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Commercial Law
Consumer Guarantees
Consumer Guarantees
• Consumer Guarantees are in Part 3-2 of the ACL.
• Consumer Guarantees only apply to consumers.
Note: definition of consumer: ACL s 3.
• We will examine the close relationship the
guarantees have with implied terms in the Sale of
Goods Act.
• Cannot remove consumer guarantees: ACL s 64.
• Term will be void if it cannot be severed: ACL s 4.
Guarantee as to fitness for any
disclosed purpose etc: ACL s 55
• (1) If: (a) a person (the supplier ) supplies, in
trade or commerce, goods to a consumer; and
• (b) the supply does not occur by way of sale
by auction;
• there is a guarantee that the goods are
reasonably fit for any disclosed purpose, and
for any purpose for which the supplier
represents that they are reasonably fit.
Disclosed purpose under s 55
• (2) A disclosed purpose is a particular purpose
(whether or not that purpose is a purpose for
which the goods are commonly supplied) for
which the goods are being acquired by the
consumer and that:
• (a) the consumer makes known, expressly or by
implication, to: (i) the supplier; or
• (ii) a third party (e.g. agent); or
• (b) the consumer makes known to the
manufacturer of the goods.
Guarantee – Description – ACL s 56
• Section 56 (1) states that if:
(a) a person supplies, in trade or commerce,
goods by description to a consumer; and
(b) the supply does not occur by way of sale
by auction;
• there is a guarantee that the goods
correspond with the description.
• Note: Corresponds in part with s 19(1).
Ashington Piggeries Ltd v Christopher
Hill Ltd [1972] AC 441; SGA s 19(1)
• The plaintiff was a compounder of animal
foodstuffs.
• The plaintiff contracted with the defendant, a
mink farmer, to compound and supply to him
certain mink food in accordance with a
formula supplied by the defendant.
• One of the ingredients in the formula was
herring meal which the plaintiff purchased
from a third party.
Ashington Piggeries
• [Majority judgments at 469, 485 494]
• (1) Where the buyer, expressly or by
implication, makes known to the seller the
particular purpose for which the goods are
required, so as to show that the buyer relies on
the seller's skill or judgment, and the goods are of
a description which it is in the course of the
seller's business to supply ... there is an implied
condition that the goods shall be reasonably fit
for such purpose.
Ashington Piggeries
• (2) Where goods are bought by description
from a seller who deals in goods of that
description ... there is an implied condition
that the goods shall be of merchantable
quality; provided that if the buyer has
examined the goods, there shall be no implied
condition as regards defects which such
examination ought to have revealed.
Ashington Piggeries
• Lord Diplock [504-505]: The only condition as
to "quality" which is to be implied under the
SGA is that the goods shall be of
"merchantable quality." This is likewise
concerned with use. Goods are of
merchantable quality if they are fit for use for
any purpose for which goods which
correspond with the description by which they
were sold would normally be used.
Ashington Piggeries
• ‘The dichotomy between the two sections is
thus between fitness for use for a "particular
purpose" and fitness for use for one of several
purposes corresponding with description. ‘
• ‘But if there is only one purpose for which
goods of that description would normally be
used, then one implied condition.
Guarantee – Acceptable Quality
• ACL s 54 deals with wording “Acceptable
Quality”.
• SGA s 19(2) deals with terminology of
“Merchantable quality”.
• Arguably a higher standard for acceptable
quality: Nesbit v Porter [2000] NZLR 465 [52].
• Merchantable quality cases may still assist to
some extent with application.
Reasonably fit for purpose - Crowther
v Shannon Motor Co
• [1975] 1 WLR 30.
• The issues were (1) whether the particular
purpose made known (2) does the buyer rely on
the seller’s skill or judgment? (3) Were the goods
of a description which is in the course of the
seller?
• Mr Crowther bought a jaguar car from the
defendant, inspected it, also passed a registry
test, after 2,354 miles the engine died and Mr C
had to replace it.
Crowther
• The car was second hand but it was reasonably
expected to last 100,000 miles, but it only last
80,000 after which the engine died after another
2,000 miles.
• Lord Denning MR: It has to be reasonably fit for
the particular purpose, in a reasonable condition,
at the time of sale. The fact that it is secondhand
and will not last long is a counter-factor. The facts
of each case needs to be determined and the
onus is on the buyer: (s 19(1)).
Sale by sample - Drummond
& Sons v Van Ingen& Co

• (1887) 12 App Cas 284
• That the bulk sale will correspond with the
sample in quality.
• That the buyer will have a reasonable
opportunity of comparing the bulk with the
sample.
• That the goods will be free from any defect
rendering them unmerchantable which would
not be apparent from reasonable examination of
the sample.
Merchantable Quality - David
Jones v Willis - (1934) 52 CLR 110
• Willis went to the shoe department of a retail
store and asked for a pair of comfortable walking
shoes.
• She was shown three pairs and purchased a
particular pair which she had tried on. On the
third occasion of wearing them, the heel of one
of the shoes came off and as a result Willis fell
and broke her leg.
• The evidence showed that the shoes were a “very
bad job” and that the heels had not been
properly fastened.
David Jones v Willis
• The High Court held that there was evidence that
the shoes had been bought by description, and
that there had been a breach of the implied
condition of merchantable quality.
• Starke J: The buyer has a right to expect, not a
perfect article, but an article which would be
saleable in the market, under that description.
• Goods are not of merchantable quality if, in the
form they are tendered, they are of no use for an
purpose for which such goods are normally used:
SGA s 19(2).
Fit for purpose – merchantable quality
– Grant v Australian Knitting Mills
• (1936) 54 CLR 49; [1936] AC 85
• Breaches of SGA s 19(1) and (2) pleaded.
• Grant purchased woollen underwear from
M, a retailer whose business it was to sell
goods of that description, and after wearing
the garments G developed an acute skin
disease.
• The Privy Council held that the goods were
not reasonably fit for proper use.
Grant v Australian Knitting Mills
• Dixon J (on appeal to the High Court of
Australia): Merchantable quality requires that
the goods be in such an actual state that a
buyer fully acquainted with the facts, and
knowing of any defects, would pay the price
based on their apparent condition if the good
were in reasonably sound order.
• Note SGA s 19(2) bears similarity to ACL s 54.
Grant v Australian Knitting Mills
• Lord Wright (on appeal to the Privy Council):
“A thing sold by description, though it is
specific, does not merely need to be described
as the thing. The description needs to be
corresponding.
Remedies
• Part 5-4 -- Remedies relating to guarantees
• 259 Action against suppliers of goods
– (1) A consumer may take action if:
(a) a person (the supplier ) supplies, in trade or
commerce, goods to the consumer; and
(b) a guarantee that applies to the supply under
Subdivision A of Division 1 of Part 3-2 (other than
sections 58 and 59(1)) is not complied with.
Where failure not major
• Section 259 (2) states that where a failure of a
guarantee can be remedied and is not a major
failure:
• (a) the consumer may require remedy by
supplier
• (b) if supplier refuses then consumer may:
• (i) have failure remedied elsewhere and supplier
pays costs.
• (ii) subject to section 262, notify the supplier of
rejection of the goods.
Where failure is major
• Section 259 (3) states that if the failure to
comply with the guarantee cannot be
remedied or is a major failure, the consumer
may:
(a) reject goods and give reason why, subject to
s 262 (where goods cannot be rejected); or
(b) recover a reduction in the price by way of
money compensation.
Scope and limitation
• Section 259 (4) allows for the consumer to
bring an action against the supplier, recover
damages for any loss or damage suffered
where it was reasonably foreseeable that such
loss or damage as a result of such a failure.
• Sub (5) states that Sub (4) does not apply if
the failure was cause of another person after
goods were shipped from supplier.
Further provisions of s 259
• Sub (6) clarifies that sub (4) applies in addition
to subs (2) and (3).
• This means that a consumer can claim for loss
suffered as well as repair or reject the goods.
• Sub (7) states that the consumer may take
action under this section whether or not the
goods are in their original packaging.
Where failure is major
• Section 260 provides for when a failure to
comply with a guarantee is a major failure
• A failure under the guarantees ss 51 – 56 as in
section 259(1)(b) is a major failure if:
• (a) the goods would not have been acquired
by a reasonable consumer fully acquainted
with the nature and extent of the failure; or
What is a major failure
• (b) the goods were not:
• (i) consistent with the description; or
• (ii) supplied in accordance with a sample or
demonstration model; or
• (c) substantially fit for a purpose for which
goods of the same kind are commonly
supplied, and not able to be remedied.
What is a major failure (cont.)
• (d) the goods are unfit for a disclosed purpose
that was made known to:
– (i) the supplier of the goods; or
– (ii) a person by whom any prior negotiations or
arrangements in relation to the acquisition of the
goods were conducted or made;

• and they cannot, easily and within a reasonable
time, be remedied to make them fit for such a
purpose; or
• (e) the goods are not of acceptable quality
because they are unsafe.
Suppliers may remedy failure
• Under Section 261 suppliers may remedy a
failure to comply with a guarantee.
• If, under section 259(2)(a), a consumer
requires a supplier of goods to remedy a
failure to comply with a guarantee referred to
in section 259(1)(b), the supplier may comply
with the requirement:
• (a) if the failure relates to title, by curing any
defect in title; or
Suppliers remedy of failure
• (b) if the failure does not relate to title, by
repairing the goods; or
• (c) by replacing the goods with goods of an
identical type; or
• (d) by refunding:
• (i) any money paid by the consumer for the
goods; and
• (ii) an amount equal in value to consideration.
Where rejection of goods not entitled
• Section 262 applies when consumers are not
entitled to reject goods
• (1) A consumer is not entitled, under section
259, to notify a supplier of goods that the
consumer rejects the goods if:
• (a) the rejection period for the goods has
ended; or
• (b) the goods have been lost, destroyed or
disposed of by the consumer; or
Where rejection not entitled
• (c) the goods were damaged after being
delivered to the consumer for reasons not
related to their state or condition at the time
of supply; or
• (d) the goods have been attached to, or
incorporated in, any real or personal property
and they cannot be detached or isolated
without damaging them.
Rejection period
• (2) The rejection period for goods is the
period from the time of the supply of the
goods to the consumer within which it would
be reasonable to expect the relevant failure to
comply with a guarantee referred to in section
259(1)(b) to become apparent having regard
to:
Factors for rejection period
• (a) the type of goods; and
• (b) the use to which a consumer is likely to
put them; and
• (c) the length of time for which it is
reasonable for them to be used; and
• (d) the amount of use to which it is
reasonable for them to be put before such a
failure becomes apparent.
Consequences of rejection
• Section 263 outlines consequences of
rejecting goods and applies wheresection 259
rejection occurs.
• (2) The consumer must return the goods to
the supplier unless:
• (a) the goods have already been returned to,
or retrieved by, the supplier; or
Removal at supplier’s expense
• Under Sub 2(b) where the goods cannot be
returned, removed or transported without
significant cost to the consumer because of:
• (i) the nature of the failure to comply with the
guarantee to which the rejection relates; or
• (ii) the size or height, or method of attachment,
of the goods.
• (3) If subsection (2)(b) applies, the supplier
must, within a reasonable time, collect the goods
at the supplier's expense.
Refund or replace goods
• (4) The supplier must, in accordance with an
election made by the consumer: (a) refund of
any money paid by the consumer for the
goods; andan amount that is equal to the
value of any other consideration provided by
the consumer for the goods; or
(b) replace the rejected goods with goods of the
same type, and of similar value, if such goods
are reasonably available to the supplier.
Effect of rejection
• (5) The supplier cannot satisfy subsection
(4)(a) by permitting the consumer to acquire
goods from the supplier.
• This means that the supplier cannot merely
impose a new product on the consumer if the
consumer elects to receive a refund where the
goods have been rejected.
Revesting of property
• (6) If the property in the rejected goods had
passed to the consumer before the rejection
was notified, the property in those goods
revests in the supplier on the notification of
the rejection.
• Property in the rejected goods vests in the
supplier once the rejection has occurred.
Replaced goods
• Section 264 states that if the goods are
replaced under section 261(c) or 263(4)(b):
• (a) the replacement goods are taken, for the
purposes of Division 1 of Part 3-2 and this
Part, to be supplied by the supplier; and
• (b) the provisions of Division 1 of Part 3-2 and
this Part apply in relation to the replacement
goods.

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Commercial Law - Consumer Guarantees

  • 2. Consumer Guarantees • Consumer Guarantees are in Part 3-2 of the ACL. • Consumer Guarantees only apply to consumers. Note: definition of consumer: ACL s 3. • We will examine the close relationship the guarantees have with implied terms in the Sale of Goods Act. • Cannot remove consumer guarantees: ACL s 64. • Term will be void if it cannot be severed: ACL s 4.
  • 3. Guarantee as to fitness for any disclosed purpose etc: ACL s 55 • (1) If: (a) a person (the supplier ) supplies, in trade or commerce, goods to a consumer; and • (b) the supply does not occur by way of sale by auction; • there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for which the supplier represents that they are reasonably fit.
  • 4. Disclosed purpose under s 55 • (2) A disclosed purpose is a particular purpose (whether or not that purpose is a purpose for which the goods are commonly supplied) for which the goods are being acquired by the consumer and that: • (a) the consumer makes known, expressly or by implication, to: (i) the supplier; or • (ii) a third party (e.g. agent); or • (b) the consumer makes known to the manufacturer of the goods.
  • 5. Guarantee – Description – ACL s 56 • Section 56 (1) states that if: (a) a person supplies, in trade or commerce, goods by description to a consumer; and (b) the supply does not occur by way of sale by auction; • there is a guarantee that the goods correspond with the description. • Note: Corresponds in part with s 19(1).
  • 6. Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441; SGA s 19(1) • The plaintiff was a compounder of animal foodstuffs. • The plaintiff contracted with the defendant, a mink farmer, to compound and supply to him certain mink food in accordance with a formula supplied by the defendant. • One of the ingredients in the formula was herring meal which the plaintiff purchased from a third party.
  • 7. Ashington Piggeries • [Majority judgments at 469, 485 494] • (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply ... there is an implied condition that the goods shall be reasonably fit for such purpose.
  • 8. Ashington Piggeries • (2) Where goods are bought by description from a seller who deals in goods of that description ... there is an implied condition that the goods shall be of merchantable quality; provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.
  • 9. Ashington Piggeries • Lord Diplock [504-505]: The only condition as to "quality" which is to be implied under the SGA is that the goods shall be of "merchantable quality." This is likewise concerned with use. Goods are of merchantable quality if they are fit for use for any purpose for which goods which correspond with the description by which they were sold would normally be used.
  • 10. Ashington Piggeries • ‘The dichotomy between the two sections is thus between fitness for use for a "particular purpose" and fitness for use for one of several purposes corresponding with description. ‘ • ‘But if there is only one purpose for which goods of that description would normally be used, then one implied condition.
  • 11. Guarantee – Acceptable Quality • ACL s 54 deals with wording “Acceptable Quality”. • SGA s 19(2) deals with terminology of “Merchantable quality”. • Arguably a higher standard for acceptable quality: Nesbit v Porter [2000] NZLR 465 [52]. • Merchantable quality cases may still assist to some extent with application.
  • 12. Reasonably fit for purpose - Crowther v Shannon Motor Co • [1975] 1 WLR 30. • The issues were (1) whether the particular purpose made known (2) does the buyer rely on the seller’s skill or judgment? (3) Were the goods of a description which is in the course of the seller? • Mr Crowther bought a jaguar car from the defendant, inspected it, also passed a registry test, after 2,354 miles the engine died and Mr C had to replace it.
  • 13. Crowther • The car was second hand but it was reasonably expected to last 100,000 miles, but it only last 80,000 after which the engine died after another 2,000 miles. • Lord Denning MR: It has to be reasonably fit for the particular purpose, in a reasonable condition, at the time of sale. The fact that it is secondhand and will not last long is a counter-factor. The facts of each case needs to be determined and the onus is on the buyer: (s 19(1)).
  • 14. Sale by sample - Drummond & Sons v Van Ingen& Co • (1887) 12 App Cas 284 • That the bulk sale will correspond with the sample in quality. • That the buyer will have a reasonable opportunity of comparing the bulk with the sample. • That the goods will be free from any defect rendering them unmerchantable which would not be apparent from reasonable examination of the sample.
  • 15. Merchantable Quality - David Jones v Willis - (1934) 52 CLR 110 • Willis went to the shoe department of a retail store and asked for a pair of comfortable walking shoes. • She was shown three pairs and purchased a particular pair which she had tried on. On the third occasion of wearing them, the heel of one of the shoes came off and as a result Willis fell and broke her leg. • The evidence showed that the shoes were a “very bad job” and that the heels had not been properly fastened.
  • 16. David Jones v Willis • The High Court held that there was evidence that the shoes had been bought by description, and that there had been a breach of the implied condition of merchantable quality. • Starke J: The buyer has a right to expect, not a perfect article, but an article which would be saleable in the market, under that description. • Goods are not of merchantable quality if, in the form they are tendered, they are of no use for an purpose for which such goods are normally used: SGA s 19(2).
  • 17. Fit for purpose – merchantable quality – Grant v Australian Knitting Mills • (1936) 54 CLR 49; [1936] AC 85 • Breaches of SGA s 19(1) and (2) pleaded. • Grant purchased woollen underwear from M, a retailer whose business it was to sell goods of that description, and after wearing the garments G developed an acute skin disease. • The Privy Council held that the goods were not reasonably fit for proper use.
  • 18. Grant v Australian Knitting Mills • Dixon J (on appeal to the High Court of Australia): Merchantable quality requires that the goods be in such an actual state that a buyer fully acquainted with the facts, and knowing of any defects, would pay the price based on their apparent condition if the good were in reasonably sound order. • Note SGA s 19(2) bears similarity to ACL s 54.
  • 19. Grant v Australian Knitting Mills • Lord Wright (on appeal to the Privy Council): “A thing sold by description, though it is specific, does not merely need to be described as the thing. The description needs to be corresponding.
  • 20. Remedies • Part 5-4 -- Remedies relating to guarantees • 259 Action against suppliers of goods – (1) A consumer may take action if: (a) a person (the supplier ) supplies, in trade or commerce, goods to the consumer; and (b) a guarantee that applies to the supply under Subdivision A of Division 1 of Part 3-2 (other than sections 58 and 59(1)) is not complied with.
  • 21. Where failure not major • Section 259 (2) states that where a failure of a guarantee can be remedied and is not a major failure: • (a) the consumer may require remedy by supplier • (b) if supplier refuses then consumer may: • (i) have failure remedied elsewhere and supplier pays costs. • (ii) subject to section 262, notify the supplier of rejection of the goods.
  • 22. Where failure is major • Section 259 (3) states that if the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may: (a) reject goods and give reason why, subject to s 262 (where goods cannot be rejected); or (b) recover a reduction in the price by way of money compensation.
  • 23. Scope and limitation • Section 259 (4) allows for the consumer to bring an action against the supplier, recover damages for any loss or damage suffered where it was reasonably foreseeable that such loss or damage as a result of such a failure. • Sub (5) states that Sub (4) does not apply if the failure was cause of another person after goods were shipped from supplier.
  • 24. Further provisions of s 259 • Sub (6) clarifies that sub (4) applies in addition to subs (2) and (3). • This means that a consumer can claim for loss suffered as well as repair or reject the goods. • Sub (7) states that the consumer may take action under this section whether or not the goods are in their original packaging.
  • 25. Where failure is major • Section 260 provides for when a failure to comply with a guarantee is a major failure • A failure under the guarantees ss 51 – 56 as in section 259(1)(b) is a major failure if: • (a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or
  • 26. What is a major failure • (b) the goods were not: • (i) consistent with the description; or • (ii) supplied in accordance with a sample or demonstration model; or • (c) substantially fit for a purpose for which goods of the same kind are commonly supplied, and not able to be remedied.
  • 27. What is a major failure (cont.) • (d) the goods are unfit for a disclosed purpose that was made known to: – (i) the supplier of the goods; or – (ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made; • and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or • (e) the goods are not of acceptable quality because they are unsafe.
  • 28. Suppliers may remedy failure • Under Section 261 suppliers may remedy a failure to comply with a guarantee. • If, under section 259(2)(a), a consumer requires a supplier of goods to remedy a failure to comply with a guarantee referred to in section 259(1)(b), the supplier may comply with the requirement: • (a) if the failure relates to title, by curing any defect in title; or
  • 29. Suppliers remedy of failure • (b) if the failure does not relate to title, by repairing the goods; or • (c) by replacing the goods with goods of an identical type; or • (d) by refunding: • (i) any money paid by the consumer for the goods; and • (ii) an amount equal in value to consideration.
  • 30. Where rejection of goods not entitled • Section 262 applies when consumers are not entitled to reject goods • (1) A consumer is not entitled, under section 259, to notify a supplier of goods that the consumer rejects the goods if: • (a) the rejection period for the goods has ended; or • (b) the goods have been lost, destroyed or disposed of by the consumer; or
  • 31. Where rejection not entitled • (c) the goods were damaged after being delivered to the consumer for reasons not related to their state or condition at the time of supply; or • (d) the goods have been attached to, or incorporated in, any real or personal property and they cannot be detached or isolated without damaging them.
  • 32. Rejection period • (2) The rejection period for goods is the period from the time of the supply of the goods to the consumer within which it would be reasonable to expect the relevant failure to comply with a guarantee referred to in section 259(1)(b) to become apparent having regard to:
  • 33. Factors for rejection period • (a) the type of goods; and • (b) the use to which a consumer is likely to put them; and • (c) the length of time for which it is reasonable for them to be used; and • (d) the amount of use to which it is reasonable for them to be put before such a failure becomes apparent.
  • 34. Consequences of rejection • Section 263 outlines consequences of rejecting goods and applies wheresection 259 rejection occurs. • (2) The consumer must return the goods to the supplier unless: • (a) the goods have already been returned to, or retrieved by, the supplier; or
  • 35. Removal at supplier’s expense • Under Sub 2(b) where the goods cannot be returned, removed or transported without significant cost to the consumer because of: • (i) the nature of the failure to comply with the guarantee to which the rejection relates; or • (ii) the size or height, or method of attachment, of the goods. • (3) If subsection (2)(b) applies, the supplier must, within a reasonable time, collect the goods at the supplier's expense.
  • 36. Refund or replace goods • (4) The supplier must, in accordance with an election made by the consumer: (a) refund of any money paid by the consumer for the goods; andan amount that is equal to the value of any other consideration provided by the consumer for the goods; or (b) replace the rejected goods with goods of the same type, and of similar value, if such goods are reasonably available to the supplier.
  • 37. Effect of rejection • (5) The supplier cannot satisfy subsection (4)(a) by permitting the consumer to acquire goods from the supplier. • This means that the supplier cannot merely impose a new product on the consumer if the consumer elects to receive a refund where the goods have been rejected.
  • 38. Revesting of property • (6) If the property in the rejected goods had passed to the consumer before the rejection was notified, the property in those goods revests in the supplier on the notification of the rejection. • Property in the rejected goods vests in the supplier once the rejection has occurred.
  • 39. Replaced goods • Section 264 states that if the goods are replaced under section 261(c) or 263(4)(b): • (a) the replacement goods are taken, for the purposes of Division 1 of Part 3-2 and this Part, to be supplied by the supplier; and • (b) the provisions of Division 1 of Part 3-2 and this Part apply in relation to the replacement goods.