Contract | Formation
Terms: Implied by Statute
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Introduction
A contract will have express terms which the parties have agreed. However, there may also be implied terms that are read into the agreement, by the courts or through statute. Terms implied through statute are primarily for the purpose of consumer protection.
Both conditions and warranties may be implied. A condition is a major term of the contract and a warranty is a minor term. The distinction is relevant as it affects the remedies available to the innocent party if the term is broken.
The Sale of Goods Act 1979
Terms may be implied into agreements for the sale of goods. The Sale of Goods Act 1979 (SGA 1979) provides statutory protection for consumers who purchase items from private sellers and for retailers who buy goods from manufacturers.
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Section 8: prices
The SGA 1979 contains a number of provisions which may be implied into a contract including section 8 which concerns prices.
Sale of Goods Act 1979
S8 Ascertainment of price
(1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties.
(2) Where the price is not determined as mentioned in sub-section (1) above the buyer must pay a reasonable price.
(3) What is a reasonable price is a question of fact dependent on the circumstances of each particular case.
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Section 14: satisfactory quality and fitness for purpose
Section 14 SGA 1979 contains conditions relating to satisfactory quality and fitness for purpose, which may be implied.
Sale of Goods Act 1979
S14 Implied terms about quality or fitness
(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.
(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.
(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods - (a) fitness for all the purposes for which goods of the kind in question are commonly supplied, (b) appearance and finish, (c) freedom from minor defects, (d) safety, and (e) durability.
(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory - (a) which is specifically drawn to the buyer's attention before the contract is made, (b) where the buyer examines the goods before the contract is made, which that examination ought to reveal, or (c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.
(3) 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 previously sold by a credit-broker to the seller, to that credit-broker, any particular 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, 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.
(6) As regards England and Wales and Northern Ireland, the terms implied by subsections (2) and (3) above are conditions
Section 14 implies conditions that goods sold, in the course of business, should be of satisfactory quality (s14(2)) and fit for purpose (s14(3)). There is strict liability for breach of s14(2) and s14(3). Therefore, fault is irrelevant and the seller is unable to argue that he did not know the goods were defective or that the goods were defective when he received them.
Satisfactory quality can include appearance, safety and durability but does not cover any matter specifically drawn to the buyer's attention before the contract is made (s14(2A) - (2C)).
Section 14(3) refers to the buyer's purpose being made known to the seller expressly or by implication. Using the goods for normal purpose is implied. However, if the buyer intends to use the goods for a special or unusual purpose, then the seller should be informed in order to get the benefit of s14(3). Additionally, it must be reasonable for the buyer to rely on the seller's skill and knowledge.
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Section 13: sale of goods by description
Section 13 SGA 1979 contains a condition relating to sale of goods by description, which may be implied.
Sale of Goods Act 1979
S13 Sale by description
(1) Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.
(1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition.
(2) If the sale is by sample as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
(3) A sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer.
Section 13 SGA 1979 means that there is an implied condition that goods will correspond to the description given. The term may be implied whether the seller is a business or a private individual and there is strict liability for a breach. Therefore no fault is required, it is sufficient to prove that the goods do not match the description.
A sale by description occurs when a buyer reasonably relies on the seller's description. This clearly applies when the buyer has not seen the goods (online orders or packaged items in a shop). However, it can also apply if the buyer has examined the goods if he has reasonably relied upon the seller's description.
Harlingdon & Leinster v Christopher Hull Fine Art [1990] 3 WLR 13
Facts:
The plaintiff bought a painting from the defendant for £6,000. It was described in the auction catalogue as being the work of Munter, a German impressionist. The parties were art dealers: the plaintiff was an expert on German art, whilst the defendant was not. The plaintiff sent his experts to inspect the painting before agreeing to the sale. Later the plaintiff discovered the painting was a fake and worth only £100.
Issue:
Was the painting sold by description?
Held:
There was no valid claim under s13 Sale of Goods Act 1979. The painting was not sold by description and the parties could not reasonably have contemplated that the buyer would rely on the seller's description.
Remedies
The Sale of Goods Act 1979
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The SGA 1979 specifies some remedies for breach of terms implied by s13 and s14 of the Act.
As a general rule, a buyer can terminate the contract and reject the goods, if there is a breach of one of the terms implied by s13 or s14 SGA 1979, even if it is minor. If the buyer returns the goods, then he is entitled to recover the money paid and is not obliged to perform any further obligations under the contract. He may also sue for damages if there is any further loss. Alternatively, the buyer may affirm the contract, keep the goods and simply sue for damages for any loss suffered.
Section 15 SGA 1979 sets out some exceptions to this rule.
Sale of Goods Act 1979
S15A Modification of remedies for breach of condition in non-consumer cases
(1) Where in the case of a contract of sale -
(a) the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by section 13, 14 or 15 above, but
(b) the breach is so slight that it would be unreasonable for him to reject them,
then, if the buyer does not deal as consumer, the breach is not to be treated as a breach of condition but may be treated as a breach of warranty.(2) This section applies unless a contrary intention appears in, or is to be implied from, the contract.
(3) It is for the seller to show that a breach fell within subsection (1)(b) above.
Therefore, under s15A SGA 1979, the right to terminate the contract and reject the goods will be lost if the buyer is not buying as a consumer there is no right to reject the goods for breach s13 and s14. The right will also be lost if the breach is so slight that it would be unreasonable for him to reject the goods. The seller must demonstrate that the breach is so slight that rejection of the goods would be unreasonable. The buyer would be restricted to suing for damages for loss.
Section 11 and s35 SGA 1979, define a further situation when the right to reject the goods may also be lost under and applies to both consumer and business buyers.
Sale of Goods Act 1979
S11 When condition to be treated as warranty
(4) Where a contract of sale is not severable and the buyer has accepted the goods or part of them, the breach of a condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is an express or implied term of the contract to that effect.
S35 Acceptance
(1) The buyer is deemed to have accepted the goods 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.Essentially s11(4) SGA 1979 provides that the buyer cannot reject the goods if he has accepted them and s35 sets out the circumstances when the buyer will be deemed to have accepted the goods. The buyer is deemed to have accepted the goods is where he keeps the goods beyond a reasonable time without intimating rejection. It is a question of fact as to what is a reasonable time. The courts will consider whether there has been reasonable time to examine the goods to see if they conform to the contract. The courts will also take into account the nature and complexity of the goods and the buyer is allowed reasonable time to try out the goods.
Sale and Supply of Goods to Consumers Regulations 2002
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The Sale and Supply of Goods to Consumers Regulations 2002 amends the SGA 1979 and provides additional rights for consumers.
Sale and Supply of Goods to Consumers Regulations 2002
The Act inserts s48A into the Sale of Goods Act 1979.
S48A: states that where goods do not conform to the contact within six months of delivery, there is a rebuttable presumption of nonconformity (it will be presumed that the goods did not conform at the date of purchase unless the seller can prove otherwise).
Section 48A SGA 1979, protects the consumer because previously the buyer had to prove on the balance of probabilities that the goods did not conform at the time of purchase. This does not apply if the goods are not reasonably expected to last for six months. Further detail is provided in s48B - 48D SGA 1979.
Sale of Goods Act 1979
S48B Repair or replacement of the goods
(1) If section 48A above applies, the buyer may require the seller-
(a) to repair the goods, or
(b) to replace the goods.(2) If the buyer requires the seller to repair or replace the goods, the seller must -
(a) repair or, as the case may be, replace the goods within a reasonable time but without causing significant inconvenience to the buyer;
(b) bear any necessary costs incurred in doing so (including in particular the cost of any labour, materials or postage).(3) The buyer must not require the seller to repair or, as the case may be, replace the goods if that remedy is -
(a) impossible, or
(b) disproportionate in comparison to the other of those remedies, or
(c) disproportionate in comparison to an appropriate reduction in the purchase price under paragraph (a), or rescission under paragraph (b), of section 48C(1) below.(4) One remedy is disproportionate in comparison to the other if the one imposes costs on the seller which, in comparison to those imposed on him by the other, are unreasonable, taking into account -
(a) the value which the goods would have if they conformed to the contract of sale,
(b) the significance of the lack of conformity, and
(c) whether the other remedy could be effected without significant inconvenience to the buyer.(5) Any question as to what is a reasonable time or significant inconvenience is to be determined by reference to -
(a) the nature of the goods, and
(b) the purpose for which the goods were acquired.S48C Reduction of purchase price or rescission of contract
(1) If section 48A above applies, the buyer may-
(a) require the seller to reduce the purchase price of the goods in question to the buyer by an appropriate amount, or
(b) rescind the contract with regard to those goods,
if the condition in subsection (2) below is satisfied.(2) The condition is that -
(a) by virtue of section 48B(3) above the buyer may require neither repair nor replacement of the goods; or
(b)the buyer has required the seller to repair or replace the goods, but the seller is in breach of the requirement of section 48B(2)(a) above to do so within a reasonable time and without significant inconvenience to the buyer.(3) For the purposes of this Part, if the buyer rescinds the contract, any reimbursement to the buyer may be reduced to take account of the use he has had of the goods since they were delivered to him.
S48D Relation to other remedies etc
(1) If the buyer requires the seller to repair or replace the goods the buyer must not act under subsection (2) until he has given the seller a reasonable time in which to repair or replace (as the case may be) the goods.
(2) The buyer acts under this subsection if-
(a) in England and Wales or Northern Ireland he rejects the goods and terminates the contract for breach of condition;
(b) in Scotland he rejects any goods delivered under the contract and treats it as repudiated;
(c) he requires the goods to be replaced or repaired (as the case may be).In summary, s48B SGA 1979 requires the seller to repair or replace the goods free of charge within a reasonable time, if the goods do not conform to the contract. However, these remedies will not be available if they are impossible or disproportionate in comparison to other remedies.
If repair or replacement is not available as a remedy, or if the seller has not repaired or replaced within a reasonable time. The buyer may terminate the contract, however, the seller may reduce the reimbursement taking into account of the use the buyer has made of the goods.
Supply of Goods and Services Act 1982
The Supply of Goods and Services Act 1982 (SGSA 1982) implies terms into contracts for services. These may be contracts purely for a service (such as a hairdresser). Additionally, the SGSA 1982 may apply if the business supplying the service is also providing goods (such as kitchen fitters). The SGSA 1982 implies terms for both the service provided and the goods or materials supplied.
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Sections 13, 14 and 15: services
Supply of Goods and Services Act 1982
S13 Implied term about care and skill
In a contract for the supply of a service where the supplier is 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 Implied term about time for performance
(1)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, 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.
(2)What is a reasonable time is a question of fact.
S15 Implied term about consideration
(1)Where, under a contract for the supply of a service, the consideration for the service is not determined by the contract, 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 contracting with the supplier will pay a reasonable charge.
(2)What is a reasonable charge is a question of fact.
If the supplier of the service is acting in the course of business, s13 SGSA 1982 implies a term that the supplier will carry out the service with reasonable care and skill. This is the same duty of care imposed in negligence. Therefore, if a supplier does not carry out the service with reasonable care and skill, he will be in breach of the term implied by s13 and this will amount to a negligent breach of contract.
If the supplier of the service is acting in the course of business, section 14 SGSA 1982 implies a term the service will be carried out within a reasonable time, if not expressly provided for in the contract.
If the consideration (price) is not expressly determined in the contract or by a course of dealing between the parties, there is an implied term that a reasonable charge will be paid.
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Sections 3 and 4: goods
Sections 3 and 4 SGSA 1982 apply, in addition to sections 13, 14 and 15, when both a service and goods are supplied.
Supply of Goods and Services Act 1982
S3 Implied terms where transfer is by description
(1) This section applies where, under a contract for the transfer of goods, the transferor transfers or agrees to transfer the property in the goods by description.
(2) In such a case there is an implied condition that the goods will correspond with the description.
(3) If the transferor transfers or agrees to transfer the property in the goods by sample as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
(4) A contract is not prevented from falling within subsection (1) above by reason only that, being exposed for supply, the goods are selected by the transferee.
S4 Implied terms about quality or fitness(1) Except as provided by this section and section 5 below and subject to the provisions of 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 for the transfer of goods.
(2) Where, under such a contract, the transferor transfers the property in goods in the course of a business, there is an implied condition that the goods supplied under the contract are of satisfactory quality.
(2A) For the purposes of this section and section 5 below, 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.
The terms implied by s3 and s4 are conditions. Section 3 implies a term that the goods will correspond with the description, s4(2) that the goods will be of satisfactory quality and s 4(5) that they are reasonably fit for any particular purpose which the transferee makes known. Section 4(2) and s4(5) only apply where goods are supplied in the course of a business. These are similar to the terms implied by s13 and s14 of the Sale of Goods Act 1979.
Remedies
The remedies available for breach of s3 and s4 of the SGSA 1982 are the same as for breach of s13 and s14 of the Sale of Goods Act 1979.
Therefore, a consumer and non-consumer will be able to use the traditional remedies of termination and/or damages for breach of a condition. Additionally, a consumer can use the remedies of repair or replacement or if not possible price reduction or termination. A non-consumer may not reject the goods for breach of the terms implied by s3 and s4 SGSA 1982, if the breach is so slight it would be unreasonable for him to do so (s5A SGSA 1982).
Negligence
If a supplier sells defective goods or does not carry out the work with reasonable skill and care and therefore breaches s13 SGSA 1982, the buyer may be able to sue under negligence. However, the buyer is likely to pursue a claim under contract as there is strict liability for a breach of the implied terms, whereas in negligence it is necessary to prove the fault.