MERCHANTABLE QUALITY AND THE RIGHT TO REJECT

Transcription

1 Page 1 Malayan Law Journal Articles/1992/Volume 1/MERCHANTABLE QUALITY AND THE RIGHT TO REJECT [1992] 1 MLJ clxxii Malayan Law Journal Articles 1992 MERCHANTABLE QUALITY AND THE RIGHT TO REJECT Abu Bakar Munir DPA (ITM), LLB (Hons)(Mal), LLM (Warwick); Lecturer in Law, School of Administration and Law, Institut Teknologi Mara Introduction Section 16(1)(b) of the Malaysian Sale of Goods Act 1957 reads: Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not) there is an implied condition that the goods shall be of merchantable quality. Under s 12(2) of the Act, a condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. The combined effect of these sections 1 is that it gives the buyer the right to reject the goods for the breach of condition. However, problems arose in deciding the merchantability of the goods. The question is what is meant by the words 'merchantable quality'? Next, when do the goods have to be of merchantability? It is admitted by Benjamin 2 that the words have occasioned much litigation and uncertainty which probably discouraged buyers from relying on the merchantable quality. This article will focus on these problems. The meaning of merchantable quality Before the right to reject can be exercised it is very important to know what is meant by merchantable quality or merchantability. Though merchantability, as admitted by Lord Roskill, 3 is a question of fact, in answering that question, the tribunal of fact must be sure that it is applying its mind to the correct meaning of that word. The interesting point to mention is that the word itself is nowhere defined in the Malaysian Sale of Goods Act 1957 or the English Sale of Goods Act However, the English Supply of Goods (Implied Terms) Act 1973 introduced a definition of merchantable quality based on the recommendations of the Law Commission 4 and to a large extent consolidates and states the result of a body of case law doctrine. 5 Before the existence of the statutory definition, Lord Roskill has observed that 'the complications regarding the meaning of the word have arisen since They would seem to have arisen because of the gloss that lawyers in this country repeatedly sought to impose on this single and simple word by seeking to redefine it by the use of phrases which, as the cases show, raise as many if not more problems than they solve'. 6 Together with Lord Denning, he agreed that several definitions have been given by judges. From all the cases, the Law Commission established in 1979 noted that two main approaches had developed to the question of what was meant by merchantable quality. 7 The 'acceptability test' was derived from the statement of Dixon J in Australian Knitting Mills v Grant 8 and the 'usability test' was set out by Lord Reid in Kendall & Sons v Lillico & Sons Ltd. 9 The distinction between the two tests, however, was not clear cut, both test being referred to with approval in several judgments. 10 Lord Denning, 11 Lord Reid and Lord Morris preferred the usability test, and on the other hand, Lord Guest, Lord Pearce and Lord Wilberforce preferred the acceptability test. 12 Lord Salmon, however, was of the opinion that there was nothing between the two tests other than semantics. 13 Lord Denning having preferred the usability test, however, pointed out that the test needed some expansion:

2 Page 2 In the Cammell Laird case, Lord Wright said that the goods were unmerchantable if they were 'of no use' for any purpose for which such goods would normally be used. In the Grant case he said that merchantable meant that the article, if only meant for one particular use in the ordinary course, is 'fit for that use'. It seems to me that those two tests do not cover the whole ground. There is a considerable territory where on the one hand you cannot say that the article is 'of no use' at all, and on the other hand you cannot say that it is entirely 'fit for use'. The article may be of some use though not entirely efficient use for the purpose. It may not be in perfect condition but yet it is in usable condition. It is then, I think, merchantable. Lord Guest, 14 on the other hand, using the acceptability test, criticized the usability test, stated 'the test put forward by Lord Wright may be one factor or one guide in the determination of merchantability but it cannot be the determining factor since purpose is not the sole test of merchantability and the test omits all reference to price'. He went on to say that if the test of unmerchantability is that the article is fit for no use, few goods would be unmerchantable because use can always be found for goods at price. Under the 'acceptability' test it was necessary to ask whether a reasonable buyer, fully acquainted with the condition of the goods, would have bought them without a substantial reduction of price. And under the 'usability' test the goods were merchantable so long as they could be used for at least one purpose to which a reasonable man would put the goods. 15 Section 14(6) of the English Sale of Goods Act 1979 provides the statutory definition of merchantable quality and reads: Goods of any kind are of merchantable quality within the meaning of subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all other relevant circumstances. This definition, according to Professor Atiyah marries the two tests and stated that although perhaps placing more emphasis on usability, the degree of usability required is what is reasonable to expect which is a little like the old 'acceptability' test. 16 John Livermore, 17 however, suggested that the definition must be considered with the cautionary words of Lord Reid in Brown v Craiks: 18 Judicial observations can never be regarded as complete definitions, they must be read in the light of the facts and issues raised in the particular case. I do not think that it is possible to frame, except in the vaguest terms, a definition of 'merchantable quality' which can apply to every kind of case. This passage was cited with approval by Lord Denning in Cehave's case. Lord Denning, however, admitted, 'For myself, I think the definition in the latest Act is the best that has yet been devised.' He also gave the test in determining merchantability of the goods:...i should have thought a fair way of testing merchantability would be to ask a commercial man: was the breach such that the buyer should be able to reject the goods? In answering the question the commercial man would have regard to the various matters mentioned in the definition. He would, of course, have regard to the purpose for which goods of that kind are commonly bought. Whatever has been said about the definition surely can assist the courts in England as well as in Malaysia. The statement of Lord Denning would provide further assistance in determining the merchantability of goods. The definition in action The opportunity to apply the statutory definition arose in Bernstein v Pamson Motors (Golders Green) Ltd. 19 Here, the plaintiff bought a new Nissan car for just under 8,000 sterling pounds. He drove it for about three weeks. When the car had done about 140 miles, it broke down on a motorway. The car would not restart and had to be collected by the emergency services. The following day the plaintiff advised the defendants in writing that he regarded the car as not being of merchantable quality and that he was rejecting it. Later that month the car was repaired under the manufacturers' warranty at no cost to the plaintiff. After the repair the

3 Page 3 car was as good as new, but the plaintiff still refused to have it back. The cause of the defect was that a piece of sealant had entered the lubrication system and cut off the oil supply to the camshaft, which then seized up. The court, in this case, was told that the practical application of the concept of merchantable quality is giving a certain amount of trouble to those engaged in the motor trading world. The court was asked to give some more specific guidance and definition as to what makes a motor car merchantable. Rougier J responded and stated, 'I very much doubt whether any all-embracing definition of a car of merchantable quality could ever be made'. He was of the opinion that the 1979 Act gives a definition which is deliberately left in the widest possible terms in order to cater for the great variety of situations which may occur. After citing the statutory definition he went on to say that any attempt to forge some exhaustive, positive and specific definition of such a term, applicable in all cases, would soon be put to mockery by some undreamt-of set of circumstances. The learned judge admitted that it is not possible to define the merchantability of a motor car in positive terms. However, he suggested that the difficulty can be overcome by making some sort of analysis of factors which may make a car unmerchantable. The court held that in determining whether any particular defect or feature rendered a new car unmerchantable, the court had to consider (1) whether the car was capable of being driven in safety, (2) the ease or otherwise with which the defect could be remedied, (3) whether the defect was of such a kind that it was capable of being satisfactorily repaired so as to produce a result as good as new, (4) whether there was a succession of minor defects and (5) in appropriate cases, any cosmetic factors. After considering these factors, Rougier J said: In my judgment a defect of this kind, leading to this result, even though repairable, goes far beyond that which a buyer must accept... it is not reasonable for the buyer of a new car of this type and price to expect to sustain a major breakdown in the first 150 miles. Consequently, I find that, at the delivery of this car to the plaintiff, it was not of merchantable quality. In the most recent painting case of Harlingdon & Leinster Enterprise Ltd v Christopher Hull Fine Art Ltd, 20 the Court of Appeal was given an opportunity to make a ruling on the statutory definition. Hull sold Leinster a painting. A four-year-old auction catalogue described the painting as having on the back a label with the stamp of the estate of Gabriele Munter. Mr Hull phoned Leinster and told one of the owners that he had two paintings by Gabriele Munter to sell. A Leinster's employee then came to see the paintings and was told by Mr Hull that he knew nothing of the paintings and did not think much of them. The paintings were of the German Expressionist School and Mr Hull specialized in young contemporary British artists but Leinster were specialists in the German Expressionists. The employee agreed to buy a painting for 6,000 sterling pounds if he could find a buyer. This he did and the transaction was completed. The eventual purchaser sent the painting for examination and was told it was a forgery. The buyer then sought repayment of the purchase price, claiming that the contract was for sale of goods by description and could therefore be avoided on the grounds of misdirection or because the painting was not of merchantable quality under s 14(6). Nourse LJ, in deciding the claim under ss 14(2) and (6), stated that there was an implied condition that the painting should be of merchantable quality. He seems to agree with the plaintiff's argument that the purpose for which a painting is commonly bought by one dealer from another is for resale. But he stated that the purpose or purposes contemplated by s 14(6) are either resale alone or resale and aesthetic appreciation. He agreed with the trial judge that the painting was of merchantable quality. The painting was held to be fit for either purpose. The fitness for resale cannot depend on whether they can or cannot be resold without making a loss. As for the aesthetic appreciation the judge stated that it could still have been hung on the wall somewhere and enjoyed for what it was. Durability The right to reject must be exercised within a reasonable time. This is because under ss 24 and 42 of the Malaysian Sale of Goods Act 21 if the buyer retains the goods after the lapse of a reasonable time without intimating to the seller that he has rejected them, he is deemed to have accepted the goods. This will, of course, depend on when the defect manifests itself and comes to the knowledge of the buyer. It leads to the

4 Page 4 issue of when the goods have to be merchantable. Is there a continuing obligation of merchantable quality and if so for how long? 22 In this respect, the House of Lords in Lambert v Lewis 23 held that the implied condition under s 14(3) of reasonable fitness for purpose is a continuing warranty that the goods will continue to be fit for a reasonable time. Professor Atiyah has no doubt that though these above cases referred to fitness for purpose the principle can be applied to merchantable quality. 24 What is reasonable time, as accepted by the courts will depend on the nature of the goods. It has been stated in Bernstein's case that what is a reasonable time in relation to a bicycle would hardly suffice for a nuclear submarine. In this case the court has also to consider whether the plaintiff has lost his right to reject the car. Rougier J seems to agree with the submission of the defendants that in the context of the sale of a new motor car a reasonable time must entail a reasonable time to inspect and try out the car generally. The court held that since the plaintiff had driven about 140 miles and had had the car for three weeks, he had had a reasonable time to examine and try out the car and he had therefore lost the right to reject it. The Bernstein case demonstrates that, in practice, the right to reject is lost very quickly. 25 Three weeks is a short period of time and it may therefore be a matter of luck, or perhaps fate, that the right to reject would be intact if the defect manifests itself at an earlier point than three weeks A quite similar provision exists in ss 14(2) and 11(3) of the English Sale of Goods Act Benjamin's Sale of Goods (7th Ed) at p In Cehave NV v Bremer Handelsgesellschaft mbh [1975] 3 All ER 739 at p PS Atiyah The Sale of Goods (7th Ed) at p Benjamin, supra n 2. 6 Supra n 3. 7 See John Livermore, 'Merchantable Quality-I' [1985] JBL [1936] AC [1969] 2 AC Supra n In Bartlett v Sidney Marcus Ltd [1965] WLR In Kendall's case, supra n In Bartlett's case, supra n In Kendall's case, supra n 9 at p Supra n 4 at p Supra n In his article 'Merchantable Quality-II' [1985] JBL [1970] 1 All ER [1987] 2 All ER [1990] 1 All ER 737.

5 Page 5 21 A similar provision exist in s 35 of the English Sale of Goods Act. 22 K Brinkworth, 'Merchantable quality: Some Weaknesses' [1988] Business Law Review [1982] AC Supra n Philip Circus, 'Sale of Goods Law and The Right to Reject' [1990] Business Law Review Supra n 22.