CONTRACTS - 31.10.2011

Shoddy goods: an exchange but no refund

The law on sale of goods

Whenever goods are sold in the course of a business, the Sale of Goods Act 1979, will apply. This means they must:

1. Match any description they’ve been given by the seller.
2. Not be faulty.
3. Be fit for purpose.
4. Be of satisfactory quality.

It’s a buyer’s right

If they aren’t up to scratch, e.g. an item is broken or not as described, the seller will be in breach of the Act. In this situation, the purchaser has a number of legal rights and can take court action to enforce them, if necessary. So if the company has received shoddy goods, and the seller won’t budge after a phone call, how do the directors go about sorting the matter out?

Put it in writing

Basically, they need to prove how and why the seller is in breach of the Act. The first two grounds are self-explanatory - something either lives up to its description and works or it doesn’t. Being “fit for purpose”, on the other hand, is all about the goods being able to do what they’re needed for. However, to rely on it, the purpose must have been: (1) obvious; or (2) explained to the seller, in advance of the transaction. For goods to “be of satisfactory quality” they must reach the standard a reasonable person would regard as satisfactory, based on their price and description.

Before you send a letter

But before firing off a letter demanding a refund, always check any paperwork that has passed between the parties - it’s possible that the seller has tried to reduce, or exclude, its liability in some way. This isn’t illegal, but any exclusion clause used must be fair and reasonable before the seller can rely on it. We looked at these in a previous article (yr.11, iss.6, pg.5, see The next step).

Whose call is it?

If the directors are convinced that they have the seller bang to rights, they will call the shots and have every right to insist on a refund.

Tip 1. Where the company requires a refund, request this in writing quickly; any failure to do so could be fatal. This is because the Act says that the buyer must exercise the “right of rejection” within a reasonable period of time”. So inform the seller of this in writing, setting out as much detail as possible. Also, make it clear that you won’t accept other offers and stipulate a time period for the refund (seven days isn’t unreasonable).

Tip 2. Although there’s a right of rejection where goods don’t measure up, the Act excludes minor breaches. Where the company finds itself in this position, it can still claim compensation if it can prove it’s suffered a financial loss.

Tip 3. If the seller won’t commit to a full refund, you’ll have to weigh up the benefits of bringing court proceedings against the associated costs.

For a link to the previous article, visit http://companydirector.indicator.co.uk(CD 13.03.07).