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"As Is" Sales Under the Consumer Product Warranty and Liability Act:
A Case Comment on Gillespie v. MacDonald Pontiac Buick Ltd.

by KARL J. DORE

Published in the New Brunswick Reports at (1985), 64 N.B.R. (2d) 391,
and reproduced with permission of the author and Maritime Law Book Ltd.

See important note at the end.

Table of Contents

[393]
[1] Gillespie v. MacDonald Pontiac Buick GMC Ltd. (1984), 64 N.B.R.(2d) 243; 165 A.P.R. 243 is the first case under the Consumer Product Warranty and Liability Act, S.N.B. 1978, c. C-18.1, as am. S.N.B. 1980, c. 12, to deal with the status of "as is" sales or, in the defendant's used-car manager's picturesque description, "curb and gutter" sales ("when you cross the curb, you got 'er").

The Facts

[2] The defendant had a used 1980 Thunderbird automobile for sale for $6,695, which the defendant indicated was not necessarily a firm price. The plaintiff offered $6,000 tax included. The defendant made a counter-offer at $6,200, which the plaintiff rejected. Finally the defendant said that it would sell for $6,000, but only on an "as is" basis with no warranty as to the condition of the car and with the plaintiff having the responsibility to ensure that the car was in satisfactory condition. Plaintiff agreed and a written offer was prepared. The offer expressly stated that "at reduced price customer assumes responsibility for any repairs -- "as is condition." It was also agreed that the car would be given to the plaintiff pending the arrangement of financing through his bank, and that the plaintiff could have the car checked over and could withdraw his offer should he discover any defect prior to payment of the purchase price.

[3] The plaintiff took the car home and the next day he discovered a "puddle" of oil from the car in his driveway. However, he did not check it out in any way. Neither did he have someone else check it out. The plaintiff did mention it to the defendant's salesman on the telephone that evening while advising him of a small delay in the financing.

[4] According to the plaintiff, the salesman suggested that it was probably a minor leak and that the plaintiff could bring the car in the next day and they would repair it. When the plaintiff went in the next day to complete the deal he was told that the shop was busy but they would fix the oil leak if he brought it back later. The plaintiff then paid the purchase price and the deal was completed.

[5] The defendant's version was different. The defendant's salesman testified that the plaintiff told him about the oil leak when he asked the plaintiff whether the car had been checked. The plaintiff said there were "a couple of drops of oil in the driveway where the car was parked," which the salesman took to be "just a natural seepage." The salesman also testified that he told the plaintiff to have it checked, and that if it were a "major thing they will not fix at that price" but that "if it were a valve cover gasket or something minor, there would be no problem." He said that he told the plaintiff to bring the car in the next day to have it "looked at", but he gave no undertaking to have it "fixed up." The plaintiff did not mention it again until after the price was paid and the deal completed.

[6] When the car was finally checked by [394] the defendant's shop, it was discovered that the rear main oil seal had to be replaced. This was a serious problem and would involve several hours of work. The defendant refused to do this and the plaintiff sued for the return of the purchase price.

The Decision

[7] Justice Dickson decided in favour of the plaintiff. He proceeded on the basis that a consumer could purchase a consumer product on an "as is" basis and waive the warranties under the Consumer Product Warranty and Liability Act. However, he found that in this case the plaintiff did not do this. The original "as is" deal was modified before the sale by an express warranty by the defendant to rectify the oil problem. Furthermore, Justice Dickson found that the plaintiff did not intend, should there be a major problem, to waive the implied warranty under the Act that the car be fit for use as a car.

Express Warranty

[8] The express warranty aspect of the case turns on which version of the facts is accepted. On the plaintiff's version of the facts there clearly would be an express warranty covering the defective oil seal, and on the defendant's version there clearly would not be such an express warranty: sections 4 and 5 of the Act.

[9] In holding that there was such a warranty, Justice Dickson must have preferred the plaintiff's version of the facts. However, he does not say so expressly and it is somewhat puzzling that he does say that there was little difference between the two versions. Moreover, at one point in his judgment Justice Dickson said that he was somewhat suspicious of the plaintiff's version of the undertaking given by the defendant. In contrast nothing was said to throw doubt on the defendant's version, except of course the actual finding of an express warranty, which is inconsistent with the defendant's version that the plaintiff was told that the defendant would not fix a major problem.

Implied Warranties

[10] The implied warranty aspect of the case raises a number of difficult issues.

(1) Contracting Out and "As Is" Sales

[11] The first issue is whether a consumer buyer can waive the warranties under the Consumer Product Warranty and Liability Act when he buys a consumer product. Justice Dickson said that "such a waiver is of course contemplated by s. 25(1) of the Act." With respect, this statement cannot be supported. Rather, it is submitted that a consumer cannot waive the warranties provided by the Act.

[12] Subsection 2(3) of the Act provides that "this Act applies notwithstanding any agreement, notice, disclaimer, waiver, acknowledgment or other thing to the contrary." And section 24 provides that "where there is a contract for the sale or supply of a consumer product, the parties cannot agree to exclude or restrict any warranty or remedy provided by this Act except as provided in sections 25 and 26."

[13] Sections 25 and 26 contain the only exceptions to the ban against contracting out. Subsection 25(1), which is the provision upon which Justice Dickson relied, allows contracting out in some cases of the remedies provided by the Act for breach of express warranties. It provides:

25(1) Subject to subsection (4), where there is a contract for the sale or supply of a consumer product, the parties may agree to exclude or restrict any remedy provided by this Act for breach of an express warranty, but such agreement shall be ineffective to the extent that it is shown that it would not be fair or reasonable to allow reliance on such agreement.

Subsection 25(1) does not allow con-[395]-tracting out of the Act's express warranties, implied warranties, or remedies for breach of implied warranties. It allows contracting out only of the Act's remedies for breach of express warranties, and even this is not allowed where it would be unfair or unreasonable. Subsection 25(4) imposes a further limitation in the case of sales by description by disallowing any restriction of a remedy for breach of any express warranty that forms part of the description of the product.

[14] Section 26 provides a much wider exception to the ban against contracting out. It provides:

26 Where there is a contract for the sale or supply of a consumer product and the buyer makes or holds himself out as making the contract in the course of a business, the parties may agree to exclude or restrict any warranty or remedy provided by this Act but, except to the extent allowed by section 25, such agreement shall be ineffective with respect to any consumer loss for which the seller would be liable if no such agreement had been made.

Section 26 allows a business buyer (who is also protected by the Act) to waive warranties as well as remedies, subject to the proviso at the end which is beyond the scope of this comment. But section 26 does not apply to consumer buyers, only business buyers.

[15] Thus it is submitted that it would be impossible for the consumer plaintiff in this case to waive the warranties provided by the Act. This is so regardless of any agreement that the sale was on "as is" terms.

(2) Effect of an "As Is" Agreement On the Implied Warranty as to Quality

[16] To say that the consumer cannot contract out of the warranties provided by the Act is not to say that the seller is responsible for everything that is wrong with the product. The Act does not impose such onerous responsibilities at all.

[17] The Act provides the following implied warranty as to quality:

10(1) Subject to subsection (2), in every contract for the sale or supply of a consumer product there is an implied warranty given by the seller to the buyer

(a) that the product is of such quality, in such state or condition, and as fit for the purpose for purposes for which products of that kind are normally used as it is reasonable to expect having regard to the seller's description of the product, if any, the price, when relevant, and all other relevant circumstances; and

(b) that the product complies with all mandatory federal and provincial standards in relation to health, safety and quality.

10(2) There is no implied warranty under paragraph l(a)

(a) as regards any defect that is known to the buyer before the contract is made;

(b) as regards any defect that the seller has reason to believe exists and that he discloses to the buyer before the contract is made;

(c) if the product is a used product and the buyer examines it before the contract is made, as regards any defect that that examination ought to reveal; or

(d) if there is a sale or supply by sample, as regards any defect that a reasonable examination of the sample ought to reveal.

[18] Apart from requiring the product to comply with any mandatory federal or provincial standards in relation to health, safety and quality, this warranty does not set standards but simply [396] protects the consumer's reasonable expectations regarding quality and fitness. The next question is whether the defendant's statements -- that there would be no warranty as to condition of the vehicle, that it would be the plaintiff's responsibility to ensure that the car was in satisfactory condition, and that the car was being sold in "as is condition" -- although not effective to contract out of this warranty, did nonetheless affect the protection given by it because of their effect on the plaintiff's reasonable expectations.

[19] It will be noted that under subsection 10(1) the buyer's reasonable expectations about the quality and fitness of the product can be affected by the seller's description of the product, the price, and "all other relevant circumstances." Can a buyer's reasonable expectations be affected by the seller's statement that the sale is on "as is" terms? No doubt some would say Yes. There also exists some judicial support for this view. In MacLeod v. Ens (1982), 15 Sask. R. 73 (Sask. C.A.), Justice Cameron said of the warranties under the Saskatchewan legislation:

It will be seen that both these warranties in relation to quality and durability (which are highly elastic notions) are affected by the relevant circumstances of the sale and the description of the product sold. Does the phrase "as is" constitute such a relevant circumstance? If so, it will greatly reduce the extent of the warranties - indeed it will probably extinguish them. Or is it part of the "description of the product" and thus have a similar effect? I would have thought the answers to be quite plainly yes ... (at p. 77)

However, he went on to hold that an "as is" sale could not have this effect under the Saskatchewan legislation because of other provisions in the legislation which rendered "as is" agreements illegal and null and void, which was taken to mean invalid and of no effect for any purpose.

[20] Now there is no doubt that the buyer's expectations regarding the seller's responsibility could be greatly reduced or obliterated by the seller's statement that the sale is on "as is" terms. (Let us disregard for the moment the Act's prohibition against contracting out.) But this is by no means to say that this statement must necessarily greatly reduce or obliterate the buyer's expectations about the product. To say that one is not responsible if there is something wrong with the product is not to say that something is wrong with the product or that one should necessarily expect something wrong with the product. And section 10 focuses on the buyer's expectations about the product, not the buyer's expectations about the seller's responsibility. Section 10 imposes responsibility on the seller commensurate with the buyer's reasonable expectations about the product.

[21] "As is" does purport to allocate to the buyer the risk of the possibility that there might be something wrong with the product. The buyer is to bear the risk of any and all defects regardless of his reasonable expectations about the product. However, to allow "as is" to place on the buyer the risk of all defects regardless of the buyer's reasonable expectations about the product would contradict the ban against contracting out of section 10.

[22] Subsection 10(2) also throws light on this question because it lists a number of circumstances in which there is no warranty protection. Paragraph 10(2)(b) denies protection "as regards any defect that the seller has reason to believe exists and that he discloses to the buyer before the contract is made." In an "as is" sale the seller is attempting to deny responsibility for any and all defects and regardless of whether he has any reason to believe that they exist. This clearly would not be effective under paragraph 10(2)(b). It would be strange then if it were effective under subsection 10(1) because the result would be that paragraph 10(2)(b) would cease to have any legal significance. Subsection 10(1) [ 397] would swallow it up completely and extend it far beyond. In doing so it would also destroy the only other possible purpose of paragraph 10(2)(b), that of clarification. Paragraph 10(2)(b) would not clarify but mislead in suggesting limitations on the seller that would not exist.

[23] It is submitted then that "as is" by itself cannot affect the implied warranty under section 10. It requires something more to go with it in order to have any effect under section 10.

(3) Effect of Price Reduction, Knowledge of Oil Leak and Opportunity to Examine

[24] Now in this case there was more than simply an "as is" agreement. The plaintiff received a price reduction on this account. Furthermore the plaintiff knew something about the oil leak and he had an opportunity to examine the car before the purchase.

[25] The parties agreed that "at reduced price customer assumes responsibility for any repairs -- as is condition." However, the price was reduced by only $200 on this account. This might reduce the plaintiff's expectations somewhat, but it is submitted that it would not reduce them greatly. In particular it is unlikely that it would have much effect on the plaintiff's expectations about the car's roadworthiness. Still less would it obliterate the plaintiff's expectations about the car. Otherwise he would not have paid $6,000. Furthermore, insofar as price is relevant, it would seem that the more relevant question is not the amount of the discount from the asking price but rather how the final price compared with what one would reasonably expect for that price.

[26] The plaintiff knew that the car leaked some oil, but he had no idea of the extent of the leak or its cause. Paragraph 10(2)(a) of the Act denies protection for defects known to the buyer before his purchase. Accordingly the plaintiff would not be protected against the oil leak per se, at least to the extent known. However, the plaintiff knew nothing about the defective rear main oil seal, of which the oil leak was merely a symptom: see Mean v. New Home Certification Program of the Atlantic Provinces (1984), 54 N.B.R.(2d) 221; 140 A.P.R. 221 (N.B.C.A.). Since this defect was unknown to the plaintiff, it would not be excluded by paragraph 10(2)(a).

[27] The fact remains that the plaintiff had ample opportunity to inspect the car and discover the defect. However, mere opportunity to inspect does not rule out protection. Paragraph 10(2)(c) applies only when the buyer examines the used product and it takes away protection only for "any defect that that examination ought to reveal" (emphasis added). The relevant question under paragraph 10(2)(c) is not what examination could or should have been made but what examination actually was made. (Contrast paragraph 10(2)(d), dealing with sales by sample, which rules out protection for "any defect that a reasonable examination of the sample ought to reveal.") Clearly the kind of examination made by the plaintiff in this case would not reveal the defective rear main oil seal. Accordingly paragraph 10(2)(c) would not deny protection against that defect.

(4) Effect of Any Warning Regarding the Oil Leak

[28] Finally, let us suppose that the defendant's version of the facts had been accepted and that it was found that the salesman had warned the plaintiff to check out the oil leak because they would not f ix a major problem. This would be a more specific form of "as is," namely "as is" with respect to any major problem that was causing the oil leak. Does this distinguish it from the "as is" sales discussed above?

[29] It certainly can be argued that the answer is Yes. The oil leak was a sign of something. It could be caused by a major problem. The plaintiff was [398] warned to check it out because the defendant would not be responsible for a major problem.

[30] On the other hand, the leak was a small one and it could have been caused by any number of things on the facts known to the parties at the time of the sale. The defendant's salesman suspected that it was "just a natural seepage." It might have been a very small problem such as the oil leak in Audet v. Central Motors Ltd. (1981), 35 N.B.R.(2d) 143; 88 A.P.R. 143 (N.B.Q.B.), which could be repaired for $2.40. It might have been a bigger problem. Or it might have been, as in fact it was, a major problem serious enough to render the car unroadworthy. Everyone knows that a little oil puddle is a very vague symptom indeed, and it can be very difficult to track down.

[31] Should such a vague symptom, the only real new circumstance introduced here, be enough to tip the scales against the plaintiff? If the answer is Yes, there is a very broad opening for any used-car dealer who wants to sell on "as is" terms. He only needs to find symptoms, the vaguer the better, and sell "as is" with respect to any cause of the symptoms. This ought not to be allowed because it would contradict the Act's basic policy against contracting out.

Conclusion

[32] Justice Dickson said that he did not have much sympathy for the plaintiff in this case because ". .. surely no reasonable person would undertake to make a $6,000.00 purchase of an automobile on an 'as is' basis without having it checked over in some degree by a mechanic or some other person, and particularly where he had reason to believe that there might be an oil leakage problem." However, he also said that he did not have much sympathy for the defendant either, remarking "... one must question how a car with a defect as serious as a badly-leaking main oil seal could be offered on the market to the public." The defendant's used-car manager testified that the defendant itself had never at any time inspected the car.

[33] No doubt some readers will think that the seller should not have to bear the risk of unknown defects in a case like this and that the consumer should bear greater responsibility. However, there are compelling policy reasons for placing the risk of unknown defects on the dealer rather than the consumer, and they were canvassed in a series of law reform reports on which in large part the Act is based. See First Report of the Consumer Protection Project: Consumer Guarantees in the Sale or Supply of Goods (Department Of Justice, New Brunswick, 1974); Second Report of the Consumer Protection Project: Consumer Guarantees for Automobiles and Mobile Homes (Department of Justice, New Brunswick, 1974); Third Report of the Consumer Protection Project, Volume 1: Sale of Goods (Concluded) (Department of Justice, New Brunswick, 1976). The Second Report placed particular emphasis on the following two points:

First, the dealer is in a much better position than the consumer to detect defects. If he detects defects, he can either (1) refrain from buying the goods, or (2) buy the goods at a reduced price and, after disclosing the defects to the consumer, sell the goods at a reduced price, or (3) buy the goods at a reduced price, repair the defects, and sell the goods at a price that includes the cost of repairing the defects. We suspect that in many (perhaps most) cases the dealer would exercise the third option.

Second, even with respect to defects that are latent and undetectable, the dealer is in a much better position than the consumer to handle the risks of these defects. One likely method he might use to handle these risks would be to increase his prices on all his used automobiles so as to cover these costs. If this were done, all purchasers of used automobiles would, in effect, pay a small insur-[399]-ance premium for the legislative protection. In our view, this is much better than the present system which places all the risks and costs on the shoulders of those individual consumers who were unlucky enough to purchase one of the defective automobiles.

Postscript

[34] For a general overview of the Act, see Dore, "The Consumer Product Warranty and Liability Act" (1982), 31 U.N.B.L.J. 161, and for a comprehensive analysis of the Art see Ivankovich, "Consumer Products in New Brunswick - Fidem Habeat Emptor Part I: The C.P.W.L.A. - Its Scope and Warranties" (1983), 32 U.N.B.L.J. 123, and Ivankovich, "Consumer Products in New Brunswick - Fidem Habeat Emptor Part II: The C.P.W.L.A. Consumer Remedial Regime" (1984), 33 U.N.B.L.J. 43.

Important Note

The decision in this case was appealed.