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Chapter II

The Seller's Responsibilities
in the Absence of Express Statements:

Implied Terms as to Title, Quality and Fitness

First Report of the Consumer Protection Project
Consumer Guarantees in the Sale or Supply of Goods
Department of Justice, New Brunswick, 1974
Reproduced with permission of the Department of Justice

First Report

  • Chapter II The Seller's Responsibilities in the Absence of Express Statements: Implied Terms as to Title, Quality and Fitness

Table of Contents

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CHAPTER II

THE SELLER'S RESPONSIBILITIES IN THE ABSENCE OF EXPRESS STATEMENTS:

IMPLIED TERMS AS TO TITLE, QUALITY AND FITNESS

The seller's responsibilities are not based solely on what he says or promises about the goods. He may also have responsibilities under implied terms, which arise from other circumstances. The Sale of Goods Act <1> provides important implied terms as to title, quality, and fitness, which we shall deal with in this part of the Report.

1. TITLE, QUIET POSSESSION AND FREEDOM FROM ENCUMBRANCES

(a) Present Law

Under section 13 of the Sale of Goods Act there is, "unless the circumstances of the contract are such as to [- 61 -] show a different intention," an implied condition covering the seller's right to sell, an implied warranty of quiet possession, and an implied warranty covering liens and encumbrances. Section 13 provides:

13. 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;

[- 62 -] (c) an implied warranty that the goods shall be free from any charge or incumbrance in favour of a third party, not declared or known to the buyer before or at the time when the contract is made.

These implied terms are of great practical importance to the consumer. <2>

But this section, which is based on section 12 of the English Sale of Goods Act, and which has its counterpart in all of common law Canada, has not escaped criticism. This criticism is not confined to its application to consumer sales, but extends to sales in general.

(b) The Wording of Section 13

The first main criticism is the wording of section 13.

If clause (a) were to be given its natural meaning, the result would be that a buyer under a conditional sale [- 63 -] contract would not be able to claim a breach of this condition until he had paid the entire purchase price. This is because a conditional sale contract is only an "agreement to sell" and in practice almost invariably provides that property is to pass only on payment in full of the purchase price. It would take a patient and trusting buyer indeed, after discovering a major defect in the seller's title, to be content to continue payments without any assurance that the defect would soon be rectified. <3>

In actual fact, although the point appears not to have been argued in Canada, the courts have assumed that the conditional seller can be in breach of section 13(a) long before the time for the passing of property. <4> The Ontario Law Reform Commission <5> recommended that the legislation remove any doubt on this point, and so do we. In consumer sales the seller should have the right to sell no later than the time of delivery of the goods to the buyer. [- 64 -] Manitoba has already passed legislation along this line. <6>

We do not find the wording of clauses (b) and (c) entirely satisfactory either. The only liens and encumbrances that should be excepted from the protection of clause (c) are those actually known to and agreed to by the buyer at the time the contract is made. It should also be made clear that clause (b) is subject to such liens and encumbrances.

(c) Exclusion of section 13

The second main criticism of section 13 relates to the cases in which it may be excluded.

Exclusion of the implied terms under section 13 is permitted both in the opening words of section 13 itself and in section 52 of the Sale of Goods Act. The English and Scottish Law Commissions took the view that a seller should never be able to negative any of these implied terms unless he purports to sell only a limited title. Even when he does purport to sell only a limited title, they recommended that there should be non-excludable implied terms that the seller has disclosed all liens and encumbrances known to him and, except for these, neither the seller nor anyone claiming [- 65 -] through him will disturb the buyer's quiet possession. <7> These recommendations were adopted in recent United Kingdom legislation. <8>

The Ontario Law Reform Commission <9> and a Committee of the Law Council of Australia, <l0> on the other hand, have concluded that the English proposals do not go far enough. <11> They recommended instead that in consumer sales a seller should not be able to contract out of section 13 at all. Furthermore, several jurisdictions now have legislation which prohibits the exclusion of section 13 in consumer [- 66 -] transactions, including Ontario, <12> Manitoba, <13> Saskatchewan, <14> British Columbia, <l5> and South Australia. <16>

We shall also recommend later in this Report that sellers should not be able to contract out of section 13 in consumer transactions. <17> We mention it here because we believe that the counterpart to section 13 in the consumer protection legislation should not include the opening words in the present section 13 "unless the circumstances of the contract are such as to show a different intention." Some of the reform legislation appears to have overlooked this. <18>

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(d) Remedies for Breach of Section 13

The present section 13 is, as set out above, unsatisfactory for consumers. In addition, the present law under section 13 is unsatisfactory for sellers. This is because it has been held that a breach of section 13(a) can result in a total failure of consideration whereupon the buyer can recover back his entire purchase price, even though he has enjoyed the use of the goods for a lengthy period of time. <19>

McNeill v. Associated Car Markets Ltd. et al., <20> a decision of the British Columbia Court of Appeal, illustrates the problem. In that case the plaintiff purchased a used car from the defendant. This car was subject to a chattel mortgage given by a previous owner, but apparently this was not known by either party. Over nineteen months later, the car was repossessed by the chattel mortgagee. The plaintiff notified the defendant of this seizure and gave him one week to clear the title. The defendant failed to do this within the week, whereupon the plaintiff demanded his money back. One day after the deadline, however, the defendant was able to clear the title, and tendered the car back, but [- 68 -] the plaintiff refused it. The court held that the plaintiff was entitled to recover back all the payments he had made, notwithstanding that the seller now had title free and clear, that his original breach was innocent, that the buyer was out of possession for only eight days, and that the result would be that the buyer would have the use of the car free for almost twenty months.

Such an approach is unfair to the seller and this has been recognized by nearly everyone. <21> It raises the whole question of remedies that should be available for breach of contract, a question that will be dealt with later in this Report. <22> For now, however, it should be noted that a seller who is in breach of section 13 should be given a reasonable opportunity to remedy his breach. Even where he is unable to cure the defect in his title, there is much to be said for the view that the buyer should not be able to recover the entire purchase price with no account being taken of the benefits he derived through use of the goods.

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(e) Nemo Dat and the Registry System

It should also be noted here that title problems arise because of the principle nemo dat quod non habet (a person cannot give a better title than he himself has). Although there are now many exceptions to this rule, it still retains substantial bite and is vigorously applied. Some consideration will be given in a later report to the question whether, in consumer transactions, further encroachments on the nemo dat principle are desirable. Particular attention will be paid to the problems caused by New Brunswick's local registry system. These problems cannot be solved by section 13, either in its present or modified form.

2. MERCHANTABILITY (OR QUALITY)

(a) Present Law

Section 15(b) of the Sale of Goods Act provides for an implied condition of merchantability where the goods are bought by description from a seller who deals in goods of that description.

15(b). [W]here goods are bought by description from a seller who deals in goods of that description, whether he be the manufacturer or not, there is [- 70 -] 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.

The Act does not define merchantability, but there are numerous cases on what is meant by the term. No single definition has won universal support, but perhaps the following definition has the most support:

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. <23>

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This definition does not cover the entire ground, however, and even its supporters have some reservations about it. <24> Lord Reid has stated that any definition of merchantability must be in vague terms because of the range of goods and circumstances to which it applies. <25>

What is clear is that the question of merchantability is decided not in the abstract but with reference to all the circumstances of the case, including the description under which the goods were sold and their price. For example, the quality requirements under a contract for the sale of a car would differ depending on whether the car was sold as a "new car" or a "used car."

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To be merchantable an article must have both sale value and use value, but only for the normal purpose for which the article is used. If the article is normally used for more than one purpose, all that merchantability requires is that it be fit for one of those normal purposes. <26>

The proviso to section 15(b) takes away protection from certain defects. If the buyer has examined the goods before making the contract, he will not be protected from defects that he should have noticed on the examination. According to the clear words of the proviso, it only applies if the buyer has examined the goods and then only to defects that should have been discovered on the examination actually made. The rule at common law before the Sale of Goods Act was different. At common law mere opportunity to inspect was sufficient to bring into play the rule of caveat emptor. <27> Unfortunately, one still encounters statements by judges who quote both the statutory and common law rules without indicating the difference. <28>

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Section 15(b) gives a great deal of protection to consumers, but there are as well many problems in its application to consumer transactions. The problems concern both the cases to which it does not apply at all and the extent of protection it gives when it does apply.

(b) When Merchantability Applies

(i) Sales by Description

It has already been noted that the description under which the goods are sold is very important in determining the extent of protection given by the merchantability requirement. Description is even more fundamental, however, for unless the goods are sold by description there is no requirement of merchantability at all. Thus if a consumer buys food at a supermarket, for instance a tomato, and the food turns out to be poisonous and causes him injury, whether he is protected by merchantability depends on whether the food was sold by description.

In practice there can be great difficulty in determining whether the sale was by description. All sales of goods that the buyer has not seen are, of necessity, sales by description. [- 74 -] But only some sales of goods that the buyer has seen are sales by description. Lord Wright's famous statement in this regard was as follows:

It may also be pointed out that there is a sale by description even though the buyer is buying something displayed before him on the counter: a thing is sold by description, though it is specific, so long as it is sold not merely as the specific thing but as a thing corresponding to a description, e.g., woollen under-garments, a hot-water bottle, a second-hand reaping machine, to select a few obvious illustrations. <29>

Goods are sold by description, then, if the seller undertakes responsibility under the contract for the identity of the subject matter.

Most courts have leaned in favour of finding a sale by description in order to give the consumer buyer the benefit of section 15(b). But there is considerable doubt as to how far a New Brunswick court would go in this regard. In Godsoe v. Beatty <30> the New Brunswick Court of Appeal said, [- 75 -] in a case where a buyer had bought a car that he examined himself and took for a test drive, that the car "... was not bought on a description furnished to the plaintiff (buyer) by the defendant (seller). The sale was of a specified vehicle referred to in the contract as a 1953 used Meteor Sedan ..." <31> If the buyer had told the seller that he wanted to buy a car, the decision on this point could have gone the other way. <32>

The approach in Godsoe v. Beatty raises a question of how many sales in self-service stores would be held to be sales by description. In the self-service store the buyer, of course, does not tell the seller what he is looking for but simply passes among the shelves picking up the specific articles he wants to purchase. Many articles on display will have labels attached and at least an argument can be made that the buyer is buying by description, especially in the case of packaged merchandise, e.g. toothpaste. <33> But there will also be many articles on display that have no labels attached and nothing whatsoever will be said concerning their identity, e.g. tomatoes in bulk. We doubt that a New Brunswick court would say that these were sold by description.

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It seems strange, however, that a buyer who asks the clerk for a dozen tomatoes should be protected by merchantability, but not the buyer who selects a dozen unlabelled tomatoes all by himself. After all, the reason why the tomatoes are unlabelled and the buyer and seller say nothing about their identity is because they find it unnecessary to state the obvious. The law, however, does seem to require them to state the obvious in order for merchantability to apply.

In our opinion merchantability should not depend entirely on whether the sale was by description. This is not to say that description should be unimportant, for it clearly is important. The greater the description, the more protection is given under merchantability. But this should go only to the extent of protection, and even here description is only one of the circumstances to be considered. But surely some protection should be given regardless of whether the goods have been "described." A consumer who buys something that looks like a tomato in a place where tomatoes are normally kept should be entitled to assume that it is being sold as a tomato. If it turns out to be poisonous and injures him, his recovery under merchantability should not depend on whether he bought by description.

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We accordingly recommend that there should be no requirement that the goods be bought by description in order for merchantability to apply. This has also been recommended by the English and Scottish Law Commissions, <34> the Ontario Law Reform Commission, <35> and a Committee of the Law Council of Australia. <36> The recommendations of the English and Scottish Law Commissions were adopted in the recent U.K. Supply of Goods (Implied Terms) Act 1973. <37> In addition, the Manitoba Consumer Protection Act <38> and the Saskatchewan Conditional Sales Act, <39> among others, do not require that the goods be bought by description in order for merchantability to apply.

(ii) Dealers

Under section 15(b), not only must the goods be sold by description but the seller must be one "who deals in goods [- 78 -] of that description." It has recently been held that this does not mean that the seller must be a dealer in goods of the exact same description as that under which the goods in question were sold; it is sufficient if the seller is a dealer in goods of that kind. <40>

The English and Scottish Law Commissions and the Ontario Law Reform Commission thought that the crucial test should be simply whether the seller was selling in a business or private capacity. They accordingly recommended that merchantability should apply to all sales by a seller who is acting in the course of a business, whether or not he is a dealer in goods of the relevant description. <41> So do we. The recommendations of the English and Scottish Law Commissions were adopted in recent United Kingdom legislation. <42>

(iii) Used Goods

Although it is well established in England that the merchantability condition applies to used goods, <43> there is [- 79 -] some doubt whether this is the law in New Brunswick. The question was raised but not answered by the New Brunswick Court of Appeal in Godsoe v. Beatty, <44> which was decided before the leading English decision. In Godsoe v. Beatty the Court simply quoted from Corpus Juris and Corpus Juris Secundum, which contain statements that are not altogether reconcilable (some of which indicate that the buyer gets protection and some of which indicate that the buyer does not get protection).

The Ontario Law Reform Commission recommended that it be made clear that merchantability does apply to used goods. <45> This would not mean, of course, that the buyer of used goods would receive as much protection as the buyer of new goods. As pointed out above, merchantability is a flexible concept that depends on all the circumstances of the case, including the description under which the goods were sold and the price. Manitoba has made it clear that merchantability applies to used goods and has provided specifically that in deciding whether used goods are merchantable, regard shall be had to the fact that they are used and their age. <46>

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We also recommend that it be made clear that merchantability applies to used goods.

Another problem that arises in the used goods area is that the buyer may think the goods are new when actually they are used. The seller may say nothing on this point at all, but simply let the buyer proceed on the basis of his mistaken assumption. Manitoba has sought to remedy this problem by making it an implied term of the contract that the goods are "new and unused unless otherwise described." <47>  We recommend that New Brunswick make similar provision. Unless the circumstances are such that it would be apparent to the buyer that the goods are not new and unused, it should be an implied term that the goods are new and unused.

(c) What Merchantability Covers

(i) Multipurpose goods

It has been mentioned above that merchantability covers the normal or ordinary purpose for which the goods are used. In cases where the goods are normally used for more than one purpose the goods are merchantable if they are fit for one of those ordinary purposes, provided that some buyers would be willing to pay the same price for goods sold under the description in question for use for that purpose for which they are fit. Merchantability then [- 81 -] does not cover all the normal purposes for which the goods are used. The buyer of multipurpose goods may find that notwithstanding the fact that the goods are unfit for his purpose, which is an ordinary purpose, he is not protected by merchantability.

This can raise a problem for the consumer buyer, for it may never occur to him that in this respect multipurpose goods can be a trap for him. Furthermore, there could be some difficulty in applying the above test to consumer cases; for example, suppose you were dealing with a car that performed well if used mainly in an area with a relatively mild climate, but did not perform well in a colder climate.

The Ontario Law Reform Commission has recommended that the law should be changed so that a consumer would be entitled to expect that the goods are suitable for all normal purposes "unless the dealer or manufacturer has informed the consumer that the goods are not fit for all such purposes, or it is common knowledge among consumers that the particular goods are not fit for all such purposes." <48> In addition, the [- 82 -] Uniform Commercial Code, which is in force in almost all of the United States, provides that goods are not merchantable if they are not "fit for the ordinary purposes for which such goods are used." <49>

We recommend that New Brunswick's legislation should ensure that, in the absence of a clear indication to the contrary, merchantability should cover all the purposes for which the goods are ordinarily used.

(ii) Durability

Mr. Justice Kerwin has stated <50> that "while a warranty may expressly relate to the future, as when the seller undertakes to deliver horses sound at the end of a fortnight, unless it is so expressly stated, the warranty relates to facts as they were at the time of sale ...". Of course he was talking about warranties generally and it can be argued that the concept of merchantability, even if restricted to the time of sale, includes a present capacity to remain durable for a reasonable length of time depending on the circumstances of the case. It can also be argued that there is a difference between such things as horses and manufactured goods. But there are few actual authorities on this vital question of durability, and what authorities there are leave [- 83 -] a great deal of doubt on what the legal position is. <51>

It has been recommended by the Ontario Law Reform Commission <52> that legislation should be passed to clarify the position and to expand merchantability so as to include a requirement that the goods be durable for a reasonable time period. In determining what is a reasonable time period, regard should be had to the price and all the other circumstances. They pointed out that this would not be a novel approach, for the farm implements legislation of some provinces now expressly imposes a durability requirement for farm implements. <53>

The Ontario proposals make a great deal of sense. After all, the consumer pays his price on the basis that the goods have some lasting value and the law should reflect this by clearly imposing a durability requirement. We accordingly recommend that New Brunswick should adopt such legislation.

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Many manufactured goods consist of more than one component. There should be a requirement that the components be durable for a reasonable time period, again having regard to all the circumstances of the case. The law could then reflect the fact that some components should last longer than others; for example, a car transmission should last longer than car tires.

(iii) Spare Parts and Servicing

In addition to their recommendations on durability, the Ontario Law Reform Commission also recommended that there should be an implied term that spare parts and servicing will be available for consumer goods that normally require repairs. <54> Again they pointed out that this has been done in the farm implements legislation of Prince Edward Island, Manitoba, Saskatchewan and Alberta. Furthermore, they pointed out that the State of California has recently passed legislation along these lines.

The reasons for imposing such requirements seem very attractive. After all, everyone knows that a consumer durable that requires periodic repairs and servicing will not be of much value if the necessary parts and servicing facilities are not available, or if they are available only [- 85 -] after a long delay. And it is a rare consumer who has not encountered this problem in one form or other. Indeed, the problem is likely to be more acute in New Brunswick than it is in Ontario. Because of its size, and its relative remoteness from the manufacturers of many goods, New Brunswick does not have the same servicing facilities as the larger metropolitan areas.

If such a requirement were imposed, however, a number of problems would arise. Many sellers do not at present service the products they sell. Nor would it be reasonable in many cases to expect them to service what they sell or to have on hand complete stocks of spare parts. It must be remembered that the scope of this legislation would be very wide. It would apply to anyone who sells a consumer durable in a business capacity. It would be wrong to impose a general requirement on every business seller to have complete stocks of spare parts for the goods he sells and to have all the necessary servicing facilities. The most that could be imposed, by way of a general requirement, is the risk that spare parts and servicing facilities will be available. But even this requirement, as a general requirement, would impose risks on sellers that in many cases would be beyond their control -- risks of availability of spare parts, risks of availability of [- 86 -] adequate servicing facilities; availability where, when, and for how long. Of course, many defects for which a seller is responsible under merchantability are also beyond his control. But it seems to us that it is much easier for a seller to bear the burden of or insure against the risk of these defects than it would be for him to insure against the risk of something like obsolescence. We do not recommend that New Brunswick adopt general legislation such as that proposed in the Ontario Report.

We do, however, see a case for adopting such legislation on a selective basis. There are some products for which it is reasonable to expect the seller to have available spare parts and servicing facilities. Automobiles are a case in point. To a limited extent New Brunswick law already recognizes this. Under the Motor Vehicle Act, among the factors to be considered in deciding whether to grant a license to a prospective motor vehicle dealer are whether he has qualified mechanics and proper repair equipment. <55> It does not strike us as being unreasonable to go a step further here and imply a term in consumer sales of automobiles that spare parts and reasonable repair facilities will be available for a reasonable [- 87 -] time period. There may be other consumer products for which it is also reasonable to impose such terms, e.g. mobile homes.

(d) What Merchantability Does Not Cover

It is recommended later in this Report that in consumer sales the contracting out of merchantability should be prohibited. <56> It should be appreciated, however, that this does not mean that the seller will always be liable if the goods are defective. This is because merchantability is a flexible concept which is decided by looking at all the circumstances surrounding the making of the contract. Thus goods can be defective and yet still be merchantable, depending on the circumstances. For example, a car may have certain defects that would render it unmerchantable if it was sold as a "new car" but not if it was sold as a "used car." Again, goods described as "seconds" or "floor samples" would require a lower standard of quality than the same goods without this qualifying description.

Nor is it thought that there is something inherently wrong about selling goods that have defects, provided that the consumer knows what he is getting and has a choice in [- 88 -] the matter, and provided that the defects do not affect the safety of the product. These are, of course, important provisos. Safety is as much a matter of public concern as it is of private concern. And the complexities of, and the market conditions relating to, some products are such that it is best to legislate specific standards of quality, or to legislate grading standards. There is much legislation at present that does just that, and no doubt there will be more in the future. We support these efforts. Indeed, we believe that merchantability should include a requirement that the goods will comply with applicable New Brunswick and Federal statutes and regulations establishing standards of quality and safety of goods. <57>

In our view it is always objectionable for the seller to put the risk of all defects, known and unknown, on the consumer. Subject to what has been said concerning the relevance of the description under which the goods are sold, notice of defects should be specific not general. A seller should be able to avoid liability for defects in the goods that he has pointed out to the consumer. But he should not be able to avoid liability for defects generally. Notices that the goods are sold "with all faults" or on an "as is" [- 89 -] basis should not be sufficient to avoid liability for all defects.

The one exception to this should be the case where, although the seller did not point out the specific defects, the consumer examined the goods before the sale and knew of the defects in question. The proviso to section l5(b) presently excludes such defects from the protection of merchantability.

But the present proviso goes further than this in that it also excludes from protection defects that the consumer should have discovered on the examination that was made. The English and Scottish Law Commissions recommended that this proviso be retained. <58> But why should we deny protection to the consumer who looked for but failed to find defects and give protection to the consumer who does not bother to look for the defects at all? Of course, it can be argued that the way to resolve this is to deny protection for any defects that were discoverable on a [- 90 -] reasonable examination regardless of whether an examination was made or not. This would restore the position at common law. <59> However, in our opinion this would create more problems than it would solve. Consumer goods today are often complex, it could be extremely difficult to say what defects would be discoverable on a reasonable examination, and in many cases the buyer is not expected to examine the goods at all or, if he is, then only in a cursory manner. Furthermore, it must be remembered that the seller can point out the defects if he wants to. We would therefore recommend that the present proviso not be carried over to the consumer protection legislation in its present form but be narrowed to defects that were known to the buyer as a result of his examination. The Manitoba Consumer Protection Act has dropped the proviso altogether. <60>

3. FITNESS FOR PURPOSE

(a) Present Law

Section 15(a) of the Sale of Goods Act provides in certain cases an implied condition of fitness for a particular [- 91 -] purpose. It states:

15(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.

This term provides protection that in many cases would not be available under section 15(b), the merchantability condition. [- 92 -] For instance it would provide protection in a case where the goods were to be used for an unusual purpose. In addition, however, the courts have held that the usual or normal purpose for which the goods are used can be a "particular purpose." <61> These words, then, mean known or specified purpose, not special or unusual as opposed to general or usual purpose.

There is therefore considerable overlap between section 15(a) and (b). This overlap benefits the consumer because the requirements for the applicability of the clauses differ. Section 15(a), unlike 15(b), does not require that the goods be sold by description. But it does require, which section 15(b) does not, that the seller know of the particular purpose, that the buyer rely on the seller's skill or judgment, and that the seller know of the buyer's reliance. However, the case law is in favour of the consumer in its interpretation of these requirements. If the buyer intends to use the goods for their only normal purpose, the seller will be taken to know this even though nothing is stated. <62> [- 93 -] And it is readily assumed that a consumer relies on a retailer to choose suitable goods. <63> Furthermore, the courts have interpreted the proviso dealing with sales under a patent or trade name in such a way that it applies only when in ordering the goods under their patent or trade name the buyer is showing the seller that he is not relying on his skill or judgment. <64>

(b) Reform

Section 15(a) then, as interpreted by the courts, has proved to be a valuable provision for consumers. It is recommended, however, that at least in the consumer protection legislation this provision should be recast so that it will reflect the interpretation that has been placed upon it, as well as to clear up some possible ambiguities and to make some changes in the law. The recommendations, which in large part follow the proposals of the English and Scottish Law Commissions <65> are set out below.

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(i) Normal Purpose

The legislation should make clear that the fitness condition covers a usual or normal purpose as well as an unusual or special purpose. The Law Commissions considered whether it would be desirable to restrict the coverage of section 15(a) to unusual purposes, since section 15(b) covers usual purpose. They decided against it and so do we. Section 15(a) can assist a consumer where it might be doubtful, even under the new proposals, whether section 15(b) would protect him. For example, a consumer might be aware of certain defects but might not appreciate that the defects are such as to render the goods totally unfit for their normal purpose.

(ii) Reliance

a. Proviso

The proviso to section 15(a) should be repealed. The courts have made it clear that the real question here is that of reliance. If there is reliance section 15(a) can apply notwithstanding the fact that the actual sale contract refers to the goods by their patent or trade name. <66> The [- 95 -] proviso can therefore be misleading and accordingly should be done away with. Saskatchewan repealed the equivalent proviso in its Sale of Goods Act many years ago. <67>

b. Onus of Proof

The wording of section 15(a), whereby the fitness condition will be implied only when the buyer makes known the particular purpose for which he requires the goods so as to show that he relies on the seller's skill or judgment, should be changed so that the condition will be implied if the seller knows of the buyer's purpose, unless the circumstances are such as to show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's skill or judgment.

This recommendation is meant primarily to reflect the interpretation that the courts have already placed on the present wording. Whether there is reliance is a question of fact. In consumer sales the courts are very ready to infer reliance. Indeed, mere disclosure to the seller of the buyer's purpose can be sufficient evidence of reliance even in business sales. <68> The reliance need not be total, it is [- 96 -] enough if it is substantial. Thus a buyer may rely partially on his own judgment, e.g. by inspecting the goods, and still satisfy the reliance requirement. <69>

(iii) Other Changes

As was recommended for merchantability, the fitness term should

(a) apply to any seller who is acting in the course of a business; <70>

(b) make clear that it applies to used goods as well as to new goods; <71> and

(c) require that the goods remain fit for a reasonable period of time. <72>

4. SALES BY SAMPLE

In consumer transactions sales by sample are the exception rather than the rule, though no doubt for certain commodities, e.g. carpets, sales by sample are quite common. If it is a sale by sample the buyer gets the protection of section 16 of the Sale of Goods Act which provides, inter alia, implied conditions that the goods will correspond with [- 97 -] the sample in quality and "shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample." It is important to note here that the test is not whether the defects could have been discovered by examination, but whether they could have been discovered on the kind of examination that, in the circumstances of the case, it would be reasonable to expect to be made. <73> A consumer who bought carpeting by sample, for example, would not be expected to run chemical tests.

The English and Scottish Law Commissions were of the opinion that these implied terms had not caused any particular difficulty in practice and accordingly did not propose any changes. <74> Neither did the Ontario Law Reform Commission. <75>

However, it should be noted that there is a difference between the defects excepted from the protection of section 15(b) and section 16. The proviso to section 15(b), which deals with [- 98 -] merchantability generally, applies only when the buyer has examined the goods and then only excludes protection from defects "which such examination ought to have revealed." Section 16, however, excludes protection from defects discoverable on a reasonable examination, regardless of whether an examination was made and, if so, the extent of that examination. The question arises whether this difference is justified.

Since the function of a sample is to show the buyer what he is buying, it can be argued that protection should not be given for defects discoverable on a reasonable examination of the sample. However, for the consumer, the sale by sample is probably seen as practically the same as the case where he examines the goods themselves before purchase. Furthermore, the consumer is much less likely to conduct an adequate examination than a businessman, although this is mitigated to some extent by the reasonable examination rule. On balance, we have concluded that for consumer sales the difference in this respect between sections 15(b) and 16 should be eradicated.

Elsewhere in this Report <76> we have recommended that the present proviso to section 15(b) should be modified. [- 99 -] We recommend that the same modification be made in sales by sample. The position taken under section 16 should be the same as whatever position is adopted under section 15(b).

5. RECOMMENDATIONS

We recommend that:

1. The consumer protection legislation should contain provisions dealing with implied terms as to title, quality, and fitness. These provisions should be based on sections 13, 15, and 16 of the Sale of Goods Act, with the modifications proposed below.

Title
2. In consumer sales the seller should have the right to sell the goods no later than the time of delivery of the goods to the buyer.

3. The only liens and encumbrances that should be excepted from the protection given to the buyer by clause (c) of section 13 are those [- 100 -] that are actually known to and agreed to by the buyer at the time the contract is made. It should also be made clear that clause (b) is subject to such liens and encumbrances.

4. The consumer protection legislation should not include the opening words in the present section 13 "unless the circumstances of the contract are such as to show a different intention."

Quality
5. The implied term as to merchantability should be renamed simply as an implied term as to quality, and should be defined in terms of the goods being of such quality and in such state or condition as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances.

[- 101 -]
6. There should not be any requirement that the goods be bought by description in order for the implied term as to quality to apply.

7. The implied term as to quality should apply to all sales by a seller who is acting in the course of a business.

8. It should be made clear that the implied term as to quality applies to used goods.

9. Unless the circumstances are such that it would be apparent to the buyer that the goods are not new and unused, it should be an implied term that the goods are new and unused.

10. The implied term as to quality should cover all the purposes for which the goods are ordinarily used in the absence of a clear indication to the contrary.

[- 102 -]
11. The implied term as to quality should include a requirement that the goods be durable for a reasonable period of time. In determining what is a reasonable period of time, the price and all the other circumstances should be considered.

12. In cases where the goods consist of more than one component, there should be a requirement that the components be durable for a reasonable period of time, again having regard to all the circumstances of the case.

13. There should be an implied term in the sale of some products, e.g. automobiles and mobile homes, that spare parts and reasonable repair facilities will be available for a reasonable period of time.

14. The implied term as to quality should include a requirement that the goods will comply with appli-[- 103 -]cable New Brunswick and Federal statutes and regulations establishing standards of quality and safety of goods.

15. Subject to recommendation 14, the implied term as to quality should not cover defects in the goods that the seller points out to the consumer, or of which the consumer knows, before the contract is made.

Fitness for Particular Purpose
16. The consumer protection legislation should make clear that the implied term as to fitness for a particular purpose covers a usual or normal purpose as well as an unusual or special purpose.

17. The proviso to section 15(a) of the Sale of Goods Act, which excludes the implied term as to fitness "in the case of a contract for the sale of a specified article under its [- 104 -] patent or other trade name," should be repealed.

18. The wording of section 15(a), whereby the fitness for purpose term will be implied only when the buyer makes known the particular purpose for which he requires the goods so as to show that he relies on the seller's skill or judgment, should be changed in the consumer protection legislation so that the term will be implied if the seller knows of the buyer's purpose, unless 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.

19. As was recommended for the implied term as to quality, the fitness term should

(a) apply to any seller who is acting in the course of a business;

[- 105 -]
(b) make clear that it applies to used goods as well as to new goods; and

(c) require that the goods remain fit for a reasonable period of time.

Sales by Sample
20. The consumer protection legislation should provide for an implied term as to quality in sales by sample, except for defects in the sample that the seller points out to the consumer, or of which the consumer knows, before the contract is made.

21. In sales by sample the implied term as to quality should include a requirement that the goods will correspond with the sample in quality.

Footnotes

<1> R.S.N.B. 1952, c.199.

<2> See, e.g., Evans v. Ritchie; Thorpe, Third Party; Wood Motors Ltd., Fourth Party (1964), 44 D.L.R. (2d) 675 (N.B., Co. Ct.).

<3> See the Final Report of the Committee on Consumer Protection (London, 1962, Cmnd. 1781), para. 451.

<4> See, e.g., McNeill v. Associated Car Markets Ltd. et al. (1962), 35 D.L.R. (2d) 581 (B.C.C.A.).

<5> Report on Consumer Warranties and Guarantees in the Sale of Goods (1972), at pp. 33-34.

<6> The Consumer Protection Act, R.S.M. 1970, c. C200, as am., s. 58(1)(a).

<7> The Law Commission and the Scottish Law Commission, Exemption Clauses in Contracts, First Report: Amendments To The Sale of Goods Act 1893 (1969), paras. 17-18.

<8> Supply of Goods (Implied Terms) Act 1973, s. 1. The Act came 1nto force on May 18, 1973.

<9> Report on Consumer Warranties and Guarantees in the Sale of Goods (1972), chapter 3.

<10> Report on Fair Consumer Credit Laws to the Attorney-General for the State of Victoria by a Committee of the Law Council of Australia (Melbourne, 1972), paras. 5.1.4-5.1.5.

<11> Some of the commentary in legal periodicals is also critical of the English proposals. See, e.g., Coote, Controlling Exception Clauses in Contracts: the Law Commissions' First Attempt (1970), 34 Conveyancer and Property Lawyer 254, at p.256: "One may hazard that if the recommendations [of the English and Scottish Law Commissions] become law, it will be these new limited warranties which will govern sales by common form thenceforth. Such contracts will recite that the sale is of only such right or title as the seller may have." The Coote article is a valuable critique on the entire Law Commissions Report.

<12> The Consumer Protection Act, R.S.O. 1970, c. 82, as am., s. 44a.

<13> The Consumer Protection Act, R.S.M. 1970, c. C200, as am., s. 58.

<14> The Conditional Sales Act, R.S.S. 1965, c. 393, ss. 25, 28.

<15> Sale of Goods Act, R.S.B.C. 1960, c. 344, as am., s. 21A.

<16> Consumer Transactions Act, 1972, S.S.A. 1972, No. 135, ss. 8, 10.

<17> See Chapter IV, infra.

<18> See Sale of Goods Act, R.S.B.C. 1960, c. 344, as am., ss. 18, 21A.

<19> The leading case is Rowland v. Divall, [1923] 2 K.B. 500 (Eng. C.A.).

<20> (1962), 35 D.L.R. (2d) 581 (B.C.C.A.).

<21> See Law Reform Committee, Twelfth Report (Transfer of Title to Chattels), (London, 1966, Cmnd. 2958), para. 36; The Law Commission and the Scottish Law Commission, Exemption Clauses in Contracts, First Report: Amendments To The Sale of Goods Act 1893 (1969), paras. 13-16; Report of the (Crowther) Committee on Consumer Credit (London, 1971, Cmnd. 4596), paras. 6.6.15-6.6.19; Report on Fair Consumer Credit Laws to the AttorneyGeneral for the State of Victoria by a Committee of the Law Council of Australia (Melbourne, 1972), para. 5.1.6; Ontario Law Reform Commission Report on Consumer Warranties and Guarantees in the Sale of Goods (1972), at pp. 42-43.

<22> See Chapter III, infra.

<23> See Henry Kendall & Sons v. William Lillico & Sons Ltd., [1969] 2 A.C. 31 (H.L.).

<24> Ibid. See also B.S. Brown & Son Ltd. v. Craiks Ltd., [1970] 1 All E.R. 823 (H.L.).

<25> B.S. Brown & Son Ltd. v. Craiks Ltd., [1970] 1 All E.R. 823, at p. 825. The Law Commissions proposed the following definition of merchantability: "Goods of any kind are of merchantable quality within the meaning of this Act if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to their price, any description applied to them and all the other circumstances". Exemption Clauses in Contracts. First Report: Amendments to the Sale of Goods Act 1893 (1969), at p. 62. Their proposed definition was adopted, with minor modifications, in recent United Kingdom legislation: Supply of Goods (Implied Terms) Act 1973, s. 7(2).

<26> See the cases cited in footnotes 23 and 24, supra.

<27> "Where goods are in esse and may be inspected by the buyer, and there is no fraud on the part of the seller, the maxim caveat emptor applies, even though the defect which exists in them is latent and not discoverable on examination, at least where the seller is neither the grower nor manufacturer:" Jones v. Just, L.R. 3 Q.B. 197, per Mellor J.; quoted with approval by Barker J., in Jordan et al. v. Leonard et al. (1904), 36 N.B.R. 518 (N.B.C.A.), at p. 526.

<28> Antworth v. Fagan (1969), 4 N.B.R. (2d) 816 (N.B., Co. Ct.), at p. 819.

<29> Grant v. Australian Knitting Mills, Ltd., [1936] A.C. 85, at p. 100 (P.C.).

<30> (1958), 19 D.L.R. (2d) 265 (N.B.C.A.).

<31> Ibid., at p. 267, per Ritchie, J.A. (for the Court).

<32> See Gagnon v. Geneau (1950), 27 M.P.R. 305 (N.B.C.A.), per Hughes, J.

<33> We made recommendations in Chapter I, supra, concerning the seller's responsibilities for labels.

<34> Exemption Clauses in Contracts, First Report: Amendments to the Sale of Goods Act 1893 (1969), para. 45.

<35> Report on Consumer Warranties and Guarantees in the Sale of Goods (1972), at p. 41.

<36> Report on Fair Consumer Credit Laws to the Attorney-General for the State of Victoria by a Committee of the Law Council of Australia (Melbourne, 1972), para. 5.1.7.

<37> Section 3.

<38> The Consumer Protection Act, R.S.M. 1970, c. C200, as am., s. 58(1)(e).

<39> The Conditional Sales Act, R.S.S. 1965, c. 393, s. 25(1)(d).

<40> Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1971] 1 All E.R. 847 (H.L.).

<41> English and Scottish Law Commission Report, paras. 31, 46; Ontario Report, at p. 41.

<42> Supply of Goods (Implied Terms) Act 1973, ss. 3, 7.

<43> Bartlett v. Sidney Marcus, Ltd., [1965] 2 All E.R. 753 (Eng. C.A.).

<44> (1958), 19 D.L.R. (2d) 265 (N.B.C.A.).

<45> Ontario Report, at p. 45.

<46> The Consumer Protection Act, R.S.M. 1970, c. C200, as am., s. 58(5).

<47> Ibid., s. 58(1)(d).

<48> Ontario Report, at p. 45.

<49> Section 2-314(2)(c).

<50> Strauss v. Bowser, [1951] 4 D.L.R. 449 (Can. Sup. Ct.), at p. 450.

<51> See, e.g., the discussion in Atiyah, The Sale of Goods (4th ed., 1971), at pp. 84-85.

<52> Ontario Report, at pp. 37-38.

<53> Prince Edward Island, for example, has the following provision in The Farm Implement Act, S.P.E.I. 1968, c.49, s.6:

6. Notwithstanding anything contained in an agreement, every new farm implement sold shall be deemed to be warranted to be
(e) designed and constructed in every way so as with proper care and use, to ensure reasonable durability.

<54> Ontario Report, at pp. 40, 41, 45.

<55> N.B. Reg. 67-65, s. 18(d), (e).

<56> See Chapter IV, infra.

<57> The First Final Draft of the proposed National Consumer Act, prepared by the National Consumer Law Center at Boston College Law School, contains such a provision: s. 3.301(2).

<58> English and Scottish Law Commissions Report, paras. 47, 48. The Ontario Report recommends simply that "the warranty should not apply with respect to such defects as have been adequately disclosed to the buyer or that would have been apparent to him in those cases where he has examined the goods prior to his purchase:" Ontario Report, at p. 45.

<59> Indeed, the common law was even more stringent. See note 27, supra.

<60> The Consumer Protection Act, R.S.M. 1970, c. C200, as am., s. 58(1)(e).

<61> Grant v. Australian Knitting Mills, Ltd., [1936] A.C. 85 (P.C.), at p. 99.

<62> Ibid. But cf. Godsoe v. Beatty (1958), 19 D.L.R. (2d) 265 (N.B.C.A.), at p. 267.

<63> Ibid.

<64> Baldry v. Marshall, [1925] 1 K.B. 260 (Eng. C.A.); The Philip Carey Company Limited v. McCain Foods Limited and Carleton Cold Storage Ltd. (1969), 1 N.B.R. (2d) 551 (N.B. Sup. Ct.), affirmed on other grounds, (1970), 2 N.B.R. (2d) 314.

<65> Exemption Clauses in Contracts, First Report: Amendments to the Sale of Goods Act 1893 (1969), paras. 30-39. Their recommendations were adopted by the Ontario Law Reform Commission Report on Consumer Warranties and Guarantees in the Sale of Goods (1972), at pp. 35-36, and also by the recent United Kingdom Supply of Goods (Implied Terms) Act 1973, s.3.

<66> See note 64, supra.

<67> See Hayes, Trustee of Preload Co. of Canada Ltd. v. City of Regina (1959), 20 D.L.R. (2d) 586 (Can. Sup. Ct.).

<68> Ibid.

<69> Ibid. See also Gagnon v. Geneau (1950), 27 M.P.R. 305 (N.B.C.A.).

<70> See pages 77-78, supra.

<71> See pages 78-80.

<72> See pages 82-84.

<73> Godley v. Perry, [1960] 1 All E.R. 36 (Q.B.).

<74> Exemption Clauses in Contracts, First Report: Amendments to the Sale of Goods Act 1893 (1969), paras. 57-59.

<75> Report on Consumer Warranties and Guarantees in the Sale of Goods (1972). However, the Commission did point out the problem that arises when the buyer does not get to keep the sample and later questions whether the goods conform to the sample. They thought this problem could be dealt with best by administrative regulation (p.41).

<76> See pages 89-90, supra.