Implied Terms

Title

The Sale of Goods Act 1979 provides that it is an implied term in the sale of goods that the seller has a right to sell the goods. In the case of an agreement for sale it is an implied term that the seller will have a right to sell the goods when the property is due to pass. The obligation is unconditional.

The seller must be able to pass and give title so that no third-party has a right prevent the sale.

The obligation as to title is a condition. This means under the Sale of Goods Act that if it is breached by the seller, the buyer has a right to treat the contract as discharged and recover damages for loss suffered by reason of the breach.

In principle an express provision may be made as to title. It is likely to be interpreted to be a condition (in the above sense) in most cases unless otherwise expressly provided.

If title is not furnished, the buyer is usually entitled to recover all monies paid because there has been a total failure of consideration.

Charges / Quiet Possession

The Sale of Goods Act also implies a term that the goods are free and will remain free until the property passes, from any charge or encumbrance that is not disclosed or known to the buyer prior to the contract. This implied term is a warranty. Accordingly, its breach usually gives rise to a right to damages (only).

A charge or encumbrance is some kind of proprietary right, legal or equitable in respect of the goods. It may include a right to retain under a lien. It may include a security interest under a bill of sale.

The Sale of Goods Act implies a term that the buyer will enjoy quiet possession of the goods. This does not apply to rights reserved by the owner or under a disclosed charge or which is otherwise known to the buyer. Quiet enjoyment refers to interference with title on the basis of a third party’s claim to those goods. It does not imply any wider quiet enjoyment in the ordinary sense of the word.

It is possible in principle that the seller sells only such title as he has. This would require to be expressly agreed or be very apparent from the circumstances.

The law on detinue and conversion has been reformed in England by the Torts (Interference with Goods) Act. Where a buyer takes proceedings against the seller to recover the price due to failure of consideration, the Act provides that if the seller has acted in good faith an allowance is to be made for improvements to the goods made by the seller. He must honestly believe that he has title.

Under the Unfair Contract Act, liability for breach of the implied conditions in section 12 may not be excluded or restricted by the contract. The Unfair Terms in Consumer Contracts Regulations which apply where the sale is by a trader to a consumer, provide that such terms are not generally binding on the consumer as an unfair contract term.

There are exceptions under both the Unfair Contract Terms Act and the Unfair Terms in Consumer Contracts Regulations, which allow for exemption, exclusion or limitation of liability in limited circumstances.

Description

A seller of goods which are defective may have liability for breach of contract under statute or in tort (civil wrong). Defects or shortcomings in the goods may amount to a breach of the express terms of the contract or terms implied under the Sale of Goods Act or the Consumer Rights Act.

Where a contract is for the sale of goods by description, it is implied that the goods will correspond with the description. This is an implied condition. Accordingly, breach entitles the buyer to treat the contract as discharged, return the goods and to recover his loss. Alternatively, he may sue for breach of contract.

Sale by description include sales where the buyer relies on a description given by the seller. Goods may be subject to description even if they can be seen and are physically delivered and even where they are selected by the buyer.

Where the terms of the contract describe the goods, or a representation is made in relation to them, then the provision as to conformity with description applies.

Failure to meet a standard does not usually constitute a breach of the term as to description. It may be a breach of warranty regarding satisfactory condition or fitness for purpose.

It is a question of degree as to at what point the nonconformity become such that it constitutes a breach of description. There is usually no breach of description where the failure relates to the quality of goods or their standard. However, at some point the quality may be so poor that they cease to be as described in which event the conformity with description condition is breached.

Satisfactory Quality

The Sale of Goods Act provides that it is an implied term on the part of the seller or transferor of goods who acts in the course of business, that the goods supplied under the contract are of satisfactory quality. This is a condition. The sale need not be an integral part of the seller’s business.

This is the core implied term in relation to the sale of goods It formerly required that the goods be of ‘merchantable’ is quality. In the case of consumer sales, there is further legislation which supplements the obligation.

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

The quality includes the state and condition and where appropriate

• fitness for all purposes for which goods of the kind in question are commonly supplied
• appearance and finish
• safety
• freedom from minor defects
• durability.

The implied term as to satisfactory quality is not dependent on negligence. It is a strict liability of the seller.

The implied term of satisfactory quality does not apply in relation to matters which make the quality unsatisfactory

• which are specifically drawn to the buyer or transfer reason attention before the contract is made
• where the buyer or transferee examines the goods before the contract is made, in respect of defects which that examination should reveal
• in the case of a contract for sale by sample where the property in the goods are transferred by sample, which would have been apparent on reasonable examination of the sample.

In the case of a contract for sale by sample, it is an implied term that the bulk will correspond with the sample in quality and that the goods will be free from any defect making the quality unsatisfactory, which would not be apparent on reasonable examination of the sample. This term is a condition. It also applies to contracts for the transfer of goods

Disclosed Use

The Sale of Goods Act provides that where a seller sells goods in the course of the business and the buyer expressly or by implication makes known

• to the seller,
• or where the price or part of it is payable by instalments and the goods were previously sold by a credit broker to the seller to that credit broker,

any purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose.

This is so whether or not that is a purpose for which the 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 judgement of the seller or credit broker. This term is a condition of the contract.

Breach of Contract Issues

A representation may be made about goods before the contract which does not become a term of the contract. There may be liability in tort under a collateral contract or under the Misrepresentation Act. There is a right to damages for breach of contract. There may be a right to terminate / rescind the contract. This may be lost where the contract is affirmed. The right to terminate may be lost where the parties cannot be restored to their original position.

Where there is a fundamental breach of contract, “going to the root” of the contract or a repudiation, the buyer is entitled to treat the contract as discharged, reject the goods and seek compensation/damages. This will depend on the seriousness of the breach in the circumstances

Where the buyer is not a consumer and there would be otherwise a right to reject the goods for breach of the key implied conditions, then unless it is otherwise expressly or impliedly provided the breach is not to be treated as a breach of condition where it is so slight that it would be unreasonable for him to reject them.

Where in a contract of sale, the seller is in breach of any term of the contract (express or implied) the buyer is entitled to claim damages and if the breach is material, to reject any goods delivered under the contract and treated as repudiated. The rejection of the goods requires some positive action / communication.

The buyer may waive a breach and affirm the contract expressly or impliedly, such as by accepting the goods. Where there is a breach of warranty by the seller and the buyer elects or is deemed to treat any breach of condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods.

He may however set up against the seller, the breach of warranty in diminution or extinction of the price or maintain an action against the seller for damages for breach of warranty.

The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty.

See the sections in relation to acceptance of goods. A person may be deemed to accept goods where has had the opportunity to examine them and expressly or impliedly accept them or acts inconsistently with the seller’s ownership.

Consumer Statutory Rights

Consumers have additional rights. A party deals as consumer

• where he does not make the contract in the course of business or hold himself out as so doing and
• the other party makes the contract in the course of business and
• the goods passing under or pursuant to the contract are of a type ordinarily supplied for private use or consumption.

In the case of a consumer purchase, statute provides that account may be taken of a wider range of circumstances and statements in relation to the characteristics of the product by the seller/transfer, producer or his representative. The producer is the manufacturer or importer into the European Economic Area or any person purporting to be a producer by placing his name trademark or distinctive sign on the goods.

A public statement is not relevant if at the time,

• the seller or transferor was not and could not reasonably have been aware of the statement
• the statement had been withdrawn or corrected or
• where the contract was made or where the decision to buy could not have been influenced by the statement.

The onus is on the seller to prove that the above exceptions apply.

In a non-consumer case, the circumstances may be relevant in accordance with general principles of contract law.

Where a buyer or transferee is a consumer, any breach of the implied terms in relation to conformity with description, satisfactory quality, fitness for purpose or sale by sample; correspondence to bulk, is a material breach. In the consumer sale the consumer is not deemed to have accepted the goods unless he has been given a reasonable opportunity to examine them. These provisions cannot be varied by contract.

The Sale of Goods Act also implies the same term into contracts for the transfer of goods and contracts where a credit broker is involved. A credit broker is a person who acts in the course of a business of credit broker being a business of effecting introductions of individuals seeking credit to persons in the business of providing credit or other credit brokers. The provision protects a consumer who purchases goods on credit with finance broker by another.

Further Consumer Statutory Rights

Consumers have further rights by statute in relation to defective goods. where goods do not conform to the contract of sale (or transfer) at the time of delivery. The rights also apply where the goods do not conform at any time within six months after the date of delivery (with limited exceptions)

In the above circumstances the consumer buyer has the right to require

• repair or replacement of the defective goods
• reduction of the price by an appropriate amount
• rescind the contract

These warranties are in addition to other rights from the seller and guarantees by the manufacturer.

The seller must repair or replace defective goods within a reasonable time after request by the buyer. It must do so without causing significant inconvenience to the buyer having regard to the nature of goods and the purpose of the acquisition. Where goods are repaired or replaced the seller must carried necessary costs in so doing. This is to include the costs of work and materials etc.

The buyer may not require the seller to repair or replace defective goods if it would be impossible to do so or it would be disproportionate compared with other remedies. If the price reduction or decision is less costly the seller may offer these options to the buyer instead.

Where the buyer terminates the contract, any repayment may be reduced to take account of the use and enjoyment by the buyer of the goods after delivery.

A remedy for the buyer is disproportionate relative to another if it would place unreasonable costs on the seller. Account is taken of the goods’ value (assuming compliance) the consequences of the lack of conformality and the existence of other remedies which might be available without significant inconvenience to the buyer.

A consumer may require the seller to reduce the price by an appropriate amount or rescind the contract. He may do so if he requires the seller to repair or replace the goods by reason of it being impossible or disproportionate in the above sense or if the seller having been so required, fails to do so within a reasonable time.

The buyer is not entitled to reject goods and terminate the contract for breach of condition unless he requires the seller to do so and gives him a reasonable time in which to repair or replace the goods.

The courts have a discretion as to which remedies shall be granted including specific performance damages or otherwise

Where goods are unsafe the supplier may be liability under the defect products legislation. See the separate article in this regard.