Note, the acronym SOGA refers to the Sale of Goods Act 1923 (NSW) and all section provisions

in this paper refer to provisions in the Sale of Goods Act 1923 (NSW), unless otherwise specified. Question 1 Application of legislation Quentin will not be accorded any consumer protection because he is neither a consumer under section 4B(1)1 or section 62(b)2 because his purpose for the purchase of the dragon fruit was for re-supply. The SOGA applies to all contracts for the sale of goods. Under section 6(1), [a] contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. In this case, there is a question for Quentin as to whether there was any written contract for the sale of the dragon fruit, if not then that means we can only rely on the oral contract of sale. Regardless of whether it was written or oral, there was a contract for the sale of goods where George agreed to transfer the property of 100 cases of dragon fruit to Quentin for the money consideration of $100 per case. Is this a sale by sample? If the sale was a sale by sample, there is an implied condition that the bulk shall correspond with the sample in quality.3 We must first establish whether there was a sale by sample or not. For there to be a contract for sale by sample, there needs to be a term in the contract express or implied to that effect.4 In our case, with no evidence of a written contract for sale, we can only rely on the oral contract. The question is whether a term of sale by sample was expressly incorporated or necessarily implied into the oral
1 2

Competition and Consumer Act 2010 (Cth) SOGA 3 Section 20(2)(a) SOGA 4 Section 20(1) SOGA

contract. The mere fact that Quentin was shown a sample of the fruit by George during the course of negotiations leading up to the sale does not automatically make the final contract a contract of sale by sample.5 Reliance on the sample is not enough; there must be a term of the contract which took note of the sample.6 When Quentin expresses concern as to whether the goods will be fresh and disease free, Georges invitation to smell the sample dragon fruit may be imply that George is warranting that the future goods will be of the same kind as the sample. However, it will be difficult to prove that there was a sale by sample because firstly, there is no evidence of a written contract which stipulated any term to that effect, and secondly, it is not obvious whether George expressly or impliedly promise that the 100 boxes of dragon fruit would conform to the sample. Sale by description If it is found that there was no sale by sample, Quentin can almost definitely prove that there was a sale by description. If there is a sale by description, then there is an implied condition that the goods correspond with that condition.7 Sales by description include sales of unascertained or future goods, as being of a certain kind of class, or to which otherwise a description in the contract is applied8. Nourse LJ, in considering the words by description, said that those words would suggest that the description must be influential in the sale, not
5

LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons Ltd [1956] SR (NSW) 81, at 87 6 LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons Ltd [1956] SR (NSW) 81, at 89 7 Section 18 SOGA 8 Benjamin on Sale, 8th ed, p 615 (this was referred to by Sheppard J in Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 at 640)

necessarily alone, but so as to become an essential term, ie a condition, of the contract. Without such influence a description cannot be said to be one by which the contract for the sale of goods is made9. The is judged objectively, in that there will be no sale of goods by description if it was not within the reasonable contemplation of the parties that the buyer was relying on the description.10 It would be reasonably to believe that the buyer was relying on the description, since he clearly expressed that he knew nothing about fruit. Therefore, this was a contract for sale by description. Accordingly, the question arises as to whether the goods correspond to the description. The description of the goods may simply be stated as exotic dragon fruits. Georges description of them being the best source of vitamin C on earth may be regarded as a mere puff. Quentin could argue that the goods did not correspond to the description since they looked so terrible. However, this will most likely fail since section 18 is only concerned with the identity of the goods, not their quality.11 In Ashington12, the goods in question were herring meal but they were poisoned. Nevertheless, the House of Lords said that the poisoned herring meal was still herring meal capable of being recognised in the market, so there was no non-compliance with description. So if the product is recognised in the market as exotic dragon fruit then there is no contravention of section 18. Clearly in this case the goods were recognised as dragon fruit (since the shopkeepers bought them) so I do not think that Quentin can sue for non-compliance of description.

Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1990] 3 WLR 13, at 18 10 Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1990] 3 WLR 13, at 21 11 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 489 12 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441

Fitness for purpose There is an implied condition that the goods are reasonably fit for purpose.13 For there to be such implied condition, Quentin must have had expressly or impliedly made known to George the particular purpose for which the goods were required so as to show that he (Quentin) relied on the sellers skill or judgment, and that the goods were of a description which is in the course of Georges business to supply. Was the particular purpose of the goods made known? Quentin made known his particular purpose when he told George that he wanted to start a fruit business. It can be implied, then, that goods were needed for the particular purpose of resale. George seemed to have acknowledged this purpose when he claims that Quentin could resell the goods for $15 a box. Did Quentin disclose the purpose so as to show reliance on Georges skill and judgment? I believe that this question should be answered in the affirmative. Quentins express statement that he knew nothing about fruit but wanted to start a business. Reliance must be brought home to the mind of the seller.14 The test is whether in the whole circumstances, a reasonable man in the shoes of the seller would have realised that he was being relied on.15 Thus, there is most likely that there was actual reliance. Were the goods of a description which it is in the course of the sellers business to supply?

13 14

Section 19(1) SOGA Australian Knitting Mills Ltd v Grant (1936) 54 CLR 49 at 60 15 Henry Kendall & Sons v William Lillico and Sons Ltd (The Hardwick Game Farm Case) [1969] 2 AC 31 at 81

It is sufficient that the seller supply goods of that kind in the course of business.16Since George is a fruit distributor, it should be safe to assume that this question be answered in the affirmative. Note that George can still be liable even if he did not have control over the product quality. This is because he risked being liable by accepting to supply the fruit. Are the goods reasonably fit for purpose? Quentin can argue that the goods were not fit for his particular purpose of running a business. It is not fit for this purpose because he is unable to sell the goods at a profit without them being sent back for a refund. Merchantable quality? I do not think that Quentin will be successful in a claim under s19(2) because if the dragon fruit can be used for any other purpose, such as human consumption, then this will mean that they are of merchantable quality.17 Refund or damages? Assuming that Quentin has paid for the fruit, the fact that he had examined the fruit upon delivery and then subsequently sold the fruit shows that he has accepted the goods. Section 37 deems acceptance when the buyer does any act in relation to them which is inconsistent with the ownership of the seller. Since Quentin opened the boxes before re-selling, section 37 does not apply. Accordingly, s 16(3) compels him to treat any breach of condition as a breach of warranty. As a result, Quentin can no longer choose to reject the goods after he finds out that they cannot be resold, and he can only sue for damages.
16

Ashington Piggeries v Christopher Hill Ltd; Christoper Hill Ltd v Norsildmel (Conjoined appeals) [1972] AC 441 at 505 17 Henry Kendall & Sons v William Lillico and Sons Ltd (The Hardwick Game Farm Case) [1969] 2 AC 31 at 77

Therefore, in accordance with section 54, he will most likely only get the difference between the price had he sold it at ($15/box) and $12/box if he managed to re-sell, or $0/box if he did not manage to sell.

Question 2 Defending s18: non-correspondence with description Even though this was a sale of specific goods, there is a sale by description even though the buyer is buying something displayed before [her] 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 description18 We need to know whether Horace has said anything additional to the yoghurt, or if it was just displayed as Hot Baby Yoghurt. If not, then it would still presumably be a sale by description, the description being Hot Baby Yoghurt. Quentin can nonetheless defend his claim by arguing that the presence of the poison went to affect the quality of the yoghurt, not the identity. If the presence of poison is held to merely affect the quality of the yoghurt and it did not make a difference in kind, then there was no failure to deliver in accordance with the description.19 Defending s19(1): fitness for purpose We need to ask Horace as to whether Johanna had come into the store, asking for the yoghurt for a particular purpose. If not, then Horace could argue that no particular purpose was made known to him. However, be difficult to argue if Grants case is raised. Grants case held that [t]here is no need to specify in terms the particular purpose for which the buyer requires the goods: which is none the less the particular purpose within the meaning of the section because it is the only purpose for which anyone would ordinarily want the goods. Since it can be implied that the only purpose for the purchase of Hot Baby Yoghurt in a convenience store is for human consumption, it may be found that the particular purpose was implied. On
18 19

Australian Knitting Mills Ltd v Grant (1936) 54 CLR 49 at 61 Ashington Piggeries Ltd v Christopher Hill Ltd; Christopher Hill Ltd v Norsildmel [1972] AC 441 (House of Lords) at 484-5

the other hand, Horace could defend this claim by finding evidence of other purposes which anyone would ordinarily use Hot Baby Yoghurt for, thereby rejecting any presumption that a particular purpose had been implied. The proviso under s19(1) will not be applicable in this case unless there is evidence showing that Johanna specifically asked for Hot Baby Yoghurt. This is because it would evince an intention that she is no longer relying on Horaces skill and judgment. If a buyer specifies the product with its given trade name, the proviso will apply, and as such, no implied condition as to fitness for purpose will arise.20. Note that the fact that the goods are merely described with reference to a trade name does not activate the proviso.21 Were the goods reasonably fit for the purpose of human consumption? The sellers obligation covers latent defects in the sense that even the utmost skill and judgment on the part of the seller would not have detected them.22 In deciding the question of fact, the rarity of the unsuitability would be weight against the gravity of its consequences.23 Furthermore, if there is no idiosyncrasy on Johannas part, any general unsuitability would be the sellers responsibility24 I believe the only possible way to successfully defend this claim is either to argue that there was no particular purpose that was made known by finding evidence of more than one ordinary use of Hot Baby Yoghurt. If not, then unless there is evidence that Johanna clearly evinced an intention not to rely on Horaces skill and judgment, it will be very difficult to defend this claim.

20 21

Baldry v Marshall [1925] 1 KB 260 at 66 Baldry v Marshall [1925] 1 KB 260 at 266 22 Henry Kendal & Sons v William Lillico and Sons Ltd (The Hardwick Game Farm Case) [1969] 2 AC 31 at 84 23 Henry Kendal & Sons v William Lillico and Sons Ltd (The Hardwick Game Farm Case) [1969] 2 AC 31 at 115 24 Ashington Piggeries v Christopher Hill Ltd; Christoper Hill Ltd v Norsildmel (Conjoined appeals) [1972] AC 441 at 490-1

Defending s19(2): Merchantability Under s19(2), the Court has construed that [t]he condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonable sound order and condition and without special terms25. This was qualified by replacing a buyer with some buyers, meaning that the defect will make no difference to other buyers who are still prepared to pay full price.26 Although compliance is measured at the time of delivery27, evidence of the poison which came after delivery can still be used to measure compliance.28 Lord Pearce said that the aim is to find what market the goods would have if their subsequent ascertained condition had been known.29 It will be most difficult to find a market for Hot Baby Yoghurt that contains a poison resulting in a 25% chance of paralysis treatable only with an expensive antidote. The goods will most likely be found to be unmerchantable.

25 26

Grant v Australian Knitting Mills (1933) 50 CLR 387, at 418 Henry Kendall & Son v William Lillico and Sons Ltd [1969] 2 AC 31 at 79 27 Australian Knitting Mills Ltd v Grant (1936) 54 CLR 49 (PC) at 61 28 Medtel Pty Ltd v Courtney (2003) 130 FCR 182; 198 ALR 6t30; (2003) ATPR 41939 (Full Federal Court) 29 Medtel Pty Ltd v Courtney (2003) 130 FCR 182; 198 ALR 6t30; (2003) ATPR 41939 (Full Federal Court) at 70, citing him from the Hardwick Game Farm case

Damages? The loss of $500,000 arose from Johannas election to undergo the procedure for the antidote. However, there was no evidence that she was actually paralysed yet. In order to recover damages, there Johanna must prove that the breach of contract of sale caused her loss and that the loss was not too remote. There is causation if, but for Horaces breach of contract, Johanna would have suffered the loss or damage. The evidence suggests that the poison requires to be gestated in the human body for four weeks (assuming proper refrigeration) before paralysis occurs, and thus, within just two weeks of eating the yoghurt, it is difficult to conclude that the breach of the contract (namely being unfit for human consumption) caused her sickness, but rather her overindulgence, thereby breaking the chain of causation. Had there been no breach of contract, that is, the yoghurt was fit for purpose and merchantable, her overindulgence would still probably cause her to feel sick (anyone who eats that much yoghurt in one sitting is bound to get sick!). If there is found to be no causation, Horace will not be liable for the $500,000 in damages. Secondly, the two-limb test of remoteness was stated in Hadley v Baxendale30. Where the damages naturally arise in the ordinary course of things, or where the loss is proved to have been within the actual contemplation of both parties, Horace will be liable. The second limb of the test will not apply because at the time of sale, none of the parties knew of the poison or expensive antidote and therefore could not have contemplated it. However, if there was an actual breach of the contract, it would be reasonably foreseeable that the $500,000 for the antidote would arise in the usual course of things.

30

[1854] EWHC J70

The main argument here would be that even if there was a breach, Horace should argue that there is no evidence that the poison itself was the cause of her sickness. Does Horace have to pay? We need to know more about the details of the contract of sale between Horace and Hot and Sexy Food Company. Firstly, did the contract stipulate the intention of when property was to pass? At the time of formation of contract, were the goods unascertained or specified? Did the terms of the agreement require all 200 cartons of yoghurt to be resold, or only some, before payment was due? Was the goods delivered on sale or return terms? If there is no contrary intention stipulated in the contract, and that Horace just ordered 200 cartons of Hot Baby Yoghurt, leaving them to be ascertained by the seller, then under s23 r 5, property in the goods has passed to Horace. Also, the fact that the goods are used for re-sale, Horace would be unable to re-sell if he had no property in them in the first place. More details needs to be known about the agreement regarding payment to decide whether the seller is allowed to recover the price now, or after Horace has resold all 200 cartons. It is most likely that Horace will have to pay for only 80% of the cartons. If Johanna is successful in proving a breach of implied condition as to merchantability, then it is most likely that he, too, could claim for breach of contract against Hot and Sexy Food Company.