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Chapter V
Scope of the Consumer Protection Legislation
Chapter VI
General Summary of Main Recommendations
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 V Scope of the Consumer Protection Legislation
- Chapter VI General Summary of Main Recommendations
Table of Contents for Chapter V
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- (a) Type of Seller 198
- (b) Type of Buyer 199
- (c) Type of Goods 203
- (d) Type of Transaction 203
- 3. Recommendations 207
Table of Contents for Chapter VI
CHAPTER V
SCOPE OF THE CONSUMER PROTECTION LEGISLATION
In this chapter we shall deal with the questions of what transactions should be covered by the consumer protection legislation, and what steps should be taken to maximize consumer awareness of rights under the consumer protection legislation.
1. TRANSACTIONS COVERED BY THE CONSUMER PROTECTION LEGISLATION
It is a difficult task to define adequately the transactions that should be covered by consumer protection legislation. The type of seller, the type of buyer, the type of goods, and the type of transaction: all must be considered. Furthermore, the legislation must have certain enough tests that the parties will realize with some degree of certainty that the protective legislation does or does not apply.
(a) Type of Seller
In so far as the type of seller to which the legislation should apply, the fundamental distinction, of course, is between the business seller and the private seller. The question, however, is whether all business sellers should be caught or only certain business sellers. For example, should the legislation apply only if the seller is a dealer in the type of goods in question. We had occasion to refer to this question earlier in our discussion and recommendations on reformulation of the implied terms under the Sale of Goods Act. <1> We took the position there, following the lead of the English and Scottish Law Commissions and the Ontario Law Reform Commission, that the implied terms should apply to all sales made by sellers in the course of a business, whether they are dealers in goods of that kind or not. We take the same position on the more general question.
The test proposed by the Law commissions has been adopted in the recent United Kingdom legislation. However, the legislation does exclude sales by auctions <2> and by competitive tender from the ban on contracting out. <3> We do not support these exceptions.
In Canada, the applicable consumer protection legislation of British Columbia applies to sales made by a seller "in the ordinary course of his business," <4> the Manitoba legislation applies to sales by a seller "in the course of his business," <5> and the Ontario legislation applies to sales by a seller "in the ordinary course of business." <6> However, the legislation of both British Columbia and Ontario excepts certain sales from the legislation. Ontario excepts sales made "by a trustee in bankruptcy, a receiver, a liquidator or a person acting under the order of a court," <7> and British Columbia excepts sales made "by a trustee in bankruptcy, a liquidator or sheriff." <8> We have no objections to these exceptions.
(b) Type of Buyer
There are a number of different methods of defining the type of buyer to which the legislation will apply. All of them are seeking to identify the type of person who is in [- 200 -] need of the protection. Basically, as one might expect, the various legislative efforts are directed at the person who buys in his capacity as a consumer. However, as everyone has recognized, some business buyers are also in need of protection, particularly the small businessman.
The most popular method of defining the scope of consumer protection legislation in the United States is to define a consumer as one who contracts for personal, family or household purposes. <9> The United Kingdom, which has the latest legislation, extends protection "to a person who does not buy or hold himself out as buying them (the goods) in the course of a business." <10> Both approaches make a clear cut distinction between the consumer buyer and the business buyer.
On the other hand, both the American and the English sale of goods legislation contains some protection for the business buyer. The American legislation has a general unconscionability provision, <11> while the English legislation has a fairness and reasonableness provision, which applies only to exemption clauses in contracts between businessmen. <12>
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Some of the Canadian consumer protection legislation also extends protection to some business buyers. British Columbia, <13> Manitoba, <14> and Ontario <l5> do not extend protection to a buyer who purchases goods for resale, or who is a corporation. (Manitoba does, however, extend protection to buyers who, although buying for resale, are direct sellers.) Ontario does not extend protection to partnerships or associations of individuals. Nor does the Ontario legislation extend protection "to a purchaser whose purchase is in the course of carrying on business." British Columbia at one time had substantially the same provision (it excluded sales "to a purchaser who intends to use the goods in his business"), but recently has narrowed this exclusion "to a purchaser who intends to use the goods primarily in his business." Manitoba's legislation is broader in coverage in that it does not exclude protection to a purchaser who intends to use the goods in his business (unless, of course, the goods are intended for resale or the buyer is a corporation). However, Manitoba has another exclusion from its legislation and that is the transaction in which the cash price exceeds $7,500.
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We also believe that some business buyers are in need of protection, and have decided that it would not be fair to ignore this even though our terms of reference might not appear broad enough to go into that question. There are two reasons why we do not consider we are exceeding our jurisdiction in examining this question. First, the reasons for protecting consumers also apply to some businessmen. Second, if our recommendations for consumer protection are accepted and implemented, the consumer's seller will have much greater responsibilities and it may therefore be much more important for him in turn to receive protection from his seller, e.g. the manufacturer. We have not taken a firm decision on the extent of protection that should be given to business buyers, but we intend to do so in our next report when we consider the manufacturer's responsibilities.
Regardless of what decision is taken on business buyers, unless the legislation specifically provides for it, there will be a problem with the transaction in which a person buys goods partly for business purposes and partly tor personal purposes. We favour the approach advocated by the Ontario Law Reform Commission <16> and recently adopted in the British [- 203 -] Columbia legislation, which is to look at the principal purpose for which the goods are purchased. If the goods are purchased primarily for personal purposes then it should be treated as a consumer transaction even though they are used partly for business purposes. If, however, the goods are purchased primarily for business purposes then it should be treated as a business transaction even though the goods are also used for personal purposes.
(c) Type of Goods
The English and Scottish Law Commissions, and the United Kingdom legislation adopting their views, took the position that the legislation should apply only where the goods "are of a type ordinarily bought for private use or consumption." <17> The Ontario Law Reform Commission had no objection to this qualification <l8> and neither do we.
(d) Type of Transaction
The last question is whether the consumer protection legislation should be confined to contracts for the sale of goods or whether it should also apply to other contracts relating to goods.
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The legislation of British Columbia and Ontario is limited to contracts for the sale of goods (which, of course, include conditional sale contracts). Manitoba and England have legislation that extends to hire-purchase contracts as well. South Australia appears to have the broadest coverage in that its legislation applies to consumer contracts tor the sale or supply of goods. <19> The Ontario Law Reform Commission has recommended that, in addition to sales, the legislation should cover "all near-sale transactions, including leases with an option to purchase, leases for substantial terms, and should cover materials transferred under a contract for work and materials." <20>
In our opinion there is no good reason why the protective legislation should be restricted to contracts for the sale of goods. <21> We recommend that it apply to contracts for the sale or supply of goods, whether alone or in combination with the provision of services.
2. MAKING CONSUMERS AWARE OF THEIR RIGHTS
Consumer rights are of little use if consumers are not [- 205 -] aware of them.
This simple truth appears to have been forgotten in much of the consumer protection legislation. For example, none of the Canadian legislation that denies effect to disclaimer clauses purporting to contract out ot the implied terms, goes on to prohibit the use of such clauses. The legislation simply renders the disclaimer clauses invalid. As has been pointed out by the Ontario Law Reform Commission, this approach can create serious problems, for if the seller uses a disclaimer clause the consumer may be misled as to what his rights are. It seems strange that legislation designed to give increased rights to the consumer at the same time allows the seller to misrepresent what those rights are by continuing to use invalid disclaimer clauses. We accordingly recommend, as did the Ontario Law Reform Commission, <22> that the use of such clauses should be prohibited.
Apart from preventing the seller from misrepresenting to the consumer what his rights are, the further question arises whether the legislation should go further and require the seller to take steps to inform the consumer of his rights. We do not relieve it would be realistic to impose such an [- 206 -] obligation by way of a general requirement, because consumer contracts cover such a broad range of products, e.g. from bubblegum to mobile homes. We do believe it would be realistic to impose such an obligation in some cases. For example, in the case of written contracts we see no reason why the document should not state that its terms are in addition to any rights or remedies the buyer may have under the consumer protection legislation. And for expensive products, such as automobiles and mobile homes, it would be reasonable to require a standard form summary of rights under the consumer protection legislation to be given. Indeed, for some products it might be reasonable to require the use of a standard form document, which contains appropriate spaces for non-mandatory terms.
There is a further observation to be made in the case of those contracts that are in writing. It is our understanding that at the present time most written contracts are in English, even though the negotiations may have been conducted in French. In our view this places the French speaking consumer in a disadvantageous position. We believe that written contracts should be required to be expressed in the same language as that principally used in the oral negotiations. We should like to emphasize that we are not trenching upon the broader issue of bilingualism in New Brunswick, which of course is beyond our scope and competence, but are concerned solely with consumer protection. On that basis it seems clear to us that [- 207 -] it is not unreasonable to require a seller who chooses to deal with a consumer in French in the oral negotiations to carry this through to the written contract.
If we are right in thinking that it would be unrealistic to impose a general requirement that sellers inform consumers of their rights under the consumer protection legislation, there remains the fundamental problem that many consumers will be ignorant of their rights under the legislation. To combat this problem, we believe that the Government, through the Consumer Bureau, will itself have to take appropriate steps to inform consumers of their rights. In this connection we regret to state that the Consumer Bureau does not appear to be taking adequate steps to inform consumers of their rights under the present law. Indeed, it has taken the position many times that the consumer has no legal rights unless the seller makes an express guarantee in writing. We can only describe this situation as shocking.
3. RECOMMENDATIONS
We recommend that:
Type of Seller
1. The type of seller to which the consumer protection legislation should [- 208 -] apply is the seller who sells in the course of a business.
2. The legislation should not apply to sales made by a trustee in bankruptcy, a receiver, a liquidator, a sheriff, or a person acting under the order of a court.
Type of Buyer
3. The type of buyer to which the consumer protection legislation should apply is the buyer who does not buy or hold himself out as buying in the course of a business.
4. The legislation should also apply to a buyer who buys primarily for personal purposes, even though he also buys partly for business purposes, unless the buyer holds himself out as buying primarily for business purposes.
5. Business should be defined to include a profession and the activities of a government department, agency, or corporation.
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Type of Goods
6. The type of goods to which the consumer protection legislation should apply is goods that are regularly, although not necessarily exclusively, bought for personal purposes.
Type of Transaction
7. The type of transaction to which the consumer protection legislation should apply is the contract for the sale or supply of goods, whether alone or in combination with the provision of services.
Making Consumers Aware of Their Rights
8. The legislation should prohibit a seller from misrepresenting the consumer's rights by invalid disclaimers purporting to exclude, restrict or diminish the statutory express or implied terms of the contract, or the remedies that the law normally provides for the breach of them.
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9. In written contracts the document should state that its terms are in addition to any rights or remedies the buyer may have under the consumer protection legislation.
10. The legislation should provide for the making of regulations to require a seller to give a consumer a standard form summary of rights under the consumer protection legislation in cases where it is practical to do so.
11. The legislation should provide for the making of regulations to require a seller to use a standard form document, which contains appropriate spaces for non-mandatory terms, in cases where it is practical to do so.
12. Written contracts should be required to be expressed in the same language, e.g. French, as that principally used in the oral negotiations.
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13. The Government, through the Consumer Bureau, should itself take appropriate steps to inform consumers of their rights under the consumer protection legislation.
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CHAPTER VI
GENERAL SUMMARY OF MAIN RECOMMENDATIONS
We set out below a general summary of our main recommendations.
Chapter I:
THE SELLER'S RESPONSIBILITIES FOR WHAT HE SAYS: EXPRESS TERMS
Parol Evidence Rule
1. The parol evidence rule, which in many cases automatically restricts the express terms of a contract to what is contained in the written contract, should be abolished in consumer transactions.
"No Authority" Clauses
2. Clauses in written contracts that deny authority for the salesman to vary the terms of the written contract should be denied effect in consumer transactions. Instead, the normal agency rules should govern, whereby the seller would be liable for everything within the salesman's usual or apparent authority.
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Promises and Representations of Fact
3. The consumer protection legislation should make any promise or representation of fact that the seller makes in relation to the goods an 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.
Opinions
4. The consumer protection legislation should provide that if the seller states his opinion that the goods will meet certain specifications, it is an express term of the contract that the goods will meet these specifications, unless the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's opinion.
Advertising
5. The consumer protection legislation should make any promise or representation of fact that the seller makes in relation to the goods in his advertising an express term of the contract.
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Labels, etc.
6. The consumer protection legislation should deem the seller to make any promise or representation of fact that is contained in labels or other printing on the goods or their container, or in tags or other signs or documents attached to or accompanying or in close proximity to the goods, and such a promise or representation should be an express term of the contract.
Chapter II:
THE SELLER'S RESPONSIBILITIES IN THE ABSENCE OF EXPRESS STATEMENTS:
IMPLIED TERMS AS TO TITLE, QUALITY AND FITNESS
7. 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
8. In consumer sales the seller should have the right to sell the goods no [- 216 -] later than the time of delivery of the goods to the buyer.
9. The only liens and encumbrances that should be excepted from the protection given to the buyer by clause (c) of section 13 are those 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.
10. 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
11. 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 [- 217 -] having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances.
12. There should not be any requirement that the goods be bought by description in order for the implied term as to quality to apply.
13. The implied term as to quality should apply to all sales by a seller who is acting in the course of a business.
14. It should be made clear that the implied term as to quality applies to used goods.
15. 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.
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16. 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.
17. 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.
18. 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.
19. There should be an implied term in the sale of some products, e.g. automobiles and mobile homes, that [- 219 -] spare parts and reasonable repair facilities will be available for a reasonable period of time.
20. The implied term as to quality 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.
21. Subject to recommendation 20, 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
22. 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.
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23. 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 patent or other trade name," should be repealed.
24. 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.
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25. 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;
(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
26. 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.
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27. In sales by sample the implied term as to quality should include a requirement that the goods will correspond with the sample in quality.
Chapter III:
THE CONSUMER'S RIGHTS AND REMEDIES FOR BREACH BY THE SELLER OF HIS RESPONSIBILITIES:
REMEDIES FOR BREACH OF THE TERMS OF THE CONTRACT
Rejection Rights
28. The consumer protection legislation should abolish the distinction between conditions and warranties. Instead a consumer buyer should be able to reject the goods for the breach of any term of the contract.
29. The seller should, however, be given a reasonable opportunity to rectify his breach, including a breach of the title obligation, unless it is a major or an irremediable breach.
Loss of Rejection Rights
30. The law relating to loss of rejection rights should also be changed. The consumer should be able to reject [- 223 -] for any breach discovered within sixty days after delivery of the goods, provided that he exercises his rejection rights within a reasonable time after discovery of the breach. After the sixty day period has expired the consumer should be entitled to reject only in the case of a major breach.
Consequences If Consumer Does Not Reject
31. If the consumer chooses not to exercise his rejection rights, or if he has lost them, he should be entitled to recover the damages he has suffered from the breach of contract, subject to the normal rules as to foreseeability and the duty to mitigate.
Consequences If Consumer Does Reject
32. If the consumer exercises his rejection rights, he should be entitled to recover from the seller, subject to recommendation 33, any payments he has made on the purchase price and/or other damages he has [- 224 -] suffered from the breach of contract, subject to the normal rules as to foreseeability and the duty to mitigate.
33. If the consumer exercises his rejection rights, the seller should receive some protection for his restitution interests. First, he should be able to get back his goods. Second, except in cases where the buyer exercises his rejection rights within ten days after delivery of the goods, the seller should be entitled to recover or set off from the refund of the purchase price payments, as the case may be, the value of the net benefit derived by the consumer through use of the goods. The burden of proof as to what the value of the benefit is should be on the seller. Third, in cases where the goods have been damaged beyond the deterioration necessarily caused by their contemplated use and for [- 225 -] reasons not attributable to the seller's breach, the seller should be entitled to compensation for the difference between the value of the goods as they are and the value they would have had but for that damage.
34. If the consumer exercises his rejection rights, he should have a lien on the rejected goods for any portion of payments made on account of the purchase price that he is entitled to recover.
35. If the consumer exercises his rejection rights, he should have a duty to take reasonable care of the goods after rejection and, subject to his lien rights, allow the seller to take back the goods. However, as is the present law, the consumer should not be under any duty to return the rejected goods to the seller; it should be sufficient that he notify the seller that he rejects the goods.
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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
Implied Terms
36. In consumer transactions the seller should not be allowed to exclude, restrict 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
37. 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.
38. 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.
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39. To ensure uniformity of remedies and to prevent sellers from avoiding the intent of the consumer protection 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
40. The consumer protection legislation should provide for a general fairness and reasonableness control power for the courts.
41. 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.
42. In deciding the question of fairness and reasonableness, the court should consider all the circumstances of the case, including [- 228 -]
(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;
(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;
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(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.
43. 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.
Chapter V:
SCOPE OF THE CONSUMER PROTECTION LEGISLATION
Type of Seller
44. The type of seller to which the consumer protection legislation should apply is the seller who sells in the course of a business.
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45. The legislation should not apply to sales made by a trustee in bankruptcy, a receiver, a liquidator, a sheriff, or a person acting under the order of a court.
Type of Buyer
46. The type of buyer to which the consumer protection legislation should apply is the buyer who does not buy or hold himself out as buying in the course of a business.
47. The legislation should also apply to a buyer who buys primarily for personal purposes, even though he also buys partly for business purposes, unless the buyer holds himself out as buying primarily for business purposes.
48. Business should be defined to include a profession and the activities of a government department, agency, or corporation.
Type of Goods
49. The type of goods to which the consumer protection legislation should [- 231 -] apply is goods that are regularly, although not necessarily exclusively, bought for personal purposes.
Type of Transaction
50. The type of transaction to which the consumer protection legislation should apply is the contract for the sale or supply of goods, whether alone or in combination with the provision of services.
Making Consumers Aware of Their Rights
51. The legislation should prohibit a seller from misrepresenting the consumer's rights by invalid disclaimers purporting to exclude, restrict or diminish the statutory express or implied terms of the contract, or the remedies that the law normally provides for the breach of them.
52. In written contracts the document should state that its terms are in addition to any rights or remedies the buyer may have under the consumer protection legislation.
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53. The legislation should provide for the making of regulations to require a seller to give a consumer a standard form summary of rights under the consumer protection legislation in cases where it is practical to do so.
54. The legislation should provide for the making of regulations to require a seller to use a standard form document, which contains appropriate spaces for non-mandatory terms, in cases where it is practical to do so.
55. Written contracts should be required to be expressed in the same language, e.g. French, as that principally used in the oral negotiations.
56. The Government, through the Consumer Bureau, should itself take appropriate steps to inform consumers of their rights under the consumer protection legislation.
Footnotes
<1> See pages 77-78, 96, supra.
<2> The Law Commissions were equally divided on whether contracting out in auction sales should be controlled: Law Commissions Report, paras. 114-119.
<3> Supply of Goods (Implied Terms) Act 1973, s. 4.
<4> Sale of Goods Act, R.S.B.C. 1960, c. 344, as am., s. 21A.
<5> The Consumer Protection Act, R.S.M. 1970, c. C200, as am., s. 1(t).
<6> The Consumer Protection Act, R.S.O. 1970, c. 82, as am., s. 44a.
<9> See, e.g., Uniform Commercial Code, s. 9-109(1).
<10> Supply of Goods (Implied Terms) Act 1973, s. 4.
<16> Ontario Report, at p. 57.
<17> Law Commissions Report, paras. 85-91; Supply of Goods (Implied Terms) Act 1973, s. 4.
<18> Ontario Report, at p. 57.
<19> Consumer Transactions Act, 1972, S.S.A. 1972, No. 135, ss. 8, 10.
<20> Ontario Report, at p. 26.
<21> See Waddams, Strict Liability, Warranties, and the Sale of Goods (1969), 19 U. of Tor. L.J. 157.