Having determined the circumstances under which the implied terms of the Sale of Goods Act may come into question, it is now time to examine what terms may actually be implied.

Before examining what terms may be implied by statute, these implied terms must be seen in their context. First, the various implied terms are frequently pleaded together in the alternative. Further, in making a claim, a plaintiff can, of course, rely on the express terms of the contract in addition to the terms that are implied by statute. Furthermore, it is not unusual for a plaintiff to take action based on the implied terms combined with an action in torts, such as negligence. In Grant v Australian Knitting Mills,^[1] for example, the plaintiff sued the seller of the faulty goods based on implied terms, while he sued the manufacturer of the faulty goods based on the tort of negligence.

2.5.2.1 Implied conditions and warranties as to title

SGA s. 15(a) states that, within its respective scope, there is an implied condition on the part of the seller that, in the case of a sale, the seller has a right to sell the goods. Further, those provisions also make clear that, in the case of an agreement to sell, there is an implied condition that the seller will have a right to sell the goods at the time when the property is to pass.

The application of the implied condition as to title is exemplified in Rowland v Divall.^[2] Rowland, a car dealer bought a car from Divall and later re-sold it to a third party. When it became clear that the person who sold the car to Divall had in fact stolen the car, Rowland refunded the third party who had bought the car. To avoid the loss, Rowland then sought to recover the loss from Divall (based on total failure of consideration). Lord Justice Scrutton noted that:

“No doubt the general rule is that a buyer cannot rescind a contract of sale and get back the purchase money unless he can restore the subject matter. There are a large number of cases on the subject, some of which are not very easy to reconcile with others. Some of them make it highly probable that a certain degree of deterioration of the goods is not sufficient to take away the right to recover the purchase money.”^[3]

Furthermore, Atkin LJ remarked that:

“To my mind it makes no difference at all [that the buyer has used the car before he found out that there was a breach of the condition]. The buyer accepted the car on the representation of the seller that he had a right to sell it, and inasmuch as the seller had no such right he is entitled to say that the buyer has enjoyed a benefit under the contract. In fact the buyer has not received any part of that which he contracted to receive – namely, the property and right to possession – and, that being so, there has been a total failure of consideration.”^[4]

From the above, and the cases referred to in Rowland v Divall, it seems clear that, only where the buyer got some part of what he contracted for, will he lose the right to rescind the contract. Where property in the goods has not passed, it seems highly unlikely that that would be the case.

Niblett v Confectioners’ Materials Co Ltd^[5] involved a slightly more complex scenario. Niblett bought tins of condensed milk from Confectioners’ but was prevented from selling the tins with the labels that were on them due to trademark issues. Niblett sold the tins at a low price without the labels and sought damages for breach of the following implied terms: (a) that the milk was of merchantable quality; (b) that the defendants had a right to sell it; (c) that the plaintiffs should have and enjoy quiet possession of it; and (d) that there was an implied condition or warranty of the contract that any label on the milk would not infringe any trademark.

The Court found that the condition as to title is not limited to circumstances where the condition is hindered by an act or omission of the vendor and those acting by his or her authority. In the absence of an express agreement to the contrary, “[t]he goods tendered must … be goods which the vendor has a right to sell”.^[6]

Where the seller did not have title at the time title was to be transferred, title may subsequently be “fed” into the transaction if the seller acquires the title before the buyer rescinds the contract. In Patten v Thomas Motors Pty Ltd,^[7] a woman entered into a hire-purchase agreement for a car with CGA Ltd, and, contrary to that agreement, she sold it. The car changed hands several times in good faith, and eventually Patten bought it from Thomas Motors in May 1961. In August of that year, the woman fraudulently obtained a loan from another company, using a bill of sale over the car as security, and used that money to pay the outstanding amount under the hire-purchase agreement. Patten used the car for two years until a demand to surrender the car was made by the company that had lent the woman the money. The company seized the car and Patten sued Thomas Motors for damages for breach of warranty of title of the car. The Court ruled in Thomas Motors’ favour, due to the principle of “feeding the contract”. Once the woman paid CGA, the title passed from them to her, and successively down the line until it vested in Patten who, thus, got legal title in August 1961, which extinguished any cause of action for breach of warranty of title. On appeal, Patten argued that feeding the title did not apply and that rescission had broken the chain of title, but the appeal was dismissed.

Thus, it is clear that so long as the seller obtains title before the buyer seeks to rescind the contract, the sale will be upheld.

SGA s. 15(b) outlines the rules regulating the implied warranty of quiet possession. As described below (Chapter 2.5.4), warranties are different from conditions, and it must thus be noted that we are here talking about a warranty rather than a condition.

The buyer’s right to quiet possession has been the subject of several cases. In Microbeads AG v Vinhursdt Road Marking Ltd,^[8] Vinhurst bought a machine for making white lines on roads from Microbeads early in 1970. In November 1970, a third company – Prismo – gained rights in respect of a patent in the relevant type of machine. Vinhurst, now being prevented from using the machine, alleged breaches of the terms of the right to sell and of quiet possession. It was held that, while Microbeads had had the right to sell the goods (and thereby did not infringe the implied condition of the right to sell), it had breached the right of quiet possession:

“It seems to me that when the buyer has bought goods quite innocently and later on he is disturbed in his possession because the goods are found to be infringing a patent, then he can recover damages for breach of warranty against the seller. It may be the seller is innocent himself, but when one or other must suffer, the loss should fall on the seller; because, after all, he sold the goods and if it turns out that they infringe a patent, he should bear the loss.”^[9]

This case clearly illustrates the difference between the implied warranty of quiet possession and the implied condition on the part of the seller that it has a right to sell the goods.

2.5.2.2 Implied condition that the goods shall correspond with description

SGA s. 16 regulates sales by description. Under this section there is an implied condition that goods shall correspond with the description, however the description was provided.

Determining under which circumstances a sale would be seen as being a sale by description is not always easy. In Varley v Whipp,^[10] Channell J made clear that: “The term ‘sale of goods by description’ must apply to all cases where the purchaser has not seen the goods, but is relying on the description alone”. Specific or ascertained goods may be “bought by description” within the meaning of the Acts, as they are not limited to unascertained goods. Thus, it seems that a contract is for the sale of goods by description in all cases where the buyer is relying on description alone without having seen the goods, and also where the buyer has seen, and even examined, the goods, as long as the buyer bought them based, at least in part, in reliance on a description given or inferred from the circumstances.

The scope of what is classed as sale by description has been held to be even wider in subsequent cases. Several cases have illustrated that even where the buyer has in fact inspected or had the opportunity to inspect the goods, the sale can still be by description. In Grant v Australian Knitting Mills,^[11] the Court held that:

“there is a sale by description even though the buyer is buying something displayed before him on the counter: a thing is sold by description, though it is specific, so long as it is sold not merely as the specific thing but as a thing corresponding to a description, e.g., woollen under-garments, a hot-water bottle, a second-hand reaping machine, to select a few obvious illustrations.”^[12]

In that case, the Court also made the important observation that: “The conversation at the shop in which the appellant discussed questions of price and of the different makes did not affect the fact that he was substantially relying on the retailers to supply him with a correct article”.^[13]

Similarly, in Elder Smith Goldsbrough Mort Ltd v McBride; Palmer (Third Party)^[14] the Court concluded that: “the fact that there was provided to [the buyer] an opportunity to inspect the [goods] does not prevent the sale from being one by description if the description [given] goes to [a matter that the inspection would not prove either false or correct]”.^[15]  The dispute related to the sale of a ‘stud bull’ at a Sydney action for $21,000. The bull did not correspond with its description as the bull was found to be permanently infertile. The value of the bull was consequently diminished to $500 as it could be used for slaughtering purposes only when the action was brought. Justice Sheppard found there had been a breach of implied condition that the bull would correspond with the description of a ‘breeding bull’ by the vendors resulting in a total failure of consideration for the purchasers. The plaintiffs were entitled to recover the purchase price less its value on sale for slaughtering.

How the law determines whether or not a particular sale is one by description is further illustrated in Harlingdon & Leinster Enterprises v Christopher Hull Fine Art.^[16]  In that case, both parties to the dispute were art experts dealing in art. However, neither of them were experts on the particular artist in question. Christopher Hull Fine Art sold two paintings to Harlingdon & Leinster Enterprises, both of which were described as paintings by Münter. While Christopher Hull indicated that he was relying on Harlingdon & Leinster, he also referred Harlingdon & Leinster to an auction catalogue in which the paintings were offered as paintings by Münter. Harlingdon & Leinster gave no indication that they were relying on Mr Hull in determining the authenticity of the works. The paintings turned out to be a forgery and Harlingdon & Leinster claimed a breach of the implied condition of correspondence with description and merchantable quality.

Several conclusions may be drawn from this case. First, Nourse LJ stated that: “authorities show that [the implied condition of correspondence with description] may apply to a contract for the sale of specific goods which have been seen by the buyer, provided that their deviation from the description is not apparent on a reasonable examination”.^[17] Further, Nourse LJ also observed that: “one must look to the contract as a whole in order to identify what stated characteristics of the goods are intended to form part of the description by which they are sold”.^[18]

Whether or not “reliance” is an essential ingredient in a contract for the sale of goods by description was a controversial matter in the case. Nourse LJ stated that: “there cannot be a contract for the sale of goods by description where it is not within the reasonable contemplation of the parties that the buyer is relying on the description”.^[19] Stuart-Smith LJ took the opposite view:

“I have great difficulty in understanding how the concept of reliance fits into a sale by description. If it is a term of the contract that the painting is by Münter the purchaser does not have to prove that he entered into the contract in reliance on this statement. This distinguishes a contractual term or condition from a mere representation.”^[20]

Slade LJ’s reasoning could perhaps be said to represent a middle ground:

“If there was no such reliance by the purchaser, this may be powerful evidence that the parties did not contemplate that the authenticity of the description should constitute a term of the contract. … If, on the other hand, there was such reliance … this may be equally powerful evidence that it was contemplated by both parties that the correctness of the description would be a term of the contract.”^[21]

Perhaps we have to conclude that, the question of whether “reliance” is an essential ingredient in a contract for the sale of goods by description is associated with a degree of uncertainty.

If it is concluded that a particular sale is by description, it is necessary to examine whether the goods sold actually correspond with the description. Ashington Piggeries Ltd v Christopher Hill Ltd^[22] is a case related to the sale of compound mink food. Ashington Piggeries (AP), who had a mink farm, contracted with Christopher Hill (CH), who was in the business of compounding foodstuff for domestic animals to make a compound food to feed the mink. CH provided the ingredients and mixed the compound, but AP had provided the formula, which specified the ingredients. One of the ingredients obtained by CH, herring meal, contained DMNA (a substance regarded as a condition of herring meal, rather than an addition to it), which proved to be toxic for the mink as they were more sensitive to DMNA than other animals. AP did not pay for the delivered food and CH sued AP for the price of the goods. AP, in turn, sued CH for breach of contract, arguing that the goods: (a) did not correspond with the description, (b) were not reasonably fit for their purpose and (c) were not of merchantable quality.

 In his dissenting judgement, Viscount Dilhorne noted that:

“The line between a difference in quality and a difference in kind may in many instances be difficult to draw. Here, where the distinction is between poisonous and non-poisonous herring meal, there was, in my opinion, more than a difference in quality, and I … [think] that there was difference in kind[.]”^[23]

Lord Wilberforce, on the other hand, took a simpler view:

“I do not believe that the Sale of Goods Act 1893 was designed to provoke metaphysical discussions as to the nature of what is delivered, in comparison with what is sold. The test of description, at least where commodities are concerned, is intended to be a broader, more commonsense, test of a mercantile character. The question whether that is what the buyer bargained for has to be answered according to such a test as men in the market would apply, leaving more delicate questions of condition, or quality, to be determined under other clauses of the contract or sections of the Act.”^[24]

The Court’s view is based on historical precedence which asserts harm caused by lack of clarity in the description of goods contracted leaves the buyer without a basis to argue that goods do not correspond to the goods description.  Lord Wilberforce’s statement mentioned above confirms this approach while Lord Diplock went further to observe that “It is open to the parties to use a description as broad or narrow as they choose”.^[25] In other words, as far as the implied terms of correspondence with description is concerned, the party providing the description bears the risk if the description is unclear or is open to more than one interpretation.

In addition, the somewhat unusual case of Beale v Taylor^[26] has illustrated that it is not sufficient that parts of the goods are in accordance with the description. The dispute related to a car advertised as a “Herald, convertible, white, 1961” was in fact made up from parts of two cars, only one of which was a 1961 model. Although the plaintiff had examined the car, he had relied on the description in the advertisement as to the kind of car he was buying, and it was therefore a sale by description. In other words, examination on the part of the buyer does not necessarily prevent the sale being a sale by description, and partial correspondence with description is insufficient.

2.5.2.3 Implied condition as to quality and/or fitness for purpose

SGA s. 17(a) deals with the so-called “fitness for purpose” condition. Firstly, for an implied condition of fitness for purpose to be invoked, the buyer must make known to the seller the particular purpose for which the goods are required. While this may seem like a rather straight forward requirement at a first glance, it has been the object of dispute in numerous cases.

Frost v Aylesbury Dairy Co Ltd^[27] concerned the sale of milk containing typhoid germs. The buyer did not disclose to the seller that the milk was for human consumption, and therefore did not, strictly speaking, make the purpose for which he wanted the milk known to the seller. However, the Court noted that the normal use of the milk was for human consumption and held that a buyer need not make known to the seller the particular purpose for which the goods are required when such purpose is the ordinary use for which such goods are used. Similarly, in Grant v Australian Knitting Mills^[28] it was held that a buyer need not make known to the seller the particular purpose for the goods when those goods are only for that purpose. However, should the buyer be associated with a particular condition, making the consequences of her/his use of the goods significantly different to those of a normal user, the buyer needs to bring that special condition to the seller’s attention. Otherwise, it cannot be said that the buyer has made known to the seller the particular purpose for which the goods are required. For example, the Court in Griffiths v Peter Conway Ltd^[29] held that there was no breach of the implied condition of fitness for purpose where a person suffered harm when wearing a tweed coat, and the harm was suffered due to a particular skin condition that was not brought to the seller’s attention.

Furthermore, the implied term as to fitness for purpose may be included in the contract based on a prior consistent course of dealings in that type of product. In McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd,^[30] the defendant had sold 500,000 wine corks to the buyer (a winery). The wine stored in bottles using that batch of corks was spoilt. The Court held that from the course of dealings and prior transactions between the buyer and the seller, it was clear that the purpose of the purchase was using the corks with bottles of wine fit for human consumption, and that the corks would not contain any agent which would cause the wine to be contaminated. Consequently, the implied term of fitness for purpose was enforced against the seller.

Similarly to what was said in relation to sale by description, the party providing the description of the particular purpose for which the goods are required seems to bear the risk where unfitness for purpose is caused by lacking clarity in that description:

If mink possessed an idiosyncrasy, which made the food as supplied unsuitable for them though it was perfectly suitable for other animals, this would be the buyers’ responsibility, unless … they had made this idiosyncrasy known to the sellers so as to show reliance on them to provide for it. But any general unsuitability would be the sellers’ responsibility.^[31]

Where it is established that the buyer made known to the seller the particular purpose for which the goods are required, the court will turn to consider whether the buyer did in fact rely on the seller’s skill or judgment. In Grant v Australian Knitting Mills,^[32] the Court discussed how such reliance is identified:

It is clear that the reliance must be brought home to the mind of the seller, expressly or by implication. The reliance will seldom be express: it will usually arise by implication from the circumstances: thus to take a case like that in question, of a purchase from a retailer, the reliance will be in general inferred from the fact that a buyer goes to the shop in the confidence that the tradesman has selected his stock with skill and judgment: the retailer need know nothing about the process of manufacture: it is immaterial whether he be manufacturer or not: the main inducement to deal with a good retail shop is the expectation that the tradesman will have bought the right goods of a good make.^[33]

While it is said to be immaterial whether or not the seller is also the manufacturer in the above quote, more recent cases have indicated that a presumption of reliance is justified where the seller is in fact also the manufacturer of the goods. In Expo Aluminium (NSW) Pty Ltd v W R Pateman Pty Ltd^[34] the buyer made known to the seller the purpose for which he required new windows. However, the windows were not suited for that purpose. Kirby P held that: “As a manufacturer it would be rare that a customer would not be relying, at least to some extent, on its skill and judgement in effecting its manufacture”.

Finally, in relation to the matter of reliance, the Court in Carpet Call Pty Ltd v Chan^[35] noted that a contractual clause stating that the buyer did not rely upon the seller may be evidence against the buyer’s claim of reliance. However, this type of contractual clause does not necessarily in itself determine the question of whether the buyer did in fact rely on the seller’s skill or judgment.

As far as the SGA is concerned, the goods must be of a description which it is in the course of the seller’s business to supply. This hurdle does not seem difficult to overcome. In Ashington Piggeries Ltd v Christopher Hill Ltd,^[36] Lord Wilberforce stated that: “I would hold that … it is in the course of the seller’s business to supply goods if he agrees, either generally, or in a particular case, to supply the goods when ordered”. In discussing his view further, Lord Wilberforce made clear that it does not matter whether or not the seller has previously accepted orders for goods of that description.

The only remaining issue is whether the goods were in fact fit for the purpose for which they were obtained. This is a question to be decided by reference to the individual circumstances of each case. However, Ashington Piggeries Ltd v Christopher Hill Ltd^[37] (for background facts see above) contains several guiding principles. In that case, Lord Wilberforce stated that the buyer in question “had to show general unsuitability and not merely specific unsuitability for mink”.^[38] Lord Wilberforce concluded that the appellant had successfully done so:

“Where an element in feeding stuff is shown to be (i) lethal in some quantities to one or more species (ii) damaging in other quantities to one or more species and in more than one respect and (iii) when it is not suggested that in any circumstances the chemical is beneficial; when moreover the expert evidence shows that the full implication and effects of feeding it have yet to be scientifically established, then there is every justification for describing it as toxic, and which is the relevant consideration, for placing responsibility for its exclusion firmly on the seller.”^[39]

A few words need to be said about the SGA s. 17(b). The provision states that, in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose. This severely limits the circumstances in which the condition of fitness for purpose applies. However, according to Baldry v Marshall^[40] where a buyer makes its selection based on the seller’s recommendation, the fact that the goods are ordered by reference to patent or other trade name does not, on its own, prevent the application of the implied condition of fitness for purpose.

SGA s. 17(c) deals with the so-called “merchantable quality” condition. Under this provision, there is an implied condition that the goods are of “merchantable quality”. This condition is only implied where the goods are “bought by description from a seller who deals in goods of that description”. The manner in which it is determined whether goods are “bought by description” is discussed above (2.5.2.2). However, a few words need to be said about the requirement that the goods be bought from a seller who deals in goods of that description. Similarly to what was discussed above in the context of fitness for purpose, this hurdle does not generally seem difficult to overcome. As noted, in Ashington Piggeries Ltd v Christopher Hill Ltd^[41], Lord Wilberforce stated that: “I would hold that … a seller deals in goods of that description if his business is such that he is willing to accept orders for them”. In discussing his view further, Lord Wilberforce made clear that, in his view, it does not matter whether or not the seller has previously accepted orders for goods of that description.

The standard against which “merchantable quality” is measured is a matter that needs to be determined on a case-by-case basis.

In addition, some general observations can be made. If the goods are bought for use as a normal consumer purchase, focus is placed on the “usability” of the goods, while in commercial sales focus is placed on “saleability”. This saleability is, however, as illustrated in Grant v Australian Knitting Mills,^[42] not completely detached from usability:

The garments were saleable in the sense that the appellant, or any one similarly situated and who did not know of their defect, would readily buy them: but they were not merchantable in the statutory sense because their defect rendered them unfit to be worn next the skin.

Further, as noted in Henry Kendall & Sons v William Lillico & Sons Ltd^[43]:

If the description in the contract was so limited that goods sold under it would normally be used for only one purpose, then the goods would be unmerchantable under that description if they were of no use for that purpose. But if the description was so general that goods sold under it are normally used for several purposes, then goods are merchantable under that description if they are fit for any one of these purposes.

It must also be noted that merchantability is measured by considering the goods as a whole. In Wilson v Rickett, Cockerell & Co^[44] the Court held that, even though a consignment of fuel was fit for burning, it was nevertheless not of merchantable quality as an explosive substance was accidentally included in the consignment.

In addition, since the statutes require goods to be merchantable in the state in which they were sold and delivered, a defect which could easily be cured is as serious as a defect that would not yield to treatment.^[45]

Finally, SGA s. 17(d) makes clear that if the buyer has examined the goods, there is no implied condition as regards defects which such examination ought to have revealed. This is a particularly important limitation in the light of Thornett & Fehr v Beers & Son.^[46]  The Court expressed the view that where the buyer has had a reasonable opportunity to examine the goods, the buyer is held to have examined the goods whether or not an examination actually occurred.

2.5.2.4 Implied conditions relating to sale by sample

The courts have been restrictive in what they view as contracts involving sale by sample. In LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd,^[47] the buyer entered into a contract for neatsfoot oil after having been provided with a sample, which it found satisfactory. When the product arrived it did not correspond with the sample. The Court held that:

the mere fact that a sample has been shown by the intending vendor to the prospective purchaser during the course of negotiations leading up to a sale does not necessarily make the final contract a contract of sale by sample. If the contract is reduced to writing after the sample has been shown and makes no reference to this fact, then the written contract, if it be a complete contract, cannot have the added term incorporated in it.^[48]

Thus, it is advisable for those buying something after having examined a satisfactory sample to make sure that reference is made to that sample in the actual contract.

2.5.2.5 Party autonomy and the implied terms

Section 17(f) of the SGA makes it clear that no restriction exists in relation to the terms implied under that Act: “an express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith”. Further, s. 56 states that:

As noted above, the effect of this provision is to allow party autonomy to override all provisions, including those dealing with implied conditions and warranties, of the SGA.

2.5.2.6 Remedies in relation to terms implied under the SGA

Where a party has acted in breach of a contract, several remedies may be available to the “victim”. In addition to the remedies available under common law and equity, the SGA provides options for an aggrieved party which contains ss. 54(1), 54(2), 54(4) and 57 dealing specifically with remedies.

The implied terms outlined in the SGA are either implied conditions, or implied warranties. The SGA does not define the term “condition”. However, it does provide the definition of warranty pursuant to s. 3 as:

an agreement with reference to goods which are the subject of a contract of sale but collateral to the main purpose of such contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

Drawing upon this definition, a condition in the context of the SGA could be described as an agreement with reference to goods, which is the main purpose of such a contract, the breach of which gives rise to a right to reject the goods and treat the contract as repudiated in combination with damages.

It must, however, be noted that s. 14 of the SGA introduces some limitations on the remedies available under the SGA: