Contract

Source: The International and Comparative Law Quarterly , Jul., 1973, Vol. 22, No. 3
(Jul., 1973), pp. 576-579
Published by: Cambridge University Press on behalf of the British Institute of
International and Comparative Law

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 CURRENT LEGAL DEVELOPMENTS

(Prepared by Research Officers of the British Institute of

International and Comparative Law *)

CONTRACT

United Kingdom
The protection given to a buyer of goods is greatly extended by the
of Goods (Implied Terms) Act 1973, which came into force on May 1
The conditions implied in sale of goods and hire purchase contracts are
and the seller's power to exclude them is severely curtailed. The under
implied by sections 12-15 of the Sale of Goods Act 1893 are the condit
warranties relating to the seller's title to, and the buyer's quiet possession
goods, undertakings in sales by description and by sample, and conditi
warranties as to the quality and fitness of the goods. Sections 8-11 of
Act imply analogous terms into hire purchase agreements.
Section 12 of the 1893 Act (title and quiet possession) is redraft
section 1 of this Act. The implied condition is that the seller has the r
sell at the relevant time and the implied warranty is that the buyer wi
from interference by the owner or third parties, except in so far as th
to disturb his possession was disclosed at the time of the contract
These rights were formerly subject to the words "unless the circumst
the contract are such as to show a different intention." This limit
now been made more specific: The undertakings are only modified in a
where, expressly or by implication from the circumstances, there is an in
to transfer only such title as the seller or a third party may have.
case, there are implied warranties (a) that all the encumbrances on t
known to the seller have been disclosed to the buyer before the con
made and (b) that the buyer's quiet possession of the goods will not be d
by the seller or by any third person to whom the limited title to t
belongs or by anyone else claiming through either of them otherw
under an encumbrance disclosed to the buyer.
Section 13 of the Sale of Goods Act 1893 (sale by description) is supple-
mented by section 2 of the 1973 Act. Where the buyer himself selects the
goods for sale, such a sale is not prevented from being a sale by description.
This clears up a certain degree of doubt on the point and may be of importance
in the context of an exclusion clause.
Section 14 of the 1893 Act (quality and fitness) is thoroughly revised by
section 3 of the 1973 Act. Firstly, the exclusion of goods sold under a patent
or trade name from the implied undertaking as to fitness for the purpose is
removed. The section is also redrawn to exclude implied terms as to fitness
for a particular purpose other than those provided by statute or by usage
(s. 14 (1) and (4)). The implied condition that the goods supplied are of
merchantable quality now avails against a seller who " sells goods in the course
of a business" (which includes a profession and the activities of a government
department, local authority or statutory undertaker: s. 7, 1973 Act). This was
formerly limited to sales by description and to sellers who " dealt in goods of
that description." (The latter limitation did not in any event apply to sales by
sample under section 15.) The condition is excluded (a) where any defects are
specifically drawn to the buyer's attention before contract and (b) where the
* The items in this issue of Current Legal Developments were contributed by
Frances Graupner and Celia Hampton.
576

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JULY 1973] Current Legal Developments 577

buyer examines the goods before contract and that examination ought to have
revealed the defects in question. "Of merchantable quality" is redefined in
section 7 (2) of the 1973 Act to read " 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 other
relevant circumstances." One effect of this and the new sections 13 and 14 (2)
above is to reduce any possibility of restricting its scope to a narrow or
technical interpretation of " sale by description."
The implied condition of fitness for the purpose (now s. 14 (3) of the Sale
of Goods Act 1893) is again extended to any seller who "sells goods in the
course of a business," whatever their description. Apart from clarifying and
drafting changes, the principal revision of this condition is the restatement of
the need for the buyer to rely on the seller's skill and judgment. Where " the
buyer, expressly or by implication, makes known to the seller any particular
purpose for which the goods are being bought, there is an implied condition
that the goods supplied 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 seller's skill or judgment." The buyer had
formerly to "make known the particular purpose . . . so as to show " that he
relied on the seller's skill or judgment. Although this change puts the onus on
the seller to show that the buyer is not entitled to reject the goods under the
implied condition, it does alleviate the seller's position to the extent that
formerly he was held responsible for latent defects which no amount of care
could have revealed. (He might still be responsible for their not being of
merchantable quality, however.)
Section 14 applies to sales by an agent acting as such in the course of
business unless the seller/principal is not selling in the course of business and
the buyer knows of that fact. Thus, the undertakings as to fitness and quality
are not implied into private sales.
The condition as to fitness for the purpose applies to sales of goods under
which the purchase price is payable by instalment. Sections 8-11 of the new
Act make provisions for hire purchase agreements which, making the necessary
changes in terminology, are identical to sections 12-15 of the Sale of Goods
Act 1893-section 8, 1973 Act: section 12, 1893 Act (omitting references to
immediate transfer of title), as amended by section 1 of the 1973 Act; section 9,
1973 Act: section 13, 1893 Act, as amended by section 2, 1973 Act; section 10,
1973 Act: section 14, 1893 Act, as amended by section 3, 1973 Act; section 11,
1973 Act: section 15, 1893 Act (omitting the requirement for a term in the
contract to the effect that it is a sale by sample).
The power of the parties to exclude the implied rights, duties and liabilities
under the Sale of Goods Act, formerly to be exercised at will, is greatly reduced
by the 1973 Act. A new section 55 of the 1893 Act states the power inclusively,
i.e., that a sale of goods contract " may be negatived or varied by express agree-
ment, or by the course of dealing between the parties, or by usage if the usage
is such as to bind both parties to the contract, but . . . subject to the following
provisions." Firstly, section 55 (2) states the rule of interpretation that any
express condition or warranty, to negative any condition or warranty implied
by the Act, must be inconsistent with it. Secondly, any term exempting from
the conditions or warranties as to title and quiet possession (s. 12, 1893 Act) is
void. This applies to all sales of goods, whether private, business or consumer.
In the case of terms exempting the seller from sections 13-15 (sales by descrip-
tion or sample, implied terms as to fitness or quality) a distinction is drawn
between " consumer sales " and other sales. A consumer sale is defined as " a
sale of goods (other than a sale by auction or by competitive tender) by a
seller in the course of business where the goods (a) are of a type ordinarily
bought for private use or consumption; and (b) are sold to a person who does
not buy or hold himself out as buying them in the course of business." In the

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578 International and Comparative Law Quarterly [VOL. 22

case of a consumer sale, any term exempting the seller from section 13, 14 or
15 is void. In other cases, such a term is unenforceable to the extent that it
is shown that it would not be fair or reasonable to allow reliance on the term.
For the purposes of determining this, five specific criteria, in addition to the
circumstances of the case, are laid down:
(a) the relative strength of the bargaining positions of buyer and seller,
taking into account the availability of suitable alternative products and sources
of supply;
(b) any inducement received by the buyer to agree to the term, taking into
account any opportunity he had of buying the goods or alternative goods
without the term or from any other source of supply;
(c) the buyer's knowledge or constructive knowledge of the existence and
extent of the term in view of any custom of the trade or previous course of
dealing with the seller;
(d) the reasonableness of expecting, at the time of the contract, that com-
pliance with a condition of the contract, on breach of which the buyer would
forfeit his rights under sections 13-15, would be practicable;
(e) the fact that the goods were manufactured, processed or adapted to the
special order of the buyer.
The buyer in a non-consumer sale has the onus of showing that it would
not be fair or reasonable to allow reliance on an exclusion clause. In con-
sumer sales, however, the burden of proof lies on the party contending that
the sale is not a consumer sale, i.e., the seller.
Section 12 of the 1973 Act makes provision for exclusion clauses in hire
purchase agreements which is almost identical to the new section 55.
A new section 55A of the Sale of Goods Act extends the buyer's protection
in the field of the conflict of laws by providing that, where the proper law of
a sale of goods contract would be the law of any part of the United Kingdom
but for an express term that the law of some other country should apply,
sections 12-15 and 55 of the Sale of Goods Act are to apply to the contract
notwithstanding that term. This provision required an amendment of section 1
(4) of the Uniform Law on International Sales Act 1967. An important
limitation on this, however, is a new section 61 (6) which preserves the rights
of the parties to a " contract for the international sale of goods" to negative
or vary any provision of sections 12-15. Such a contract is defined as a con-
tract made by parties whose places of business (or, if none, habitual residences)
are in the territories of different states and either (a) the contract involves
goods which at the time of the contract are in the course of carriage or will be
carried from one state to another; or (b) the offer and acceptance have been
effected in different states; or (c) delivery of the goods is to be made in a state
other than that within which the offer and acceptance have been effected. This
section (s. 7 (1), 1973 Act) refers to the territory of States and declares that
the Channel Islands and the Isle of Man are different States from the United
Kingdom.
Section 13 of the new Act makes a similar provision for hire purchase
agreements as the new section 55A, but naturally omits the provision for
international sales.
Section 14 excludes from conditional sale agreements the operation of
section 11 (1) (c) of the Sale of Goods Act 1893, which provides that, on the
buyer's acceptance of goods or the passing of the property in specific goods,
the breach of a condition by the seller can only be treated as a breach of
warranty (i.e., the buyer cannot repudiate the contract and reject the goods but
has recourse to damages only). This provision can only apply to the buyer
and seller if it could have applied to the hirer and owner had the conditional
sale agreement been a hire purchase agreement.
Section 16 restates the Trading Stamp Act 1964, s. 4, which provides for
warranties to be implied on the redemption of trading stamps for goods. The

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JULY 1973] Current Legal Developments 579

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EUROPEAN COMMUNITIES

Competition Policy
The European Court of Justice recently rendered two judgmen
siderable importance with regard to the development of Community c
policy.
Continental Can concerns the use of Article 86 of the Rome Treaty, which
prohibits the abuse of a dominant position within the Common Market or a
substantial part of it. Article 86 does not prohibit the existence or the attain-
ment of a dominant position, but only the abuse of such a dominant position
which afects trade between member States. The essential principle pronounced
by the courts can be summarised as follows.
An enterprise can be guilty of abuse of dominant position when it increases
its dominance in a certain field to the point where it substantially impairs com-
petition, so that any other enterprises left on the market must then depend on
the dominant enterprise in determining their market behaviour. The Court also
said that an enterprise in a dominant position would be contravening Article 86
if it takes any steps which alter the market structure so that the freedom of
action on the part of the consumer was seriously restricted in a substantial
part of the market. There is no distinction, as regards the application of
Article 86, between, firstly, measures concerning the structure of the enterprise,
which consequently cause a change in market structure and hence affect the
operation of the market, and secondly, behaviour by the dominant enterprise
which has an effect on the market. Consequently, Article 86 can be used in
certain cases to control mergers and acquisitions, although the Court held that,
in this case, insufficient evidence had been adduced to prove the dominance of
Continental Can in the relevant market.
The facts. The Commission had objected to the acquisition of Continental
Can, through its Belgian subsidiary, Europemballage S.A., of a majority share-
holding in Thomassen and Drijver-Verblifa N.V., the most important packaging
firm in the Benelux countries, when it already controlled Schmalbach-Lubeca
Werke A.G., the largest producer of metal containers in Germany. The Com-
mission found that Continental Can already held a dominant position in
Germany with respect to three product areas (metal cans for meat Droducts,
metal cans for fish products and metal closures for glass jars) and that the
enterprise's acquisition of the leading Benelux can producer had virtually
eliminated potential competition in this production field in a substantial area
of the Common Market. The Commission ordered Continental Can to propose
measures to remedy this alleged violation of Article 86, but Continental Can's
ensuing proposals were considered unsatisfactory. Continental Can appealed
from the Commission's decision to the Court of Justice and argued that Article
86 could not be interpreted to apply to acquisitions and that in any event the
Commission had not proved its allegations.
Judgment. On the first argument the Court held that the interpretation of
Article 86 must be based on Article 3 (f), which requires the institution of a
system which ensures that competition in the Common Market is not distorted
and hence must imply that competition should not be eliminated. Further-
more, Article 86 must be interpreted in a way which makes the results obtained
under it consistent with those obtained under Article 85. The Court held that
the Treaty cannot intend to permit the almost total elimination of competition

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