Fit for purpose

30.09.11

 
Photograph of Greg Standing

This article was written by Greg Standing, partner in Wragge & Co LLP's Finance, Insolvency, Recoveries and Sales team and published in the September issue of Motor Finance.

The Court of Appeal recently reminded us of the application of the statutorily implied term regarding the fitness for purpose of goods, which is important to finance companies where dealers arrange the financing of the vehicles they supply.

In BSS Group PLC V Makers (UK) Ltd (t/a Allied Services), the court confirmed that under s 14(3) of the Sale of Goods Act 1979, the questions that have to be answered are:

  • Did the buyer, expressly or by implication, make it known to the seller the purpose for which the goods were being bought?
  • If so, were the goods reasonably fit for that purpose?
  • If they were not, has the seller shown that:
    • the buyer did not rely upon its skill and judgment, or
    • if it did, that it was unreasonable for the buyer to do so

Whether a particular purpose was made known to the seller is a question of fact. The purpose can be made known expressly, or implied, perhaps by reference to other items that the buyer is also acquiring from the seller at the same time.

Once the purpose has been made known, there is a presumption that the goods will be fit for that purpose.

In BSS, the buyer was acquiring a plastic piping system. The court held that it had, by implication, made it known to the supplier that the valves it also needed to buy for the same project needed to be compatible with those pipes.

Therefore, the supplier knew all it needed to know in order to exercise its skill and judgment as to whether the valves supplied were compatible. They were not - and therefore they were not fit for purpose.

As to whether the buyer relied upon the seller's skill and judgment, the court held that where a purpose has been made known, an assumption of reliance is generally inferred. The seller can only defeat that assumption by proving that the buyer did not rely, or that it was unreasonable to rely, on the seller's skill and judgment.

Comment

The important point for motor finance companies is that the buyer only needs to make the dealer aware of the purpose for which the vehicle is supplied to fix the finance company with knowledge.

In the usual course of events, it will be the dealer, not the finance company, which has the dealings and conversations with the buyer.

However, the buyer will still need to reject the vehicle or bring a claim for damages against the finance company in order for that rejection to be effective. If that occurs, the dealer may well find itself on the end of a claim for an indemnity from the finance company.


For further information about this published article, contact Kathryn Hobbs on +44 (0)121 685 2785 or Liam Thompson on +44 (0)121 685 2943

This published article may contain information of general interest about current legal issues, but does not give legal advice.

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