First Principles of Business Law 2017 - (Chapter 7 Statutory Provisions Affecting Contracts For Goods and Servi... )

CHAPTER
Statutory Provisions Affecting Contracts

for Goods and Services

In this chapter:
• The need to fill gaps in contracts for the sale of goods
• State and territory sale of goods legislation
• Sales ‘by description’
• Terms regulating the delivery of goods
• Terms regulating payment for goods
• Guarantees of ownership and quiet possession
• Terms regulating the quality of goods sold
• Statutory guarantees for consumers who contract for goods and services.
[7.1] Introduction
Copyright © 2017. Oxford University Press. All rights reserved.
7.1.1 The need for generic terms to fill gaps in a contract

In a contract for the sale of goods (as in other contracts) the agreed terms may not cover all
of the disputes that subsequently arise. In such cases, the law provides many generic terms
that, in the absence of agreed terms, fill these gaps. It should be clearly understood that,
although made part of a contract by law rather than by agreement, these terms become
part of the contract (usually as conditions) and thereafter operate in the same way as any
other terms.
This chapter explains the nature and scope of the generic terms found in sales
contracts. The FPBL eStudy module Statutory provisions affecting contracts for goods and
services will help you understand and properly apply the relevant principles and rules.
There is also a quiz on this topic in the module Quizzes and case studies for revision which
you can use to test yourself when you think you have learned what you need to know.
Some generic terms become part of a contract under the common law, others by
statute. Of particular importance now is the sale of goods legislation of every Australian
state and territory. All of the state and territory Acts are based on the Sale of Goods Act 1893
Lambiris, M., & Griffin, L. (2017). First principles of business law 2017. ProQuest Ebook Central <a
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142 Statutory Provisions Affecting Contracts for Goods and Services
(UK). They consolidate, in statutory form, many of the rules originally worked out by the
courts. The following table sets out the various Australian Acts).
Table 7.1 Australian sale of goods legislation
NSW Sale of Goods Act 1923 Vic Goods Act 1958

Qld Sale of Goods Act 1896 WA Sale of Goods Act 1895
SA Sale of Goods Act 1895 ACT Sale of Goods Act 1954
Tas Sale of Goods Act 1896 NT Sale of Goods Act 1972
The content of all these various Acts is very similar, but the section numbers differ
somewhat. The equivalent numbers of selected sections is shown in the table below.
Table 7.2 Comparative table of selected sections—sale of goods legislation
NSW Qld SA WA Tas Vic ACT NT

5 3 A2 60 3 3 2 5
7 5 2 2 7 7 7 7
11 9 6 6 11 11 11 11
12 10 7 7 12 12 12 12
16 14 11 11 16 16 16 16
17 15 12 12 17 17 17 17
18 16 13 13 18 18 18 18
19 17 14 14 19 19 19 19
20 18 15 15 20 20 20 20
31 30 28 28 33 35 32 31
32 31 29 29 34 36 33 32
37 36 34 34 39 41 38 37
38 37 35 35 40 42 39 38
57 56 54 54 59 61 - 57
In the rest of this chapter, sections from the Goods Act 1958 (Vic) are given as examples.
[7.2] Generic Terms: Goods Sold ‘By Description’

7.2.1. The obligation to deliver goods as identified
Goods are sold ‘by description’ when they are identified as belonging to any named class
or category of goods, for example ‘a table’ or ‘these shoes’. Section 18 of the Goods Act 1958
(Vic) (and equivalent sections in the other states and territories) implies a condition into
a contract of sale that when goods are identified by description, the goods delivered must
be those that were identified in the description.1
1 Sale of Goods Act 1923 (NSW), s 18; Sale of Goods Act 1896 (Qld), s 16; Sale of Goods Act 1895 (SA), s 13; Sale of Goods
Act 1896 (Tas), s 18; Goods Act 1958 (Vic), s 18; Sale of Goods Act 1895 (WA), s 13; Sale of Goods Act 1954 (ACT), s
18; Sale of Goods Act 1972 (NT), s 18.
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Statutory Provisions Affecting Contracts for Goods and Services143
Goods Act 1958 (Vic)

18 Sale by description
When there is a contract for the sale of goods by description there is an implied
condition that the goods shall correspond with the description; and if the sale be
by sample as well as by description it is not sufficient that the bulk of the goods
corresponds with the sample if the goods do not also correspond with the description.
Varley v Whipp [1900] 1 QB 513

Contract; contents; terms implied by legislation; sale of goods; duty to
deliver goods as identified
Facts: Varley and Whipp met in the town of Huddersfield. Varley offered to sell a
second-hand reaping machine to Whipp for £21. Varley said the machine was in the
town of Upjohn. He said the machine was a year old and had only been used to cut
50 or so acres of crops. Whipp had not seen the machine, but agreed to buy it. When
delivered, the machine proved to be a very old one which had obviously been broken
and mended. Whipp returned it and refused to pay the price.
Issue: Had the seller delivered what was promised, so that he was entitled to be paid
the agreed price?
Decision: The seller had not delivered what had been promised.
Reason: The thing sold was a specified machine, but it was bought unseen and it was
identified by description. The description was ‘a nearly new reaping machine then in
Upjohn’. The machine delivered was not ‘a nearly new machine’ and the court held
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that it was not in the same class or category of goods as had been described. The
seller had therefore failed to deliver the particular goods as identified in the contract.
This was a breach of the condition, implied into sale contracts by law, that a seller
must deliver the goods as identified by description in the contract. Failure to deliver
goods as identified meant that the buyer did not become the owner of what had been
delivered. Whipp was therefore entitled to reject the machine and was not obliged to
pay for it.
[7.3] Generic Terms: the Delivery of Goods Sold

7.3.1 The time, place and manner of delivery
Section 36 of the Goods Act 1958 (Vic) (and equivalent sections in the other states and
territories) sets out various implied terms relating to delivery, in case the parties do not
agree other terms for themselves. For example, s 36(2) of the Victorian Act states that if
the time for delivery of goods sold is not an agreed term of the contract, then delivery must
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take place within a reasonable time of contracting.2 What is ‘reasonable’ must be judged
in the circumstances of each case.
Note: Performance within a reasonable time is generally required in all contracts.

36 Rules as to delivery
(1) Whether it is for the buyer to take possession of the goods or for the seller to
send them to the buyer is a question depending in each case on the contract
express or implied between the parties. Apart from any such contract express
or implied the place of delivery is the seller’s place of business if he have one
and if not his residence: Provided that if the contract be for the sale of specific
goods which to the knowledge of the parties when the contract is made are in
some other place then that place is the place of delivery.
(2) Where under the contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them
within a reasonable time.
(3) Where the goods at the time of sale are in the possession of a third person
there is no delivery by seller to buyer unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf: Provided
that nothing in this section shall affect the operation of the issue or transfer of
any document of title to goods.
(4) Demand or tender of delivery may be treated as ineffectual unless made at a
reasonable hour. What is a reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expenses of and incidental to putting the goods
into a deliverable state must be borne by the seller.
[7.4] Generic Terms: Payment for Goods Sold

7.4.1 Payment and delivery to take place concurrently

If the parties to a contract of sale do not discuss and agree when payment is to be made, s
35 of the Goods Act 1958 (Vic) (and equivalent sections in the other states and territories)
requires payment and delivery to happen at the same time.3 The obligation to pay is
reciprocal to the obligation to deliver, and the buyer is not entitled to delivery without
tendering payment.
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35 Payment and delivery
Unless otherwise agreed, delivery of the goods and payment of the price are
concurrent conditions (that is to say) the seller must be ready and willing to give
possession of the goods to the buyer in exchange for the price, and the buyer must
be ready and willing to pay the price in exchange for possession of the goods.
Note: There are other generic terms implied by the sale of goods legislation regarding the
place and manner of payment.
[7.5] Generic Terms: Ownership and Quiet Possession

7.5.1 The seller’s obligation to guarantee property rights
It is common commercial practice for sellers to sell goods that they do not yet own at the
time of the sale, but which they intend to acquire and deliver to the buyer. The convenience
of this practice is recognised in s 17 of the Goods Act 1958 (Vic) (and equivalent sections in
the other states and territories).4 Section 17 only requires sellers to guarantee that they will
have the right to sell the goods at the time that property in those goods is intended to pass
to the buyer. Until then, the seller need not be the owner of whatever is being sold by them.
Section 17 also makes it a warranty of the contract that the buyer’s possession of the
goods will not be disturbed by a third party who has a superior claim to ownership (this is
called the ‘warranty of quiet possession’). Finally, s 17 makes it a warranty of the contract
that goods bought and sold are not burdened by any undisclosed charge or encumbrance
in favour of a third party (such as when goods sold are subject to a mortgage in favour of
a third party).

7
17 Implied undertakings
In a contract of sale, unless the circumstances of the contract are such as to show
a different intention, there is —
(a) an implied condition on the part of the seller that in the case of a sale he has a
right to sell the goods and that in the case of an agreement to sell he will have
a right to sell the goods at the time when the property is to pass;
(b) an implied warranty that the buyer shall have and enjoy quiet possession of
the goods;
(c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party not declared or known to the buyer
before or at the time when the contract is made.
[7.6] Generic Terms: Inspection of Goods Delivered

7.6.1. The buyer’s right to inspect and reject goods
There is no generic term implied into contracts of sale requiring a buyer to inspect goods
when they are delivered. Section 41 of the Goods Act 1958 (Vic) (and equivalent sections
in the other states and territories) only gives buyers a right to inspect goods when they are
delivered; to do so is not a duty.5 However, s 42 of the Goods Act 1958 (Vic) (and equivalent
sections in the other states and territories) makes it clear that if a buyer chooses not to
inspect the goods, and the goods suffer from some fault or defect that could have been
discovered by examining them, the buyer will be taken to have accepted the goods and will
lose any right to subsequently reject them because of the faults. This means that a buyer
who chooses not to inspect goods delivered takes on the risk of the goods having a fault or
defect that they could have discovered.

41 Buyer’s right of examining goods
(1) Where goods are delivered to the buyer which he has not previously examined
he is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of ascertaining
whether they are in conformity with the contract.
(2) Unless otherwise agreed when the seller tenders delivery of goods to the
buyer he is bound on request to afford the buyer a reasonable opportunity
of examining the goods for the purpose of ascertaining whether they are in
conformity with the contract.
[7.7] Generic Terms: The Quality of Goods Sold

7.7.1. The obligations of sellers who deal in goods

When the seller of goods is a person who deals in goods of the type being bought and
sold (that is, who sells them in the course of business), and if contracting parties do not
discuss and agree on the quality of goods to be supplied, the state and territory sale of
goods legislation provides terms, laying down the minimum required quality of the goods,
depending on the particular circumstances of the case. These provisions are particularly
important in commercial contracts to which the relevant provisions of consumer protection
laws may not apply. The special provisions that apply to consumer contracts are explained
below.
It should be noted that, when a seller is not a person who deals commercially in goods of
the type being sold (what we can call a private seller) the policy ‘caveat emptor’ (let the
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buyer beware) applies. The sale of goods legislation does not imply terms regulating the
minimum quality of the goods when the seller is not a dealer in such goods. It is up to the
buyer to check that the goods are of satisfactory quality, or to ensure that express terms
are included in the contract specifying the quality required. This would be the case, for
example, when private sellers list goods for sale online.
7.7.2 Generic terms regarding ‘merchantable quality’
When goods are sold by a seller who deals in the type of goods sold (when the sale takes
place in the course of a business rather than being a private sale), then the sale of goods
legislation provides an implied condition that the goods delivered shall be of ‘merchantable
quality’.6 This condition becomes part of the contract unless the buyer inspected the goods
before buying them and the defects would have been obvious from such an inspection. See,
for example, s 19(b) of the Goods Act 1958 (Vic).

19 Implied conditions as to quality or fitness
Subject to the provisions of this Part and of any Act in that behalf there is no implied
warranty or condition as to the quality or fitness for any particular purpose of goods
supplied under a contract of sale, except as follows —
(a) …
(b) where goods are bought by description from a seller who deals in goods of
that description (whether he be the manufacturer or not) there is an implied
condition that the goods shall be of merchantable quality: Provided that if the
buyer has examined the goods there shall be no implied condition as regards
defects which such examination ought to have revealed;
(c) an implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade;
7
(d) an express warranty or condition does not negative a warranty or condition
implied by this Part unless inconsistent therewith.
7.7.3 The meaning of merchantable quality

The sale of goods legislation in Australia does not define the phrase ‘merchantable quality’
but the courts have formulated various expressions of the proper approach to determining
this question. Three of these are explained below.
1. Goods are of merchantable quality when a buyer who knows all the facts, including
what hidden defects may exist in the goods, would buy them at the price such goods
would fetch when in reasonably sound order.
Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387

Contract; contents; terms implied by legislation; sale of goods; implied
condition requiring delivery of goods of merchantable quality
Facts: Grant purchased some woollen underwear manufactured by Australian
Knitting Mills. When he wore the underwear, Grant developed an itchy rash which
became acute general dermatitis. The skin condition was caused by small particles
of sulphur in the wool from which the underwear was made. As well as suing
Australian Knitting Mills in tort, Grant sued the retailer in contract for breach of a
condition requiring the goods sold to be of merchantable quality, as implied into the
contract of sale by s 14(2) of the Sale of Goods Act 1895 (SA).
Issue: Was the underwear sold by the retailer of merchantable quality?
Decision: The court held that the underwear was merchantable.
Reason: Dixon J said (at 418):
The condition that goods are of merchantable quality requires that they should
be in such an actual state that a buyer fully acquainted with the facts and,
therefore, knowing what hidden defects exist and not being limited to their
apparent condition would buy them without abatement of the price obtainable
for such goods if in reasonably sound order and condition and without special
terms.
Sulphur particles showed up in all specimens of woollen underwear that were

analysed. This same underwear was being sold as underwear in the market in large
quantities to people who were not affected by the sulphur. Therefore, despite the
‘defect’, the goods were merchantable as underwear.
Note: The decision that the underwear was merchantable was later reversed by
the Privy Council. However, after the right of appeal from Australian courts to the
Privy Council was discontinued, Dixon J confirmed his original test of merchantable
quality and other Australian judges have applied similar, though differently worded,
tests to determine whether goods are merchantable.
2. Goods are not of merchantable quality if they are of no use for any purpose for which
such goods are normally used, and therefore are not saleable under that description.
David Jones Ltd v Willis (1934) 52 CLR 110

Facts: Willis went to the shoe department in the David Jones store and said she
wished to see some shoes. She said she wanted comfortable walking shoes. She
inspected two or three pairs, tried on one pair and decided to buy them. The third
time she wore them, the heel of one shoe came off as she was walking down some
steps. As a result of this, Willis fell and broke her leg. Willis sued David Jones for
damages (including her injuries) on the basis of breach of contract.
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Issue: Was it a term of the contract that the shoes be of merchantable quality, and
were the shoes supplied merchantable or not?
Decision: In the circumstances, it was a term of the contract that the shoes be
of merchantable quality. Whether or not the shoes supplied were merchantable
was a question of fact for a jury to decide. Here, the shoes were found to be not of
merchantable quality.
Reason: Starke J said (at 123):
The buyer has ‘a right to expect, not a perfect article, but an article which
would be saleable in the market’ under that description. Goods are not of
‘merchantable quality’ if, in the form in which they are tendered, they are of no
use for any purpose for which such goods are normally used, and hence are not
saleable under that description.
McTiernan J applied the same test as Starke J.

Dixon J restated the test he laid down in Australian Knitting Mills v Grant (1933)
50 CLR 387 and said that, in his view, this is not a different test.
3. Goods are of merchantable quality if they are of such a quality and in such a condition
that a reasonable person would, after examining them fully, accept delivery of them,
whether he or she buys them for personal use or to sell again.
George Wills & Co Ltd v Davids Pty Ltd (1957) 98 CLR 77

7
Facts: Davids Pty Ltd, a wholesale grocer, purchased 360 cases of beetroot canned
in vinegar from George Wills. Davids intended to resell the beetroot as a retail
product. However, only about a third of the cans were resold within a year. Some
time later, it was found that the remaining cans had swollen and started to leak, and
that bacteria had found its way into some of the cans. The cans were condemned
as unfit for human consumption and had to be destroyed. Davids sued George Wills
for breach of contract, alleging that the canned beetroot should have had a longer
shelf life, and that having gone bad after a year, the canned beetroot delivered to
them was not of merchantable quality.
Issue: Did the lack of ‘lasting quality’ make the canned beetroot unmerchantable?
Decision: The canned beetroot was of merchantable quality.
Reason: The court found that beetroot canned in vinegar has a normal shelf life of
12 months. The court said (at [7]‌):
The expression ‘merchantable quality’, in relation to goods the subject of a
contract of sale, must, obviously, constitute a reference to their condition or
quality. Consequently, goods are said to be of merchantable quality ‘if they are of
such a quality and in such a condition that a reasonable man, acting reasonably,
would, after a full examination, accept them under the circumstances of the
case in performance of his offer to buy them, whether he buys them for his
own use or to sell again’.
Applying this test, and because the tins of beetroot supplied to Davids had
a normal shelf life for this type of product, the court found that they were of
merchantable quality.
7.7.4 Generic terms regarding the suitability of goods for a buyer’s purpose

At the time of contracting, a buyer may tell the seller the purposes for which they require
the goods, and indicate that they are relying on the seller’s skill and judgment to supply
suitable goods. In such cases, and provided that the seller deals in goods of the type in
question, the sale of goods legislation of the various states and territories imposes (implies)
a condition into the contract that the goods will be reasonably fit for the buyer’s stated
purpose.7 See, for example, s 19(a) of the Goods Act 1958 (Vic).

19 Implied conditions as to quality or fitness
Subject to the provisions of this Part and of any Act in that behalf there is no implied
warranty or condition as to the quality or fitness for any particular purpose of goods
supplied under a contract of sale, except as follows —
(a) where the buyer expressly or by implication makes known to the seller the
particular purpose for which the goods are required so as to show that the
buyer relies on the seller’s skill or judgment and the goods are of a description
which it is in the course of the seller’s business to supply (whether he be the
manufacturer or not) there is an implied condition that the goods shall be
reasonably fit for such purpose: Provided that in the case of a contract for
the sale of a specified article under its patent or other trade name there is no
implied condition as to its fitness for any particular purpose;
(b)…
Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd

(1990) ASC 55-978
Contract; contents; terms implied by legislation; sale of goods; duty to
deliver goods suitable for buyer’s purpose
Facts: Expo Aluminium asked WR Pateman, a manufacturer of window frames, to
supply some aluminium windows that Expo needed to install in a client’s house.
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When ordering the windows, Expo told Pateman: ‘There is nothing between this
job and the South Pole’. This was an informal and indirect way of telling the
manufacturer that the house would be fully exposed to strong winds and rain.
When the windows were installed in the client’s house they were found to leak. Expo
alleged there was a term in their contract with Pateman that the windows would be
suitable to withstand strong winds and driving rain.
Issue: Had Expo sufficiently indicated the purpose for which the windows were
required, and shown that they were relying on Pateman to supply something
suitable to withstand exposure to strong wind and rain?
Decision: Taking account of what Expo had said to Pateman when ordering the
window frames, s 19(1) of the Sale of Goods Act 1923 (NSW) implied a term in the
contract that the goods would be suitable for the buyer’s purpose. This required the
windows to be weatherproof in an exposed situation. This implied term had been
breached by supplying windows that leaked.
Reason: The buyer had sufficiently indicated the purpose for which the goods were
required by saying, ‘There is nothing between this job and the South Pole’; this
statement could only have meant that the windows would need to be sufficiently
weatherproof to withstand strong winds and driving rain. The buyer’s reliance on
the seller to supply suitable goods can often be established by inference, and the
necessary inference can often be drawn from the buyer having stated his or her
purpose. The court held that this was so in the present case.
Goods purchased under their trade name are no exception. If a buyer has requested a
particular article only by using its trade name, there is no implied condition that the goods
be suitable for any particular purpose. But if the goods were purchased by reference to
7
their trade name, and the buyer has also explained their purpose to the seller and indicated
a reliance on them to provide something suitable, then there is an implied term that the
goods be suitable for that purpose.
Baldry v Marshall [1925] 1 KB 260

condition requiring delivery of goods suitable for buyer’s purpose; sale
by trade name
Facts: Marshall asked Baldry, a seller of Bugatti cars, for information about ‘the
eight cylinder Bugatti’. Baldry said the car was available and offered to supply
information. Marshall then explained why he wanted the car—he said he needed a
fast, easily managed and comfortable car, suitable for touring. Baldry and Marshall
then entered into a contract for ‘an eight cylinder Bugatti car fully equipped and
finished to standard specification as per the car inspected’. The car delivered
proved defective and Marshall claimed that it was not in fact suitable for his stated
purposes. Baldry argued that he was not obliged to deliver goods suitable for
Marshall’s purposes because the car had been bought under its trade name.
Issue: Was it an implied term of the contract that the car be suitable for the buyer’s
purpose, even though it had been bought under its trade name?
Decision: It was clear on the facts that the buyer had relied on the seller to supply
suitable goods, and this gave rise to an implied term requiring the car to be suitable
for the buyer’s purpose, regardless of the use of the trade name to describe the
goods.
Reason: The mere fact that goods are described by trade name does not necessarily
exclude the implied term regarding suitability of purpose. The test is: Did the buyer
themselves, in purchasing the goods by name, form the judgment that the goods
would be suitable for their own purpose, without reliance on the seller? If so, no
term regarding the suitability of the goods for the buyer’s purpose is implied into
the contract. Otherwise, such a term may be implied.
7.7.5 Generic terms regarding a sale ‘by sample’

Merely showing a sample of something to a buyer does not necessarily make the transaction
a ‘sale by sample’. A sale is only ‘by sample’ when it can be inferred that the parties have
agreed to define the quality of the goods by reference to a sample. Where such agreement
exists, the sale of goods legislation of the states and territories requires that the bulk of the
goods must not have any defect that was not apparent in the sample and which makes the
goods unmerchantable.8 See, for example, s 20 of the Goods Act 1958 (Vic).

20 Sale by sample
(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 —
(a) there is an implied condition that the bulk shall correspond with the
sample in quality;
(b) there is an implied condition that the buyer shall have a reasonable
opportunity of comparing the bulk with the sample;
(c) there is an implied condition that the goods shall be free from any
defect rendering them unmerchantable which would not be apparent on
reasonable examination of the sample.
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LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/asia) Ltd
(1955) 56 SR (NSW) 81
Contract; contents; proving orally agreed terms; sale by sample; parol
evidence rule
Facts: Thorne bought 50 drums of Neatsfoot oil from Thomas Borthwick. The
sale came about after considerable discussion, and after Thorne requested and
was given a sample of oil to test. In particular, Thorne tested the ability of the
oil to withstand heat. After providing Thorne with the sample, Borthwick sent a
document to Thorne to sign. Describing itself as a contract, the document set out
quite detailed particulars about the oil to be supplied but made no mention of any
sample. When the 50 drums of oil were delivered, Thorne found that this oil was
not as resistant to heat as the sample he had tested. Thorne claimed it was a term
of the contract that the bulk of the oil should have been as heat resistant as the
sample.
Issue: Was it a term of the contract that the quality of the goods supplied would be
determined by reference to the sample provided?
Decision: It was not a term of the contract that the sale was ‘by sample’.
Reason: The written contract contained no reference to a sample. Furthermore, the
written contract appeared, on its face, to be a complete and workable agreement,
providing for all matters necessary for such a transaction. In these circumstances,
the court held that it had not been expressly or impliedly agreed that the quality of
the goods would be determined by reference to the sample that had been provided.
[7.8] The Exclusion of Generic Terms

7.8.1 The right to exclude liability by agreement
7
As with most generic terms, the terms implied by the provisions of the state and territory
sale of goods legislation into contracts for the sale of goods are only intended to provide
terms when the parties have not, by agreement, provided for the relevant matters. Section
61 of the Goods Act 1958 (Vic) (and equivalent sections in the other states and territories)
specifically states that any right, duty or liability that would otherwise be implied into a
contract of sale by the Act may be excluded or varied by agreement between the parties.9
This approach is consistent with the broad doctrine of freedom of contract and the general
assumption that parties to a contract have equal bargaining power and can best negotiate
for themselves the particular terms that suit them.
Act 1896 (Tas), s 59; Goods Act 1958 (Vic), s 61; Sale of Goods Act 1895 (WA), s 54; Sale of Goods Act 1972 (NT), s 57.

61 Exclusion of implied terms and conditions
Where any right duty or liability would arise under a contract of sale by implication of
law it may be negatived or varied by express agreement or by the course of dealing
between the parties or by usage if the usage be such as to bind both parties to the
contract.
[7.9] Special Protection for Consumers of Goods and Services

7.9.1. The need for special regulation of consumer contracts for goods and
services
The sale of goods legislation applies to all contracts that fall within the very broad definitions
sections of those Acts. Thus, the legislation generally applies to all contracts for the sale of
goods, but the protection offered by the sale of goods legislation may be less than adequate
in some circumstances. Suppliers of goods and services are usually much better organised
than individual buyers who purchase goods for their own consumption can possibly be. The
suppliers have appropriate business and financial structures, they control the availability
of the things consumers want, they know about the laws that regulate their industry, and
they use sophisticated advertising and marketing techniques. Generally speaking, individual
consumers have limited financial resources and little knowledge of the law. They often lack
detailed information and understanding about the goods or services they are obtaining. For
these reasons, a consumer is likely to have very little power to negotiate the terms of their
agreement and will normally agree to standard terms dictated by the supplier. By exercising
their greater bargaining power in consumer contracts, suppliers can put terms into their
contracts that exclude their legal liability for supplying inferior quality goods or services. In
particular, suppliers can exclude liability for the generic terms provided by the sale of goods
legislation, including those regulating the quality of goods.
To protect consumers from the abuse of exclusion of liability clauses, Trade Practices and
Fair Trading legislation was enacted in the 1970s. This legislation put terms into consumer
contracts that guaranteed the basic quality of what was contracted for. These terms were
similar to the terms regarding the quality of goods found in the sale of goods legislation.
Similar terms were provided in consumer contracts for services. Importantly, these terms
could not be excluded from consumer contracts by agreement. Unfortunately, these provisions
were very technical and proved difficult for consumers to understand and enforce. A simpler
approach was needed.
7.9.2. Statutory guarantees in consumer contracts
On 1 January 2011 the Australian Consumer Law (ACL) replaced the Trade Practices and
Fair Trading legislation. This new legislation is wide ranging, and its various provisions are
covered separately in chapter 11. However, it is convenient to explain here the provisions
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on Business Law
of the ACL that protect consumers by guaranteeing the basic quality of goods and services
they contract for.10
The ACL creates a number of ‘statutory guarantees’ which give consumers specified
rights. The guarantees do not operate as terms of the contract. They are simply guarantees
provided by law for which the supplier of goods or services to a consumer is made liable.
This liability cannot be excluded by agreement: any attempt to do so is treated as void.
The statutory guarantees are similar to, but not identical with, the terms implied by
the sale of goods legislation into contracts for the sale of goods. It is important to consider
the wording of the statutory guarantees carefully. The particular statutory guarantees are
explained below.
The guarantees are provided only when goods or services are acquired by consumers
as defined by the ACL.
The guarantees are enforced by means of the remedies provided by the ACL (as
opposed to an action for breach of contract). The available remedies are wide-ranging and
go beyond the kind of relief that would be available in an action for breach of contract. The
remedies are explained later in this chapter.
Overall, the provisions of the ACL provide an effective way of ensuring that suppliers
meet appropriate standards when supplying goods or services to consumers.
7.9.3 Definition of a ‘consumer’
For the purposes of the guarantees provided by the ACL three factors are taken into
account to decide whether a person who acquires goods is a consumer: the price paid, the
kind of goods acquired, and the purpose for which they were acquired.
• The price and kind of goods: If the price of goods of any kind is less than or equal
to $40,000, the purchaser is assumed to have acquired those goods or services as a
consumer.
If the price of goods exceeds $40,000, the purchaser is only taken to be a
consumer if the goods are of a kind ordinarily acquired for personal, domestic or
7
household use or consumption.
Vehicles or trailers acquired for use principally in the transport of goods on

public roads are a special case; a person is taken to have acquired such goods as a
consumer, whatever their price.
• Purpose: A person is not taken to have acquired goods as a consumer, regardless of
the price paid, if the goods are acquired for the purposes of resupply (ie resale) or
to be used up (ie consumed) or transformed in commercial production, commercial
manufacturing, or as part of a business to repair or treat other goods or fixtures on
land.
In the following sections, the various statutory guarantees are explained. It should
be noted that similar guarantees in relation to the supply of services to a consumer are
provided by ss 60–62 of the ACL.
10 Australian Consumer Law, Ch 3, Pt 3-2, Div 1
7.9.4 Guarantee of correspondence with description

When goods are bought by description (ie by reference to a description of them as
belonging to a particular class or kind of goods) from a dealer in such goods, s 56 of the
ACL provides a guarantee that the goods supplied will accord with the description under
which they were sold.
7.9.5 Guarantee of acceptable quality
If a commercial supplier sells goods to a consumer, s 54 of the ACL provides a guarantee
that the goods are of ‘acceptable quality’. Goods are not of acceptable quality if:
• they are not fit for the purposes for which such goods are normally used;
• they are not durable, are unsafe or have defects;
• they don’t have an acceptable finish and appearance, to the extent that a reasonable
consumer who knows of their qualities would find them unacceptable.
In deciding what a reasonable consumer would find acceptable, account must be
taken of the nature and price of the goods and any statements made about them, either
on their packaging or by the supplier or manufacturer. If the supplier can show that the
consumer has subjected the goods in question to abnormal use, and has caused the goods
to become unacceptable (or has failed to take reasonable steps to prevent them from
becoming unacceptable), then the goods would not be considered unacceptable in quality.
7.9.6 Guarantee of suitability for a consumer’s purpose
If a commercial supplier supplies goods to a consumer and, at the time of the sale, the
consumer has disclosed to the supplier the particular purpose for which they want the
goods and has reasonably relied on the skill and judgment of the supplier, then s 55 of
the ACL provides a guarantee that the goods supplied are reasonably fit for the disclosed
purpose. It does not matter if the disclosed purpose is not a purpose for which the goods
in question are normally used.
7.9.7 Guarantee of correspondence with sample
If a commercial supplier supplies goods to a consumer by reference to a sample, s 57 of

the ACL provides a guarantee that the goods correspond with the sample in ‘quality, state
and condition’. The goods must also be free of any defect that was not apparent from a
reasonable examination of the sample, and which would make the goods of unacceptable
quality. The consumer is entitled to a reasonable opportunity to compare the goods supplied
with the sample shown.
7.9.8 Guarantee of good title and quiet possession
If goods are sold to a consumer, either by a commercial supplier or a private seller, ss 51, 52
and 53 of the ACL come into operation. Section 51 creates a guarantee that the supplier
will have the legal right to dispose of the property when the time comes to pass ownership
to the buyer. Section 52 guarantees that the consumer’s title (right of ownership) to the
goods will not be disturbed by third parties who have competing claims to those same
goods. This is known as a guarantee of ‘undisturbed possession’. Section 53 guarantees
that goods sold to a consumer are not subject to any security, charge or encumbrance that
7.9

on Business Law
was not disclosed in writing before the time of the sale or agreed to by the consumer. Nor
may the goods be made subject to any such security between the sale and the title being
transferred to the consumer.
7.9.9 Guarantee of the availability of spare parts and repairs
Section 58 of the ACL guarantees that, when goods are sold in trade or commerce to a
consumer, the manufacturer will take reasonable steps to ensure that repair facilities and
spare parts are reasonably available for a reasonable period after the goods are supplied.
This guarantee does not apply if the manufacturer took reasonable steps to ensure that the
consumer was notified in writing that repair facilities or spare parts would not be available
after a specified period.
7.9.10 Guarantees of express warranties
If goods are supplied in trade or commerce to a consumer, s 59 of the ACL provides a
guarantee that the manufacturer will comply with any express warranties they have given.
A guarantee is also provided that the supplier will comply with any express warranties that
they have given. This means that, rather than having to rely on contract or tort law, the
consumer can bring an action based on the failure to comply with the statutory guarantee.
7.9.11 Remedies for breach of statutory guarantees
The ACL provides a number of different remedies for a contravention of a provision of Ch
3 of the ACL (injunctions, damages, compensation orders, non-punitive orders and other
orders, such as declaring a transaction void). These remedies are explained in Chapter 11.
However, Ch 5, Pt 5-4 of the ACL sets out additional remedies available to a consumer for
breach of a statutory guarantee. The availability of these remedies depends on the nature
of the failure to comply. A distinction is drawn between a failure to comply that is not a
major failure and can be remedied, and a failure to comply that cannot be remedied or is a
major failure.
7
7.9.11 (a) A failure that can be remedied and is not a major failure
In the case of a failure to comply that can be remedied and is not a major failure, the
consumer can ask the supplier to remedy the failure. Depending on the circumstances, the
supplier can do this by repairing or replacing faulty goods, by refunding monies paid for
the goods, or by correcting any defect in title to the goods. If the supplier does not do what
is required to remedy the failure, either at all, or within a reasonable time, the consumer
can either:
• get the failure remedied by someone else, or by some other means, and then recover
the costs of doing this from the supplier, or
• notify the supplier that they are rejecting the goods on grounds of the failure.
However, a consumer cannot reject goods if they fail to do so within the period of
time within which any failure to comply with the relevant guarantee would have become
apparent, taking account of factors such as the type of goods and their likely use. This is
known as the ‘rejection period’.
If the consumer rejects the goods, they must be returned to the supplier, unless this
would be significantly costly for the consumer, in which case the supplier must collect
them from the consumer at the supplier’s expense. The supplier must then either refund
the money paid for the goods or replace them with goods that comply with the guarantee.
Provisions also exist to allow the termination of any contract for the supply of services
which are related to the rejected goods.
7.9.11 (b) A failure that cannot be remedied or is a major failure
In the case of a failure to comply that cannot be remedied or is a major failure, the consumer
can either:
• notify the supplier that they are rejecting the goods on grounds of the failure, or
• keep the goods and bring an action against the supplier to recover compensation for
the lower value of the goods below the agreed price.
Unless the failure to comply was due to an event beyond human control, the consumer
can also sue the supplier for damages to compensate for any losses caused by the failure
to comply with the guarantee, to the extent that these losses were reasonably foreseeable.
As in the case of a failure that can be remedied and is not a major failure, a consumer
must reject goods within the ‘rejection period’. A consumer who rejects goods must return
them to the supplier. See 7.9.11 (a) above for a fuller explanation of these requirements.
7.9.12 Liability of manufacturers
If there is a breach of s 54, 56, 58 or 59(1) of the ACL, then s 271 provides the consumer
with a right of action for damages against the manufacturer. The consumer can sue the
manufacturer for damages to compensate for any reduction in the value of the goods, and
any loss or damage suffered because of the failure, to the extent that such losses were a
reasonably foreseeable consequence of the failure.
[7.10] Checklist: Statutory Provisions in Contracts for Goods or

Services
The following checklist will help you to take proper account of the matters that need to
be considered when resolving issues related to statutory provisions affecting contracts for
goods and services. Make sure you can recall the exact rules of law and decided cases which
are relevant.
Step 1
• Is the contract in question a contract for the purchase and sale of goods?
• What are the expressly or impliedly agreed terms of the contract? Are
there agreed terms concerning any of the following:
– How and when the goods will be delivered from the seller to the
buyer?
– How and when payment for the goods will be made by the buyer?
– What rights the buyer has to inspect the goods delivered?
7.10

on Business Law
– How the quality of the goods is to be determined?

– What property rights in the goods is the buyer entitled to?
Step 2
In the absence of agreed terms on the matters listed in Step 1, what terms
are provided by the relevant sale of goods legislation?
• What obligations are created by terms that are implied into the contract
by the relevant sale of goods legislation with regard to delivery, payment,
inspection, the quality of the goods and property rights in the goods?
• Are any such implied terms relevant to any dispute that has arisen?
Step 3
Are there any exclusion or limitation of liability clauses in the contract?
• Are any of the terms that would otherwise be put into the contract by the
sale of goods legislation affected by any agreed term that seeks to limit
or exclude such liability?
• Does it appear that the exclusion clause has been properly included as a
term of the contract?
Step 4
Is the contract a ‘çonsumer’ contract for either goods or services?
• Were the goods or services in question contracted for by a person who
qualifies as a ‘çonsumer’ for the purposes of the statutory guarantees
provided by the Australian Consumer Law?
• If so, what statutory guarantees would be provided to the consumer?
Step 5
What remedies are available? Which remedies are the most appropriate 7
in the circumstances? Is the failure a ‘major’ failure or not?
[7.11] Questions for Revision

Think about the following questions, and use them to find out if you can remember and
explain the things you should have learned from this chapter.
1. What terms are implied into contracts for the sale of goods by state and territory sale
of goods legislation regarding the identity of goods bought and sold?
of goods legislation regarding delivery of goods bought and sold?
of goods legislation regarding payment for goods bought and sold?
of goods legislation regarding the buyer’s legal title to goods bought and sold?
5. What terms might be implied into contracts for the sale of goods by state and
territory sale of goods legislation regarding the quality of the goods bought and sold?
In what particular circumstances does it become a term of the contract that goods be
of merchantable quality, or suitable for the buyer’s purpose?
6. Can the terms that are implied into contracts for the sale of goods by state and
territory sale of goods legislation be excluded by agreement?
7. Which contracts attract the statutory guarantees provided by the Australian
Consumer Law? How are the statutory guarantees enforced? Can the seller exclude
liability for the guarantees by agreement?
Visit www.alcware.com for more information on how to access the FPBL

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CHAPTER

Statutory Provisions Affecting Contracts

7.1.1 The need for generic terms to fill gaps in a contract

NSW Sale of Goods Act 1923 Vic Goods Act 1958

NSW Qld SA WA Tas Vic ACT NT

[7.2] Generic Terms: Goods Sold ‘By Description’

Goods Act 1958 (Vic)

Varley v Whipp [1900] 1 QB 513

[7.3] Generic Terms: the Delivery of Goods Sold

Goods Act 1958 (Vic)

[7.4] Generic Terms: Payment for Goods Sold

7.4.1 Payment and delivery to take place concurrently

Goods Act 1958 (Vic)

[7.5] Generic Terms: Ownership and Quiet Possession

Goods Act 1958 (Vic)

[7.6] Generic Terms: Inspection of Goods Delivered

Goods Act 1958 (Vic)

[7.7] Generic Terms: The Quality of Goods Sold

7.7.1. The obligations of sellers who deal in goods

Goods Act 1958 (Vic)

implied by this Part unless inconsistent therewith.

7.7.3 The meaning of merchantable quality

Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387

Sulphur particles showed up in all specimens of woollen underwear that were

tests to determine whether goods are merchantable.

David Jones Ltd v Willis (1934) 52 CLR 110

McTiernan J applied the same test as Starke J.

George Wills & Co Ltd v Davids Pty Ltd (1957) 98 CLR 77

7.7.4 Generic terms regarding the suitability of goods for a buyer’s purpose

Goods Act 1958 (Vic)

Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd

Baldry v Marshall [1925] 1 KB 260

7.7.5 Generic terms regarding a sale ‘by sample’

Goods Act 1958 (Vic)

[7.8] The Exclusion of Generic Terms

Goods Act 1958 (Vic)

[7.9] Special Protection for Consumers of Goods and Services

Vehicles or trailers acquired for use principally in the transport of goods on

10 Australian Consumer Law, Ch 3, Pt 3-​2, Div 1

7.9.4 Guarantee of correspondence with description

If a commercial supplier supplies goods to a consumer by reference to a sample, s 57 of

[7.10] Checklist: Statutory Provisions in Contracts for Goods or

–​ How the quality of the goods is to be determined?

[7.11] Questions for Revision

Visit www.alcware.com for more information on how to access the FPBL

You might also like

10 Australian Consumer Law, Ch 3, Pt 3-2, Div 1

– How the quality of the goods is to be determined?