Goods: statutory guarantees in consumer contracts

The principles of protection in relation to goods provided by the ACL are:

  • that the seller has good title to the goods the subject of the sale (s51);
  • that the buyer will have undisturbed possession (s52);
  • that the goods are free from any security, charge or encumbrance (s53);
  • that the goods are of acceptable quality unless bought at auction (s54);
  • that the goods are fit for the purpose for which they are purchased unless bought at auction (s55);
  • that the goods bought or hired on the strength of a description conform to that description unless bought at auction (s56);
  • that, where sale is by sample or demonstration model, the goods correspond with the sample or demonstration model unless bought at auction (s57);
  • a guarantee that the manufacturer of the goods will take reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available for a reasonable period after the goods are supplied unless the goods were bought at auction (s58);
  • a guarantee that the manufacturer or supplier of the goods will comply with any express warranty given or made by the manufacturer or supplier in relation to the goods (s59).

What goods are covered by the ACL?

In the ACL, ‘goods’ has the meaning normally attributed to that word including second-hand goods, including used cars, and also includes items such as vehicles, animals and computer software (s2) but not, for the purpose of consumer guarantees, gas or electricity (s65). The definition of goods includes, but is not limited to:

  • ships, aircraft and other vehicles; and
  • animals, including fish; and
  • minerals, trees and crops, whether on, under or attached to land or not; and
  • computer software; and
  • second-hand goods; and
  • any component part of, or accessory to, goods. (s 2, ACL)

What if the seller does not have the right to sell goods?

It can happen in consumer transactions that the owner of the goods agrees to sell them (or agrees that at some future time to sell them, as occurs in hire-purchase transactions) but in fact does not have the right to do so, that is, does not have title to the goods.

Where another person has a right to the goods and the seller neglects to tell the buyer, the seller will be in breach of contract.

For example, this often occurs in the sale of second-hand motor cars, when it may turn out that the person selling, or purporting to sell, the car does not have the right to do so. When the true owner comes along to claim the car, the consumer will lose it. The ACL section 51 makes it a condition of all contracts of sale, or agreements to sell on hire purchase, that the person supplying the goods under the contract has the right to sell. This does not necessarily mean that the consumer will be able to retain the goods, but it does mean that if the supplier does not own the goods and as a result of this the consumer loses what has been bought, the consumer will be able to sue the supplier for any loss suffered as a result (usually the purchase price plus any other damage suffered).

Undisturbed possession

The ACL section 52 guarantees that the buyer will enjoy undisturbed possession of the goods. This would be so even if the goods were leased or bought on hire purchase and title remained in the supplier.

Free from any security, charge or encumbrance

The ACL section 53 guarantees that the goods are free from any security, charge or encumbrance unless the supplier has disclosed a security, charge or encumbrance or it has been created with the consumer’s consent.

Goods must be of acceptable quality (merchantable quality)

Where a person supplies goods to a consumer in the course of business, there is an implied condition that the goods supplied are of acceptable quality (s54). This means that the goods must be as:

(a) fit for all the purposes for which goods of that kind are commonly supplied; and
(b) acceptable in appearance and finish; and
(c) free from defects; and
(d) safe; and
(e) durable;

as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the following:

(a) the nature of the goods; and
(b) the price of the goods (if relevant); and
(c) any statements made about the goods on any packaging or label on the goods; and
(d) any representation made about the goods by the supplier or manufacturer of the goods; and
(e) any other relevant circumstances relating to the supply of the goods.

These criteria provide a flexible test that caters for different circumstances. Second-hand goods, for example, cannot be expected to be in the same condition as one would expect for brand new goods.

One question to ask is whether a reasonable person who wanted goods of that type would be prepared to accept the goods in that condition. It will not always be sufficient that the goods are fit to perform the purpose for which goods of that sort are normally used. For instance, if a consumer purchases a new car and the car arrives with scratched paintwork, then a reasonable person would not accept the car. The car is therefore not of acceptable quality, even though it is fit for the purpose for which cars are used.

The guarantee of acceptable quality will not apply in the following situations:

  • where defects in the goods have specifically been drawn to the consumer's attention before a contract is made; or
  • if the consumer examined the goods before the contract was made, and a reasonable examination ought to reveal that they were not of acceptable quality; or
  • the goods were bought at auction.

Goods must be fit for a particular purpose (unfit for purpose issues)

Where the seller is made aware by the consumer of the purpose for which goods are required or the seller represents that the goods are reasonably fit for a particular purpose, then the goods must be reasonably fit for that purpose (s55). This applies whether or not the goods are commonly supplied for that purpose. This guarantee does not apply where the consumer has not relied on the skill and judgment of the person selling the goods or where it would be unreasonable to do so. Nor does it apply if the goods are bought at auction.

For people purchasing goods from a seller in the course of the seller's business, the purchaser must show that:

  • the particular purpose for which the goods are required was made known to the supplier, either expressly or by implication, or the supplier volunteered that the goods were suitable for a particular purpose; and
  • the purpose was made known to the supplier in such a way as to show that the supplier’s skill and judgment was relied upon.

Although at first sight these requirements appear rather onerous, the courts have taken a liberal approach which is favourable to consumers. In the case of goods which only have one particular purpose, requirement (1) will be satisfied by merely placing an order for the goods.

In consumer cases, requirement (2) will be satisfied, for example, by the fact that the consumer went into the supplier’s shop. In effect the consumer is said to rely on the seller's skill in selecting the goods.

Sale by description (goods as described)

The ACL provides that where a person, in the course of a business, supplies goods to a consumer by description (other than at an auction) there is an implied condition that the goods correspond with the description (s56).

Many consumer transactions are by description, that is, the consumer does not actually see the goods being purchased. This may occur in two ways:

  • goods are ordered from a distance, for example, by telephone, without ever seeing them; or
  • more commonly, a consumer may, for instance, ask for a tin of fine-ground coffee, or select a tin labelled fine-ground coffee from a supermarket shelf.

Both of these are sales by description. In the latter case it can be argued that the consumer relies on the description on the label (compared with the situation where the tin is opened and the contents examined). If the tin does not contain fine-ground coffee then the consumer may take advantage of the protection offered by the ACL. Note that section 56(2) provides that supply of goods is not prevented from being supply by description merely because a consumer selects goods exposed for sale or hire.

If the sale is by reference to a sample as well as by description, then it is not sufficient that the goods correspond to the sample if they do not also correspond with the description (s56(3)).

Protections when goods are bought by sample

A few consumer transactions are of the type where the consumer buys by reference to a sample of the goods or a demonstration model. For example, a consumer may buy carpet by reference to a sample shown in a samples book. In this case, the ACL section 57 provides that where this is done in the course of the seller's business (other than by auction) it is a condition of the contract that

  • the bulk of the goods will correspond with the sample in quality;
  • the consumer will have a reasonable opportunity of comparing the bulk with the sample; and
  • the goods will be free from any defects rendering them unacceptable that would not be apparent on a reasonable examination of the sample.

In the example given, if the sample of the carpet shown to the consumer was a pure wool carpet and the bulk of the carpet delivered to the consumer turned out to be a blend of wool and synthetic, the consumer will be entitled to reject the carpet delivered.

It is most important that the consumer reject the goods as soon as the defect is discovered and preferably not accept the goods at all. If the goods are accepted, the right to terminate the contract may be lost, and the consumer will be forced to rely on a remedy for damages. This of course may not be satisfactory because the court will award damages on the basis of the difference between the price of, in this example, a wool carpet and the carpet of wool and synthetic material. A consumer who does not wish to accept a wool and synthetic carpet under any circumstances but nonetheless accepts delivery of the goods may have to accept the carpet and be content with what can be gained by way of damages.

Repairs and spare parts

Section 58 guarantees that the manufacturer will take reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available. This guarantee is given by the retailer in the usual case. It is difficult to know what action can be taken against the retailer if this guarantee is not honoured, apart from suing the retailer for damages. An action for damages can also be brought against the manufacturer (s271(5)) but often this is not practical.

Express warranties

Under section 59 of the ACL any express warranties given by the retailer or the manufacturer must be honoured. This applies to, for example, the 12-month warranty. That must be honoured but it is in addition to the rights provided by the ACL. It is not a substitution for those rights.

The same applies to an extended warranty that is purchased by the consumer.

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