Duty to Warrant Against Latent Defects (PDF)

COMMON LAW Obligation: to make the thing sold available without defects and in a suitable condition for the purpose for which it was sold Issueinvolving the above obligation: whether the defect is patent or latent as the effects of each are different More complicated: what remedies are available sho...

COMMON LAW Obligation: to make the thing sold available without defects and in a suitable condition for the purpose for which it was sold Issueinvolving the above obligation: whether the defect is patent or latent as the effects of each are different More complicated: what remedies are available should this duty be breached and circumstances in which each remedy may be claimed. WHAT IS A DEFECT? “Broadly speaking in this context a defect may be described as an abnormal quality or attribute which destroys or substantially impairs the utility or effectiveness of the res vendita, for the purpose for which it has been sold or for which it is commonly used.” – Corbett JA in Holmdene Brickworks (Pty) Ltd v Roberts Construction Common law definition similar to statutory definition in s53(1)(a) of the CPA 2important matters to be taken into consideration in determining whether or not an imperfection is a defect: a) The class of goods into which the thing sold falls; b) The purpose for which the thing is, or deemed to be, sold  The class of goods into which the thing falls into Leading case: Curtaincrafts (Pty) Ltd v Wilson – decided on the assumption that a haircord carpet laid in the buyer’s lounge/dining-room became discoloured when water split on it – it was not colour-fast (dyed in colours that will not fade or be washed out) Read Judge Addleson’s views on page 188 The carpet in this case was new – what one can expect of goods which are used varies with their nature and age Reed Bros v Bosch (second-hand car) and Addison v Harris (“very much used” lorry) “One must expect temporary breakdowns in old and much-used machines. Such break- Loading… downs may result merely from ordinary wear and tear, notwithstanding that the machine is not used in a proper way” Itmust be remembered, however, that “a second hand car is not necessarily a defective car” – Maennel v Garage Continental and it has defects which seriously impair its condition when regarded as a second-hand, an action may lie. The purpose for which the thing is, or is deemed to be, sold Molinaeus: when a container such as a vase made of silver is sold, the purpose may be to enable the buyer to use it as a vase (holding water) or to treat is as scrap metal to be melted down; and if wood is sold, the purpose may be to use it to build a ship or a house or to chop it up for firewood. In all these instances, it is thought that if the purpose is the first mentioned, and the vase leaks or the wood is rotten – there would be a defect; but if the purpose is the second of these mentioned, there is no defect. At times, the purpose of the sale will be communicated by the buyer to the seller before the transaction takes place – Glaston House v Inag (Pty) Ltd – property was bought specifically for redevelopment; at other times, the context in which the sale takes place will be sufficient indication – Sarembock v Medical Leasing Services (Pty) Ltd – the fact that one of the purposes of the purchase of a Porsche motor car was that it was being bought as an investment “was well known to all concerned” Ifthere is a particular purpose known to both parties or in the absence of such a purpose known to both parties, a common or ordinary use which any ordinary contracting parties may be deemed to have been able to appreciate, any imperfection preventing or hindering that use is an aedilitian defect  Holmdene case: bricks supplied to a builder contained deleterious quantities of magnesium sulphate which caused excessive efflorescence and crumbling – the court held that they were defective. Loading… PATENT DEFECTS vs LATENT DEFECTS PATENT DEFECTS A defect which is clearly visible to the naked eye or which is obviously discernible using another sense such hearing or smell Ifgoods which are made available to the buyer are clearly or patently defective, buyer is expected to object immediately and claim a remedy, on the grounds that the goods have not been made available in a suitable condition – treated as cases of defective performance (breach) and in the law of sale, usually dealt with as non-compliance with the duty to make the thing sold available. QUESTION: What if the buyer does not immediately object when the goods are made available, despite being patently defective, or even selects goods for purchase that are patently defective? May the buyer, some time after the contract has been performed, then turn around and claim a remedy because the goods are patently defective? ANSWER: In the absence of special circumstance (eg seller warranted character of thing sold) which have led the buyer to be less vigilant that they would otherwise have been (Cape v Hesom) a buyer who purchases and collects or takes delivery of goods that are obviously defected or diseased without objecting, is taken to have purchased the goods subject to the defect.  This means, for example, that if a buyer goes to a stock sale and buys an ox obviously blind in one eye, or a sheep with a scab (Muller v Hobbs) – not entitled to the benefits of the actions if buys despite the existence of the defects in question. However, just because defect is obvious does not always mean that the buyer is without action Zieve v Verster & Co: a buyer had looked at certain pigs before buying them and had not seen that they had measles. The test which the seller seemed to suggest he should have used to determine whether the pigs had measles was one which failed in at least half the cases in which it was used – an expert testified. Judge Gardiner found that the disease was latent. Also make reference to John Roderick’s Motors (Pty) Ltd and Lakier v Hager cases – page 192 The nature and magnitude of the external indication of a defect may be important – refer to Knight v Hemming case on page 192 LATENT DEFECTS Definition: “a defect is latent when it is one which is not visible or discoverable upon inspection of the res vendita” - Corbet JA in the Holmdene case The latent defects are those diseases or defects not discoverable by the ordinary intelligent individual who is not an expert in the thing that was sold. WHAT REMEDY MAY A BUYER CLAIM? Where the goods are latently defective and there is an additional factor present in the circumstances to justify it – a claim may be brought in terms of the actio empti and the buyer will be entitled to his option of the full range of remedies, incl a damages claim for consequential loss Under the common law: traditionally 3 circumstances in which an additional factor will justify a claim for consequential loss: 1. Where the goods are defective and the seller fraudulently sold them without disclosing the defect, knowing that they were defective – claims for performance or rescission are in terms of the actio empti but claim for damages is delictual; 2. Where the seller gave an express/tacit warranty or guarantee that the goods would be fit for purpose, and they are defective – actio empti; 3. Where the seller “warrants the skill of his art” – a form of residual warranty applicable to certain types of sellers under the common law (actio empti)  If the goods that are sold are found to be latently defective but none of the 3 circumstances exist: the buyer is limited to a claim in terms of one of the aedilitian remedies – actio redhibitoria or the actio quanti minoris Aedilitian remedies: no claim for consequential damages  FRAUDULENT CONCEALMENT OF A DEFECT A seller is required by law to disclose to the buyer any latent defects of which the seller is aware Seller intentionally does not disclose defects: buyer may institute a claim on the ground that the thing is defective and that there was fraudulent non-disclosure of the defect This will be the case even if there is a voetstoots clause purporting to exempt the seller from liability and where there was non-disclosure and “crafty concealment” of the defect – Van der Merwe v Meades If the buyer wishes to demand proper performance or to rescind, may do so in terms of the remedies provided by contract law Additionally, or alternatively, a claim for consequential loss is also possible in terms of the law of delict Leading case on a damages claim in such circumstances: Glaston House (Pty) Ltd v Inag (Pty) Ltd: Courtheld that in these circumstances, and when considering the purpose for which the property was bought, the monument constituted a form of defect And because the seller had a duty to disclose the monuments existence but did not this amounted to fraud  The result was that the buyer was entitled to his consequential loss as a remedy The court made it very clear that the claim is one of delict, based on fraudulent misrepresentation, and the delictual measure of damages is applicable Remember: there is no general duty to disclose in all circumstances Closed list of circumstances in which there would have to be a disclosure Indicators set out by Judge Van Zyl in McCann v Goodall Group Operations (Pty) Ltd: 1. A duty to disclose a material fact arises when the fact in question falls within the exclusive knowledge of the defendant and the plaintiff relies on the frank disclosure thereof in accordance with the legal convictions of the community. 2. Loading… Such duty likewise arises if the defendant has knowledge of certain unusual characteristics relating to or circumstances surrounding the transaction in question and policy considerations require that the plaintiff be apprised thereof. 3. Similarly, there is a duty to make full disclosure if a previous statement or representation of the defendant constitutes an incomplete or vague disclosure which requires to be supplemented or elucidated. Indicators repeated in Waller v Pienaar  THE SELLER HAS GIVEN EXPRESS OR TACIT WARRANTY/GUARANTEE ABOUT THE GOODS Ifthe thing sold is latently defective and the seller had warranted/guaranteed that the goods would not be defective (entirely/as agreed) = actio empti may be instituted by buyer and where possible, a claim for consequential loss In addition to express warranties, possible for there to be tacit warranties or warranties implied by the parties in terms of the application of the hypothetical or officious bystander test where the clause give “business efficacy to the contract, and does not contradict the express terms” – Reigate v Union Manufacturing Co; Shirlaw v Southern Foundries; Wilkens v Voges Common types of express or tacit warranties: warranty of fitness for purpose and the warranty of reasonable merchantable quality Consumer contracts: s55(2) CPA – consumer’s rights to receive goods “reasonably suitable for the purposes which they are generally intended; and [which] are of good quality.”  To warrant fitness for purpose The seller’s obligation Leading case on tacit warranties: Minister van Landbou-Tegniese Dienste v Scholtz The relevant ministry had purchased a bull from Scholtz for stud purposes. After the government had taken ownership of the bull, the bull was put to work but was found to be infertile. The ministry then sued for cancellation, on the ground that the bull’s condition was a breach of a tacit warranty that the bull would be fit for purpose – that is, fertile. Scholtz admitted in his plea that such a term was implied between the parties and did form part of the contract Magistrate’s Court: Magistrate interpreted the claim as one for an aedilitian action (actio redhibitoria) which, in terms of the law at the time, would have prescribed. Appeal Court: AD found that the claim was not aedilitian but was quite evidently brought in terms of the actio empti for a breach of a tacit warranty, which had not prescribed Wheeler v Woodhouse 2 cows were sold after a conversation during which the buyer said “he wanted to buy milk cows” and the seller said that the one on offer “were milk cows”. They gave hardly any milk at all. The buyer refused to pay the price and tendered restitution. When the seller sued for payment, Gallwey CJ said: If you buy a lamp, there is a warranty that he lamp will burn; so if you buy milk cows, you must get cows that will give milk.  Hugo v Henwood A mare was sold for racing purposes. At the time she was in foal (young) and could not race. As soon as the buyer discovered this, he cancelled the contract. The court held that he was entitled to do so. Kroomer v Hess & Co The seller sold “in good order and condition” (printed on the broker’s note) “200… bags this season’s crop monkey nuts of fair average quality” (written). The Transvaal Provincial Division found that by implication the nuts “were undoubtedly intended for human consumption. The evidence is clear that they were bought for that purpose to the knowledge of the defendant”. Magistrate found that nuts were not fit for human consumption. The circumstances of the sale will have to justify that the warranty may be read into the contract, and this will depend on whether both parties were ad idem about the particular purpose Hall & Co v Kearns When the purpose of a contract is referred to, what is meant is a purpose of which both parties are or are deemed to be, aware; not a purpose which only the buyer has in mind are which he keeps secret. Buyer’s remedies If the contract contains the warranty on fitness for purpose and the circumstances are such that the seller is liable under the warranty, the buyer may: Claim reduction in price (eg if buyer has made use of some of the things a) delivered) – Holden & Co v Morton Cancel the contract, tendering restitution if has received the thing – b) Hugo case c)Cancel the contract, tendering restitution if necessary and claim performance of the undertaking in the warranty (compensation for loss, incl. consequential loss, suffered as a result of breach of warranty) – Kroomer case  To warrant reasonable merchantable quality The seller’s obligation Old authorities Huber is the clearest that in some circumstances, a warranty between the parties that the thing sold is of reasonable quality may be implied: If the thing is entirely useless, so that it is of no value to the buyer, he may demand that the thing sold shall be declared to have been unmerchantable, and the defendant consequently condemned to take it back, and to restore and return the money received by him, with damages and interest. Van Bijnkershoek’s report of a case in 1718: consequential loss is recoverable if the thing sold is geen coopmans goet (action is described in the report as an actio quanti minoris but other authorities point is out as an actio ex empto Our case law show that SA law agrees with the above and the also the principles of English law. Fergusson v Wood Bros: shows that for the warranty to be enforceable between the parties, the parties would have to have agreed that the goods should be of a particular merchantable quality, and that the goods were, in fact, unmerchantable and unsealable in terms of the common standards for such merchandise Buyer’s remedies If the goods tendered for delivery are not of reasonable merchantable quality in accordance with the warranty, the buyer may cancel the contract and claim restitution – Jones v Cotts & Co Buyer does not lose right if he did not inspect the goods immediately on delivery – (Jones case) but it will be difficult to prove that the goods were not reasonably merchantable when delivered (Bell v Kamp) Buyer may also claim compensation for any consequential loss.  AEDILITIAN REMEDIES Residual actions that are available in all cases involving bare breach of the obligation not to sell defective goods Ifa buyer cannot institute a claim in terms of the actio empti, this does not mean that they are without an action - may bring an aedilitian action Aedilitian actions available in the law of sale Actio redhibitoria Action for setting aside the contract and restitution of the thing sold and the price – Dodd v Spitaleri; Van Zyl v Credit Corporation of SA ltd Both parties should be restored to their original positions in so far as this is possible No consequential damages but restitutionary damages may be recovered – Inhambane Oil and Mineral Development Syndicate Ltd v Mears and Ford Eg includes costs of transporting the property (Wilken and Ackerman v Komfass) Subject to those cases where a claim will be disallowed in certain circumstances, the action lies if: a) At the time of the sale, the thing is sold in contravention of the edict (duty) in the sense that it suffered from “any disease or defect” not declared by the seller, even if it was one of which he had no knowledge  a thing is sold “in contravention of what was stated and promised” edict imposes a duty on the seller to inform a buyer of any disease or defect in the thing sold. if the thing was sold in contravention of the duty, an actio redhibitoria would be granted. the legal issue is hence the non-disclosure of the defect or disease that existed at the time of sale The exceptio redhibitoria The circumstances which give rise to an actio redhibitoria also give the buyer a defence if the seller sues for the price Defence: exceptio redhibitoria – Purcell v Marks Ltd If buyer relies on this defence, required to tender restitution of the subject matter of the sale – Theron v Africa If part of the subject matter has been used to the benefit of the buyer before he discovers the disease/defect, he is in addition required to tender an amount equivalent to the value received.  The actio quanti minoris An action “for the return of a portion of the purchase price” – McDaid v De Villiers The buyer retains the thing sold and the contract continues to stand Designed the put the buyer in the position he would have been in had he known of either the defect or the truth about the thing sold and hence would have paid a lower price for it. The circumstances which give rise to an actio redhibitoria give rise also to an actio quanti minoris – SA Oil and Fat Industries case, Hall v Milner Thismeans, if the thing is sold with an undeclared disease or defect, or if the thing turns out not be that which was stated or promised, the actio quanti minoris will lie When such circumstances arise, the buyer has a choice: Restore the thing and reclaim the price paid; or Retain the thing and reclaim part of the price. Once the actions have been brought, matter becomes res jundicata (in court) and the other action cannot subsequently be brought on the same facts However, if thereafter another defect is discovered, another action can be instituted  Buyer may also bring an actio empti and rely in the alternative on an actio redhibitoria and in the further alternative, on an actio quanti minoris – Le Roux v Autovend (Pty) Ltd As there are circumstances in which a court may find that an actio quanti minoris is competent although an actio redhibitoria is not, a buyer is entitled in one and the same action to claim redhibition, alternatively the return of portion of the price – Clarke Brothers & Brown (1913) Ltd v Truck and Car Co Ltd Where a disease/defect is a material one, most buyers would want to seek redhibition and so it is seldom that where the problem is serious that a buyer will be satisfied to retain the thing and simply to seek a return of a portion of the purchase price. But it may happen in the circumstances of a particular case that the disease/defect is not material enough to give rise to an actio redhibitoria and yet is not so unimportant as to fall within the maxim de minimis non curat lex In such circumstances, the buyer may bring the actio quanti minoris Douglas v Dersley – cancellation of the contract was refused but exceptio quanti minoris (reduction of the price) was allowed.  The exceptio quanti minoris The circumstances which give rise to an actio quanti minoris also give the buyer a defence if the seller sues for the agreed price Davenport Corner Tea Room case, Miller J said: That it is competent for a purchaser who is entitled to a reduction in price because of the existence of latent defects in the merx to enforce that right by way of exceptio or plea instead of by way of the actio quanti minoris POSITION UNDER THE CPA s55(2): The right to safe, good quality goods and the warranty of quality S55(3): if a consumer has specifically informed the supplier of the particular purpose for which the consumer wishes to acquire any goods, or has specifically informed the supplier about the use to which the consumer intends to apply those goods, and the supplier (a) ordinarily offers to supply such goods; or (b) acts in a manner consistent with being knowledgeable about the use of those goods, then the consumer has a right to expect that the goods will be reasonably suitable for the specific purpose that the consumer has indicated. s55(4) s55(5) s56 Warranty on repaired goods – s57 Duties involving hazardous or unsafe goods – s58, 59 and 60 Remedies: specific performance and cancellation – s56(2) Liability in damages – s61