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Chapter IV

Regulation of Attempts by the Seller to Avoid or Limit the Responsibilities That the Law Would Otherwise Impose on Him:

Contracting out of the Terms of the Contract or Remedies for Their Breach

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 IV Regulation of Attempts by the Seller to Avoid or Limit the Responsibilities that the Law Would Otherwise Impose on Him: Contracting Out of the Terms of the Contract or Remedies for their Breach

Table of Contents

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CHAPTER IV

REGULATION OF ATTEMPTS BY THE SELLER TO AVOID OR LIMIT THE RESPONSIBILITIES THAT THE LAW WOULD OTHERWISE IMPOSE ON HIM:

CONTRACTING OUT OF THE TERMS OF THE CONTRACT OR REMEDIES FOR THEIR BREACH

We have completed our review of the terms of consumer contracts for the sale of goods and remedies for their breach, and have made our recommendations for reform. The question we now turn to is whether the seller should be free to contract out of these terms or the remedies for their breach, in whole or in part. We shall deal with implied terms first, and then with express terms.

1. IMPLIED TERMS

(a) Present Law

Under the present law, the implied terms as to title, quality and fitness are not mandatory. Section 52 of the [- 140 -] Sale of Goods Act, <1> which is founded on that fundamental principle of freedom of contract, allows the parties to contract out of or modify all of the implied terms. It provides:

Where any right, duty, or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage if the usage be such as to bind both parties to the contract.

Furthermore, as we pointed out at the outset of this Report, <2> there is no requirement that the parties must go over with each other and agree individually on every term of a contract. One party may draw up a written contract in advance and simply get the other party to sign it. The person who signs is usually bound by the terms contained in the document. It is irrelevant that he did not read the document or did not understand it if he did read it.

And, at least in theory, the courts are not generally concerned with the fairness or reasonableness of the terms of the contract. What is fair and reasonable, under the freedom of contract principle, is for the parties to the contract to decide.

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(b) Our Proposals and Reasoning

We have already indicated in earlier parts of the Report that in our view the seller should not be allowed to contract out of the implied terms as to title, quality and fitness. We also believe that the seller should not be allowed to contract out of or limit the remedies that the law would otherwise provide for breach of the implied terms. In this part of the Report we shall go into the reasoning behind these recommendations and discuss other possible alternatives.

Our proposals on the prohibition of contracting out of the implied terms should not be read in isolation from our recommendations on what the implied terms should be, for otherwise the reader will not get a true picture of the ramifications of our proposals. For example, our proposals would not result in a seller never being able to sell goods to a consumer without being liable for every defect in the goods. What they would result in is that a seller would not he able to sell goods to a consumer and place the risk of all defects on the consumer.

Furthermore, if the ramifications of our proposals are to be understood fully, two additional points must be [- 142 -] remembered. First, the seller's liability under the implied terms does not rest on negligence but is a strict liability. <3> The seller may not have been responsible for the defective condition of the goods, he may not have been negligent in failing to detect their defective condition, indeed he may have taken the utmost care to prevent selling defective goods, but none of these considerations is relevant under the present law. If, for example, the goods are unmerchantable the seller will be liable notwithstanding the fact that he took the utmost care to ensure that they were merchantable. Second, subject to the usual rules as to foreseeability and the duty to mitigate, that liability extends to protection of the buyer's expectation interest. That is, the buyer is to be placed in the same position as he would have been in had there been no breach, at least as far as money can put him in that position. The seller may therefore be liable for consequential losses that may exceed the purchase price of the goods sold many times over. <4> For example, he may have sold a defective automobile that in turn caused an accident.

We recommend that the seller's liability continue to be a strict one and that the seller continue to be liable for consequential losses. We do recognize that the case is stronger [- 143 -] for the protection of some interests than it is for the protection of others. In particular, we recognize that perhaps the weakest case is the seller's strict liability for the buyer's expectation interest. However, in our view, even the weakest case is strong enough to justify the imposition of mandatory implied terms.

There are, of course, various other possibilities. For example, it might be decided that strict liability should remain and that contracting out should be prohibited, but that the seller should at least be allowed to contract out of consequential losses or limit his liability to the amount of the purchase price of the goods. Or, if it were decided that the seller should continue to remain fully liable for consequential losses and that he should not be allowed to contract out, then it might be decided that he should not be under a strict liability but only a duty (say) to exercise reasonable care. Or it might be decided that the seller should be able to limit his liability in certain cases, for example, the sale of used goods.

Before dealing with these possibilities, however, we wish to come back to the basic question and that is whether we should change the present rule that the seller can contract [- 144 -] out of the implied terms under the Sale of Goods Act. We believe that in consumer transactions there can be only one realistic answer to that question and that is that the law should be changed so that contracting out of the implied terms is prohibited. Although we believe strongly in the general principle of the law of contracts to allow freedom of contract, the special features of the consumer contract call for some controls on this freedom. This is so for a number of reasons. First, the consumer, as a general proposition, is in a much weaker bargaining position than is the seller. In many cases, he is confronted with a contract that has been drawn up by (or for) the seller and which is presented to him on a take it or leave it basis. And since it is a rare standard form contract that does not contain some kind of an exemption clause, the consumer may not fare much better if he goes elsewhere. In actual fact, in many cases the consumer will not even be aware of the limitation clause, for it may be "buried" in the fine print of a standard printed form contract. It is, after all, a rare consumer who takes the time and trouble to read a lengthy printed form contract before signing it. There are a number of factors accounting for this, including the fact that most consumers are unable to fully comprehend the legal significance of much of the terminology that is used and the fact [- 145 -] that most consumers realize that their bargaining power is limited. Indeed, some sellers would be astounded if the consumer were to insist on reading the entire form before signing it and having those parts of it that he did not understand explained to him. In practice many standard form contracts are not expected to be read at all, much less changed.

The law, however, appears to be out of touch with reality in the consumer transaction. The consumer who signs a printed form contract containing an exemption clause is bound by the terms of that clause notwithstanding that he neither read nor was expected to read the form. And the freedom of contract principle becomes a vehicle whereby the stronger party, the seller, is enabled to impose his terms on the weaker party, the buyer. In many cases the result is that the buyer loses rights that the law meant him to have and has his reasonable expectations defeated (the implied terms, after all, are based upon reasonable expectations), by reason of a clause in a contract which he is not even aware of, or if he is, which he is not able to change. In the consumer contract, the notion that the contract and all its terms are individually bargained by persons capable of looking after their own interests to their best advantage is a myth.

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If policy reasons favoured the limitation of liability, or if policy reasons were indifferent on this question, then the myth might not cause much harm in this area (although it would still cause harm in other areas producing unfair contracts). But we believe policy supports disallowing the limitation of liability. First, the implied terms are based on what the reasonable expectations of the buyer should be. Second, those reasonable expectations can be frustrated by a clause which he is not even aware of or which he is powerless to change. Third, the seller is in a much better position than the consumer to detect defective goods and either refrain from buying them or else buy them at a reduced price and, after disclosing the defects in the goods, sell them to the consumer at a reduced price. Fourth, even in respect of defects that are latent and undetectable, the seller is more likely than the consumer to appreciate the extent of that risk and to make suitable arrangements to handle it, either by arrangement for protection from his seller (and so on back to the manufacturer if he was responsible for the defect), or by insurance, or by increasing his prices to cover such costs. We believe that these policy reasons favour the prohibition of contracting out of the implied terms in consumer transactions, that they favour strict liability rather than fault based liability, and that they favour protection of the buyer's expectation interest.

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We favour strict liability rather than fault liability because we do not believe that fault liability addresses itself to all the issues. It is not true to say that goods will only be defective if someone is at fault. It is known that, notwithstanding defect prevention devices and quality control measures, the defective product is and will continue to be produced. This is due in part to the fact that it reaches a point where the costs of preventing defects are greater than the costs of the defects themselves. We, of course, do not argue with this fact. Rather our concern is that the costs of the defects themselves should not fall on the shoulders of the individual consumer who happens to have been unlucky enough to purchase one of the (say) defective automobiles, but should go back to the seller (and so on back to the manufacturer if he is the one who is responsible for the defect in the first place) who in turn can spread these costs among those who benefit from the products being sold, i.e., the consumers of those products. Just as the price of the product includes the cost of preventing defects, it should also include the costs of the defects themselves. Indeed, it is when the price includes all the costs that there exists the most effective incentive to increase quality control measures to the point where the costs of preventing defects are greater than the costs of the defects themselves.

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It is perhaps in the area of consequential damages that most sellers would have the greatest reservations. It is one thing to impose liability when you are giving protection only to the buyer's restitution interest. It is quite another thing to impose strict liability when you are protecting the buyer's expectation interest. In so far as the buyer's restitution interest is concerned, the law is requiring the seller to disgorge a benefit that he has received from the buyer. The buyer's loss has been the seller's gain. In so far as the buyer's expectation interest is concerned, however, the buyer's loss is not necessarily the seller's gain at all. Indeed, a very inexpensive but defective product may be responsible for very serious damage to person, property or pocketbook. This kind of risk is much more difficult to evaluate than is the risk involved in having simply to replace a defective product, but if it is difficult for the businessman to evaluate, it is even more difficult for the consumer to evaluate. Again, we fail to see why the burden of this loss, which is caused by the defective product, should be borne by the individual consumer. It is really a cost of the production, sale and use of goods of that type and should be reflected in the price of the product. If the true costs are not reflected in the price then, as economists would say, there is a misallocation of resources. If the true costs [- 149 -] are reflected in the prices, and it is found that consumers are unwilling to pay these prices and that the product cannot be sold, all we can say is that we are not convinced that consumers and society will be the worse for it. It is also sometimes said that such liabilities would inhibit the development of new products and innovative ideas. In economic terms, however, we fail to see why these new products should not bear their costs rather than having them borne by the individual consumer. And in non-economic terms, we certainly fail to see why the individual consumer should bear these costs.

It should be emphasized that we have been dealing with the general position that the law presently takes and with the general position that we believe the law should take. There will always be cases that do not really fit within the general rule. The problem, however, is how to deal with such cases adequately.

It should also be emphasized that we do not regard all standard form contracts and all exemption clauses as inherently evil. They are not. What we are saying is that in the consumer transaction we have reached the conclusion that it is undesirable and unfair for the business seller to contract out of the implied terms as to title, quality, and fitness.

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We are not alone in our position on prohibiting contracting out of the implied terms. A similar position has been taken by many other law reformers, including the English and Scottish Law Commissions, <5> the Ontario Law Reform Commission, <6> and a Committee of the Law Council of Australia, <7> and has been adopted in the consumer protection legislation of many jurisdictions, including England, <8> various provinces of Canada, <9> and South Australia. <l0> There are, of course, differences of opinion on various matters, which we shall deal with below. <11>

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(c) Other Approaches

(i) The Present Judicial Approach <12>

The judiciary itself, in its own sphere and without legislative backing, has also indicated concern about clauses that protect a seller from liabilities that the law would otherwise impose upon him. As has been stated by Professor Atiyah, "the attitude of the courts to these clauses (i.e. clauses excluding liability) is clearly one of hostility and it is no exaggeration to say that any loophole will be seized upon if it enables justice to be done.'' <13> In their attempts to protect the buyer, they have from time to time adopted some rather remarkable interpretations. Thus, for example, in Baldry v. Marshall, <14> the contract in question, after giving a limited guarantee, went on to provide: "Cars are sold on condition that the foregoing guarantee is accepted instead of and expressly excludes any other guarantee or warranty, statutory or otherwise." The English Court of Appeal was unanimous in holding that this clause did not exclude the implied terms under the Sale of Goods Act because [- 152 -] these implied terms are conditions and the clause in question said nothing whatever about conditions. Their Lordships stated that there is a clear distinction in law between conditions and warranties and that if the seller wished to exclude conditions he should not have restricted himself to the use of the word"warranty." Counsel had argued that conditions were covered by the word "guarantee," but Lord Justice Atkin replied that "it (the clause in question) said nothing about 'conditions', and I do not think that the words 'any other guarantee' can be read as meaning 'any other condition,' merely because they are used in addition to the word 'warranty'." <15>

However, there are obvious limitations to this approach, for it depends on language sufficiently malleable to arrive at the desired results. If the seller has been crystal clear, there is little the courts can do under this approach. Thus, for example, in Godsoe v. Beatty, <16> the New Brunswick Court of Appeal held that the implied terms under the Sale of Goods Act were excluded by virtue of a clause which read: "Purchaser acknowledges that this agreement constitutes the entire contract and that there are no representations, warranties, or conditions, expressed or implied, statutory or otherwise, other than as contained herein." <17>

[- 153 -] At one time it was thought that the courts would go further, under the doctrine of fundamental breach. The doctrine of fundamental breach was put forward as a substantive rule of law under which a party who was guilty of a fundamental breach of contract could not rely on a clause limiting or excluding his liability. <18> Recently, however, it has been held that the doctrine of fundamental breach is not a rule of law but rather is a rule of construction. <19> In other words, the parties can contract out of a fundamental breach as a matter of substantive law, but as a matter of construction the courts will assume that they did not intend to do this unless the contract is very clear indeed. As a practical matter, the actual decisions appear to be the same today under the construction approach as they were before under the substantive law approach. <20> After all, a determined judge who wishes to impose liability for a flagrant breach of contract has considerable leeway via the interpretive process to arrive at his desired result. Words which on their face appear to cover the situation can be held not to cover it by reading them in context and on the assumption that, notwithstanding what they appear to say, they could not really have [- 154 -] meant to cover a fundamental breach because the parties could not have intended this. Needless to say, everything depends on the facts of the individual case and the individual judge.

The doctrine of fundamental breach is important and worthwhile, but it is not the answer to the problem of contracting out of the implied terms as to quality and fitness. <21> [- 155 -] These terms are not fundamental terms, and a mere breach of them is not a fundamental breach. To constitute a fundamental breach the goods would have to be very seriously defective. Even here the difficulty of drawing the line and the resulting uncertainty operate as powerful deterrents to a consumer pressing his claim seriously. Also, what is a fundamental breach depends on what are the terms of the contract, and clear drafting may render what might normally be thought to be a fundamental breach, not a fundamental breach or not even a breach at all. Indeed, clear drafting could cover a fundamental breach in any event. Finally, and perhaps most important of all, the doctrine of fundamental breach does not address itself to some of the leading problems with exemption clauses in consumer transactions; for example, the consumer's powerlessness to change unfair terms even if he happens to be aware of them.

Some of the American courts have been much more bold in their attack on exemption clauses and have openly struck them down on the grounds of public policy. <22> Of course, they also adopt a strict interpretation approach to all exemption clauses. But they go further by striking down some clauses, [- 156 -] not because they do not cover the situation, but rather because they are unfair or unconscionable. We shall discuss this type of approach more fully below. <23>

(ii) Clear Notice

One possible alternative to either the present approach or our own approach would be to continue to allow the seller to contract out of the implied terms, but only if he made sure that the consumer realized that this was what he was doing. In our opinion, this would be the very minimum step that should be taken in law reform in this area. The present law, whereby a consumer is bound, with very few exceptions, by the contents of a written contract which he has signed, regardless of whether he read it or not, obviously works to the benefit of the seller and to the detriment of the consumer. If the seller is to continue to be allowed to contract out of the implied terms, he should be required to give the buyer actual notice of this by specifically drawing the buyer's attention to the relevant limitation clause and making clear to the buyer what the effect of the limitation is.

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This approach has been adopted in a number of instances in legislation of other jurisdictions. For example, at one time the English hire-purchase legislation adopted this approach for some cases. <24> Saskatchewan, in its Conditional Sales Act, has also adopted this approach for some cases. <25> In the United States, the Uniform Commercial Code has also adopted a similar approach, although it is much less ambitious than what we regard the minimum reform should be, for all it requires is that the language of the agreement be specific and conspicuous. <26> This, of course, is not the same as requiring the seller to specifically draw the buyer's attention to the relevant clause and make the effect of that clause clear to the buyer.

As we have stated already, we regard this as a minimum reform measure. We do not think it is a sufficient reform measure, however, for the implied terms under the Sale of Goods Act. This is because all this approach does at best is to let the consumer know what his rights will be. The problem, however, is that in many cases the consumer cannot change these terms, even when he does know of them, because of his [- 158 -] lack of bargaining power. In other words, the problem is not simply that at present the consumer does not know that the seller may be contracting out liability. It is also that he does not have the power to do anything about it even if he does know and does object to such limitation of liability.

(iii) Unconscionability (or a Fairness and Reasonableness Control)

For the reasons already stated, it should be clear that merely giving the consumer knowledge of what he is getting himself in to will not of itself prevent unfair contracts. Unfair contracts can be prevented only by an approach that recognizes there is in fact a problem of unfair contracts. New Brunswick law already recognizes this in some cases, particularly in money-lending transactions.

The Cost of Credit Disclosure Act <27> requires a lender to give a consumer borrower notice of what the cost of credit will be before extending the credit. In addition, however, the Unconscionable Transactions Relief Act <28> allows a court to re-open a money-lending transaction, and revise the terms of the contract, when it finds that the cost of the loan is [- 159 -] excessive and the transaction is harsh and unconscionable, having regard to the risk involved and to all the other circumstances of the case. The Act is restricted in its scope to money-lending transactions. It does not apply to all contracts.

We believe the consumer protection legislation should contain a general unconscionability provision. In our opinion the time has come for the courts to openly apply a general fairness and reasonableness test to consumer transactions. <29> We do not make this recommendation lightly, for we recognize [- 160 -] that such a principle is bound to produce difficulties in the way of application and uncertainty. We shall have more to say below on these difficulties.

The principle itself, that courts of law should not enforce unfair or unreasonable contracts or parts of contracts, we believe is indisputable. Why, after all, should the state uphold a contract, or a part of a contract, that is blatantly unfair to one of the parties. If one looks at the question from a perspective that the function of the courts is simply to enforce contracts, then fairness and reasonableness controls may seem very exceptional. But if one adopts a wider perspective, and goes back to the reasons why courts enforce contracts and promises made by individuals in the first place, fairness and reasonableness controls do not seem exceptional at all.

That fundamental principle of the law, freedom of contract, is a great principle because it allows the parties freedom to decide for themselves what they want and what they will do to get what they want. But, like any freedom, there must be some restriction or else there will be abuse. A "hands-off" policy by the courts works relatively well when the parties are bargaining as equals, both being well informed and both exercising free choices. But leaving everything to the [- 161 -] parties to decide, in cases where the parties are grossly unequal, can really result in leaving everything to the stronger party to decide. The contract changes from an instrument of "unofficial self-government" to "the exercise of unofficial government of some by others, via private law." <30> If justice in these cases is not to be the will of the stronger, then it must be the will of the stranger.

In actual fact, the courts do not adopt a complete "hands-off" policy. They do apply fairness and reasonableness concepts in a limited way. But the cases on unconscionability are few, and have dealt only with the most blatant of unfair contracts, e.g. a senile woman with no business experience and very easily led who is induced to sell her lands to a neighbour at a grossly inadequate price without taking independent advice from competent members of her family. <31> The courts have not adopted a general fairness and reasonableness control.

There seem to be many reasons for this. When the principles of contract law were being developed, the philosophy of laissez-faire was at its peak. Even if the courts were inclined to exercise control, which they were not, they would [- 162 -] have difficulty in administering a fairness and reasonableness test. Deciding what is fair and reasonable is no easy task. The results could be worse than those flowing from a "hands-off" policy. And, of course, there was always the problem of uncertainty. How could the parties plan their affairs if their plans were liable to be upset by the courts?

Of course, conditions today are much different than they were then. In particular, the consumer is much more likely to be at a disadvantage today than he was then. Goods are more complex today. Not even the most sophisticated consumer can hope to cope with all the complexities of advanced technology. But it is not just the subject matter of the contract that has changed. The relative positions of the parties and the bargaining process itself have changed. Standard form contracts, once a rarity, are now very common. They frequently favour the seller, which is not surprising since they are drawn up by him or for him. Their terms are not meant to be bargained for or changed. They largely go unread. Those that are read are frequently misunderstood because of their legal terminology and complexity. Even if they are read and understood, and objection is taken, they frequently cannot be changed because the consumer has no bargaining power. He may not be able to go elsewhere to get [- 163 -] better terms either. In short, in many cases today a consumer is not informed, or has no free choice, or both.

There still remains the problem of administering a fairness and reasonableness control and the problem of uncertainty caused by such a control. To say that these problems exist, however, is not to say that the courts should not exercise control, for there are also problems if they do not exercise control. The real question is whether the advantages of control outweigh the disadvantages. In our opinion the advantages do outweigh the disadvantages. The cure may have been worse than the disease at one time, but in our view this is not so today.

We do not wish to underestimate the difficulties of a fairness and reasonableness control. There can be no doubt that such a control would cause uncertainty. But we doubt that the uncertainty would be as great as some might expect. For example, we are not aware of undue uncertainty caused by the Unconscionable Transactions Relief Act. Nor are we aware of any crippling effect caused by the general unconscionability provision of the sales article of the Uniform Commercial [- 164 -] Code, <32> which governs almost all of the leading industrial nation in the world. Furthermore, fairness and reasonableness are something about which businessmen should have a fairly good idea. And the fact is that businessmen already live with a fair amount of uncertainty because the courts, through the interpretive process, attempt in many cases to avoid unreasonable clauses. The point does remain, however, that there would be uncertainty. We do not believe, however, that this is too great a price for justice.

The most difficult problem with a fairness and reasonableness test is the difficulty the courts would have in applying it. This would not be an easy task. But we believe it is a task that must be done.

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Needless to say, we do not believe that it is enough simply to leave the whole question of unfair and unreasonable contracts and terms thereof to the courts. We believe there is an onus on law reformers, the Legislature, and government agencies to identify as far as possible in advance and prohibit unfair contracts or terms thereof.

Indeed, it is because of this obligation that we do not favour leaving the question of contracting out of the implied terms as to title, quality and fitness to the courts to be dealt with under the general fairness and reasonableness control that we recommend. We believe that the policy reasons supporting the prohibition of contracting out are so strong that there is no need to leave the question to the courts to be decided on a case by case basis. Leaving this question to the courts would result in unnecessary expense, difficulty, and uncertainty, all of which would operate against the interests of the consumer. And although there might be some cases in which a seller would be reasonable in limiting his liability under these implied terms, these cases should be rare and not enough to leave the whole question to a fairness and reasonableness test.

We shall also examine in a later report the whole question of unfair and deceptive trade practices and make [- 166 -] recommendations for the prohibition of those we can identify. But we believe there will always be a need for a residual fairness and reasonableness test. There are many contract terms that are not unfair and unreasonable per se, but which may be so in the circumstances of a particular case.

Standard form contracts, for example, are not unfair and unreasonable per se. Indeed, in many cases they are necessary in order to conduct business efficiently. Their terms may be perfectly fair and reasonable, just as they may be unfair or unreasonable. It would be impractical to require a standard form user to go over with each customer individually and explain to him every provision of a document. It would also be impractical to say that a consumer should only be bound by a term if he freely consented to it. A consumer may not be aware of a particular term, or he may not be free to change it, but it may still be fair and reasonable, depending on the circumstances of the case. Fairness and reasonableness do not depend on any one factor.

Some legislative guidelines can be given, but the very nature of a fairness and reasonableness control calls for a consideration of all the circumstances surrounding the individual case. The guidelines that we have in mind at [- 167 -] present are these: <33>

(1) The onus should be on the person who alleges that a contract, or a term of the contract, is unfair or unreasonable to show that it is unfair or unreasonable.

(2) In deciding the question of fairness and reasonableness, the court should consider all the circumstances of the case including

(a) whether the consumer knew or ought to have known of the term in question, and understood or ought to have understood its effect;

(b) whether the consumer freely consented to the term in question;

[- 168 -]
(c) whether the consumer had an opportunity to obtain different terms from that in question from the seller or from someone else, and knew and was able to take advantage of this opportunity;

(d) if the term places a risk on the consumer, which party was in practice in the better position to mitigate the effect of the risk dealt with by the term, for example, by insuring against that risk;

(e) whether the seller took undue advantage of the consumer's position or the consumer's lack of knowledge, ability or experience;

(f) whether the term or the contract appears to be excessively one-sided in favour of the seller.

(3) Where the court finds that a contract or a term thereof is unfair or unreasonable, it may refuse to enforce the contract or the term, or limit its application so as to avoid an unfair or unreasonable result.

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(iv) Administrative Control

Israel has adopted yet another approach to the problem of contracting out. Under its Standard Contracts Law, 1964, <34> the standard form contract user can submit his restrictive terms for approval from an administrative agency. If approval is denied, the restrictive term is void. If approval is granted, the restrictive term is valid for the time period fixed by the agency, with a maximum time of five years. It appears that in practice little use has been made of this procedure, notwithstanding the fact that the legislation also contains a general unconscionability provision for the courts to strike down restrictive terms other than those that have been approved by the agency. <35>

Whatever may be the possibilities for greater administrative control over the form and content of consumer contracts, we do not believe this is the solution for the problem of contracting out of the implied terms as to title, quality and fitness. Just as we think it is unnecessary to leave this problem to the courts under a general unconscionability [- 170 -] provision, we also think it is unnecessary to leave this problem to administrative agencies. Indeed, we believe that the costs and red tape involved would clearly outweigh any benefits to be derived therefrom.

(v) Some Limitation Allowed

We have already stated that we are not alone in our position on prohibiting the contracting out of the implied terms. A similar position has been taken by many other law reformers, including the English and Scottish Law Commissions, the Ontario Law Reform Commission, and a Committee of the Law Council of Australia, and has been adopted in the consumer protection legislation of many jurisdictions, including England, various parts of Canada, and South Australia. <36> There are, of course, differences on some matters, and we shall deal with the major differences here. The differences have to do with whether the ban should be total or whether there should be some exceptions. It seems convenient to break down the possible exceptions to the general ban into four categories: (1) the type of implied term; (2) the type of goods; (3) the type of liability; and (4) others.

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a. Type of Implied Term

The reform jurisdictions appear to be unanimous in banning the contracting out of merchantability in consumer transactions. But they are not unanimous in banning the contracting out of title or of fitness for purpose.

The English and Scottish Law Commissions did not propose an absolute ban on the contracting out of the implied term as to title. <37> Their recommendations were accepted in recent United Kingdom legislation. <38> However, the other reform jurisdictions do support a prohibition on contracting out of title, <39> and so do we.

Some of the legislation permits the seller to contract out of the implied term as to fitness for purpose. The Saskatchewan legislation allows this, but only if the seller "proves that before the contract was made the provision was brought to the notice of the buyer and its effect made clear to him." <40> In addition, at one time the English hire-purchase [- 172 -] legislation, upon which the Saskatchewan provisions were apparently modelled, also allowed this. <41> Recently, however, the English hire-purchase legislation has been amended so that a seller can no longer contract out of the fitness term. <42> In doing this, the United Kingdom was adopting the recommendations made by the Law Commissions for the sale of goods. <43>

As we have stressed at the outset of this part of the Report, our proposals for the ban on contracting out should be read in conjunction with our proposals on what the implied terms should be. The fitness for purpose term depends on the buyer relying on the seller's skill or judgment and being reasonable in doing so. Thus, although the seller cannot contract out of the fitness term under our proposals, he can prevent it from arising by ensuring that the buyer does not rely or would be unreasonable in relying on him. To say this, however, is not to say that there is little difference between our proposals and the existing law. There is a drastic difference. Under the present law the seller can avoid responsibility, notwithstanding the buyer's reasonable reliance [- 173 -] on his skill or judgment, simply by inserting an exemption clause in a printed form contract which the buyer may not read or understand. He could not do this under our proposals.

It should be apparent, however, that there is not a drastic difference between our proposals and the present Saskatchewan legislation, because although the Saskatchewan seller can contract out of the fitness term, he can only do so if he actually makes this clear to the buyer. In most cases this would prevent the buyer from relying on the seller, or in being reasonable in relying. In practical result, therefore, really there is little difference between the Saskatchewan legislation and our own proposals. <44>

b. Type of Goods

Some of the legislation excepts used goods from the ban on contracting out. This is the case in British Columbia <45> and in Saskatchewan. <46> The English and Scottish Law Commis-[- 174 -]sions, <47> the Ontario Law Reform Commission, <48> and the Committee of the Law Council of Australia <49> were opposed to such an exception, because the implied terms themselves are flexible enough to accommodate the point that there should be a difference in the obligations imposed on the seller of new goods and the seller of used goods. There is therefore no need to allow the seller the right to exclude the implied terms in the case of used goods. In addition, the legislation of Ontario <50> and Manitoba <51> applies to used goods, and recently the recommendations of the Law Commissions on this point were adopted in the United Kingdom. <52>

We are also of the opinion that the ban on contracting out should apply to used goods. We do not think it is reasonable to take the position that the buyer should assume all the risks or all possible defects just because the goods are used. [- 175 -] Especially is this so when one considers that the buyer of used goods in many cases is in much greater need of protection than is the buyer of new goods.

Again, we would reiterate that our recommendations would not result in the seller never being able to dispose of defective goods. He can limit his obligations to a certain extent by the description he applies to the goods, for instance used goods, and can avoid liability for specific defects by pointing out these specific defects in the goods. What he cannot do is place the risk of all defects on the consumer. There will always be minimum obligations, depending on the circumstances of the case, which the implied terms are designed to accommodate, which the law will impose on him.

c. Type of Liability

Most jurisdictions hold the seller strictly liable under the implied terms, but some jurisdictions, including Saskatchewan <53> and South Australia, <54> do not hold the seller strictly liable in all cases. South Australia does not hold a seller liable under merchantability "as regards defects in goods of which the supplier or an agent of the supplier could not reasonably have been aware at the time the contract was made." <55> For the reasons already [- 176 -] given, <56> we do not favour this exception and recommend that the seller's liability should continue to be a strict one.

Another possible exception might be to allow the seller to limit the buyer's remedies for breach of the implied terms, and in particular to allow him to exclude claims for consequential losses over and above the purchase price of the goods. Again, for the reasons already stated, <57> we do not favour such an exception. The English and Scottish Law Commissions, <58> the Ontario Law Reform Commission, <59> and the Committee of the Law Council of Australia, <60> did not favour such an exception either.

d. Others

We openly admit that there may be some cases in which it might be reasonable for a seller to limit his liability in some way that is not permitted by our recommendations. We think, however, that these cases should be few and it is difficult to foresee them and adequately deal with them without [- 177 -] creating more problems than are solved. We considered but rejected the possibility of giving a discretion to a judge or an administrator to grant exemptions in individual cases. Obviously, however, as with all laws, the situation should be reviewed from time to time to see what problems there are.

2. EXPRESS TERMS

Having dealt with contracting out of the implied terms, we now turn to the question of whether the seller should be allowed to contract out of the statutory express terms or the remedies for the breach thereof.

(a) Contracting Out of the Statutory Express Terms

We have no hesitation in recommending, as did the Ontario Law Reform Commission, <61> that the seller should not be allowed to contract out of the statutory express terms. However, as was the case with our recommendations on the implied terms, our proposals on contracting out should be read in conjunction with our recommendations on what the statutory express terms should be. <62> For example, we have [- 178 -] recommended that any promise or representation of fact made by the seller and relating to the goods should be a statutory express term of the contract unless the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's promise or representation. Thus, although a seller could not contract out of a statutory express term, he could prevent it from arising by not making any promise or representation or, if he did make a promise or representation, by retracting it clearly before the contract was made so that the buyer would not rely, or would be unreasonable in relying, on the previous promise or representation.

If implemented, our recommendations would render ineffective the presently permissible practice of taking away the buyer's rights without the buyer realizing it. Under the present law, the seller can take away with the written contract what he purported to give in the oral dickering, simply by inserting a general disclaimer provision, which may go unread or which, if read, may be misunderstood by the buyer in its applicability to particular promises. Under our recommendations, a seller could only retract his promise or representation if he made it clear to the buyer that he was retracting that promise or representation. The buyer would no longer lose his rights simply because there was a provision in the written contract purporting to take them away.

- 179 -

(b) Contracting Out of Remedies

A more difficult question is whether the law should allow the seller to place any limitation on the remedies that the law would otherwise give for breach of the express terms.

We have no doubt that if the seller is to be able to limit the remedies for breach of the express terms, the law should control very carefully the methods by which this is to be done. Any limitation on remedies that would otherwise be available should have to be brought home clearly to the buyer's mind before the contract is made. The present rules are hopelessly inadequate in the protection they afford the consumer.

But assuming this change was in fact made, should the law go further and deny the power to limit remedies even if the limitation is brought to the consumer's attention? Should the law impose minimum requirements in the express terms area just as we have recommended it should do in the implied terms area?

In our discussion on implied terms, we pointed out that the problems in consumer transactions are not restricted to lack of notice, but also include the consumer's lack of [- 180 -] bargaining power to adequately take care of his interests. The consumer may be aware of a particular limitation, which may be unfair, but he may be powerless to change it. For example, a seller might give a guarantee that the goods are not defective but also provide that he will be the sole judge of whether the goods are in fact defective. We believe that there should be a power in the courts to refuse to enforce unfair or unreasonable limitations. We also believe that the legislation should identify in advance as far as possible what is unfair or unreasonable. For example, we believe that the consumer protection legislation should not allow a seller to be the sole judge of whether a product is defective.

Should the law go yet further in the express terms area, just as we have recommended it should in the implied terms area? Our original view was that it should not, partly because we saw the problem of limiting remedies for express terms differently from that of limiting remedies for implied terms, but mainly because we saw difficulty in arriving at uniform standards.

To take the latter point first, we were very much bothered by the fact that a simple prohibition of limitation of remedies for breach of the express terms would operate [- 181 -] very haphazardly. This is because remedies depend on the form in which a promise is made, and promises may be made in different forms. In this respect promises pose a difficulty that implied terms and representations of fact do not.

For example, a seller who guaranteed that the goods were in perfect condition but went on to purport to limit his liability to fifty per cent of the cost of repairing any defects would be unsuccessful in his purported limitation, and would be liable for the full cost of repairs and other consequential damages caused by the goods being defective. But a seller could achieve the limitation he desired by recasting the form in which he makes his guarantee so that, instead of making a promise that the goods are in perfect condition, he promises that if they are not in perfect condition then he will pay fifty per cent of the cost of repairing any defects. By making his promise in this form, the seller would not run afoul of the rule prohibiting the limitation of remedies and yet would be successful in limiting his liability to fifty per cent of the repair cost and consequential damages arising only from breach of the obligation to pay fifty per cent of the repair costs.

The result would be that the "smart" seller who used the right formula could effectively limit his liability, while [- 182 -] the unsuspecting seller who used the wrong formula would fail in his attempt at limitation, even though in substance both of them were out to accomplish the very same thing, limited liability. It would be wrong to say "I promise X but I limit my liability to Y," but it would be all right to say "If X does not occur then I will do Y."

After reflection, however, we have concluded that it is possible for the consumer protection legislation to avoid these haphazard results and achieve uniform standards by enacting an appropriate deeming provision. The legislation could deem any promise that the seller makes if the goods fail to meet the specifications set forth in his promise to be a promise that the goods will meet the specifications set forth in the promise. The door would thus be closed to limiting the remedies that the law would otherwise provide by manipulation of the form in which the promise is made, and all sellers would be treated on an equal basis.

Having concluded that the law can impose uniform minimum standards for remedies in the express terms area, there remains the fundamental question whether the law should impose such standards. As stated earlier, part of our reasoning for not favouring an absolute prohibition was that we did not see the problem of allowing the limitation of remedies tor breach of [- 183 -] the express terms as being identical to the problem of allowing the limitation of remedies for breach of the implied terms. Again, however, reflection has convinced us that our original view was wrong, and that the reasons supporting minimum standards in the implied terms area also apply to support minimum standards in the express terms area.

Indeed, jurisprudentially speaking, there is no difference between express and implied terms. Practically speaking, the only difference between express terms and implied terms is that express terms depend on what the parties say, whereas implied terms do not necessarily depend on what the parties say but may depend on other circumstances, such as the conduct of the parties. Perhaps the most striking example of this is the fitness for purpose term. It the seller knows that the buyer is relying on his (the seller's) judgment in respect of the suitability of the goods for the buyer's purpose, there is an implied term that the goods are fit for that purpose if the seller does not say anything. But if the seller does speak up and say that the goods are fit for the buyer's purpose, there is an express term that the goods are fit for the buyer's purpose. <63>

[- 184 -]
Furthermore, in many cases the implied terms may themselves depend on what the express terms are. For example, the contract description of the goods, which is an express term, plays an important part in determining the obligations under merchantability, which is an implied term.

If the seller is not permitted to limit the remedies that the law provides for breach of the implied terms, but is permitted to limit the remedies for breach of the express terms, there will be some curious results. For example, to the extent that the description of the goods is an express term alone the seller could limit the remedy for its breach, but to the extent that the description raised expectations under the implied term as to merchantability, the seller could not limit the remedy for its breach.

It seems to us, then, that whatever is done in the implied terms area should also be done in the express terms area. The prohibition of limitation of remedies for breach of the express terms would simplify matters for the consumer in the same way that a prohibition of limitation of remedies in the implied terms area would. <64> At present, it is notoriously difficult in many cases to make meaningful comparisons [- 185 -] of one warranty with another. The impressively headed "TEN YEAR GUARANTEE," under the present system, may turn out after close examination to offer much less protection than one that is headed "NINETY DAY GUARANTEE." The trained lawyer will readily appreciate the difference, but the consumer may not. Indeed, there are many guarantees in the market today that the consumer does not understand at all, apart altogether from the difficulty of comparing the guarantees that he does understand after a close reading. Prohibition of the limitation of remedies would make it much easier for the consumer to make relevant comparisons between different guarantees. He could then simply focus on what parts are covered under the express warranty and the duration of the warranty. At present he has to do this and in addition he must concern himself with the extent of the remedy; for example, is it parts only, parts and labour, does it cover only part of the cost of parts, labour, or both, and so on.

And since the imposition of a uniform remedy should enable a consumer to make more meaningful comparisons, it should also stimulate more effective competition among sellers in offering guarantee terms.

Another advantage of imposing uniformity of remedy is that it would simplify the task of the court in exercising [- 186 -] control over the other terms of the contract. We have recommended elsewhere in this Report that a court should have power to refuse to uphold unfair or unreasonable contracts in whole or in part. <65>

Simplicity in understanding, comparison, and control, are not the only virtues of a prohibition of limitation, however. For apart from the difficulty the consumer may have in being able to understand and compare limitations, there is the further difficulty of being able to fully comprehend and adequately handle the risks imposed by the limitations. The businessman is in a better position to evaluate the risks and to make appropriate arrangements to handle them. If in individual cases he feels that he cannot, he can always refrain from making an express warranty.

As might be expected, a review of what has been done or proposed elsewhere shows a variety of possible courses of action. We shall set out below the major options.

(i) No Limitation Allowed

a. Ontario

The Ontario Law Reform Commission has recommended that the seller should not be permitted to exclude, restrict or [- 187 -] diminish the remedies that the law provides for breach of the express terms. This recommendation applies to all warranties and attempted limitations, whether written or oral. <66>

However, the Commission does not appear to deal adequately with the problem we discussed above of avoiding the legislation through manipulation of the form in which the promise is made. We have already stated our opinion that a simple prohibition of limitation of remedies in the express terms area is bound to lead to haphazard results.

The Commission does not neglect this problem completely, however, at least on the assumption that the recommendations it makes later in its Report, in the part on manufacturers' express (performance) warranties, were meant to apply to retail sellers as well. <67> The Commission there recommended, in the part that is relevant here, that in the case of a written guarantee the term "warranty" or "guarantee" should not be able to be used "in the caption of the document unless the promisor undertakes at least to repair or replace any malfunctioning part free of charge to the consumer or to make him a fair allowance on account of the defective product on the purchase [- 188 -] of a new product of comparable price and quality." <68>

In our opinion, however, this proposal is far from adequate to cover the problem of the form in which a promise is made. In the first place, it deals only with written warranties and does not apply at all to oral warranties. Second, it does not apply to all written warranties but only to those in which the term "warranty" or "guarantee" is to be used "in the caption of the document." Thus the requirements would not apply to documents that avoid these two words in the caption, but use words such as "Performance Protection Policy" or "Owner's Security Blanket," to quote the captions of two warranties currently in use. Third, even in the case of those warranties that the recommendation does apply to, the minimum content required is less than the protection the consumer would receive if the seller had promised the goods would meet certain specifications and then purported to limit the remedy. A seller who guaranteed that the goods would meet certain specifications and then went on to purport to limit his liability to repair or replacement would be unsuccessful in his attempt at limitation, and would be liable for the normal remedies provided by law, including all consequential losses. <69> But a seller who did not [- 189 -] guarantee that the goods would meet certain specifications, but instead promised that if they did not meet certain specifications then he would repair or replace them, would bear a lesser liability than the first seller. The first seller would be liable for consequential losses arising from failure of the goods to meet the promised specifications. The second seller would be liable only for consequential losses arising from failure to repair or replace the goods.

In our view, disallowing the limitation of remedies is fair only if it operates on a uniform basis, and we have accordingly recommended the general deeming provision referred to earlier.

b. Manitoba

The Manitoba Consumer Protection Act, <70> although it clearly renders ineffective any agreement purporting to contract out of the express statutory terms in section 58(8), does not deal at all with the problem of the form in which a promise is made.

c. United States

In the United States, the first draft of the proposed National Consumer Act does not allow the limitation of remedies [- 190 -] for breach of the express terms. <71> It is unclear how successful the draft would be in avoiding the problem of the form in which a promise is made. <72>

(ii) Some Limitation Allowed

We have already given our opinion that if any limitation on remedy is to be allowed, the limitation should have to be clearly brought home to the consumer before the contract is made. We have also stated that in addition the courts should be given discretion to refuse to enforce unfair or unreasonable limitations.

We also believe that the onus should be on the seller, rather than the consumer, to justify the fairness and reasonableness of the limitation. This approach was adopted in the English Misrepresentation Act, 1967. <73> Furthermore, to alleviate the problem of the bluff made by a seller who realizes the reluctance of a consumer to become involved in a legal proceeding, the seller should have to bear the legal expenses of any application to the court to have his limitation upheld, regardless of the outcome.

[- 191 -]
We would further favour the laying down of guidelines for the courts to aid them in exercising their discretion, such as was done recently in England in their legislation giving the courts discretion to refuse to enforce unfair or unreasonable limitations in the implied terms area in contracts made between businessmen. <74>

We would further recommend that no limitation should be effective in the case of a fraudulent or negligent misrepresentation, or in the case of an intentional or negligent breach. And we would favour a provision which imposed as a minimum obligation that which was proposed by the Ontario Law Reform Commission for guarantees in writing.

However, all this is on the assumption that some limitation on remedies is to be allowed. For the reasons already given, we recommend that no limitation of remedies should be allowed.

3. RECOMMENDATIONS

We recommend that:

Implied Terms
1. In consumer transactions the seller should not be allowed to exclude, restrict [- 192 -] or diminish the implied terms as to title, quality, and fitness, or the remedies that the law normally provides for breach of them.

Express Terms
2. In consumer transactions the seller should not be allowed to exclude, restrict or diminish the statutory express terms or the remedies that the law normally provides for breach of them.

3. The consumer protection legislation should not allow a contract to provide that the seller or his designate alone shall be the sole judge of whether a product meets the specifications set forth in the seller's promise or whether the consumer is otherwise entitled to present a claim.

4. To ensure uniformity of remedies and to prevent sellers from avoiding the intent of the consumer protection [- 193 -] legislation by manipulating the form in which a promise is made, the legislation should deem any promise that the seller makes if the goods fail to meet the specifications set forth in his promise to also be a promise that the goods will meet the specifications set forth in the promise.

General Fairness and Reasonableness Control
5. The consumer protection legislation should provide for a general fairness and reasonableness control power for the courts.

6. The onus should be on the person who alleges that a contract, or a term of the contract, is unfair or unreasonable to show that it is unfair or unreasonable.

7. In deciding the question of fairness and reasonableness, the court should consider all the circumstances of the case, including

(a) whether the consumer knew or ought to have known of [- 194 -] the term in question, and understood or ought to have understood its effect;

(b) whether the consumer freely consented to the term in question;

(c) whether the consumer had an opportunity to obtain different terms from that in question from the seller or from someone else, and knew and was able to take advantage of this opportunity;

(d) if the term places a risk on the consumer, which party was in practice in the better position to mitigate the effect of the risk dealt with by the term, for example, by insuring against that risk;

[- 195 -]
(e) whether the seller took undue advantage of the consumer's position or the consumer's lack of knowledge, ability or experience;

(f) whether the term or the contract appears to be excessively one-sided in favour of the seller.

8. Where the court finds that a contract or a term thereof is unfair or unreasonable, it should be able to refuse to enforce the contract or the term, or limit its application so as to avoid an unfair or unreasonable result.

Footnotes

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

<2> See pages 11-12, supra.

<3> See, e g., Wilson v. Rickett Cockerell & Co. Ltd., [1954] 1 Q.B. 598 (Eng. C.A.).

<4> See, e.g., Buckley v. Lever Brothers Ltd., [1953] 4 D.L.R. 16 (Ont. High Ct.).

<5> The Law Commission and the Scottish Law Commission, Exemption Clauses in Contracts, First Report: Amendments to the Sale of Goods Act 1893 (1969), paras.64-119.

<6> Report on Consumer Warranties and Guarantees in the Sale of Goods (1972), chapter 3.

<7> 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), chapters 5.1-5.3.

<8> Supply of Goods (Implied Terms) Act 1973, s. 4.

<9> British Columbia, Sale of Goods Act, R.S.B.C. 1960, c.344, as am., s. 21A; Manitoba, The Consumer Protection Act, R.S.M. 1970, c. C200, as am., ss. 58, 96; Ontario, The Consumer Protection Act, R.S.O. 1970, c. 82, as am., s. 44a; Saskatchewan, The Conditional Sales Act, R.S.S. 1965, c. 393, ss. 25, 28.

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

<11> See pages 170-177, infra.

<12> The most comprehensive study of the Canadian authorities is found in Cumming, The Judicial Treatment of Disclaimer Clauses in Sale of Goods Transactions in Canada (1972), 10 Osgoode Hall L.J. 281.

<13> Atiyah, The Sale of Goods (4th ed., 1971), at p. 117.

<14> [1925] 1 K.B. 260 (Eng. C.A.).

<15> Ibid., at p. 269.

<16> (1958), 19 D.L.R. (2d) 265 (N.B.C.A.).

<17> The court did not appear moved to get around the clause in any event. See pages 74-75, 78-79, supra.

<18> See, e.g., Karsales (Harrow), Ltd. v. Wallis, [1956] 2 All E.R. 866 (Eng. C.A.).

<19> Suisse Atlantique Société D'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale, [1967] 1 A.C. 361 (H.L.).

<20> The authorities are reviewed in the Cumming article, supra note 12.

<21> During the course of his speech in the Suisse Atlantique case (note 19, supra), Lord Reid said:

"Exemption clauses differ greatly in many respects. Probably the most objectionable are found in the complex standard conditions which are now so common. In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand and object to any of them, he would generally be told he could take it or leave it. And if he then went to another supplier the result would be the same. Freedom to contract must surely imply some choice or room for bargaining.

At the other extreme is the case where parties are bargaining on terms of equality and a stringent exemption clause is accepted for a quid pro quo or other good reason. But this rule appears to treat all cases alike. There is no indication in the recent cases that the courts are to consider whether the exemption is fair in all the circumstances or is harsh and unconscionable or whether it was freely agreed by the customer. And it does not seem to me to be satisfactory that the decision must always go one way, if, e.g., defects in a car or other goods are just sufficient to make the breach of contract a fundamental breach, but must always go the other way if the defects fall just short of that. This is a complex problem which intimately affects millions of people and it appears to me that its solution should be left to Parliament. If your Lordships reject this new rule there will certainly be a need for urgent legislative action but that is not beyond reasonable expectation" (at p. 406).

<22> Probably the best known case is Henningsen v. Bloomfield Motors, Inc. (1960), 161 A. 2d 69 (New Jersey Sup. Ct.).

<23> See pages 158-168, infra.

<24> Hire-Purchase Act 1965, 13 & 14 Eliz. II, c. 66, s. 18. This is not the law there today. See Supply of Goods (Implied Terms) Act 1973, ss. 10, 18(4).

<25> The Conditional Sales Act, R.S.S. 1965, c. 393, s. 25(2).

<26> S. 2-316(2), (3).

<27> S.N.B. 1967, c. 6, proclaimed effective June 1, 1968, as am.

<28> S.N.B. 1964, c. 14.

<29> Compare the view of Lord Denning in Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport Ltd. Rennie Hogg Ltd. (Third Party), [1972] 3 W.L.R. 1003 (Eng. C.A), where he said at p. 1014: "When a clause is reasonable, and is reasonably applied, it should be given effect according to its terms. I know that the judges hitherto have never confessed openly to the test of reasonableness. But it has been the driving force behind many of the decisions. And now it has the backing of the Law Commissions of England and Wales, and of Scotland: see Working Paper no. 39, paras. 57 to 65. I venture to suggest that the words of such a clause (be it an exemption clause, or a limitation clause, or an indemnity clause) should be construed in the same way as any other clause. It should be given its ordinary meaning, that is, the meaning which the parties understood by the clause and must be presumed to have intended. The courts should give effect to the clause according to that meaning -- provided always (and this is new) that it is reasonable as between the parties and is applied reasonably in the circumstances of the particular case."

<30> Llewellyn, What Price Contract? - An Essay in Perspective (1931), 40 Yale Law J. 704, at p. 731.

<31> See Knupp v. Bell et al. (1966), 58 D.L.R. (2d) 466 (Sask. Q.B.). See also Crawford, Case Comment (1966), 44 Can. Bar Rev. 142.

<32> S. 2-302, which governs all sales, not just consumer sales, provides as follows:

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

<33> The following sources have been most helpful in setting these guidelines: The Law Commission and the Scottish Law Commission, Exemption Clauses in Contracts, First Report: Amendments to the Sale of Goods Act 1893, para. 113; Supply of Goods (Implied Terms) Act 1973, ss. 4, 12 (U.K.); The Law Commission and the Scottish Law Commission, Provisional Proposals Relating to the Exclusion of Liability for Negligence in the Sale of Goods and Exemption Clauses in Contracts for the Supply of Services and Other Contracts, Published Working Paper No. 39 (Sept. 1971), para. 64; Uniform Consumer Credit Code (U.S.), s. 6.111(3); Uniform Consumer Sales Practices Act (U.S.), s. 4; First Final Draft of the National Consumer Act (1969), published by the National Consumer Law Center at Boston College Law School, s. 5.107; Restatement of the Law Second, Contracts 2d (Tentative Drafts Nos. 1-7) American Law Institute (1973), s. 234, with comments and illustrations.

<34> The statute is set out in full in Jacobson, The Standard Contracts Law of Israel, [1968] Journal of Business Law 325, at pp. 329-332.

<35> Report on Consumer Warranties and Guarantees in the Sale of Goods (Ontario Law Reform Commission, 1972), at p. 54.

<36> See notes 5-10, supra.

<37> 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.

<38> Supply of Goods (Implied Terms) Act 1973, ss. 1, 4.

<39> See pages 65-66, supra.

<40> The Conditional Sales Act, R.S.S. 1965, c. 393, s. 25(2).

<41> Hire-Purchase Act 1965, 13 & 14 Eliz. II, c. 66, s. 18.

<42> Supply of Goods (Implied Terms) Act 1973, ss. 10, 18(4).

<43> Law Commissions Report, para. 80.

<44> As is pointed out in the 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. 5.1.8.

<45> Sale of Goods Act, R.S.B.C. 1960, c. 344, as am., s. 21A.

<46> The Conditional Sales Act, R.S.S. 1965, c. 393, s. 25(1)(d),(e).

<47> Law Commissions Report, paras. 51-52.

<48> Ontario Report, pages 58-59.

<49> Australian Law Council Committee Report, para. 5.1.7.

<50> The Consumer Protection Act, R.S.O. 1970, c. 82, as am., s. 44a.

<51> The Consumer Protection Act, R.S.M. 1970, c. C200, as am., ss. 58, 96.

<52> Supply of Goods (Implied Terms) Act 1973.

<53> The Conditional Sales Act, R.S.S. 1965, c. 393, s. 25(1)(d).

<54> Consumer Transactions Act, 1972, S.S.A. 1972, No. 135, s. 8(4).

<55> Ibid.

<56> See pages 141-149, supra.

<57> Ibid.

<58> Law Commissions Report, paras. 73, 75, 80.

<59> Ontario Report, at p. 60.

<60> Law Council of Australia Committee Report, para. 5.1.11.

<61> Ontario Report, at p. 62.

<62> See Chapter I, supra.

<63> See The Philip Carey Company Limited v. McCain Foods Limited and Carleton Cold Storage Ltd. (l969), 1 N.B.R. (2d) 551 (N.B. Sup. Ct.), where the court held there was an implied term, and compare the judgment on appeal, which affirmed the lower court decision but on the basis of an express term: 2 N.B.R. (2d) 314 (N.B.C.A.).

<64> For an excellent critique of the present situation and various proposals for reform, see Trebilcock, Manufacturers' Guarantees (1972), 18 McGill Law J. 1.

<65> See pages 158-168, supra.

<66> Ontario Report, at p. 62.

<67> We assume that retail sellers were meant to be included because the actual recommendations refer to all written warranties, and apply to used goods. See pages 101-103.

<68> Page 103.

<69> Subject, of course, to the reasonable foreseeability rule and the duty to mitigate.

<70> R.S.M. 1970, c. C200, as am., s. 96.

<71> First Final Draft (1969), by the National Consumer Law Center, Boston College Law School, s. 3.302.

<72> S. 3.301(1) provides: "'Warranty' means (a) express and implied warranties as defined in [Section 2-313, 2-314 and 2-315 of the Uniform Commercial Code] and (b) expressions or action of a merchant which assure or purport to assure the consumer, directly or indirectly that the goods have described qualities or will perform in a described manner."

<73> 15 & 16 Eliz. II, c. 7 (Imp.), s. 3.

<74> Supply of Goods (Implied Terms) Act 1973, s. 4.