Tuesday, April 13, 2010

Do you have to accept repaired goods?

No.

The House of Lords have recently looked at the operation of s 35 (6)(a) of the Sale of Goods Act 1979 where a customer and a seller had agreed to the repair of defective goods.

s35 can be a confusing provision which sets out when a customer may be “deemed” to have accepted goods purchased under a contract for the sale of goods.

In this case, the customer had used the goods (a power harrow) for a few days before it was clear they were defective. The supplier took them away to investigate. On investigation, the defect was identified and fixed. So no problem?

Well, not quite. The customer asked what the problem had been and what had been done to fix it - but the supplier would only tell him that the problem had been resolved. When the customer found out what the problem had been, he was concerned that the use before the repair could have caused long term damage - and he wouldn’t find that out until next spring when next cultivating the soil.

s 35 (6)(a) says that the buyer is not obligated to accept goods just because he has agreed to their repair. But it goes no further regarding what the effect of agreeing to repair has on the contract of sale.

The House of Lords have tried to fill this gap. They held that there was a separate contract for the repair of the goods, which did not in itself affect the customer’s right to rescind the contract of sale, but which must contain an implied term that if it was performed correctly, the customer would not exercise this right. This was required for business efficacy.

There was also an implied term in the repair contract that the customer would be informed of the defect and the actions taken to cure it - this was required to enable the customer to make an informed decision about whether to accept the repaired goods.

Failure to comply with this implied term was a material breach. The customer was entitled to rescind the repair contract, and then the contract of sale.

Phew. All in all, a complex analysis, but one which was required by the absence of detail in the statute.

Tip: If you are negotiating a sale of goods contract which includes an option for the supplier to repair any defective goods, consider including provisions which explain what this means rather than relying on the statutory provisions. What information does each party need to provide? How long will the repairs take? Can the customer reject the repaired products?

This applies whether you are acting for the customer or the supplier - the certainty that can be obtained through a clearly drafted clause has to be preferable to costly court action to determine the outcome.

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