd. [1949] 2 K.B. 576; Butterworth v. Kingsway Motors [1954] 1W.L.R. 1286. Rowland v. Divall [1923] 2 K.B. 500, 507, per Atkin L.J. The buyer’s claim for his money back would be based on the condictio causa data causa non secuta, see Gloag on Contract 2nd ed., (1929), pp. 57-60. The loss of the right to reject by reason of “acceptance” of the goods would also not arise, as a result of the application of general principles of warrandice of title. The obligation of warrandice remains latent until the conditions come into existence that give it force; see Welsh v. Russell (1894) 21 R. 769. Warman v. Southern Counties Car Finance Corpn. Ltd. [1949] 2 K.B. 576. Rowland v. Divall [1923] 2 K.B. 500, 505-506, per Scrutton L.J. It is not clear whether the position would ~ be the same if the goods had not been repossessed. 9 Consultative Document, para. 6.5. lo Twelfth Report of the Law Reform Committee (Transfer of Title to Chattels) (1966), Cmnd. 2958, para. 36. See also Law Commission Working Paper No. 18 (1968), paras. 10-12; (1969) Law Com. No. 24; Scot. Law 12-(1983) Law Com. No. 121, para. 1.12. Com. No. 12; para. 16. 56 thereby deprived of the right to reject the whole then in this case also he will not have the right to reject part only of the goods. 6.11 Theserecommendations areslightlydifferent fromthose suggestedintheConsultative Document. There we contemplated only the rejection of all the defective goods, and the retention of all the conforming goods. But on further consideration we do not see why when he exercises a right of partial rejection the buyer should be compelled to reject all the non- conforming goods. The defective goods may be defective to different extents, and the buyer may possibly be able to use some of them. In order to encourage the retention by the buyer of goods for which he has a use and in order not to compel him to reject goodswhichhewished to retain, we propose that the buyer’s right of partial rejection should be a right to reject all or some of the defective goods. This would be permitted by the United States Uniform Commercial Code and by the Canadian proposals mentioned above.28However ,unlike the Uniform CommercialCode and the Canadian proposals, we do not recommend that the buyer should be allowed to reject also some or all of the conforming goods. If the buyer wishes to keep any conforming goods our view is that he should keep all of them, and that in such a case only defective goods should be rejected. 2. The commercial unit 6.12 We pointed out in the Consultative Document that there were some circumstances in which it would not be right for the buyer to be allowed to reject part of the goods and keep the rest. The example we gave was that of the defective motor car: the buyer should not be entitled to remove from it any parts that were in good working’order, and reject whatever was left. In general, we do not think that the buyer should be allowed to break down the goods he has received in order to reject something less than a whole object or parcel. We suggested that one solution to this problem might be to adopt the concept of the “commercial unit”, which is used in the United States Uniform Commercial Code. That Code provides that a buyer who accepts part only of a commercial unit is deemed to have accepted the whole of that unit, and a commercial unit is defined as: “. . . such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. Substantially the same definition is used in the proposed Canadian Uniform Sale of Goods ”29. . . 6.13 This proposal received support on consultation and we accordingly recommend that such a concept be i n t r ~ d u c e d . ~ ~This recommendation may be most easily explained by means of examples. The effect of the introduction of the commercial unit would be as follows: (i) A buyer who accepted part only of a set,such as a singlevolume of an encyclopaedia which is sold as-a set, would normally be deemed to have accepted the whole set. (ii) A buyer who accepted part only of a sackor other unit (whether measured by weight or in some other way) by which goods of the type in question are customarily sold in the trade would be deemed to have accepted the whole unit. The buyer would not be restricted if it was merely the seller (and not the trade in general) who chose to sell goods in that particular way. (iii) A buyer who accepted one shoe of a pair would be deemed to have accepted the pair; but he would be entitled to accept one of a number of identical articles, even if more than one at a time was commonlybought, if each was in fact a self-contained unit. 3. Instalment and severable contracts 6.14 Finally there remains the question of how the new right of partial rejection would work where the contract is severable (as will frequently be the case where delivery is in instalments). ~~ zR See n. 23 and para. 6.8 above. 2q Section 2-lOS(6). Section 1.1(1)(6). See the proposed insertion of s. 35(6) into the 1979 Act: cl. 2(1) of the draft Bill annexed to this Report. 59 6.15 Section 31(2) of the 1979Act containssome provision about instalment contracts, but generally the Act is silent about the remedies available in instalment and severable contracts, and a number of points remain undecided in this area.32We do not think that it would be helpful to insert into the Sale of Goods Act amendments seeking to provide answers for these undecided points. It would in our view require the creation of a fairly complex set of rules whichwould be unlikely to anticipate everyproblem arisingin everyinstalment contract which the ingenuity of businessmen could devise. Moreover, such an exercise would involve the furtherdifficultywhich we have mentioned ab~ve~~-namelythat of altering the structure of an old Act and its unarticulated underlying concepts. We recommend that our new rule on partial rejection should operate wherever the buyer has the right under the existing law to reject any goods, but that it should not prejudge the question of what goods the buyer is entitled to reject. The buyer may be entitled to reject all the contract goods or only the goods comprised in a particular instalment, but whatever the exact extent of the buyer’s right to reject under the existinglaw, our newpartial rejection proposalwillgivehim, asan alternative, the option of rejecting some or all of the non-conforming goods. Where his right is to reject an instalment, theright of partial rejection would operate by referenceto that instalment only. 6.16 Examples of the result of our proposed rule on partial rejection would be as follows: (a) If the buyer is a non-consumer and orders 100objects, of which only 1is defective (the breach being “slight” or “non-material”), he may not reject any but may claim damages. If the buyer were a consumer, he could keep them all, reject them all, or keep 99 and reject 1(and in all cases claim damages). (b) If the buyer orders 100objects of which 50 are defective, he may reject 100, keep 100,or keep the50conforming objects and reject anyor all of the50defectiveobjects (and in all cases claim damages). (c) If the buyer orders 100objects and all are defective, he may reject all or any of them and claim damages. (d) If the 100objects in the previous examples comprised an instalment of alargerorder, the result would be exactly the same as regards that instalment; the partial rejection rules do not affect any rights the buyer may have as regards other instalments. C. REMEDIES FOR DELIVERY OF THE WRONG QUANTITY 6.17 This section also applies only to contracts of sale. The rules about delivery of the wrong quantity of goods are contained in section 30 of the Sale of Goods Act 1979, which is as follows: “30.-(1) Where the seller delivers to the buyer a quantity of goods less than he con- tracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at the contract rate. (2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. (3) Where the seller delivers to the buyer a quantity of goodslarger than he contracted to sell and the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate. (4) Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest, or he may reject the whole. (5) Thissection is subject to anyusage of trade,specialagreement,or courseof dealing between the parties.” Theserulesdo not form a completecodefor dealingwith casesof wrongquantity. Inparticular, they do not saywhen a contract may be treated as discharged for delivery of a wrongquantity. They are also phrased in terms of what the buyer may reject, not what he may accept. Clearly the rules contemplate that the buyer may sometimes be entitled to accept a short delivery, ~ 32 Fpr a discussion, see P.S. Atiyah, The Sale of Gooak 7th ed., (1985),pp. 383-388. 33 Part 1. 60 or a delivery of an excess quantity,34but there may be circumstances when the buyer is not entitled to do so. Whether a buyer may ever accept goods of a different description delivered in error must be somewhat doubtful. There is also a grey area between goods of the correct description which are simply defective, and goods which could be regarded as perfect goods of a different description. 6.18 In the Consultative Document we raised three questions about these rules. 6.19 Thefirst question was whether the special regime of remedies which we proposed in the Consultative Document35for breach of the implied terms contained in sections 13to 15 of the 1979Act should also apply to delivery of the wrong quantity of goods. Our provisional view was that it should We saw no obvious reason why the Act should not contain a number of specific and strict rules about delivery of the wrong quantity, which might differ in effect from the rules on breach of the implied terms. 6.20 We remain of this view. We think, however, that a refinement of our proposal for the restriction on the right to reject in non-consumer casesis desirable where a wrong quantity of goods is delivered to the buyer. Where a wrong quantity is delivered to the buyer he has at present the right to reject the whole of the goods, no matter how slight the shortfall or excess. Where there is an excess, he also has the right to reject the excess only. The Law Commission’s recommendation for England and Wales is that the right to reject an excess should in all casesbe preserved, but that where the non-consumer isdelivered awrongquantity of goods, and the shortfall or excess is so slight that it would be unreasonable to reject the whole, then he should be barred from so doing.” Unlike the Scottish Law Commission, however,38the Law Commissionsees no reason to extend any part of this recommendation to consumers. It does not believe this to be a situation which consumers encounter in practice and considers that it would be confusingto introduce a restriction on the right to reject which applied only to non-consumers save in one case only, and that an unrealistic one. 6.21 The recommendation of the Scottish Law Commission is that, in Scotland, the right to reject an excess should in all cases be preserved but that the buyer, whether or not a consumer, should only be allowed to reject the whole if the excess or shortfall is material. In the case of non-consumer contracts, the policy is the same as that of the Law Commission, In the case of consumers the policy is different. The Scottish Law Commissionconsiders that it is unreasonable, and potentially unfair, to give a consumer buyer an unqualified right to reject the whole of the goods merely because of a trifling excess or shortfall. In the case of many goods which are sold by weight or volume it is extremely difficult to deliver the exact amount ordered. This applies to such everyday commodities as fruit, flour, cheese, beer, petrol and coal and the problem is encountered in practice all over the country every day of the week. Very often the seller will err on the generous side. There seems to the Scottish Law Commission to be no justification for allowing the buyer to found on that to reject the whole of the goods. The buyer in this case is not being asked to keep defective goods: he is only being asked to keep exactly what he has bargained for. The position is perhaps not quite so clear cut in the case of a slight shortfall. There is a case for saying that even a slight shortfall should allow the consumer buyer to reject the whole, rather than claim a diminution in the price. This must, however, be a question of degree. It would seem unfair to allow rejection of tons of gravel, coal or sand merely because aconsignment was a fewpounds short. The Scottish Law Commission believes that, on balance, the materiality test would produce more acceptable results than an unqualified right of rejection. Materiality depends on the circumstances. In some cases even a slight shortfall would be material: in others it would be wholly immaterial, and should not justify rejection of the whole of the goods. The Scottish Law Commission therefore recommends that, for Scotland, the rules on wrong quantity in section 30 should be subject to the qualification that the buyer is entitled to reject the whole of the goods only if the excess or shortfall is material.39 6.22 Thesecondquestion concerned section 30(4). If the remedies for breach of the implied terms (and, in the case of Scotland, express terms on the same subject matter) are to be 34 Delivery of an excess quantity may be regarded as a proposal for a new contract: Hart v. Mills (1846) 15 M. 35 Para. 4.59. 36 Para. 6.28. Clause 4(2) of the draft Bill annexed to this Report. 38 See para. 6.21 below. 3g Clause 5(2) of thE draft Bill annexed to this Report. & W. 85, 87; 153 E.R. 771, 772; per Alderson B. ! 61 PART 7 STATUTORY IMPLIED TERMS IN CONTRACTS FOR THE SUPPLY OF GOODS: SCOTLAND 7.1 The Supply of Goods and Services Act 1982,which does not apply to Scotland, imple- mented the Law Commission’s Report on Implied Terms in Contracts for the Supply of Goods.’ It introduces statutory implied terms as to description, quality, fitness for purpose, conformity with sample, title, freedom from encumbrances and quiet possession into certain contractsfor the supply of goods. The implied terms aremodelled on the corresponding terms in the Sale of Goods Act 1979and the contracts in question are, first, most contracts for the transfer of property in goods other than those, such as sale and hire-purchase, already covered by other legislation* and, secondly, contracts for the hire of In the case of those contracts for the transfer of property in goods to which it applies (and this includes contracts of barter and part-exchange) the Act applies the same implied terms as in sale.4In the case of hire the Act applies the same term^,^ with the exception of the implied terms as to title and freedom from charges or encumbrances. Instead of an implied term that the person supplying the goods on hire has title to the goods, there is an implied term that he has, or will have, a right to transfer possession of the goods by way of hire for the period of the hire.6 The relevant subsection of the Act is framed in terms of the English concept of bailment, which makes it unsuitable for adoption in Scotland as it stands, but its effect is broadly as stated above.’ The Act does not include, for hire; any implied term as to freedom from encumbrances. The Law Commissionhad originallyproposed that there should be an implied term that the goods were free, and would remain free throughout the period of hire, from any charge or encumbrance not disclosed to the hirer before the agreement was made. After consultation, however, they concluded that such a term was not necessary for the protection of the hirer and could be unduly onerous from the supplier’s point of view.*Provided the hirer’s quiet possession of the goods is not disturbed, it is no concern of his how the supplier has financed his acquisition of the goods. 7.2 In Scotland any implied terms in contracts of barter depend on the common law. The same will apply to a contract of part-exchange to the extent (if any) that it does not come under the rules on sale or hire-pur~hase.~There is little modern authority on the implied terms in barter but the law as laid down by the institutional writers has been summarised as follows: “There is no essential difference between the common law affectingbarter or exchange, and sale, the price for the first being goods and for the second, money. The goods must conform with the description given. A full price or value implies that the goods are sound and merchantable. Caveat emptor does not apply when the goods have not been seen by the buyer. If the fault be latent there is an implied warranty that a fair market price implies an article of corresponding q~al i ty .”’~ (1979) Law Com. No. 95. 2 Other exceptions are: (a) a contract under which the property in goods is (or is to be) transferred in exchange for trading stamps on their redemption; (b) a transfer or agreement to transfer which is made by deed and for which there is no consideration other than the presumed consideration imported by the deed; and (c) a contract intended to operate by way of mortgage, pledge, charge or other security (1982 Act, s. l(2)). Hire-purchase and hire in exchange for trading stamps on their redemption are specifically excluded by s. 6(2). Sections 1-5. 5 Sections 6-10. Section 7(1). Its actual terms are as follows: . “7.-(1) In a contract for the hire of goods there is an implied condition on the part of the bailor that in the case of a bailment he has a right to transfer possession of the goods by way of hire for the period of the bailment and in the case of an agreement to bail he will have such a right at the time of the bailment.” e. (1979) Law Com. 95, paras. 80-85. It is by no means clear when a contract of part-exchange could be regarded as one or more contracts of sale. Much may depend on exactly how the contract is effected-n whether, for example, an agreed value is placed on both sets of goods. The definition of a contract of sale of goods in s. 2(1) of the Sale of Goods Act 1979 refers to the transfer of goods “for a money consideration, called the price”. For different possible approaches see T.B. Smith, “Exchange or Sale?”, (1974) 48 Tulane L.R. 1029. See also Sneddon v. Durunr 1982 S.L.T. (Sh. Ct.) 39 where a contract involving a trade-in of a car at an agreed value was held to be a sale. 10_Mucgregorv. Bannerman (1948) 64 Sh. Ct. Rep. 14, 17; see also Bulluntyne v. Durunt 1983 S.L.T. (Sh. Ct.) 38. 64 In the case of hire there has been doubt over whether there is any implied warranty against latent defects and over the scope of any implied warranty as to fitness for purpose.ll 7.3 In the Consultative Document the Scottish Law Commission expressed the view that it was undesirable that there should be any uncertainty or obscurity on this matter. It was also considered undesirable that the implied term as to quality should differ depending on whether a contract was one of sale or barter, or one of hire or hire-purchase. It was therefore suggested that the statutory implied terms as to quality and fitness for purpose should apply in Scots law, as they already did in English law, to contracts for the supply of goods other than contracts of sale and hire-purchase.I2Views were invited as to whether the samesolution should be adopted in the case of statutory implied terms as to description, sample, title and quiet po~session.‘~Very few consultees addressed themselves to these questions (which were peripheral to the main subject matter of the Consultative Document and applied to Scotland only), but those who did supported in principle the extension of the implied terms in the Sale of Goods Act to other contracts for the supply of goods. The Scottish Law Commission considers that this would clearly be advantageous. It is often a matter of some difficulty to decide whether or not a contract for the transfer of goods is one of sale. Not only are there “trading-in” contracts but there are also such common transactions as the supply of goods in exchange, or partly in exchange, for coupons, tokens, vouchers, labels or wrappers, or in consideration of the purchase of other g00ds.l~In all of these cases it may be difficult on occasion to classify the contract. As a matter of policy it should not matter how the contract is classified: the same implied terms should apply. It is also clearly undesirable that-there should be doubt and uncertainty about the implied terms in a contract of hire. The arguments which led the Law Commissionto recommend the provisions now contained in Part I of the 1982 Act are equally applicable in Scotland. The Scottish Law Commission therefore recommends that Part I of the Supply of Goods and Services Act 1982should be extended, with the necessary modifications, to Scotland. The main modifications necessary are, first, the elimination of the references to conditions and warranties and, secondly, the rephrasing of the provisions on hire in terms which do not use the English concept of bailment. Other minor modifications are noted in the notes to the draft clauses appended to this Report. See Wilson v. Norris 10 March 1810, F.C.; Robinson v. John Watson Ltd. (1892) 20 R. 144; Wood & Co. v. Mackay (1906) 8 F. 625; Brown v. Brecknell, Munro & Rogers (1928) Ltd. (1938) 54 Sh. Ct. Rep. 254. For the differing views expressed by textbook writers and authors, see Bell, Principles 4th ed., para. 141, and 10th ed. by Guthrie, (1899),para 141; Gloagon Contract2nd ed., (1929),p. 317; J.J. Gow, The Mercantileand Industrial Law ofScotland, (1964), pp. 245 and 246; R. Sutherland, “TheImplied Term as to Fitnessin Contractsof Hiring”, 1975 J.R. 133 at pp. 140 and 141. l2 Paras. 2.21 and 5.2. Is Para. 2.22. I4 See e.g. Chappell & Co. Ltd. v. Nest16 Co. Lid. [1960]A.C.87; Davies v. Customsand Excise Commissioners [1975] 1 W.L.R. 204; ESSOPetroleum Co. Ltd. v. Commissioners of Customs and Excise [1976] 1 W.L.R. 1. PART 8 SUMMARY OF RECOMMENDATIONS 8.1 We conclude this Report with a summaryof the recommendations whichwe have made for changing the law on the matters with which this Report is concerned. (1) The definition of “merchantable quality” to be found in section 14(6) of the Sale of Goods Act 1979and in the corresponding provisions for other contracts for the supply of goods should be re-defined. [Paragraph 3.61 (2) The new definition should consist of two elements: a basic principle, formulated in language sufficientlygeneral to apply to all kinds of goods and all kinds of transaction; and a list of aspects of quality, any of which could be important in a particular case. [Paragraph 3.121 (3) The basic principle should be that the quality of goods sold or supplied under a contract should be such as would be acceptable to a reasonable person, bearing in mind the description of the goods, their price (if relevant), and all the other circumstances. [Paragraphs 3.22, 3.271 (4) The following matters should be included in the list of aspects of quality: (a) the fitness of the goods for all their common purposes [paragraph 3.361; (b) their appearance and finish [paragraph 3.381; (c) their freedom from minor defects [paragraph 3.381; (d) their safety [paragraph 3.461; and (e) their durability [paragraph 3.571. ( 5 ) The reference.inthe Sale of Goods Act 1979to the quality of goods includingtheir state or condition should be brought forward and included in the implied term as to quality. [Paragraph 3.371 (6) A distinction between consumer and non-consumer remedies for certain breaches of a contract for the sale of goods should be introduced. The definition of consumers and non-consumers should follow that in the Unfair Contract Terms Act 1977. [Paragraph 4.81 (7) In Scotland the implied terms in the Sale of Goods Act 1979should no longer be classified as “ ~ ~ n d i t i o n ~ ~ ’or “warranties”, but should be described-simply as “terms”: the general rule should be that only a material breach justifies the buyer in rejecting the goods and treating the contract as repudiated. In England and Wales the implied terms should retain their existing classification as “conditions” or “warranties”. [Paragraph 4.151 (8) In a contract for the sale of goods no restriction on the consumer’s remedies for breach of the implied terms as to description, quality, fitness for purpose and sample should be introduced. In England and Wales this requires no change in the law. In Scotland any breach of these implied terms, and express terms on the same matters, should be deemed to be “material” in a consumer contract. [Paragraphs 4.15, 4.221 (9) In a contract for the sale of goods, a restriction on the non-consumer’s right to reject the goods and treat the contract as repudiated should be introduced where the breach is so slight that it would be unreasonable for him to exercise those remedies. Instead the non-consumer would be confined to his remedy in damages. In England and Walesthis changerequiresspecificprovision. In Scotland noprovisionisrequired because 66 APPENDIX A Sale and Supply of Goods Bill ARRANGEMENT OF CLAUSES Provisions relating to England and Wales and Scotland Clause 1. Implied term about quality. 2. 3. Right of partial rejection. Acceptance of goods and opportunity to examine them. Provisions relating to England and Wales 4. Modification of remedies in non-consumer cases. Provisions relating to Scotland 5. 6. Remedies for breach of contract. Extension of Supply of Goods and Services Act 1982 to Scotland. General 7. Amendments and repeals. 8. Short title, commencement and extent. SCHEDULES: Schedule 1-Extension of Supply of Goods and Services Act 1982 to Scotland. Schedule 2-Minor and Consequential Amendments. Schedule %Repeals. 69 A.D. 1987. Sale and Supply of Goods DRAFT OF A BILL INTITULED An Act to amend the lawrelatingto the saleandsupplyof goods. E IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:- B Provisions relating to England and Wales and Scotland Implied term about quality. 1979 c. 54. 1.-(1) In section 14 of the Sale of Goods Act 1979 (implied terms about ’‘(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 acceptable quality. (2A) For the purposesof this Act, goods are of acceptablequalityif they meet the standard that a reasonable person would regard as acceptable, 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) fitnessfor all the purposesfor which goods of the kind in question are commonly supplied, (b) appearance and finish, (c) freedom from minor defects, (d) safety, and (e) durability. quality or fitness) for subsection (2) there is substituted- (2C) The term implied by subsection (2) above does not extend to any (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.” (2) In section 15of that Act (sale by sample) in subsection (2)(c) for “rend- eringthemunmerchantable”thereissubstituted“making their qualityunaccep- table”. matter making the quality of goods unacceptable- 70 EXPLANATORY NOTES N.B. :Referencesto “recommendations” are to the Summaryof Recommenda- tions in Part 8 of this Report. Clause 1 1. 2. This clause applies both to England and Wales and to Scotland. This clause implements recommendations (1)-(5), (7) (in part) and (22). The clause substitutes a reformed definition of the implied term as to quality for subsections (2) and (6) of section 14 of the Sale of Goods Act 1979 and clarifiesthe relationship between section 14(2)and section 15(2)(c)of that Act. 3. The reformed implied term is intended to apply to all contracts for the sale of goods where the seller sells in the course of a business, the buyer being either a consumer or a non-consumer, and would apply to all kinds of goods, as does the present implied term. The reform is intended to spell out more clearly that the implied term covers (where appropriate) all aspectsof the goods (including both aesthetic and functional aspects). The present definition, in section 14(6),emphasises that the goods should be fit for the purposes for which they are bought, whereas the reformed definition goes on to list other factors of quality, such as appearance and finish, safety, durability and freedom from minor defects. The reform also replaces the present expression “merchantable quality” in section 14with theexpression “acceptable quality”. The reasons for these reforms are explained in Part 3 of the Report. The clause (together with the amendments in Schedule 2 below) imple- ments recommendation (7) to the extent that it does not classify the implied term as a “condition” in its application to Scotland; this classification however remains for England and Wales: see paragraph 4.15 of the Report and the notes to Schedule 2, below. Znserted subsection (2) implements recommendations (1) and (3) by replacing the expression “merchantable quality” with the expression “accept- able quality” (see paragraphs 3.7-3.27 of the Report). Znserted subsection (2A)implements recommendations (2) (in part) and (3) and provides the first part of the definition of “acceptable quality” in the form of a general test based on a standard that a reasonable person would find acceptable in the light of the description of the goods, their price and all the other relevant circumstances (see paragraphs 3.13-3.27 of the Report). 4. 5 . 6. 7. Znserted subsection (2B) implements recommendations (2) (in part), (4) and ( 5 )by providing the second part of the definition of “acceptable quality”, stating a non-exhaustive list of aspects of quality. The reasons for selectingthese- particular aspects of quality are set out at paragraphs 3.28-3.66 of the Report. Reference to quality including the “state and condition” of the goods imple- ments recommendation ( 5 )by bringing this wording out of section 61(1) of the 1979Act into the body of thedefinition itself (seeparagraph 3.37of the Report). Znsertedsubsection (2C) limits the application of the implied term. Para- graphs (a) and (b) do so in the sameway as the equivalent provisions in section 14(2) of the 1979 Act. Paragraph (c) implements recommendation (22). It provides that in a contract for sale by sample, the rule in section 15(2)(c) of the 1979Act prevails over the rule at present found in section 14(2). The rule in section 15(2)(c) is that the implied quality term does not apply to defects which would have been apparent on a reasonable examination of the sample, even if the buyer has not in fact examined it. The rule in section 14(2), which under our draft Bill would be section 14(2C)(b), is that in sales generally the application of the implied quality term isexcluded onlywhere the buyer actually does examine the goods before concluding the contract and his examination ought to have revealed the non-conformity in the goods. It is the former rule which shoald prevail in a sale by sample. The rule in section 15(2)(c) would 8. 71 Sale and Supply of Goods Acceptance of goods and opportunity to examine them. 1979 c. 54. 2.-(1) In section 35 of the Sale of Goods Act 1979 (acceptance) for the words from “when he intimates” to “(2)” there is substituted- “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 tohave accepted the goodswhen after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them. ( 5 ) The buyer is not by virtue of this section deemed to have accepted the goods merely because (for example)- (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. (6) Where the contract is for the sale of goods making one or more commercial units, a buyer accepting any goodsincluded in a unit is deemed to have accepted all the goods making the unit. In this subsection, “commercial unit” means a unit division of which would materially impair the value of the goods or the character of the unit. (2) In section 34 of that Act (buyer to have opportunity to examine goods)- (a) the words from the beginning to “(2)” are repealed, and (b) at the end of thatsection there isinserted “and, in the caseof acontract for sale by sample, of comparing the bulk with the sample.” (7)” 74 EXPLANATORY NOTES Clause 2 1. This clause applies both to England and Wales and to Scotland. 2. The clause implements recommendations (11)-(14) and (23) (in part). It makes changes in the operation of sections 34 and 35 of the Sale of Goods Act 1979 and reorganises the content of those sections in order to make the relationship between them clearer. Subsection (1) of the draft clause replaces most of the existing section 35(1). The replacement consists partly of what was there before, partly of new material, and partly of what was formerly in section 34(1). The first incomplete subsection in the inserted material followsthe unre- pealed words in the existing section 35, and together with those words will be the new section 35(1). This re-states two of the circumstancesin which the buyer may be deemed to have accepted the goods. These are when he intimates to the seller that he has accepted them, and (when the goods have been delivered to him) when the buyer does any act in relation to the goodswhichisinconsistent with the ownership of the seller. This subsection also makes clear that there can be no such deemed acceptance unless the buyer has had a reasonable opportunity to examine the goods. This is already true where the buyer has done an act inconsistent with the ownership of the seller; in future it would be true also where the buyer intimates his acceptance of the goods, thus imple- menting recommendation (11): see paragraph 5.23 of the Report. 5. Inserted subsection (2) repeats the content of the existing section 34(1), which provides for the buyer’s right to a reasonable opportunity to examine the goods. In addition, there is added the right to compare the bulk with the sample in the case of a contract for sale by sample. This additional provision replaces section 15(2)(b), which under our proposals would be deleted. The deletion is effected by Schedule 2, paragraph 3(6)(a) of the draft Bill, and the reason for it is to be found at paragraph 6.28 of the Report. Inserted subsection (3) implements recommendation (12) by providing that the consumer buyer cannot lose his right to a reasonable opportunity to examine the goods by a term in the contract itself or by anything he may do afterwards-for example, by signing an “acceptance note”. Where the buyer is a non-consumer, however, there is no such restriction. The non-consumer buyer will therefore be able to contract out of his reasonable opportunity to examine the goods (to the extent permitted by the Unfair Contract Terms Act 1977),or will be able (for example) to waive his rights. This matter is explained at paragraph 5.24 of the Report. Insertedsubsection (4) repeats thethird ground upon whichthebuyer may be deemed to have accepted the goods. The right to a reasonable opportunity to examine the goods is not relevant to the operation of this provision: see paragraph 5.25 of the Report. This provision therefore doesnot change the law. Inserted subsection (5) adds two new qualifications to the circumstances in which the buyer will be deemed to have accepted the goods under section 35 of the Sale of Goods Act 1979. The first of these, paragraph (a), makes it clear that a buyer who asks for goods to be repaired, or agrees to their repair, will not be deemed to have accepted them merely because of his request or agreement: see paragraphs 5.27-5.29 of the Report and recommendation (13). Further, under the present law a buyer may lose his right to reject goods if he sub-sells them and delivers them to another person, or if he disposes of them in some other way, even if they are then rejected by the sub-buyer and could be placed at the disposal of the original seller. Paragraph (b) also makes it clear that in future the buyer will not be deemed to have accepted the goods merely because he sub-sells them and delivers them to another person, or disposes of them in someother way: seeparagraph 5.38of the Report and recommendation 3. 4. 6. 7. 8. (14). 1 75 EXPLANATORY NOTES Clause 3 1. 2. This clause applies both to England and Wales and to Scotland. The clause implements recommendations (15), (16), (17) and (19). It inserts a new section 35A into the Sale of Goods Act 1979to provide for a new right of partial rejection. Inserted subsection ( I ) implements recommendation (15) (in part) and specifies the circumstances in which the right of partial rejection would arise. This is to the effect that provided the buyer still has the right to reject all the goods (conforming or non-conforming), he should also be permitted (if he chooses) to reject all or some of the non-conforming goods, while accepting all conforming goods. Under the present law, if some of the goods are accepted, the buyer will be treated as if he had accepted them all. The provision would thus enable the buyer to accept all the conforming goods and reject all the non- conforming goods, or to accept all the conforming goods and some of the non- conforming goods and reject the rest. In addition the buyer would retain the right to reject all the goods or to keep all the goods, but he would not be driven to either of those two extremes. He might wish, for example, to reject only the most defective goods in a consignment: see paragraphs 6.6-6.11 and 6.16 of the Report. Inserted subsection‘(2) implements recommendation (16) and provides that where a buyer has a right to reject an instalment of goods (whether or not he has that right is left to be determined under the present law) the same right of partial rejection as is provided for under inserted subsection (1) is to apply inrespect of the goodsin the instalment: seeparagraphs6.14-6.16of theReport. Inserted subsection (3) explains that the expression “affected by the breach” used in inserted subsection (1) means that the goods are not in confor- mity with the contract. 6. Inserted subsection (4) implements that part of recommendation (15) which is intended to permit the parties to a contract for the sale of goods to contract out of the buyer’s right of partial rejection (see paragraph 6.9 of the Report). Contracting out of this right can be achieved by express provision or impliedly. Subsection (2)ofthis clause makes an amendment to section ll(4) of the Sale of Goods Act 1979(which does not apply to Scotland) qualifying the rule in that provision by making it subject to the new rules on partial rejection set out in the proposed new section 35A. Section ll(4) provides the general rule forEnglish lawthat in anon-severable contract of saleof goods,unlessotherwise agreed,where the buyer has accepted the goods orpart of them he can no longer reject them and terminate the contract, and any breach of “condition” must then be treated as a breach of “warranty”, thus limiting the buyer to retaining all of the goods and claimingdamagesin respect of the non-conformity. Subsec- tion (2) qualifies section 11(4), therefore, to permit a right of partial rejection to have effect within the terms of the proposed section 35A. Subsection (3) implements recommendation (19) and repeals section 30(4) of the Sale of Goods Act 1979, which at present gives a limited right of partial rejection in circumstances where there hasbeen a deliveryof conforming goods mixed with goods of a different description not included in the contract. Section 30(4) is repealed so that the same rules on partial rejection apply to all kinds of non-conformity in the goods: see paragraph 6.22 of the Report. The rules on partial rejection are subject to the rules on the acceptance of a “commercial unit”, found in the proposed section 35(6) of the 1979 Act which would be inserted by clause 2(1) above. If the buyer accepts any part of a “commercial unit” he is deemed to have accepted all the goods making that unit, and thus would not be entitled to reject any of them. The intention 3. 4. 5. 7. 8. 9. F 79 80 EXPLANATORY NOTES is to prevent the division of goods which commercially or for reasons of their character should remain together. Further explanation of the concept of the commercial unit is given at paragraphs 6.12-6.13 of the Report. 81 Sale and Supply of Goods Provkions relating to Scotland Remedies for breach of following section- contract. 1979 c. 54. 5.-(1) Before section 16of the Sale of Goods Act 1979there is inserted the 15B.-(1) Where in a contract of sale the seller is in breach“Remedies for breach of contract as respects of any term.of the contract (express or implied), the buyer shall be entitled- Scotland. (a) to claim damages, and (b) if the breach is material, to reject any goods delivered under the contract and treat it as repudiated. (2) Where a contract of sale is a consumer contract, then, for the purposes of subsection (l)(b) above, breach by the seller of any term (express or implied)- (a) as to the quality of the goods or their fitness for a purpose, (b) if the goods are, or are to be, sold by description, that the goods will correspond with the description, (c) if the goods are, or are to be, sold by reference to a sample, that the bulk willcorrespondwith the sample in quality, . shall be deemed to be a material breach. (3) This section applies to Scotland only.” (2) In section 30of that Act (delivery of shortfall or excess)before subsection (3) there is inserted- (a) less than he contracted to sell, the buyer shall not be entitled to reject the goods under subsection (1) above, (b) larger than he contracted to sell, the buyer shall not be entitled to reject the whole under subsection (2) above, “(2B) Where the seller delivers a quantity of goods- unless the shortfall or excess is material. This subsection applies to Scotland only.” (3) After section 53 of that Act there is inserted the following section- “Measure of damages as respects Scotland. 53A.-(1) The measure of damages for the seller’sbreach of contract is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach. (2) Where the seller’sbreach consistsof the deliveryof goods which are not of the quality required by the contract and the buyer retains the goods, such loss as aforesaid is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the contract. (3) This section applies to Scotland only.” 84 ..- EXPLANATORY NOTES Clause 5 This clause applies to Scotland only and implements recommendations (6), (7), (8), (9) and (21). The clause inserts new sections 15B and 53A into the Sale of Goods Act 1979 as well as inserting a subsection (2B) into section 30 of that Act. Inserted subsection (1) of the proposed section 15B of the 1979 Act implements recommendation (7) and sets out the buyer’s basic remedies of damages and treating the contractas repudiated. Unlike the existing provisions of the 1979Act, terminologydirectlyrelevant to Scotslaw is used including the concept of “materialbreach” as the basis for an entitlementto treat the contract as repudiated and thus reject the goods (see paragraphs 2.27-2.31 and 4.15 of the Report). 3. Inserted subsection (2) implements recommendations (6) and (8) and is based on the same policy as is put forward for England and Wales in clause 4above, but by techniques appropriate for Scotslaw, althoughwith application to expressaswell asimpliedterms. In consumer contracts, by means of deeming breaches of express or implied terms relating to quality, fitnessfor a purpose, correspondencewith description of the goods, or that the bulk will correspond - with a sample in quality, as material breaches, thus entitling the buyer to treat the contractas repudiated, an unqualifiedright of rejection of goodsisprovided for consumers regarding those breaches (see paragraph 4.15 of the Report). “Consumercontract”is given the same meaning asin section25(1)of the Unfair Contract Terms Act 1977 (see Schedule 2, paragraph 3(9)(a)(i) below). As regards non-consumers, again the same policy objective as for England and Wales is pursued, but by a different technique. The commercial buyer’s right of rejection is in effect qualifiedby the application of the general rule that for him to be entitled to treat the contract as repudiated and reject the goods there will have to have been a material breach of contract (see paragraph 4.22 of the Report). Subsection (2)of the clauseimplements recommendation (21) andinserts for Scotland a new subsection (2B) in section 30 of the Saleof Goods Act 1979, on the rules on wrong quantity. The effect of the provision is that a buyer will not be entitled to reject all the goods where the wrong quantity has been delivered, unless the shortfall or excess in the deliveryis material. No reference is made to “material breach” as an excess delivery need not necessarily be a breach of contract. In all cases the buyer would remain entitled to reject those goods which were m excess of the goods ordered. The policy is slightly different from that being recommended for England and Wales (see Clause 4(2) above) in that no distinction is made between consumer and commercial buyers for these purposes (see paragraph 6.21 of the Report). 6. Subsection (3) inserts a new section 53A in the Sale of Goods Act 1979, with application to Scotland only. This insertion is consequential on the dis- application to Scotland of all references to the terminologyof “conditions”and war ran tie^^^, which is inappropriate for Scots law. This terminology can be found in section 53 of the 1979Act. The rules on the measure of damages on a seller’s breach of contract are the onlyparts of section53which are at present also relevant to Scotland. Section 53A would make provision on the measure of damages in terms appropriate for Scots law. Section 53 of the 1979 Act is disapplied to Scotland (see Schedule 2, paragraph (7)). 1. 2. 4. 5. 85 Sale and Supply of Goods Extension of SUPPlY of Goods and Services Act 1982 to Scotland. 1982 c. 29. 6. Schedule 1to this Act shall have effect for the purpose of extending the Supply of Goods and Services Act 1982 to Scotland. 86 i EXPLANATORY NOTES Clause 7 This clause makes provision for minor and consequential amendments of the Sale of Goods Act 1979 made necessary by the provisions of the draft Bill; for carrying through to other legislation amendments corresponding to those made to the Sale of Goods Act 1979; and for repeals consequential on the provisions of the draft Bill. 1. 89 Sale and Supply of Goods Short title, commencement and extent. 8.-(1) This Act may be cited as the Sale and Supply of Goods Act 1987. (2) This Act shall come into force at the end of the period of two months beginning with the day on which it is passed. (3) This Act has effect in relation to contracts of sale of goods, hire-purchase agreements, contracts for the transfer of goods, contracts for the hire of goods and redemptions of trading stamps for goods (as the case may be) made after this Act comes into force. (4)This Act does not extend to Northern Ireland. 90 EXPLANATORY NOTES Clause 8 Subsections ( I ) and (2)respectively makeformalprovisionfor ashort title and a commencement date. Subsection (3) provides that contracts for the sale or supply of goods made before the commencement date are not affected by the new provisions. Subsection (4) provides for the draft Bill to extend only to England and Wales and to Scotland. The Sale of Goods Act 1979extends also to Northern Ireland, but it is not within the remit of the Law Commissionsto make recom- mendations for that jurisdiction. 1. 2. 3. 91