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The Effect of a Buyer's Partial Knowledge of a Defect
on Implied Warranty Protection Against the Defect:

A Case Comment on MacDonald Pontiac Buick GMC Ltd. v. Gillespie

by KARL J. DORE

Published in the New Brunswick Reports at (1987), 74 N.B.R. (2d) 78,
and reproduced with permission of the author and Maritime Law Book Ltd.

Table of Contents

[80]

Introduction

[1] The judgment of Justice Dickson in Gillespie v. MacDonald Pontiac Buick GMC Ltd. (1984), 64 N.B.R. (2d) 243; 165 A.P.R. 243 (N.B.Q.B.) raised a number of issues that were discussed in my comment reported at (1985), 64 N.B.R. (2d) 391; 165 A.P.R. 391. The judgment was appealed and, not surprisingly, the Court of Appeal affirmed the trial decision on the ground that there was an express warranty: see (1986), 71 N.B.R. (2d) 1. However, the judgments also expressed some views on the implied warranty aspect of the case. They raise important new issues, particularly in regard to the consequences when the buyer examines the goods before purchase and knows that something is wrong with them but does not know the extent of the problem.

The Facts

[2] On the implied warranty aspect of the case, the facts were as follows. The defendant in June 1983 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 said that he noticed 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 called the salesman that evening to advise him of a small delay in the financing, and during this conversation the salesman asked him if he had checked the car. The salesman testified that the plaintiff referred to "only one thing," that there were a "couple of drops of oil in the driveway where the car was parked." The salesman further testified that the way the plaintiff had explained the problem to him it appeared to be "just a natural seepage." The salesman told the plaintiff that it was "probably minor anyway, not to worry." No further check was made.

[4] The deal was completed the next day. The plaintiff then took the car on a trip of about 720 kilometres. But he ran into problems with the car, beginning when it stalled, and on several occasions he had to add oil, indeed between six and seven litres in total.

[5] The cause of the leak was finally traced to a defective rear main oil seal which had to be replaced. This [81] was a serious problem because it required several hours of work.

The Law

[6] Section 10 of the Consumer Product Warranty and Liability Act, S.N.B. 1978, c. C-18.1, as am. S.N.B. 1980, c. 12, provides as follows:

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 or 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 (1)(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.

The Trial Judgment

[7] Justice Dickson held that the defective oil seal was a breach of the implied warranty under section 10 that the car be fit for the purpose of use as an automobile.

The Court of Appeal Judgments

[8] The justices of the Court of Appeal were unanimous in thinking that there was no breach of the section 10 warranty, but they differed in their reasoning. The majority judgment, delivered by the late Justice Ryan and concurred in by Justice Rice, took the position that paragraph 10(2)(c) applied. The minority judgment, delivered by Justice Angers, took the position that there was no breach of section 10 because the defective oil seal was, although difficult of access, easily replaced.

[9] The majority judgment was silent on the issue that I canvassed in my earlier comment, regarding the status of "as is" agreements under the Consumer Product Warranty and Liability Act. The minority judgment mentioned the issue but said that it was unnecessary to decide it.

The Minority Judgment

[10] I have very brief comments to make on the minority judgment's approach to the implied warranty aspect of the case, and accordingly I shall deal with it first. The judgment stated that "... an oil leak as we have here does not render a car unfit for the purpose of being used as a car. The leak was caused by a defective main oil seal which, although difficult of access, is easily replaced."

[11] The judgment seems to suggest that the car was not unfit because the oil seal, which caused the leak, was easily replaceable. With respect, this confuses the issue, which is whether the car was fit, not whether it could easily be made fit. For example, let us suppose that all the nuts were missing on one of the wheels. Surely the car would be unfit for the purpose of being used as a car unless and until the nuts were replaced. It is ir-[82]-relevant that the nuts could easily be replaced.

[12] Moreover, it seems strange to say that something is "easily replaced" when it is "difficult of access." The judgment seems to place all the importance on the part and none on the labour, even though it is the labour that is by far the most significant part of the repair job. It is because of the labour that I would say that the seal was not easily replaced. Certainly nobody else thought that the seal was easily replaced, not even the defendant.

The Majority Judgment

[13] The majority judgment disposed of the implied warranty aspect of the case in one paragraph. Indeed the essence of the judgment on this point is contained in this one sentence: "The plaintiff before purchasing the car had test-driven it; he knew that there was an oil leak to the extent that it created a 'puddle' of oil in his driveway." From this the judgment concluded that paragraph 10(2)(c) applied to preclude protection against the defective oil seal.

[14] There can be no doubt that paragraph 10(2)(c) did apply in the circumstances of this case. The contract was one for a used consumer product and the buyer did examine the car before his purchase. In those circumstances paragraph 10(2)(c) denies section 10 coverage "as regards any defect that that examination ought to reveal". It is important to note that the provision does not deny coverage simply because the defect could be discovered by conducting an examination. It denies coverage only if the defect ought to have been revealed by the buyer's examination. What matters is what examination the buyer made, not what examination the buyer had an opportunity to make. Paragraph 10(2)(c) does not require the buyer to make a reasonable examination, or indeed any examination at all. Paragraph 10(2)(c) contrasts sharply with paragraph 10(2)(d) in this regard. Paragraph 10(2)(d), which deals with sales by sample, requires that the buyer by sample conduct a reasonable examination of the sample because it rules out protection for "any defect that a reasonable examination of sample ought to reveal."

[15] The plaintiff's examination in this case consisted of test-driving the car. He noticed some oil from the car in his driveway after the car was parked there overnight. But he did not look under the car or otherwise examine it, nor did he have someone else examine the car. All that this kind of examination could reveal was that there was some sort of oil leak. This kind of examination could not reveal that it was a major leak or what was the cause of the leak. Not even an expert such as the defendant could tell this from the kind of examination that was made in this case.

[16] Paragraph 10(2)(c) would clearly deny protection from the oil leak to the extent that it would be apparent from the plaintiff's examination. Thus the plaintiff would not be protected against a minor leak. But how does paragraph 10(2)(c) apply beyond this? How does it apply to a major leak when this would not be apparent from the kind of examination that was made? The judgment does not address this, but one must infer that the majority thought that once the plaintiff saw the oil leak it was incumbent on him to check out its extent, even if this would require him to perform a different kind of examination, indeed even if this would require him to obtain the services of an expert to make the examination.

[17] This reads a great deal into paragraph 10(2)(c). With respect, it reads too much into the provision because it restores to a very significant extent the buyer's common law duty to inspect for defects that this Act (and the Sale of Goods Act before it) did away with. Moreover this approach seems to be particularly inappropriate in a case like this where the oil leak "puddle" was, according to the salesman's own testimony, described to him by the plaintiff as "a couple of drops of oil in the driveway [83] where the car was parked," where the salesman himself thought that this was "just a natural seepage, and where the salesman himself suggested to the plaintiff that the leak was "probably minor anyway, not to worry."

[18] Although this case is not one of them, there are cases where the buyer does indeed have enough knowledge of a problem to make it proper to deny the buyer protection against the problem even though the problem turns out to be far more serious than the buyer supposes. But there is no need to stretch paragraph 10(2)(c) to do this. A much better approach is to focus on the buyer's reasonable expectations about the product.

A Different Approach --
The Buyer's Reasonable Expectations About the Product

[19] A case such as this raises a question about the meaning of "defects." On one level the oil leak is the defect. But on another level the oil leak is simply the symptom of the defect, the defect being the rear main oil seal. Now the plaintiff knew that the car leaked some oil, and the section 10 warranty would not protect him from a leak to the extent that it was known: paragraph 10(2)(a) explicitly states that the warranty does not cover defects known to the buyer before his purchase. Our common sense tells us that the plaintiff cannot avoid this result by saying that the real defect was the seal, and this defect was not known to him. Even though the defective seal was not known, section 10 protects only the buyer's reasonable expectations about the product (see paragraph 10(l)(a)), and obviously the plaintiff would not have a reasonable expectation that the car would not leak any oil.

[20] At the time when the plaintiff noticed the oil leak (before the extent of the leak was known), there were various ways of thinking about the leak. Each of the following descriptions was used by someone in this case:

  1. "a couple of drops of oil"
  2. "a puddle"
  3. "just a natural seepage"
  4. "just a minor leak"
  5. "an oil leak"
  6. "a minor problem"
  7. "probably minor ... not to worry"
  8. "a leaking oil problem."

These different ways of conceptualizing the leak can have important effects on the results. For example, if one thinks about the leak simply as "a couple of drops of oil," "just a minor leak," one does not expect a major leak. But if one thinks in more abstract terms and conceptualizes the leak as "a leaking oil problem," the extent of the problem being unknown, one does not have any expectations about whether the leak is minor or major. The point is that depending on how one thinks about the leak one's expectations are quite different. What was the right way for the buyer to think about the leak in this case?

[21] Now it is important to remember that section 10 does not protect every expectation of the buyer. It protects only the reasonable expectations of the buyer. If the buyer should have thought of the leak as an oil leak problem the extent of which was unknown, he would not be protected by section 10 even if in fact he thought about it simply as a minor leak.

[22] Perhaps an example will help. Suppose that the problem in this case was a transmission problem. Suppose that in his test-drive the buyer noticed that the transmission would not work in reverse. However, it worked normally in forward. Suppose further that the buyer did not check this out before purchase. Shortly after his purchase the transmission failed completely and of course then the car would not work in forward either. [84] Surely the buyer could not successfully claim protection under section 10. The buyer in these circumstances would not have any reasonable expectation the car would function normally except for the one problem of not working in reverse. He should have known that there was a transmission problem that was likely to go beyond the car's not working in reverse. He should have conceptualized this not simply as a "car won't go in reverse problem" but as a car with a "transmission problem."

[23] Should the plaintiff in our case have conceptualized his situation as an oil leak problem case, one where it was likely that the leak was more than a minor one (based on the known leak and over and above the possibility exists in any case that any product might be defective)? Did he know enough about the leak to prevent him from having any reasonable expectation that there was nothing but a minor leak? Indeed, should knowledge of any leak prevent him from having a reasonable expectation that the leak was only a minor one?

[24] To take the latter question first, I submit that the plaintiff should not be precluded from protection simply because he knew that there was a leak of some sort. An oil leak does not always automatically send out the clear danger signal that the transmission with no reverse does. It is indeed well known by the great majority of people that it is not at all uncommon for a car to leak a little bit of oil. An inspection of any parking lot will reveal just how common oil leaks are. Indeed, brand new cars sometimes leak a little oil. We do not worry very much about a couple of drops of oil. Indeed a used car buyer may not regard this as any problem at all.

[25] Of course, one can never know for sure what a couple of drops of oil really mean. They might be the first sign of a major leak. (Indeed, for all one really knows any car that has not been inspected might have a major leak.) But while this is a possibility, it is not very likely. In the great majority of cases they signal a minor leak. A small possibility of a major leak does not prevent the buyer from having a reasonable expectation that it is a minor leak. One can entertain some doubt about something while still reasonably believing it. The buyer may have a reasonable expectation that the car has a minor oil leak and yet still acknowledge the possibility that it may have a major oil leak.

[26] On the other hand, if the apparent leak were not just a few drops but a significant puddle, for example, the situation would be quite different. Here there would be a clear danger signal. In this situation it seems quite reasonable to deny protection against a major leak. Although the actual leak is much more serious than the buyer expected, nonetheless it was something that the buyer should have considered as a very substantial possibility, sufficient to prevent any reasonable expectation on the buyer's part that the car did not have a serious leak.

[27] Now in this case the apparent oil leak was significant enough for the plaintiff to mention it to the defendant. However, he appears to have mentioned it casually as part of a telephone call he made to the defendant for another purpose (to advise of a delay in obtaining financing), and he mentioned it only after the defendant's salesman asked him whether he had checked the car over. Moreover, the salesman's own testimony was that the leak was described to him by the plaintiff as "a couple of drops of oil in the driveway where the car was parked." He testified further that the way the plaintiff had explained the problem to him it appeared to be "just a natural seepage." The salesman told the plaintiff that the leak was "probably minor anyway, not to worry." On these facts I submit that the plaintiff's knowledge of the leak was not sufficient to preclude protection under section 10. Even someone with the defendant's car salesman's expertise did not consider this leak as a real dan-[85]-ger signal for a serious leak.

Conclusion

[28] In many cases it will not make any difference in the result whether one takes the majority judgment's approach or my approach. Protection against a defect will be denied under either approach in any case where the buyer has sufficient danger signals of the defect. I hope that in future cases the courts will restrict the majority judgment's approach to situations where the buyer does have sufficient danger signals. Indeed the majority judgment may very well have thought that this was such a case, since it simply described the leak as a "puddle" and seemed to be oblivious to the testimony describing that "puddle" and its perception by the parties.

[29] One final comment. This case and comment deal only with the implied warranty under section 10 of the Act. In some cases a buyer who is not protected against a defect under section 10 will nonetheless be protected against the defect under section 11 of the Act.