Download Comment

PART VI
COMMERCIAL RELATIONSHIP AND COMMERCIAL TRANSACTIONS
CHAPTER 9
THE SALE OF GOODS AND CONSUMER PROTECTION
LEARNING GOALS
 To examine the contract of sale and the Sale of Goods Act.
 To determine when title (an risk) passes to the buyer.
 To identify implied conditions and warranties in a contract of sale.
 To identify the rights and duties of the buyer and seller.
 To examine the remedies available to buyers and sellers.
 To review legislation designed to provide consumer protection.
 To examine the role of credit reporting agencies and collection agencies.
CHAPTER COMMENTARY
The sale of goods, which is covered in this chapter represents an area of law that has been
subject to much codification and legislative activity. This originated with the general
codification of the law pertaining to sale of goods at the end of the 19th Century, and now
includes the original legislation supplemented by "consumer protection" activity of the past
two decades. As a result, much of the law pertaining to the sale of goods is now found in
the statutes, rather than in the common law. The codification of the law was a beneficial
change in many ways, the most important being:
(1)
(2)
(3)
(4)
It clarified and simplified the law;
It established the circumstances under which title passed, and when;
It established the rights and duties of the buyer and seller under a contract of
sale, and
It outlined the various remedies available to the parties in the event of
breach.
For classroom purposes, the nature of the contract of sale should be examined, and
the rules for the transfer of title (and hence, risk of loss) should be reviewed. In addition, the
distinction between a condition and a warranty should be emphasized. The duties of both
the buyer and the seller are worth noting, and may be reviewed using the case problems.
Case problems 1 and 2 may be useful in this regard, as they not only raise the issue of the
sellers duty, but deal with the remedies available to the injured buyer.
The principle of caveat emptor (pp. 251-252), is briefly examined in this chapter,
and provides an outline of the position of the parties under the Sale of Goods Act with
respect to those contractual activities that have been subject to much legislative activity
under the guise of consumer protection.
The Sale of Goods Act rules for when title posses should be examined in class to
ensure that students understand the importance of timing and the issue of notice for the
passing of title.
Consumer protection legislation to some extent reflects the reluctance on the part of the
public to seek redress from the courts in cases where unscrupulous merchants pass off
shoddy goods, or use deceptive trade practices in the sale of goods. The courts have always
provided a degree of "consumer protection" through the common law, but as a general rule,
they have been reluctant to provide much in the line of relief for the careless shopper or
foolish user of credit. This has not been the case with governments in the preparation of
consumer protection legislation. In some instances, consumer protection legislation has
imposed strict requirements or obligations on sellers and those whose extend credit to
buyers. In many cases, nevertheless, the legislation was necessary to deal with practices
that could not adequately be dealt with by the courts, such as credit reporting, and itinerant
sellers.
The variation from province to province in consumer protection legislation dictated
a broad survey approach to the topic in the text, and for classroom purposes, the chapter may
be examined in this fashion. As an alternative, provincial legislation for a particular
province may be presented to the students to supplement the text, if detailed information on
the legislation of the province is necessary. Some of the more important federal statutes are
noted in the footnotes, as are some of the typical provincial laws.
REVIEW QUESTIONS
1. Distinguish a sale from an agreement to sell. Why and when is this distinction
important?
Answer:
A sale refers to a transaction where ownership is transferred to the buyer. An agreement to
sell refers to goods not in existence or subject to some condition before transfer of
ownership can take place.
2. Why is the time of passage of title important in the sale of goods?
Answer:
Risk of loss follows title. Hence, the time of passing of title is important.
3. What are the implications of an unconditional contract for the sale of specific goods in
a deliverable state?
Answer:
Title passes immediately. (Rule 1)
4. Indicate the significance of notice in the sale of goods.
Answer:
Notice applies in those cases where the seller must do something to put goods in a
deliverable state. When the buyer is given "notice" that this is done, the title passes. (Rule
2-3).
5. Outline the contractual duties of a seller under the Sale of Goods Act.
Answer:
Seller must deliver the required quantity of goods to the buyer in accordance with the
contract at the required time and place for delivery. (Note also that seller makes certain
implied conditions and warranties).
6. What implied warranties are part of a sale of goods?
Answer:
Implied warranties are:
(1) goods are free from incumbrances.
(2) buyer will have quiet possession of the goods.
7. Distinguish between a warranty and a condition. Why is this distinction important?
Answer:
A condition is a fundamental or essential term of the contract, which if broken, would entitle
the innocent party to treat the breach as a discharge. A warranty is not an essential term of
the contract, and would not entitle the injured party to treat the contract as at an end. It
would only entitle the injured party to claim damages.
8. Explain the significance of caveat emptor in the sale of goods.
Answer:
Caveat emptor places the onus on the buyer in a transaction to satisfy himself/herself that the
goods will be satisfactory for the purpose intended, without recourse against the seller if
they are not.
9. Under what circumstances would a buyer of goods be entitled to rescind the contract?
Give an example.
Answer:
The buyer could rescind the contract if the seller is in breach of a condition. Example:
Where the seller is in the business of selling a particular line of goods, and the buyer makes
it known that he requires goods for a particular purpose, or relies on the skill of the seller to
supply suitable goods, there is an implied condition in the agreement that the goods will be
reasonably fit for the use intended.
10. Outline the remedies available to a seller of goods if the buyer fails to comply with
the contract
Answer:
Remedies of a seller are:
(1) Lien
(2) action for the price,
(3) damages
(4) retention of deposit,
(5) stoppage in transitu
(6) resale.
11. Explain stoppage in transitu.
Answer:
Stoppage in transitu is a procedure whereby the seller may
stop delivery of the goods by a carrier if the buyer becomes insolvent.
12. Under what circumstances would the skill and judgement of the seller give rise to an
implied warranty or condition upon which the buyer might rely?
Answer:
Where the seller is in the business of supplying a particular line of goods, if the buyer
makes the seller aware of his or her purpose for the goods, and relies upon the skill of the
seller to provide a suitable product, there is an implied condition that the goods are
reasonably fit for the particular purpose. If the goods are not reasonably fit for the use
intended, the seller may be liable for breach of the condition.
13. If goods that are the subject matter of a contract for sale are stolen by a thief during
the cooling-off period, who bears the loss -the buyer or the seller?
Answer:
Since the contract does not become effective until the cooling off period expires, and the
goods are in the possession of the seller, title and possession would be with the seller. Loss
follows title, and the seller would therefore bear the loss.
14. Describe the impact of much of the consumer protection legislation on exemption
clauses in the sale of goods.
Answer:
Exemption clauses in consumer good contracts were not permitted to exclude the implied
warranties as to fitness, etc.
15. How has consumer protection legislation addressed exaggerated advertising claims?
Answer:
Exaggerated advertising claims are now subject to the false or misleading advertising
prohibition in the Competition Act. Provincial legislation in some provinces also makes
sellers liable for any statement made about the goods which proves to be untrue.
16. Explain the need for legislative control over the selling practices of door-to-door
sellers.
Answer:
The control of high-pressure selling practices of door-to-door salespersons was found
necessary because persons were vulnerable when sold goods in their own home, as the
lacked the opportunity to simply "walk away" from the seller.
17. What is the purpose of the "cooling-off period" that the consumer protection
legislation frequently imposes on contractual relations between buyers and door-to-door
sellers?
Answer:
The cooling-off period enables persons who purchased goods from a door-to-door
salesperson to review the purchase at their leisure then make a decision as to whether they
should proceed with the sale.
18. Describe some of the practices of credit reporting agencies that resulted in legislative
control over their activities.
Answer:
Credit reporting agencies tended to collect a great deal on information of a personal nature
about persons, some of it inaccurate, and stored it in large computer data books. Concern
over the use made of this information and the inability of persons to examine and correct
information concerning them led to the control of the agencies and their use of the
information.
19. What practices of some collection agencies led to legislation controlling the
collection of debts generally?
Answer:
Collection agency practices of harassment of debtors, contacting their employers,
pressuring their families to pay, and the use of documents similar to court forms led to
legislation prohibiting or controlling their activities.
DISCUSSION QUESTIONS
1. In Ask A Lawyer, the technology company is considering a change from merely
providing a service and advice, to supplying equipment to its clients. This will involve
the purchase and sale of goods. What specific considerations and what aspects of the Sale
of Goods Act will be important to the company? Would you suggest any special
provisions to include in its sales contracts? If so, why?
Comment:
The Ask A Lawyer scenario involves the purchase and sale of goods by the technology
company. The lawyer in this case would probably explain the different rules for the
purchase and sale of goods under the sale of goods act. If the equipment is not a standard
off the shelf product, but customized equipment, special care would be necessary in
fixing when title would pass. The lawyer would probably suggest a written purchase
agreement be prepared containing clauses that would protect the company in its purchase
of goods that would set out clear conditions and warranties.
For the sale of goods to the client, the lawyer would probably suggest a different
contract, perhaps one that contained exemption clauses to protect it but ‘tie’ it in with the
guarantee as to operation and quality of the equipment supplier.
2. Has consumer protection legislation carried consumer protection too far in terms of
the onus it places on the seller? Does this not simply increase the cost of goods to the
buyer?
Comment:
To answer this question students should consider added costs that a seller may incur to
comply with the legislation. In some cases this might be negligible, but in other cases the
costs may be passed on to the buyers. For example, the added costs that restrictions on
collection agencies may be passed on to users, or the costs of compliance with the
Hazardous Products Act or Food and Drugs Act regulations may increase product prices.
Added costs compared to protection should be discussed.
3. The general thrust of consumer protection legislation has been to provide accurate
information or disclosure of essential terms to the buyer. Has consumer protection
legislation generally met this goal?
Comment:
This question should be discussed in terms of particular types of products. Students should
note that where a product has a hazard or safety issue associated with its use or
consumption, accurate information is very important. In most cases this has addressed by
government legislation but note the Media Report of the Killer Candy on p. 258 of the text.
Is this an unique situation or should it also be regulated? Note the problem that this would
raise if every product was regulated as to size and shape – it might constitute regulatory over
kill if regulated.
COMMENTS RE: DISCUSSION CASES
CASE 1
Ashley arranged for a week long ski vacation at an exclusive ski resort. She then visited
a local merchant that specialized in ski equipment and ski wear. She sought the advice of
a clerk who appeared to be quite knowledgeable about ski equipment, and purchased a
new paid of skis, poles, and boots. As she was about to leave the store, she noticed an
attractive ski jacket, and asked the clerk if would be suitable for the cold weather she
might encounter on her vacation. The clerk suggested that it would be ideal for her ski
vacation, and Ashley bought the jacket.
Ashley did not use the jacket until she arrived at the ski resort, at which time she
immediately went out to the slopes. Within the first hour, she noticed that her wrists had
become swollen and irritated where the knitted cuffs of the jacket contacted her skin. She
wore the jacket the second day, but found that after skiing for a short time, she had to
return to the lodge because her wrists had again become badly irritated and had blistered.
Ashley required medical treatment for the injury to her wrists, at which time the
injury was determined to be a corrosive chemical that had been used to bleach the knitted
cuffs of her jacket. The chemical was one that was normally used to bleach fabric.
However, from the evidence, the chemical had not been removed from the material
before the cloth was shipped to the manufacturer of the jacket. Neither the manufacturer
nor the retailer were aware of the chemical in the cloth. and its existence could not be
detected by ordinary inspection.
The injury to Ashley's wrists ruined her holiday and prevented her return to work
for a week following her vacation.
Discuss the rights (if any) and liability (if any) of Ashley, the sports clothing merchant,
the manufacturer of the jacket, and the manufacturer of the cloth.
Comment:
This fictional situation raises the question of liability to the buyer for the injuries she
sustained as a result of the chemical in the fabric used to manufacture his ski jacket. Ashley
purchased the jacket after examining the material, but the defect was hidden in the fabric.
On a strict interpretation basis, the buyer would be bound, but this is not the case where the
defect is not apparent to the eye. The buyer is not obliged to perform extensive tests on the
fabric in order to determine suitability, but employ only those tests that might be performed
by a "reasonable person." The seller would be liable in this case for the sale of goods that
were not merchantable if the buyer acted promptly on discovery and rescinded the contract.
Where the seller and the manufacturer of the clothing could not detect the chemical, the
manufacturers of the cloth could be held liable in tort for Ashley’s injuries. See: Grant v.
Australian Knitting Mills, Ltd., [1935] All E.R. 222.
CASE 2
The Township of Upper Ridge required an additional tank truck for fire fighting
purposes. It contacted Tank Fabricators Inc., a company familiar with the regulations and
specifications for fire fighting equipment, and negotiated a contract to have the tank and
its equipment made, to be fitted to a truck chassis that the township would supply.
Under the terms of the contract, the tank and its equipment were to be completed
in three months time, with delivery to take place on April 1st. The township was to
provide the truck at that time, and the work crew to assemble the tank on the chassis,
using the Tank Fabricators Inc. crane.
On March 28th, Tank Fabricators Inc. advised the township that the tank and its
equipment were completed, and would be moved the next day to its warehouse where the
township could take its truck, and affix the tank to the truck chassis using the company’s
crane.
The township truck and its crew of workers arrived at the warehouse late in the
day on March 31st, and it was mutually agreed that the truck could be stored in Tank
Fabricators Inc. warehouse beside the new tank, until the next day. Unfortunately, during
the night, an arsonist set fire to the building, and the tank, the truck, and the warehouse
were totally destroyed by the fire.
Discuss the rights (if any) and the liability (if any) of the parties in this case.
Indicate the possible outcome if legal action should be taken.
Comment:
This case is concerned with risk of loss when the subject matter of a contract of sale is
destroyed. A discussion of this case should involve the transfer of title, and a determination
of when the title in the goods passed.
When the tank and its equipment were completed and ready for delivery the seller
notified the buyer as required under the rules (Rule 5) for the transfer of title. The question
here is: was the tank and equipment unconditionally appropriated to the contract at this
point? Did the buyer assent? Probably yes. The buyer was to arrange for the pick-up, and
the seller's obligation under the sale was probably complete when the tank and equipment
were moved to the warehouse. The loss was probably not due to the negligence of the
seller, since the fire was caused by an arsonist. Consequently, the seller may not be liable
for the loss. The buyer, however, would be liable to the seller for the contract price of the
tank and equipment.
CASE 3
Produce Brokers Inc. operated a produce brokerage, buying agricultural produce and
reselling it to a number of small regional food wholesalers. Each wholesaler served an
area that was usually no greater than a city. The wholesalers generally sold to
independent grocers, convenience stores, and other volume buyers such as hospitals and
institutions.
Faroldi, the President of Produce Brokers Inc. visited a farmers' co-operative in an
agricultural area, and after some discussion, secured a truckload of tomatoes at the
wholesale market price for Number 1 Grade Hothouse Tomatoes, boxed four to the box
and cellophane wrapped.
Three weeks later, a commercial freight company truck arrived at Produce
Brokers Inc. with the tomatoes. Faroldi had the driver open the van, and examined the
frames of cello-packed tomatoes visible from the door. They appeared fine, so he handed
over his $4,400 bank draft to the driver in return for the bill of lading.
He endorsed the bill of lading and gave it back to the driver with instructions to
him to carry on, as was often the case, to one of his larger customers, a wholesaler in the
next town. The driver was to turn over the bill of lading against a payment of $6,700.
When the driver returned to the Produce Broker’s warehouse, he had no payment to
deliver, but rather, still had the entire load of tomatoes. The wholesaler had insisted on
unloading the tomatoes before payment. He had found that the tomatoes near the doors
were Number 1 Hothouse, but those beyond the doors were at best Number 3 Hothouse,
or perhaps even Field Grade. The wholesaler rejected the shipment, packed it back on the
truck, and sent the driver back to Produce Brokers Inc.
Faroldi demanded a return of his bank draft and ordered the tomatoes to be
returned to the co-operative. The driver said his company rule was that a driver must
always leave the load with the last person who pays, and that a driver must not return
money once it is received. Accordingly, he off-loaded the tomatoes despite the protests of
Faroldi, and drove away.
Advise the parties. Include a commentary on the trucking company's policy.
Render a decision.
Comment:
Students should determine that Produce Brokers Inc. entered into a contract for the produce
by description as the goods were not in existence at the time. According to the Sale of
Goods Act for goods sold by description there is an implied condition in the contract that the
goods will conform to the description. In this case the goods were to be Number 1 Grade
Hothouse Tomatoes. On delivery, the buyer is entitled to a reasonable time to inspect the
goods to determine if they meet the description. Did Faroldi’s careless examination
represent that opportunity? Did his endorsement of the bill of lading constitute acceptance
of the tomatoes? Students should consider these questions.
Normal practice of the trade was to confirm that the goods meet the description
before signing the title over (bill of lading) for delivery to the customer. Faroldi may have
accepted the goods and it may be too late to later object to the seller about the quality.
Signing the bill of lading would be an act of the 'owner' of the goods, and this might
constitute acceptance of the goods. Caveat emptor. However, if the packing of the tomatoes
could be considered a deliberate misrepresentation of the goods to induce Produce Broker’s
Inc. to accept them without examining the entire shipment, Produce Brokers Inc. may be
able to avoid the contract on the basis of misrepresentation.
CASE 4
John Jones lived at 112 Main Street in a 1arge city. He had no debts and had never
previously purchased goods on credit. He did, however, wish to purchase a particular
new truck. He entered into negotiations with a local truck dealer to obtain the truck on
credit. He consented to the truck dealer making a credit check before the transaction was
completed, and was dismayed when the truck dealer refused to proceed with the
transaction because he was not a good credit risk according to the credit report.
The credit reporting agency apparently had provided a credit report on a J. Jones
who some months before had resided at 121 Main Street in the same city, and who had
defaulted on a number of substantial consumer debts. John Jones knew nothing of the
other J. Jones, nor had he ever resided at 121 Main Street.
What avenues are open to John Jones in this case to rectify the situation?
Comment:
This case concerns credit reporting agencies, and the use of credit reports in business
transactions. A point to note in the case is that John Jones consented to the credit check.
The problem was due in part to the carelessness of the credit reporting agency in failing to
carefully check the street address. While it was a rare coincidence that persons with the
same surname lived at different house numbers, but on the same street (one was 112 Main
Street, the other 121 Main Street), the mistake was nevertheless made by the reporting
agency.
Under the laws of most provinces, where credit is refused or the charges adjusted to
reflect a poor risk, the purchaser is entitled to know the name of the agency and to examine
his file. If an error exists, the individual can have the agency correct the error, or if a
conflict of opinion exists, the individual can have an explanation added to the file to reflect
his view of the matter. See text pp.262-263 for a discussion of credit agencies, and
provincial legislation such as the Consumer Reporting Act, R.S.O. 1990, c. C-33.
CASE 5
Commercial Properties Inc. was concerned about paint peeling from the iron fire escape
railing and stairs on its small commercial building in an older part of the city. The
company had purchased some inexpensive paints in the past, and each time, after two or
three months, rust had bubbled up from beneath the paint.
In an effort to find a more permanent solution, the manager of the building was
instructed to get a better paint. He went to the local hardware store for paint. On this
occasion, the store had a glossy cardboard end of aisle display of a premium-priced paint
made by Rustfree Paints Ltd. Printed on the display were the words “stops rust,” and on
the labels of the cans were the words “prevents rust." The Manager inquired from a
clerk if it was a good rust proof paint for fire escapes, and the clerk replied that it was
“O.K.”.
The Manager bought the paint and set out to apply it to the railing. The directions
called for the removal of all prior paint and primer. For the most part, he was successful
in removing the prior paint, but not the primer beneath.
After twenty-four months, the rust returned, and flaked the paint. The Manager
complained to the store about the paint, but to no avail. He then informed the
government consumer ministry, who brought suit against Rustfree Paints.
An internationally recognized expert on paint gave evidence that no paint known
to industry can stop rust indefinitely. He stated that the ability of paint to stop rust ends
when the seal is broken, and some paints keep a seal better than others. The expert
advised the court that the Rustfree formulation was one of the best in the industry, using
the finest possible ingredients.
Render a decision on behalf of the court.
Comment:
Students should note that this is not a situation where the buyer was relying on the skill of
the seller to select an appropriate point for the fire escapes, as the Manager was only
seeking confirmation of the use of the brand he wished to buy.
This case, however, may be considered in terms of product labeling. Were the statements
false? In what context should they be taken? under what circumstances, and for how long?
The legislation under which the complaint may have been brought would probably
be the Consumer Packaging and Labeling Act. If the label information was in fact false, the
manufacture might be guilty of false labeling. The label stated that the paint 'prevents' rust,
but also sets out instructions that must be adhered to for the paint to prevent rust. Based
upon
the expert evidence the paint would prevent rust as long as the paint seal was not broken,
the manufacturer might, therefore, successfully argue that the statement was accurate
provided the paint surface was properly prepared and not damaged.