Tuesday 13 March 2007

Due to dwindling numbers last week, I began again with CONSUMER PROTECTION LAW.

The law reflects the balance between competing interests, and consumer protection law is no different:

Freedom of contract v right of tradesmen to get the best deal that they can with consumers.
Protection of the ill-informed public v unscrupulous traders.

Certain transactions are entered into by consumers every day – at the newsagents, the supermarket, the restaurant. All enter into contracts for the sale and supply of goods or services, with the basis of the contract being the exchange of cash for the goods/service.

We have all been there, we want the goods but don’t have the cash! Hire purchase and other forms of credit have evolved to meet the need and are an important feature of many consumer transactions. Cars, furniture, carpets etc., are often financed by other than the consumer.

You should probably have heard the phrase “caveat emptor” - let the buyer beware - but nowadays it is less true than ever. Several statutes have been passed over the years to regulate transactions. This is so not only by implying terms into consumer contracts, but also protecting consumers in a more general way, mainly in criminal penalties, e.g. TRADE DESCRIPTIONS ACT 1968, WEIGHTS and MEASURES ACT 1985, FOOD SAFETY ACT 1990 and so on. THE CONSUMER PROTECTION ACT 1987 was introduced as a result of a European Directive.

CONTRACTS FOR THE SALE OF GOODS. Every contract for the sale of goods , be it a packet of crisps or a Rolls Royce, is governed by the SALE OF GOODS ACT 1979.

Section 2(1) defines a contract for the sale of goods as:

“.... a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.”

CONDITIONS are important contractual terms and a breach may well allow the injured party to treat the contract as ended. The goods are returned to the seller, the buyer gets his money back. A buys two tons of Group 1 coal from B, but coke is delivered. This will be a breach of an express term concerning the description of the fuel, and an implied term of the 1979 Act – the goods will fit their description.

WARRANTIES are less important contractual terms which lead to damages but not discharge from the contract.

A retailer may attempt in the contract to exclude liability for breach of conditions and warranties, express or implied. This would cause hardship to a consumer who may have no choice but to accept such an exclusion if he wants to buy the goods. Protection at common law and statute steps in to help him by preventing a seller from including unfair consumer clauses in a contract.

In addition to this, and other restrictions upon exclusion provided by the courts, the statutory blanket from exclusion is provided by the UNFAIR CONTRACT TERMS ACT 1977:

s6: where the buyer is dealing as a consumer the seller cannot simply exclude liability for breach of most of the terms implied into contracts by statutes such as the SALE OF GOODS ACT 1979.

The UNFAIR TERMS IN CONSUMER CONTRACT REGULATIONS 1999 control the inclusion of unfair terms into consumer contracts where those terms are not individually negotiated – limitation clauses in standard form contracts usually.

THE SALE OF GOODS ACT 1979

The 1979 Act implies a number of terms into contracts for the sale of goods, dealing mainly with rules governing the parties’ obligations to each other and the transfer of ownership of the goods. Such contracts are usually made without any formal requirement, remember the Daily Telegraph?

We have already considered the definition of a contract of sale from s2, but note:

• A sale - where ownership of the goods passes immediately to the buyer when he tenders the price (which must be money, not barter), as in transactions in shops;
• An agreement to sell - the parties agree that ownership is to pass at some time in the future.

In the main parties to a contract are free to make whatever sort of contract they wish, the obligations are a matter for the parties. Where there are no such express agreements the 1979 Act will imply them, and these terms form the cornerstone of consumer protection law.

Section 12 - The Right To Sell Goods

I cannot sell something which I don’t own, as I cannot pass to you the title to those goods. The parties make a deal whereby the seller will get the buyer’s money, and in return the receives the ownership of (“the property in”) the goods. So the seller must have the right to sell them; s12(1) states 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.”

So, if the seller has no right to sell the goods, e.g. they are stolen or are on H.P., it is a breach of a condition under the Act. Note that it is okay to arrange to sell you something you don’t yet own, as long as you do own it at the time that it is sold.

The section contains also two WARRANTIES which can be implied into a contract for the sale of goods:

1. The goods are free from third party rights not made known to the buyer before the contract, and
2. The buyer will enjoy quiet possession of the goods.

Niblett v Confectioners Materials Co. Ltd [1921] – ownership of the goods was challenged because of trademark infringements.

Microbeads v Vinhurst Road Markings Ltd [1975] – the challenge was based on an infringement over the patent to the goods.

Section 13: Description

“where there is a contract for the sale of goods by description there is an implied condition that the goods will correspond with that description.”

Apart from pre-contractual descriptions used by a prospective seller, the section applies to goods in catalogues and brochures and descriptions on packaging of articles. So the box which describes the contents as a ‘blue and white striped shirt, size 16” collar’ does not apply to red and pink striped shirt with a 24” collar. Obvious really, but not always so. The description applies to many aspects, e.g. ingredients, age, packaging, quality.

Beale v Taylor [1987] – a “white Herald convertible 1961” was advertised, the buyer later discovered that the back half matched the description, but not the front! A breach of the implied term.

Once the term is found to apply, the duty it imposes is very strict, with a slight deviation amounting to a breach, which will entitle the buyer to reject the goods.

Re Moore and Co. Ltd [1921]– the agreement was for 3,000 tins of fruit packed in cases of thirty tins. The correct number of tins were delivered, but in cases of twenty-four. There was no difference in the market price. Despite the fact that there was no loss, the Court of Appeal held that the goods could be rejected because of the breach.

Section 14: Quality

Terms relating to quality have appeared in statutes since the first SALE OF GOODS ACT 1893, now 1979. This has been amended by the SALE and SUPPLY OF GOODS ACT 1994. Whereas formerly the term “MERCHANTABLE QUALITY” was used, “SATISFACTORY QUALITY” is the replacement term.

Section 1 SSGA 1994 provides:

s14(2) SGA – where goods are sold in the course of business, there is an implied term that the goods are of satisfactory quality;

s14(2a) and (2b) – satisfactory quality is defined as being of a standard that the reasonable person would regard as satisfactory having regard to the description, price and all other circumstances;

s14 (2c) –if anything making the goods unsatisfactory is drawn to the attention of the buyer, or the buyer examines the goods beforehand and the examination revealed/ought to have revealed the defect, then the implied terms of s14 do not apply.
Important points to note are:

The terms in s14 apply only to sales ‘IN THE COURSE OF BUSINESS’, and so do not protect a buyer answering a small ad in a newspaper.

Liability for quality under s14 is strict. Thus, if the dispute is over quality, an argument by the seller that he took all reasonable care will fail.

Frost v Aylesbury Dairy [1905] – the dairy had supplied the claimant and his family with milk infected by typhoid germs. The claimant’s wife died as a result. It was proved that the production methods at the dairy were most careful and that the typhoid germs could only be detected by prolonged and detailed investigation. As the milk must be fit for human consumption any other arguments were irrelevant.

The terms as to satisfactory quality and fitness for purpose are conditions and, therefore, if breached the innocent party may reject the goods.

The terms apply to the “goods supplied under the contract of sale”, and so packaging, instructions and anything accidentally supplied with the goods are also included.

Wormell v RHM Agricultural (East) Ltd [1987] - incorrect instructions on weedkiller made it completely ineffective.

Wilson v Rickett Cockerell and Co. Ltd [1954] - coal contained a detonator which exploded and injured the buyer.

Satisfactory Quality

This replaces “merchantable quality” as it was considered unsuitable in relation to consumer contracts, and not easily understood by the ordinary private buyer. The courts, however, still hark back to the older cases for decisions. Bear that in mind whilst we look at the new law, s1 SALE and SUPPLY OF GOODS ACT 1994 which states:

ss(2) - where the seller SELLS GOODS IN THE COURSE OF BUSINESS, there is an implied term that the goods supplied under the contract are of SATISFACTORY QUALITY.

(2a) - goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

(2b) - the quality of the goods include their state and condition and the following (among others) are in appropriate cases aspects of the quality of the goods:

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

(2c) The term implied by ss (2) does not extend to any matter making the quality of the goods unsatisfactory:

a) which is specifically drawn to the buyer’s attention before the contract is made,
b) where the buyer examines the goods before the contract is made, which the 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.

So the term ‘satisfactory quality’ requires that the goods meet the standard that a reasonable person would regard as satisfactory. In that way a brand new item would be of a more satisfactory quality than a second hand version of the same item.

s14(2a) clearly states where the standard of satisfactory quality may be judged.

The goods must be fit for ALL the purposes for which the goods in question are commonly supplied. No problem where there is but one use, kettles, computers, washing machines. If the goods have more than one purpose the law is now much improved. Previously the goods would be merchantable if they fit for some of the purposes for which they were commonly bought, even if they did not fit the purposes of the buyer.

s14(2a) - mentions appearance, finish and freedom from minor defects. The first two will again be dependent upon new or second hand goods, whilst minor defects now affects matters more favourably for the buyer. Under the previous law the courts were reluctant to find that goods were not of merchantable quality after minor repairs had been made.

Thus, durability cannot be applied to perishable or fragile goods, but it does mean that the courts will consider it as a factor when considering other household goods, especially those that stop working within a few weeks of purchase.

s14(2c) - two situations where the goods will not be found unsatisfactory:

1. where the defects are drawn to the buyer’s attention (similar to the old law).
2. where the buyer examines the goods before the contract is made, and therefore the seller will not be liable for defects which that examination ought to reveal.

It does not require the buyer to examine the goods, it just lays out what will occur if he does. Neither does it cover latent defects which could not have been found by such an examination.

s14(3): Fitness For the Purpose

“Where the seller sells goods in the course of business and the buyer, expressly or by implication, makes known .. to the seller... any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied are reasonably fit for the 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 judgement of the seller.”

Three reminders here:

This term is a CONDITION and therefore the buyer may reject
It is a condition that applies only in a contract conducted in the course of business
The condition applies to all the goods supplied, including wrappings, instructions and foreign bodies

Grant v Australian Knitting Mills Ltd [1938] – defective men’s underpants.

Particular Characteristics of the Buyer

If the goods are generally fit for the purpose, but the buyer is particularly sensitive to those goods, which he does not discuss beforehand with the seller, then the goods will be fit for the purpose and the seller will not be liable for the damage caused.

Griffiths v Peter Conway Ltd [1939] – the claimant bought a new tweed coat from the defendant. He developed a skin rash and so she sued the defendant for a breach of what is now s14(3). As the garment was fit for the purpose for normal wear and the claimant had not made known to the defendant that she had a sensitive skin she could not succeed. Had the matter been discussed beforehand and the claimant had asked the defendant to recommend a coat suitable for sensitive skin, the defendant would have been liable for any consequential damage.

s15 Sale By Sample

If goods are sold by sample there are three implied CONDITIONS:

1. The bulk will correspond with the sample in quality
2. The buyer will have a reasonable opportunity of comparing the bulk with the sample
3. The goods will be free from any defect rendering them unmerchantable which would not be apparent on a reasonable examination of the sample.

Clearly, the section applies to wallpaper, carpets, curtain or suit material which are ordered from pattern books.

Godley v Perry [1960] – a boy was injured by a defective catapult, losing an eye, when he used the catapult which had been bought from a local shop. On pulling the elastic the plastic fork had broken. It was one of a boxful that the shopkeeper had bought after being shown samples.

The boy had a claim against the retailer for a breach of 14(2) – satisfactory quality – and 14(3) – fitness for purpose.
The retailer had a claim against the wholesaler for a breach of s15 – goods free from defect.
The wholesaler had a similar claim against the importer.

If a condition is breached the CONSUMER has the right to consider the contract at an end. This means returning the goods and receiving a refund plus costs incurred. A NON-CONSUMER can claim only damages where the breach is so slight it would be unreasonable to reject the goods.

Additionally, the SALE AND SUPPLY OF GOODS TO CONSUMER REGULATIONS 2002 entitles the consumer to a repair or replacement, a reduction in price or a refund, if the goods do not conform to the contract at the time of delivery. Goods becoming faulty within six months are presumed not to conform to the contract at the time of delivery.

Clegg v Olle Anderson [2003] – there is no obligation on the consumer to act reasonably in choosing rejection over one of the other remedies (Court of Appeal).

A consumer loses his right to reject once he has accepted the goods. He may still seek damages, but not a complete refund. Acceptance may be by words or action, but by virtue of the SALE AND SUPPLY OF GOODS TO CONSUMER REGULATIONS 2002 six months is the apparent benchmark.

PROVISION OF SERVICES

The SALE and SUPPLY OF GOODS ACT 1994 amended the SUPPLY OF GOODS and SERVICES ACT 1982, implying a further set of terms. They apply where a supplier has agreed to carry out a service.

The terms are implied into contracts not only where there is a simple supply of services, but also to the sale or hire of goods where the seller undertakes to provide a service in addition, e.g. installation of a TV satellite system. The terms are:

s13 – in a contract for the supply of a service by a supplier acting in the course of a business, there is an implied term that the supplier will carry out the service with ‘reasonable care and skill’.

s14 - Where, under a contract for the supply of a service by a supplier acting in the course of a business, the TIME for the service to be carried out is not fixed by the contract but is left to be fixed in a manner agreed by the contract, or determined by the course of dealing between the parties, there is an implied term that the supplier will carry out the service within a REASONABLE TIME. This is a question of fact.

The 1994 Act amended the SUPPLY OF GOODS (IMPLIED TERMS) ACT 1973, extending protection to customers acquiring goods on hire purchase. Thus, a hire purchase contract has the following implied terms:

s15 - Where under a contract for the supply of a service, the consideration for the service is not determined either by the contract, or is not left to be determined in a manner agreed by the contract, or determined by the course of dealing between the parties. There is an implied term that the party contacting with the supplier will pay a reasonable charge; a matter of fact.

TRANSFER OF OWNERSHIP

The general rule comes from s17 SALE OF GOODS ACT 1979:

“Ownership passes when the parties intend it to pass, even though the time for payment may be postponed.”

When it comes to the sale of goods, the goods can be classified as ‘UNASCERTAINED’ or ‘SPECIFIC’. This distinction is vital as different rules apply as to when the property passes from the seller to the buyer.

Usually, when the property passes, the risk passes also. So insuring the goods becomes important. No problem until the goods become damaged or lost.

s16 – Property in unascertained goods does not pass until the goods are ascertained. Go to a warehouse and order two dozen cases of Moet and Chandon champagne ready for a wedding, the goods will not be ascertained until they are separated from the rest of the same cases and loaded for you.

Problems arise in unascertained goods for buyers who had paid for the goods and received documents of title. If the seller becomes insolvent while the goods are still unascertained they were retained for the benefit of all the creditors, with the buyer becoming just another unsecured creditor. This was addressed following a Law Commission report and enacted in the SALES OF GOODS (AMENDMENT) ACT 1995. If the unascertained goods form part of an IDENTIFIABLE BULK, and the buyer pays for the goods, property in those goods passes at the time of payment - not when the goods are actually ascertained.

s18 SALE OF GOODS ACT provides five rules to assist in determining when the parties intend property to pass:

RULE 1 – Where there is an unconditional contract for the sale of specific goods in a DELIVERABLE STATE the property passes to the buyer when the contract is made.

RULE 2 - Where there is a contract for the sale of specific goods NOT IN A DELIVERABLE STATE (i.e. The seller has to do something to the goods to put them in a deliverable state), the property does not pass until that thing is done and the buyer has notice of it. Apples still growing on trees have to be picked and packed, for instance.

RULE 3 - Where, in a contract for the sale of specific goods in a deliverable state, the seller is bound to weigh, measure, test or do something with reference to the goods for the purpose of ascertaining the price, the property does not pass until that thing is done and the buyer has notice of it.

RULE 4 - When goods are delivered to the buyer on approval or on sale or return, the property therein passes to the buyer:

1 When he signifies his approval or acceptance to the seller or does any other act adopting the transaction, or

2 If he retains the goods without giving notice of rejection beyond the time fixed for the return of the goods, or if no time is fixed, beyond a reasonable time.

RULE 5 - Applies to unascertained goods. The property in unascertained or future goods sold by description passes to the buyer when goods of that description and in a deliverable state are unconditionally appropriated to the contract either by the seller with the assent of the buyer or by the buyer with the assent of the seller.

Federspiel v Charles Twigg [1957] – the claimant had bought from the defendant 85 bicycles in a contract provided that the defendants ship them in June 1953. The purchase price was paid in advance. Receivers were appointed in July 1953, with all the assets (including the bicycles) becoming charged to the receiver. The claimants alleged that as the bicycles had been packed into cases marked with their name the property had passed to them. As there was no appropriation within rule 5 the action must fail.

To protect their possession sellers now include in their standard form contracts ‘Romalpa Clauses’. This allows the seller to trace goods and reclaim the proceeds of the sale.

Aluminium Industries BV v Romalpa Aluminium Ltd [1976] – the claimant supplied aluminium foil to the defendants. The contract provided that ownership would pass only when the purchase price was paid. If the foil was processed into other items the claimants would have ownership of such items until the foil was paid for. Moreover, if the processed items were sold on, the claimant would be able to call on the proceeds of sale. The Court of Appeal accepted the validity of the clause and recognised that, where the manufacturer in such circumstances became bankrupt, the effect would be to give the supplier a priority claim to that of secured creditors of the company.

SALE BY SOMEONE NOT THE TRUE OWNER

A seller with no title to goods cannot pass ownership in them. If the rule is strictly applied it can prove onerous for a buyer who may purchase goods in good faith yet, because the seller had no title to pass, be in a position of losing the goods as well as the sale price. To mitigate this a number of rules have been developed whereby an innocent purchaser can get good title, enforceable ‘against the world’, from a seller who has no title. The exceptions are:

ESTOPPEL - s21 SALE OF GOODS ACT 1979. The owner allows someone else to hold themselves out as the true owner and so be able to give good title. EXAMPLE: I collude with you to sell my washing machine to X, I reclaim it from X on the grounds that you had stolen it. We split the cash, and I now have my washing machine back.

AGENCY - s21(2) SALE OF GOODS ACT 1979. The seller appoints someone to sell the goods on his behalf, as his agent.

MOTOR VEHICLES ON HP - Part III HIRE PURCHASE ACT 1964, now contained in a schedule to the CONSUMER CREDIT ACT 1974. There are special rules relating to motor vehicles bought on HP.

Dodds v Yorkshire Bank Ltd [1992] – a vehicle sold by a hirer to a buyer who is a private individual will get a good title.

Traders don’t get this benefit, they can check easily with HPI.

Ss 24-25 SALE OF GOODS ACT 1979 - Where the seller retains possession of the goods, and then disposes of them to a third party. That third party obtains good title. Conversely, where a buyer obtains possession of goods before paying for them, a disposal to a third party gives that third party good title.

SALE UNDER A VOIDABLE TITLE - s23 SALE OF GOODS ACT 1979. The seller’s title is voidable, but has not been avoided at the time that the sale to the buyer is concluded, the buyer gets good title: Lewis v Averay [1972] and Shogun Finance v Hudson [2002].

CONSUMER PROTECTION (DISTANCE SELLING) REGULATIONS 2000
Applies only to deals conducted by means of distance communications, e.g. Internet, mail-order catalogues. The aim is to provide a “cooling-off” period.

REG 7 – supplier must provide certain information, including characteristics of goods/service, price and right to cancel.

REG 8 – must be confirmed in writing. Right to cancel is seven days, from the day after the goods are received. Period is extended if the information regarding cancellation is sent late, or not at all. For services, period begins the day after contract is concluded, for seven days.

If consumer exercises his rights he must be reimbursed, and any credit agreement is ended. If goods have been provided he must keep them safe for collection by the vendor.

THE RIGHT EXISTS WHETHER OR NOT THE GOODS ARE FAULTY.

We will start with buying goods on credit next time.