Question

One of the main purposes of the Sale of Goods Act is to supply, by implication, many of the terms that have been inadvertently left out of contracts involving the purchase of goods. Do the terms of the Act excessively interfere with the principles of freedom of contract and caveat emptor?

Answer 1

The Caveat emptor principle, has been followed and adopted by the English law for centuries. The meaning of the principle was laid down by Justin Reagan in Spivey, where he said that: “Caveat emptor, let the buyer beware, has been part of the English language since 1523, when it was used in connection with the sale of a horse, which might have been ridden upon and be tame or might be wylde. If wylde, it was not the merchant who had to beware, but caveat emptor be ware thou byer.” The caveat emptor had been seen as a powerful tool to the extent that many jurisdictions have tried to overpower or neutralize it by establishing consumer protection or sale of goods legislation but when it comes to issues concerning land, the principle still applies.

The Sale of Goods Act 1979 did not provide any alteration to implied terms, yet, the spirit of the act, in its original incarnation, is to accord a equilibrium of bargaining power between the buyer and the seller. Section 12-15 of the Sale of Goods Act which are implied terms being imposed upon every contract for the sale of goods conditions such as will ensure that the buyer will obtain what he had bargained for, without having to lay down expressly written terms in the contract of sale.

In the case of Ashington Piggeries & Ltd v Cristopher Hill 1972, the main issue was whether the sale of a particular animal food from the plaintiff to the defendant was a sale by description. Lord Wilberforce stated that: “I would have no difficulty in holding that a seller deals in goods of that description if he accepts orders to supply them in the way of business; and this whether or not he has previously or not accepted orders for goods of that description.” This virtually signified that the seller could be regarded as an expert for the only reason that he was selling the foodstuff and it turned out to be the reason why this was considered a sale by description.

Caveat emptor predates the English common law as a standard principle implied into commercial contracts. The historically incumbent lex mercatoria facilitated the judicial view that a buyer ought to exercise an appropriate degree of caution when entering into legally binding contracts, whilst inattention or naivety would not give rise to an actionable claim. Where an inequality of bargaining power resulted in unfair trade, this archaic view dictated that the buyer ought simply to have known better.

Freedom of contract reflects caveat emptor as a theoretical parallel. The predominant attitude at that time was the view that contracts ‘entered into freely and voluntarily shall be held sacred and enforced by courts of justice’.Often accompanying the principle of sanctity of contract, freedom of contract has traditionally justified a limited judicial intervention in favour of party autonomy. Empowered by Adam Smith’s principal economic self-regulating market theory of the 18th century, freedom of contract discouraged legislative and judicial interference in a society of contracting parties presumed to possess equal bargaining power. This presumption justified the lack of judicial intervention and reinforced a general, inalienable right to enter into legally binding agreements. The law lent itself to the expression, every man is the master of the contract he may choose to make. However, a gradual divergence from an approach that many viewed as a retaliation to the over-generous interference of the emerging equitable courts began with the draft of the Sale of Goods Act 1893.

The Sale of Goods Act 1893 (SGA 1893) aimed to consolidate the pre-existing common law and provide a clear statute to serve as a reliable foundation for subsequent interpretations of merchantable quality to be undertaken with certainty. The Act contributed to the process of undermining caveat emptor by way of its introduction of obligations on the part of the seller aimed at protecting the buyer. One such obligation was the implied term of merchantable quality. Courts wrestled with merchantable quality despite the condition’s explicit endorsement by the SGA 1893. As statutory definitions aid in the clarity of the law, a legal principle cannot be interpreted with certainty until its very essence is authoritatively defined. Thus, the absence of any peremptory definition of merchantable quality produced a convoluted, unfollowable common law.No such definition was delivered until the SGA 1973, and the codified introduction of an implied common standard of quality was a further contribution toward the erosion of caveat emptor. Consequently, it was observed that implied terms ensuring quality in every sale may arguably abolish any notion of caveat emptor within commercial law.

Exclusion of Liability:- The effect of the statutory imposition of the standard of merchantable quality in every contract of the sale of goods was mitigated by section 55 of the SGA 1893, according to which terms could be ‘negatived or varied by express agreement, or by the course of dealing between parties’. Curtailing the potential scope of the SGA 1893, this provision enabled an allocation of risk allowing for unbridled individualism at the cost of contractual obligations and sanctity of contract. The Act’s assistance to party autonomy facilitated the exploitation of inequality in bargaining power, allowing parties with a substantially greater bargaining power to abuse this individualism and escape contractual liability.

Satisfactory Quality:- The development of the SGA 1979 heralded a further shift toward consumer protection, sacrificing freedom of contract in favour of legal certainty and the facilitation of consumer rights. Rebranding merchantable quality as ‘satisfactory’ quality, the SGA 1979 restated the application of caveat emptor in the absence of any prescribed exception, reaffirming the principle’s existence despite severe limitations. The reference to sales ‘in the course of a business’ under s 14(2) initially restricted the utilisation of this implied term, but has since been broadened by Stevenson v Rogers, collaterally widening the scope of satisfactory quality’s application. The case arguably further curtailed the scope of application of caveat emptor. Nevertheless, the requirement that ‘goods must be supplied under a contract’ subsists, and the implied term is ineluctably restricted by exceptions in section 14(2C). Judicial interpretation of satisfactory quality arises infrequently, perhaps due to its statutory definition, but the assessment of the standard of quality is not limited to intrinsic consideration.