Chapter 4: The Quality of Goods and Services: Private Law Remedies

Chapter 4: The Quality of Goods and Services:
Private Law Remedies

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Description, Quality and Fitness for Purpose
1. Introduction
Often regarded as central topics in sales law and certainly the
area of greatest litigation, sections 14 and 15 of the Sale of Goods Act are central
to issues concerning buyers’ reasonable expectations of product performance.
They are also of significance to products liability. This area of sales law is not
easy to rationalize at a doctrinal level because the sections are applicable to many
differing fact situations with correspondingly distinct policy rationales. For
example, they may be applicable to a case of personal injuries caused by product
defects, to a claim for pure economic loss by a commercial business against a
retailer, a claim by a consumer for having received a “lemon” automobile, or an
international commodity contract. One could analyse this area in terms of two
competing paradigms: (1) a concern by the courts to impose a risk allocation
which the parties would have bargained to (the default rule analysis) and (2) the
imposition of obligations by the courts based on ideas of fairness or distributional
concerns such as loss and risk spreading. The area is further complicated by the
fact that since these implied terms are conditions, an individual is entitled to
reject for breach of the condition. It is probably the case that judicial
interpretation of the standard (e.g. is this car “merchantable”) has been affected
by concern for the remedial consequences of their finding. Finally, the open
texture of the standards of “merchantable” and “reasonable fitness for purpose”
confer a broad discretion on judges to determine the question based on their
perception of buyer expectations. It is perhaps not surprising therefore that in
many commercial contracts, contracting parties attempt to establish their own
standards of performance.
Stapleton claims that the implied terms as to quality "have

been the single most potent aspect of the development of the law of product
liability. It made commercial sellers accustomed to strict obligations with respect
to quality long before they were exposed to a fault standard in tort in this regard,
and long before pressures developed to convert that standard into a strict
standard". Stapleton, Product Liability (1994) at 14.
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Description, Quality and Fitness for Purpose
In relation to retailers the focus is on a sale of goods and the associated
obligations implied under the Sale of Goods Act, but there may also be “near
sales” such as a contract for work and materials which do not fall within the
scope of the Act (see s2 for definition of sale) or a contract for services such as
moving a consumer’s goods. Leases of goods are also a popular method of
distributing goods and these transactions do not fall within the sale of goods act
unless they are in substance sales (see discussion earlier in course in relation to
leases and security leases) .
In relation to quality obligations there may always be the possibility of
arguing a common law action based on misrepresentation or express warranty.
The Implied Conditions
There are three implied conditions in relation to quality and the condition
of goods: correspondence with description (s14); merchantable quality 15(2);
reasonable fitness for purpose 15(2). These conditions may not be contracted
out of in a consumer sale (see ss9(2) and (3) of the CPA) The latter two are
probably the most important and are often argued together as there is significant
overlap between them. These are all conditions and therefore breach of an
implied term prima facie entitles you to reject the goods and sue for any
damages suffered. Rejection is potentially powerful remedy which confers
significant bargaining power on the consumer. It is also a consumer remedy
since most consumers with defective goods are unlikely to want to keep slightly
damaged goods and receive an adjustment on the price. However s12(3) of the
Act limits the right to reject and may potentially cut down significantly the right
to reject. (see Chapter 9 at 168-176). We will return to this later but the
limitations in the Sale of Goods Act mean that it may be prudent also to claim
under the Unfair Practices section of the Consumer Protection Act (provided a
plaintiff can prove an actionable misrepresentation under s14 of the Act) which
has less restrictions on the right to rescind although there is the one year
limitation period. see s18 (3).
3.1. Condition that goods correspond with description in a sale by description
The first condition is perhaps less important but includes a private sale
whereas merchantable quality and reasonable fitness for purpose apply only to
professional sellers. There are two issues here: (1) when is there a sale by
description and (2) what constitutes the extent of the description condition.
A “sale by description” was originally restricted in 19th century to a sale
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Description Quality and Fitness for Purpose

of unascertained goods e.g. a commodity sale of “500 tons of Oregon Grade A
Wheat” and the description identified the goods. The restriction of this condition
and the implied term of merchantable quality to sales by description was an
exception to caveat emptor because the buyer could not inspect goods and was
relying on description. This contrasted with a sale of specific goods (see
definition in Sale of Goods Act) where there would be caveat emptor. However,
after the passage of the Sale of Goods Act the judges interpreted the concept of a
sale by description broadly in order to provide protection to buyers since this was
a precondition for application of the merchantable quality protection. The
concept of a sale by description was extended to a sale of specific goods where
a defect was not readily apparent (see discussion of the development of the sale
by description in Harlingdon and Leinster Enterprises Ltd v. Christopher Hull
Chapter 9 at 71-84)
An example is Beale v. Taylor where a private seller sold a car described
as a “Herald Convertible White 1961". This was in fact true only of the back part
of the car because the front of the car came from a different model and had been
welded on. This was not apparent to the consumer and the car was held not to
correspond with its description. Most sales will be sales by description and would
include self service stores. Reference is often made to the judgment of Lord
Wright in Grant v. Australian Knitting Mills where he stated that “there is a sale
by description even though the buyer is buying something displayed before him
on the counter; a thing is sold by description, though it is specific, so long as it is
sold not merely as the specific thing but as a thing corresponding to a description
e.g. woollen undergarments, a hot-water bottle”. A recent commercial case
Harlingdon and Leinster Enterprises suggests that the idea behind a sale by
description is the concept of reliance so that “where the buyer buys the goods
such as they are” it will not be a sale by description.
The second issue concerns the scope of the description. It must

correspond with the description. The courts have suggested that the concept of
description goes to the issue of the identity rather than the quality of the goods
which are addressed by merchantable quality and reasonable fitness for purpose.
Suppose one bought a car with the description “Blue, 1995, one owner, FM
radio, leather seats”. If the car did not have an FM radio would this be a breach
of s14? It is clearly not easy to distinguish quality from identity in this type of
case and although judges use terms such as that the description relate to “ a
substantial ingredient of the identity of the thing sold” ( Lord Wilberforce in
Reardon Smith Line Ltd. v. Hansen Tangsen Chapter 9 at 45) there may still be
room for argument as to whether the absence of an FM radio was part of the
identity of the goods sold.
There is something a little odd about section 14. If it applies where a
characteristic is a substantial ingredient of the identity of the thing sold then it is
also likely that this characteristic will be an express condition of the contract,
suggesting that there is an implied term that goods correspond to an express term.
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3.2 Merchantable Quality (section 15)
Note requirements that the goods be bought by description from a seller

who deals in goods of that description ( would apply to first sale/ willingness to
accept orders for a product, but probably not to a legal firm disposing of its
computers). Note also limitation where buyer has examined the goods.
There is no definition of merchantable quality in the Act. See Chapter 9

at 84-93 and note the two modern approaches to merchanatable quality outlined
at 86-87. The commercial acceptability test (p.86) is potentially quite a strong
protection for consumers. For example, would a reasonable consumer buyer be
willing to accept goods with cosmetic defects or a car which had “teething
troubles”? Merchantable quality is a contextual standard which takes its meaning
partly form the description and circumstances of the sale. Thus the standard of
merchantability may be lower on the sale of a second hand automobile than on a
new automobile.
Merchantable quality is to be determined at time of delivery and goods
are not merchantable merely because they are capable of being made
merchantable. If a good is in fact unmerchantable at the time of sale then there is
a breach. In the case of an early IBM counting machine in 1925 the piece of
glass which covered the dial was broken. It would have cost under a dollar to
replace the glass r but the court accepted that a retailer buying for resale would
not accept it and the goods were held to be unmerchantable See IBM v
Shcherban [1925] 1 WWR 405 (Sask CA) . Analogy to a car with a minor
defect.
3.2.1. Merchantability and durability
Merchantability traditionally decided at time of delivery. One question

is the extent to which there is an implied term of durability in the merchantability
concept. e.g. the sofa that starts to wear after six months, the computer monitor
which fails after 14 months. Argument here that:
(1) that the defect which has arisen is simply evidence of the fact that it
was defective at the time of the original sale
(2) That there is a continuing warranty that the goods shall be
merchantable or reasonably fit for a reasonable period or time...
In the Fording case ( Chapter 9 at 87) a case decided in 1991 by the BC

court of appeal there was the catastrophic failure of rollers in a large mining
shovel. The failure was due to deep radial cracking in the rollers. The rollers
were proved to have been “doomed to fail” because of their abnormal hardness
profile. Caused damage to the rest of the assembly of the shovel and repair costs
were $400000. The failure took place five years after the shovel had been
purchased and the roller had performed about 25% of its anticipated lifespan..
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The purchasers had been given a one year warranty which did not exclude the
implied warranties and conditions under the Sale of Goods Act
Plaintiff argued both 15.1 and 2 (18a and b in BC)
Several point in the judgment:
1. The express warranty did not exclude nor was it inconsistent with the
existence of an implied warranty. In order to exclude implied condition must be
express disclaimer.
2. Because the goods had defect at time of delivery and were “doomed to fail”,
the fact that they operated for five years did not affect the fact that they were
unmerchantable at the time of sale because of latent defect. Court appeared to
accept the argument of the respondent that the fact that the goods do not last the
time which might be expected “may be taken as an indication of inappropriate
quality, state or condition at the time when the goods must be of merchantable
quality” (92) (i.e. at time of delivery).
Example: If IBM monitor only lasts 14 months..then argue that this is
significantly shorter than expected lifetime and evidence that not merchantable
at the time of the sale.
3. The appellants had argued that the time period for the implied condition should
be determined by reference to the express warranty of one year. The court
rejected this argument. See also in Rogers v. Parish the attempt to use an
express warranty to limit the implied condition and also the lack of success there
as well.
Note the limitation of the merchantability provision where the purchaser

has made an examination of the product. See Chapter 9 at 93.
3.3 Reasonable fitness for purpose (s15.1)
On first sight this section looks as if it imposes a

narrower liability than under s15.2 since it refers to “the particular purpose”
being made known and requires the buyer to show that she is relying on the
sellers skill or judgment. In fact the courts have given a broad interpretation to
this section, reflecting a willingness to extend liability to protect buyers
reasonable expectations. The English case of Slater and Finning (Chapter at
115 , although decided under the now differently worded English provision)
provides a useful guide to these developments. Steyn J points out that
1. Particular purpose is simply specified purpose and may be very
general e.g. a bicycle to ride on the road [para 34] ( or a car to drive on the road).
Goods must be reasonably fit for all normal purposes for which one uses a car.
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2. It is not necessary to expressly communicate purpose to the seller
since it will often be implied from the circumstances of the sale. Refers to Lord
Wright in Grant v. Australian Knitting Mills where he states that in a purchase
from retailer reliance will be “in general inferred from the fact that a buyer goes
to the shop in the confidence that the tradesman has selected his stock with skill
and judgment”.
Note that in the Slater and Finning case the HL limited the application of
the section by concluding that the fishing vessel for which the camshaft was
being provided had an abnormality and that this fact had not been communicated
to the supplier. The court analogised this to an old allergies case Griffith v. Peter
Conway where an individual with especially sensitive skin who contracted
dermatitis from a Harris Tweed coat was unable to recover from the seller. She
had not communicated the particular purpose of the transaction which was the
supply of coat for a person with abnormally sensitive skin.
The generally broad interpretation given to s15.1 means that this section
and 15.2 will be argued together. In s15.1 there is the “patent or trade
name”exception. The leading case on this is Baldry v. Marshall (Chapter 9:127)
where the court gave a very restrictive interpretation to this section which
favoured the consumer buyer of the Bugatti eight cylinder. Note Bankes L.J.
discussion of the three scenarios where a consumer might use a trade name (128-
129) and his conclusion that the patent or trade name exception will only apply
where the buyer specifies the goods under their trade name in such a way as to
show that “he is satisfied rightly or wrongly that it will answer his purpose, and
that he is not relying on the skill or judgment of the seller”. This decision
substantially undermined the potential application of the exception. Even if the
trade name proviso might be applicable in some cases, it may still be possible to
use the merchantable quality section. The Ontario Law Reform Commission
recommended the abolition of the trade name exception: it does not apply in
Saskatchewan and has been abolished in the UK.
4. Application of these provisions to purchase of automobile
The case of Rogers v. Parish (Chapter 9: 162) provides some pointers on

what constitutes merchantability and reasonable fitness for purpose in a new car.
In this case the consumer had purchased a new Land Rover. There were
problems with the oil seals and the engine and gearbox had defects at the time of
the sale. After inspections and repairs the engine was still misfiring at all road
speeds six months after the sale. There were also substantial defects with the
bodywork. The consumer had driven it for about 5,500 miles before losing
patience and giving notice to the dealer that he was rejecting the car. The
defendants refused to take it back. Mustill J. noted that the fact that the defects
were capable of repair did not prevent them from rendering the good
unmerchantable at the time of delivery. In addition he indicated that
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merchantability did not mean merely that the car could be driven safely. It also
included the ability to do 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”. So merchantability includes functional and aesthetic
factors. Mustill talks about the consumer being entitled to “value for money”
with the implication that the more expensive the automobile the greater the
consumer expectations. Clearly on the facts of this case the vehicle was not
merchantable.
The court also addressed the argument of the defendant that the
manufacturer’s warranty should be taken into account in determining consumer
expectations and that because it anticipated the possibility of defects the
consumers expectations should be correspondingly lowered to expect defects on
initially purchasing a vehicle. This argument was not received sympathetically by
the court since it implied that a consumer with a manufacturer’s warranty would
expect less of her new car than someone who did not have a warranty. The
warranty is an addition not a subtraction of a consumer’s rights. In any event,
even if the warranty had some impact on the expectations of a consumer, the
defects in this case were well outside a consumers expectations of “teething
problems” with a new automobile.
4.1 Exclusion Clauses and the implied conditions in sale of goods act
Note that CPA 9 (3) prevents the exclusion of the implied conditions.
There are some issues in relation to this section. First it does not directly prevent
the exclusion of remedies for the breach of the implied terms though presumably
it intended to. Second, it does not address directly the fact that an exclusion
clause might be relevant to the definition of the obligation undertaken in the
implied condition. For example, use of the term “as is” may be viewed as an
exclusion clause but it is also might be relevant to defining the implied condition
in a particular sale.
5. Remedies for breach of implied conditions under Sale of Goods Act

(see Chapter 9 161-176)
The remedies would include rejection + damages.
5.1. Rejection
Rejection is powerful remedy for consumer. However, a consumer may

lose this remedy under s12(3) of the Act. Note that where the contract is not
severable ( for definition and cases on when a contract is severable see Chapter 8
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52-55) that there are two situations where the consumer may lose the right to
reject
1. Where on a sale of specific goods the property has passed
2. Acceptance of goods by consumer
Acceptance of the goods is further defined by s34 which indicates that

buyer will be deemed to have accepted the goods when buyer (a) intimates to
seller that the goods have been accepted (b) after delivery, does any act
inconsistent with ownership of seller or (c) after the lapse of a reasonable period
of time, retains the goods without intimating to the seller that they have been
rejected.
Note also s33 which indicates that where goods are delivered to the
buyer that the buyer has not previously examined the buyer shall be deemed not
to have accepted them until there has been a reasonable opportunity of examining
them for the purpose of ascertaining whether they are in conformity with the
contract.
It might be worthwhile to keep in mind two not uncommon scenarios in
consumer sales of goods where a consumer might think it worthwhile to
litigate ...automobiles and computers. These goods may have teething defects
which a consumer might initially tolerate but when they become worse result in a
consumer wishing to reject the product. An alternative scenario would be where a
product develops a serious defect some time after the sale (e.g. 15 months).
5.1.1 Loss of right to reject through property passage
If the contract says nothing about when property passes then there are
presumptive rules in the Act. Section 19 Rule 1 indicates that in sale of specific
goods property passes when contract is made. The implications of a literal
application of this section would mean that consumers would immediately lose
their right to reject.
This section is an anachronism (abolished in many jurisdictions) and
there are some avoidance techniques such as implying a term that property would
not pass until acceptance or inspection by buyer. Another possibility is to argue
in relation to “deliverable state”. This is defined (s2(4)) as goods that are in
such a state that the buyer would under the contract be bound to take delivery of
them”. Since a buyer is not bound to take delivery of unmerchantable goods
could make argument that not in a deliverable state. Canadian courts seem to
ignore this section, and perhaps this is correct, given its anachronistic nature in
relation to the purchase of complex goods for use. Since the Sale of Goods Act is
an old piece of legislation which was simply imported into Canada, I am not sure
that this form of judicial glossing is undemocratic. A final alternative here is to
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rely on the Unfair Practices sections of the CPA as well.
5.1.2 Loss of right to reject through acceptance
The main issue here will relate to acceptance being lost through
continued use which either indicates an act inconsistent with the seller’s
ownership or lapse of a reasonable time.
For example, acceptance of repairs might be regarded as inconsistent with
ownership of seller. The section on “inconsistent ownership” was originally
designed for sub sales of commercial commodities and its underlying rationale as
with the lapse of reasonable time is the idea that substantial use or repairs would
prevent the return of the goods in substantially the same condition.
On pages 168-169 Chapter 9 of Casebook I indicate that the courts in
Canada have in a number of cases permitted an extended right of rejection (over
6 months) in relation to consumer goods (Note also that entitled to reject in
Rogers v. Parish although had automobile for six months and had driven over
5500 miles. This is based sometimes on (a) buyer trying out the equipment
(extended interpretation of s33) or (b) buyer deferring right of rejection based on
representations of seller that goods would be made perfect (c) estoppel against
seller. These interpretations recognize that consumer goods may be complex and
that serious problems may not surface immediately. In the case of a major defect
occurring after, for example, 14 months it might be more difficult to reject
based on lapse of reasonable time argument, although the consumer would still
be entitled to substantial damages for breach of the condition.
What is the consequence of a consumer signing an “acceptance note” on
taking delivery? Could argue that unconscionable (eg. in small print, not made
clear what it includes) or that of no contractual effect (because was merely
receipt) or that note included only patent and not latent defects etc.
5.1.3 . Is it possible to continue to use goods even though you wish to

reject?
This is a significant practical issue since a consumer who rejects may

often find that the seller (particularly in the case of an automobile) will refuse to
take the goods back. A consumer buyer may not be able to afford to keep the
rejected auto in the garage and rent or purchase a substitute while the claim is
being adjudicated. Will continued use be deemed to constitute acceptance. The
case of Lasby (Casebook Chap.9 at 169), although decided under the BPA does
suggest this possibility. In this case the court granted rescission of the contract
under the BPA even though the consumer had the automobile for 22 months and
had driven 40,000 kilometres. The court stressed the financial necessity facing
the consumer and the fact that the continued use was caused by the defendants
wrongful act. In addition, the court thought that a contrary interpretation would
encourage vendors to wrongfully resist legitimate acts of rejection and undermine
the effectiveness of the remedy as a bargaining tool for consumers. It is true that
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the approach in this case may have been influenced by the court’s perception that
the actions of the seller were fraudulent. On page 176 I summarize some of the
factors which have been referred to by US courts in addressing similar situations
in the US.
There is some uncertainty in the standards and remedial structure in
relation to quality obligations in the Sale of Goods Acts. This has led to
developments such as Lemon Laws in the US and the CAMVAP arbitration
programme in Canada (Chap 9 176-179).
6. Quality and condition obligations in “near sales’ (Chapter 9,130-146)
Borek v. Hooper indicates that the courts are willing to imply similar
quality obligations in contracts for work and labour, in this case the
commissioning of a painting. In concluding that this was not a contract of sale
the court looked to the substance or primary purpose of the contract which was
to contract for the skill and labour of the artist. However, the court also implied a
condition that the materials would be of good quality and reasonably fit for the
purpose. It concluded that the yellowing and cracking of the painting after three
years indicated a breach of this implied obligation. Under the Consumer
Protection Act 2002 it is not possible to contract out of the obligations in relation
to either the goods or the services. This case is also evidence of a durability
obligation. I note in the casebook at 690 the attraction of an implied condition
argument in product liability cases because it offers a theory of strict liability
rather than negligence.
In Ter Neuzen the Supreme Court was unwilling to imply a condition of
strict liability in a contract of services where the plaintiff was inseminated with
HIV infected semen. Sopinka reviewed the case law on the implication of
conditions in work and materials contracts and at para 84 noted the policy
arguments in favour of implication of these conditions in a work and materials
contract. These are (a) that the supplier can normally proceed up the chain and
recover from the manufacturer and (b) if not the supplier was in a better position
to bear the loss than the consumer. He also noted that there might be a greater
hesitation to imply a warranty where the contract is primarily for services and the
goods are incidental to the contract. The reluctance to imply an obligation of
strict liability in this case seemed to be based on the courts perception of the
context of medical services which differed from the “ordinary commercial
context”. and paras. 94/95.
The issue might be raised of the implied terms in a consumer lease. Some
recent jurisprudence in Ontario indicates a willingness to imply terms similar to
the sale of goods. Thus in Scarborough Tire and Spring Service Ltd v. Campbell
Graphics [1994] OJ 2092 Hoilett J implied a term in an automobile lease that the
automobile would be fit for its intended purpose. He commented that:
Concerning the first issue raised, that is whether there should be an

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implied term that the vehicle was fit for its intended purpose, common
sense would dictate, in my view that there must be. Were this a sale
instead of a lease the point would ...not be argued. It is common ground
that, increasingly, leases are replacing sales in t he non-commercial car
market and it would be strange indeed were the lessee to be in a less
advantaged position than a purchaser so far as the performance of a
vehicle was concerned.
The CPA 2002 now extends the implied conditions and warranties “with
necessary modifications” to leases s9(2). These obligations cannot be contracted
out of in a consumer transaction.
The issue of computer software was addressed in St Albans City and District
Council (Chap 9 p143). The court held that software when it is reduced to a disk
constitutes goods and is a sale. In the particular case however the disk had not
been sold but the company had installed the programme on the plaintiff’s
computer but retained the disk. However the Court of Appeal held that although
there was not a sale of goods there was an implied term that the programme
would be reasonably fit for the purpose.
2. Implied condition of description

We considered some aspects of this condition in Chapter 1. Note that s14
requires that the sale be “by description”. The following cases explore the scope
of this concept.
Varley v. Whipp [1900] 1 Q.B.513
In this case the plaintiff had sold a second hand self-binding reaping
machine to the defendant . The defendant did not see the machine before
purchasing it. It was described to him as being new the previous year and having
only been used to cut fifty or sixty acres. An issue in this case was whether the
sale was by description. Channell J concluded that it was noting:
“The term "sale of goods by description" must apply to all cases where
the purchaser has not seen the goods, but is relying on the description alone. It
applies in a case like the present, where the buyer has never seen the article sold,
but has bought by the description. In that case, by the Sale of Goods Act, 1893, s.
13, there is an implied condition that the goods shall correspond with the
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description which is a different thing from a warranty. The most- usual
application of that section no doubt is to the case of unascertained goods, but I
think it must also be applied to cases such as this where there is no identification
otherwise than by description…
Harlingdon & Leinster

Enterprises Ltd v Christopher Hull
Fine Art Ltd [1991] 1 QB 629, [1991] 1 QB
(CA) 564, [1990] 1 All ER 737,
Cur adv vult
NOURSE LJ (giving the first judgment at the invitation of Slade LJ).

It is a matter of common knowledge that the market value of a picture rests
largely on its authorship. Frequently the seller makes an attribution to an artist,
although the degree of confidence with which he does so may vary considerably.
In some cases the attribution may be of sufficient gravity to become a condition
of the contract. In others it may be no more than a warranty, either collateral or
as a term of the contract. Or it may have no contractual effect at all. Which of
these is in point may depend on the circumstances of the sale there being, for
example, a difference between a sale by one dealer to another and one by a dealer
to a private buyer. Remarkably, there is little authority as to the legal
consequences of these everyday transactions. Here, in a sale by one London
dealer to another of a picture which was later discovered to be a forgery, the
judge in the court below, finding that the buyer did not rely on the seller's
attribution, gave judgment for the seller. The buyer nevertheless contends that
there was a contract for the sale of goods by description and a breach of the
condition implied by s 13(1) of the Sale of Goods Act 1979. He also claims that
there was a breach of the condition as to merchantable quality implied by s 14(2)
of the 1979 Act. The trial took place in the Mayor's and City of London Court
before his Honour Judge Oddie. On 19 January 1989 the judge delivered a very
thorough judgment, in which he reviewed the evidence at length and made full
and careful findings. In this court the facts can be stated comparatively briefly,
mainly in the judge's own words.
The defendant company carries on business from a gallery in Motcomb
Street, London SW1, being owned and controlled by Mr Christopher Hull. In the
autumn of 1984 he was asked to dispose of two oil paintings which were
described in a copy of an auction catalogue of 1980 as being the work of
Gabriele Muenter (1877__1962), an artist of the German expressionist school.
The true position was that the painting with which this action is concerned was
not a work of hers but a forgery. Mr Hull, who specialises in the works of
contemporary British artists of the younger generation, had no training,
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experience or knowledge which would have enabled him to conclude from an
examination of the paintings whether they were by Munter or not. He took them
to Christie's who expressed interest. Before that he had been told by Mr Evelyn
Joll, a director of Thomas Agnew & Sons Ltd, that the plaintiff company, which
carries on business as Leinster Fine Art from a gallery in Hereford Road, London
W2, had a good reputation as dealers in German art. In fact they had a special
interest in buying and selling German expressionist paintings. The plaintiff
company is owned and run by Mr and Mrs Holger Braasch and in the autumn of
1984 one of their employees in the business was Mr Klaus Runkel.
Mr Hull, acting on Mr Joll's recommendation, telephoned the plaintiffs
and spoke to Mr Braasch. Mr Hull said that he had come across, and was in the
position to sell, two paintings by Gabriele Munter. Having seen the auction
catalogue and consulted Christie's, Mr Hull had reasonable grounds for believing,
and did believe, that they had been executed by that artist. Mr Braasch expressed
interest in the paintings. On some date at the end of November 1984 Mr Runkel
visited Motcomb Street in order to view them. There he met Mr Hull, who did
not need to repeat, and did not repeat, what he had already said to Mr Braasch
about having two paintings by Munter. It was obviously and clearly understood
between Mr Runkel and Mr Hull that the former had come to decide whether the
plaintiffs might purchase a painting or paintings, which the latter had said were
by Munter. Mr Hull said that he did not know much about the paintings, that he
had never heard of Gabriele Munter and that he thought little of her paintings.
He made it absolutely plain that he was not an expert in them. By some form of
words which neither party could precisely remember at the trial, Mr Hull to a
certain extent made it clear that he was relying on Mr Runkel.
Mr Runkel examined the paintings. Neither he nor Mr Braasch had
special expertise or training in the assessment of German expressionist painting,
and Mr Runkel's examination neither would nor ought to have revealed that the
painting in question was not by Munter. Mr Runkel saw a copy of the auction
catalogue, in which the relevant entry (translated from the German) was:
'VILLAGE STREET IN UPPER BAVARIA

Oil on cardboard. 39/48 cm.__Framed.
Monogrammed, bottom left: MU. Gummed label on back with
stamp of the estate Gabriele Munter. Alongside a massive wall
surrounding a yard the street leads steeply into the background.
Three separate women on the path. Warm sunlight from the
right.
Reproduction Table 25
Mr Runkel asked no questions about the provenance of the paintings.
He did not ask for any opportunity to make further inquiries. He expressed no
reservations about the degree of his own knowledge or experience. Neither he
nor Mr Hull expressed any doubt whether either or both of the paintings were
executed by Munter. There was bargaining as to price, but Mr Hull kept to his
79

asking price of L6,000 for the painting in dispute. By the end of the meeting Mr
Hull and Mr Runkel had agreed that the painting should be sold by the
defendants and purchased by the plaintiffs at a price of L6,000 if and when the
plaintiffs found a customer of their own who agreed to purchase it from them,
failing which the painting would be returned to the defendants. This is the
agreement with which this case is concerned.
On 1 December 1984 both pictures were delivered to the plaintiffs'
gallery in Hereford Road. On 3 December the plaintiffs notified Mr Hull that
they had found a customer of their own who had agreed to purchase the painting
from them and they requested Mr Hull to make out an invoice to them. The
invoice was in these terms:
'Leinster Fine Art
9 Hereford Road
London W. 2. FFAI84209
GABRIELE MUNTER 1877__1962 3 December 1984
Dorfstrasse in Oberbayern
oil on board,
39/48cm,
Msno961 L6,000
The judge found that no addition was made to the terms of the sale
when the invoice was made out. It merely gave effect to the earlier agreement
between Mr Hull and Mr Runkel.
The judge found that both at the time when the agreement was made
and subsequently when the invoice was made out both Mr Hull and Mr Runkel
believed that the painting was by Munter and that, if either had not believed that,
the deal would not have been made. He made the following further findings:
'In my judgment Mr Runkel must have known and
accepted that Mr Hull was disclaiming any judgment, knowledge
or private information which would or could have grounded the
latter's earlier statement to Mr Braasch that he had two paintings
by Gabriele Munter for sale . . . I think the only conclusion
which can be drawn from the unusual facts of this case is that it
was Mr Runkel's exercise of his own judgment as to the quality
of the pictures, including the factor of the identity of their
painter, which induced him to enter into the agreement he made
with Mr Hull. However, I am not satisfied that without the
attribution given what followed in the circumstances in which it
was made, Mr Runkel would not have purchased the painting. If
it had never been made Mr Runkel would never have gone to see
the paintings. But when he did go and examine the painting he
considered whether it was a Munter or not: he did agree to buy it,
regardless of the attribution, because he relied on his own
judgment . . . It was reliance on his own assessment and not on
80

anything said by a man who had gone out of his way to stress his
ignorance of the paintings which led Mr Runkel astray.'
Thus did the judge find as a fact that the plaintiffs did not rely on the
description of the painting as one by Gabriele Munter. They relied only on their
own assessment.
The rest of the story can be briefly told. In February 1985 the plaintiffs'
purchaser sent the painting for examination by the Gabriele Munter_ un Johannes
Eichner_Stiftung in Munich, which is the keeper of the entire estate of Gabriele
Munter. By a letter of 26 February the stiftung's director, Dr Armin Zweite,
informed the purchaser that he and two other experts had independently of one
another formed the view that the painting was a forgery. This information was
passed back to Mr Braasch, who in March took the picture back and refunded the
purchase price to the purchaser. Mr Braasch then asked Mr Hull to take back the
picture and refund the L6,000, but that request was refused. Proceedings were
commenced by a writ issued on 11 September 1985, claiming repayment of the
L6,000 plus expenses of L250, alternatively damages. Before Judge Oddie and
initially in this court the plaintiffs' case was put in four different ways. First, it
was said that there was a contract for the sale of goods by description within s
13(1) of the 1979 Act, second, that the painting was not of merchantable quality
within s 14(2) and (6), third, that there was a breach of the implied condition that
the painting would be reasonably fit for a particular purpose made known to the
defendants within s 14(3) and, fourth, that the defendants made an actionable
misrepresentation inducing the plaintiffs to enter into the contract and entitling
them to recover damages under the Misrepresentation Act 1967. Judge Oddie
held in favour of the defendants on all four points. In this court the third and
fourth points were abandoned by counsel for the plaintiffs. We have therefore to
consider only the questions of sale by description and merchantable quality. ...[on
the issue of sale by description]
The sales to which the subsection is expressed to apply are sales 'by
description'. Authority apart, those words would suggest that the description
must be influential in the sale, not necessarily alone, but so as to become an
essential term, i e a condition, of the contract. Without such influence a
description cannot be said to be one by which the contract for the sale of the
goods is made.
I think that the authorities to which we were referred are consistent with
this view of s 13(1). In Varley v Whipp [1900] 1 QB 513...[after outlining the
decision in this case]..
Other authorities show that s 13(1) may apply to a contract for the sale
of specific goods which have been seen by the buyer, provided that their
deviation from the description is not apparent on a reasonable examination: see
Chalmers' Sale of Goods (18th edn, 1981) p 120 and the cases cited in footnote
(a), to none of which we were referred in argument. We were, however, referred
to another authority in the same category: see Couchman v Hill [1947] 1 All ER
81

103, [1947] KB 554, where the plaintiff purchased from the defendant at auction
a heifer which was described in the sale catalogue as 'unserved'. Later, having
been found to be in calf, she died as a result of carrying it at too young an age.
After the plaintiff had overcome an objection which is immaterial for present
purposes, it was held by this court that the description of the heifer as unserved
constituted a condition of the contract. Scott LJ, with whose judgment Tucker
and Bucknill LJJ agreed, said ( [1947] 1 All ER 103 at 105, [1947] KB 554 at
559):
'. . . as a matter of law I think every item in a
description which constitutes a substantial ingredient in the
''identity'' of the thing sold is a condition . . .'
We may be sure that the heifer had been seen by the buyer, but that the
fact of her being in calf was not apparent on a reasonable examination. The
buyer must have relied on the description. Although he did not rely on the
description alone, it was held to be a substantial ingredient in the identity of the
heifer or, if you prefer, an essential term of the contract....
In Gill & Duffus SA v Berger & Co Inc [1984] 1 All ER 438 at
445__446, [1984] AC 382 at 394, the facts of which need not be stated, Lord
Diplock, with whose speech the other members of the House of Lords agreed,
said this of s 13:
'. . . while ''description'' itself is an ordinary English
word, the Act contains no definition of what it means when it
speaks in that section of a contract for the sale of goods being a
sale ''by description''. One must look to the contract as a whole
to identify the kind of goods that the seller was agreeing to sell
and the buyer to buy . . . where, as in the instant case, the sale
(to use the words of s 13) is ''by sample as well as by
description'', characteristics of the goods which would be
apparent on reasonable examination of the sample are unlikely to
have been intended by the parties to form part of the
''description'' by which the goods were sold, even though such
characteristics are mentioned in references in the contract to the
goods that are its subject matter.' (Lord Diplock's emphasis.)
These observations, in emphasising the significance to be attached to

the word 'by', show that one must look to the contract as a whole in order to
identify what stated characteristics of the goods are intended to form part of the
description by which they are sold.
We were also referred to the decision of Sellers J in Joseph Travers &
Sons Ltd v Longel Ltd (1947) 64 TLR 150, where it was held that, since the
buyers had placed no reliance on a descriptive name for rubber boots, the sale
was not one by description. The decision is chiefly of value for Sellers J's
approval (at 153) of the following passage in Benjamin on Sale (7th edn, 1931) p
82

641:
'Sales by description may, it seems, be divided into
sales: 1. Of unascertained or future goods, as being of a certain
kind or class, or to which otherwise a ''description'' in the
contract is applied. 2. Of specific goods, bought by the buyer in
reliance, at least in part, upon the description given, or to be
tacitly inferred from the circumstances, and which identifies the
goods. So far as any descriptive statement is a mere warranty or
only a representation, it is no part of the description. It is clear
that there can be no contract for the sale of unascertained or
future goods except by some description. It follows that the only
sales not by description are sales of specific goods as such.
Specific goods may be sold as such when they are sold without
any description, express or implied or where any statement made
about them is not essential to their identity or where, though the
goods are described, the description is not relied upon, as where
the buyer buys the goods such as they are.' (Benjamin's
emphasis.)
It is suggested that the significance which some of these authorities

attribute to the buyer's reliance on the description is misconceived. I think that
that criticism is theoretically correct. In theory it is no doubt possible for a
description of goods which is not relied on by the buyer to become an essential
term of a contract for their sale. But in practice it is very difficult, and perhaps
impossible, to think of facts where that would be so. The description must have a
sufficient influence in the sale to become an essential term of the contract and the
correlative of influence is reliance. Indeed, reliance by the buyer is the natural
index of a sale by description. It is true that the question must, as always, be
judged objectively and it may be said that previous judicial references have been
to subjective or actual reliance. But each of those decisions, including that of
Judge Oddie in the present case, can be justified on an objective basis. For all
practical purposes, I would say that there cannot be a contract for the sale of
goods by description where it is not within the reasonable contemplation of the
parties that the buyer is relying on the description. For those purposes, I think
that the law is correctly summarised in these words of Benjamin p 641, which
should be understood to lay down an objective test:
'Specific goods may be sold as such . . . where, though
the goods are described, the description is not relied upon, as
where the buyer buys the goods such as they are.'
In giving his decision on this question Judge Oddie said:
'There can clearly be a sale by description where the

buyer has inspected the goods if the description relates to
83

something not apparent on inspection. Every item in a
description which constitutes a substantial ingredient in the
identity of the thing sold is a condition.'
Later, having said that he had not been referred to any similar case
where a sale in reliance on a statement that a painting was by a particular artist
had been held to be a sale by description, the judge continued:
'In my judgment such a statement could amount to a
description and a sale in reliance on it to a sale by description
within the meaning of the 1979 Act. However, on the facts of
this case I am satisfied that the description by Mr Hull before the
agreement was not relied on by Mr Runkel in making his offer to
purchase which was accepted by Mr Hull. I conclude that he
bought the painting as it was. In these circumstances there was
not in my judgment a sale by description.'
I agree. On a view of their words and deeds as a whole the parties

could not reasonably have contemplated that the defendants were relying on the
plaintiffs' statement that the painting was by Gabriele Munter. On the facts
which he found the judge could not, by a correct application of the law, have
come to any other decision.
I turn to the claim under s 14, sub_ss (2) and (6) of which are in these
terms:
'(2) Where the seller sells goods in the course of a

business, there is an implied condition that the 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 goods before the contract is made, as regards
defects 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.'
As to these provisions, it is clear that neither of the exceptions from

sub_s (2) applies to this case. The defendants therefore accept that there was an
implied condition that the painting should be of merchantable quality. The
dispute is whether there was a breach of the condition or not, for which purpose it
is necessary to consider sub_s (6).
The first question which arises out of the words of sub_s (6) is for what
84

purpose or purposes are paintings of this kind commonly bought. The second
question is whether this painting was as fit for that purpose or those purposes as
it was reasonable to expect having regard to any description applied to it, the
price (if relevant) and all the other relevant circumstances. Those were both
questions of fact to be decided by the judge, who answered them thus:
'In my view the purpose or purposes for which goods
of this kind are commonly bought are the aesthetic appreciation
of the owner or anyone else he permits to enjoy the experience
when the picture is displayed for view. Having regard to . . . the
description before the agreement was entered, the price and all
other relevant circumstances disclosed by the material facts of
this transaction, I am not satisfied that this painting was not of
merchantable quality.'
The first of these findings was attacked by counsel for the plaintiffs on
the ground that the purpose for which a painting is commonly bought by one
dealer from another is resale. I see some force in that attack, but all that it means
is that the purpose or purposes contemplated by s 14(6) are either resale alone or
resale and aesthetic appreciation together. In either case, I do not think that
Judge Oddie's second finding is invalidated. It is true that the painting was
defective in that it was not the work of the artist by whom it appeared to have
been painted. I agree with Denning LJ in Leaf v International Galleries [1950] 1
All ER 693 at 694, [1950] 2 KB 86 at 89 that that was a defect in the quality of
the painting. But it was not one which made it unsaleable. The evidence was
that it could have been resold for L50 to L100. Admittedly that would have been
a very long way below the L6,000 which the plaintiffs paid for it. But the
question whether goods are reasonably fit for resale cannot depend on whether
they can or cannot be resold without making a loss. Nor did the defect make the
painting unfit for aesthetic appreciation. It could still have been hung on a wall
somewhere and been enjoyed for what it was, albeit not for what it might have
been.
I do not think that the views which I have so far expressed are affected
by the regard which s 14(6) requires there to be had to the description applied to
the painting, its price and any other relevant circumstances. I will take those
matters in turn. I will assume that a description which is not relied on by the
buyer can nevertheless be one which is 'applied to' the painting. But having held
that the sale was not made by that description, I cannot think that it would be
right, in having regard to it, to give it the significance which it would have had if
s 13(1) had applied. I arrive at a similar view in regard to the price. Having been
prepared to pay L6,000 in reliance only on their own assessment, the plaintiffs
cannot use their own error of judgment as a basis for saying that a painting which
would otherwise be reasonably fit for resale or for aesthetic appreciation is
thereby rendered unfit for those purposes. As for any other relevant
circumstances, I do not think that counsel for the plaintiffs suggested that there
85

were any in the present case. In the result, I would also reject the plaintiffs' claim
under s 14(2).
Judge Oddie advanced two further grounds for rejecting the claim under
s 14(2), of which only one is now relied on by counsel for the defendants. As to
that ground, the judge said:
'I am not persuaded that the meaning of the words
''merchantable quality'' relate to anything beyond the physical
qualities of the goods sold. In my view such physical qualities
would not include the fact that the painting was executed by a
particular artist. If so, the fact that it was not so executed would
not mean that it was not of merchantable quality.'
In seeking to support the judge's view of this question, counsel for the
defendants relied on the decision of the Court of Session in Buchanan_Jardine v
Hamilink 1983 SLT 149. But the facts there were very different and I do not
think that the decision can be said conclusively to support the general proposition
advanced by the judge. Since it is unnecessary for me to express a view as to that
proposition, I prefer not to do so.
Although that is enough to dispose of this appeal in favour of the
defendants, I desire to add some general observations about sales of pictures by
one dealer to another where the seller makes an attribution to a recognised artist.
The huge additional value of an authentic attribution has, from the earliest
periods of European art, seduced a corresponding volume of skill and energy into
the production of fakes, even in the lifetime of the artist. An early example was
Durer (1471__1528), who had to enlist the support of Emperor Maximilian I in
order to prevent the imitation of his woodcuts and engravings. With the great
expansion in royal and noble collections which took place in the eighteenth
century, faking became an art of its own. It has even been known for a faker,
Hans van Meegeren, who between 1935 and 1945 produced forgeries of the
works of Vermeer, to become almost as famous as the artist himself. Modern
advances in technology, while in some respects increasing the possibilities of
detection, have in others assisted the faker to apply his skill with ever_increasing
ingenuity. Even if fakes are put on one side, many old master paintings cannot
be safely attributed to a particular member of a group of artists, some of whom
may still remain obscure.
All this is a matter of common knowledge among dealers in the art
market and, I would expect, among all but the most inexperienced or naive of
collectors. It means that almost any attribution to a recognised artist, especially
of a picture whose provenance is unknown, may be arguable. In sales by auction,
where the seller does not know who the buyer will be, the completeness with
which the artist's name is stated in the catalogue, e g 'Peter Paul Rubens', 'P P
Rubens' or 'Rubens', signifies in a descending scale the degree of confidence with
which the attribution is made. Nowadays an auctioneer's conditions of sale
usually, perhaps invariably, so declare and, further, that any description is an
86

opinion only. But in sales by private treaty by one dealer to another there is no
such practice. That would suggest that there the seller's attribution is not a matter
of importance. Indeed, Mr Joll, who gave evidence at the trial as to the
professional practices of art dealers, went further. The effect of his evidence was
that neither of the conditions implied by ss 13(1) and 14(2) could apply to a sale
by one dealer to another. He said that an art dealer's success depended on, and
was judged by, his ability to exercise his own judgment. It was not customary
for a dealer to rely in any way on the judgment or representations of the dealer
from whom a picture was being purchased. Understandably enough, the judge
was not satisfied on Mr Joll's evidence that there was any usage or custom in the
London art market which would exclude the application of the material
provisions of the 1979 Act. But he did, I think, accept it as showing that many
dealers habitually deal with each other on the principle caveat emptor. For my
part, being confident that that principle would receive general acceptance among
dealers, I would say that the astuteness of lawyers ought to be directed towards
facilitating, rather than impeding, the efficient working of the market. The court
ought to be exceedingly wary in giving a seller's attribution any contractual
effect. To put it in lawyers' language, the potential arguability of almost any
attribution, being part of the common experience of the contracting parties, is
part of the factual background against which the effect if any, of an attribution
must be judged. I would dismiss this appeal.
STUART_SMITH LJ. (Dissenting) The principal issue in this appeal

is whether the sale of the painting Dorfstrasse in Oberbayern was a sale by
description, the name of the artist, Gabriele Munter, being part of that
description. If it was, it is common ground that the painting did not correspond
with the description it was a fake.
Section 13(1) and (3) of the Sale of Goods Act 1979 provides:...
Every item in a description which constitutes a substantial ingredient in
the 'identity' of the thing being sold is a condition: see per Scott LJ in Couchman
v Hill [1947] 1 All ER 103 at 105, [1947] KB 554 at 559. That the identity of the
artist who painted a picture can be a substantial ingredient in the identity of the
thing sold seems to be beyond question.
[Discussing the decision of the lower court judge]... the nub of his
conclusion is that Mr Runkel did not rely on the description but on his own
judgment as to the authorship of the painting. For my part I have great difficulty
in understanding how the concept of reliance fits into a sale by description. If it
is a term of the contract that the painting is by Munter the purchaser does not
have to prove that he entered into the contract in reliance on this statement. This
distinguishes a contractual term or condition from a mere representation which
induces a purchaser to enter into a contract. In the latter case the person to whom
the representation is made must prove that he relied on it as a matter of fact.
Counsel for the defendants sought to support the judge's conclusion that
reliance was an essential ingredient in a sale by description. He referred us to
Joseph Travers & Sons Ltd v Longel Ltd (1947) 64 TLR 150 at 153...
87

In that case although the footwear were described as 'waders' both
parties knew that they were not waterproof, this being apparent from the nature
of their construction, having been specially made to go over boots and protect the
wearer from gas. It could not therefore be implied from in the description
'waders' that the goods would be waterproof. If both parties know that the
description is in fact a misdescription, then no doubt there is not a sale by
description. But that was not the position here. The judge found in terms that
both parties believed that the painting was by Munter and Mr Runkel made his
offer on the basis that it was.
In my judgment the matter can be tested in this way. If following the
telephone conversation Mr Runkel had arrived at the defendants' gallery, seen the
painting, bargained about the price and agreed to buy it, it seems to me beyond
argument that it would have been a sale by description. And indeed counsel for
the defendants was at one time disposed to concede as much. Had the invoice
been a contractual document, as it frequently is, again it seems to me clear that
the sale would have been a sale by description. In fact the invoice was written
out subsequently to the oral contract but the judge held, rightly as it seems to me,
that it gave effect to what had been agreed. It was cogent evidence of the oral
contract.
How does it come about that what would otherwise be a sale by
description in some way ceased to be one? It can only be as a result of the
conversation between Mr Hull and Mr Runkel before the bargain was actually
struck. If Mr Hull had told Mr Runkel that he did not know one way or the other
whether the painting was by Muunter in spite of the fact that he had so described
it or that he could only say that the painting was attributed to Munter, and that Mr
Runkel must make up his mind for himself on this point, I can well see that the
effect of what had previously been said about the identity of the painter might
have been cancelled or withdrawn and was no longer effective at the time of the
contract. But Mr Hull did not say that, as the judge found. And I cannot see that
this is the effect of what was said. Merely to say that he knew nothing of the
painter and did not like her paintings does not in any way to my mind necessarily
mean that he was cancelling or withdrawing what he had previously said, based
as it was on the auction catalogue. Nor does the fact that it was recognised that
the plaintiffs were more expert in German expressionist art than Mr Hull advance
the matter. It would, in my judgment, be a serious defect in the law if the effect
of a condition implied by statute could be excluded by the vendor's saying that he
was not an expert in what was being sold or that the purchaser was more expert
than the vendor. That is not the law it has long been held that conditions implied
by statute can only be excluded by clear words. There is nothing of that kind in
this case.
Moreover, the question has to be asked: expert in what? No doubt the
plaintiffs were knowledgeable and experienced in the sort of prices at which a
painting by Gabriele Munter could be sold and might well know where to find a
buyer. These would be important matters in an art dealer's expertise. It does not
follow that such a dealer has expertise in deciding whether a picture is genuine or
88

a fake and the judge found that the plaintiffs did not have such expertise.
No doubt the initial telephone conversation was an invitation to treat
but it was an important part of the negotiations. It was, as the judge said, obvious
and clearly understood by both Mr Runkel and Mr Hull that the former had come
to decide whether the plaintiffs might purchase a painting described by Mr Hull
as by Munter. That being so, I can see no reason why Mr Runkel should apply
his mind to the question whether the picture was genuine or not and there was
nothing in the subsequent conversation that required him to do so or put him on
notice that he should. No doubt he exercised his judgment to the effect that the
plaintiffs could find a buyer and make a profit on the deal but that was on the
basis that the painting was genuine. I can find no evidence that justified the
judge in finding that he made up his own mind and relied on his own judgment to
the effect that the painting was genuine. And it seems to me to be quite contrary
to his evidence.
The defendants adduced the evidence of Mr Joll to the effect that on the
London art market it was the custom and practice as between dealers for the
purchaser to make up his mind as to the genuineness of a painting whatever was
said by the vendor, and he took the risk of its being a fake, even if the vendor
described the painting as having been by a named artist. In other words, despite
the Sale of Goods Act 1979, caveat emptor. If this evidence had been accepted,
then no doubt the plaintiffs would have failed. But the judge rejected it.
For these reasons I consider that the judge reached the wrong
conclusion on this issue and I would allow the appeal. In reaching this
conclusion I am in no way influenced by the fact that the judge's decision appears
to produce an unjust result. It is trite that hard cases make bad law. But it is
undoubtedly a hardship on the plaintiffs, who have refunded the price to their
purchaser, that they are left holding the loss, when the defendants or their client
would appear to have a claim over against those who sold the painting to them.
In these circumstances I propose to deal quite briefly with the alternative claim
that the goods were not of merchantable quality. Section 14(2) of the 1979 Act
provides as follows:...
The defendants admitted that there was such a term but they denied
breach. Whether goods are of merchantable quality is determined by s 14(6) as
follows:...
The judge rejected the plaintiffs' arguments on two grounds. First, he
held that merchantable quality did not relate to anything beyond the physical
quality of the goods sold. It was a picture and fit for use as such. He cited no
authority for this proposition... the question whether something is genuine or a
fake is a quality of the goods themselves. I do not therefore agree with the judge
on this ground.
Second, he held that the painting was of merchantable quality because
the purpose or purposes for which pictures are commonly bought is for aesthetic
appreciation of the owner or anyone else he permits to enjoy the experience when
the picture is displayed for view and the painting was fit for that purpose. If the
sale was simply for the specific picture, an article consisting of oil on board,
89

without any description as to the identity of the artist, then I would agree with the
judge's conclusion.
The question of merchantability of goods was considered recently in
this court in Rogers v Parish (Scarborough) Ltd [1987] 2 All ER 232, [1987] QB
933, a case referred to in the skeleton argument of counsel for the defendants but
on which no argument was addressed to us by counsel. In that case the goods
were a Range Rover bought for a sum in excess of L14,000. Mustill LJ said
( [1987] 2 All ER 232 at 237, [1987] QB 933 at 944):
'Starting with the purpose for which ''goods of that

kind'' are commonly bought, 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 may 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 on the market at which the car is aimed.
To identify the relevant expectation one must look at the factors
listed in the subsection. First, the description applied to the
goods. In the present case the vehicle was sold as new.
Deficiencies which might be acceptable in a secondhand vehicle
were not to be expected in one purchased as new. Next, the
description ''Range Rover'' would conjure up a particular set of
expectations, not the same as those relating to an ordinary saloon
car, as to the balance between performance, handling, comfort
and resilience. The factor of price was also significant. At more
than L16,000 this vehicle was, if not at the top end of the scale,
well above the level of the ordinary family saloon. The buyer
was entitled to value for his money.'
These words are appropriate here. If for the reason given by the judge
this was not technically a sale by description within s 13(1) of the 1979 Act
because of the absence of reliance, the court is nevertheless entitled and required
to consider the matters listed in the subsection. These include the description of
the painting as being by Munter and the price. Moreover, both parties knew
perfectly well that the purpose of the sale was resale as dealers, and not merely
putting the picture on the wall and enjoying its aesthetic qualities. I cannot think
that it is a reasonable expectation in these circumstances that a fake which is
virtually worthless is fit for the purpose of being sold as a painting by Munter at a
price of L6,000.
Accordingly, in my judgment, the plaintiffs are entitled to succeed on
this ground also. I would allow the appeal.
90

3 Merchantable Quality
Section 15.2. requires that goods bought by description from a seller

who deals in goods of that description be of merchantable quality. Prosser’s
article explores the doctrinal basis of this condition (which he describes
confusingly in terms of a warranty).
W.L. Prosser "The Implied Warranty of

Merchantable Quality" (1943) 21 Can.
Bar Rev. 445 and 461-53
When the ordinary lawyer, or court for that matter, says that a
warranty is "implied", what seems to be meant is merely that it is not expressed.
There has been surprisingly little discussion of just how, or why, the implication
arises. Both as a matter of history and at the present day, however, there are
three distinct theories to be discerned as the basis of implied warranties of
quality.
1. The warranty is a misrepresentation of fact. The seller has

asserted, whether expressly or by his conduct, that the goods are of a particular
kind, quality or character, and the buyer has purchased in reliance upon that
assertion. This is obviously a tort theory, closely allied to the cases of deceit; and
it differs from deceit only in that it imposes strict liability for innocent
misrepresentations, in the absence of any "scienter" in the form of knowledge of
their falsity or lack of belief in their truth. Logically, however, it does require
reasonable reliance on the part of the buyer upon some supposed information of
the seller concerning the truth of the assertion; and if the seller does not purport
to have such information it should follow that the buyer does not reasonably rely
upon it, and no implied warranty is to be found. The implied warranty of fitness
for the buyer's particular purpose, as it is stated in the Uniform Sales Act,
apparently stands on this footing; and in many cases where the seller obviously
knows nothing about the goods, as in the case of a sale by a retailer of beans
sealed in a can, the courts have refused to imply a warranty for lack of such
reliance.
2. The warranty has in fact been agreed upon by the parties as

an unexpressed term of the contract of sale. The seller has contracted to deliver
91

described goods, and it is understood that they are to have certain qualities; but
that understanding has not been embodied in the agreement. Nevertheless the
court, by interpreting the language used, the conduct of the parties and the
circumstances of the case, finds that it is there. Such a contract term "implied in
fact" differs from an express agreement only in that it is circumstantially proved.
Any difficulties arising from the parol evidence rule usually have been met by
saying that the description of the goods appearing in the contract is open to
interpretation or explanation in the light of the circumstances of the case.
Obviously this theory is pure contract. It arose only after

warranties had been held to be enforceable in a contract action; and the first case
in which it appeared was one in which the seller did not know what the goods
were, and the buyer knew that he did not know and never had seen them. It does
not rest upon any belief on the part of the buyer that the seller has superior
information, or any information at all about the goods; and the seller's innocence
or ignorance or inability to deliver what he has contracted to deliver will no
more excuse him than in any other breach of contract. Any "reliance" of the
buyer upon the seller becomes important only in so far as it bears upon his actual
understanding of what the latter has undertaken to deliver.
3. The warranty is imposed by the law. It is read into the

contract by the law without regard to whether the parties intended it in fact; it
arises merely because the goods have been sold at all. This theory is of course
one of policy. The loss due to defective goods is placed upon the seller because
he is best able to bear it and distribute it to the public, and because it is
considered that the buyer is entitled to protection at the seller's expense. It is
perhaps idle to inquire whether the basis of such a liability is contract or tort. It
partakes of the nature of both, and in either case it is liability without fault. It is
not often that "implication of law" is differentiated clearly from "implied in fact;"
but the question of the policy involved is seldom absent from warranty cases, and
there are a respectable number in which it appears to have controlled the
decision.
If it be asked which of these three theories is the basis of the law

of implied warranties in general, it can only be answered: all three. It is seldom
that it makes any difference which is adopted; but when the occasion arises, the
courts have flitted cheerfully from one to another as the facts may demand,
always tending to an increasing extent to favour the buyer and find the warranty.
When lack of "reliance" of the buyer upon the seller's information becomes an
obstacle, the first is abandoned in favour of the second; when it is necessary to
avoid the effect of disclaimers or the parol evidence rule, the second is forsaken
for the third; and when it is desired to extend the warranty to one not in "privity
of contract" with the seller, there is a return to the first. So far as the warranty of
merchantable quality is concerned, however, the second theory, that of agreement
"implied in fact" and actually understood but not expressed, has predominated
92

from the beginning; and with few exceptions, it explains the decisions.
There are two modern approaches to the concept of merchantable

quality. The first is based on the idea of commercial acceptability. This asks the
question whether a reasonable buyer, acquainted with knowledge of the defects
would be willing to purchase the goods under the contract description without
substantial abatement of price. If the goods are multipurpose goods then
provided some buyers would be willing to buy for one of purposes, then the
goods will be merchantable.
This formulation emerged from Lord Reids decision in Henry Kendall v.
William Lillico [1969] 2 AC 31 and B.S. Brown v. Craiks [1970] 1WLR 725
(HL)
A second approach evident in Henry Kendall is to ask whether the goods
are useable for any purpose for which such goods would normally be used. If
they are fit for one of the purposes then they are merchantable. This definition
tracks closely the idea of “fitness for purpose” in section 15.1 and there will often
be overlaps between the two sections.
3.1. Issues in relation to merchantability
(1) Durability
There is remarkably little authority on the question of how long a good
must be merchantable. The time for testing merchantability is the time of
delivery so that the goods must be merchantable at this time. English cases have
held that in the case of perishable goods where delivery takes place at the port of
shipment, they should remain merchantable for the normal transit to the
destination and for disposal on arrival. See Mash and Murrell Ltd v. Joseph I.
Emmanuel Ltd. [1961] 1WLR 862. For a similar approach in relation to the
delivery of a consignment of fish see Georgetown Seafoods Ltd. v. Usen
Fisheries (1977) 78 DLR (3d) 542 (PEISC).
In Lambert v. Lewis [1981] 2 WLR 713 at 720 Lord Diplock commented
in relation to the warranty for a particular purpose in relation to an automobile
coupling that:
I do not doubt that it is a continuing warranty that the
goods will continue to be fit for that purpose for a reasonable
time after delivery, so long as they remain in the same apparent
state at that in which they were delivered, apart from normal
wear and tear. What is a reasonable time will depend on the
nature of the goods...
93

Fording Coal Ltd. v.
Harnischfeger Corp. of Canada
(B.C.C.A.) [1991] B.C.J. No. 3682 DRS
93_08265 Vancouver Registry:
CA012336 8 B.C.A.C. 250
British Columbia Court of Appeal Hutcheon, Toy and Rowles JJ.A.

Heard: November 7, 1991 Judgment: December 17, 1991 (13 pp.)
ROWLES J.A. (for the Court, dismissing the appeal):__ This is an appeal
from a decision of Mr. Justice B.D. Macdonald in which he found the appellant
in breach of the implied warranties of fitness and merchantable quality arising
under ss. 18(a) and (b) of the Sale of Goods Act, R.S.B.C. 1979, c. 370 in respect
to a contract of sale of a mining shovel.
Two grounds of appeal were advanced:
1. The trial judge erred in not construing the implied warranties as to

fitness and merchantable quality in light of the express warranty which had been
negotiated between the parties.
2. The trial judge erred in concluding that the mining shovel was not
reasonably fit for its intended purpose.
Facts:
The appellant sells large mining shovels. The respondent operates an
open pit coal mine at Elkford, British Columbia and had previously purchased
mining shovels from the appellant. In early 1982, the appellant sold to the
respondent the subject P & H Model 2800 mining shovel for a total purchase
price of between $5,000,000 and $6,000,000. The shovel was put into service in
April, 1982. Except for normal holidays, annual shutdowns and a strike period in
1983, the shovel was operated continuously until its failure in January, 1987.
The trial judge gave the following description of the cause of the failure
and its consequences:
The house (or cab) and the boom of this huge machine
are permitted to swivel in relation to the tracked car body, on
which it moves from one position to another, by means of a
roller path between the house and the car body. An essential
component of that "bearing" or swivel assembly are some 54
rollers, which allow the house to turn in relation to the car body.
While the rollers do not last forever, under normal operating
conditions they fail in a progressive manner by surface spalling,
damage which can be detected by routine visual inspection. The
design permits roller replacement without dismantling the
shovel.
94

In this case there was a "catastrophic" failure of one roller due to deep
radial cracking which had developed within the roller. The cause of the failure
was an "abnormal hardness profile" (i.e.: high sub_ surface hardness which was
the indirect result of surface decarburization). That condition resulted in
sub_surface tensile stresses which would not be present in a correctly
heat_treated roller. The presence of those stresses led to the sub_surface cracking
and subsequent failure of the roller. It was unfit for service.
The sudden fracture of the defective roller caused the roller path to jam,
fracturing many of the pins holding the other rollers and damaging the roller path
itself. While the cost of a replacement roller is only $1,000, the cost of repairs to
the swivel assembly of the shovel (parts and labour) was close to $400,000, and
the plaintiff claims in excess of $160,000 as the extra cost of operating other
equipment to do the work which would have been performed by this shovel
during the 32 days consumed by the repair process.
The damages claimed amounted to about eight per cent of the original
cost of the shovel.
At the time of the failure, the shovel had been operated successfully for
five years and for about 25,000 hours. The shovel had no history of breakdown
and was successfully repaired.
There was no suggestion that abuse or improper maintenance
contributed to the failure of the roller.
There was evidence called to establish that the anticipated life of the
rollers was at least 50,000 and perhaps 100,000 hours. The trial judge noted that
"one can say that this failed roller had performed for about 25% of its anticipated
life span".
The parties had negotiated the warranty that was to apply in respect to
the shovel. Although the appellant's standard form of warranty excludes all other
warranties, express or implied, that exclusion was deleted from the written
warranty which the respondent accepted in connection with this sale. The
warranty which was negotiated was for one year and unlimited hours in lieu of
the appellant's "standard" warranty of one year or 3,000 hours. The terms of the
warranty were:
Harnischfeger Corporation warrants every part and detail
of the equipment to be free from defects in material, design and
workmanship for a period of 365 days (unlimited hours)
following initial operation.
The above unit must be capable of operating at Fording
Coal Limited, Fording River Operations, under the following
conditions:
1) Excavating primarily blasted rock and loading 170
ton capacity rear dump haulage trucks. 2) Temperature Variance
_ _40 C to +30 C. 3) Elevation 5,200 feet to 7,200 feet above sea
level. 4) This unit will work on a twelve hour shift, two shifts per
day, seven day week continuous basis.
95

The above equipment must comply with the British
Columbia Coal Mines Regulation Act.
Statutory Provisions
Section 18 of the Sale of Goods Act provides:...
(d) an express warranty or condition does not negative a warranty or
condition implied by this Act unless inconsistent with it.
It is common ground that in the circumstances of this case, there is a no
practical difference between the warranties implied under s. 18(a), fitness for the
intended purpose, and s. 18(b), merchantable quality.
The appellant conceded that since the particular purpose for which the
shovel was required had been made known to the appellant, the provisions of s.
18(a) were applicable.
Ground 1 of appeal: The trial judge erred in not construing the implied
warranties as to fitness and merchantable quality in light of the express warranty
which had been negotiated between the parties.
The appellant conceded that the express warranty negotiated between
the parties neither explicitly excluded the implied warranties nor was inconsistent
with them so as to render them inapplicable. That concession is in accord with
Hunter Engineering Company Inc. v. Syncrude Canada Ltd., [1989] 1 S.C.R.
426.
The parties had negotiated an express warranty which was more
generous than the appellant's standard warranty. One change from the standard
warranty was that the appellant gave up the 3,000_hour warranty limit and
agreed to a one_year warranty with unlimited hours. That change effectively
doubled the duration of the warranty since the shovel was to operate 5,000 to
6,000 hours per year.
The person who negotiated the warranty on behalf of the respondent
gave evidence that it was the respondent's practice to negotiate the duration and
content of the warranty as a form of insurance, to fix the vendor with financial
responsibility during the length of the warranty.
Appellant's counsel submitted that the courts, when deciding whether or
not the provisions of the Sale of Goods Act have been satisfied, ought to give
considerable weight to the fact that the parties have specifically addressed the
allocation of risk by the warranty to which they agreed.
On behalf of the appellant, Mr. Macintosh argued that while a
contractual warranty and the statutory conditions are not necessarily co_existent
in time, the Legislature could not have intended to confer statutory protection
upon a sophisticated purchaser for a period substantially in excess of the period
for which he chose to protect himself in his contract.
In respect to the first ground of appeal, the same arguments were

advanced before the trial judge who rejected them. The trial judge said:
96

The question raised here is whether or not any
limitations should be placed on the scope and extent of those
implied warranties in circumstances where the parties have
bargained for a specified warranty. Should reference be had to
the specific warranty to limit or define the implied warranties
under the Act even though the latter are not excluded by the
former? I have concluded that no such reference is required or
appropriate. . . .
The policy questions raised in argument here have
already been decided by the Legislature. Unless the contract
excludes their application, the implied warranties and conditions
in the Act allocate the risk of an inherent defect to the seller. The
seller is free to contract out of that risk. The defendant here
chose not to insist upon such a term in the contract for the sale of
this shovel even though its "standard warranty" accomplishes
that end. Having agreed, in effect, to the inclusion of the implied
warranties in the Act as terms of its contract, the defendant
cannot limit the scope and extent of those implied warranties by
reference to the terms of an express warranty which has long
since ceased to have any application.
. . . To permit an agreement which extended the

standard warranty of the defendant to limit the scope of the
implied warranties under the Act, would be to allow the
defendant to achieve indirectly what it concedes it did not do
directly under s. 18(d) of the Act (e.g.: to negative a warranty or
condition implied by the Act). I can see no distinction between a
case where no express warranty exists and one where an express
warranty which does not negative the implied warranties in the
Act has expired.
On this issue, I agree with the conclusions of the trial judge for the
reasons he stated.
Ground 2: The trial judge erred in concluding that the mining shovel
was not reasonably fit for its intended purpose.
At trial the respondent argued that the roller's susceptibility to

unpredictable and severe failure of the type which occurred rendered the shovel
in which the roller was installed unfit for the purpose for which it was intended.
The trial judge concluded that the defect existed at the time of delivery
and that the failure occurred well before the expected life span of the roller was
up and in a manner which could not have been anticipated or detected by normal
maintenance inspections.
The trial judge acceded to the respondent's submission that an
97

unpredictable failure during the part's normal life span from a defect existing at
the time of delivery was sufficient to render the goods unfit for their intended
purpose.
The appellant's counsel submitted that the effect of the judgment below
is that a vendor is to serve as the guarantor of all goods during their expected
lifetime in all cases where the Sale of Goods Act has not been expressly
excluded. The approach adopted by the trial judge, Mr. Macintosh argued, would
necessarily result in the predicted life span of the part or product in question
becoming the measurement for the terms of the implied terms under the Sale of
Goods Act.
In advancing his submissions, Mr. Macintosh referred to Venus Electric
Ltd. v. Brevel Products Ltd. (1978), 19 O.R. (2d) 417 (C.A.), in which Dubin,
J.A., as he then was, referred (at p. 424) with approval to what is stated in 77
Corp. Jur. Sec., 325, at p. 1178:
A warranty of fitness has to do with the intrinsic
qualities and characteristics of the property sold . . . An implied
warranty that goods are reasonably fit for the purpose must be
reasonably construed in the light of common knowledge with
respect to the nature of the article sold. While such warranty
requires that goods be reasonably suited or fitted to the purpose
for which sold, nothing further is required, and it is not
necessary, for example, that the article purchased be perfect or
the best of its kind, nor is there any implied warranty that the
article is as suitable for the purpose as other articles of the same
kind. The warranty does not constitute an agreement that the
goods can be used with absolute safety or that they are perfectly
adapted to the intended use . . . . (Dubin, J.A.'s emphasis)
The trial judge quoted the above passage, but, in Mr. Macintosh's
submission, he misapplied it for the implied warranty that goods be reasonably fit
for the purpose intended does not impose an obligation that the roller "be perfect
or the best of its kind" or that the roller is "as suitable for the purpose as the
articles of the same kind".
In advancing those submissions Mr. Macintosh pointed to the following

facts: the shovel had been operated successfully and virtually continuously for a
five_year period when one of 54 rollers failed; the roller which failed had
functioned properly for at least 25 per cent, and possibly one_half, of its expected
lifetime; the cost of repair was only about eight per cent of the total purchase
price of the shovel.
In response to the appellant's arguments, Mr. Phillips submitted that the
trial judge did not impose an implied warranty that the goods would last for their
expected lifetime. The mere fact that the roller lasted less than its expected
lifetime was not the foundation of the respondent's claim nor the trial judge's
conclusion. Instead, the respondent's claim was based simply on the fact that the
98

roller, at the time of delivery, was defective and that it was doomed to fail
catastrophically. Although prolonged use may be an important factor in the
factual determination of whether the goods are of merchantable quality, the
evidence that the goods do not last the time which might be expected may be
taken as an indication of inappropriate quality, state, or condition at the time
when the goods must be of merchantable quality.
In respect to the appellant's submission that the trial judge imposed an
obligation that the roller be "perfect" or "the best of its kind", Mr. Phillips
submitted that the trial judge did not impose such an obligation but instead took
into account the fact that the roller was a critical component of the shovel, that it
contained a defect which arose during the manufacturing process, and that the
defect was one which could not be detected. The defect rendered the roller
susceptible to failure in a manner that could not be anticipated or ascertained by
normal inspection. That failure was likely to occur within the roller's normal life
span and hence while the shovel was in operation. The result of the failure was
likely, therefore, to be catastrophic. That is enough to show that the roller, and
hence the shovel which contained it, was not of merchantable quality. The
obligation that the shovel not contain an undetectable defect that will probably
cause it to suffer catastrophic failure falls short of an obligation that it be
"perfect" or "the best of its kind".
I agree with the argument presented by the respondent's counsel in

response to the appellant's submissions.
The unusual facts in this case support the trial judge's conclusion that the
appellant was in breach of the implied warranties of fitness and merchantable
quality arising under ss. 18(a) and (b) of the Sale of Goods Act.
I would dismiss the appeal.
ROWLES J.A. HUTCHEON J.A.:__ I agree. TOY J.A.:__ I agree.
Examination proviso
Ontario Law Reform
CommissionReport on Sale of Goods
1979 p218
[discussing the proviso in s15.2 in relation to defects that “such

examination ought to have revealed] ..this test has been criticized as being too
favourable to the buyer. First, it is said, it encourages the buyer not to examine
99

the goods. Secondly, even if he does examine the goods, the buyer is only
deemed to have notice of defects that “such” (that is, his actual) examination
ought to have revealed...the buyer is under no obligation to conduct a reasonably
careful examination. It will be observed, however, that the test is not wholly
subjective, since the buyer will be deemed to be aware of defects which his
examination “ought to have revealed”....We are ...troubled by the criticism that
the buyer who conducts a perfunctory examination of the goods may be better off
than the diligent buyer...On balance, however, we have decided to recommend no
change. The problem does not appear to be of great practical importance”.
Seller who deals in goods of that description.
See comments of Lord Wilberforce in Ashington

Piggeries below p40
4. Reasonable fitness for purpose
Hardwicke Game Farm v. Suffolk

Agricultural and Poultry Producers
Association [1969] 2 AC 31
In this case the Hardwicke Game Farm had bought in 1960 feeding stuff
for young turkeys from a local feeding compounder SAPPA. The compound
included about ten per cent of brazilian ground nuts which were contaminated by
a poison which killed the turkeys. The game farm sued SAPPA who brought in
their suppliers of ground nuts Grimsdale, who in turn brought in their suppliers
Kendall. Both Grimsdale and Kendall were members of the London Cattle Food
Traders Association. At the time of the purchase of the ground nuts by the Game
Farm in 1960 there was no reason to suspect that any groundnut extractions
might contain the poison which killed the turkeys. However after the nature of
the contamination was discovered it appeared that some buyers were willing to
buy the contaminated groundnuts for feeding to cattle. It was for this reason that
they were held to be merchantable. In the following judgment Lord Pearce
considers the application of s15.1 to the transaction between Kendall and
Grimsdale.
Lord Pearce:
The judge and the Court of Appeal held that the purpose of
Grimsdale was “a particular purpose” within section 14 (1). It was argued that
100

such a purpose was too wide and had not enough particularity to constitute a
particular purpose. I do not accept this contention. Almost every purpose is
capable of some sub-division, some further and better particulars. But a
particular purpose means a given purpose, known or communicated. It is not
necessarily a narrow or closely particularised purpose (see Benjamin on Sale
(1950), 8th ed., p. 630: “A particular purpose is not some purpose necessarily
distinct from a general purpose”). A purpose may be put in wide terms or it may
be circumscribed or narrowed. An example of the former is to be found in
Bartlett v. Sydney Marcus Ltd. [1965] 1 W.L.R. 1013, where the purpose was
that of a car to drive on the road. See also Baldry v. Marshall [1925] 1 K.B. 260
[”a comfortable car suitable for touring purposes”]. A somewhat narrower
purpose was to be found in Bristol Tramsways, etc., Carriage Co. Ltd. v. Fiat
Motors Ltd. [1910] 2 K.B. 831 [”an omnibus for heavy traffic in a hilly district”].
The less circumscribed the purpose, the less circumscribed will be, as a rule, the
range of goods which are reasonably fit for such purpose. The purpose of a car
to drive on the road will be satisfied by almost any car so long as it will function
reasonably; but the narrower purpose of an omnibus suitable to the crowded
streets of a city can only be achieved by a narrower range of vehicles. This,
however, is a question of fact and degree. Lord Herschell said in Drummond v.
Van Ingen, 12 App.Cas. 284, 293:
“Where the article may be used as one of the elements in

a variety of other manufacturers, I think it may be too much to
impute to the maker of this common article a knowledge of the
details of every manufacture into which it may enter in
combination with other materials.”
In general it would be wrong to say, as was suggested in argument, that a

wide purpose is unfair to the seller because it purports to require fitness for every
conceivable subdivision of purpose within the main purpose.
I would expect a tribunal of fact to decide that a car sold in this
country was reasonably fit for touring even though it was not well adapted for
conditions in a heat wave; but not, if it could not cope adequately with rain. If,
however, it developed some lethal or dangerous trick in very hot weather, I
would expect it to be found unfit. In deciding the question of fact the rarity of
the unsuitability would be weighed against the gravity of its consequences.
Again, if food was merely unpalatable or useless on rare occasions, it might well
be reasonably suitable for food. But I should certainly not expect it to be held
reasonably suitable if even on very rare occasions it killed the consumer. The
question for the tribunal of fact is simply “were these goods reasonably fit for the
specified purpose?”
“To resell in smaller quantities to be compounded into food for
cattle and poultry” was, therefore, a particular purpose within section 14 (1). If a
particular purpose is made known, that is sufficient to raise the inference that the
101

buyer relies on the seller’s skill and judgement unless there is something to
displace the inference. There is no need for a buyer formally to “make known”
that which is already known. See Manchester Liners Ltd. v. Rea Ltd. [1922] 2
A.C. 74, 92; Cammell Laird & Co. v. The Manganese Bronze & Brass Co.
[1934] A.C. 402; Mash and Murrell Ltd. v. Joseph I. Emanuel Ltd. [1961] 1
W.L.R. 862, 867 (a sale from one merchant to another). The reliance need not be
exclusive. Partial reliance will suffice.
The judge considered that the inference that the buyer relied on
the seller’s skill and judgement was displaced by the fact that Grimsdale and
Kendall were members of the same Association, the London Cattle Food Traders
Association. I do no, with respect, accept this view. The whole trend of
authority has inclined towards an assumption of reliance wherever the seller
knows the particular purpose. And where there are several subsales and the
purpose is obvious, the liability is frequently passed up the line. To cut the chain
of liability at one particular point is not fair unless there is some cogent reason
for doing so. In the present case I see no grounds for holding that Kendall were
in any relevantly different position from Grimsdale. The fellow-membership of
the C.T.F.A. was irrelevant.- - - - rely on another member just as much as he
relies on an outside trader. The fellow-membership may even increase his
reliance.
Reliance is not excluded by the fact that the seller may not
himself have seen the goods he sells. In Bigge v. Parkinson (1862) 7 H. & N.
955, 959 where it was implied that stores for troops in India must be fit for their
purpose, Cockburn C.J. said:
“Where a person undertakes to supply provisions, and

they are supplied in cases hermetically sealed, but turn out to be
putrid, it is no answer to say that he has been deceived by the
person from whom he got them.”
The seller, not the buyer, is aware of the provenance of the goods and has
chosen to acquire them for disposal. It would, therefore, be no unreasonable that
the buyer should rely on the seller’s “knowledge and trade wisdom” to use a
phrase quoted in Australian Knitting Mills Ltd. v. Grant, 50 C.L.R. 387, 446 by
Evatt J. from Ward v. Great Atlantic & Pacific Tea Co. (1918) 231 Mass. 90, 93,
94. And Walton J. in Preist v. Last (1903) 89 L.T. 33, 35, refers to the buyer’s
reliance that the seller will not sell him “mere rubbish.” This expression is
echoed in the evidence in the present case where Mr. Brown of Lillico said that
they relied on Kendall “not to sell what they knew was rubbish” (Appendix 2,
page 208).
It is argued that the width of the purpose should prevent one
from inferring that there was reliance. I do not think so. The compounders of
food for cattle and poultry need healthy ingredients, as the sellers knew. The
parties were not considering what admixture of healthy groundnut meal would be
102

good for particular animals or birds, but whether assuming a certain quantity of
groundnut meal would be a fit ingredient, the goods delivered would be healthy
or harmful groundnut meal. It was reasonable that the buyer should rely on the
seller to deliver groundnut meal which would, as groundnut meal, be a healthy
and not a harmful ingredient in a compound.
In my opinion, there was on the circumstances of this case
sufficient to establish reliance by Grimsdale on Kendall and a resulting condition.
The condition did not mean that the food was fit, however
strange or unsuitable the proportions of the compound might prove to be. It
meant that the food was fit if compounded reasonably and competently according
to current standards. Goods are not fit if they have hidden limitations requiring
special precautions unknown to the buyer or seller. The groundnut mean
delivered was plainly not fit for the purpose of reselling in small lots to
compounders of food for cattle and poultry. It was highly toxic. It is beside the
point that Kendalls were unaware of the proportions in which it was to be
compounded. It was unfit for use in the normal range of proportions. The
evidence shows that 10 per cent. was included in the feeding stuff for pheasants.
This was not abnormal. When the toxicity had been discovered and investigated
the recommendation of a reputable working party was that not more than 5 per
cent. of meal with a high toxicity should be included even in cattle rations and
none should be included in rations for birds. Moreover, while its toxicity was
unknown, the mean was thereby far more harmful and dangerous. Even had the
buyer known of its toxic qualities, it was not fit for compounding for poultry.
For a compounder’s business is to mix healthy food in suitable compounds. It is
quite unsuitable that he should get toxic meal which can only be used by
inserting it in quantities so abnormally small that the dilution of other compounds
removes its lethal effect. All the courts below have held rightly, with any
dissent, that this meal was not reasonably fit for the purpose for which it was
supplied by Kendall to Grimsdale.
Kendall are therefore liable in breach of the condition under
section 14 (1) [Ont.15.1]
Lord Pearce indicates that the “whole trend” was towards an assumption
of reliance. Why? These comments were made in the late 60s when ideas of
manufacturers strict liability in tort for product defects were becoming
influential. It was assumed that the manufacturer was the best risk and loss
spreader (for example through insurance) in relation to defects which caused
physical injuries.
Ashington Piggeries Ltd v. Christopher

Hill Ltd. :Christopher Hill Ltd v.
103

Norsildmel [1972] AC 441(HL)
In this case the owner of a mink farm, who was an expert on mink
farming asked Christopher Hill Ltd. to compound for him a mink food called
“King Size” in accordance with a formula which he had prepared. Christopher
Hill was a well known animal food compounder but had no knowledge or
experience of mink. The ingredients for the formula were to be supplied by Hill.
The compound was fed to large numbers of mink, many of whom died of a
hitherto unknown disease. The common factor appeared to be “King Size” and
ultimately the cause was identified as toxic Norwegian herring meal, an
ingredient of the compound. The herring meal had been preserved in sodium
nitrite which rendered it toxic to animals and in particular mink. The action
between Hill and Udall raised the question of the applicability of s15.1 and Hill
also brought in the Norwegian supplier of the herring meal, Norsildmel.
LORD WILBERFORCE. My Lords, what caused both the death of the
appellants’ mink in 1961? This was the substantial, and very difficult, issue at
the trial. The appellants succeeded in proving after some fifty days that the
heavy losses which occurred had been caused by the presence of
dimethylnitrosamine (DMNA) in herring meal supplied to them by the
respondents. This herring meal was an ingredient in a compound mink food
(“King Size”) ordered, on the appellants’ behalf, by their controlling director Mr.
W. T. Udall, a leading mink farmer and an expert in mink nutrition. The judge’s
finding as to the cause of the mortality was upheld by the Court of Appeal and
has not been challenged in this House. We are only concerned with the
appellants’ rights under their contract of sale and under the Sale of Goods Act
1893 and consequentially with the respondents’ right against third parties from
whom in turn the respondents acquired the meal. It is not, and cannot be,
contended that because the presence of this chemical in the meal was
unsuspected, and latent, at the date of the contract, and for some time after, that
of itself affords a defence (other than a special defence under the fair average
quality provisions) either to the intermediate sellers or to the manufacturers.
The judge decided that the respondents were in breach of each of
the conditions implied by section 13, section 14 (1) and section 14 (2) of the Act
but on each point his decision was reversed by the Court of Appeal. I have no
doubt that under two of these headings his judgement should be restored.
Because of the way in which the Sale of Goods Act has slotted the pre-existent
common law remedy into compartments, it is necessary to consider separately the
three relevant provisions. It is well known that there is a good deal of
overlapping between them, so that this subdivision is artificial and gives rise to
difficulty. But there is no avoiding this procedure....[Lord Wilberforce held that
there was no breach of the condition as to description]
2. Section 14(1) of the Act: I do not think it is disputed,
or in any case disputable, that a particular purpose was made known by the
buyers so as to show that they relied on the sellers’ skill and judgement. The
104

particular purpose for which “King Size” was required was as food for mink.
Equally I think it is clear (as both courts have found) that there
was reliance on the respondents’ skill and judgement. Although the Act makes
no reference to partial reliance, it was settled, well before the Cammell Laird
case [1934] A.C. 402 was decided in this House, that there may be cases where
the buyer relies on his own skill or judgement for some purposes and on that of
the seller for others. This House gave to that principle emphatic endorsement.
The present is certainly such a case. In the words of Milmo J.
[1968] 1 Lloyd’s Rep. 457, 480:
“On the one hand Mr. Udall was relying on his own
judgement as to what his formula should contain and the levels
at which the various ingredients in it should be included. On the
other, he was relying, and had no alternative but to rely, upon the
[respondents] to obtain the ingredients, to see they were of good
quality and not to use ingredients which, as a result of
contamination, were toxic.”
The word “toxic” will require some examination but, subject to

this, consider that this passage correctly states the position as regards reliance.
The field thus left to the sellers can be described in terms of their
responsibility as merchants, to obtain and deliver ingredients, and relevantly
herring meal, not unfit by reason of contamination, to be fed to animals,
including mink. The field reserved to the buyers, on the other hand, was that of
particular or specific suitability for mink. There was no doubt that herring meal,
as such, was suitable for mink; on the other hand, the particular consignments
supplied in 1961 were unsuitable because of the presence of DMNA. What, then,
was the nature of this unsuitability?
If mink possessed an idiosyncrasy, which made the food as
supplied unsuitable for them though it was perfectly suitable for other animals,
this would be the buyers’ responsibility, unless, as is not the case here, they had
made this idiosyncrasy known to the sellers so as to show reliance on them to
provide for it. But any general unsuitability would be the sellers’ responsibility.
Although the evidence was not very complete, it is sufficiently shown, in my
opinion, that mink are more sensitive to DMNA than most other animals to
whom compound foods would be sold. Chicken and pigs are among the least
sensitive, next cattle and then sheep, with mink at the top of the scale. So the
question arises, what does the buyer, alleging unfitness, have to prove? If the
fact were that the herring meal supplied, while damaging to mink, was perfectly
harmless to all other animals to whom it might be fed, it would be unjust to hold
the sellers liable. If, on the other hand, the herring meal was not only lethal to
mink but also deleterious, though not lethal, to other animals, the sellers’
responsibility could be fairly engaged. A man can hardly claim that the product
he sells is suitable, especially if that is a foodstuff, merely because it fails to kill
105

more than one species to which it is fed.
In this case, because of the difficulty of tracing the lethal
element, the evidence as to its presence, its strength and its effect was not
scientifically complete. It was not until 1964 that DMNA was identified, by that
time all the infected herring meal had been disposed of, and all other animals to
which it had been fed had died. The critical question in this part of the appeal is
whether the buyers proved enough to show that their mink died because of some
general, that is, non-specific, unsuitability of the herring meal through
contamination. The burden was upon the buyers to show that this was so.
The Court of Appeal, who decided against the buyers on this
point, based their decision on a conclusion regarding the balance of the
contaminated herring mean which was not used for mink food. The consignment
which killed the appellants’ mink was part (8½ tons) of a total of 333½ tons, the
rest of which was sold by the respondents for inclusion in feeding stuffs in the
normal way. The Court of Appeal [1969] 2 Lloyd’s Rep. 425, 462 found that this
balance was “perfectly suitable” as a feeding stuff for animals for whom the
respondents normally compounded foods, and from this drew the conclusion that
the deaths of the mink were due to some specific idiosyncrasy. I cannot accept
that this conclusion was justified. The evidence certainly showed that no
complaints were received from any person who received meal from the balance
of the consignment, but that was all. There was no evidence in what quantities,
or over what period, any of this meal was fed, nor even, accepting that no deaths
resulted (and premature deaths may have occurred), was there any evidence that
the animals in question were not adversely affected in weight, fertility or in
damage to their livers. The absence of complaint is insufficient by itself to
establish perfect suitability.
But the matter does not end with rejection of the Court of
Appeal’s finding: the basic difficulty remains. Given that the buyers had to show
general unsuitability and not merely specific unsuitability for mink, did they do
so? It is here that the concept of toxicity becomes relevant.
Toxicity is, to some extent, a relative quality. There are few
products which are lethal or even deleterious to all species, in all conditions, in
whatever doses. Some “poisons” may be quite harmless to certain species if they
do not exceed a threshold quantity and if they can be eliminated before afresh
dose is taken: some may even be beneficial if taken in small doses but lethal if
taken in large. Other products, though not immediately damaging, become
cumulatively so through build-up in the tissues or cells. From this point of view
the Court of Appeal was no doubt right in its reservations as to the use of the
word “toxic” where quoted above: the word may involve a petitio principii.
But when this is said, it also remains true that, in certain
contexts, toxicity may be an absolute quantity: particularly is this so where
foodstuffs are concerned. Where an element in feeding stuffs is shown to be (i)
lethal in some quantities to one or more species (ii) damaging in other quantities
to one or more species and in more than one respect and (iii) when it is not
suggested that in any circumstances the chemical is beneficial; when moreover
106

the expert evidence shows that the full implication and effects of feeding it have
yet to be scientifically established, then there is every justification for describing
it as toxic, and, which is the relevant consideration, for placing responsibility for
its exclusion firmly upon the seller.
I am satisfied that DMNA was shown to be toxic in this sense.
That, in a general sense of the word, it was toxic was never disputed at the trial.
The issue, fought over so many days, was whether it was shown that DMNA was
present in the 8½ tons used for making food for the appellants’ mink, and
whether it was DMNA that caused their death: secondarily also whether it was
shown to be present in the rest of the 333½ tons consignment or in the product of
the season 1960-61.
It was not an issue, on the pleading, or, as I understood it, in
evidence, whether DMNA was toxic generally or whether the disputed herring
meal was toxic only quoad the mink. The description of DMNA as toxic was
that of Dr. Koppang, the expert witness called for the third parties-- the effective
antagonist of the appellants. It was he who in the witness box said that all
animals are sensitive to DMNA and that mink were more sensitive than others.
There was evidence of the specific damage inflicted by DMNA, namely, damage
to the liver: not only mink have livers, and damaged livers of other species were
instanced and photographed: this is generic damage, not idiosyncratic. There was
evidence of disastrous losses to Norwegian fox and mink over six years from
1957 with similar symptoms to those of a toxic hepatosis in 1961 among
ruminants to whom toxic herring meal had been fed. Dr. Roe, a pathologist,
showed that DMNA was particularly hazardous to man in concentrated form and
that he had instructed persons carrying out examinations of poisoned mink to be
extremely careful. My noble and learned friend, Viscount Dilhorne, has fully
extracted the essence of this evidence.
Against this the respondents sought to rely on certain passages in
the evidence to the effect that as regards other animals than mink, including pigs,
chickens and cows, DMNA below a certain quantity is harmless. But such
evidence would have to be of a very convincing character before it satisfied me
(as it clearly did not satisfy the judge) that foodstuffs containing DMNA were
suitable for their purpose, even if the concentration was low. In fact, the
evidence was of a very imprecise kind. It was agreed that one species differs
from another, one sub-species from another, one individual from another. As
regards sensitivity to DMNA the evidence as regards the effect of feeding it was
partial and far from comprehensive. The Norwegian expert admitted that
scientific knowledge was imperfect. The serious ravages among ruminants and
furbearers had taken place seven years or more before the trial, the opportunity
for accurate research in the field did not exist. The equation is, therefore, this:
that DMNA is inherently and generally toxic: that as included in the relevant
herring meal it poisoned the appellants’ mink: that this poisoning was not due to
any specific idiosyncrasy among mink: that its effect on other species or sub-
species is not accurately known beyond that it is potentially deleterious at least to
the liver and that most normal species are more tolerant of it than mink.
107

In my opinion, the appellants made good their case: they proved
the cause of their losses to lie in the inclusion of a generally (viz. non-specific as
regards mink) toxic ingredient in the food. It was not for them to show that this
same food killed, or poisoned, other species. So to require would place far too
high a burden on a buyer. The buyer may have no means of ascertaining what
the effect on other species may be. The whole contaminated consignment may
have been fed to the buyer’s animals: is the buyer to fail because he cannot show
that this particular consignment killed or at least injured, other animals? He
must, I think, carry his proof to the point of showing that the guilty ingredient has
some generally (as opposed to specifically) toxic quality. But once he has done
this, has he shown, at least with strong prima facie force, that a feeding stuff
which contained it was unsuitable? Is he not entitled to throw on to the seller the
burden of showing, if he can, that the damage to the buyer’s animals was due to
some factor within the field of responsibility reserved to the buyer? I would
answer yes to these questions. In the end, it is for the judge to decide whether, on
the evidence, the buyers have proved their case. Milmo J.’s conclusions are
expressed in three passages, one in the main action, the others in the third party
proceedings (the whole case was heard together):
“Herring meal does not normally contain a poison. The

herring meal which killed the English mink contained DMNA
which is a poison, and it contained it at a level sufficiently high
to be lethal to mink, which are animals to which herring meal
can properly be fed. All animals are sensitive to DMNA
poisoning, though mink are more sensitive than most.” ([1968] 1
Lloyd’s Rep. 457, 481.)
“I find that the meal which poisoned the English
mink was not reasonably fit for use as an ingredient in animal
foodstuffs because of the fact that it contained in substantial and
significant quantities DMNA which is a toxic substance to which
all animals are sensitive.” (p. 487.)
“While I accept that there was no evidence that
the meal had a deleterious effect upon any animal or other type
of livestock other than mink, I do not consider that it was proved
affirmatively that the meal which killed the mink could have
been fed with impunity to all other types of livestock.” (p. 486--
emphasis supplied.)
This is precisely the position: coupled with the general finding

as to toxicity (something to which all animals are sensitive, i.e., liable to suffer
liver damage) it amounts to a rejection of the only line of defence open to the
respondents--namely, that the relevant consignment was fit to be fed to all
normal animals and only unfit to be fed to mink.
In my opinion, these findings were justified and correct.
108

So much for the facts, but there remains one legal argument on
this part of the case. Section 14 (1) contains the words “and goods are of a
description which it is in the course of the seller’s business to supply.” The
respondents relied on these words and persuaded the Court of Appeal to decide
that the requirement was not satisfied because, briefly, the respondents were not
dealers in mink food. A similar argument was put forward on the words in
section 14 (2) “where goods are bought by description from a seller who deals in
goods of that description.” The Court of Appeal decided this point, too, in the
respondents’ favour. The respondents they held, did not deal in mink food, or
“King Size,” before Mr. Udall placed with them the orders which produced the
defective goods. I have some doubt whether this argument is even correct on the
facts, because Mr. Udall had been ordering “King Size” for several months
before he ordered the fatal consignment. But we must deal with the legal
argument because it is clearly of general importance. It appears never previously
to have been accepted and it substantially narrows the scope of both subsections.
It rests, in the first place, upon a linguistic comparison of the meaning of the
word “description” in the three places where it appears and on the argument that
it must mean the same in each place.
I do not accept that, taken in its most linguistic strictness, either
subsection bears the meaning contended for. I would hold that (as to subsection
(1)) it is in the course of the seller’s business to supply goods if he agrees, either
generally, or in a particular case, to supply the goods when ordered, and (as to
subsection (2)) that a seller deals in goods of that description if his business is
such that he is willing to accept orders for them. I cannot comprehend the
rationale of holding that the subsections do not apply if the seller is dealing in the
particular goods for the first time or the sense of distinguishing between the first
and the second order for the goods or for goods of the description. The Court of
Appeal offered the analogy of a doctor sending a novel prescription to a
pharmacist, which turns out to be deleterious. But as often happens to arguments
of this kind, the analogy is faulty: if the prescription is wrong, of course the
doctor is responsible. The fitness of the prescription is within his field of
responsibility. The relevant question is whether the pharmacist is responsible for
the purity of his ingredients and one does not see why not.
But, moreover, consideration of the preceding common law
shows that what the Act had in mind was something quite simple and rational: to
limit the implied conditions of fitness or quality to persons in the way of
business, as distinct from private persons. Whether this should be the law was a
problem which had emerged, and been resolved, well before 1893. The first
indication of the point arose in Jones v. Bright (1829) 15 Bing. 533 (copper
sheathing). Two of the judges regarded it as an essential allegation that the
defendant should have been the manufacturer of the defective copper. Park J. in
fact, at p. 546, used the words “distinguishing, as I do, between the manufacturer
of an article and the mere seller.” In Brown v. Edgington (1841) 2 Man. & G.
279, 291 (the crane rope) we find a description of the defendant by Bosanquet J.
as “a dealer in articles of that description,” clearly a reason for holding him liable
109

though he was not the manufacturer. The distinction between the dealer and the
private seller is clearly brought out in Burnby v. Bollet (1847) 16 M. & W. 644,
where a man bought a carcase in the market but later sold it to another farmer.
His exemption from liability for defects in the carcase was explicitly based on his
private character; he was “not clothed with any character of general dealer in
provisions” (p. 649), he was “not dealing in the way of a common trade” (p.
655). And finally in the forerunner case of Jones v. Just (1868) L.R. 3 Q.B. 197
we find Mellor J. in his fourth and fifth categories, which anticipate respectively
section 14 (1) and 14 (2) of the Sale of Goods Act 1893, referring to a
manufacturer or dealer contracting to supply an article which he manufactures or
produces, or in which he deals, and to a manufacturer undertaking to supply
foods manufactured by himself or in which he deals, so clearly following and
adopting the prior accepted division between sales by way of trade and private
sales.
One asks, therefore, what difference the insertion in the Sale of
Goods Act of the words “description” made to these well-accepted rules. It
seems at least clear that the words now appearing in section 14 (1) “and the
goods are of a description which it is the seller’s business to supply” cannot mean
more than “the goods are of a kind. . . .” “Description” here cannot be used in
the same sense in which the word is used when the Act speaks of “sales by
description,” for section 14 (1) is not dealing with sales by description at all. If
this is so, I find no obstacle against reading “goods of that description” in a
similar way in section 14 (2). In both cases the word means “goods of that kind”
and nothing more. Moreover, even if this is wrong, and “description” is to be
understood in a technical sense, I would have no difficulty in holding that a seller
deals in goods “of that description” if he accepts orders to supply them in the
way of business; and this whether or not he has previously accepted orders for
goods of that description.
So, all other elements being present as I have tried to show, I
would hold that section 14 (1) applies to the present case. I would agree with the
judge that section 14 (2) equally applies and disagree with the reasons (based on
the “description” argument) which led the Court of Appeal to a contrary opinion.
...
The appeal of Christopher Hill Ltd. (the respondents) against
Norsildmel (“the third parties”) raises different, and, in one respect at least, more
difficult issues. The goods supplied were in this case Norwegian herring meal
and they were supplied under the terms of a commodity market contract in
writing. A number of points arise under it. On the following I express my
concurrence with others of your Lordships, and do not think it necessary to add
reasons of my own.
1. The respondents were not in breach of a term in the contract
implied by virtue of section 13 of the Sale of Goods Act 1893. The goods
supplied were, in my opinion, Norwegian herring meal. The words “fair average
quality of the season” were not in this contract part of the description. I do not
find it necessary to consider whether, if they were, there was a breach of any
110

implied condition that the goods should correspond with this description. They
were not relied upon as themselves importing a warranty; but if the contention is
open, I am in agreement with my noble and learned friend, Lord Diplock, for the
reasons which he gives, that they do not cover the particular defect which
existed.
2. The exemption clause contained in general condition 3 does
not exclude a claim for breach of any warranty implied under section 14 (1 ) of
the Act.
This leaves the substantial question whether a term as to
reasonable fitness ought to be implied under section 14 (1) of the Act. There was
also raised a question as to remoteness of damage but, in the view which I take
this depends on the same considerations as those necessary for determination of
liability under section 14 (1). I now consider this question.
In so doing I should make it clear that, although I refer to
Norsildmel the third parties, the actual contract for sale was made with a
committee called Sildemelutvalget to whom Norsildmel succeeded in 1964, but a
distinction has been made between these organisations. What is necessary to
determine is whether any particular purpose for which the goods were required
was made known by the buyers to the sellers so as to show that the buyers relied
on the sellers’ skill and judgement: what the particular purpose was: finally,
whether the particular purpose included feeding to mink. The particular purpose
relied upon by the respondents was that the meal was required for inclusion in
animal feeding stuffs to be compounded by them. They do not contend that
feeding mink was explicitly stated as a purpose; but they say that feeding to mink
was known to both parties as a normal user for herring meal, and that it was sold
without any reservation or restriction as to the use to which it might be put. The
sale was negotiated through an agent in England-- C. T. Bowring & Co. Ltd. on
behalf of Sildemelutvalget, but no point had been taken as to any limitation upon
their knowledge as compared with that of their principals.
The scope and application of section 14 (1) of the Sale of Goods
Act 1893 was fully considered by this House in Hardwick Game Farm v. Suffolk
Agricultural Poultry Producers Association Ltd. [1969] 2 A.C. 31. The opinion
expressed in that case endorsed a tendency which other cases (such as
Manchester Liners Ltd. v. Rea Ltd. [1922] 2 A.C. 74) had shown, to expand the
scope of section 14 (1) so as to cover territory which might otherwise, on a first
reading, have been thought to belong to section 14 (2). I think that this tendency
essentially reflects a reversion to the more general approach to questions of the
seller’s liability under implied warranty adopted by the common law, as
contrasted with the compartmentalisation into separate, but inevitably
overlapping, provisions adopted by the Sale of Goods Act. Naturam expellars
furca is a maxim which tends to apply to codifications. At any rate it is clear that
this House in the Hardwick case [1969] 2 A.C. 31 accepted that the “making
known” so as to show reliance which the section requires is easily deduced from
the nature and circumstances of the sale, and that the word “particular” means
little more than “stated” or “defined.” As Lord Pearce said in Hardwick, at p.
111

115: “There is no need for a buyer formally to ‘make known’ that which is
already known”: and here there is no doubt that the third parties, through their
selling agents C.T. Bowring & Co. Ltd., and also directly, knew what the herring
meal was required for, namely, for inclusion in animal feeding stuffs to be
compounded by the buyers, and no special purpose in relation to mink was relied
on. The third parties were, moreover, a committee, or co-operative, of
manufacturers of herring meal: in this case, whether one speaks of implication or
presumption, the conclusion can hardly be otherwise than that of reliance by the
buyers to produce a product reasonably fit for the purpose. I observe, indeed,
that my noble and learned friend, Lord Guest, who felt difficulty in Hardwick as
to the application of section 14 (1) against persons who were dealers in the
market, said that he could well understand, where the sale is by a manufacturer to
a customer, that the inference (sc. of reliance) can easily be drawn (p. 106). I
agree with Milmo J. that it ought to be drawn in this case.
Then was the purpose, to be used for inclusion in animal feeding
stuffs to be compounded by the buyers, a particular purpose? In my opinion,
certainly yes. It is true that the purpose was wide, wider even than the purpose
accepted as particular in Hardwick (for compounding into food for cattle and
poultry), and, if one leaves aside a possible alternative use as fertiliser, on which
there was some indefinite evidence, the purpose so made known covers a large
part of the area which would be within section 14 (2). But I do not think, as the
law has developed, that this can be regarded as an objection or that in accepting a
purpose so defined, as a “particular purpose,” the court is crossing any forbidden
line. There remains a distinction between a statement (express or implied) of a
particular purpose, though a wide one, with the implied condition (or warranty)
which this attracts, and a purchase by description with no purpose stated and the
difference condition (or warranty) which that attracts. Moreover, width of the
purpose is compensated, from the seller’s point of view, by the dilution of his
responsibility: and to hold him liable under an implied warranty of fitness for the
purpose of which he has been made aware, wide though this may be, appears as
fair as to leave him exposed to the vaguer and less defined standard of
merchantability. After all, the seller’s liability is, if I may borrow the expression
of my noble and learned friend, Lord Morris of Borth-y-Gest, no more than to
meet the requirement of a buyer who is saying to him “that is what I want it for,
but I only want to buy if you sell me something that will do.” I think that well
expresses the situation here.
The next point is whether, when the meal turned out to be
unsuitable for feeding to mink, this was a matter to be treated as within the
seller’s responsibility. There are two distinct points here: the first is whether
feeding to mink was a normal use, within the general purpose of inclusion in
animal feeding stuffs: the second is whether, assuming that the seller’s implied
warranty did not extend beyond that of general suitability for animals, including
possibly mink, the buyers were able to show a breach of that warranty.
The first point involves an issue of fact which received lengthy
examination in the courts below. The decision on it depended to a great extent
112

upon the view taken of two Norwegian witnesses called by the third parties, who
were the assistant director of the third parties and the chief executive of a
Norwegian herring oil factory at the relevant time. These witnesses were called
to show that the third parties did not know in 1961 that herring meal might be fed
to mink.
Unfortunately the courts below reached different conclusions.
Milmo J. did not accept the disclaimer of the Norwegian witnesses. He found
that both were aware in or before 1961 that herring meal was being fed to mink
in Norway and that herring meal was a normal and well-known ingredient of the
diet of mink kept in captivity in Norway and (he added) in other countries. On
this basis he found that Sildemelutvalget knew of the practice of feeding herring
meal to mink.
The Court of Appeal reached an opposite conclusion. They held
that the respondents had failed to establish that at the date of the contract the
third party should reasonably have contemplated that it was not unlikely that the
herring meal, the subject-matter of the contract, might be fed to mink. On the
contrary, they found on the evidence that the result of such contemplation would
have been that it was highly unlikely that the herring meal would be fed to mink,
and they added (though this would appear to be both an irrelevant matter and,
since the meal was not known to be toxic, also factually incorrect) to which alone
it would be harmful.
[Lord Wilberforce concluded that feeding to mink was a normal use in
1961 and that Hill was entitled to rely on Norsildmel to supply herring meal
suitable for their purposes].
Venus Electric Ltd. v. Brevel Products

Ltd.[1978] 19 O.R. (2d) 417 ONTARIO
COURT OF APPEAL HOWLAND,
C.J.O., DUBIN AND ZUBER, JJ.A..
APPEAL from a judgment in favour of the plaintiff in an action for

breach of condition of reasonable fitness of goods for the buyer's purpose.
The judgment of the Court was delivered by
DUBIN, J.A.:__ In 1969, Venus Electric Limited entered into a contract

with Simpsons_Sears Limited to supply a large volume of electric hair_dryers.
The hair_dryers had been designed and produced by an American manufacturer,
one Arvin Industries Inc., for the exclusive use of Simpsons_Sears in the United
States. Simpsons_Sears asked Venus to assemble these dryers in Canada under
an arrangement whereby the moulds or parts which required tooling would be
obtained from Arvin and the other parts including the motors would be purchased
in Canada. Venus subcontracted the manufacture of the motor to the defendant
113

Brevel Products Limited. Venus assembled the component parts and delivered
the same to Simpsons_Sears Limited. Approximately one_half of the hair_dryers
supplied by Venus to Simpsons_Sears were returned because of defects in the
hub of the fan.
It would appear that three factors contributed to the failure of the fan.
Such factors were the method of attachment which involved the design of both
the fan and the shaft of the motor, the material of the fans which was made of
polystyrene, and the environment in which the assembly operated which included
the presence of oil coming down the shaft of the motor which had been supplied
by Brevel.
This action was commenced for damages incurred by the plaintiff as a
result of the return of the fans by Simpsons_ Sears. The trial Judge found the
defendant liable by invoking s. 15, para. 1 of the Sale of Goods Act, R.S.O. 1970,
c. 421, and assessed damages in favour of the plaintiff in the sum of $102,055. It
is from that judgment that the defendant appeals.
The learned trial Judge has set forth in detail the evidence in this case,
and I need only refer to such portions of it which bear directly on the issue of
liability.
Prior to the entering into of the contract which forms the basis of this
action, the plaintiff supplied the defendant with a sample assembly, including an
electric motor, a base plate, and a plastic fan together with written specifications
prepared by the plaintiff for the motor, and requested the defendant to supply
sample motors which would replace the existing motors in the assembly.
The selection of the lubricant for the motor was left with the defendant,
and there was no discussion between the parties as to the particular oil to be used
by the defendant. The fan in the dryer was made of plastic material, but no
information was given by the plaintiff to the defendant as to the specific nature of
the composition used.
In the month of June, 1970, the defendant manufactured several models
of the motor and submitted them to the plaintiff for testing. The lubricant selected
by the defendant was of the best quality, and was one customarily used by the
defendant in its manufacturing of motors, with respect to which there had been
no prior difficulty. The plaintiff tested the sample motors and orally ordered a
large quantity of two of the samples.
On July 3, 1970, the plaintiff gave a written purchase order which was
confirmed in writing by the defendant on July 6, 1970. The confirmation
delivered by the defendant stated, in part, as follows:
We will repair or replace at no charge if defective
material or workmanship is demonstrated within one year of
shipment. However, we do not guarantee suitability of our
product for your application.
Although the motors ordered had standard shafts and did not have
splines, counsel for both parties conceded that there was an understanding that
114

the motors to be delivered were to have modified shafts and splines.
Before the motors were delivered, the plaintiff asked that there be more
bite, which result was achieved by modification of the specifications for the
splines. The defendant then submitted a further set of sample shafts with the
modified splines which were approved by the plaintiff. The defendant then
completed the manufacture of the motors and delivered them to the plaintiff.
On the sale by Simpsons_Sears of the dryers a substantial number of
them were returned by the customer. It was subsequently ascertained that when
the shaft with the splines was attached to the fan, tension was created which
brought about a cracking. By reason of the way in which the motor was placed in
the assembled product, some oil leaked down the shaft and came in contact with
the fan. The oil being used was incompatible with the particular plastic of which
the fan was manufactured and had accelerated the cracking, resulting in many of
the dryers becoming inoperative.
The learned trial Judge made the following finding:
On all the evidence I find that the tolerances permitted
in the Brevel design of the shaft for which it was responsible
added to the stress in the plastic of the fan and initiated cracking
which of itself would not have resulted in the breaking of the
fans.
Although the learned trial Judge does not specifically
find that the cause of the disintegration of the fans in the hair_
dryer was the oil from the motor migrating down the shaft and
coming into contact with the plastic of the fans which was under
stress, I think it fair to say that such a finding is implicit by
reason of the result that was arrived at in this case.
The trial Judge concluded that the defendant was liable by reason of the
provisions of s. 15, para. 1 of the Sale of Goods Act...
The trial Judge rejected the claim of the plaintiff that the defendant had
breached s. 16(2)(a) of the Sale of Goods Act. Section 16 reads as follows:
16(1) A contract of sale is a contract for sale by sample where there is a
term in the contract, express or implied, to that effect.
(2) In the case of a contract for sale by sample, there is an implied
condition,
(a) that the bulk will correspond with the sample in quality;
(b) that the buyer will have a reasonable opportunity of comparing the
bulk with the sample; and
(c) that the goods will be free from any defect rendering them
unmerchantable that would not be apparent on reasonable examination of the
sample.
115

The trial Judge found that the contract in issue was a sale by sample, but
that the motors that were supplied corresponded in quality with the samples that
had been delivered.
The principal submission made by Mr. Hemmerick, in a particularly
skilful argument, was that the learned trial Judge erred in holding the defendant
liable by reason of the provisions of s. 15, para. 1 of the Sale of Goods Act.
It was not in issue that the goods were of such a description that it was
in the course of the manufacturer's business to supply, but what is contended for
is that the plaintiff did not make known to the seller the particular purpose for
which the goods were required so as to show that the buyer relied on the
manufacturer's skill or judgment.
The learned trial Judge found, as I have observed, that Brevel was
responsible for the design of the shaft which obviously included the final product
of the shaft and splines. However, with respect, I think she erred in so finding.
The motors ordered included standard shafts selected by Brevel.
However, as a result of the discussions which ensued, the final shaft and the
splines were modified at the request of the plaintiff, submitted to the plaintiff and
approved by the plaintiff before delivery of the completed product. It is of
significance that the assembly of the motors was the responsibility of the
plaintiff.
It would appear that cracking was initiated because of the increased
stress when the shaft was attached to the hub of the fan. The original shaft and
splines supplied did not create sufficient stress. The ultimate product in this
respect was redesigned at the request of the plaintiff, to whom samples were
forwarded before the manufacture of the delivered product. If the delivered
product created too much stress, it can hardly be said that the plaintiff had made
known to the manufacturer that it was relying on the manufacturer's skill or
judgment in this respect.
I am respectfully of the opinion, therefore, that the learned trial Judge
erred in holding that the shafts and splines supplied were the responsibility of
Brevel. In any event, the learned trial Judge appears to have accepted the
evidence that, absent the oil, the cracking in itself would not have brought about
a failure of the fan.
The principal contention of the plaintiff was that the failure of the fan
was as a result of the incompatibility of the oil with the plastic material of which
the fan was composed. When the oil came into contact with the areas of the fan
which had been cracked, it accelerated the decomposition of the fan, and it was
submitted that in this respect the buyer made known to the seller, expressly or by
implication, that it was relying on the seller's skill or judgment.
The fans were supplied by Arvin. Having regard to the particular plastic
being used for the fans, the designer specified to the American manufacturers,
who were supplying motors to Arvin, that the bearing lubricant had to be
compatible with the polystyrene plastic. None of these details were known by
Venus, nor told to Brevel. Brevel was not asked to investigate the compatibility
of the oil with the plastic, nor, like the manufacturers in the United States who
116

supplied motors to Arvin, was it cautioned about the problem.
The trial Judge found that the motors would have worked in other dryers
and with other fans.
On this issue the trial Judge fastened liability on the defendant for the
following reasons:
The seller's motors would have worked in other dryers
and with other fans. If the buyer had not drawn the attention of
Brevel to the fact that a plastic fan might be used, it could be
doubted that Venus had imposed on Brevel the obligation to
supply oil in the motors that was reasonably fit no matter what
the requirements might be. By delivery, Venus had made known
to Brevel that the fan was made of a certain type of plastic and
the very fan itself was supplied in order that Brevel might design
its motors to work with it. In the circumstances here, I find that
there was an implied condition that the goods should be
reasonably fit for the purpose which had been made known and
they were not.
It is implicit in the reasons for judgment of the trial Judge, as I read

them, that the damage to the fans resulted from a combination of the stress and
the particular oil used in the motors. It does appear that the incompatibility of the
oil accelerated the cracking, but in the absence of stress the oil would not have
damaged the plastic.
I have already expressed the opinion that the defendant was not
responsible for the cracking of the plastic material which was brought about by
the particular shafts and splines selected and agreed upon by the plaintiff. Thus,
even if this were a case in which it could be said that the plaintiff relied on the
defendant's skill and judgment in the selection of the oil (about which I will
comment later), it has not been proved that the oil caused the damage in the
absence of the stress for which the plaintiff was responsible.
However, I think, with respect, that the learned trial Judge erred in
concluding that the plaintiff had made known to the defendant that it was relying
upon the skill and judgment of the defendant to select an oil compatible with the
particular plastic material used in the fans under stress.
Unlike most cases where the application of s. 15, para. 1 of the Sale of
Goods Act has been considered, there was nothing inherently defective in the
motors in issue here. The unfitness was not by reason of any defect in the motor
or lubricant, but was by reason of their unsuitability for use with other materials
which were assembled by the buyer.
The important key to the interpretation of s. 15, para. 1 of the Sale of
Goods Act is the question of reliance. It was so stated by Lord Diplock in
Ashington Piggeries et al. v. Christopher Hill Ltd., [1971] 1 All E.R. 847 at p.
886, as follows:
117

The key to both subsections [our s. 15, paras. 1 and 2] is
reliance__the reasonable reliance of the buyer on the seller's
ability to make or select goods which are reasonably fit for the
buyer's purpose coupled with the seller's acceptance of
responsibility to do so. The seller has a choice whether or not to
accept that responsibility. To enable him to exercise it he must
be supplied by the buyer with sufficient information to acquaint
him with what he is being relied on to do and to enable him to
appreciate what exercise of skill or judgment is called for in
order to make or select goods which will be fit for the purpose
for which the buyer requires them.
This consideration, in my view, throws light on two
matters arising under s. 14 [our s. 15]. The first is the meaning of
"particular purpose" in sub_s(1). The second is the application of
the doctrine of "partial reliance" under both sub_s (1) and sub_s
(2). To attract the condition to be implied by sub_s (1) the buyer
must make known the purpose for which he requires the goods
with sufficient particularity to enable a reasonable seller,
engaged in the business of supplying goods of the kind ordered,
to identify the characteristics which the goods need to possess to
fit them for that purpose. If all that the buyer does make known
to the seller is a range of purposes which do not all call for goods
possessing identical characteristics and he does not identify the
particular purpose or purposes within that range for which he in
fact requires the goods, he does not give the seller sufficient
information to enable him to make or to select goods possessing
a characteristic which is needed to make them fit for any one of
those purposes in particular, if the same characteristic either is
not needed to make them fit, or makes them unfit, for other
purposes within the range. A "range of purposes" case thus poses
a stark question of legal policy as to whether the seller's
responsibility ought to be to supply goods which are fit for at
least one of the purposes within the range or to supply goods
which are fit for all of those purposes unless he expressly
disclaims responsibility for their fitness for any one or more of
them.
With respect to partial reliance, Lord Diplock continues at pp. 887_8, as

follows:
I turn next to "partial reliance". The actual words of

sub_ s (1) appear to contemplate two classes of contracts only:
one, where the buyer does not rely at all on the skill or judgment
of the seller to see to it that the goods supplied are reasonably fit
118

for a particular purpose; the other where the buyer does so rely
and the other requirements of the subsection are satisfied. As a
matter of linguistics it is possible to construe the expression "so
as to show that the buyer relies" as referring to a reliance which
was only partial, in the sense that the reliance was not the only or
even the determinative factor which induced the buyer to enter
into the contract. But it is not possible to extract from the
language of the subsection any qualification on the implied
undertaking by the seller, if there is such reliance, that the goods
supplied by him shall be reasonably fit for the particular purpose
for which they are required by the buyer. Yet as a result of
technological advances since 1893 there are an increasing
number of cases where the preparation of goods fit for a
particular purpose calls for the exercise of more than one kind of
expertise. The buyer may himself possess one of the kinds of
expertise needed but lack another and may choose a seller who
has led him to believe that he, the seller, possesses it. The only
reliance by the buyer on the skill or judgment of the seller is that
in the preparation or selection of the goods he will exercise that
kind of expertise which he has led the buyer reasonably to
believe that he possesses. The goods supplied may then be unfit
for the particular purpose for which both parties knew they were
required, either because of a defect which lay within the sphere
of expertise of the seller or because of a defect which lay within
the sphere of expertise of the buyer himself. The way in which
the principle of reliance which underlies sub_ss (1) and (2)
should be applied to a more complex contract of this kind, which
was not in the immediate contemplation of the draftsman of the
code, poses another stark question of legal policy. In large part
this decision was made by your Lordships' House in 1934 in the
Cammell Laird case, [1934] A.C. 402, [1934] All E.R. Rep. 1. It
was there laid down that if the defect in the goods which
rendered them unfit for their purposes was due to a characteristic
which lay within the sphere of expertise of the seller to detect
and avoid, the responsibility for their unfitness lay with the
seller. The ratio decidendi leads ineluctably to the corollary that
if the defect was due to a characteristic which it lay within the
sphere of the expertise of the buyer to detect and avoid, the seller
was not contractually responsible for it. It did not attract the
implied condition under sub_s (1). The field of the seller's
undertaking as to the fitness of the goods for the purpose
corresponded with the field of the buyer's reliance on the skill
and judgment of the seller.
119

In Cammell Laird & Co., Ltd. v. Manganeze Bronze & Brass Co., Ltd.,
[1934] A.C. 402, referred to, Lord Wright states, at p. 423:
Such a reliance must be affirmatively shown; the buyer

must bring home to the mind of the seller that he is relying on
him in such a way that the seller can be taken to have contracted
on that footing. The reliance is to be the basis of a contractual
obligation.
He continued, at p. 424:
In dealing with these contentions, the first thing to be

considered is, what is exactly the article which is the subject of
the contract of sale, and what is the particular purpose for which
it is required, in so far as relevant, as between the contracting
parties. In some cases the matter may be very simple: the
purpose for which a hot water bottle is required is easily
determined and equally easy is it to determine the extent of
reliance on the seller: similarly in the case of a piece of
mechanism, intended to fit into a complete machine, the relevant
purpose as between the buyer and the maker will normally be
simply that it should be of the specified plan and, when properly
fitted, work in its place: there is no reliance on the maker for the
general performance of the machine as a whole. Similarly in
Manchester Liners, Ld. v. Rea, Ld., [1922] 2 A.C. 74, the
bunkers were to be fit to burn in the furnaces but not to raise any
given head of steam. The definition of the particular purpose will
vary according to the contract in question.
In my opinion the highest position at which one can place the plaintiff's
case is that of a partial reliance. However, it has not been shown that the plaintiff
made known to the manufacturer that it was relying on the manufacturer's skill
and judgment to see that the lubricant would be compatible with the plastic of the
fans selected by the plaintiff.
As Lord Sumner put it in Medway Oil & Storage Co., Ltd. v. Silica Gel
Corp. (1928), 33 Com. Cas. 195 at p. 196:
It follows that the reliance in question must be such as

to constitute a substantial and effective inducement which leads
the buyer to agree to purchase the commodity.
With respect, I think the trial Judge erred in holding that the mere
supplying of a sample of the fan was sufficient to establish the reliance which, in
120

her view, brought about liability. It is clear from the evidence that visual
observation of the fan would not in any way alert the manufacturer as to its
composition, nor its incompatibility with the lubricant used by the manufacturer.
This particular knowledge was in the hands of the supplier of the fans to Venus
and was information which was readily available to the plaintiff.
It could be said with equal force that the plaintiff was relying on the
supplier of the fans to supply a fan compatible with a lubricant frequently used
by a manufacturer of motors supplied for electric dryers. In any event, the
plaintiff who purchased the fans from Arvin was in a better position to know or
to learn whether the fans were compatible with the lubricant used by the
defendant than the defendant was. ...
I have already referred to the contractual provision wherein the
defendant provided that it did not "guarantee suitability of our product for your
application". The trial Judge viewed this provision as an effort by the defendant
to exclude itself from liability in the event that the motors supplied were unfit for
the purpose for which they were purchased, and held that it had no such effect.
With respect, I view that provision in somewhat different light. In my opinion it
was directly relevant to the issue of reliance as it affected the compatibility of the
motor with the assembled product. Having regard to the manner in which the
contract was entered into, the provision in the contract that I have referred to is
further evidence of the express or implied understanding of the parties. It has at
least the minimal effect of reinforcing my conclusion that this is not a case in
which the plaintiff could successfully rely on s. 15, para. 1 of the Sale of Goods
Act.
In addition, as has already been noted, the trial Judge concluded that the
contract in question was one of a sale by sample, and that the motor supplied
corresponded in quality with the samples that had been delivered. Although there
may be cases in which s. 15, para. 1 may be invoked notwithstanding that the sale
was by sample, I do not think that is the case here. There was nothing inherently
defective in the motors that were supplied, and they were reasonably fit for the
purpose intended, apart from the question of stress and compatibility.
For these reasons, I would allow the appeal with costs, set aside the
judgment below and dismiss the action. It follows that the cross_appeal on
damages fails, and I would dismiss it without costs.
Appeal allowed.
James Slater and Hamish Slater

(a firm) and ors v Finning Ltd [1996]
NLOR No 3635 NLC 2960710604 House
of lords
121

Lord Keith of Kinkel, Lord Griffiths, Lord Jauncey of Tullichettle, Lord
Slynn of Hadley, Lord Steyn 4 July 1996
LORD KEITH OF KINKEL.:
My Lords,
[para1] This appeal turns on the true construction and application to the
facts of the case of section 14(3) of the Sale of Goods Act 1979, which provides:
"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 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."
[para2] The pursuers and appellants are owners of a motor fishing vessel
"Aquarius II," which they acquired second hand in 1981. The vessel was
equipped with a 12 cylinder diesel engine (D398) manufactured by the
Caterpillar Tractor Co., having a horsepower of 750. In 1985 the appellants
decided to have the overall length of the vessel increased, so as to produce
greater fish carrying capacity. The work to achieve this was carried out at a yard
in Skagen, Denmark. At the same time the appellants decided to uprate the power
of the engine from 750 to 850 hp, and the necessary work was carried out by
Caterpillar engineers in Denmark. The vessel then returned to her home port of
Fraserburgh. In September 1985 the appellants called in the defenders and
respondents, who are suppliers of marine diesel engines and components
manufactured by Caterpillar, because the power of the vessel's engine did not
appear to have been increased. The respondent's engineer did some work on the
engine and advised that it should shortly be overhauled as it was using too much
oil. In March 1986 an overhaul was carried out by the vessel's own engineers,
assisted by one other man. Various components were replaced and others were
checked and adjusted. Later the vessel's main engine bearings failed while she
was at sea and on her return to port the respondents were again called in. It was
found that the crankshaft required to be replaced, and the respondents'
representative advised that the camshaft should also be replaced, since it was
worn to some extent and replacement could conveniently be carried out while the
engine was lifted out for replacement of the crankshaft. The appellants agreed,
and the respondents arranged for the supply of a new camshaft from Caterpillar.
The old camshaft was numbered 5L2880 (5L). The new camshaft which
Caterpillar supplied was numbered 1W1854 (1W), a re_designed model which
had been introduced by Caterpillar for the D398 engine in February 1982. The
122

re_ designed model had a different profile of the exhaust cams, which Caterpillar
said reduced the contact stress on the cams and would lower the rate of wear and
extend the service life of the camshaft. They also said that the change in design
had no effect on engine performance and that the new camshaft could be used in
place of the former camshaft in all earlier engines. In May 1986 the new 1W
camshaft was fitted to the engine, which was reinstalled with its new crankshaft
also. At the same time the gearbox was realigned by another company.
Satisfactory sea trials were held and the vessel went on fishing trips but noises
were heard coming from the engine, which had at the time been running for
about 50 hours, and the vessel put back to Fraserburgh. The respondents were
again called in, and it was found that No. 6 exhaust cam lobe was badly worn. It
was decided to replace completely the newly installed camshaft and followers,
and this was done with another 1W model, the work being completed on 11 June
1986. Further trouble was encountered shortly afterwards, and the followers on
No. 9 and No. 11 exhaust valves, which were found to be worn, were replaced.
There was a trouble_free period from the end of July till towards the end of
November 1986, but then further tapping noises were heard and the vessel
returned to Fraserburgh. The respondents again attended and found that No. 4
exhaust follower was badly worn. It was replaced, but then it was decided again
to replace the whole camshaft with its followers and cam blocks, again with the
1W model. Extensive vibration tests were carried out in an endeavour to trace the
cause of the trouble. Aquarius II set off for another fishing trip in the English
Channel in January 1987 but after about four weeks at sea noises were again
heard coming from the engine, and she put into Plymouth. Representatives from
the respondents attended, and also Mr James Carnegy, a marine surveyor from
Aberdeen. No. 6 exhaust valve was found to be worn. Mr Carnegy considered
that it would be unsafe for the vessel to put to sea.
[para3] A number of meetings were held with representatives of all
interested parties. including Caterpillar, but no agreement was reached as to the
cause of the trouble. The respondents offered a complete overhaul of the engine
free of charge, but the appellants insisted that a new engine would be the only
satisfactory solution. Aquarius II was towed to Great Yarmouth, where a new
Caterpillar engine of a different design was installed.
[para4] The old engine was sold and eventually found its way to South
Africa, where after an extensive overhaul by the Caterpillar dealer there it was
installed in a vessel called "Ocean Spray." It appears that the overhaul did not
include replacement of the camshaft or followers. Thereafter the Ocean Spray
went on extensive fishing trips lasting on average 54 days and logged many
thousands of miles without encountering any trouble with the camshaft. There
was evidence that 1W camshafts installed in hundreds of other D398 engines had
operated without giving any trouble.
[para5] The appellants raised the present action against the respondents
in April 1989, concluding for payment of some £662,500 by way of damages on
the ground of breach by the respondents of the condition contained in section
14(3) of the Act of 1979. The respondents counter_claimed for the sum of some
123

£63,700 with interest in respect of goods and services supplied by them to the
appellants and unpaid for.
[para6] A proof was heard before Lord Weir, who on 22 January 1993
assoilzied the respondents from the conclusions of the summons and gave
judgment in their favour for the sum counter_claimed with interest, amounting in
all to £82,826. After an elaborate review of the evidence, which included expert
evidence on both sides, the Lord Ordinary concluded that the cause of the failure
of the camshafts was excessive torsional resonance excited by some cause
external to the engine and the camshafts themselves. The Lord Ordinary accepted
the evidence of the witness Dr. Halleen, an employee of the Caterpillar Co., of
which he said this:
"The effect of Dr. Halleen's evidence was that in his
view whatever caused the torsional resonance to be excited and
so leading to damage it was not the 1W camshaft, which were
supplied by the defenders but that the cause had to be an external
one. It is important to observe that there was no suggestion at
any time that external forces could not have been responsible.
The inability to establish what precisely was the external force
is, in my opinion, immaterial. The mystery might have been
unravelled if further examination of the engine and its associated
parts had taken place before it had been removed from the
Aquarius. This did not occur so the problem to that extent
remains unsolved. But what has been established quite
convincingly is that whatever the cause, it was not due to
excitation coming from within the engine or any part of it which,
added to the torsional frequency inherent in the engine, could
have led to resonance and so to the failures. In particular, in my
judgment, the fitting of these camshafts were not responsible for
the failures which were observed."
[para7] Later, under reference to the terms of section 14(3), the Lord
Ordinary said:
"The question which has to be borne in mind is, 'What
was the specified purpose?' The purpose for which the camshafts
and followers were supplied was for use as component parts of
the engine of the pursuers' fishing vessel. No question arises as
to the manner in which these parts were installed. This case is
not concerned with a contract of services. There is no evidence
that the defenders were told of any special circumstances
concerning this engine which would have made the requirement
for a new camshaft any different from that of any other D398
engine. The defenders supplied the pursuers with the camshaft
and followers appropriate to this type of engine in 1986. The
proper question is whether the inference can be drawn that they
themselves were unfit for their intended purpose. The answer to
124

that question is to be derived from my analysis of the evidence,
and, in my opinion, the evidence demonstrates that the camshafts
and their followers were in fact fit for their purpose. The damage
observed in them time to time was not due to their unfitness to
fulfil the purpose, but were the consequences of external factors.
But for these factors, they would not have failed. That, in my
judgment, is a complete answer to the pursuers' case."
[para8] The appellants reclaimed, and on 30 November 1994 the Second
Division (Lord Justice_Clerk Ross, Lord Clyde and Lord Morison) refused the
reclaiming motion and affirmed the interlocutor of the Lord Ordinary, subject to
an agreed adjustment of the interest element in his award in favour of the
respondents. The appellants now appeal to your Lordships' House.
[para9] The argument for the appellants did not involve any challenge to
the Lord Ordinary's findings in fact. It was accepted that the excessive torsional
resonance which resulted in damage to the camshafts was caused by some
unascertained force external to the engine and the camshafts themselves. It was
argued, however, that the condition to be implied by section 14(3) of the Act of
1979 was properly to be related to Aquarius II as a vessel having its own peculiar
characteristics, including the possession of a tendency to give rise to excessive
torsional resonance in the engine camshaft. The appellants had made known to
the respondents that the camshafts were being bought for the specific purpose of
installation in Aquarius II. The respondents therefore took the risk that Aquarius
II might have some unknown and unusual characteristic such as would cause the
camshafts to be subjected to excessive wear. In the event the camshafts proved
not to be reasonably fit for use as part of the engine of Aquarius II.
[para10] Counsel for the appellants relied on Cammell Laird & Co Ltd v
The Manganese Bronze and Brass Co Ltd [1934] A.C. 402. In that case the
defendants had contracted to supply for two ships under construction by the
plaintiffs two propellers according to specifications provided, and to the entire
satisfaction of the plaintiffs and the shipowners. On trials the propeller fitted to
one of the ships made so much noise that the vessel could not be classed A1 at
Lloyds, though it worked perfectly well on the other ship. A second propeller
was made for the first ship and proved equally unsatisfactory. A third propeller,
however, worked quite silently. The plaintiffs sued the defendants for breach of
contract, founding inter alia on section 14(1) of the Sale of Goods Act 1893, the
statutory predecessor of section 14(3) of the Act of 1979. This House held that
the defendants had been in breach of section 14(1). There was an implied
condition that the propeller should be reasonably fit for use on the particular ship
for which it was required, and it was not.
[para11] The case does not however, in my opinion, assist the appellants.
The propeller was not a standard part to be fitted to a standard propulsion plant. It
was specifically manufactured for a specific ship. Lord Macmillan, at p. 418, in
dealing with the plaintiffs' case that the propeller was not to their satisfaction nor
that of the shipowners, said:
125

"The appellant wanted a propeller that would work.
How could they know whether it was satisfactory until they had
tried it? It has been proved that the unsatisfactory operation of
the two discarded propellers was not due to the terms of the
specification or to the way in which they were fitted to the ship
or to any peculiarity in the ship itself or its engines, for at the
third attempt the respondents supplied a propeller made to the
same specification, which, when similarly fitted to the ship,
worked satisfactorily; and a propeller made by the respondents to
a practically identical specification for a sister ship also worked
satisfactorily. The experts appear to have found great difficulty
in ascertaining why the first two propellers worked
unsatisfactorily; but it is, I think, demonstrated that the cause
resided in the propellers themselves."
[para12] In the present case the Lord Ordinary has found that cause of
the trouble did not lie in the camshafts themselves but in some external feature
peculiar to Aquarius II.
[para13] The case of Griffiths v Peter Conway Ltd [1939] 1 All E.R. 685
is closer to the point. There the plaintiff had purchased from the defendants a
Harris tweed coat, which had been specially made for her. Shortly after she had
begun to wear the coat she contracted dermatitis. She sued the defendants for
damages, claiming breach of section 14(1) of the Act of 1893 in that the coat was
not reasonably fit for the purpose for which it was supplied. It was proved that
the plaintiff's skin was abnormally sensitive, and that there was nothing in the
coat which would have affected the skin of a normal person. The defendants were
not aware of the plaintiff's abnormal sensitivity, and the plaintiff herself was also
unaware of it. Branson J. dismissed the action and his judgment was affirmed by
the Court of Appeal. Sir Wilfrid Greene M.R. quoted the relevant findings of the
trial judge and continued, at p. 691:
"That finding is, of course, that no normal skin would
have been affected by this cloth. There was nothing in it which
would affect a normal skin, but the plaintiff unfortunately had an
idiosyncrasy, and that was the real reason why she contracted
this disease. On the basis of that finding, which is not
challenged, Mr Morris says: 'Take the language of the section,
and the present case falls within it." He says that the buyer, Mrs.
Griffiths, expressly made known to the defendants the particular
purpose for which the coat was required _ that is to say, for the
purpose of being worn by her, Mrs. Griffiths, when it was made.
Once that state of affairs is shown to exist, Mr Morris says that
the language of the section relentlessly and without any escape
imposes upon the seller the obligation which the section imports.
It seems to me that there is one quite sufficient answer
to that argument. Before the condition as to reasonable fitness is
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implied, it is necessary that the buyer should make known,
expressly or by implication, first of all the particular purpose for
which the goods are required. The particular purpose for which
the goods were required was the purpose of being worn by a
woman suffering from an abnormality. It seems to me that, if a
person suffering from such an abnormality requires an article of
clothing for his or her use, and desires to obtain the benefit of the
implied condition, he or she does not make known to the seller
the particular purpose merely by saying: 'The article of clothing
is for my own wear.' The essential matter for the seller to know
in such cases with regard to the purposes for which the article is
required consists in the particular abnormality or idiosyncrasy
from which the buyer suffers. It is only when he has that
knowledge that he is in a position to exercise his skill or
judgment, because how can he decide and exercise skill or
judgment in relation to the suitability of the goods that he is
selling for the use of the particular individual who is buying
from him unless he knows the essential characteristics of that
individual? The fact that those essential characteristics are not
known, as in the present case they were not known, to the buyer
does not seem to me to affect the question. When I speak of
'essential characteristics,' I am not, of course, referring to any
variations which take place and exist within the class of normal
people. No two normal people are precisely alike, and, in the
matter of sensitiveness of skin, among people who would be
described as normal their sensitiveness must vary in degree."
[para14] The reasoning contained in that passage is directly applicable to
the facts of the present case. The particular purpose for which the camshafts were
here required was that of being fined in the engine of a vessel which suffered
from a particular abnormality or idiosyncrasy, namely a tendency to create
excessive torsional resonance in camshafts. The respondents, not being made
aware of that tendency, were not in a position to exercise skill and judgment for
the purpose of dealing with it. Nor were they in a position to make up their minds
whether or not to accept the burden of the implied condition, a matter to which
the Master of the Rolls alludes at p. 692. It is to be noted that the Master of the
Rolls specifically mentions that the plaintiff was unaware of her abnormal
sensitivity.
[para15] In Christopher Hill Ltd v Ashington Piggeries Ltd [1972] A.C.
441 a firm of mink breeders had contracted with certain sellers for the supply of
animal feedstuff. The feedstuff supplied caused thousands of mink to die because
one of the ingredients, Norwegian herring meal, contained a toxic chemical agent
called "DMNA." This House, reversing the Court of Appeal, held that the sellers
were liable to the buyers inter alia for breach of section 14(1) of the Act of 1893.
It was proved that herring meal containing DMNA was deleterious to a wide
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variety of animals, not only to mink. On the other hand mink were more sensitive
to it than other animals. Lord Wilberforce said, at p. 490:
"If mink possessed an idiosyncrasy, which made the
food as supplied unsuitable for them though it was perfectly
suitable for other animals, this would be the buyers'
responsibility, unless, as is not the case here, they had made this
idiosyncrasy known to the sellers so as to show reliance on them
to provide for it. But any general unsuitability would be the
sellers' responsibility. Although the evidence was not very
complete, it is sufficiently shown, in my opinion, that mink are
more sensitive to DMNA than most other animals to whom
compound foods would be sold. Chicken and pigs are among the
least sensitive, next cattle and then sheep, with mink at the top of
the scale. So the question arises, what does the buyer, alleging
unfitness, have to prove? If the fact were that the herring meal
supplied, while damaging to mink, was perfectly harmless to all
other animals to whom it might be fed, it would be unjust to hold
the sellers liable. If, on the other hand, the herring meal was not
only lethal to mink but also deleterious, though not lethal, to
other animals, the sellers' responsibility could be fairly engaged.
A man can hardly claim that the product he sells is suitable,
especially if that is a foodstuff, merely because it fails to kill
more than one species to which it is fed."
[para16] This passage is in line with the opinion expressed by Sir Wilfrid
Greene M.R. in Griffiths v Peter Conway Ltd [1939] 1 All E.R. 685, which was
thus referred to in the speech of Lord Hodson, at p. 468:
"The defendants have proved a general defect and that
their animals were poisoned thereby. The expert called by the
third parties, Nils Koppang, an expert from the Department of
Pathology, Veterinary College of Oslo, Norway, described the
disease which had existed as early as 1957. He himself referred
to toxic doses in connection with DMNA in such a way that it
appears that the toxic condition was not a peculiar one such as is
illustrated by the case of Griffiths v Peter Conway Ltd [1939] 1
All E.R. 685, a case relied upon as a decision in favour of the
seller. That was a case concerning the purchase of a Harris tweed
coat by a woman with an abnormally sensitive skin who did not
disclose the fact to the seller. She failed in her action because the
unsuitability of the article arose from the special state of affairs
relating to the buyer, of which the seller was not aware. It is
otherwise here, where DMNA is shown to have been toxic to all
animals, not only to mink."
[para17] As matter of principle, therefore, it may be said that where a
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buyer purchases goods from a seller who deals in goods of that description there
is no breach of the implied condition of fitness where the failure of the goods to
meet the intended purpose arises from an abnormal feature or idiosyncrasy, not
made known to the seller, in the buyer or in the circumstances of the use of the
goods by the buyer. That is the case whether or not the buyer is himself aware of
the abnormal feature or idiosyncrasy.
[para18] In the course of argument my noble and friend Lord Griffiths
put the illustration of a new front wheel tyre being purchased for a car which
unknown to the buyer or the seller had a defect in the steering mechanism as a
result of which the tyre wore out after a few hundred miles of use, instead of the
many thousands which would normally be expected. In these circumstances it
would be totally unreasonable that the seller should be liable for breach of
section 14(3). The present case is closely analogous. Aquarius II suffered,
unknown to the respondents, from a defect in the shape of an unusual tendency to
produce excessive torsional resonance in the camshafts, with the result that the
camshafts became badly worn and unserviceable much sooner than would
otherwise have been the case.
[para19] My Lords, for these reasons I would dismiss this appeal.
LORD STEYN.:
My Lords,
[para23] My Lords, the central issue is whether a dealer, who on three
occasions sold and delivered component parts of an engine manufactured by the
Caterpillar Tractor Co. to the owners of a fishing vessel, was in breach of the
implied condition imputed to a seller by section 14(3) of the Sale of Goods Act
1979. While it is a Scottish appeal, the relevant law of Scotland and England
have been assimilated by statute. Moreover, the questions debated in this case
can arise in international and domestic sales as well as in commercial and
consumer sales. Given this broad context I regard the analysis and disposal of
this appeal as being of general importance to our sales law. Accordingly, I
propose to explain briefly why I agree that the appeal ought to be dismissed.
[para24] The findings of fact of the Lord Ordinary are not challenged.
The principal facts can therefore be taken quite shortly from the careful judgment
of the Lord Ordinary. The pursuers owned a fishing vessel with a Caterpillar
engine. In 1985 the pursuers arranged for the length of the vessel to be increased
and the engine to be uprated. Subsequently the main engine bearings failed. The
pursuers called in the defenders who were dealers in marine engines. The
defenders advised that the camshaft should be replaced. In May 1986 they
supplied a new type of camshaft and undertook the work of replacement. The
replacement was not a success. In June 1986 the defenders supplied and fitted a
second camshaft. Again, there were problems.
[para25] In November 1986 the defenders supplied and fitted a third
camshaft. The problems persisted. In 1987 the pursuers gave up and sold the
engine.
[para26] Taken in isolation the repeated failure of the camshafts tended
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to suggest that the problem lay in the unsuitability of the camshafts supplied by
the defenders. There was, however, strong evidence the other way. In particular
the erratic pattern of the problems experienced, the fact that the engine operated
normally for several months after the second new camshaft was fitted, and the
fact that the engine after it was sold apparently operated normally in South
Africa, tended to suggest an extraneous explanation. That view was reinforced by
the fact that there was evidence that the new type of camshaft had been installed
in engines on many fishing vessels and caused no problems. In any event, the
preponderance of reliable expert opinion was largely one way, and established
that the excessive torsional resonance experienced by the vessel after installation
of the new type of camshaft was caused by excitation forces generated by the
vessel, which were external to the camshaft and the engine.
[para27] Before the Lord Ordinary no question arose as to the manner in
which the camshafts were installed. No claim was advanced on a contract or
contracts of services. The sole cause of action was for breach of the implied
condition of fitness for purpose under section 14(3) under the Sale of Goods Act
1979. Succinctly, the Lord Ordinary concluded:
"The defenders supplied the pursuers with the camshaft
and followers appropriate to this type of engine in 1986. The
proper question is whether the inference can be drawn that they
themselves were unfit for their intended purpose. The answer to
that question is to be derived from my analysis of the evidence,
and, in my opinion, the evidence demonstrates that the camshafts
and their followers were in fact fit for their purpose. The damage
observed in them time to time was not due to their unfitness to
fulfil the purpose, but were the consequences of external factors.
But for these factors, they would not have failed. That, in my
judgment, is a complete answer to the pursuers' case."
[para28] That was the finding which the pursuers unsuccessfully
challenged in the Second Division of the Court of Session.
[para29] Mr C.M. Campbell Q.C. for the appellants submitted in opening
the appeal to your Lordships' House that on the findings of fact of the Lord
Ordinary the buyers had established a breach of the implied term under section
14(3). Central to his submission was the proposition that to the knowledge of the
sellers the buyers bought the camshafts for installation in a particular vessel. He
emphasized that the buyers were unaware of any unusual feature of the particular
vessel. He argued that under section 14(3) a seller who undertakes to supply
equipment suitable for use in a particular vessel takes the risk that performance
of the goods may be adversely affected by an unanticipated and unusual feature
of the vessel.
[para30] One is entitled to assess the submission of counsel in the light
of the results which would follow from its adoption. In argument illustrations of
various far_reaching consequences were given. I thought the most telling was the
example given by my noble and learned friend, Lord Griffiths. Postulate a firm
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specialising in the supply of motor car tyres. A customer walks in and asks for a
tyre suitable for his car which is parked on the forecourt. The firm supplies a
tyre. The car breaks down due to the collapse of the tyre. There was nothing
wrong with the tyre. But a defect in the steering mechanism caused the problem.
Is the supplier, who was ignorant of the steering problem, liable to the customer
because the tyre was unfit for the particular vehicle? If the answer is in the
affirmative, such a supplier (if he is unable to disclaim liability) may be forced to
resort to time_consuming and expensive investigations of cars to which tyres are
to be fitted. Such a view of the law would therefore tend to complicate
commonplace transactions. Considerations of everyday commerce militate
against the adoption of the argument, It also seems to lead to an unjust result. The
submission of counsel generates an initial and provisional sense of incredulity.
[para31] What then is the correct analysis? One must first turn to the
words of section 14(3) of the Act of 1979....
[para32] But section 14(3), and indeed 14(1) and (2), are not to be
construed as a virginal text. Substantially the same statutory principles have been
judicially interpreted over the last hundred years. About those principles as they
appeared in section 14 of the Sale of Goods Act 1893, it was observed that the
old rule of caveat emptor has become the rule of caveat venditor in order to meet
the requirements of modern commerce and trade: Grant v Australian Knitting
Mills Ltd. [1936] A.C. 85, 98, as per Lord Wright; see also Hardwick Game
Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 A.C. 31,
123. While the implied condition that the goods are reasonably fit is inherently a
relative concept, it is well established that the liability under section 14(3) is
strict in the sense that the seller's liability does not depend on whether he
exercised reasonable care.
[para33] Given a seller who sells goods in the ordinary course of
business, section 14(3) provides that the implied condition is only applicable in
cases where the buyer "expressly or by necessary implication, makes known...
any particular purpose for which the goods are bought." Originally, the buyer
additionally had to prove reliance on the seller's skill and judgment. In 1973 the
legislature reversed the burden on this issue. Under section 14(3), in a case where
the buyer made known his purpose, there is prima facie an implied condition of
fitness which the seller can defeat only by proof that the buyer did not rely, or
that it was unreasonable for him to rely, on the skill or judgment of the seller.
While section 14(3) focuses on two separate issues, i.e. the buyer making known
his purpose to the seller and reliance, and provides for different burdens of proof
on them, there is a close link between the two concepts. After all, if the buyer's
purpose is insufficiently communicated, the buyer cannot reasonably rely on the
seller's skill or judgment to ensure that the goods answer that purpose.
[para34] That brings me to the interpretation of the words in section
14(3), which are of critical importance in the present case, namely that "the
buyer, expressly or by implication, makes known... to the seller... any particular
purpose for which the goods are being bought." The courts have consistently
given a broad and liberal interpretation to these words, consistent with the
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reasonable and effective protection of the buyer. Thus the courts have refused to
hold that the word "particular" purpose conveys the opposite of general: instead
they have construed "particular" as signifying a specified purpose, which may be
very general, e.g. a bicycle to ride on the road. Similarly, the courts have adopted
a non_ technical approach to the manner in which the buyer must communicate
the purpose to the seller. No conceptual difficulty arises in cases of express
communication, but usually there will not be an express communication. One
then turns to the process of implication. In the context a practical and flexible
approach has prevailed. That is best demonstrated by the observations of Lord
Wright in Grant v Australian Knitting Mills Ltd [1936] A.C. 85. In dealing with
the implication of the purpose for which the goods are bought, Lord Wright in
giving the judgment of their Lordships said, at p. 99:
"It will usually arise by implication from the
circumstances: thus to take a case like that in question, of a
purchase from a retailer, the reliance will be in general inferred
from the fact that a buyer goes to the shop in the confidence that
the tradesman has selected his stock with skill and judgment: the
retailer need know nothing about the process of manufacture: it
is immaterial whether he be manufacturer or not: the main
inducement to deal with a good retail shop is the expectation that
the tradesman will have bought the right goods of a good make:
the goods sold must be, as they were in the present case, goods
of a description which it is in the course of the seller's business
to supply: there is no need to specify in terms the particular
purpose for which the buyer requires the goods, which is none
the less the particular purpose within the meaning of the section,
because it is the only purpose for which any one would
ordinarily want the goods. In this case the garments were
naturally intended, and only intended, to be worn next the skin."
[para35] It is sufficient that the seller was aware of the buyer's purpose.
On the other hand, it must be borne in mind that our law generally subscribes to
an objective theory of contract. What matters in this context is how a reasonable
person, circumstanced as the seller was, would have understood the buyer's
purpose at the time of the making of the contract: Hardwick Game Farm v
Suffolk Agricultural Poultry Producers Association [1969] 2 A.C. 31, 81.
[para36] In the present case the buyers did not expressly communicate
their purpose to the sellers. The question is what could the sellers fairly have
been expected to infer about the buyers' purpose from the circumstances of the
case. Neutrally, it is obvious that the sellers would have inferred that the buyers'
only purpose was to buy the camshafts as working component parts in the engine
of their fishing vessel. It is therefore not a case where the buyer had more than
one purpose. The correct approach is well settled. Professor Roy Goode,
Commercial Law, 2nd ed., (1995), p. 335 explains:
"The seller is entitled to assume that the goods are
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required for their normal purpose, or one of their normal
purposes, unless otherwise indicated by the buyer. Accordingly,
if the buyer requires the goods for a non_ normal purpose, he
must take steps to acquaint the seller of this fact before the
contract is made, otherwise the seller, if unaware of the special
purpose for which the goods are bought, will not be considered
to undertake that they are suitable for that purpose."
[para37] In other words, the implication will normally be that the goods
are fit for the purpose for which the goods would ordinarily be used. For
example, if a contractor in England buys pipes from a dealer for use in a
pipe_laying project the seller would normally assume that the pipes need merely
be suitable to withstand conditions in our moderate climate. If the contractor
wishes to use the pipes in arctic conditions for a Siberian project, an implied
condition that the pipes would be fit to withstand such extreme weather
conditions could only be imputed to the seller if the buyer specifically made that
purpose known to the seller. Applying this approach to the facts of the present
case, the seller was entitled to assume that the camshafts would be used in a
Caterpillar engine in an ordinary vessel. And the implied condition must be so
limited in scope. The particular purpose for which the buyers ordered the new
camshafts was for installation in a vessel which was in fact afflicted by an
abnormal tendency to resonate excessively. It follows that on the facts found by
the Lord Ordinary there was no breach of the implied condition.
[para38] While the application of first principles persuades me that the
buyers' claim is unsustainable, that conclusion is reinforced by the decision of the
Court of Appeal in Griffiths v Peter Conway Ltd [1939] 1 All E.R. 685. The
plaintiff contracted dermatitis from a Harris Tweed coat which she had bought
from the defendant. The judge found that the plaintiff had an unusually sensitive
skin and that the coat would not have harmed an ordinary person. The Court of
Appeal dismissed an appeal by the plaintiff against the judge's dismissal of her
claim. Sir Wilfrid Greene, M.R., explained that if a person suffering from such an
abnormality desires to obtain the protection of the implied condition, at p. 691:
"The essential matter for the seller to know... consists in
the particular abnormality or idiosyncrasy from which the buyer
suffers. It is only when he has that knowledge that he is in a
position to exercise his skill or judgment... The fact that those
essential characteristics are not known... to the buyer does not
seem to me to affect the question."
[para39] Contrary to the submission of counsel for the appellants on the
present case, the Court of Appeal held that it is no answer to argue that the buyer
was unaware of the abnormality. Given that the enquiry is as to what the buyer
made known to the seller in order to enable the seller to use his skill or judgment
to select suitable goods, that holding must be right. Counsel for the appellants
accepted that Griffiths v Peter Conway Ltd. was correctly decided but he said
that the reasoning was wrong. He said the Court of Appeal should have decided
133

the case on the ground of lack of reliance by the plaintiff. I disagree. The
particular purpose for which the plaintiff required the coat was for wear by a
person with an abnormally sensitive skin: failure to make this known to the seller
was fatal to the claim. This decision fits in exactly with the approach indicated by
first principles. And I would hold without hesitation that the reasoning of Sir
Wilfrid Greene, M.R., was correct. See also Christopher Hill Ltd. v Ashington
Piggeries Ltd [1972] 1 A.C. 441, at p. 490 F _ H, per Lord Wilberforce.
[para40] Outside the field of private sales the shift from caveat emptor to
caveat venditor in relation to the implied condition of fitness for purpose has
been a notable feature of the development of our commercial law. But to uphold
the present claim would be to allow caveat venditor to run riot.
[para41] For these reasons I agree that the appeal should be dismissed.
Patent or Trade Name Exception
Baldry v Marshall [1925] 1

KB 260 (CA)
BANKES L.J. This is an appeal from a judgment of Greer J., and upon
the facts as found by the learned judge his conclusion was in my opinion quite
right. It appears that the plaintiff wrote to the defendants, "Can you tell me if the
Bugatti eight cylinder is likely to be on the market this year, if so will you send
particulars?" indicating that according to his impression this was a new type of
car that was going to be put on the market. In their reply the defendants said: "As
no doubt you are already aware, we specialize in the sale of these cars, and are in
a position to supply you with all information necessary,” thereby intimating that
the plaintiff might regard them as persons upon whose skill and judgment he
could safely rely. Those letters were followed by an interview at which the
plaintiff made plain to the defendants the purpose for which he required the car.
Then came the contract, which was on a printed form. It was in the form of a
request by the plaintiff to the defendants to supply him with "one eight cylinder
Bugatti car fully equipped and finished to standard specification as per the car
inspected." On the back of the contract there was printed "The company reserves
the right to Withdraw any model or alter specifications or prices without notice.
Illustrations and specifications must be taken as a general guide and not as
binding in detail," and under the heading "Guarantee" the words, "The same as
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received by us from the manufacturers." The guarantee which they had so
received from the manufacturers was expressed to be "against any breakage of
parts due to faulty material," and contained the following clause: "Cars are sold
on condition that the foregoing guarantee is accepted instead of and expressly
excludes any other guarantee or warranty, statutory or otherwise." It is said that
by the use of that language the defendants meant to exclude conditions as well as
warranties; but they have not done so, and if there is one thing more clearly
established than another it is the distinction which the law recognizes between a
condition and a warranty. In Wallis v. Pratt (1) the sellers by a clause stating that
"Sellers give no warranty express or implied" endeavoured to exclude the
condition implied under s. 13 of the Sale of Goods Act, that the goods sold
should correspond with the description, but the House of Lords held that they had
not used apt words to effect that purpose. So here the defendants have not used
the necessary language to exclude the implied condition which arises under s. 14
as to fitness for the particular purpose of which the plaintiff had given them
notice. But then it is said that even it the implication of that condition is not
excluded by the terms of the contract-it is excluded by the proviso to sub-s. 1 on
the ground that the car was sold under its trade name. It is however clear to my
mind upon the evidence that it was not in fact sold under a trade name within the
meaning of the proviso. The mere fact that an article sold is described in the
contract by its trade name does not necessarily make the sale a sale under a trade
name. Whether it is so or not depends upon the circumstances. I may Illustrate
my meaning by reference to three different cases. First, where a buyer asks a
seller for an article which will fulfil some particular purpose, and in answer to
that request the seller sells him an article by a well-known trade name, there I
think it is clear that the proviso does not apply. Secondly, where the buyer says to
the seller, "I have been recommended such and such an article" -mentioning it by
its trade name– “will it suit my particular purpose?" naming the purpose, and
thereupon the seller sells it without more, there again I think the proviso has no
application. But there is a third case where the buyer says to a seller, "I have been
recommended so and so" -giving its trade name- "as suitable for the particular
purpose for which I want it. Please sell it to me." In that case I think it is equally
clear that the proviso would apply and that the implied condition of the thing's
fitness for the purpose named would not arise. In my opinion the test of an:
article having been sold under its trade name within the meaning of the proviso
is: Did the buyer specify it under its trade name in such a way as to indicate that
he is satisfied, rightly or wrongly, that it will answer his purpose, and that he is
not relying on the skill or judgment of the seller, however great that skill or
judgment may be? Here there is nothing to show that the plaintiff when
describing the car in the contract as an "eight cylinder Bugatti car," after he had
communicated to the defendants the purpose for which he wanted it, meant to
intimate that he was not relying on their Skill and judgment. The evidence seems
to be all the other way. In my opinion the appeal must be dismissed.
SARGANT L.J. I am of the same opinion, and I will confine my

135

observations to the meaning of the proviso to s. 14, sub-s. 1. It seems to me that
the articles which are dealt with in that proviso are primarily things like patent
medicines and common articles sold under well-known trade names. In my
judgment the proviso does not apply to an article like a motor car, which is sold
under a very elaborate and specific description. The proviso rather applies to a
"sale of a specified article under its patent or other trade name," and it seems to
me that the sort of mischief it was intended to prevent was this:-It is well known
that patent medicines and articles sold under trade names are often sold under
puffing or laudatory names, which imply that the article will perform a definite
function satisfactorily. Suppose a hosier were to offer for sale some hose as
"holeproof hose," and a purchaser were to send him an order for holeproof hose, I
think it is clear that the purchaser would under ordinary circumstances be relying
on the skill and judgment of the vendor to sell him an article which would have
the quality implied in its name. But if there is on the market a well-known article
known as holeproof hose, then it seems to me that the proviso is aimed at
preventing an order of that article under its laudatory name from raising the
implication that the buyer is asking the seller to supply him with something
which will fulfil the requirements indicated by the name. I do not say that that is
the only purpose of the proviso, but I think it is the main purpose.
But apart from that I think that too much importance has been attached to
the proviso in the argument for the appellant, because it seems that it is only to
apply in the absence of anything to the contrary, that is to say, it is only on the
mere ordering of an article by its trade name that the implied condition is
excluded. In my judgment, although a person may order an article under a patent
or trade name within the meaning of the proviso, yet if at the same time that the
order is given he makes it clear to the vendor that he is relying on his skill and
judgment to ensure that the article shall be fit for the particular purpose, the
proviso has no application, and the buyer is entitled to the benefit of the
provisions of sub-s. 1. I agree that the appeal should be dismissed.
Appeal dismissed.
5. Applications beyond the Sale of Goods Act: Services,

Hybrids and computers
Borek v. Hooper 18 O.R. (3d) 470

[1994]
Ontario Court (General Division), Divisional Court, Southey J. May 4,

136

1994
APPEAL of a Small Claims Court judgment awarding the plaintiff

damages for breach of an implied condition under the Sale of Goods Act, R.S.O.
1990, c. S.1.
SOUTHEY J.: __ This is an appeal from a judgment of His Honour

Judge Lamb, pronounced in Small Claims Court on June 21, 1993, in which he
awarded the plaintiff damages of $2,000, plus court costs and added
disbursements of $976.93, for breach of an implied condition of merchantable
quality under s. 15, para. 2 of the Sale of Goods Act, R.S.O. 1990, c. S.1, in
respect of a painting commissioned by the plaintiff from the defendant, a
professional artist.
The case is one of first impression. Although counsel referred to several
decided cases involving the contractual rights and obligations of artists, none
dealt with problems of defective work or materials. The learned trial judge gave
careful written reasons for his decision, and it is with regret that I find myself
unable to agree with him. He was at a considerable disadvantage, because neither
party was represented by counsel before him. I, on the other hand, had the benefit
of able submissions from counsel on both sides.
The painting is large. Its dimensions are five feet by eight feet, with the
horizontal being the longer edge. It was created expressly to fit a specific space
in the plaintiff's home, and to fulfil her wish for a predominantly white painting
to hang on a white wall. The painting is abstract. Its composition might be
described, albeit crudely, as a relatively narrow, irregular shaped slash or splash
of colour across a broad white background.
The artist created the painting in about three weeks. When he delivered
it to the plaintiff and hung it, she was thrilled with it and paid him $4,000, which
was the price that had previously been agreed upon. About three years later, in
1987, she noticed that the white areas in the painting were yellowing. In addition,
by 1991, when the action was commenced, the surface of the painting had
cracked and some flaking had occurred in the lower right portion. The plaintiff
took the position that the painting she was left with was not the painting she had
contracted for.
The learned trial judge found that the painting was of merchantable
quality when delivered, but that it maintained its original characteristics for
barely five years instead of an expected 10_year economic life, which he found
would not have been unreasonable. This was the basis of his judgment for the
plaintiff for 50 per cent of the purchase price.
It was held by the Court of Appeal in England in Robinson v. Graves,
[1935] 1 K.B. 579, [1935] All E.R. Rep. 935, that the oral commissioning of the
plaintiff, an artist, to paint a portrait was not a contract for the sale of goods, but
was a contract for work and labour. The defendant customer in that case
repudiated the contract after the plaintiff had commenced to paint the portrait.
137

The portrait was never completed, but the plaintiff was found to be entitled to
recover damages for breach of contract, despite the absence of any memorandum
in writing of the contract, as would have been required under the Sale of Goods
Act. Greer L.J. said at p. 584:
I can imagine that nothing would be more surprising to
a client going to a portrait painter to have his portrait painted and
to the artist who was accepting the commission than to be told
that they were making a bargain about the sale of goods. It is, of
course, possible that a picture may be ordered in such
circumstances as will make it an order for goods to be supplied
in the future, but it does not follow that that is the inference to be
drawn in every case as between the client and the artist. Looking
at the propositions involved from the point of view of
interpreting the words in the English language it seems to me
that the painting of a portrait in these circumstances would not,
in the ordinary use of the English language, be deemed to be the
purchase and sale of that which is produced by the artist. It
would, on the contrary, be held to be an undertaking by the artist
to exercise such skill as he was possessed of in order to produce
for reward a thing which would ultimately have to be accepted
by the client. If that is so, the contract in this case was not a
contract for the sale of goods within the meaning of s. 4 of the
Sale of Goods Act, 1893.
At p. 585, he quoted with approval from the decision of Pollock C.B. in

Clay v. Yates (1856), 1 H. & N. 73 at p. 78, 25 L.J. Ex. 237: "My impression is,
that in the case of a work of art, whether in gold, silver, marble or plaster, where
the application of skill and labour is of the highest description, and the material is
of no importance as compared with the labour, the price may be recovered as
work, labour and materials."
Greer L.J. continued at pp. 587_88:
But if the substance of the contract, on the other hand, is
that skill and labour have to be exercised for the production of
the article and that it is only ancillary to that that there will pass
from the artist to his client or customer some materials in
addition to the skill involved in the production of the portrait,
that does not make any difference to the result, because the
substance of the contract is the skill and experience of the artist
in producing the picture.
For these reasons I am of opinion that in this case the
substance of the matter was an agreement for the exercise of skill
and it was only incidental that some materials would have to
pass from the artist to the gentleman who commissioned the
portrait. For these reasons I think that this was not a contract for
138

the sale of goods within the meaning of s. 4 of the Sale of Goods
Act, 1893, but it was a contract for work and labour and
materials.
Slesser L.J. and Roche L.J. gave reasons to the same effect. During the
course of his reasons, Roche L.J. said, at p. 593:
. . . I have no doubt that the proper conclusion to be
drawn is that this was a contract not for the sale of goods but for
the employment of an artist to do work which the defendant
desired that he should do.
I am satisfied for the reasons given in Robinson v. Graves that the

contract in the case at bar was not a contract to which the Sale of Goods Act
applied, but was a contract for work and labour and materials.
The distinction between the two types of contract may be of no
significance in the case at bar, because "a person contracting to do work and
supply materials warrants that the materials which he uses will be of good quality
and reasonably fit for the purpose for which he is using them, unless the
circumstances of the contract are such as to exclude any such warranty" (per du
Parcq J. in G.H. Myers & Co. v. Brent Cross Service Co., [1934] 1 K.B. 46,
applied in the House of Lords in Young & Marten Ltd. v. McManus Childs Ltd.,
[1969] 1 A.C. 454 at pp. 468 and 471, [1968] 2 All E.R. 1169).
There was ample evidence to support the finding of a breach of the
implied condition of merchantability, if the Sale of Goods Act had been
applicable. That same evidence would support a finding of a breach of the
warranty I have found to have existed that the materials used by the defendant
would be of good quality and reasonably fit for a purpose for which he used
them. The uncontradicted evidence of the plaintiff was that the defendant, when
he saw the yellowing after three years, acknowledged its existence and told the
plaintiff that the painting should not do that. The evidence of expert witnesses
called by the plaintiff was that the yellowing resulted from the defendant's choice
of materials and that the cracks were caused by the materials and techniques of
the artist.
In my opinion, the learned trial judge was right in holding the defendant
liable to the plaintiff for damages, but I find for the reasons given above that the
contractual provision breached was different from the one found by the learned
trial judge.
Judgment for plaintiff; case remanded to trial judge for assessment of
damages
The possibility of arguing for the applicability of the implied conditions

139

in product liability suits is attractive because of the strict liability associated with
the sections. For example, in Gee v. White Spot (1987) 32 DLR (4th.) 238 (BCSC)
the court construed the purchase of a meal offered on a menu for a fixed price in
a restaurant as essentially the purchase of a finished product i.e. food, rather than
the provision of services. This permitted the application of the conditions from
the Sale of Goods Act rather than negligence standards. The courts have not
always been willing however to permit their use in cases of the provision of
services. Consider the following recent Supreme Court case of Ter Neuzen v.
Korn [1995] 3 SCR 674 where the Supreme Court refused to imply a strict
obligation analogous to those of the Sale of Goods Act. In this case, a woman
who had undergone artificial insemination subsequently discovered that the
semen was infected with AIDS and she became HIV positive. In her suit against
the doctors she advanced theories of liability based on negligence, the sale of
goods act and implied warranties. She had been undergoing treatment for four
years, from 1981 to 1985, and it appears that it was not until after the end of the
treatment, in 1985, that there was an awareness that this procedure could
transmit AIDS. There was clearly going to be problems in attempting to recover
on a negligence theory and this is one of the reasons why she argued the
applicability of the sale of goods act. Under the latter argument it would not
matter that the doctor was not aware at the time of the dangers of infected blood.
In this case the Supreme Court refused to construe the transaction as a sale of
goods, because the primary purpose here was the professional services of the
obstetrician and the goods were merely an incident of the service contract.
They then considered the next issue, which is whether, even accepting that this
is not not a sale of goods, is it possible to argue that there should be an
obligation of strict liability in relation to the goods supplied with the services.
G. Ford Homes Ltd. v. Draft Masonry (York)

Co. (Ont. C.A.) [1983] O.J. No. 150
Supreme Court of Ontario - Court of
Appeal Toronto, Ontario
Blair, Morden and Cory JJ.A.

Heard: September 29, 1983.
Oral Judgment: September 29, 1983.
Released: October 21, 1983.
D.J. McGhee, for the Defendant (Appellant).
D.H. Creighton, for the Plaintiff (Respondent).
--------------------------------------------------------------------------------
The judgment of the Court was delivered by
140

¶1 CORY J.A. (orally, allowing the appeal):— The respondent, G.
Ford Homes, orally agreed to supply and install two circular staircases for two
homes which the appellant, Draft Masonry, was building. The point in issue on
this appeal is whether there was an implied term of the contr&ct for the supply
and installation of the staircases that they would comply with the requirements of
the Ontario Building Code.
Factual Background
¶2 Something must be said of the facts of this case to understand the

problem.
¶ 3 The appellant was building two single family two-storey homes on

adjacent lots in the Township of Scugog. These were large homes having a floor
area of approximately 3,000 square feet; they were priced at $239,900.00 and
they were described by both parties as luxury homes. The appellant contractor
had earlier built a number of homes following the same plans. In none of these
homes had there been any problem with the stairs. The architect's plans for the
home were available on the site.
¶4 The respondent fabricates and installs residential staircases. Mr.

Di Donato, an officer of the appellant company, called Mr. Ford, an officer of the
respondent (Ford) to see if it could provide and install circular staircases in the
homes. Mr. Ford attended at the homes. At that time they had reached a stage of
the construction where they were framed in. Di Donato offered to show the
architectural plans for the homes to Ford. He declined to see those plans. It is
significant that the plans clearly indicate the required headroom at the top of the
stairs, which would comply with the Ontario Building Code requirements. Mr.
Ford did, however, make some measurements. He offered a selection of three
types of staircases to Mr. Di Donato. Mr. Di Donato selected one of the three.
The price was agreed upon as were certain minor structural changes necessary to
permit the stairs be installed.
¶5 The stairs were, in due course, delivered and installed. There is no

fault found with the material used in the stairways. Unfortunately they did not
comply with the Ontario Building Code regulation for the headroom was one and
one-half inches short of the specified minimum. As a result, the appellant was
required by the building inspector to take out the staircases and install others
which complied with the Ontario Building Code. The removal of the staircases
and the installation of new ones gave rise to this claim.
Result at Trial and in the Divisional Court
¶ 6 Ford brought a action to recover the cost for the supply and
141

installation of the services. At trial the Ford claim for the two circular staircases
was dismissed.
¶7 Ford then appealed the result to the Divisional Court. That Court
gave effect to Ford's contentions and allowed it the full amount of its claim
together with interest. It held that there could be no obligation upon the
respondent Ford unless the appellant placed reliance upon it with regard to the
staircases and made Ford aware of that reliance. On the facts the Divisional
Court found that "this record is almost completely bereft of any evidence that
would support either inference."
¶8 With deference, we cannot agree with either of the conclusions of

the Divisional Court.
Implied Terms of Contracts
¶9 When may a term be applied on a contract? A court faced with

that question must first take cognizance of some important and time-honoured
cautions. For example, the courts will be cautious in their approach to implying
terms to contracts. Certainly a court will not rewrite a contract for the parties.
As well, no term will be implied that is inconsistent with the contract. Implied
terms are as a rule based upon the presumed intention of the parties and should
be founded upon reason. The circumstances and background of the contract,
together with its precise terms, should all be carefully regarded before a term is
implied. As a result, it is clear that every case must be determined on its own
particular facts. With these principles firmly in mind it is appropriate to consider
some texts and recent cases dealing with the issue.
¶ 10 For almost a century it has been recognized that a term will be

implied in a contract in order to give it business efficacy. See The Moorcock
(1889), 14 P.D. 64. The basis upon which a term of a contract will be implied
has been extended by decisions of the English Court of Appeal and the House of
Lords. Hudson's on Building Contracts, 10th ed., pp. 274-5 gives us a useful
summary of the law pertaining to when terms will be implied in a contract:
It is submitted that a contractor undertaking to do work and supply

materials impliedly undertakes:
(a) to do the work undertaken with care and skill or, as sometimes
expressed, in a workmanlike manner;
(b) to use materials of good quality. In the case of materials described

expressly this will mean good of their expressed kind. (In the case of goods not
described, or not described in sufficient detail, it is submitted that there will be
142

reliance on the contractor to that extent, and the warranty in (c) below will
apply);
(c) that both the work and materials will be reasonably fit for the
purpose for which they are required, unless the circumstances of the contract are
such as to exclude any such obligation (this obligation is additional to that in (a)
and (b), and only becomes relevant, for practical purposes, if the contractor has
fulfilled his obligations under (a) and (b)).
(Emphasis added.)
¶ 11 Young and Marten Ltd. v. McManus Childs, Ltd., [1968] 2 All

E.R. 1169, is a decision of the House of Lords. Two principles emerge from the
speeches given in the course of that case. The first is that the common law
principles codified in the Sale of Goods Act apply to contracts for the provision
of work and materials sometimes referred to as contracts for work and services.
Thus, the provisions pertaining to the Sale of Goods Act and codified in that Act
are equally applicable to contracts for the provision of work and materials.
Secondly, it is determined that unless the circumstances of a particular case are
sufficient to specifically exclude it, there will be implied into a contract for the
supply of work and materials a term that the materials used will be of
merchantable quality and that those materials will be reasonably fit for the
purposes for which they were intended.
¶ 12 Independent Broadcasting Authority v. EMI Electronics Ltd. and

BICC Construction Ltd. (1980), 14 B.L.R. 1 was a further decision of the House
of Lords. That decision followed Young and Marten, supra, and added
something further. It was to the effect that in the absence of any term (express or
implied) negativing the obligation, one who contracts to design a article for a
purpose made known to him undertakes that the design is reasonably fit for the
purpose. Such a design obligation was said to be consistent with the statutory
law regulating the sale of goods.
¶ 13 The principle enunciated in Young and Marten Ltd., supra, has

been considered and adopted in appellate courts in Canada. In Ontario, in Hart v.
Bell Telephone (1976), 26 O.R. (2d) 218 (on the general issue of when
warranties will be implied). In Laliberte v. Blanchard (1980), 31 N.B.R. (2d)
275, Chief Justice Hughes specifically followed Young and Marten Ltd. and
relied upon a quotation from Lord Justice DuParcq, which was favourably
referred to in that case. The words of Lord Justice DuParcq appear in Myers v.
Brent Cross Service Co., [1934] 1 K.B. 46:
... the true view is that a person contracting to do work and supply
143

materials warrants that the materials which he uses will be of good quality and
reasonably fit for the purpose for which he is using them, unless the
circumstances of the contract are such as to exclude any such warranty.
The foregoing principles are most attractive and compelling.
¶ 14 On behalf of the respondent reliance was placed on CCH

Canadian Ltd. v. Mollenhauer Contracting Co. Ltd. et al. (1975), 51 D.L.R. (3d)
638. The reasons given by the Supreme Court of Canada do not include a
reference to the Young & Marten decision. In our view, the scope of the decision
in the CCH case is narrow. It determined that the contract under consideration
by the Court, by its terms and its reference to the use of a specific type of brick,
excluded an implied term that those bricks would be fit for the purposes intended.
In the case before us it cannot be said that the appellant specified a particular
staircase, but rather, he was simply offered a choice of three by the respondent,
one of which he chose. In our opinion, the CCH case is not applicable to the
facts presently before us.
Application of Principles to this Case
¶ 15 In applying the principles to this case it is important to bear in

mind the following. In this case the appellant contractor acquired material and
services from Ford, the respondent sub-contractor. It was the sub-contractor that
was "expert" in the manufacture and installation of stairs. When the contract was
negotiated the house plans were offered to Ford who chose to ignore them. The
houses were framed in so that measurements could be taken to ensure that the
stairs complied with the provisions of the Ontario Building Code. The respondent
was, as it should have been, fully aware of the requirements of the building code.
No one would have a better knowledge of the dimensions of its products than
Ford. No one else could better appreciate whether they could be installed in the
house and comply with the Code. It would be natural and reasonable in the
circumstances of this case for the appellant to rely upon Ford to supply and
install the staircases in compliance with the Ontario Building Code. It would be
unrealistic to come to any other conclusion. The trial judge inferentially found
that there was such a reliance. That can be ascertained from the following
excerpts from his reasons. At p. 230 he said:
It is a most unfortunate situation but I place the fault on the plaintiff

[Ford] for failing to have the stairs installed in such a manner that they do not
contravene the Building Code.
Further, the following appears at p. 231:
144

The houses in question were luxury type homes of approximately three
thousand square feet and the selling price was two hundred and thirty nine
thousand dollars odd if I recollect correctly; two hundred and thirty nine
thousand nine hundred dollars. This being so I am of the opinion that the
defendants were entitled to have the staircase installed which was satisfactory
and which would not interfere or would not contravene the structural
requirements of the Building Code and also that any structural change that was
required might interfere with the proper installation of a railing or banister on the
upper floor and over all the visual or cosmetic effect of this defect.
And lastly, at p. 231:
...in my view the defendants were entitled to insist on strict

compliance ... that is their entitlement...
¶ 16 These findings were well substantiated by the evidence. In those

circumstances the Divisional Court, sitting as an appellate court, was not justified
in ignoring those findings; rather, it was bound to accept them. See, for example,
Lewis v. Todd, [1980] 2 S.C.R. 694.
¶ 17 On the facts of this case there must of necessity be an implied

term that the staircase could be and would be installed so as to comply with the
Ontario Building Code. There could be no business efficacy to the contract
without such a term. It is no contract to have stairs installed that must, by
requirements of the law, be taken out for failure to comply with the Code. To
sanction the installation of such a staircase in contravention of the Code would be
tantamount to sanctioning an illegal contract. On the basis of the principle
enunciated in the Moorcock case, supra, the term should be implied in the
contract that the stairs would comply with the Code.
¶ 18 Alternatively or additionally a term should be implied that both

the work and materials will be reasonably fit for the purpose for which they were
required. Such a term must be implied unless the circumstances of the contract
are such as to exclude any such obligation. See Young and Marten, supra. No
such exclusion appears, from the circumstances of the contract, in this case. The
work and materials supplied could not be reasonably fit for the purpose for which
they were required unless they complied with the provisions of the Ontario
Building Code.
¶ 19 In the circumstances, the appeal will be allowed with costs here

and in the Divisional Court. The order of the Divisional Court will be set aside
and the judgment at trial restored.
145

CORY J.A.
BLAIR J.A.
MORDEN J.A.
Ter Neuzen v. Korn [1995] 3 SCR 674
Sopinka J.
B. Warranty Issues
[para63] As an alternative ground of appeal, the appellant
contends that the respondent breached a warranty that the semen provided by the
donor would be of merchantable quality and fit for its purpose. In other words,
she claims that the respondent warranted that the semen would not be
contaminated with any STDs, including HIV, such that it would injure the
appellant. Under this theory, even absent any negligence, the respondent would
be held strictly liable under contract for failing to provide uncontaminated sperm.
The appellant puts forward three bases for the existence of a warranty. First,she
claims that there was an express contractual warranty found in the Information
Sheet provided to the appellant where the respondent promised that no donor was
a homosexual or drug abuser. Secondly, the appellant relies on the Sale of Goods
act, s. 18, which imposes liability on a seller of a good if the good is not fit for its
purpose. This warranty is statutorily implied into contracts of sale. Finally, the
appellant argues that there was an implied warranty at common law that the good
provided in a contract for goods and services would not be defective. I will deal
with each ground in turn.
(1) Express warranty in the Information Sheet
[para64] The appellant asserts that, in the Information sheet provided, the
respondent promised that the donor would not be homosexual or a drug abuser
and that these statements were made to assure her that the respondent had taken
precautions to ensure that the semen would be free from contamination. The
appellant claims that the doctor breached this express warranty.
[para65] In my view, this ground of appeal must fail. There is no
indication that there was any intention on the part of either of the parties that
there should be contractual liability in respect of the statement in the Information
sheet. In fact, it appears that the appellant did not have any recollection of
receiving any written information from the respondent regarding the AI
procedure. It is apparent that the purpose of the Information Sheet was precisely
what the name suggests. That is, to provide general information to the patient.
There was no intention that the statements contained therein constitute an express
warranty that the donor would not be a homosexual.
...
(2) Warranty under the Sale of Goods Act
146

[para67] In order for the Sale of Goods Act to apply, a contract must
primarily be for the purpose of selling goods. If the sale of a good is merely
incidental to what is primarily a contract for services, then the statute will not
imply a warranty. As Legg J. observed in Gee v. White SpotLtd. (1986), 7
B.C.L.R. (2d) 235 (S.C.), in order to come within the Sale of Goods Act, a
contract need not be one exclusively for the sale of goods. However, the sale of a
good must be the primary purpose of the contract. Whether a contract is primarily
one for the sale of goods or primarily one for services depends upon the essential
character of the agreement...
[para68] Thus, the preliminary question that arises is whether the AI
procedure performed by the respondent primarily involved a contract for the sale
of semen, or was it primarily a contract for medical services. If the procedure is
properly characterized as the latter, then the appellant's argument under the Sale
of Goods Act must fail. As the Court of Appeal did, I intend to address this issue
assuming that there was in fact a sale of semen between the appellant and
respondent. However, I note that it is not entirely clear that this was the case.
...
[para71] The jury correctly concluded that the contract to perform the AI
procedure on the appellant was primarily a contract for medical services and not
a sale of semen. To hold otherwise would be to distort the true nature of the
whole agreement between the parties. The provision of the semen was obviously
an important component to the AI procedure; however the primary reason the
appellant went to a gynaecologist was for professional medical services and
expertise. As the respondent argues, he provided medical services to the
appellant in order to assist her to become pregnant by way of AI. Although donor
semen was a necessary component of this process, the contract was not primarily
fora sale of semen.
[para72] It is not relevant that the actual AI procedure was relatively
simple and quick. The appellant still relied on the respondent's expertise in the
screening process for donors, the collection of the semen, the insemination
procedure itself, and the provision of medical advice and information concerning
any risks and the possibility of success of the AI procedure. It cannot be
contended that the contract was one primarily for the sale of semen such as to
attract the application of the Sale of Goods Act.
(3) Warranty implied by the common law
[para73] The fact that the contract was primarily one for services does
not end the possibility that there was an implied warranty that the semen would
not be contaminated with HIV. The appellant also bases her claim under the
common law by virtue of which a warranty may be implied in a contract for
goods and services.
[para74] In the charge to the jury, the trial judge instructed that under the
common law, where a contract is primarily for medical services, the doctor
simply warrants to meet the standards of a reasonably competent person
practising in the field. The trial charge explained to the jury that the warranty
under common law required the jury to determine whether the respondent was
147

negligent in failing to detect or remove the defect from the semen. In other
words, the charge to the jury was to the effect that the implied warranty under
common law was the same as the test for negligence in these circumstances.
[para75] In order to determine whether a common law warranty ought to
be implied in the circumstances of this case and if so, whether the trial judge
erred by equating the content of that warranty to negligence, it is necessary to
review the authorities in this area in some detail.
[para76] In England, strict liability is imposed for implied warranties of
fitness for defective products supplied under contracts for work and materials as
well as under contracts for sale. The purchaser has a remedy against the business
seller, even absent negligence. The seller can always recover, up the chain of
production, from the manufacturer.
[para77] A leading English case in this area is G. H.Myers and Co. v.
Brent Cross Service Co., [1934] 1 K.B. 46.That case involved the installation of
faulty connecting rods in an automobile. One of the rods had a latent defect that
the repair dealer could not have detected by reasonable care. Du Parcq J. held
that, at common law, the dealer was liable under an implied warranty that in a
contract for work done and material supplied, the material would be fit for its
purpose. It was held that there should not be any distinction between a contract
where goods are supplied only and a contract where goods are supplied in the
course of a contract to perform services as this would be an arbitrary distinction...
[para78] Thus, the court held that an individual who agrees to do work
and provide goods has no lesser obligation than an individual who simply
contracts to provide the goods. However, it was recognized that not all contracts
for goods and services will contain an implied warranty that the materials will
not be defective. At page 55, du Parcq J.noted the following:
That depends upon the terms of the contract, and I think
that the true view is that a person contracting to do work and
supply materials warrants that the materials which he uses will
be of good quality and reasonably fit for the purpose for which
he is using them, unless the circumstances of the contract are
such as to exclude any such warranty. [Emphasis added.]
The foregoing passage contemplates that there may be certain
circumstances such that a contract to supply goods and services will not contain
an implied warranty that, regardless of any negligence, the goods will not be
defective.
[para79] The decision in G. H. Myers was cited with approval by the
House of Lords in Young & Marten Ltd. v. McManus Childs Ltd., [1969] 1 A.C.
454 (H.L.). That case dealt with contractors who were building a house and
subcontracted the roofing work. The roofing tiles which were used contained a
latent defect which was not apparent upon inspection. As a result, the contractor
suffered damages and claimed that there was an implied warranty of quality or
fitness. Lord Reid observed that, in such cases where there is no evidence of
negligence by the manufacturer, unless the owners of the house could recover
148

from the subcontractor, they would be without a remedy. However, if the
subcontractors were held liable, they could generally recover from the
manufacturer under the Sale of Goods legislation. The court adopted the general
rule which was laid down by du Parcq J. in G. H. Myers. Lord Reid also made
the following relevant observation (at p. 468):
It appears to me that less cogent circumstances
may be sufficient to exclude an implied warranty of quality
where the use of spare parts is only incidental to what is in
essence a repairing operation where the customer's main reliance
is on the skill of the tradesman, than in a case where the main
element is the supply of an article, the installation being merely
incidental.
[para80] In the result, the court affirmed that, in the circumstances of that
case, the common law implied a warranty and the subcontractor was liable for the
defective tiles. It was not conclusive that there was an element of services along
with the supply of goods.
[para81] The principles espoused in the English case law have also been
adopted in Canada. A leading case is G. Ford Homes Ltd. v. Draft Masonry
(York) Co. (1983), 43 O.R. (2d)401 (C.A.). In that case, the plaintiff supplied
and installed staircases in two houses being constructed by the defendant. It
turned out that the staircases contravened the Ontario Building Code and had to
be replaced. The issue was whether there was an implied term in the contract that
the staircases would conform to the Building Code. Cory J.A., as he then was,
delivered the decision for the court. At page403, he remarked:
When may a term be implied in a contract? A
court faced with that question must first take cognizance of some
important and time-honoured cautions. For example, the courts
will be cautious in their approach to implying terms to contracts.
Certainly a court will not rewrite a contract for the parties. As
well, no term will be implied that is inconsistent with the
contract. Implied terms are as a rule based upon the presumed
intention of the parties and should be founded upon reason. The
circumstances and background of the contract, together with its
precise terms, should all be carefully regarded before a term is
implied. As a result, it is clear that every case must be
determined on its own particular facts. [Emphasis added.]
[para82] Cory J.A. reviewed the decisions in Young &Marten Ltd. and
G. H. Myers and noted that the warranties implied at common law apply to
contracts for goods and services. Thus, unlike the Sale of Goods Act, such
warranties are equally applicable to contracts for the provision of work and
materials. Secondly, unless the circumstances of the case are sufficient to exclude
the warranty, there will be an implied term "that the materials used will be of
merchantable quality and that those materials will be reasonably fit for the
149

purposes for which they were intended" (p. 404).
[para83] Accordingly, it is apparent that apart from the Sale of Goods
Act, a court must consider whether a common law warranty of fitness and
merchantability should be implied into the contract which includes services as
well as the provision of materials. However, such a warranty will not be implied
in all circumstances. The court must examine the specific nature of the contract
and the relationship between the parties in order to assess whether it was the
intention of the parties that such a warranty be implied. As Cory J.A. observed,
courts must be very cautious in their approach to implying contractual terms.
[para84] It is important to note that a rationale for implying warranties in
contracts of goods and services is that a supplier of goods generally has recourse
against the manufacturer under the Sale of Goods Act as a result of the statutory
conditions imposed. Thus, one can always proceed up the chain of production
and ultimately recover from the one who should bear responsibility for the
production of faulty goods. From time to time, the supplier will be unable to
recover from the manufacturer, for example, owing to insolvency or limitation
periods. However, arguably it is better that the purchaser be compensated and the
supplier occasionally bear the cost of defects than leaving the consumer without a
remedy. It is important to keep this policy rationale in mind when considering
whether such a warranty should be implied in the context of this case, which
deals with biological substances.
[para85] Thus, the question that must be addressed in this appeal is
whether, in the circumstances of this case, where there is a contract to conduct a
medical procedure involving the use of biological material (semen), it is
appropriate to imply a term that the semen was warranted to be without any
defects (HIV contamination). Secondly, if it is appropriate to imply a term into
the contract for medical services was the trial judge correct in holding that the
respondent only warranted to take reasonable care to ensure that semen would
not be used if it were contaminated with any STDs. In this regard, one must
consider whether the nature of the contract at issue in this appeal is analogous to
the commercial contracts which were dealt with in the English and Canadian
cases discussed above. It is important to address any policy considerations and
the implications of imposing warranties in these circumstances.
[para86] In answering these difficult questions, it is useful to survey
some of the American jurisprudence which has dealt with this issue more
frequently, in the context of warranties for the supply of blood. In my view, these
cases are directly analogous to the supply of semen in an AI practice.
[para87] The leading American authority on this issue, which has been
followed many times subsequently, is Perlmutterv. Beth David Hospital, 123
N.E.2d 792 (N.Y. 1954). In that case, a patient received a blood transfusion
during the course of a medical procedure performed at the hospital. The blood
contained jaundice viruses and as a result the plaintiff became infected. There
was no question of any negligence on the part of the hospital as there were no
means available for detecting the contamination in the blood. The plaintiff sought
recovery under the Sales Act arguing that there was an implied warranty that the
150

blood would be fit for its purpose and of merchantable quality. The issue turned
on whether the transaction constituted a sale under the legislation. It must be
observed at this point that the plaintiff did not argue that there was an implied
warranty under the common law for material supplied under a contract for
service and material. Nonetheless, much of the discussion on the Sales Act is
relevant to the case at bar.
[para88] The majority of the court examined the nature of the contract
between the hospital and held (at p. 794):
The essence of the contractual relationship
between hospital and patient is readily apparent; the patient
bargains for, and the hospital agrees to make available, the
human skill and physical materiel of medical science to the end
that the patient's health be restored. Such a contract is clearly
one for services, and, just as clearly, it is not divisible. Concepts
of purchase and sale cannot separately be attached to the healing
materials - such as medicines, drugs or, indeed, blood - supplied
by the hospital for a price as part of the medical services it
offers. That the property or title to certain items of medical
material may be transferred, so to speak, from the hospital to the
patient during the course of medical treatment does not
serve to make each such transaction a sale. "'Sale' and
'transfer' are not synonymous", and not every transfer of personal
property constitutes a sale.... It has long been recognized that,
when service predominates, and transfer of personal property is
but an incidental feature of the transaction, the transaction is not
deemed a sale within the Sales Act.
[para89] It should be observed that the majority focused on the sharp
distinction between a contract of sale and one for services that exists in this
context. While this is important for determining whether sale of goods legislation
is applicable, it is not as crucial in the context of implied warranties under the
common law which are also available for contracts of service where a good is
furnished. Nonetheless, the remarks in Perlmutter are highly relevant since, as
was noted by Lord Reid in Young & Marten Ltd., it will be less likely that such a
warranty will be implied in a contract which is primarily for services where the
transfer of the good is merely incidental.
[para90] In Perlmutter, it was held that the supplying of blood was
entirely subordinate to the main purpose of the hospital, which was providing
trained professionals and specialized facilities to care for the patient's health. The
patient does not bargain for blood. Rather, it is the skill of the medical staff and
the facilities which is sought. FuldJ. concluded that supplying the blood was
entirely incidental to the services performed. In my view, the same can be said of
the semen in the present case, as I discussed earlier in respect of the Sale of
Goods Act.
[para91] In examining the nature of the contract at issue, Fuld J. noted
151

some of the policy considerations which are relevant in this context. At page 795,
the following was observed:
If, however, the court were to stamp as
a sale the supplying of blood - or the furnishing of other
medical aid - it would mean that the hospital, no matter
how careful, no matter that the disease-producing
potential in the blood could not possibly be discovered,
would be held responsible, virtually as an insurer, if
anythingwere to happen to the patient as a result of
"bad" blood.... .
[para92] Although these comments were made in the context of sale of
goods legislation, they apply equally to the situation of an implied warranty
under common law. In either situation, a medical practitioner would be held
strictly liable for the biological products employed in the medical procedures,
notwithstanding that it may be impossible for the doctor to detect any risks. This
would have the effect of making physicians insurers of the biological substances
that are used in medical procedures.
[para93] While it is true that the primary purpose of the implied warranty
is to hold the supplier of goods liable notwithstanding the absence of negligence,
different considerations apply in the context of the medical profession than in the
ordinary commercial context. As Fuld J. observed(at p. 795):
The art of healing frequently calls for a
balancing of risks and dangers to a patient. Consequently, if
injury results from the course adopted, where no negligence or
fault is present, liability should not be imposed upon the
institution or agency actually seeking to save or otherwise assist
the patient.
[para94] Furthermore, it should be noted that unlike in the ordinary
commercial context, the doctor cannot trace the liability back to the initial
manufacturer. Biological products are not manufactured goods in the same sense
as commercial goods. The underlying rationale for the strict liability imposed
under the Sale of Goods Act or by virtue of an implied warranty at common law
does not apply to goods which are not manufactured in the ordinary sense.
Absent negligence on the part of the donor (for example, if he knew he had
AIDS), one would hardly expect that the respondent, in the present case, could
recover from the donor for the semen contaminated with HIV, either under the
Sale of Goods Act or under an implied warranty at common law. This is unlike a
commercial contract where it would be open to a supplier to sue the
manufacturer, even absent negligence on its part.
[para95] Moreover, it must be recognized that Biological products such
as blood and semen, unlike manufactured products, carry certain inherent risks.
In some ways, these substances are inherently dangerous, although they are
essential to medical procedures. Whether a doctor is trying to save a patient's life
152

via a blood transfusion, or is simply attempting to assist a patient to become
pregnant by AI, the physician cannot control the safety of these products beyond
exhibiting the reasonable care expected of a professional to ensure that the
biological substance is free from harmful viruses. By contrast, in the commercial
world, the manufacturer has control over the goods. If they cannot be
manufactured to be safe, then the products ought to be removed from the market.
In medicine blood is essential to a variety of procedures in order to save lives.
While arguably, AI is not in the same category as other life saving techniques, it
is nonetheless a very important medical procedure. As long as the entire
procedure does not amount to an unreasonable risk such that it ought not to be
offered at all, the patient is entitled to weigh those risks and elect to proceed.
[para96] In Fisher v. Sibley Memorial Hospital, 403 A.2d1130 (D.C.

1979), an action was commenced for injury suffered when a patient contracted
hepatitis after a blood transfusion supplied by the hospital. It was not possible to
detect the virus in the blood. The Court of Appeal held that the theories of
implied warranty and merchantability and strict liability in tort had no place in
the context of a hospital furnishing blood. At pages 1132-33, Gallagher J. held as
follows:
"The activities involved in the transfusion of
whole blood, a component of the living body, from one human
being to another may be characterized as sui generis in that the
sequence of events involve acts common to legal concepts of
both a sale and a service. Moreover, it seems to us that under the
facts in the case before us it would be unrealistic to hold that
there is an implied warranty as to qualities of fitness of human
blood on which no medical or scientific information can be
acquired and in respect to which plaintiff's physician has the
same information, knowledge, and experience as the supplier."
(Balkowitsch v. Minneapolis War Memorial Blood Bank, Inc.,
270 Minn. 151, 132 N.W.2d 805, 811(1965).)
We agree with those courts which hold that the furnishing of
blood is more in the nature of a service than of a sale of goods. Treating blood
transfusions as an incidental service performed by hospitals comports with
reality, and with the policies underlying merchantability liability. Although
theoretically a seller's inability to discover defects in the goods he sells is not
relevant to a warranty cause of action, we cannot ignore the difficulty of
detecting hepatitis in blood given the current state of medical knowledge. To
characterize as a sale the supplying of blood would mean that the hospital, no
matter how careful, would be held responsible, virtually as an insurer, if the
patient were harmed as a result of impure blood. After balancing thesafety of the
individual with the interests of the hospital (in light of the absence of an adequate
test to determine the presence of hepatitis in the blood) and the public interest in
assuring the ready availability of blood for medical treatments, we are reluctant
153

to extend ... merchantability liability to a non sale transaction by analogy or by
characterizing the transaction as a sale.
[para97] The court was of the view that it was unnatural to force a blood
transfusion into the commercial sales mould since the main object of the hospital
is health care and treatment. It was also noted that blood products
are"unavoidably dangerous" (p. 1134) and the patient relies on the doctor's skill
rather than any warranties of fitness.
...
[para99] Although the majority of American cases have followed
Perlmutter, a few have criticized the policy analysis conducted. For example, in
Cunningham v. MacNeal MemorialHospital, 266 N.E.2d 897 (Ill. 1970), the
court again considered the situation of a patient who contracted hepatitis through
a blood transfusion. The court rejected the idea that an implied warranty did not
arise because no "sale" was involved. Notwithstanding that blood is not a
manufactured article of commerce, the court considered it a product which is
distributed for consumption. The blood was sold in a container and the court felt
it was unreasonable not to conclude that there was a sale of goods which was
divisible from the contract for services.
[para100] However, the vast majority of American cases have agreed
that the policy considerations dictate that, in the context of the provision of
medical services, medical professionals should not be held strictly liable
underwarranty for goods used in the provision of those services. In my view, the
reasoning of the majority in Perlmutter, and the line of cases which follow it, is
more apt in the Canadian context with respect to implied warranties at common
law. Although, the American decisions did not deal with exactly this issue, the
remarks made with respect to warranties under sale of goods legislation provide
support for the view that it is inappropriate to imply a warranty in these
circumstances under the common law.
[para101] I am, therefore, in agreement with the Court of appeal's
conclusion in the present case that it would be inappropriate to imply a warranty
of fitness and merchantability in the circumstances of this case. As CoryJ.A.
observed in G. Ford Homes, courts should be very wary about implying terms of
contracts and there may be circumstances which ought to exclude such a
warranty. In the present case, the action against the respondent for injury
resulting from the AI procedure should be confined to negligence. I would adopt
the following conclusion of the court of Appeal at p. 85:
In the face of the American experience, we are

unable to identify any policy reason why a physician should face
stricter liability for "goods" which are furnished to a
patient in the course of medical service than he or she would be
for any lack of professional care and skill which must be brought
to every healing or treating engagement.
[para102] I note that even if I am wrong in my conclusion that a warranty
154

should not be implied in the circumstances of this case, I would hold, as the trial
judge did, that any warranty would simply be to take reasonable care. In other
words, if the parties intended that there be any contractual warranty, the nature of
the warranty in this case would simply be to the effect that the respondent
exercise diligence and care in performing the AI and selecting the donors. The
contract was primarily one for medical services and parties would not have
contemplated that the respondent would warrant the success of the procedure nor
that the semen would not be contaminated with an STD. As the trial judge stated,
the respondent "undertakes to meet the standards of a reasonably competent
person practicing in his field". It would be unreasonable to hold the respondent to
any higher standard.
[para103] In the result, the appellant's argument that there was an
implied warranty at common law that the donor’s semen would not be infected
with HIV must also fail.
St Alban's City and District Council v

International Computers Ltd [1996]
NLOR No 3758 NLC 2960712303
England Supreme Court of Judicature Court of Appeal (Civil Division)
Royal Courts of Justice, London
Lord Justice Nourse, Lord Justice Hirst, Sir Iain Glidewell 26 July 1996
.
[para1] LORD JUSTICE NOURSE: On 3rd October 1994, in a judgment

reserved after a ten day trial in July of that year, Mr Justice Scott Baker awarded
the plaintiffs, St. Alban's City and District Council, damages of £1,314,846
against the defendant, International Computers Ltd., and judgment was entered
accordingly. The basis of the award was that the defendant had breached its
contract to supply the plaintiffs with a computer system to be used in their
collection of community charge by providing faulty software which significantly
overstated the relevant population of their area and thus caused them to suffer a
loss of revenue. The defendant now appeals to this court...
[para51] SIR IAIN GLIDEWELL.: I have read in draft the judgment
prepared by Nourse LJ and, like Hirst LJ, I agree with him that Scott Baker J was
right in concluding that I.C.L. were in breach of an express term of their contract
with St. Albans, that in the alternative the contract was subject to an implied term
as to the fitness for purpose of the COMCIS program of which I.C.L. were also
in breach, and that they are not saved from the consequences of such breach by
any terms of exclusion or limitation of liability in the contract. It follows that I
agree with My Lords that I.C.L. are, as the Judge held, liable in damages to St.
155

Albans. I too would therefore dismiss this part of the appeal.
[para52] However, before I turn to the subject of damages there is one
aspect of the case on liability on which I wish to express my own opinion. This is
the second issue to which I have already referred, namely, was the contract
between the parties subject to any implied term as to quality or fitness for
purpose, and if so, what was the nature of the term? Consideration of this
question during argument led to discussion of a more general question namely,
"Is software goods?" To seek to answer this question, it is necessary first to be
clear about the meaning of some of the words used in argument.
[para53] In his judgment, Scott Baker J adopted a description for a
computer system which contains the following passage which I have found
helpful:
"By itself hardware can do nothing. The really
important part of the system is the software. Programs are the
instructions or commands that tell the hardware what to do. The
program itself is an algorithm or formula. It is of necessity
contained in a physical medium.
A program in machine readable form must be contained
on a machine readable medium, such as paper cards, magnetic
tapes, discs, drums or magnetic bubbles."
[para54] In relation to COMCIS the property in the program i.e. the
intangible "instructions or commands", remained with ICL. Under the contract,
St. Albans were licensed to use the program. This is a common feature of
contracts of this kind. However, in order that the program should be encoded into
the computer itself, it was necessarily first recorded on a disc, from which it
could be transferred to the computer. During the course of the hearing, the word
"software" was used to include both the (tangible) disc onto which the COMCIS
program had been encoded and the (intangible) program itself. In order to answer
the question, however, it is necessary to distinguish between the program and the
disc carrying the program.
[para55] In both cases the Sale of Goods Act 1979 s 62 and the Supply of
Goods and Services Act 1982 s.18 the definition of "goods" is "includes all
personal chattels other than things in action and money.... clearly a disk is within
this definition. Equally clearly, a program, of itself, is not.
[para56] If a disc carrying a program is transferred, by way of sale or
hire, and the program is in some way defective, so that it will not instruct or
enable the computer to achieve the intended purpose, is this a defect in the disc?
Put more precisely, would the seller or hirer of the disc be in breach of the terms
as to quality and fitness for purpose implied by s.14 of the Sale of Goods Act and
s.9 of the Act of 1982? Mr Dehn, for I.C.L., argues that they would not. He
submits that the defective program in my example would be distinct from the
tangible disc, and thus that the "goods" _ the disc _ would not be defective.
[para57] There is no English authority on this question, and indeed we
have been referred to none from any Common Law jurisdiction. The only
156

reference I have found is an article published in 1994 by Dr. Jane Stapleton. This
is to a decision in Advent Systems Ltd v Unisys Corporation 925 F 2d 670 that
software is a "good"; Dr Stapleton notes the decision as being reached "on the
basis of policy arguments." We were referred, as was Scott Baker J, to a decision
of Rogers J in the Supreme Court of New South Wales, Toby Construction Ltd v
Computa Bar (Sales) Pty Ltd (1983) 2 NSWJR 48. The decision in that case was
that the sale of a whole computer system, including both hardware and software,
was a sale of "goods'' within the New South Wales legislation, which defines
goods in similar terms to those in the English statute. That decision was in my
respectful view clearly correct, but it does not answer the present question.
Indeed Rogers J specifically did not answer it. In expressing an opinion I am
therefore venturing where others have, no doubt wisely, not trodden.
[para58] Suppose I buy an instruction manual on the maintenance and
repair of a particular make of car. The instructions are wrong in an important
respect. Anybody who follows them is likely to cause serious damage to the
engine of his car. In my view the instructions are an integral part of the manual.
The manual including the instructions, whether in a book or a video cassette,
would in my opinion be "goods" within the meaning of the Sale of Goods Act,
and the defective instructions would result in a breach of the implied terms in
s.14.
[para59] If this is correct, I can see no logical reason why it should not
also be correct in relation to a computer disc onto which a program designed and
intended to instruct or enable a computer to achieve particular functions has been
encoded. If the disc is sold or hired by the computer manufacturer, but the
program is defective, in my opinion there would prima facie be a breach of the
terms as to quality and fitness for purpose implied by the Sale of Goods Act or
the Act of 1982.
[para60] However, in the present case, it is clear that the defective
program 2020 was not sold, and it seems probable that it was not hired. The
evidence is that in relation to many of the program releases an employee of I.C.L.
went to St. Albans' premises where the computer was installed taking with him a
disc on which the new program was encoded, and himself performed the exercise
of transferring the program into the computer.
[para61] As I have already said, the program itself is not "goods'' within
the statutory definition. Thus a transfer of the program in the way I have
described does not, in my view, constitute a transfer of goods. It follows that in
such circumstances there is no statutory implication of terms as to quality or
fitness for purpose.
[para62] Would the contract then contain no such implied terms? The
answer must be sought in the Common Law. The terms implied by the Sale of
Goods Act and the Act of 1982 were originally evolved by the Courts of
Common Law and have since by analogy been implied by the courts into other
types of contract. Should such a term be implied in a contract of the kind I am
now considering, for the transfer of a computer program into the computer
without any transfer of a disc or any other tangible thing on which the program is
157

encoded?
[para63] The basis upon which a court is justified in implying a term into
a contract in which it has not been expressed is strict. Lord Pearson summarised
it in his speech in Trollope & Colls Ltd v NW Metropolitan Regional Hospital
Board 1973 1 WLR 601 at 609 when he said:
"An unexpressed term can be implied if and only if the
court finds that the parties must have intended that term to form
part of their contract; it is not enough for the court to find that
such a term would have been adopted by the parties as
reasonable men if it had been suggested to them; it must have
been a term that went without saying, a term which, though tacit,
formed part of the contract which the parties made for
themselves."
[para64] In my judgment a contract for the transfer into a computer of a
program intended by both parties to instruct or enable the computer to achieve
specified functions is one to which Lord Pearson's words apply. In the absence of
any express term as to quality or fitness for purpose, or of any term to the
contrary, such a contract is subject to an implied term that the program will be
reasonably fit for i.e. reasonably capable of achieving the intended purpose.
[para65] In the present case if, contrary to my view, the matter were not
covered by express terms of the contract, I would hold that the contract was
subject to an implied term that COMCIS was reasonably fit for, that is,
reasonably capable of achieving the purpose specified in the "Statement of User
Requirements" in Chapter 5 of St. Alban's Invitation to Tender, and that as a
result of the defect in release 2020 I.C.L. were in breach of that implied term....
6. Manufacturer Liability: Privity and Negligence

The issue of manufacturer liability to a remote purchaser remains
unsettled in Canadian law. It is accepted that a remote purchaser may bring an
action against a manufacturer in negligence for injuries caused by negligently
manufactured products. However it is not clear whether a remote purchaser may
recover in negligence from a manufacturer where the product causes pure
economic loss. This would include the “lemon” automobile where the purchaser
has received a bad bargain and any other economic losses suffered as a
consequence of the purchase. Why do you think the law has hesitated to extend
liability for pure economic loss [but not for physical injuries]?
In approaching this question of pure economic loss you may wish to
consider whether any distinction should be drawn between commercial and
consumer purchasers in relation to their rights against a manufacturer for
economic loss. In the recent case of Winnipeg Condominium Corp. No 6 v. Bird
Construction (1995) 121 DLR (4th.) 193 the Supreme Court of Canada upheld
liability of a builder to a subsequent owner where the owner was required to
158

repair cladding on the building which was potentially dangerous. The builder
was therefore liable for the cost of repairing the potentially dangerous building.
This decision followed the minority judgment of Laskin J. in Rivtow Marine Ltd
v. Washington Iron Works (1973) 40 DLR (3d) 530. It also reiterated the
principle stated in Canadian National Rlwy Co. v. Norsk Pacific Steamship Co.
[1992] 1 SCR 1021 which embraced a general principle of liability in negligence
for foreseeable losses unless there were policy reasons against recovery. While
the decision dealt with real property rather than chattels the arguments may be
transferable to any future litigation over defective products. Consider the
following arguments of La Forest J. on the policy reasons against recovery and
assess their cogency in the context of manufacturer liability to remote purchasers
for economic loss.
Winnipeg Condominium Corp. No 6 v.

Bird Construction Co Ltd (1995) 121
DLR (4th) 193 (SCC)
LaForest J....
[para37] Apart from the logical force of holding contractors liable for the
cost of repair of dangerous defects, there is also a strong underlying policy
justification for imposing liability in these cases...[t]he plaintiff who moves
quickly and responsibly to fix a defect before it causes injury to persons or
damage to property must do so at his or her own expense. By contrast, the
plaintiff who, either intentionally or through neglect, allows a defect to develop
into an accident may benefit at law from the costly and potentially tragic
consequences. In my view, this legal doctrine is difficult to justify because it
serves to encourage, rather than discourage, reckless and hazardous behaviour.
Maintaining a bar against recoverability for the cost of repair of dangerous
defects provides no incentive for plaintiffs to mitigate potential losses and tends
to encourage economically inefficient behaviour. ... Allowing recovery against
contractors in tort for the cost of repair of dangerous defects thus serves an
important preventative function by encouraging socially responsible behaviour.
[para38] This conclusion is borne out by the facts of the present case,
which fall squarely within the category of what I would define as a "real and
substantial danger". It is clear from the available facts that the masonry work on
the Condominium Corporation's building was in a sufficiently poor state to
constitute a real and substantial danger to inhabitants of the building and to
passers_by... I conclude that the law in Canada has now progressed to the point
where it can be said that contractors (as well as subcontractors, architects and
engineers) who take part in the design and construction of a building will owe a
duty in tort to subsequent purchasers of the building if it can be shown that it was
foreseeable that a failure to take reasonable care in constructing the building
would create defects that pose a substantial danger to the health and safety of the
occupants. Where negligence is established and such defects manifest themselves
159

before any damage to persons or property occurs, they should, in my view, be
liable for the reasonable cost of repairing the defects and putting the building
back into a non_dangerous state.
Are There Any Considerations that Ought to Negate (a) the Scope of the
Duty and (b) the Class of Persons to Whom it is Owed or (c) the Damages to
which a Breach of it May Give Rise?
[para44] There are two primary and interrelated concerns raised by the
recognition of a contractor's duty in tort to subsequent purchasers of buildings for
the cost of repairing dangerous defects. The first is that warranties respecting
quality of construction are primarily contractual in nature and cannot be easily
defined or limited in tort. Sidney Barrett, in "Recovery of Economic Loss in Tort
for Construction Defects: A Critical Analysis" (1989), 40 S.C. L. Rev. 891, at p.
941, makes this argument in the following terms:
Perhaps more than any other industry, the construction

industry is "vitally enmeshed in our economy and dependent on
settled expectations". The parties involved in a construction
project rely on intricate, highly sophisticated contracts to define
the relative rights and responsibilities of the many persons whose
efforts are required __ owner, architect, engineer, general
contractor, subcontractor, materials supplier __ and to allocate
among them the risk of problems, delays, extra costs, unforeseen
site conditions, and defects. Imposition of tort duties that cut
across those contractual lines disrupts and frustrates the parties'
contractual allocation of risk and permits the circumvention of a
carefully negotiated contractual balance among owner, builder,
and design professional.
[para45] The second concern is that the recognition of such a duty

interferes with the doctrine of caveat emptor which, as this Court affirmed in
Fraser_Reid, supra, at p. 723, "has lost little of its pristine force in the sale of
land". The doctrine of caveat emptor dictates that, in the absence of an express
warranty, there is no implied warranty of fitness for human habitation upon the
purchase of a house already completed at the time of sale. ... [para46] In my
view, these concerns are both merely versions of the more general and traditional
concern that allowing recovery for economic loss in tort will subject a defendant
to what Cardozo C.J. in Ultramares Corp. v. Touche, 174 N.E. 441 (N.Y.C.A.
1931), at p. 444, called "liability in an indeterminate amount for an indeterminate
time to an indeterminate class." In light of the fact that most buildings have a
relatively long useful life, the concern is that a contractor will be subject
potentially to an indeterminate amount of liability to an indeterminate number of
successive owners over an indeterminate time period. The doctrines of privity of
160

contract and caveat emptor provide courts with a useful mechanism for limiting
liability in tort. But the problem, as I will now attempt to demonstrate, is that it is
difficult to justify the employment of these doctrines in the tort context in any
principled manner apart from their utility as mechanisms for limiting liability.
The Concern with Overlap Between Tort and Contract Duties
[para47] Turning to the first concern, a duty on the part of contractors to
take reasonable care in the construction of buildings can, in my view, be
conceptualized in the absence of contract and will not result in indeterminate
liability to the contractor. As I mentioned earlier, this Court has recognized that a
tort duty can arise concurrently with a contractual duty, so long as that tort duty
arises independently of the contractual duty... As I see it, the duty to construct a
building according to reasonable standards and without dangerous defects arises
independently of the contractual stipulations between the original owner and the
contractor because it arises from a duty to create the building safely and not
merely according to contractual standards of quality. It must be remembered that
we are speaking here of a duty to construct the building according to reasonable
standards of safety in such a manner that it does not contain dangerous defects.
As this duty arises independently of any contract, there is no logical reason for
allowing the contractor to rely upon a contract made with the original owner to
shield him or her from liability to subsequent purchasers arising from a
dangerously constructed building. ... [para48] The tort duty to construct a
building safely is thus a circumscribed duty that is not parasitic upon any
contractual duties between the contractor and the original owner. Seen in this
way, no serious risk of indeterminate liability arises with respect to this tort duty.
In the first place, there is no risk of liability to an indeterminate class because the
potential class of claimants is limited to the very persons for whom the building
is constructed: the inhabitants of the building. The fact that the class of claimants
may include successors in title who have no contractual relationship with the
contractors does not, in my view, render the class of potential claimants
indeterminate...
[para49] Secondly, there is no risk of liability in an indeterminate amount
because the amount of liability will always be limited by the reasonable cost of
repairing the dangerous defect in the building and restoring that building to a
non_dangerous state. Counsel for Bird advanced the argument that the cost of
repairs claimed for averting a danger caused by a defect in construction could, in
some cases, be disproportionate to the actual damage to persons or property that
might be caused if that defect were not repaired. For example, he expressed
concern that a given plaintiff could claim thousands of dollars in damage for a
defect which, if left unrepaired, would cause only a few dollars damage to that
plaintiff's other property. However, in my view, any danger of indeterminacy in
damages is averted by the requirement that the defect for which the costs of
repair are claimed must constitute a real and substantial danger to the inhabitants
of the building, and the fact that the inhabitants of the building can only claim the
reasonable cost of repairing the defect and mitigating the danger. The burden of
proof will always fall on the plaintiff to demonstrate that there is a serious risk to
161

safety, that the risk was caused by the contractor's negligence, and that the repairs
are required to alleviate the risk.
[para50] Finally, there is little risk of liability for an indeterminate time

because the contractor will only be liable for the cost of repair of dangerous
defects during the useful life of the building. Practically speaking, I believe that
the period in which the contractor may be exposed to liability for negligence will
be much shorter than the full useful life of the building. With the passage of time,
it will become increasingly difficult for owners of a building to prove at trial that
any deterioration in the building is attributable to the initial negligence of the
contractor and not simply to the inevitable wear and tear suffered by every
building...
The Caveat Emptor Concern
[para51] Turning to the second concern, caveat emptor cannot, in my

view, serve as a complete shield to tort liability for the contractors of a building..
... [para52] In Fraser_Reid, Dickson J. (as he then was) observed that the
doctrine of caveat emptor stems from the laissez_faire attitudes of the eighteenth
and nineteenth centuries and the notion that purchasers must fend for themselves
in seeking protection by express warranty or by independent examination of the
premises (at p. 723). The assumption underlying the doctrine is that the purchaser
of a building is better placed than the seller or builder to inspect the building and
to bear the risk that latent defects will emerge necessitating repair costs.
However, in my view, this is an assumption which (if ever valid) is simply not
responsive to the realities of the modern housing market. In Lempke, supra, at p.
295, the Supreme Court of New Hampshire made reference to a number of policy
factors that strongly militate against the rigid application of the doctrine of caveat
emptor with regard to tort claims for construction defects:
First, "(c)ommon experience teaches that latent defects
in a house will not manifest themselves for a considerable period
of time . . . after the original purchaser has sold the property to a
subsequent unsuspecting buyer." . . .
Second, our society is rapidly changing.
"We are an increasingly mobile people; a builder_
vendor should know that a house he builds might be resold
within a relatively short period of time and should not expect
that the warranty will be limited by the number of days that the
original owner holds onto the property."
. . . Furthermore, "the character of society has changed
such that the original buyer is not in a position to discover
hidden defects. . . ."
Third, like an initial buyer, the subsequent purchaser
has little opportunity to inspect and little experience and
162

knowledge about construction. "Consumer protection demands
that those who buy homes are entitled to rely on the skill of a
builder and that the house is constructed so as to be reasonably
fit for its intended use." . . .
Fourth, the builder/contractor will not be unduly taken

unaware by the extension of the warranty to a subsequent
purchaser. "The builder already owes a duty to construct the
home in a workmanlike manner. . . ." . . . And extension to a
subsequent purchaser, within a reasonable time, will not change
this basic obligation.
Fifth, arbitrarily interposing a first purchaser as a bar to
recovery "might encourage sham first sales to insulate builders
from liability."
Philip H. Osborne makes the further point in "A Review of Tort

Decisions in Manitoba 1990_1993", [1993] Man. L.J. 191, at p. 196, that
contractors and builders, because of their knowledge, skill and expertise, are in
the best position to ensure the reasonable structural integrity of buildings and
their freedom from latent defect. In this respect, the imposition of liability on
builders provides an important incentive for care in the construction of buildings
and a deterrent against poor workmanship.
[para53] My conclusion that a subsequent purchaser is not the best
placed to bear the risk of the emergence of latent defects is borne out by the facts
of this case. ...For this Court to apply the doctrine of caveat emptor to negate
Bird's duty in tort would be to apply a rule that has become completely divorced,
in this context at least, from its underlying rationale.
Conclusion
[para54] I conclude, then, that no adequate policy considerations exist to
negate a contractor's duty in tort to subsequent purchasers of a building to take
reasonable care in constructing the building, and to ensure that the building does
not contain defects that pose foreseeable and substantial danger to the health and
safety of the occupants. In my view, the Manitoba Court of Appeal erred in
deciding that Bird could not, in principle, be held liable in tort to the
Condominium Corporation for the reasonable cost of repairing the defects and
putting the building back into a non_dangerous state. These costs are recoverable
economic loss under the law of tort in Canada. ... [para56] I would allow the
appeal, reverse the decision of the Court of Appeal and make the following
orders: that the losses alleged in the statement of claim, to the extent that they
may be found to constitute pure economic loss flowing from the negligence of
the respondent, be recoverable from the respondent, and that the order of the
learned motions judge, that the within action proceed to trial against the
respondent Bird Construction Co. Ltd. with respect to the remaining issues raised
in the statement of claim, be reinstated. The appellant is entitled to its costs
163

throughout.
It should be noted that under the Quebec Civil Code the Supreme Court
of Canada held a manufacturer directly liable to a consumer for latent defect in a
new automobile purchased by the consumer from one of the manufacturers
dealers. See General Motors v. Kravitz [1979] 1SCR 790. In addition, the
Saskatchewan Consumer Products Warranties Act imposes obligations of
merchantability and fitness for purpose on manufacturers in relation to remote
purchasers of their products.
In the US, jurisdictions are divided on their willingness to abolish privity
in relation to claims for pure economic loss. The following case outlines the
arguments in favour of the abolition of privity.
Joseph R. MORROW and Nikki

Morrow, Appellants, v NEW MOON HOMES,
INC., and Golden Heart Mobile Homes, Inc.,
Appellees. Supreme Court of Alaska. (1977) 548
P.2d. 279
Before RABINOWITZ, C. J., and CONNOR, ERWIN, BOOCHEVER,

and BURKE, JJ.
RABINOWITZ, Chief Justice. This appeal raises questions concerning
personal jurisdiction over, and the liability of, a nonresident manufacturer of a
defective mobile home that was purchased in Alaska from a resident seller. In
October of 1969, Joseph R. and Nikki Morrow bought a mobile home from
Golden Heart Mobile Homes, a Fairbanks retailer of mobile homes. A plaque on
the side of the mobile home disclosed that the home had been manufactured in
Oregon by New Moon Homes, Inc. The Morrows made a down payment of
$1,800, taking out a loan for the balance of the purchase price from the First
National Bank of Fairbanks. The loan amount of $10,546.49, plus interest of 9
percent per year, was to be repaid by the Morrows in 72 monthly installments of
$190.13 each. At the time of the purchase, the Morrows inspected the mobile
home and noticed that the carpeting had not been laid and that several windows
were broken. Roy Miller, Golden Heart's salesman, assured them that these
problems would be corrected and later made good his assurances. Miller also told
the Morrows that the mobile home was a 'good trailer', '. . . as warm as . . . any
other trailer.' After the sale, Miller moved the Morrows' mobile home to
Lakeview Terrace, set it up on the space the Morrows had rented, and made sure
that the utilities were connected. Then the troubles started. On the first night that
the mobile home's furnace was in use, the motor went out and had to be replaced.
The electric furnace installed by the manufacturer had been removed by someone
164

who had replaced the original with an oil furnace. The furnace vent did not fit,
and consequently the 'stove pipe' vibrated when the furnace was running.
Subsequent events showed the furnace malfunction was not the primary problem
with the mobile home. About four days after the mobile home had been set up,
the Morrows noticed that the doors did not close all the way and that the
windows were cracked. The bathtub leaked water into the middle bedroom. In
March of 1970 when the snow on the roof began to melt, the roof leaked. Water
came in through gaps between the ceiling and the wall panels, as well as along
the bottom of the wallboard. A short circuit developed in the electrical system;
the lights flickered at various times. When it rained, water came out of the light
fixture in the hallway. Other problems with the mobile home included the
following: the interior walls did not fit together at the corners; the paneling came
off the walls; the windows and doors were out of square; the door frames on the
bedroom doors fell off and the closet doors would not slide properly; the curtains
had glue on them; and the finish came off the kitchen cabinet doors. Despite all
these problems, the Morrows continued to live in the mobile home and make the
loan payments. Golden Heart Mobile Homes was notified many times of the
difficulties the Morrows were having with their mobile home. Roy Miller, the
Golden Heart salesman with whom the Morrows had dealt, did put some
caulking around the bathtub, but otherwise he was of little assistance. Finally,
sometime before April 1, 1970, Nikki Morrow informed Miller that if Golden
Heart did not fix the mobile home the Morrows wanted to return it. Miller said
the Morrows would '(h)ave to take it up with the bank.' Subsequently, Golden
Heart went out of business. The First National Bank of Fairbanks was more
sensitive to the Morrows' plight. Upon being informed by the Morrows that they
intended to make no further payments on the mobile home, bank personnel went
out and inspected the home several times. In addition, on May 27, 1970, the bank
wrote to New Moon Homes, Inc. in Silverton, Oregon. Its letter informed New
Moon of the problems the Morrows were having with their New Moon mobile
home and asked whether New Moon expected to send a representative to
Fairbanks since Golden Heart, the dealer, was no longer in business. Apparently,
New Moon did not respond to the bank's letter. A short time later the Morrows'
counsel wrote a letter to New Moon Homes notifying New Moon that the
Morrows intended to hold the company liable for damages for breach of implied
warranties. About a month later the Morrows separated, with Nikki Morrow
continuing to live in the mobile home. She continued to make payments to First
National because she 'couldn't afford Alaskan rents.' Nikki Morrow eventually
moved out of the mobile home but made no effort to sell or rent it because she
considered it 'not fit to live in.' In October of 1971 the Morrows filed this action
against both New Moon Homes and Golden Heart Mobile Homes, alleging that
defendants had breached implied warranties of merchantability and fitness for
particular purpose in manufacturing and selling an improperly constructed
mobile home. The complaint further alleged that New Moon 'is a foreign
corporation doing business in the State of Alaska.' Although the record does not
disclose the method by which New Moon was informed of the pending action,
165

apparently the Morrows served a copy of the summons and complaint upon the
Commissioner of Commerce, who forwarded the papers to New Moon in
Oregon. In its answer New Moon inter alia raised the 'affirmative defenses' of
lack of personal jurisdiction and improper service of process.
[1] The heart of this appeal concerns the remedies which are
available to a remote purchaser against the manufacturer of defective goods for
direct economic loss. The superior court held that the Morrows had no legal
claim against New Moon because they were not in privity of contract with New
Moon. The first argument advanced here by the Morrows amounts to an end run
around the requirement of privity. The Morrows contend that their complaint
asserted a theory of strict liability in tort. They further argue that they should
have prevailed irrespective of any lack of privity of contract between New Moon
and themselves, because lack of privity of contract is not a defense to a strict tort
liability claim. It is true that in Bachner v. Pearson, 479 P.2d 319 (Alaska 1970),
we held:
that implied warranty and strict products
liability are sufficiently similar to require that a
complaint worded in terms of the former theory should
be deemed to raise a claim under the latter theory.[ffn3]
Thus, although the Morrows' complaint sounded in breach of implied

warranties, it also raised a strict liability claim if such a claim is legally
cognizable against New Moon.
[2] In Clary v. Fifth Avenue Chrysler Center, Inc., 454 P.2d 244
(Alaska 1969), Alaska adopted the Greenman v. Yuba Power Products, Inc.,
[ffn4] rule of strict products liability, which provides that
(a) manufacturer is strictly liable in tort
when an article he places on the market, knowing that it
is to be used without inspection for defects, proves to
have a defect that causes injury to a human being.
By its terms the Greenman formulation applies only when the defective
product causes personal injury. Since the Morrows did not sustain any personal
injuries which were caused by the defects in their mobile home, strict liability is
seemingly unavailable to them in the instant case. However, the Morrows argue
that strict liability should nonetheless apply in the situation where a consumer
sues a manufacturer solely for economic loss attributable to the manufacturer's
defective product. This precise contention presents a question of first impression
in Alaska. The issue whether strict liability in tort should extend to economic loss
has prompted no small amount of discussion in legal journals. The two leading
judicial opinions are probably Santor v. A. and M. Karagheusian, Inc., 44 N.J.
52, 207 A.2d 305 (1965), and Seely v. White Motor Co., 63 Cal.2d 9, 45
Cal.Rptr. 17, 403 P.2d 145 (1965). In the former case, Santor purchased from a
166

retailer certain carpeting manufactured and advertised by Karagheusian. Almost
immediately after the carpet was laid, Santor noticed an unusual line in it. As the
pile wore down, the line became worse and two additional lines appeared. Since
the retailer had gone out of business, Santor sued the manufacturer for damages
for breach of the implied warranty of merchantability. In a unanimous decision,
the Supreme Court of New Jersey held that the plaintiff, as the ultimate purchaser
of defective carpeting, could maintain an action against the manufacturer on
either of two theories, breach of implied warranty of reasonable fitness or strict
liability in tort. Privity of contract was not necessary in order to pursue either
theory, although damages were limited to loss of value of the carpeting. Although
the opinion emphasized the widespread advertising carried on by Karagheusian,
the Santor court made clear that 'strict liability in tort is not conditioned upon
advertising to promote sales.'
Barely four months after Santor came down, its strict liability
holding was rejected by the Supreme Court of California in Seely v. White Motor
Co., supra. Seely purchased a truck manufactured by White Motor Co. for use in
his heavy duty hauling business. Upon taking possession of the truck, Seely
found that it bounced violently. This 'galloping' continued for 11 months until the
truck's brakes failed and the truck overturned, sustaining in excess of $5,000 in
damages. Selly was not injured in the incident. Seely sued White Motor Co.
seeking damages for the cost of repairing the truck and for both the money paid
on the purchase price and the profits lost in his business because he was unable to
make normal use of the truck. The Supreme Court of California affirmed the trial
court's award of damages in the amount of the payments made plus lost profits,
on the grounds that White Motor Co. had breached an express warranty to Seely,
the ultimate purchaser. The majority opinion, written by Chief Justice Traynor,
condemned in broad dicta Santor's application of strict liability principles to a
case involving only economic loss:
The distinction that the law has drawn between tort recovery for
physical injuries and warranty recovery for economic loss is not arbitrary and
does not rest on the 'luck' of one plaintiff in having an accident causing physical
injury. The distinction rests, rather, on an understanding of the nature of the
responsibility a manufacturer must undertake in distributing his products. He can
appropriately be held liable for physical injuries caused by defects by requiring
his goods to match a standard of safety defined in terms of conditions that create
unreasonable risks of harm. He cannot be held for the level of performance of his
products in the consumer's business unless he agrees that the product was
designed to meet the consumer's demands. A consumer should not be charged at
the will of the manufacturer with bearing the risk of physical injury when he buys
a product on the market. He can, however, be fairly charged with the risk that the
product will not match his economic expectations unless the manufacturer agrees
that it will.
Seely appears to enjoy the support of the vast majority of the other
courts which have considered the question whether strict liability in tort should
167

extend to instances of economic loss. We also prefer the result in Seely, although
our reasoning differs slightly in emphasis from that of the Seely court. Under the
Uniform Commercial Code the manufacturer is given the right to avail himself of
certain affirmative defenses which can minimize his liability for a purely
economic loss. Specifically, the manufacturer has the opportunity, pursuant to
AS 45.05.100, to disclaim liability and under AS 45.05.230 to limit the
consumer's remedies, although the Code further provides that such disclaimers
and limitations cannot be so oppressive as to be unconscionable and thus violate
AS 45.05.072. In addition, the manufacturer is entitled to reasonably prompt
notice from the consumer of the claimed breach of warranties, pursuant to AS
45.05.174(c)(1).[ffn11]
In our view, recognition of a doctrine of strict liability in tort for
economic loss would seriously jeopardize the continued viability of these rights.
The economically injured consumer would have a theory of redress not
envisioned by our legislature when it enacted the U.C.C., since this strict liability
remedy would be completely unrestrained by disclaimer, liability limitation and
notice provisions. Further, manufacturers could no longer look to the Uniform
Commercial Code provisions to provide a predictable definition of potential
liability for direct economic loss. In short, adoption of the doctrine of strict
liability for economic loss would be contrary to the legislature's intent when it
authorized the aforementioned remedy limitations and risk allocation provisions
of Article II of the Code. To extend strict tort liability to reach the Morrows' case
would in effect be an assumption of legislative prerogative on our part and would
vitiate clearly articulated statutory rights. This we decline to do. Thus, we hold
that the theory of strict liability in tort which we recognized in Clary does not
extend to the consumer who suffers only economic loss because of defective
goods.
The principal theory of liability advocated by the Morrows at trial was
the New Moon has breached statutory warranties which arose by operation of law
with the manufacture and distribution of this mobile home. Specifically, the
Morrows rely upon AS 45.05.096 and AS 45.05.098 of the Uniform Commercial
Code as enacted in Alaska. The former section provides for an implied warranty
of 'merchantability' in the sale of goods governed by the Code;[ffn14] the latter
establishes an implied warranty that the goods are fit for the particular purpose
for which they were purchased. The superior court was of the view that these
Code warranties operated only for the benefit of those purchasing directly from a
manufacturer or seller. Since the Morrows were not in privity of contract with
New Moon, the superior court concluded that a warranty theory based on AS
45.05.096 and AS 45.05.098 could not serve as a basis for liability.
[6][7] It is... clear that in this jurisdiction the Morrows, as

immediate purchasers, can recover against their seller for breach of the Code's
implied warranties. Indeed, this was the theory upon which the default judgment
against Golden Heart Mobile Homes was predicated. The critical question in this
case is whether the Morrows, as remote purchasers, can invoke the warranties
168

attributable to the manufacturer which arose when New Moon passed title of the
mobile home to the next party in the chain of distribution. In other words, do the
implied warranties of merchantability and fitness run from a manufacturer only
to those with whom the manufacturer is in privity of contract?
[8][9] Although sometimes criticized, the distinction between

horizontal and vertical privity is significant in this case. The issue of horizontal
privity raises the question whether persons other than the buyer of defective
goods can recover from the buyer's immediate seller on a warranty theory. The
question of vertical privity is whether parties in the distributive chain prior to the
immediate seller can be held liable to the ultimate purchaser for loss caused by
the defective product.[ffn23] The Code addresses the matter of horizontal privity
in AS 45.05.104, extending the claim for relief in warranty to any '. . . person
who is in the family or household of his buyer or who is a guest in his home if it
is reasonable to expect that the person may use, consume, or be affected by the
goods . . ..' With regard to vertical privity, the Code is totally silent and strictly
neutral, as Official Comment 3 to AS 45.05.104 makes eminently clear. The
Code leaves to the courts the question *288 of the extent to which vertical privity
of contract will or will not be required.
This court has never previously confronted the question whether
a requirement of privity of contract will preclude a purchaser from recovering
against the original manufacturer on a theory of implied warranties. As
mentioned previously, we expressly held in Clary v. Fifth Avenue Chrysler
Center, Inc., 454 P.2d 244 (Alaska 1969), that a manufacturer is strictly liable in
tort for personal injuries attributable to his defective goods. In approving a theory
based on strict liability in tort, we stressed the efficacy, simplicity, and
comprehensiveness of that theory. Appellees in Clary had urged this court to
limit the consumer's source of redress to possible application of the statutory
provisions governing sales warranties, particularly AS 45.05.096. This we
declined to do. As we have noted, under the statutory scheme an injured
consumer is required to give notice of the defect to the warrantor within a
relatively short period of time, and potential liability may be circumscribed by
express disclaimers from the manufacturer. The Clary court was concerned that
such provisions might operate as a trap for the unwary, and it expressed a
preference for a tort theory more solicitous of the needs of the consumer in the
modern, prepackaged, mass merchandised market place. However, this
preference was never intended to imply that reliance on the statutory warranty
provisions was not available as an alternative vehicle for relief. There is nothing
incompatible in affording parallel consumer remedies sounding in tort and in
contract, and several jurisdictions which have adopted strict liability in tort also
make available an implied warranty theory without regard to privity of contract.
The dispute here is whether the requirement of vertical privity of
contract should be abolished in Alaska. This battle has already been waged in
many jurisdictions, and the results are well known: the citadel of privity has
largely toppled. The course of this modern development is familiar history and
169

we need not recount it at length here. Contrived 'exceptions' which paid
deference to the hoary doctrine of privity while obviating its unjust results have
given way in more recent years to an open frontal assault. The initial attack came
in Spence v. Three Rivers Builders & Masonry Supply, Inc., 353 Mich. 120, 90
N.W.2d 873 (1958), but the leading case probably remains Henningsen v.
Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960), in which the New
Jersey Supreme Court held liable for personal injuries and property damages both
the manufacturer of an automobile and the dealer who sold the vehicle. The
rationale for the widespread abolition
of the requirement of privity stems from the structure and operation of

the free market economy in contemporary society; it was succinctly summed up
not long ago by the Supreme Court of Pennsylvania:
Courts and scholars alike have recognized that the
typical consumer does not deal at arms length with the party
whose product he buys. Rather, he buys from a retail merchant
who is usually little more than an economic conduit. It is not the
merchant who has defectively manufactured the product. Nor is
it usually the merchant who advertises the product on such a
large scale as to attract consumers. We have in our society
literally scores of large, financially responsible manufacturers
who place their wares in the stream of commerce not only with
the realization, but with the avowed purpose, that these goods
will find their way into the hands of the consumer. Only the
consumer will use these products; and only the consumer will be
injured by them should they prove defective.
[10] The policy considerations which dictate the abolition of
privity are largely those which also warranted imposing strict tort liability on the
manufacturer: the consumer's inability to protect himself adequately from
defectively manufactured goods, the implied assurance of the maker when he
puts his goods on the market that they are safe, and the superior risk bearing
ability of the manufacturer. In addition, limiting a consumer under the Code to an
implied warranty action against his immediate seller in those instances when the
product defect is attributable to the manufacturer would effectively promote
circularity of litigation and waste of judicial resources. Therefore, we decide that
a manufacturer may be held liable for a breach of the implied warranties of AS
45.05.096 and AS 45.05.098 without regard to privity of contract between the
manufacturer and the consumer.
[11] The more difficult question before this court is
whether we should extend this abolition of privity to embrace not only warranty
actions for personal injuries and property damage but also those for economic
loss. Contemporary courts have been more reticent to discard the privity
requirement and to permit recovery in warranty by a remote consumer for purely
economic losses. In considering this issue we note that economic loss may be
170

categorized into direct economic loss and consequential economic loss, a
distinction maintained in the Code's structure of damage remedies. One
commentator has summarized the distinction:
Direct economic loss may be said to

encompass damage based on insufficient product value;
thus, direct economic loss may be 'out of pocket'_the
difference in value between what is given and
received_or 'loss of bargain'_the difference between the
value of what is received and its value as represented.
Direct economic loss also may be measured by costs of
replacement and repair. Consequential economic loss
includes all indirect loss, such as loss of profits resulting
from inability to make use of the defective product.
The claim of the Morrows in this case is one for direct economic loss. A
number of courts recently confronting this issue have declined to overturn the
privity requirement in warranty actions for economic loss. One principal factor
seems to be that these courts simply do not find the social and economic reasons
which justify extending enterprise liability to the victims of personal injury or
property damage equally compelling in the case of a disappointed buyer suffering
'only' economic loss. There is an apparent fear that economic losses may be of a
far greater magnitude in value than personal injuries, and being somehow less
foreseeable these losses would be less insurable, undermining the risk spreading
theory of enterprise liability.
[12] Several of the courts which have recently considered this
aspect of the privity issue have found those arguments unpersuasive. We are in
agreement and hold that there is no satisfactory justification for a remedial
scheme which extends the warranty action to a consumer suffering personal
injury or property damage but denies similar relief to the consumer 'fortunate'
enough to suffer only direct economic loss. Justice Peter's separate opinion in
Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 24, 403 P.2d 145, 152
(1965), persuasively establishes that the cleavage between economic loss and
other types of harm is a false one, that each species of harm can constitute the
'overwhelming misfortune' in one's life which warrants judicial redress. The
Supreme Court of New Jersey is also in complete agreement with this view:
From the standpoint of principle, we

perceive no sould reason why the implication of
reasonable fitness should be attached to the transaction
and be actionable against the manufacturer where the
defectively made product has caused personal injury and
not actionable when inadequate manufacture has put a
worthless article in the hands of an innocent purchaser
who has paid the required price for it. In such situations
171

considerations of justice require a court to interest itself
in originating causes and to apply the principle of
implied warranty on that basis, rather than to test its
application by whether personal injury or simply loss of
bargain resulted in the breach of the warranty. True, the
rule of implied warranty had its gestative stirrings
because of the greater appeal of the personal injury
claim. But, once in existence, the field of operation of
the remedy should not be fenced in by such a factor.
The fear that if the implied warranty action is extended to direct
economic loss, manufacturers will be subjected to liability for damages of
unknown and unlimited scope would seem unfounded. The manufacturer may
possibly delimit the scope of his potential liability by use of a disclaimer in
compliance with AS 45.05.100 or by resort to the limitations authorized in AS
45.05.230. These statutory rights not only preclude extending the theory of strict
liability in tort, supra, but also make highly appropriate this extension of the
theory of implied warranties. Further, by expanding warranty rights to redress
this form of harm, we preserve '. . . the well developed notion that the law of
contract should control actions for purely economic losses and that the law of tort
should control actions for personal injuries.] We therefore hold that a
manufacturer can be held liable for direct economic loss attributable to a breach
of his implied warranties, without regard to privity of contract between the
manufacturer and the ultimate purchaser. It was therefore error for the trial court
to dismiss the Morrows' action against New Moon for want of privity.
[13] Our decision today preserves the statutory rights of the

manufacturer to define his potential liability to the ultimate consumer, by means
of express disclaimers and limitations, while protecting the legitimate expectation
of the consumer that goods distributed on a wide scale by the use of conduit
retailers are fit for their intended use. The manufacturer's rights are not, of
course, unfettered. Disclaimers and limitations must comport with the relevant
statutory prerequisites and cannot be so oppressive as to be unconscionable
within the meaning of AS 45.05.072. On the other hand, under the Code the
consumer has a number of responsibilities if he is of enjoy the right of action we
recognize today, not the least of which is that he must give notice of the breach
of warranty to the manufacturer pursuant to AS 45.05.174(c)(1). The warranty
action brought under the Code must be brought within the statute of limitations
period prescribed in AS 45.05.242. If the action is for breach of the implied
warranty of fitness for particular purpose, created by AS 45.05.098, the consumer
must establish that the warrantor had reason to know the particular purpose for
which the goods were required and that the consumer relied on the seller's skill or
judgment to select or furnish suitable goods. In the case of litigation against a
remote manufacturer, it would appear that often it will be quite difficult to
establish this element of actual or constructive knowledge essential to this
172

particular warranty.
Consequently, we order that this cause be remanded for a new trial in

which Morrows will have the opportunity to establish every element of their
case, including personal jurisdiction over New Moon. Reversed and remanded
for a new trial in accordance with this opinion.
ERWIN, Justice (concurring). While I concur with the opinion, I would
extend the concept of strict liability to cover 'economic loss' rather than use the
warranty theory advanced by the majority. The history of products liability law
does not justify a distinction between personal injury and property damage. The
primary purpose of the strict liability rule is to insure that the costs of injuries
resulting from defective products are borne by the manufacturers that put such
products on the market rather than by the consumers who are powerless to
protect themselves. Those in favor of the dichotomy between 'economic loss' and
other types of damage argue that an abolition of the distinction would result in
manufacturers being liable for damages of unknown and unlimited scope. This
concept is embraced by the majority, which notes that the manufacturer who may
now minimize liability by relying on certain provisions in the Uniform
Commercial Code, would be unable to do so if the doctrine of strict liability were
applied. In essence, this position intimates that manufacturers' rights under the
Uniform Commercial Code should be maintained in order to assure the
predictability of their potential liability.
I agree with Justice Peters of the California Supreme Court, who
in his separate opinion in Seely v. White Motor Co., noted that the concerns
expressed by the majority in this case would for all intents and purposes be
eliminated if the notion of 'defective' in the strict liability doctrine is viewed as
co_extensive with the concept of 'unmerchantability' in the implied warranty
field. The term has been well defined by case law and has a fixed meaning so far
as the Uniform Commercial Code is concerned.
If the doctrine of strict liability were adopted for cases such as the
present one, the ordinary consumer, whose bargaining power is seldom equal to
the manufacturers', would have the opportunity to bring an action against the
original wrongdoer, instead of the local retailer who served as little more than a
conduit for the defective product. The costs of such an action would properly be
borne by the manufacturer. This procedure recognizes the average consumer's
lack of sophistication with respect to the complex world of commerce and the
Uniform Commercial Code.
7. Buying for use, consumers and access to justice
Both commercial actors and consumers may buy equipment or products

which are intended to be used over a relatively long period of time. In many
173

cases of complex equipment there will be “teething” problems and serious
problems with the product may not appear until it has been in use for some time.
For example, a computer monitor may suddenly develop major problems after 12
months. In this type of situation many buyers would like to have a clear idea of
their rights. Unfortunately the Sale of Goods Act does not provide a very sharp
series of guidelines. Undoubtedly there will often be a warranty accompanying
the product but in many cases this will be for a limited period of time and will
not entitle the consumer to reject high priced items such as automobiles. The
following cases outline some of the issues here, primarily in relation to
automobiles. In assessing the role of the law in this area you should remember
that the rules will be primarily used by the parties “bargaining in the shadow of
the law” since few consumers will wish to go to court.
Merchantability, fitness for purpose and automobiles
The following case is a useful guide to some of the relevant factors in

relation to the determination of merchantability in automobiles.
Rogers And Another v Parish

(Scarborough) Ltd And Another[1987] 1
QB 933, [1987] 2 All ER 232, [1987] 2 WLR 353,
MUSTILL LJ: This is an appeal by plaintiffs against a judgment given

in favour of two defendants by Judge Herrod QC, sitting as a High Court judge in
Leeds. The first plaintiff is a Yorkshire businessman; the first defendant is a
motor dealer with a franchise for the sale of Range Rovers; and the second
defendant is a finance house. During May 1980 two Range Rovers were
delivered by the manufacturers to the first defendant's premises. The particulars
of their registration numbers are immaterial; it is sufficient to say that one of the
vehicles was coloured green and the other yellow.
For a number of months the vehicles were stored in an open compound.
Afterwards they were moved to a showroom indoors. It proved necessary as a
consequence of their prolonged storage to clean up some rust on the wheels of
the vehicles and to touch up the paintwork to take account of minor damage
during delivery.
On 6 November 1981 the green Range Rover was sold under a
conditional sale agreement to the plaintiffs. The transaction took a conventional
shape, the vehicle being sold by the dealer to the finance house and then re_sold
by the latter to the plaintiffs....
It appears that at the time of the sale, or perhaps at the time of delivery
under the sale, the first plaintiff was handed a warranty document. This
document, so far as material to the present dispute, reads:
"Should any part of the vehicle require repair or
174

replacement as a result of a manufacturing or material defect
within 12 months from the date on which the vehicle was handed
over to the first owner, the part will be repaired or replaced
completely free of charge by your authorised dealer, regardless
of any change of ownership during the period covered. Any part
so repaired or replaced will benefit from these arrangements for
the balance of the period applicable to the vehicle."
After certain exclusions the document went on: "your statutory rights
and obligations as against the supplier are not in any way affected by this
statement."
The warranty document also prescribed a procedure which the
purchaser was to follow if he wished to take advantage of the warranty, and this
included a liberty to take the vehicle to another franchised dealer if it was
inconvenient to return it to the vendor for repair. It does not appear from the
documents before us whether this warranty was signed or precisely what its
contractual status was intended to be, but primarily at least it must have
constituted an engagement by the manufacturers collateral to the sale contract
itself.
The price at which the vehicle was sold was some L14,000. After a
few weeks' use it proved unsatisfactory and was returned by the plaintiffs to the
dealers. By agreement between the parties a yellow vehicle of the same type was
substituted for the original subject matter of the sale. The parties were thereafter
content to have their relationship governed by the same contractual terms as had
applied to the original purchase and sale. All the proceedings in the present
action have gone forward on that basis.
Unfortunately it proved that the yellow vehicle was no more
satisfactory than its predecessor. It is now known, as the judge found in his
judgment, that by the time the vehicle was sold to the plaintiffs it had
deteriorated to the extent that oil seals at vital junctions were no longer sound and
that the defective seals permitted the loss of significant quantities of oil. It also
proved to be the case that the engine and the gearbox of the vehicle had defects at
the time of sale. After a series of inspections and attempts at repair it was found
as late as June 1982, some six months after the delivery of the second vehicle,
that the engine was still misfiring at all road speeds and that excessive noise was
emitting from the gearbox and the transfer box. In addition the vehicle was
suffering, as the judge has found, from substantial defects as regards the
bodywork. In all, the condition of the vehicle was such that, as the judge has
found, "it must be said that the defects to the engine, the gearbox and the
bodywork reflect great discredit upon the inspection procedures at the Land
Rover factory."
As I have already said, the vehicle had been subjected to a number of
inspections during the months following its delivery and also to attempts to put it
right. During this period the first plaintiff had been able to drive it for upwards of
175

5,500 miles, albeit in a manner which gave him no satisfaction. In the end,
however, he lost patience, and during May 1982 he gave notice to the dealer that
the car was rejected. We are told that thereafter it has remained in the possession
of the plaintiffs since the defendants were unwilling to take it back.
In due course the plaintiffs instituted the present action against both the
dealer as first defendant and the finance house as second defendant. The latter
was plainly party to a direct contract of sale with the plaintiffs. The position of
the first defendant might be more complex, but it is content to have the issue of
liability dealt with on the basis that it is in privity with the plaintiffs and that its
liabilities are to be assessed in precisely the same manner.
In these circumstances two questions arise: first, whether the
defendants were in breach of an express promise that the vehicle was new: and
second, whether they were in breach of an express or implied promise that the car
would be in merchantable condition. I say "express or implied" because there
was, as I have already indicated, an express promise by the second defendant. In
the event, however, both the defendants and the plaintiffs have been content to
treat this case as if it were governed by the provisions relating to implied terms
created by section 14 of the Sale of Goods Act 1979, and in particular by the
definition of the words "merchantable quality" which are to be found in section
14(6) of that Act.
It is convenient to deal first with the contention that the goods were
unmerchantable at the time of delivery and that the plaintiffs were accordingly
entitled to reject them. An implied term as to merchantability has been governed
by statute since the Sale of Goods Act 1893. It was, however, subject to
important modification by the Supply of Goods (Implied Terms) Act 1973, as
regards both a change in the wording of section 14(2) itself and the addition of a
new definition of merchantable quality. These were re_enacted, with a minor
alteration as regards the definition, in section 14 of the Sale of Goods Act 1979,
the material parts of which read:
"(2) Where the seller sells goods in the course of a
business, there is an implied condition that the 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 goods before the contract is made, as regards
defects which that examination ought to reveal. . . . 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."
In the course of argument before us our attention was drawn to various

176

expressions of opinion in cases decided before the enactment of the 1973
legislation as to the precise significance of the terms "merchantable quality." In
my judgment this is not a practice to be encouraged. The Act of 1973 was an
amending Act and it cannot be assumed that the new definition was included
simply because the draftsman saw a convenient opportunity to reproduce in more
felicitous and economical terms the gist of the speeches and judgments
previously delivered. The language of section 14(6) is clear and free from
technicality, and it should be sufficient in the great majority of cases to enable
the fact_finding judge to arrive at a decision without exploring the intricacies of
the prior law. In my judgment the present is not one of those exceptional cases
where it may be necessary to have recourse to the former decisions in order to
give a full meaning to the words of the subsection.
Against this background we must look to see how the matter was dealt
with by the judge at first instance. He said:
"I do not take the view that any of the defects in this
case were such as to render the vehicle unroadworthy, unusable,
or unfit for any normal purposes for which a Range Rover might
be used. It is true that there were a number of defects on this
vehicle at the time of sale and delivery, defects which manifested
themselves very shortly after the plaintiffs took delivery, and
defects which must have been infuriating to the plaintiffs.
However, the defects were capable of repair, and the defendants
attempted to repair them at no cost to the plaintiffs. When those
repairs did not meet with the plaintiffs' approval the vehicle was
returned to the factory, it was examined, and further work was
then done upon it by the first defendant. Ultimately, by the time
the vehicle was examined by the AA inspector on 28 April 1982,
all repairs had been carried out to an acceptable standard, and the
mechanical performance was within the manufacturers'
tolerances. Some of the defects did recur by 9 June 1982, but the
fact that these defects had been satisfactorily dealt with on one
occasion can only mean that they were susceptible to further
repair, and if the first plaintiff had lost confidence in the ability
of the first defendant to repair his vehicle, his proper remedy was
to take it to some other Range Rover dealer, as he was entitled to
do under the terms of the vehicle warranty. I do not take the
view that this is one of the so_called 'congeries of defects' cases,
which destroy the workable character of a machine. Indeed, the
very fact that during the first six months of its life the plaintiffs
were able to use the vehicle for a distance in excess of 5,000
miles demonstrates that it had plenty of use. Accordingly, the
plaintiffs must also fail in their allegations that the vehicle was
not of merchantable quality and unfit for the purposes for which
177

it was required."
If the approach to this problem adopted by the judge were correct, this
court should be slow indeed to interfere with the conclusion which he reached,
since it seems to me that the intent of section 14(6) was to make an issue of
merchantable quality into very much a jury question. In the present case,
however, I feel bound to say that the approach adopted by the judge was not
correct. In the first place, he did not expressly direct himself in accordance with
section 14(6) and indeed did not mention the subsection in his judgment, possibly
because it was given less prominence at the trial than during the argument before
us.
This in itself could not be conclusive, for the judge could in fact have
applied section 14(2) correctly, without saying so in so many words. There are
two respects in which the judge in my opinion applied a test which was not that
of section 14(6). In the passage already quoted he gave much weight to the fact
that the defects were capable of repair and that the first defendant had in some
measure been able to repair them. Yet the fact that a defect is repairable does not
prevent it from making the res vendita unmerchantable if it is of a sufficient
degree see: Lee v York Coach and Marine [1977] RTR 35. The fact, if it was a
fact, that the defect had been repaired at the instance of the purchaser, which in
the present case does not appear to be so, might well have had an important
bearing on whether the purchaser had by his conduct lost his right to reject, but it
cannot in my view be material to the question of merchantability which falls to
be judged at the moment of delivery. Furthermore, the judge applied the test of
whether the defects had destroyed the workable character of the car. No doubt
this echoed an argument similar to the one developed before us that if a vehicle is
capable of starting and being driven in safety from one point to the next on public
roads and on whatever other surfaces the car is supposed to be able to negotiate,
it must necessarily be merchantable. I can only say that this proposition appears
to have no relation to the broad test propounded by section 14(6) even if, in
certain particular circumstances, the correct inference would be that no more
could be expected of the goods sold.
This being so, I think it legitimate to look at the whole issue afresh
with direct reference to the words of section 14(6). Starting with the purpose for
which "goods of that kind" are commonly bought, 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
on the market at which the car is aimed.
To identify the relevant expectation one must look at the factors listed
in the subsection. The first is the description applied to the goods. In the present
case the vehicle was sold as new. Deficiencies which might be acceptable in a
178

secondhand vehicle were not to be expected in one purchased as new. Next, the
description "Range Rover" would conjure up a particular set of expectations, not
the same as those relating to an ordinary saloon car, as to the balance between
performance, handling, comfort and resilience. The factor of price was also
significant. At more than L14,000 this vehicle was, if not at the top end of the
scale, well above the level of the ordinary family saloon. The buyer was entitled
to value for his money.
With these factors in mind, can it be said that the Range Rover as
delivered was as fit for the purpose as the buyer could reasonably expect? The
point does not admit of elaborate discussion. I can only say that to my mind the
defects in engine, gearbox and bodywork, the existence of which is no longer in
dispute, clearly demand a negative answer.
It is however also necessary to deal with an argument based on the fact

that the vehicle was sold with the benefit of a manufacturer's warranty, a fact
which was relied upon to show that the buyer was required to take in his stride to
a certain degree at least the type of defects which would otherwise have
amounted to a breach of contract. Speaking for myself, I am far from satisfied
that this argument is open to the defendants at all, having regard to the express
disclaimer in the contract of sale, and also in the warranty, of any intention to
vary the buyer's rights at common law, and also having regard to section 6 of the
Unfair Contract Terms Act 1977. Nor am I convinced that this objection can
satisfactorily be answered by saying that the argument founded on the warranty
operates not to deprive the buyer of his common law rights but rather as a
relevant circumstance for purposes of section 14(6) operating simply to diminish
the reasonable expectation of the buyer.
Moreover, I am not clear about the logic underlying the argument.
Assume that on an accurate balancing of all the relevant circumstances it could
be said that the buyer of a new Range Rover could reasonably expect it to have
certain qualities and that accordingly he has a contractual right to receive a
vehicle possessing those qualities and to recover damages, including damages for
any consequential loss, if it does not possess them. Can it really be right to say
that the reasonable buyer would expect less of his new Range Rover with a
warranty than without one? Surely the warranty is an addition to the buyer's
rights, not a substraction from them, and, it may be noted, only a circumscribed
addition since it lasts for a limited period and does not compensate the buyer for
consequential loss and inconvenience.
If the defendants are right a buyer would be well advised to leave his
guarantee behind in the showroom. This cannot be what the manufacturers and
dealers intend or what their customers reasonably understand.
Assume, however, that I am wrong in all this and that the presence of
the warranty did in some degree have the effect of diminishing the standard of
expectation and hence the vendor's required standard of performance. Even so, I
can only say that, after re_balancing the relevant circumstances, I would again
conclude that these defects lie well outside the range of expectation and that the
179

vehicle was not merchantable.
Finally I should mention that the defendants sought to contend, on the
argument of the appeal, that even if there had been a breach of section 14 the first
plaintiff had, by his conduct, precluded himself from rejecting the car. This point
was not pleaded by either defendant, nor was it mentioned in the judgment in the
court below or raised by either defendant in a respondent's notice. Since the
argument could not in any event have been explored by this court in the absence
of findings about the entire course of dealings between the parties between the
dates of delivery and rejection we considered it inappropriate to allow this matter
to be raised before us.
In the result I would allow the appeal.
SIR EDWARD EVELEIGH:
Whether or not a vehicle is of merchantable quality is not determined by
asking merely if it will go. One asks whether, in the condition in which it was on
delivery, it was fit for use as a motor vehicle of its kind. A vehicle with defective
seals, gearbox and an engine in an unsatisfactory condition, all of which needed
attention to bring it up to a standard normally found in such a vehicle, indicates
to my mind that it was not of merchantable quality. The fact that the plaintiff
was entitled to have remedial work done under the warranty does not make it fit
for its purpose at the time of delivery.
I turn to consider the precise terms of section 14(6) in order to see
whether in this case this vehicle is entitled, by virtue of that subsection, to be
held to be of merchantable quality. I have no hesitation in saying that this
vehicle does not comply with the ingredients set out in subsection (6). It was
described as a new car. It was sold for a normal, substantial price, and the
existence of the warranty does 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.
I agree that this appeal should be allowed.
In other cases courts have noted that a cumulative series of defects,

although small individually, would render a car unmerchantable. This was the
case in Lightburn v Belmont Sales (1969) 6 DLR (3d) 692 (electrical system,
brake trouble, oil pump assembly) See also Findlay v. Metro Toyota (1977) 82
DLT (3d) 440. In addition, if a defect renders a car incapable of being driven
safely then it would be unmerchantable, see Bartlett v. Sidney Marcus [1965] 2
AER 753. There is clearly some vagueness to the application of the standard of
merchantability. In many cases an individual will allow the retailer to repair the
goods initially and may tolerate minor problems. An important question is the
impact of this on the buyer’s remedy of rejection. Llewellyn called rejection a
consumer remedy since most consumers do not want to retain a defective
180

automobile and receive damages. Rejection is straightforward and it can be
exercised without going to court. However there is the danger that by permitting
repair and continuing to use the goods a consumer may lose the right to reject
under the Sale of Goods Act. Note the bars to rejection in 12(3) and 34. The first
bar, property passage in specific goods, is an anachronism which has no
functional relationship to consumer rejection rights. It has been abolished in
many jurisdictions and courts avoid it through devices such as an implied term to
defer property passage until acceptance. See e.g.Wojakowski v. Pembina Dodge
Chrysler [1976] 5 WWR 97. The bars in section 34 are more problematic. The
structure of the Sale of Goods Act did not contemplate the possibility of a long
term right of rejection since its model of sale was a commodity contract where
the buyer made the decision to accept or reject at the time of delivery of the
goods. The courts in Canada have developed generally a more generous period
for rejection in relation to goods such as tractors, complex pieces of equipment
and automobiles (for a review of the cases see Fridman, Sale of Goods 4th ed at
255-257). The courts have developed several theories to justify this longer period
of rejection: (a) the buyer was “trying out” the equipment to discover whether it
was in accordance with the contract. This is not evidence of acceptance. This
approach is based on a relatively frequently cited Ontario case Alabastine Co. v.
Canada Producer & Gas Engine (1914) 30 OLR 394 (b) the buyer was deferring
her right of rejection based on the representations of the seller that they would
repair it as new and (c) the seller is estopped from arguing that the buyer has lost
the right to reject since she induced the buyer to hold off on representations that
the goods could be made as new. See e.g. Rafuse Motors v. Mardo Construction
(1963) 41 DLR (2d) 340. Canadian cases often permit buyers to reject after six
months or even longer in some instances. For example in Lightburn the period
was eight months (buyer was “endeavouring to give it a reasonable chance to
perform”)
If a buyer rejects goods the seller may refuse to accept the rejection. In
these circumstances may the buyer continue to use the goods until her claim to
reject is finally adjudicated or will continued use be deemed to constitute
acceptance? This is an important issue for consumers since, in the case of an
item like an automobile, they will rarely have income to purchase or rent a
second car during the period of the dispute. The following case discusses the
issue in the context of the Business Practices Act but its principles have been
applied in sales cases.
Lasby v. Royal City Chrysler Plymouth

59 O.R. (2d) 323Also reported at 37
D.L.R. (4th) 243
ONTARIO HIGH COURT OF JUSTICE DIVISIONAL
COURTSAUNDERS, HOLLINGWORTH AND SUTHERLAND JJ.18TH
181

FEBRUARY 1987
*Leave to appeal to the Ontario Court of Appeal was refused (Blair,

Goodman and Cory JJ.A.) April 27, 1987.
APPEAL from a judgment of McNeely D.C.J. in favour of the plaintiff
in an action for rescission of a contract for the sale of a car.
The judgment appealed from is as follows
October 31, 1985.
MCNEELY D.C.J.:__ The plaintiff claims a declaration that a contract

for the purchase of a used 1983 Dodge 600 from the defendant has been
rescinded and damages in the amount of $10,906.25. The basis of her claim is
that when she purchased the car in December, 1983, she did so only because of
false and deceptive representations as to the car made to her by the plaintiff's
salesman.
The plaintiff is a 50_year_old factory worker with a grade 8 education.
Her husband is 76 years old and his only income is from his pension and Old Age
Security. In the fall of 1983, the plaintiff was driving a 1976 Valiant with about
100,000 miles on it and was toying with the idea of replacing it. With her
husband she visited the defendant's car lot and met salesman Bill MacDonald.
They told him they were thinking of another car and wanted another six_cylinder
car. He asked whether they would be interested in a K car and they said no. They
found nothing that interested them and left.
Later in the fall salesman MacDonald telephoned to say that he had a
nice car for them. The plaintiff's husband went to the lot and found that the car
was a K car. He was not interested. On December 6, 1983, salesman MacDonald
telephoned again. He told Mrs. Lasby that he had a good used car, an executive_
driven six_cylinder with not too many miles. Mrs. Lasby and her husband went
to the car lot.
They were shown a gray Plymouth with a 2.6_litre engine and
test_drove this car. Mr. MacDonald who was well aware that they wanted a
six_cylinder engine and were concerned about engine size, told them that they
would notice that the car did not have as much power as their Valiant but that it
was equal to the Valiant because the Caravelle was a lighter car. The test drive
was satisfactory and according to Mrs. Lasby they "dickered on it" but Mrs.
Lasby finally decided not to purchase because of the colour of the car which she
did not like.
Mr. MacDonald then said he had another car which was being worked
on and which was identical to the Caravelle except for the name. It was the 1983
brown Dodge 600 which the plaintiff eventually purchased. The question of a test
drive was raised and salesman MacDonald told them there was no point in test_
driving the Dodge because the car was the same as the Caravelle they had already
test_driven. He said the engine was the same engine as in the Chrysler New
Yorker which was on the showroom floor. Mrs. Lasby said that Mr. MacDonald
convinced her the car was a good buy. She said she felt that if the engine was the
182

same as that in the New Yorker which she considered their top car, she would
buy. She says she would not have bought if she had known that the car was a
leased car and had a four_cylinder engine. The 1983 Dodge which the plaintiff
purchased had, in fact, a four_cylinder, 2.2_litre engine and was not an executive
car. Both the Caravelle which she had driven and the New Yorker on the
salesroom floor, had 2.6_litre engines.
The day following the purchase the plaintiff's husband lifted the hood of
the car and noticed that there was only four spark plugs and that the engine was a
four_cylinder engine. The plaintiff telephoned salesman MacDonald because she
believed she had purchased a six_cylinder engine. Mr. MacDonald told her that
Chrysler did not make six_cylinder engines and that the four_cylinder engine in
the Dodge was the biggest four_cylinder engine made. Mrs. Lasby did not pursue
the matter further. Three months later she had a problem with the car and took it
to her mechanic. She mentioned that she had a "big engine" but the mechanic
upon opening the hood told her that she had the small 2.2_litre engine rather than
the larger 2.6_litre engine, which salesman MacDonald told her was in the car.
Mrs. Lasby again telephoned salesman MacDonald. He assured her
again that she had the bigger engine. She drove to the defendant's place of
business with her friend Mrs. Teeter and told MacDonald that she wanted what
she had paid for. He asked if she wanted her money back. She said yes. He told
her she would have to see the sales manager. She and Mrs. Teeter saw the sales
manager and the sales manager advised her that she had bought a used car and
"that was it". Her lawyer then wrote to the defendant enclosing an election signed
by Mrs. Lasby rescinding the contract. The defendant refused to take the car
back and refused to return Mrs. Lasby's purchase money. Without the refund of
the purchase money the plaintiff was not able to buy another car. Financial
necessity compelled her to continue to drive the car until trial.
The choice between the evidence of the plaintiff and her witness Mrs.
Teeter as to what went on, and the evidence of Mr. MacDonald and the sales
manager Mr. Dom must be made on the basis of credibility. According to Mr.
MacDonald, he never told Mrs. Lasby that she had a six_cylinder car; he never
told her that the car was an executive car, but rather told her that it was one of a
number of cars which had been bought at an auction. He said he explained that
the car only had the balance of a two_year warranty because only
executive_driven cars have a five_year warranty. He said he pointed out this
warranty clause in the contract on December 6th although an examination of the
document which was in existence on that date shows that the clause was not
included in it. It appears only in a rewritten copy of the contract made at a later
date. Mr. MacDonald denied that he ever said the engine in the Dodge 600 was
identical to the engine in the Caravelle and the New Yorker. On virtually every
factual issue of consequence he denied making the statements relied on by Mrs.
Lasby and with respect to some of the matters he says that he in fact told her the
exact opposite. I believe that Mrs. Lasby, supported as to part of her evidence by
the witness Mrs. Teeter, is a truthful and accurate witness and I accept her
evidence in preference to that of Mr. MacDonald on all essential matters.
183

I find as a fact that Mrs. Lasby purchased the car only because of the
following representations made by the salesman MacDonald, which
representations were false and were known to be false by him when they were
made:
(1) that the engine was identical with the engine of the Caravelle and the
New Yorker, both of which had a 2.6_litre engine;
(2) that the car was an executive_driven car and carried the balance of a
five_year warranty.
I find further that the representations were made by Mr. MacDonald for
the purpose of having Mrs. Lasby rely on them in purchasing the car and that she
did purchase the car as a result of the said representations and would not have
purchased the car had the representations not been made.
Deceived as the plaintiff was, the evidence at trial discloses that the car
she purchased was a good, reliable used car. It did not have the large 2.6_litre
engine and did not have the balance of a five_year warranty which an executive
car would have had. The plaintiff found that the car "lacked guts" in comparison
with her 1976 Valiant but the evidence at trial suggests that the performance
characteristics of cars with the 2.2_ and 2.6_litre engine do not differ greatly. The
plaintiff has had a relatively trouble_free experience with the car since she
acquired it in December, 1983. She has had the car for some 22 months and in
that period has driven it some 40,000 kilometres.
But the plaintiff is not content. She bought the car only because of the
deception practised on her. She did not want and would not have bought a car
with a smaller engine and without the warranty which she was told the car had. It
is of no consequence to her that other people think the 2.2_litre engine is as good
or almost as good as the 2.6_litre engine. Other people were not buying the car.
Mrs. Lasby was. As Boyd C. said of the lady who purchased a car that was
represented as new only to find that it was second_hand in Addison v. Ottawa
Auto & Taxi Co. (1913), 30 O.L.R. at p. 52, 16 D.L.R. at p. 319 (at p. 54 O.L.R.,
p. 321 D.L.R.):
... the witnesses say that it was made as good as new. Well,she was the
person to judge whether that was so or not,having been told these facts.
She did not want something asgood as new; she wanted a new machine. She
did not want anequivalent for the machine she was getting; she wanted
onethat was quite absolutely new, did not want something thatwas equivalent to a
new one.
The plaintiff in the present case on learning that she had been deceived
into buying a car which she never would have bought rescinded. She did so
pursuant to the Business Practices Act, R.S.O. 1980, c. 55. Section 4 of this Act
reads as follows:
4(1) Subject to subsection (2), any agreement, whether

oralor implied, entered into by a consumer after a
184

consumerrepresentation that is an unfair practice and that
inducedthe consumer to enter into the agreement,
(a) may be rescinded by the consumer and the consumer
isentitled to any remedy therefor that is by law
available,including damages; or
(b) where rescission is not possible because restitution
isno longer possible, or because rescission would deprive athird
party of a right in the subject_matter of the agreementthat he has
acquired in good faith and for value, theconsumer is entitled to
recover the amount by which theamount paid under the
agreement exceeds the fair value of thegoods or services
received under the agreement or damages, or both.
(2) Where the unfair practice referred to in subsection
(i)comes within clause 2(b) the court may award exemplary
orpunitive damages.
It is to be noted that the Act confers a right to rescind on the consumer.

The consumer need not commence an action for rescission or indeed any action
at all. Section 4(5) states that:
4(5) A remedy conferred by subsection (1) may be

claimed bythe giving of notice of the claim by the consumer in
writingto each other party to the agreement within six months
afterthe agreement is entered into.
The plaintiff in the present case gave such notice in writing on April 25,
1984, within the six_month period.
The nature of the remedy of rescission is that the contract is cancelled

and the parties are restored to the position they occupied before the contract. But
it is not necessary that the restitution of the parties be complete or exact. In F. &
B. Transport Ltd. v. White Trucks Sales Manitoba Ltd. (1964), 47 D.L.R. (2d)
419, a plaintiff purchased a 1956 truck from a dealer who fraudulently
represented it as a 1958 model. The purchaser used it for nine months and drove
it some 30,000 to 40,000 miles before discovering the fraud and suing for
rescission. Dickson J. of the Manitoba Court of Queen's Bench, as he then was,
confirmed the plaintiff's right to rescission, directed the defendants return the
purchase money plus financing charges and repair costs, less an amount which he
assessed for the use of the truck by the plaintiff in the interval before trial. In
Addison v. Ottawa Auto & Taxi Co. the lady who purchased the car that was
represented as being new when it was, in fact, only "as good as new" was found
entitled to rescind despite having driven the car in the interval before trial. Chief
Justice Meredith speaking for the Appellate Division of the Ontario Supreme
Court in affirming the decision of Boyd C. [O.L.R. loc. cit., p. 51, D.L.R. loc.
185

cit., p. 318], in that case provides a useful insight as to why anything like exact
restitution is no longer required before rescission is granted. He said [at pp. 58_9
O.L.R., p. 324 D.L.R.]:
The cases cited by Mr. Henderson on this branch of the

casehave, in my opinion, no application now that both law
andequity are administered in the Court and the rules of
equityprevail. The reasons for the decisions in the cases cited
arepointed out by Lord Blackburn in Erlanger v. New
SombreroPhosphate Co. (1878), 3 App. Cas. 1218, 1278_9,
where he says: "It would be obviously unjust that a person who
has been in possession of property under the contract which he
seeks to repudiate should be allowed to throw that back onthe
other party's hands without accounting for any benefit hemay
have derived from the use of the property, or if the property,
though not destroyed, has been in the interval deteriorated,
without making compensation for thatdeterioration. But as a
Court of Law has no machinery at its command for taking an
account of such matters, the defrauded party, if he sought his
remedy at law, must in such caseskeep the property and sue in an
action for deceit, in which the jury, if properly directed, can do
complete justice by giving as damages a full indemnity for all
that the party has lost: see Clarke v. Dickson, E.B. & E. 148, and
the casesthere cited. But a Court of Equity could not give
damages,and, unless it can rescind the contract, can give no
relief. And, on the other hand, it can take accounts of profits, and
make allowance for deterioration. And I think the practice has
always been for a Court of Equity to give this relief whenever,
by the exercise of its powers, it can do what is practically just,
though it cannot restore the parties precisely to the state that they
were in before thecontract."
In Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch.392, 456_7,

Rigby, L.J., referring to this statement of the law with approval, says (p. 457):
"The obligation of thevendors to take back the property in a deteriorated
conditionis not imposed by way of punishment for wrongdoing, whether
fraudulent or not, but because on equitable principles it is thought more fair that
they should be compelled to accept compensation than that they should go off
with the fullprofit of their wrongdoing. Properly speaking, it is not now in the
discretion of the Court to say whether compensation ought to be taken or not. If
substantially compensation can be made, rescission with compensation is ex
debito justitiae."
The right of the plaintiff to rescission referred to as "ex debito justitiae"

186

if substantially compensation can be made is now further strengthened by the
express statutory provisions of the Business Practices Act.
On occasion courts have been reluctant to recognize rescission as a
remedy available to the purchaser who has continued to use the car after a
vendor's failure to acknowledge his right of rescission: see Hillis v. Ross Wemp
Motors Ltd. et al. (1984), 47 O.R. (2d) 445). There are, however, cogent reasons
why the purchaser's right of rescission should be recognized and enforced by the
courts in cases such as the present where financial necessity obliges the purchaser
to continue use of the vehicle in the face of the defendant's wrongful refusal to
acknowledge the rescission and return the purchase price. The statute intends to
confer on the purchaser an effective remedy which the purchaser himself can
exercise. Rescission would be an oddly ineffective and meaningless remedy if the
vendor by a wrongful refusal to accept rescission could deprive the plaintiff of
the remedy and invoke the aid of the courts to hold the purchaser to a contract
obtained by means of the very unfair and unconscionable business practices
which the legislation was intended to prevent. A refusal by the courts to
recognize and enforce a purchaser's right of rescission would encourage vendors
to wrongfully resist legitimate acts of rescission in hopes that the alternative
remedies set out under s. 4(b) would be less onerous on them as they would be in
many cases. It seems to me that an interpretation of the Act which gives meaning
and effectiveness to the remedy conferred by the statute and which thereby
encourages prompt resolution by the parties themselves without the necessity of
recourse to the courts is to be preferred to a view of the law which works to the
opposite effect.
Accordingly, there will be a declaration that the contract was properly
rescinded by the purchaser in accordance with the Business Practices Act as of
April 25, 1984. The purchaser shall have judgment against the defendant for
$10,512.25 being a refund of the purchase price including sales tax and transfer
fee. The plaintiff upon receiving the said refund shall deliver up the car to the
defendant. The plaintiff shall have her costs of this action against the defendant.
There will be no prejudgment interest.
The defendant has had use of the plaintiff's money since December of
1983, and the plaintiff has had the use of the car, such use having been forced on
her by the refusal of the defendant to recognize her rescission of the contract and
return the purchase price. In the circumstances I am satisfied, as was the court in
Addison v. Ottawa Auto & Taxi Co., that no further adjustment is needed to
satisfy the requirements of equity, particularly in view of the fact the defendant is
in the business of obtaining and selling used cars and can readily resell the car
when it regains possession of it.
Had I arrived at the conclusion that rescission was not a remedy
available to the purchaser, I should in that event have awarded substantial
exemplary damages in addition to the other damages to which the plaintiff would
have been entitled.
[An appeal to the Ontario Divisional Court was endorsed on the appeal
record as follows:]
187

February 18, 1987.
We are not persuaded that the findings of liability should be disturbed.
There was evidence to support the conclusion of the learned trial judge that
misrepresentations were made by the defendant entitling the plaintiff to the
remedy of rescission.
Faced with the circumstances before him, the learned trial judge
fashioned a solution, which, although on balance might have favoured the
plaintiff, was not, in our view, unreasonable in the context of the situation which
he was called upon to resolve.
The appeal is dismissed with costs.
Appeal dismissed.
The issues raised by Lasby have been discussed at some length in the
US. It has been suggested that courts which have permitted a reasonable use
after rejection have been affected by the following factors:
“(1) Whether seller, after receiving the buyer’s notice of
rejection...cooperated in taking back the goods
(2) whether buyer or seller acted in bad faith;
(3) the degree of hardship that the buyer would have suffered by
discontinuing use of the goods
(4) the reasonableness of buyer’s use after revocation as a
method of mitigating damages
(5) whether seller was unduly prejudiced by the use
(6) whether, during the period of use, seller persisted in assuring
buyer that all non conformities would be cured or that provision would otherwise
be made to recompense buyer for the dissatisfaction and inconvenience caused
by the non conformities
....A primary reason for the move away from a no-use rule by some
courts has been the belief that the buyer should not lose a vital code remedy
because of circumstances beyond the buyers control. Particularly, the buyer
should not lose remedies because of the seller’s breach and subsequent refusal to
take back the goods. Consequently, many courts have considered the seller’s
failure to take back the goods to be a major factor in determining that the
buyer’s post-rejection or post revocation use was justified”.
J. R Bates, “Continued Use of Goods after rejection or
revocation of acceptance: the UCC rules revealed, reviewed and revised” (1993)
Rutgers Law Journal 1 at 43-44.
188

6. Alternatives: Lemon Laws and CAMVAP
Ramsay, Small Claims Court: A

Review in Ontario Law Reform
Commission, Civil Justice Review Vol 2
Automobile Arbitration Programmes
Disputes concerning defective or "lemon" automobiles comprise the

majority of reported consumer litigation in the Law reports and provides a
useful example of the problems of consumer redress. Automobiles are a high-
priced item and disputes concerning them may be beyond the existing
jurisdiction of the small claims courts. The costs of using the regular courts may
be prohibitive for a consumer. Disputes may often require expert evidence and
the existing, substantive legal standards for redress are vague and imprecise. i
Two US developments form the background to the development
of automobile arbitration in Canada. The first is the Federal Magnuson-Moss
Warranty Actii which introduced informal dispute settlement in warranty
disputes. Consumers must have recourse to mechanisms established by
manufacturers before going to court, provided the mechanisms met certain
standards. These standards include iii: no charge for use: ensuring the redress
mechanism is independent of the manufacturer; requiring settlement of the
dispute within 40 days of notification: maintaining a record of the brand and
make of product involved and other statistical information: the consumer is
entitled to go to court if dissatisfied with the decision of the mechanism.
In response to dissatisfaction with the scope of Magnuson Moss
several states enacted "Lemon Laws"iv. These laws established sharper
standards for deeming a car to be a “lemon”, entitling a consumer to a refund or
replacement. In addition, a number of states were dissatisfied with the industry
mechanisms established pursuant either to Magnuson Moss or lemon laws and
enacted their own arbitration programme.
In Canada, the major initiative in this area was the development
of the Ontario Motor Vehicle Arbitration Programme in 1985. This has now
become, with relatively minor modifications, the Canadian Motor Vehicle
Arbitration Programme, which is available in several provinces. The Ontario
programme developed as a response by the auto industry to the fear of
introduction of Lemon Law. The original Ontario programme was established as
a hybrid form of non-statutory organization, presided over by a Board
composed of representatives of the government, the automobile industry,
arbitrators, the Better Business Bureau and consumer representatives. The
programme is financed by the automobile industry and is free to consumers.
189

Consumers who wish to use the service must normally exhaust the internal
complaint mechanisms of the manufacturer before using the plan. The
jurisdiction of the plan includes new and used cars purchased from authorized
dealers, and applies to defects in workmanship or material in the vehicle. It does
not apply to claims for personal injuries or property damage. The arbitrator may
award vehicle repairs, a buy back or replacement, and limited financial
compensation for out of pocket expenses. The arbitrations are private, all
information documents and testimony are treated as confidential, the consumer
gives up their right to go to court and the decision of the arbitrator may only be
overturned based on the grounds available for judicial review of arbitration
awards. The agreement for arbitration does not establish any standards for
decision making. The company agrees to implement the award within thirty days.
The carrier for the original OMVAP program was the Better Business Bureau.
A review of the operation of the plan was conducted in 1988 and
published in 1989v. While there were limitations in the scope of the report it did
provide some useful data on the demand for the programme, the nature of cases
being brought to the mechanism and consumer perceptions of the programme.
The data show that although the programme receives a large # of inquiries the
number of arbitrations were only 381 and 311 in 1988 and 1987 respectively.
Few consumers obtained a buy back or a cash refund, the majority receiving
some form of cash adjustment. Interviews with consumers who had used the
programme indicated that before turning to the programme they had experienced
on average 9 repairs, with the average time from when the problem first arose
until turning to the plan being 11 months. Almost three quarters experienced out
of pocket losses of $1000 (plan limit$350).
The average waiting time from signing the arbitration agreement
until the hearing was 8 weeks. (CAMVAP appears to be faster: the average time
is 61 days). The vast majority represented themselves at the hearings (93%).
Forty percent of those who responded did not think the hearing was conducted in
a fair manner (primarily respondents feeling intimidated), only 30% of the
respondents felt that the award was fair and only 41% were satisfied with the
process. Yet surprisingly 56% stated that they would use the process again. It is
difficult to extrapolate too much from these raw data, but they suggest a
significant level of consumer concern about the process. The individual
consumer in the arbitration is pitted against a repeat player representative from
the company and this perhaps accounts for the finding in the Report that
"although the process is relatively informal, respondents still feel intimidated". vi
There is also reason for concern when the performance of the
Ontario plan is compared to that of the New York State lemon law arbitration
programme.vii Under this programme the number of buy-backs and refunds are
significantly higher. In under 10% of the Ontario cases did consumers obtain
this form of relief whereas this was the outcome in 66% of the New York cases.
This might be partly accounted for by the sharper standards to be applied in the
New York Programme.
It is also important to assess the impact of these schemes on
190

“bargaining in the shadow of the law”. To the extent that there are clearer
standards in the lemon law arbitration this may provide a better signal to the
parties concerning a potential decision, thereby enhancing the likelihood of
settlement. In this respect the New York law is superior to the Ontario provision.
A comparison of the OMVAP programme with the courts would have to account
not only for the comparative costs of arbitration and litigation but also the impact
of the threat of litigation on incentives to settle.
It is not clear what the impact of OMVAP has been on
manufacturers’ production practices. The Annual Report of the New York
programme lists the makes of automobiles involved in arbitrations and their
success rates. It is possible that this form of publicity may have some impact on
production practices and could be a useful method for detecting patterns of
problems.
The experience of the automobile arbitration plan suggests that
reforms might be directed towards the establishment of clearer standards which
might have an impact on bargaining. There is also the issue of expert evidence
which may be necessary in these cases. CAMVAP itself does not provide
independent expert advice and arbitrators are not experts. Consumers must pay
for their own expert.
The development of the automobile arbitration plan reflects a
political compromise between various interest groups. viii Government interest at
the time of its introduction appeared to be in seeking alternatives to legislative
regulation, reducing the congestion in the courts and in seeking partnership
solutions. The most active consumer group in this area[The Automobile
Protection Association] was sceptical about the arbitration scheme, but the
Consumer Association of Canada supported it. The industry viewed it as a
method of preventing legislative regulation. Mercer indicates that they accepted
the "program grudgingly as a major goal of industry was (and is) to avoid being
subjected to lemon laws." When the programme was introduced consumerism
was not a powerful force in Ontario, the automobile industry is the largest
manufacturing industry in the province and the government may have identified
the need to be responsive both to a diffuse but not strongly articulated consumer
concern and the interests of a powerful provincial industry All of these factors
were set against a general ideological background of deregulation. The industry
seems to have been relatively successful since a number of the provisions of the
programme might suggest that the mechanism is a means of "defusing" potential
consumer dissatisfaction [confidentiality, no clear standards, no “scorecard”
identifying manufacturers]. There has also been concern expressed that the board
of OMVAP was dominated by industry with one member of the board arguing
that the presence of consumer members on the board was mere “window
dressing”.ix[The current CAMVAP board has 5 industry representatives, three
government representatives and two consumer members. Its publicity material
indicate that it now has “very effective and very strong consumer
representation”.]
191

Footnotes
192

i Under the Sale of Goods Act, sellers of automobiles must provide the purchaser with an automobile which is of
merchantable quality and fit for the particular purpose. Breach of these obligations entitles the consumer to a prima facie
right to reject the goods. The uncertainty in the application of these standards means however that a consumer has no clear
standard to appeal to in bargaining with a dealer. Moreover while a manufacturer may provide a warranty, it will always
limit the consumer’s right to reject the automobile and get their money back. Moreover, if the consumer rejects the
automobile, and the seller refuses to return the price or retake the automobile then the consumer is in a difficult position,
since continued use may jeopardize the right to reject but few individuals will be willing or able to pay for a substitute while
the dispute is processed.
ii Magnuson-Moss Warranty Act, Pub. L. No. 93-637, Title 1, 88 Stat.2183 (1975) (codified at 15 U.S.C. 2301-
12.)
iii See 16 CFR 703 (1985)
iv The Lemon laws eliminate privity between a purchaser and manufacturer: require a refund or replacement after a
reasonable number of attempts to repair, regardless of warranty limitation, specify the number of repairs that will constitute
a reasonable opportunity to repair: encourage arbitration. See D.Pridgen, Consumer Protection at 15-01. New York State
presumes an automobile to be a lemon after 4 attempts at repair or 30 days in the garage and the coverage is 2 years or
18,000 miles.
vP.Mercer, "Two Year Review of the Ontario Motor Vehicle Arbitration Plan" (1989).
vi Mercer at 81.
viiThe following based on Annual Reports of New York state arbitration boards.
viii The following is based on the account by Mercer.
ix Mercer at 60, noting the perception of "Board being run by industry".
For details on the current CAMVAP programme see http://www.camvap.ca/

Chapter 4: The Quality of Goods and Services: Private Law Remedies

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Chapter 4: The Quality of Goods and Services: Private Law Remedies

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Chapter 4: The Quality of Goods and Services:

Private Law Remedies

Stapleton claims that the implied terms as to quality "have

The Implied Conditions

3.1. Condition that goods correspond with description in a sale by description

Description Quality and Fitness for Purpose

The second issue concerns the scope of the description. It must

Description Quality and Fitness for Purpose

Note requirements that the goods be bought by description from a seller

There is no definition of merchantable quality in the Act. See Chapter 9

3.2.1. Merchantability and durability

Merchantability traditionally decided at time of delivery. One question

In the Fording case ( Chapter 9 at 87) a case decided in 1991 by the BC

Description Quality and Fitness for Purpose

Plaintiff argued both 15.1 and 2 (18a and b in BC)

Several point in the judgment:

Note the limitation of the merchantability provision where the purchaser

3.3 Reasonable fitness for purpose (s15.1)

On first sight this section looks as if it imposes a

Description Quality and Fitness for Purpose

4. Application of these provisions to purchase of automobile

The case of Rogers v. Parish (Chapter 9: 162) provides some pointers on

Description Quality and Fitness for Purpose

5. Remedies for breach of implied conditions under Sale of Goods Act

The remedies would include rejection + damages.

Rejection is powerful remedy for consumer. However, a consumer may

Description Quality and Fitness for Purpose

1. Where on a sale of specific goods the property has passed

2. Acceptance of goods by consumer

Acceptance of the goods is further defined by s34 which indicates that

5.1.1 Loss of right to reject through property passage

Description Quality and Fitness for Purpose

5.1.2 Loss of right to reject through acceptance

5.1.3 . Is it possible to continue to use goods even though you wish to

This is a significant practical issue since a consumer who rejects may

Description Quality and Fitness for Purpose

6. Quality and condition obligations in “near sales’ (Chapter 9,130-146)

Concerning the first issue raised, that is whether there should be an

Description Quality and Fitness for Purpose

2. Implied condition of description

Varley v. Whipp [1900] 1 Q.B.513

Description Quality and Fitness for Purpose

Harlingdon & Leinster

Cur adv vult

NOURSE LJ (giving the first judgment at the invitation of Slade LJ).

Description Quality and Fitness for Purpose

'VILLAGE STREET IN UPPER BAVARIA

Description Quality and Fitness for Purpose

Description Quality and Fitness for Purpose

Description Quality and Fitness for Purpose

These observations, in emphasising the significance to be attached to

Description Quality and Fitness for Purpose

It is suggested that the significance which some of these authorities

'There can clearly be a sale by description where the

Description Quality and Fitness for Purpose

I agree. On a view of their words and deeds as a whole the parties

'(2) Where the seller sells goods in the course of a

As to these provisions, it is clear that neither of the exceptions from

Description Quality and Fitness for Purpose

Description Quality and Fitness for Purpose

Description Quality and Fitness for Purpose

STUART_SMITH LJ. (Dissenting) The principal issue in this appeal

ROWLES J.A. HUTCHEON J.A.: I agree. TOY J.A.: I agree.