In Short
- The Sale of Goods Act implies that sellers have the right to sell the goods, ensuring buyers receive clear ownership.
- Goods sold by description must match that description, and those sold by sample should correspond with the sample in quality.
- There is an implied condition that goods are fit for their intended purpose and of merchantable quality, meaning they are suitable for the purpose they are commonly bought.
Tips for Businesses
Ensure your products meet the standards implied by the Sale of Goods Act: rightful ownership, accurate descriptions, fitness for purpose, and merchantable quality. Clearly communicate product details to customers and regularly review your sales practices to maintain compliance and customer satisfaction.
The Sale of Goods Act operates to protect parties that are involved in commercial transactions. It implies specific terms in 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 in contracts by the Sale of Goods Act in New South Wales (NSW).
What are Implied Terms?
Implied terms are terms that are not clearly stated in a written contract, but they still bind the parties involved. Sometimes, a seller and a buyer in a sale of goods contract may not include terms to cover every possible issue. Implied terms may help to keep the agreement workable and reflect the intentions of both the seller and the buyer.
Ownership
The purpose of contracts for the sale of goods is to transfer property (‘goods’) from a seller to a buyer. For this to happen:
- the seller needs to have the right to sell the specific goods; and
- the buyer needs to be able to enjoy the products without any restrictions.
The first set of terms implied in contracts aims to fulfil this purpose. They are that:
- the seller has the right to sell the goods at the time of property transfers;
- buyer will have quiet possession of the goods; and
- goods do not already belong to a third party that the buyer does not know about.
Sale by Description
The Sale of Goods Act implies the condition that where goods are sold by description, the goods will correspond with that description. The 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 phone delivered to you, you have:
- reasonably relied on the description given by the seller; and
- received a good identity different from the one outlined in the description.
Therefore, the implied condition that the goodwill corresponds with its description is breached. In this situation, you may be able to seek damages or terminate the contract.
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Fit for Purpose
Another term implied into contracts by the Sale of Goods Act arises where:
- the buyer, expressly or by implication, tells the seller why they are buying the goods;
- doing so shows the seller that they are relying on the seller’s skill or judgment; and
- the goods are the kind that the seller’s business supplies.
In this situation, there is an implied condition that the goods will reasonably fit the purpose disclosed to the seller by the buyer. For example, if you visit a hardware store and ask for paint suitable for exterior use on a wooden fence:
- you are expressly telling the seller the particular purpose for which the goods are required;
- you are reasonably relying on the hardware store staff’s expertise and knowledge; and
- the hardware store is ‘in the business’ of supplying paint and other building materials.
In this case, there would be an implied condition that the paint provided would be reasonably fit for the purpose of exterior use on a wooden fence. This means the paint should be weather-resistant, suitable for application on wood, and durable enough for outdoor conditions.
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.
In this case:
- you reasonably relied on the description of the goods;
- the seller ‘deals in goods of that description’; and
- you received goods that are not suitable for the purpose they are commonly bought, with 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 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 decides to enter into the contract of sale based on that sample. Where a sale occurs by sample, the following implied conditions apply:
- the goodwill corresponds with the sample in quality;
- the buyer will have a reasonable opportunity to compare the goods with the sample; and
- the goods will be free from any defect that was not apparent upon reasonable examination of the sample.
Navigating Implied Terms in E-commerce Transactions: Advice for Online Retailers
Whether or not you are operating an online retail business in Australia or buying from one, it is crucial to understand how implied conditions under the Sale of Goods Act apply in the digital marketplace. You need to know several things to protect your business and meet your legal obligations.
Product Descriptions and Merchantable Quality
Be meticulous with your online product descriptions. Courts may interpret merchantable quality more strictly for e-commerce, so ensure your products match their digital representations accurately. Use high-quality images, provide detailed specifications, and regularly update product information to avoid discrepancies. For purchasers disputing merchantable quality, pay close attention to what is being sold.
Fit for Purpose
Pay close attention to your digital customer interactions. If you use chatbots, product recommendation systems, or send emails to customers, you can use these to determine whether a buyer communicated a specific purpose for their purchase. Train your staff and fine-tune your automated systems to capture and respond to customer needs accurately.
Cross-Border Transactions
If you sell internationally, be aware that cross-border online transactions may involve multiple legal frameworks. Consider including clear terms and conditions that specify applicable laws and jurisdiction. It may be wise to seek legal advice on international e-commerce regulations to ensure compliance across different markets.
Correspondence with Description
Given the importance of product listings in online sales, implement a rigorous quality control process for your product information. Regularly audit your listings to ensure they remain accurate and up-to-date. Consider implementing a system for customers to report discrepancies promptly.
Digital Goods
If you sell digital products like software or downloads, be aware that applying implied conditions to these items is an evolving area of law. Stay informed about legal developments in this area and consider how to apply implied conditions to these intangible goods.
Customer Communication
Maintain clear lines of communication with your customers. Promptly address any queries or complaints about product quality or suitability. Good customer service can often prevent disputes from escalating to legal issues.
Record Keeping
Maintain detailed records of your product sourcing, quality control processes, and customer interactions. These can be invaluable if you need to demonstrate your compliance with implied conditions.
Key Takeaways
The Sale of Goods Act protects the interests of buyers when purchasing goods in certain situations. 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. You must know the conditions implied by the Sale of Goods Act, as they may form part of your rights or obligations in commercial transactions.
If you have any questions about the Sale of Goods Act, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Implied terms significantly affect the parties to a contract. They may provide buyers with additional protections beyond what is expressly agreed. At the same time, they can place extra obligations on sellers, which they must meet.
Fit for purpose means that the good purchased is fit for the purpose of the buyer. For example, if you express to a shopkeeper that you would like to purchase boots fit for hiking up a mountain, and they sell you boots that fall apart on your first hike, the shoes may not fit the purpose you disclosed.
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