4.5.9 Implied terms under the Sale of Goods Act

Various terms are implied into all sale of goods contracts by virtue of ss 12-15 of the SGA 1979. Similar provisions are to be found in the Supply of Goods and Services Act 1982, but these are not discussed here.

The implied terms under the SGA 1979 are all labelled as «conditions» or «warranties». Breach of a condition will generally give the innocent party the right to repudiate the contract as well as claiming damages, whereas breach of warranty will only give a right to damages.

4.5.9.1 Title

Section 12 of the SGA 1979 is concerned with «title» in the sense of the «right to sell». There is an implied condition in every sale of goods contract that the seller has this right «at the time when property is to pass». The condition will be broken if the goods belong to someone else, or if they cannot be sold without infringing another’s rights, for example, in a trade mark. A breach of this condition will be regarded as constituting a «total failure of consideration». This has the potential to allow the purchaser to recover any money paid, even though use has been made of the goods transferred. In Rowland v Divall, the plaintiff car dealer had bought a car from the defendant. The car had previously been stolen, but neither party was aware of this at the time. The plaintiff resold the car to a third party, from whom it was reclaimed, some months later, by the true owner’s insurance company. The plaintiff had to repay the purchase price to the third party, and then sought to recover what he had paid to the defendant. Despite the fact of the lapse of time, and the consequent reduction in the value of the car, which was demonstrated by the fact that the insurance company had in fact sold it back to the plaintiff at much less than the original contract price, the plaintiff was allowed to recover what he had paid to the defendant in full, on the basis of a total failure of consideration. The use that the plaintiff had made of the car was irrelevant. The essence of a sale of goods contract is not the use of the goods, but the transfer of ownership. The breach of s 12 meant that ownership had never been transferred, and the plaintiff was therefore entitled to recover all his money.

In Rowland v Divall, the plaintiff was a dealer who was primarily interested in the ability to resell the car. The same principle, however, applies to a private purchaser. In Butterworth v Kingsway Motors, the plaintiff had bought a car which, unknown to him, was subject to a hire purchase agreement, and was reclaimed by the finance company nearly a year later. The plaintiff was allowed to recover the full purchase price from the defendant, notwithstanding the fact that the defendant was equally ignorant of the defect in title. The plaintiff thus had almost a year’s free use of the car. This decision has been the subject of considerable criticism, but has not as yet been overruled.

Section 12 also contains an implied warranty of quiet possession, and freedom from encumbrances.