The Sale of Goods Act operates to protect parties that are involved in commercial transactions. It implies specific terms into contracts that are for the sale of goods. This means that even if they are not expressly included in the contract, they might still form part of a consumer’s rights or obligations under the law. While each state and territory in Australia has a version of the Sale of Goods Act, this article discusses the conditions implied into contracts by the Sale of Goods Act in New South Wales (NSW).

Ownership

The purpose of contracts for the sale of goods is to transfer property (‘goods’) from one person to another. For this to happen:

  1. the seller needs to have the right to sell the goods; and
  2. the buyer needs to be able to enjoy the products without any restrictions.

The first set of terms implied into contracts aim to fulfil this purpose. They are that the:

  1. seller has the right to sell the goods at the time property transfers;
  2. buyer will have quiet possession of the goods; and
  3. goods do not already belong to a third party that the buyer does not know about.

For example, if you purchase a stolen car, the seller did not have the right to sell you the good. Therefore, they have breached the first condition implied into contracts of sale. The presence of that implied condition gives the consumer the right to seek a remedy from the seller.

Sale by Description

The Sale of Goods Act implies the condition that where there is a sale of goods by description, the goods will correspond with that description. ‘Description’ refers to an outline of the identity rather than the quality of the goods.  

Where the buyer relies on a description given by the seller, the goods must correspond with that description. For example, if you purchase an iPhone online but have an Android delivered to you, you have:

  1. reasonably relied on the description given by the seller; and
  2. received a good of a different identity than the one outlined in the description.

It is therefore likely that there is a breach of the implied condition that the good will correspond with its description. In this situation, you may be able to seek damages or terminate the contract.

Fitness for Purpose

Another term implied into contracts by the Sale of Goods Act arises where:

  1. the buyer, expressly or by implication, tells the seller why they are buying the goods;
  2. in doing so, shows the seller that they are relying on the seller’s skill or judgment; and
  3. the goods are the kind that the seller’s business supplies.

In this situation, there is an implied condition that the goods will be reasonably fit for the purpose disclosed to the seller by the buyer. For example, if you walk into a pharmacy and you ask for medication that will cure your sore throat:

  1. you are expressly telling the seller the particular purpose for which the goods are required;
  2. you are reasonably relying on the pharmacist’s skill; and
  3. the pharmacist is ‘in the business’ of supplying medication.

Therefore, there is likely an implied term that the pharmacist will give you medication that is fit for the purpose of curing your sore throat.

Merchantable Quality

There is an implied condition that goods sold will be of merchantable quality. This means the products will be suitable for the purpose that they are commonly bought. When assessing this, consider:

  • the price of the goods; and
  • any description given by the seller and other surrounding circumstances.

For example, you buy shoes at the regular retail price from an online shoe retailer. The description states that the second hand shoes are ‘Vintage Doc Martens, US size 8’. When the shoes arrive, they have holes in the sole of the shoe, making them unwearable. In this case:

  1. you reasonably relied on the description of the goods;
  2. the seller ‘deals in goods of that description’; and
  3. you received goods that are not suitable for the purpose they are commonly bought, having regard to the description given and the price paid.

Therefore, there may be a breach of the implied condition that the shoes are of merchantable quality. This will give you the right to seek remedies against the seller, for example, the right to return the goods.

Sale by Sample

The final term that is implied in contracts for the sale of goods relates to transactions that occur through a sample. This means that the buyer receives a sample of the products they wish to buy, and based on that sample, decides to enter into the contract of sale. Where a sale occurs by sample, the following implied conditions apply:

  • the good will correspond with the sample in quality;
  • the buyer will have a reasonable opportunity of comparing the good with the sample; and
  • the goods will be free from any defect that was not apparent on reasonable examination of the sample.

For example, if you ordered 1000 napkins for a function based off a sample sent to you, the implied conditions above may apply. So, when you receive the goods, you have the right to have a reasonable opportunity of comparing the 1000 napkins with the sample sent to you. The 1000 napkins must be of the same quality as the sample you based your purchase off, and they must be free of defects that would not have been apparent when examining the sample.

Key Takeaways

The purpose of the Sale of Goods Act is to provide guidelines that protect parties engaging in transactions for the sale of goods. The Australian Consumer Law mainly regulates business to consumer transactions. However, the Sale of Goods Act continues to apply in business to business transactions and is relevant to some consumer transactions. It is essential to be aware of the conditions implied by the Sale of Goods Act, as they may form part of your rights or obligations when engaging in commercial transactions.

If you have any questions, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Eugenia Munoz
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