The Law Commission REPORT ON A REFERENCE UNDER SECTION 3(l)(e) OF THE LAW COMMISSIONS ACT 1965 and The Scottish Law Commission (LAW COM. No. 160) (SCOT. LAW COM. No. 104) SALE AND SUPPLY OF GOODS Presented to Parliament by the Lord High Chancellor and the Lord Advocate by Command of Her Majesty May 1987 LONDON HER MAJESTY’S STATIONERY OFFICE f9.20 net Cmnd. 137 - The Law Commission and the Scottish Law Commission were set up by the Law Commis- sions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are- The Honourable Mr. Justice Beldam, Chairman Mr. Trevor M. Aldridge Mr. Brian J. Davenport, Q.C. Professor Julian Farrand Professor Brenda Hoggett J The Secretary of the Law Commission is Mr. J.G.H. Gasson and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London, WClN 2BQ. The Scottish Law Commissioners are- The Honourable Lord Maxwell, Chairman Dr. E.M. Clive Professor Philip N. Love, C.B.E. Mr. J. Murray, Q.C. Sheriff C.G.B. Nicholson, Q.C. The Secretary of the Scottish Law Commission is Mr. R. Eadie and its offices are at 140 Causewayside, Edinburgh, EH9 1PR. .* 11 Summary In this joint Report the Law Commission and the Scottish Law Commission examine the statutory implied terms in contracts for the sale of goods, remedies for breach of those terms and the loss of the right to reject non-conforming goods. They propose that the implied term as to merchantable quality should be reformulated so as to make it clear that it applies to minor defects and covers the durability of the goods. Theypropose no change in the consumer customer’s absolute right to reject non-conforming goods and propose a minor modification of the non-consumer’s right. Similar changes are recommended for other contracts for the supply of goods. In relation to contracts for the sale of goods, a right of partial rejection is recommended, as is clarification of the circumstances in which the right to reject is lost. However, no major change in the law relating to the right to reject is recommended. The use of the terminology of conditions and warranties in the Sale of Goods Act 1979and related legislation is inappropriate for Scots law and changes are recommended to rectify this. The Scottish Law Commission also recommends that provision equivalent to Part I of the Supply of Goods and Services Act 1982 should be made for Scotland. The Report contains a draft Bill to give effect to the recommendations. ... A* 111 i SALE AND SUPPLY OF GOODS CONTENTS Paragraph Page PART 1: INTRODUCTION 1.1 1 PART 2: ASSESSMENT OF THE PRESENT LAW 2.1 6 A. Introduction 2.1 6 B. The implied terms as to quality and fitness for purpose 2.5 6 1. The statutory implied term as to merchantable quality 2.5 6 2. The statutory implied term of fitnessfor a particular pur- pose 2.17 11 3. The implied terms in Scots common law 2.20 12 C. Remedies for breach of the implied terms 2.21 12 1. Introduction 2.21 12 2. Sale of goods 2.22 12 (a) The buyer’s remedies in English law: conditions and warranties 2.23 13 (b) Scots law 2.27 14 (i) Need for separate treatment of Scottish position 2.27 14 (ii) Buyer’s remedies in sale of goods 2.28 14 3. Other contracts for the supply of goods 2.32 15 (a) Remedies of the customer: English law 2.32 15 (b) Remedies of the customer: Scots law 2.35 16 D. The loss of the right to return the goods and terminate the contract 2.40 17 1. Sale of goods 2.40 17 (a) Introduction 2.40 17 (b) The buyer’s reasonable opportunity to examine the goods 2.42 18 (c) What constitutes acceptance? 2.44 18 (i) Intimation of acceptance 2.45 18 - (ii) Acts “inconsistent with the ownership of the seller” 2.46 19 (iii) Lapse of time 2.48 19 2. Other contracts for the supply of goods 2.50 20 (a) English law: affirmation 2.50 20 (b) Scots law: personal bar 2.53 21 PART 3: RECOMMENDATIONS ON THE IMPLIED TERM AS TO QUALITY 3.1 22 A. Contracts of sale 3.1 22 1. Introduction 3.1 22 2. Should the implied term as to quality be altered at all? 3.4 22 3. In what way should the implied term be re-defined? 3.7 23 (a) The function of the implied term 3.7 23 (b) Formulation of the implied term 3.13 24 (i) The first element: the basic principle 3.13 24 - (ii) The second element: the list of aspects of quality 3.28 27 iv Paragraph Page Fitness for purpose 3.31 27 State or condition 3.37 29 Appearance, finish, and freedom from minor defects 3.38 29 Safety 3.44 30 Durability 3.47 31 Suitability for immediate use 3.62 33 Spare parts and servicing facilities 3.66 34 B. Other contracts for the supply of goods 3.67 34 PART 4: RECOMMENDATIONS ON REMEDIES 4.1 36 A. Sale of goods 4.1 36 1. Consumers and non-consumers 4.1 36 2. Policy for consumers 4.9 38 3. Policy for non-consumers 4.16 40 4. Summary of principal recommendation 4.25 42 5. Relationship between consumer and non-consumer transactions 4.26 43 B. Other contracts for the-supply of goods 4.31 43 PART 5: RECOMMENDATIONS ON LOSS OF THE RIGHT TO REJECT THE GOODS AND TERMINATE THE CONTRACT 5.1 45 A. Sale of Goods 5.1 45 1. Introduction 5.1 45 2. Should there be a long-term right to reject in contracts of sale? 5.6 46 3. Fixed period for rejection and the length of a “reasonable time” 5.14 47 4. Proposed alterations to the existing rules on loss of the right to reject 5.20 49 (a) Intimation of acceptance and the right to examine 5.20 49 (b) Buyer seeking cure of defective goods 5.26 50 (i) Inconsistent act or intimation of acceptance 5.27 50 (ii) Lapse of a reasonable time 5.30 51 (c) An act inconsistent with the ownership of the seller 5.32 51 5. Matters raised in the Consultative Document but upon which we do not now make recommendations 5.39 52 (a) Damaged or destroyed goods 5.39 52 (b) History of defects in goods 5.41 53 B. Contracts of supply other than sale 5.43 53 1. Hire-purchase and conditional sale agreements 5.43 53 2. Other contracts of supply 5.47 54 PART 6: MISCELLANEOUS MATTERS 6.1 56 A. Remedies for breach of the implied terms as to title, encum- brances and quiet possession in contracts for the sale and supply of goods 6.1 56 B. Partial rejection 6.6 58 1. General proposal 6.6 58 2. The commercial unit 6.12 59 3. Instalment and severable contracts 6.14 59 V .. Paragraph Page C. Remedies for delivery of the wrong quantity 6.17 60 D. Sales by sample 6.24 62 PART 7: STATUTORYIMPLIED TERMS IN CONTRACTS FOR THE SUPPLY OF GOODS: SCOTLAND 7.1 64 I PART 8: SUMMARY OF RECOMMENDATIONS 8.1 66 Appendix A: Draft Sale and Supply of Goods Bill with Explanatory Notes 69 AppendixB: Text of sections ll-15B, 30,3435A and 53Aof the Sale of Goods Act 1979 as they would be after amendment by the Draft Sale and Supply of Goods Bill 118 Appendix C: List of persons and organisations who submitted com- ments on Working Paper No. 85/Consultative Memo- randum No. 58 124 I x vi . THE LAW COMMISSION AND THE SCOTTISH LAW COMMISSION (Report on a reference to the Law Commission under section 3(l)(e) of the Law Commissions Act 1965) (Item 2 of the First Programme of the Scottish Law Commission) SALE AND SUPPLY OF GOODS To the Right Honourable the Lord Hailsham of St. Marylebone, C.H., Lord High Chancellor of Great Britain, and the Right Honourable the Lord Cameron of Lochbroom, Q.C., Her Majesty’s Advocate PART 1 INTRODUCTION Terms of reference 1.1 On25January 1979,in exerciseof powers under section 3(l)(e)of the Law Commissions Act 1965, the Lord Chancellor asked the Law Commission to consider: “(a) whether the undertakings as to the quality and fitness of goods implied under the law relating to sale of goods, hire-purchase and other contracts for the supply of goods require amendment; (b) the circumstances in which a person, to whom goods are supplied under a contract of sale, hire-purchase or other contract for the supply of goods, is entitled, where there has been a breach by the supplier of a term implied by statute, to (i) reject the goods and treat the contract as repudiated; (ii) claim against the supplier a diminution or extinction of the price; (iii) claim damages against the supplier; (c) the circumstances in which, by reason of the Sale of Goods Act 1893, a buyer loses the right to reject the goods; and to make recommendations.” 1.2 Item 2 of the First Programme of Reform of the Scottish Law Commission, which was approved on 21 October 1965, refers to obligations. Accordingly it has not been necessary for the Scottish Law Cornmission to have a special reference to cover the matters under discussion in this Report.