Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd

Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd - [1968] HCA 60 - HCA 1968 case summary — Zoe

[7]

I think there was also a breach of the implied warranty in sub-s. (2), that the buyer shall have and enjoy quiet possession of the goods. It may be that possession would not be disturbed if the only cause of complaint was that the buyer could not dispose of the goods, and that the warranty is confined to disturbance of possession of the goods delivered under the contract of sale. The warranty so interpreted was broken. The appellants were never allowed to have quiet possession. They had to strip off the labels before they could assume possession of the goods. Probably this warranty resembles the covenant for quiet enjoyment of real property by a vendor who conveys as beneficial owner in being subject to certain limitations, and only purports to protect the purchaser against lawful acts of third persons and against breaches of the contract of sale and tortious acts of the vendor himself. But it is unnecessary to define its scope. Later in Mason v. Burningham [2] , Greene M.R., speaking of the implied warranty, said: The warranty is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. Mr. O'Sullivan at one stage of his argument said that in that sentence there should be implied an exception in the case of disturbance by title paramount; and, of course, it is familiar learning that in the case of the ordinary covenants for title upon a sale of land the covenant for quiet enjoyment does not extend to cover disturbance by title paramount I invited Mr. O'Sullivan to refer us to any authority that would justify the insertion into that statutory phrase of an exception in the case of disturbance by title paramount, but he was unable to do so, and, in the absence of some such authority, I ventured to inform him in the course of the argument that I would not be prepared to introduce any such gloss on the language of the statute. He did not refer us to any authority, and, in the absence of any authority, I can only express my opinion that the statute means what it says and is not to have any such gloss put upon it. 1. [1921] 3 K.B. 387, at p. 403. 2. [1949] 2 K.B. 545, at pp. 562, 563.

[9]

The appellant next relies upon s. 54 (1) of the Sale of Goods Act which authorizes the buyer to set up against the seller a breach of warranty in diminution or extinction of the price. This provision recognizes that, notwithstanding a breach of warranty, the contract of sale remains in existence and that, subject to the rights conferred by the subsection, the full price of the goods is recoverable. The statutory provision does, however, afford the buyer protection against the seller in an action for the price even to the point of its extinction where the damages recoverable for breach of warranty equal or exceed the price. Not, of course, by an automatic extinguishment of the liability to pay the price but by the provision of a means whereby the buyer can ensure that the vendor does not recover the price where the damages for the breach of warranty equal or exceed the price. It seems to us, therefore, that where, as here, the damages recoverable by the buyer for breach of warranty on the part of the seller equals the price, that, in principle, the buyer should not be entitled to damages for conversion on the footing that the seller can still recover the price. The conversion is a breach of warranty of the contract of sale, which may be used by the buyer to extinguish the price payable under the contract of sale. If, therefore, the price and the value of the goods converted coincide - as they do here - there being no further damage, the extinguishment of the price would fully compensate the buyer for the conversion of the goods. It is, of course, true that the buyer is not bound to set up a breach of warranty in extinguishment of the price, Davis v. Hedges [1] , but what is of vital importance is that a buyer is entitled so to do and that, therefore, the seller cannot enforce payment of the price. In the assessment of his damages for conversion in breach of warranty the buyer cannot be treated on the footing that he could refrain from exercising the right he has to prevent recovery of the price. If he can avoid its payment he has not lost the amount represented by the price which he has not paid. In principle, therefore, the buyer in this case cannot be said to have lost the value of the goods by reason of the conversion which did, as it were, give as well as take away. The authorities, however, require consideration.

[15]

There are in the books, e.g., Benjamin on Sale, 8th ed. (1950), pp. 951, 952, statements to the effect that the seizure of goods by the seller after delivery is tortious and that the buyer may recover as damages the full value of the goods and the seller cannot set up the unpaid price. Gillard v. Brittan [2] is cited as authority. Where, however, the seizure is a breach of warranty of the contract of sale under which the price is payable, provision having been made by s. 54 for the diminution or extinction of the price by means of damages for breach of warranty, it is not a matter of the seller setting up the unpaid price against the full value of the goods; it is rather that the full value of the goods is no longer the measure of the real damage suffered by the buyer as a result of the conversion: Chinery v. Viall [3] and Butler v. Egg and Egg Pulp Marketing Board [4] . The principle of Chinery v. Viall [3] is, we think, applicable even after the delivery of the goods to the buyer in a case where the seller's conversion of goods is a breach of warranty of the contract of sale. The distinction between Chinery v. Viall [3] and Gillard v. Brittan [2] lies not in the circumstance that in the former case the conversion was of undelivered goods and that in the latter the conversion was of delivered goods but in the circumstances that the attempt made in Gillard v. Brittan [2] was simply to set off a debt against damages for trespass. There the question whether the party wrongfully taking his own goods debars himself from recovering the price was not decided one way or the other. Moreover, Gillard v. Brittan [2] was not, so far as it appears, a case of the conversion being in breach of the contract of sale. Furthermore, it was still to be established by Mondel v. Steel [1] that damages for breach of warranty in the contract of sale could be set off against the price. It was said in Chinery v. Viall [2] that "it would be singular if the same act which saved the vendee the price of the sheep should vest in him a right of action for their full value without deducting the price". This statement is applicable to a conversion after delivery as well as to a conversion before delivery if, as is now the law, the conversion after delivery, being in breach of warranty, does give rise to damages which can extinguish the price.

[38]

The view that the retaking of the goods relieved the plaintiff of his liability to pay the price obviously cannot be maintained upon the ground that the retaking worked a rescission ab initio of the contract of sale or was a breach of a condition to which the plaintiff's obligation to pay the price was subject. The defendant seeks to maintain it by pointing to the fact that the retaking was a breach of the warranty of quiet possession which was implied in the contract of sale (see the Sale of Goods Act, 1923 N.S.W., s. 17 (2)), and that as such it was capable of being set up by the plaintiff against the defendant in diminution or extinction of the price: ibid. s. 54 (1). But to say this is very different from saying that the conversion had the effect of reducing or extinguishing the price. What s. 54 (1) does (in its application to a breach of a warranty of quiet possession) is to give the buyer an option either to maintain an action against the seller for (and therefore to recover in full) the damages caused to him by the breach or to wait until he is sued for the price and then to set up the breach of warranty in diminution or extinction of the price. If he elects to sue the seller for damages, as he may do either in a separate action or by way of cross action when sued for the price, his damages must be measured by the loss directly and naturally resulting in the ordinary course of events from the breach; for s. 54 (2) so provides. There is nothing in the Act to entitle the seller to set up the price in diminution or extinction of the damages. By allowing the buyer, if he chooses, to defend an action for the price by proving how much less the goods were worth to him by reason of the plaintiff's breach of warranty and to have the verdict lessened on that account, s. 54 (1) merely allows a procedural concession, and one which, as the leading case of Mondel v. Steel [1] clearly shows, the law has come to concede for the sake of convenience. That the breach of warranty does not itself work a reduction or extinguishment of the buyer's liability for the price is necessarily involved in the proposition which s. 54 (1) establishes - indeed takes as its basic assumption - that if the buyer prefers to sue on the cause of action for breach of warranty and recover the full amount of his loss he is free to do so: Davis v. Hedges [2] ; Bow, McLachlan & Co. Ltd. v. The "Camosun" [3] .

[45]

he could not in any form of action recover the price; and it would be singular if the same act which saved the vendee the price of the sheep should vest in him a right of action for their full value without deducting the price. The whole point of the case lay in the interest which the seller had in the goods by reason of being still in possession of them at the time he converted them - that is to say his interest as an unpaid seller, which had necessarily to be allowed for in valuing the loss by the buyer of his interest in the same goods: see the important discussion of this case in Attack v. Bramwell [5] . Gillard v. Brittan [2] provides a clear contrast, for the seller in that case had delivered the goods to the buyer and the conversion was by way of a retaking, so that the interest the buyer lost by the conversion extended to the whole right of possession of the goods untrammelled by his liability to pay the price. The decision was that for that reason his damages could not be reduced on the ground that the price was unpaid. There is no inconsistency between the two decisions, and the present case is covered precisely by Gillard v. Brittan [2] , which no one but Denman J. seems ever to have doubted and textwriters have generally approved: see Bullen & Leake, Precedents of Pleadings, 3rd ed. (1868), p. 242; Benjamin on Sale, 8th ed. (1950), p. 949; Mayne and McGregor on Damages, 12th ed. (1961), p. 609, par. 704, note (30); Halsbury's Laws of England, 3rd ed., vol. 38, p. 796, par. 1323, note (s). The Court which decided Gillard v. Brittan [2] was a strong one. Lord Abinger C.B. pointed out that the opposite view would allow a party to set off "a debt due in one case against damages in another" - which is precisely what the defendant in the present case seeks to do; and one may add that the departure from principle that would have been involved in so doing is underlined by Baron Parke's acknowledgment in Mondel v. Steel [1] , that the converse process, of setting off damages for a breach of warranty against the price payable, though allowed for convenience, was in truth a deviation from principle. Lord Abinger added an observation [2] which is much in point in the present case: "The verdict in this case does not at all affect the right of the defendant to recover the whole" (of the price) "due to him from the plaintiff." Baron Alderson emphasized the essential disconnexion between the cause of action for the retaking of the goods and the cause of action for the price by saying that while the jury might consider the whole of the circumstances really belonging to "the case", i.e., the action for taking of the goods, a direction which the trial judge had given that the circumstances included the plaintiff's debt to the defendant was a direction to consider "a circumstance which ought to be excluded"; "otherwise", he said, "it is equivalent to adding a set-off in trespass". Baron Gurney concurred. Baron Rolfe said that no authority had been cited which supported the contention that a party who wrongfully retakes possession of his own goods (i.e., which he has sold) thereby debars himself from suing for the price. He found it unnecessary to give any opinion on the point; but the absence of authority upon which he remarked has continued, so far as I can find, to the present day. The truth, as it seems to me, is that the rule of practice now contained in s. 54 (1), enabling a buyer, if he so chooses, to have his claim against the seller for breach of warranty treated as if it were a subject of set off though in principle it is a subject for a separate action (a cross action), provides no logical or legal justification for the proposition that the seller may require his claim against the buyer for unpaid purchase-money to be treated, over the objection of the buyer, as if it had been satisfied by being set off against his liability for breach of warranty. 1. (1860) 5 H. & N. 288 [157 E.R. 1192]. 2. (1841) 8 M. & W. 575 [151 E.R. 1168]. 3. (1878) 3 C.P.D. 499, at p. 507. 4. (1860) 5 H. & N. 288 [157 E.R. 1192]. 5. (1860) 5 H. & N., at p. 294 [157 E.R., at p. 1195]. 6. (1863) 3 B. & S. 520 [122 E.R. 196]. 7. (1841) 8 M. & W. 575 [151 E.R. 1168]. 8. (1841) 8 M. & W. 575 [151 E.R. 1168]. 9. (1841) 8 M. & W. 575 [151 E.R. 1168]. 10. (1841) 8 M. & W. 858 [151 E.R. 1288]. 11. (1841) 8 M. & W., at p. 578 [151 E.R., at p. 1169].

[48]

For the foregoing reasons I am of opinion that the Court of Appeal was right in allowing the plaintiff compensatory damages for conversion and trespass to goods. In the action the plaintiff claimed also damages for trespass to land and relied upon the following circumstances. The goods referred to in the foregoing discussion were in the possession of the plaintiff, until they were taken by the defendant, in a number of shops in which the plaintiff was carrying on business as a retail seller of electrical appliances. In the shops there were also other goods, including some which belonged to the defendant and were the subject of hiring agreements called display plan agreements. By these agreements the defendant had hired the goods to the plaintiff for ninety days, and that period was still current at the material time. The agreements provided, however, that in certain classes of events it should be lawful for the defendant, immediately and without notice to the plaintiff, to determine the hiring and retake possession of the goods and for that purpose to enter upon any premises where the same might be. According to admissions made at the trial, prior to the acts of the defendant which are complained of as trespasses to land a receiver and manager of the plaintiff's property was appointed under a deed of charge which the plaintiff had given in favour of a third company, and apparently it was this appointment that led the defendant to seize and take both the goods covered by the display plan agreements and the goods which are the subject of the claims for conversion and trespass to goods. The appointment of the receiver and manager, however, was not proved to have been within the classes of events upon the occurrence of which the display plan agreements authorized the defendant to enter the plaintiff's premises. In particular, the appointment was not, in my opinion, a levying of execution or distress against the plaintiff, and since the deed of charge was not made evidence in the case there was no proof, though it may be the fact, that the crystallizing of the charge produced a breach by the plaintiff of any provision of the agreements. But the plaintiff's contention is that assuming the licence to enter which the agreements conferred took effect upon the appointment of the receiver and manager, the defendant was guilty of trespasses on the plaintiff's lands in so far as its servants or agents exceeded the limits of the licence by what they did with respect to goods which were not the subject of display plan agreements. The defendant did not, of course, become a trespasser ab initio by reason of this conduct, for the entry of its servants and agents upon the lands was not under an authority conferred by the general law; but the contention is that the defendant is guilty of trespasses pro tanto (as it was expressed in argument), that is to say to the extent of the use that they made of the plaintiff's lands otherwise than for the purpose of retaking possession of goods that were subject to display plan agreements. The Court of Appeal so held by a majority and in my opinion rightly. No doubt a person cannot be at the one moment of time both a trespasser and not a trespasser in respect of the same land. The initial entry of the defendant's servants and agents upon each of the relevant parcels of land and the acts they did thereon for the purpose of retaking possession of the goods which were subject to display plan agreements were all authorized (as I am here assuming), but the acts that they did for the purpose of taking possession of other goods were clearly not. Every step that they took on the plaintiff's lands for the latter purpose was an unlicensed step and therefore a trespass. Whether each such step be called a trespass pro tanto or a trespass quoad or just a plain trespass, the fact is that it was an unauthorized interference with the plaintiff's possession, and the plaintiff was entitled to a verdict for some damages in respect of it.

[69]

The Sale of Goods Act has stood the test of time since 1893. That is not to say that it has put its subject matter beyond debate. It has in fact produced its own crop of decisions. Its main provisions have been adopted in Australia - in New South Wales not until 1923. Some parts of it, in particular the provisions about conditions and warranties, still give rise to difficulties. The distinction between conditions and warranties, its terminology and its effect in particular cases have produced an enormous body of commentary in textbooks and articles, as may be seen by the numerous references in two learned articles: "Conditions, Warranties and Descriptions of Quality in Sale of Goods" by Mr. S. J. Stoljar, Modern Law Review, vol. 15, pp. 425-445; vol. 16, pp. 174-197; "Warranty, Condition and Fundamental Term" by Mr. F. M. B. Reynolds, Law Quarterly Review, vol. 79, pp. 534-555. I have read only a part of this mass of literature and of the case law referred to in it. In what I have read I have not discovered any recent judicial decision or any relevant academic pronouncement dealing with facts precisely similar to those of this case. We must, I think, decide it upon the words of the Act with such aid as it is legitimate to seek in earlier decisions. But before leaving the contributions of academic commentators, I may mention the article on "Codification of the Law of Contract" by Professor A. L. Diamond published in the July 1968 number of the Modern Law Review, vol. 31, pp. 361-385. I refer to it for two reasons. First, because it draws attention to the partial repeal of s. 11 (1) (c) of the 1893 Act by s. 4 of the Misrepresentation Act, 1967 of the United Kingdom. That section had embodied what the learned author of the article calls "a principle the application of which has anguished the academics". It is now buried for the United Kingdom, but is still well alive in New South Wales, where s. 16 (3) of the Act is in the same words as was s. 11 (1) (c) in the Act of 1893. And whatever anguish it may cause for academics, we must apply it; and I think it has indirectly a bearing on this case.

[91]

In the United States the law concerning remedies for breach of warranty now differs from that in the Sale of Goods Act. It is stated and discussed in Williston on Sales, revised ed. (1948), vol. 3, s. 603 et seq. But at one period the development of the law in many jurisdictions in America ran parallel with developments in England. In particular it was held that a buyer might set up a breach of warranty in answer to an action by the seller. This conclusion was firmly reached in America at about the same time as it was firmly enunciated in England in Mondel v. Steel [1] . In both countries it was recognized then as a change in practice. In both it was justified on grounds of convenience and as avoiding circuity of action. It thus became established that, as the Supreme Court of the United States put it in the course of expounding "the modern doctrine" in Withers v. Greene [2] , "it is the duty of the jury to graduate the plaintiff's recovery by the injury which the defendant has sustained ". The opinion of the Court in that case, delivered by Daniel J., is noteworthy not only for its citation of authority but for its concurrence with English statements of the common law. There are many later cases in the United States. Their general effect seems to be reflected in, in some cases to be the result of, s. 69 of the Uniform Sales Act. This differs materially from s. 53 of the Act of 1893; but it resembles it in one respect. The buyer can set up against the seller a breach of warranty "by way of recoupment in diminution or extinction of the price"; or he can bring an action against the seller for damages for breach of warranty. The significance of the resemblance at this point is that a breach of warranty does not automatically reduce or extinguish the liability for the price. The buyer must set it up. In America this course, which among others is open to him if he keeps the goods, is described as recoupment. "Under the doctrine of recoupment", says Professor Williston, "the theory is that the defendant is not bound to perform the contract on his part, but he has received something of value for which he ought to pay." This is contrasted with the right to damages by way of counterclaim. "Under the statutes of counterclaim the defendant does not seek to avoid his obligation under the contract but seeks to enforce the plaintiff's obligation and to deduct his liability for breach of that obligation from the amount due from himself.": Williston on Sales, revised ed. (1948), vol. 3, s. 605, p. 334. This may not, for the purposes of our law, express the theory behind on the one hand setting up a breach of warranty in answer to a seller's claim and on the other a claim by the buyer for damages for breach of warranty. But, whatever be the background theory of the doctrine, it is the common law of England which we and America have inherited which is in the background. And, as I understand the principles of the Sale of Goods Act, a breach of warranty does not by the terms of that Act or by the common law on which it is based, of itself determine the buyer's liability for price of goods sold and delivered to him and accepted by him.

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