F O U N DAT I O N L AW 2 0 1 3 / 1 4

LECTURE 15CONDITIONS, WARRANTIES AND

IMPLIED TERMS

RECAP- LECTURE 14: MISREPRESENTATIONS

• In last week’s lecture we looked at…………

• What a misrepresentation is

• The three different types of misrepresentations:• Fraudulent/false misrepresentation• Negligent misrepresentation• Innocent misrepresentation

• Principles from Hedley Bryne v Heller (1963): “special relationship”

• Exception to Pure Economic Loss (PEL) in tort of negligence

LEARNING OUTCOMES:

• Understand the difference between a “negligent misrepresentation” and “negligent misstatement”;

• Show knowledge & understanding of the different contractual terms;

• Explain what is meant by an implied term;

• Explain the difference between a condition and a warranty and the effect of breach of these terms;

• Show knowledge & understanding of the provisions under the Sale of Goods Act 1979 & the Supply of Goods and Services Act 1982;

• Understand the effect of exclusion clauses;

• Apply legal principles to given facts and demonstrate criticality & analysis when answering fact based questions; and

• Analyse case law and be able to apply case law in a persuasive manner to hypothetical case studies

NEGLIGENT MISSTATEMENTS

• In last week’s lecture we looked at NEGLIGENT MISREPRESENTATIONS

• A negligent misrepresentation is a false statement of fact, whereby the maker of the statement has been careless/negligent as regards to the truth of the statement

• A negligent misrepresentation is usually made by a person (the representor) who has specialist knowledge; as was the case in both Esso Petroleum v Marden & the case of Hedley Bryne v Heller

SO, WHAT IS NEGLIGENT MISSTATEMENT AND HOW IS IT DIFFERENT TO A NEGLIGENT MISREPRESENTATION?

• Like negligent misrepresentation (“NMR”) a negligent misstatement (“NMS”) is also a false statement of fact which has been made by the representor carelessly/negligently AND furthermore, the maker of the statement has special knowledge/expertise

• However, one of the key differences between a NMR and NMS is that, to bring a claim for NMS, the maker of statement must owe the claimant a duty of care. Whereas for NMR, the defendant does not owe the claimant a duty of care

• The duty of care for NMS is established using the “special relationship” test, as established in the case of Hedley Bryne v Heller (1964)

• Remember, that in order to establish that there existed a “special relationship” between the parties, the following 5 conditions must be satisfied:

1. The advice is needed for a specific or general purpose2. This purpose is made known, either expressly or implicitly,

to the adviser at the time when the advice is given3. The adviser knows that the advice will be used for that

purpose by the advisee4. The adviser knows that the advice is likely to be acted upon

without further independent inquiry; and5. The advisee does in fact act on the advice and

subsequently suffers financial damage.

• Only when the claimant suffers financial loss (“PEL”) as a result of the defendant’s breach of duty (which is established by the “special relationship” test), can the claimant bring an action for PEL under the tort of negligence on the grounds of negligent misstatement

• Hence, in Hedley Bryne v Heller, it was NEGLIGENT MISSTATEMENT, as special relationship could be established. Whereas in Esso Petroleum v Marden, whilst Esso did have special knowledge, special relationship could not be established (Esso did not owe a duty of care). Hence it was NEGLIGENT MISREPRESENTATION

OTHER DIFFERENCES BETWEEN NEGLIGENT MISREPRESENTATION AND NEGLIGENT MISSTATEMENT

NEGLIGENT MISREPRESENTATION

NEGLIGENT MISSTATEMENT

Action is brought under the statutory law…Section 2 (1) of the Misrepresentation Act 1967

Falls under the common law; tort of negligence. The special relationship test was established in Hedley Bryne v Heller (1964) and subsequently recognised in the case of Caparo v Dickman (1990)

Falls under the law of contract, since the relationship between the parties is contractual

Falls under the law of torts, as there exists a duty of care/special relationship between the parties

IMPLIED TERMS

• To understand what is meant by an implied term, its best to understand what is an express term first

• Express terms are those contractual terms (obligations/responsibilities/description of goods etc.) which have been agreed between the parties and usually have been expressly stated into the contract as the contract’s main terms and conditions

• Examples of express terms include terms relating to the description of the goods, the price, delivery & payment terms etc.

• Implied terms in contrast, are terms which although have not been expressly incorporated into the contract, they still apply to the contract

• For example, in a sale of goods contract, there is an implied term that the goods will be of satisfactory quality

IMPLIED TERMS UNDER THE SALE OF GOODS ACT 1979 (“SGA 1979”)

• The Sale of Goods Act 1979 (as amended by the Sale of Goods Act 1995), governs contracts for the sale of goods

• Under section 2 of the SGA 1979, a contract for the sale of goods is, “a contract for the sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price”

• Within the meaning of the Act, goods must be “tangible” and furthermore, the Act only deals with contracts for the sale of goods

SECTION 12 SGA 1979: IMPLIED TERM AS TO TITLE

• There is an implied condition that the seller has the right to sell the goods and therefore, to transfer ownership. Therefore, a person who steals goods generally would not have the right to pass on a good title to a buyer

• Rowland v Divall (1923)

SECTION 14 SGA 1979: IMPLIED TERMS WITH RESPECT TO SATISFACTORY QUALITY AND FITNESS

FOR PURPOSE

• Under section 14 (2), where the seller sells goods in the course of a business, there is an implied term that the goods are of satisfactory quality (unless defects are drawn to the buyer’s attention beforehand on the formation of the contract)

• Satisfactory quality includes:• That the goods are free from defects;• The goods work;• Safety and durability; and • Appearance and finish.

• Under section 14 (3), there is an implied condition that the goods will be reasonably fit for purpose

• Priest v Last (1903)

• Wormwell v RHM Agricultural Ltd (1987)

• NB: section 14 only applies to consumer sales and not to private sales (between private sellers)

SECTION 15 SGA 1979: SALE BY SAMPLE

• Where there has been a sale by sample, there is an implied condition under section 15 of the Act that the goods supplied shall:

• Correspond with the quality of the sample;• The buyer shall be given a reasonable opportunity to compare

the sample with the goods supplied; and• The goods shall be free from defects rendering them

unmerchantable which would not be apparent on reasonable inspection

CONDITIONS AND WARRANTIES

• Conditions are the terms of a contract which go to the very roots of the contract. It can be said that these are the terms upon which the contract is formed (for example, the price and the description of the goods are both examples of conditions)

• A condition therefore, is a major term of the contract and if a condition is breached, the innocent party is entitled terminate the contract and claim damages (Poussard v Spiers (1876))

CONDITIONS UNDER THE SGA 1979: SECTION 13- SALE BY DESCRIPTION

• Where there is a sale by description, the goods must correspond with the description

• For example, if an advertisement describes a pair of jeans as “black denim jeans” but upon arrival of the order the buyer realises that jeans are actually “dark navy”. The buyer has the right to terminate the contract (return the jeans)

• Beale v Taylor (1967)

• Furthermore, section 13 (3) extends a sale by description to include situations where the buyer selects the goods. For example, a buyer buys a jar of what has been described as “strawberry jam” on its packaging but discovers it actually contains Marmite!

• Section 13 applies to both consumer and business sales

SUMMARY OF THE IMPLIED CONDITIONS IN THE SGA 1979

Section Implied Condition Comment

12 The seller has the right to sell the goods

Cannot be excluded from any contract

13 The goods match their description

Cannot be excluded from consumer salesCan be excluded from private sales

14 The goods are of satisfactory quality

Cannot be excluded from consumer sales

15 The goods match sample

Cannot be excluded from consumer salesCan be excluded from private sales

• Warranties in contrast, are minor terms of a contract which are not central to the formation of a contract

• Such terms usually relate to the performance of the contractual obligations

• For example, under section 12 of the SGA 1979, there is an implied warranty that the goods shall be free from any charge or encumbrance not disclosed to , or known by the buyer and also that the buyer shall enjoy “quiet possession” of the goods

• Unlike a condition, if a warranty is breached, it only gives the innocent party the right to claim damages and no right to termination of the contract (Bettini v Gye (1876))

EXCLUSION CLAUSES

• The Unfair Contract Terms Act 1977 (UCTA) states that none of the implied terms outlined above, may be excluded by a seller in a consumer sale (remember, a consumer sale is a sale of goods for private use or consumption and not in the course of a business.)

CONSUMER LAW

• Who is a consumer?

• A person who buys goods/services for personal use

• A consumer sale is defined as a sale where the goods are of a type ordinarily supplied for private use or consumption and the seller is selling in the course of a business and the buyer is not buying in the course of a business

• The normal rules of contract with respect to offer, acceptance, and consideration etc. Will still apply, but the law protects the interests of the consumer.

• Therefore, consumers’ rights and interests are protected by certain legislation, which aim to:

• Protect the consumer from (financial) exploitation from the seller (e.g., the seller may not be providing value for money); and

• Ensure that the goods and services being brought by the consumer meet certain conditions in respect of their quality and fitness for the purpose that they are intended to serve.

• Although there are three main statutory provisions governing consumer law –

• the Sale of Goods Act 1979 (as amended by the Sale of Goods Act 1995)

• the Supply of Goods and Services Act 1982; and

• the Consumer Protection Act 1987)

• we will only be focusing on the Sale of Goods Act 1979 (SGA 1979) and looking at the provisions of the Supply of Goods and Services Act 1982 on this course

THE SUPPLY OF GOODS AND SERVICES ACT 1982 (“SGSA 1982”)

• Where the contract is for the supply of goods and services, for example for the purchase of a Samsung 50” TV (the supply of goods) and installation (the supply of services). The Supply of Goods and Services Act 1982 will also protect the consumer, in addition to the implied terms of the SGA 1979

• Under section 13 of the Supply of Goods and Services Act 1982, a person who supplies a service in the course of a business impliedly undertakes to “carry out the service with reasonable care and skill”. Therefore, where a party fails to perform a contract with reasonable care and/or the necessary skill, there is a breach of contract

PREP.TASKS FOR SEMINAR 15

• Hand Out:

• Reading List:

• Jacqueline Martin, “GCSE Law”, 5th edition, chapter 32- Consumer Law

• List of Cases

• Preparatory Questions