United Kingdom House of Lords Decisions

LORD ROBERTSON'S OPINION.—The pursuers in this action are merchants of textiles, carrying on business in Manchester. The defenders are fine jute and cotton manufacturers with a factory at Manor Works, Forfar. The pursuers sue the defenders for damages of £3187, 13s. 8d. for alleged breaches of contract, arising out of two orders given to the defenders by the pursuers for the supply of cloth. On or about 15th May 1964 the pursuers by order no. M 10004 ordered from the defenders 850 pieces of 49″/105 yards fibro plain cloth at a price of 36.25d. per yard. On or about 29th May 1964 the pursuers by order no. M 10023 ordered from the defenders another 50 pieces of 49″/105 yards fibro plain cloth at 36.25d. per yard. The defenders agreed to supply this cloth, it being agreed that the second order, M 10023, should be delivered first. Payment was to be made within 14 days after delivery of each consignment.

Deliveries against order M 10023 were made in July 1964 and were completed by 20th July 1964. Deliveries against order M 10004 began in July 1964, and were made from time to time until 16th July 1965. The pursuers returned some pieces from time to time, and on 6th September 1965 the pursuers wrote to the defenders cancelling the balance of the contract. Some pieces were thereafter returned to the defenders. The pursuers were left with 26,749 yards on their hands referable to the said two orders, for which the pursuers have paid the defenders. Eventually the pursuers sold the whole of this amount at a price of 15d. per yard. The damages claimed are the difference between the price which the pursuers say they would have got and the price of 15d. which they actually got for the cloth.

[His Lordship quoted subsections (1) and (2) of section 14 of the Sale of Goods Act, 1893, summarised the parties' averments, narrated the procedure in the action, and continued]—

As already stated, the formation of the contracts between the pursuers and defenders is admitted under reference to the documents and correspondence. The orders are nos. 17/32 and 17/34 of process. It appears that the cloth there described was rayon, made of viscose yarn. These orders were both signed by Mr J. S. Brown [the pursuers' managing director]. In neither of these orders is it stated expressly that the particular purpose for which the cloth was required was for making into dresses. It was proved that, before placing the first order with the defenders, the pursuers as merchants had an order for the goods from Treforest Silk Printers Ltd. at a price of 39.75d. per yard, but this was not disclosed to the defenders at the time.

The first main question of fact in the case, therefore, is whether the pursuers by implication made known to the defenders the particular purpose for which the goods were required, namely, for resale by them for making into dresses. Much evidence was led by both parties regarding the history of business dealings between them. The pursuers first relied on the position of Mr J. S. Brown in their business. It was said that he dealt exclusively with dress material and that the defenders should have known this. [His Lordship discussed the evidence on this matter, and concluded]—

In my opinion it was not until December 1964 that the defenders knew—for the first time—that the goods in these contracts were required for dress purposes. Mr J. S. Brown said that he wrote a letter (copy of which is no. 37/77 of process) to Mr Glenday [the defenders' salesman], which is dated 2nd December 1964. The circumstances in which this letter was alleged to have been written were somewhat unusual, and it was denied by Mr Glenday that he had ever received it. According to Mr J. S. Brown he had been in London and had tried to telephone to Mr Glenday in Forfar but could not get through. He therefore wrote the letter from the club in London at which he was staying. Mr Cook [the defenders' managing director] said that he was "astounded" when he heard that the cloth was to be used for dress purposes. He thought that he learned this first about the beginning of 1965, but he had never seen or heard of the letter dated 2nd December 1964. Mr Thompson, who was the defenders' weaving supervisor, thought that he had first heard that the order was for dress cloth about the end of December 1964 or early January 1965. By this time almost all the material had already been woven. The last set went into the dressing machine on 9th December 1964, went to the looms on 31st December 1964, and was completed on 19th January 1965. According to Mr Thompson he was told at the time of the last part of the order that the cloth was for dress goods, and he thought that as a result this last weave had been done with a more careful standard of weaving. I think on all the evidence that it is probable that the defenders did know before the end of December 1964 that the cloth was intended for dress goods, either from Mr J. S. Brown's letter dated 2nd December 1964 or in some other way, perhaps by telephone. By this time all the cloth had already been made or was in process of being woven.

That the defenders had no knowledge, either express or implied, at the time when the contract was entered into, that the cloth was intended for dress purposes is in my view made very clear by the evidence relating to their factory and business. They were jute and cotton manufacturers and only comparatively recently had taken to dealing with rayon also. [His Lordship discussed the evidence as to the nature and capacity of the factory and the business of the defenders and of one of their subcontractors, and as to their belief that the material was required for industrial, not for dress, purposes. He then continued]—

In my opinion it is clear on the evidence that there was a basic misunderstanding between the pursuers and the defenders at the time when these contracts were entered into. The pursuers wanted the material for dress purposes, but they did not expressly inform the defenders of this. The defenders were under the impression that the material was required for industrial purposes, and had it manufactured as such. In my opinion the pursuers have failed to prove that the particular purpose for which the goods were required was conveyed to the defenders. They have failed to prove that Mr J. S. Brown, to the knowledge of the defenders, dealt only with the dress trade. It is admitted that the particular purpose for which the goods were required was not expressly made known to the defenders, and in my opinion it has not been proved that this purpose was made known to the defenders by implication. The pursuers' case under section 14(1) of the Sale of Goods Act, 1893, accordingly fails.

There remains the case under section 14 (2) of the Act. It is fair to say that counsel for the pursuers put this case first in his submissions, and it raises more difficulty than the case under section 14(1). It is admitted by the defenders that the goods were bought and sold by description, and I did not understand it to be disputed by the defenders that they were manufacturers who dealt in goods of that description. It is also not in dispute that the cloth made by the defenders fulfilled the description set out in the contracts. Further, no point arises under the proviso to section 14(2). The important question therefore is whether the goods were or were not of merchantable quality, because that is an implied condition of the contracts under section 14(2). It was submitted by the pursuers that it had been proved that the goods were not of merchantable quality. The question of what is meant by "merchantable quality" has recently been discussed at length in the House of Lords in Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31 (see particularly Lord Reid at pp. 74–9). Lord Reid (at p. 75) defines "merchantable" as "commercially saleable," and continues:

"If the description is a familiar one it may be that in practice only one quality of goods answers that description—then that quality and only that quality is merchantable quality. Or it may be that various qualities of goods are commonly sold under that description—then it is not disputed that the lowest quality commonly so sold is what is meant by merchantable quality: it is commercially saleable under that description."

At p. 77 Lord Reid amends the definition of "merchantable quality" given by Lord Wright in Cammell Laird & Co. v. Manganese Bronze and Brass Co . [1934] A.C. 402 (viz. "What sub-s. (2) now means by ‘merchantable quality’ is that the goods in the form in which they were tendered were of no use for any purpose for which such goods would normally be used and hence were not saleable under that description") to:

"‘What subsection (2) now means by "

merchantable quality" is that the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description.’ This is an objective test: ‘were of no use for any purpose…’ must mean ‘would not have been used by a reasonable man for any purpose…’" Lord Reid also approves (at p. 78) a dictum of Lord Wright in Canada Atlantic Grain Export Co. v. Eilers, (1929) 35 L1.L.R. 206, at p. 213, viz.:

"…if goods are sold under a description which they fulfil, and if goods under that description are reasonably capable in ordinary user of several purposes, they are of merchantable quality within Sect. 14 (2) of the Act if they are reasonably capable of being used for any one or more of such purposes, even if unfit for use for that one of those purposes which the particular buyer intended."

It is admitted by the defenders in their pleadings that the cloth tendered to the pursuers under the contracts was unsuitable for use as dress material. On the evidence this was clearly so (see in particular the evidence of Mr Jones and the Report and Opinion of the Manchester Chamber of Commerce dated 24th February 1966).

But problems arise in the present case out of the fact, which I have already held proved, that the defenders manufactured the cloth for industrial purposes. There is ample evidence that the quality of the cloth was reasonably satisfactory for industrial purposes, and I accept this evidence. Some of the pursuers' witnesses, including Mr J. S. Brown, expressed the view that the quality of a cloth was either acceptable or not acceptable. A fault was a fault, and if the number of faults in a piece of 100 yards exceeded the normally accepted figure of 8 to 10, then the piece as a whole was faulty and unacceptable. The evidence of the defenders' witnesses, however, was that a fault is a matter of opinion, relative to the mind of the inspector, who considered the matter from the point of view of the end-use, or purpose, for which the cloth was required. [His Lordship referred to the evidence as to the faults in the cloth, and as to its suitability for various purposes, and continued]—

As already stated, I hold that the quality of the cloth manufactured by the defenders was reasonably satisfactory for industrial use.

But the more difficult question is whether the goods bought and sold under the description in the contracts were commercially saleable in normal user for an industrial purpose.

It was argued by counsel for the pursuers that there was no evidence that in fact this particular construction of cloth had up till the time of the contract ever been used for an industrial purpose, and that this was fatal to the defenders: industrial use was not a normal user of the cloth. But this in my view is too strict a test. The test is whether the cloth was reasonably capable of being used for a purpose other than dress (Canada Atlantic Grain Export Co. v. Eilers, Lord Wright at p. 213). Normal user in my view means a use for which the cloth in its ordinary state was reasonably capable of being used, as opposed to being used for some extraordinary purpose (see Asfar & Co. v. Blundell, [1896] 1 QB 123).

I accept that a normal user of goods bought under the description in the contracts was for making into dresses. [His Lordship referred to the evidence on this point, and continued]—

So far as other users for the cloth are concerned, it is true to say that there was no evidence that cloth answering to the whole of the description had ever been used for any industrial purpose before this contract, although most of the witnesses could see no reason why it could not be so used for a number of different purposes, including industrial user. [His Lordship discussed the evidence as to possible users. This included the evidence of Mr Duke, one of the directors of a company to which the defenders had subcontracted the manufacture of part of the order. Mr Duke deponed that the specification in the contract was close to a British Standard Specification for hose ducks (materials for laminating and reinforcing various types of hose); that he had not manufactured this particular construction of cloth before, though he had manufactured approximately similar fabrics for such end-uses; and that, though this particular construction was a novelty to him, he remembered an example of a rayon cloth very close to this specification being purchased for money bags. His Lordship then continued]—

My conclusion on this evidence is that no actual sale of this particular construction of cloth for an industrial purpose—or indeed for any purpose other than dress—is proved to have occurred before these contracts in the ordinary course of the textile trade. I am also of the opinion that it is proved on a balance of probabilities that, so far as the cloth is concerned, it was reasonably capable of being used, and was saleable, for a number of industrial purposes.

It is of assistance to examine what actually happened to the cloth which had been made, but not disposed of, at the time when the contracts were cancelled. Mr Duke was left with over 300 pieces of the cloth which were not delivered to the defenders. The price he was getting from the defenders for making it was 35¾d. per yard, which he considered a fair price for it as an industrial cloth in 1964. Eventually he sold all the residue of over 300 pieces to various outlets for various different purposes, but the price he received for it is not proved.

Mr Cook, who had, at the time when the contracts were made, considered that the cloth was for industrial purposes, would have quoted a higher price had he realised that the quality of the cloth demanded was for dress goods. When the contracts were cancelled, the defenders were in possession of a considerable quantity of the cloth (approximately 20,000 yards). In September 1966 they sold 5000 yards of it in two batches at 30d. and 29d. per yard to the Wheeler Silk Company, for use as dress material. It was dyed at a price of 12d. per yard at the expense of the defenders, the price of the dyed material accordingly being 42d. and 41d. per yard. Mr J. S. Brown considered that this price was very low and must be taken to have been on the basis that the goods were faulty. According to him Wheelers in the ordinary course could sell the dyed goods at 70d. to 75d. per yard. The defenders have recently sold another 300 yards to A. Nicol & Co., weavers, Arbroath, at 30d. per yard, for an industrial purpose. The defenders also sold 5000 yards at a price of 30d. per yard to Low and Bonar Ltd., Dundee, for industrial purposes (seed bags) in September 1966. The defenders anticipate that in the future they will readily be able to dispose of the residue of the cloth remaining in their hands (about 11,000 yards).

The pursuers, on the other hand, were left with 26,749 yards of cloth when the customers who had ordered it (Treforest Silk Printers Ltd.) cancelled their contract on 3rd December 1965…Thereafter the pursuers made attempts to sell it. Samples of the cloth were given to their salesmen, with instructions to endeavour to sell it. No offers in the neighbourhood of 36d. or 39d. per yard were received. One offer of 12d. per yard was received. Eventually the whole was disposed of in one lot at a price of 15d. per yard to a company called Andrew Mitchell, of Glasgow, who made tents and tarpaulins, on 10th January 1968. Mr J. S. Brown did not think that they could have got a better price, but it is clear from his evidence that they were attempting to sell it as faulty cloth, rather than as reasonably satisfactory industrial cloth. Mr Brown's efforts to sell were confined to the dress trade. Mr Brown agreed, however, that he and Mr Cook had agreed that it should be offered at between 27d. and 30d. a yard after the contracts had been cancelled. This he regarded as a reasonable price. Mr J. S. Brown agreed that there had been a fall in demand for this construction of cloth in 1964 and early 1965, but later demand had risen.

Mr Ashworth, who dealt only in industrial fabrics, was one of the salesmen who tried to sell the cloth at a price of 27d. to 30d. after it had been rejected. He tried to sell it to a number of customers, probably 25 to 30, for industrial purposes, without success. He thought that the pursuers did more than anyone could do in trying to sell it.

Mr Sommerville also was enlisted to try and sell the rejected cloth, and he made personal efforts to interest various industrial firms in the cloth at a price of 27d. per yard, without success. He thought that the reason for this was because it was a special type of cloth.

In my view, the evidence of the defenders indicates that there was in fact a market for this cloth in its actual state, for industrial purposes at least, at a price of about 30d. per yard from 1966 onwards. I think that the pursuers did not make sufficiently energetic efforts to sell it among customers likely to buy it, and in the end of the day I think that they gave up and sold it in a lump at a much lower price than they might have got for it.

The price which a buyer would have offered in May 1964 for the cloth for industrial purposes is necessarily speculative. [His Lordship considered the evidence of a number of witnesses on this, and concluded]—In my view Mr Garner's evidence suggests that the price of 36.25d. per yard was a low price for this cloth as a dress fabric, but that as an industrial cloth its value was approximately 30.5d. per yard. This in my opinion gives support to the evidence that it has been sold for industrial purposes since 1966 at 30d. per yard.

There was some evidence that prices of cloth had tended to fall in late 1964 and early 1965, but had recovered since then. I am prepared to accept that from 1966 onwards the prices approximated to those in 1964.

In these circumstances my conclusion is, as I have already said, that the cloth at the time of the contract was reasonably capable of being used, and was saleable, for a number of industrial purposes. The price of 36.25d. per yard was higher than would have been normal for it as an industrial fabric, but not unreasonably high for the defenders constructing it for such a purpose. On the other hand this price of 36.25d. per yard was low for a dress fabric, and the defenders' price for constructing it as a dress fabric would have been higher.

Taking Lord Wright's test of "merchantable quality," as laid down in Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206, at p. 213, prima facie it would appear from this conclusion that the defenders were entitled to succeed. But there is a further question created by the difference in the prices which I have indicated. This question does not seem to have been finally resolved in the cases which deal with "merchantable quality" under section 14(2) of the 1893 Act.

In Jones v. Padgett, (1890) 24 Q.B.D. 650—where the facts appear to have been not unlike the present case—it was left to a jury to decide whether cloth, which was fit to be sold to merchants for various purposes, was unmerchantable because it was unfit for a dress purpose, which was the purpose—not disclosed to the manufacturer—for which the buyer bought the cloth. The question of price was not considered in that case. See also Drummond v. Van Ingen, (1887) 12 App, Cas. 284, especially Lord Herschell at p. 296. In Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206, Lord Wright (at pp. 212–3), in the passage already referred to, said:

"…if goods are sold under a description which they fulfil, and if goods under that description are reasonably capable in ordinary user of several purposes, they are of merchantable quality…if they are reasonably capable of being used for any one or more of such purposes, even if unfit for use for that one of those purposes which the particular buyer intended. No doubt it is too wide to say they must be of use for some purpose, because that purpose might be foreign to their ordinary user. Thus in Asfer v. Blundell, [1896] 1 QB 123…dates were held to be unmerchantable as dates because they had been submerged in the Thames and had become impregnated with sewage, though they were of considerable value for distillation into vinegar."

In Hardwick Game Farm v. S.A.P.P.A. Lord Reid approved the above opinion of Lord Wright. He says (at p. 77):

"But if the description was so general that goods sold under it are normally used for several purposes, then goods are merchantable under that description if they are fit for any one of these purposes: if the buyer wanted the goods for one of those several purposes for which the goods delivered did not happen to be suitable, though they were suitable for other purposes for which goods bought under that description are normally bought, then he cannot complain. He ought either to have taken the necessary steps to bring subsection (1) into operation or to have insisted that a more specific description must be inserted in the contract."

Lord Reid says nothing specific about price, but approves with a small reservation (at p. 79) the dictum of Dixon J. in the High Court of Australia in Australian Knitting Mills Ltd. v. Grant, (1933) 50 C.L.R. 387, at p. 418, viz.:

"The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms."

(The italics are mine.)

This definition appears to refer more narrowly to goods with a latent defect, rather than to goods with no defect which have more than one purpose.

Lord Morris approves Lord Wright's dictum in Canada Atlantic Grain Export Co. v. Eilers . Lord Guest, however, at p. 108, doubts the universal application of Lord Wright's dictum in Cammell Laird Co. v. Manganese Bronze & Brass Co. He says:

"The test put forward by Lord Wright may be one factor or one guide in the determination of merchantability but it cannot be the determining factor since purpose is not the sole test of merchantability and the test omits all reference to price. If the test of unmerchantability is that the article is fit for no use, few goods would be unmerchantable because use can always be found for goods at a price."

Lord Guest goes on to prefer the test of Dixon J. in Australian Knitting Mills.

Lord Pearce (at pp. 117–9) prefers the test of Dixon J. to that of Lord Wright, because "the suggestion, without more, that goods are merchantable unless they are no use for any purpose for which they would normally be used and hence would be unsaleable under that description may be misleading, if it contains no reference to price. One could not say that a new carpet which happens to have a hole in it or a car with its wings buckled are of no use for their normal purposes and hence would be unsaleable under that description. They would no doubt, if their price was reduced, find a ready market. In return for a substantial abatement of price a purchaser is ready to put up with serious defects, or use part of the price reduction in having the defects remedied. In several classes of goods there is a regular retail market for ‘seconds,’ that is, goods which are not good enough in the manufacturer's or retailer's view to fulfil an order and are therefore sold off at a cheaper price. It would be wrong to say that ‘seconds’ are necessarily merchantable." Lord Pearce indicates (p. 119) that he considers the qualification "without abatement of the price" to be vital.

It seems to me that, when applying section 14(2), there are two classes of case in this line of authority to which different considerations may be applied. There are, on the one hand, the cases like Australian Knitting Mills Ltd. v. Grant and Hardwick Game Farm v. S.A.P.P.A., where there was a latent defect in the quality of the goods sold. In such a case, the test of Dixon J. is appropriate. The defective goods could only be said to be of merchantable quality if some buyers would buy them for some purpose knowing of their defective condition and without abatement of price. If they were saleable only at a price appropriate to defective goods, then they were not of merchantable quality. But there is also the type of case (e.g. Jones v. Padgett ) envisaged by Lord Wright in Canada Atlantic Grain Export Co. v. Eilers, where goods bought under a more general description are reasonably capable in ordinary user of several purposes. It may be that they are reasonably capable of being used for one or more of such purposes, although not fit for that one of those purposes which the particular buyer intended. In such a case it seems to me that in that event they are of merchantable quality under that description, even if the buyer might not have offered such a high price if he had realised that he was only going to be getting goods reasonably capable of being used for a purpose other than that for which he had intended them. Such a price is not a give-away price for defective goods: it is a full price payable for goods under that description, albeit for a different purpose not in the contemplation of the buyer. In such a case I respectfully agree with Lord Reid that the buyer's remedy was to have taken the necessary steps to bring subsection (1) of section 14 into operation or to have insisted that a more specific description must be inserted in the contract.

In the present case, the cloth was sold by description and fulfilled the description set out in the contracts. It was reasonably capable of being used for one of the purposes for which goods under that description were reasonably capable in ordinary user. The price paid was in the seller's view appropriate to that use, although the buyer considered the price appropriate to another use. In these circumstances I think that the pursuers have failed to prove that the goods were not of merchantable quality and that their case under section 14(2) fails.

[His Lordship then considered the question of damages. He held that the pursuers' efforts to find a market for the 26,749 yards of cloth left on their hands had not been sufficient; that, had they made proper efforts to sell it, their loss would have been only 9d. a yard; and accordingly that the damages due, had he found in the pursuers' favour, would have been £1003.]

The pursuers reclaimed, but on 10th July 1969 the First Division (without Lord Cameron) refused the reclaiming motion.

LORD PRESIDENT (Clyde).—This is an action of damages for breach of a contract of sale by description brought by a firm of merchants in Manchester against a jute and cotton manufacturer in Forfar, from whom the material in question had been ordered. The sole issue in the case now turns upon the meaning and effect, as applied in the circumstances of this case, of the words "merchantable quality" in the Sale of Goods Act, 1893. After a proof the Lord Ordinary has held that the defenders were not in breach of any implied condition regarding the merchantable quality of the material supplied, and he has therefore assoilzied them. Against his interlocutor so doing the pursuers have presented this reclaiming motion.

It is not in dispute between the parties that this is a case of a sale of goods by description, and that the goods in question complied with that description. It is also now established that, although they did not so inform the defenders, the pursuers in fact wanted the material for the manufacture of dresses. The defenders on the other hand understood that the material was required for industrial purposes, and manufactured it as such. This meant that it was less uniformly woven than would have been required if its use was for dresses. There was, therefore, as the Lord Ordinary held, a basic misunderstanding between the parties at the time when the contract was entered into, due to the fact that the pursuers had not disclosed to the defenders the purpose for which they intended to use the material. The case which the pursuers originally sought to make against the defenders under section 14 (1) of the Sale of Goods Act, 1893, has therefore failed. This was not disputed before us. The only case left, therefore, is the case under section 14 (2) of the Act. The material part of that subsection is:

"Where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality…"

To determine whether or not there has been a breach of this subsection it is necessary in the first place to summarise the facts found by the Lord Ordinary in regard to the material in question. This is not a case of a material of such a kind that it can only be used for one purpose, namely dresses. The Lord Ordinary has held that "there is ample evidence that the quality of the cloth" made by the defenders under the contract in question "was reasonably satisfactory for industrial purposes, and I accept this evidence." And again, after narrating the evidence of the witnesses, he says:

"In these circumstances my conclusion is…that the cloth at the time of the contract was reasonably capable of being used, and was saleable, for a number of industrial purposes."

As the absence of defects in the weave is much more important in the case where the material is used for dresses than where it is used for one of these industrial purposes, a higher price is to be expected if the purpose is use for dresses. The Lord Ordinary has held that the contract price in this case was low for a dress fabric, but higher than would have been normal for it as an industrial fabric, but not unreasonably high for the defenders constructing it for such a purpose.

In these circumstances in my opinion no breach of section 14 (2) has been established, and the Lord Ordinary reached the correct conclusion on the merchantability of the material. The case fits precisely into the definition of merchantable quality which was expressed by Wright J. (as he then was) in Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206 (at p. 213), and approved by Lord Reid in Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31, at p. 78. Lord Wright says:

"…if goods are sold under a description which they fulfil, and if goods under that description are reasonably capable in ordinary user of several purposes, they are of merchantable quality within Sect. 14 (2) of the Act if they are reasonably capable of being used for any one or more of such purposes, even if unfit for use for that one of those purposes which the particular buyer intended."

The present case is not an instance of goods sold under a description which is commonly used to identify a high quality of goods usable only for making into dresses (the situation envisaged as a possibility by Lord Reid in Hardwick Game Farm, at p. 77). The present case is one where the description in the contract covers both goods of a high quality suitable for dresses (where unevennesses in the weave should not occur) and also goods of a lower quality suitable for industrial use (where such unevennesses are immaterial). The description of the goods in the contract in question in this case is general enough to cover goods made for either purpose, and if the pursuers desired the goods to be made suitable for use for dress purposes only, they should have taken the necessary steps to bring subsection (1) into operation or have insisted that a more specific description was inserted in the contract so as to acquaint the defenders with the specific use for which they wanted the goods.

The pursuers argued, however, that the normal use of the goods such as those in question was for making up into dresses, and that this use set the standard of merchantable quality. This, however, is not the test approved in the decided cases to which I have just referred in judging of the merchantable quality of goods such as those in question, where the goods described in the contract are reasonably capable of being used for more than one purpose. Capability of being used, and not actual use or normal use, is the test. "Reasonably capable" I take to exclude use as scrap, and to cover in the present case use for making bags or other such industrial purposes. As the Lord Ordinary holds in the course of his opinion, "goods bought and sold under the description in the contracts were commercially saleable in normal user for an industrial purpose." That is the test of their merchantability.

It was also maintained by the pursuers that there was no evidence that, when the contract was made, such material was used for any industrial purpose. From this it was sought to infer that the article in question was not a dual-purpose article at all. This argument, however, is contrary to the conclusion reached in fact by the Lord Ordinary, who held that goods bought and sold under the description in question were commercially saleable in normal user for industrial purposes. The mere fact that no instance was proved, as at the date of the contract, of use of this particular material for industrial purposes is not a secure basis for the inference that it is therefore not capable of use for any other purpose. Such a test would be far too narrow a criterion.

But, apart from this, the evidence does not support it. The pursuers' own witness Mr Brown admitted that it might well be possible to use the material for making bags. Mr Jones, the pursuers' expert in the trade, considered the cloth was not made for any special use, but rather for general textile purposes. The defenders' witness Mr Cook stated that the firm had made rayon material of a very similar construction for industrial use before. Moreover, after reviewing the rest of the evidence in detail, the Lord Ordinary summarises the matter by holding that there was ample evidence that the quality of the cloth was reasonably satisfactory for a series of industrial purposes.

But, apart from this altogether, the proper test is not whether this particular description of cloth had been proved to have been in fact used for industrial purposes at the date the contract was made. The true test is set out by Lord Reid in Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31, at p. 77. The criterion there laid down for distinguishing merchantable from unmerchantable quality is whether "‘the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description.’ This is an objective test: ‘were of no use for any purpose…’ must mean ‘would not have been used by a reasonable man for any purpose…’" Judged by this standard, these goods were merchantable.

Finally it was argued that in any event the material in question was not of merchantable quality because after the cancellation of the contract certain parcels of it only fetched a price substantially less than a reasonable price for the manufacture of goods answering that description. I am not altogether clear how a matter of price in an article of this character is really in this case relevant to the question of merchantable quality. There was no question of a fixed or standard price for these goods. Indeed, as appears from the Lord Ordinary's opinion, most cloths manufactured by the defenders were in practice unique in some particular and are seldom repeated. Moreover, the prices obtained for the rejected goods were not just throwaway prices. But however this may be, this issue regarding price does not, as I see it, arise in the present case. The Lord Ordinary has held—and his finding was not challenged on this matter—that the contract price "was higher than would have been normal for it as an industrial fabric, but not unreasonably high for the defenders constructing it for such a purpose. On the other hand, this price…was low for a dress fabric, and the defenders' price for constructing it as a dress fabric would have been higher." No assistance, therefore, can be gained by the pursuers from the argument on price. For the contract price was not unreasonable, whatever the purpose for which the goods were being manufactured.

On the whole matter, in my opinion, the Lord Ordinary applied the right test of merchantable quality and arrived at the correct conclusion. His interlocutor should be affirmed.

LORD GUTHRIE .—This is an action of damages at the instance of the purchasers of a quantity of cloth against the sellers. The grounds of action were alleged breaches by the defenders of the implied conditions as to the quality of the goods sold, imposed by section 14(1) and section 14(2) of the Sale of Goods Act, 1893. The Lord Ordinary held, first, that the pursuers had failed to make known to the defenders the particular purpose for which the goods were required, and accordingly that the case under section 14(1) failed. He held, second, that the goods were bought by description from the defenders, who dealt in goods of that description, that the goods complied with the description, and that they were of merchantable quality. He accordingly held that the case under section 14(2) failed. Therefore he assoilzied the defenders. He stated in his opinion that, had he found for the pursuers, he would have assessed damages at £1003. The pursuers reclaimed, and their counsel stated that they did not challenge the Lord Ordinary's decision on section 14 (1), but that they maintained that he had erred in his conclusion dealing with section 14(2). Both parties agreed that, if the reclaiming motion succeeded, damages should be awarded at the sum assessed by the Lord Ordinary.

The Lord Ordinary's findings in fact were also accepted by both sides, and accordingly the essential facts for the disposal of the reclaiming motion can be stated fairly briefly. [His Lordship gave the narrative quoted supra, and continued]—

In these circumstances the dispute between the parties is whether the cloth supplied was not of merchantable quality within the meaning of section 14(2), because it was not of a quality suitable for dress manufacture—the only purpose for which such cloth had previously been sold—or whether it was of merchantable quality because it was reasonably capable of being used and was saleable for industrial purposes.

In my opinion the purpose of section 14 (2) is to secure that goods which have been sold by description are of such a quality that, if they have to be disposed of subsequently, they will be saleable in the market at a reasonable price for goods of the description. In Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31, Lord Reid said (at p. 75):

"Merchantable can only mean commercially saleable."

Accordingly it is an unnecessary and impracticable limitation of the subsection if "merchantable quality" is, as the pursuers contend, confined to quality suitable for such purposes as goods of the description have been used for in the past. It is an impracticable limitation, because it obviously cannot be applied to goods of a novel description, where there has been no previous use. Yet goods of a novel description which are sold by description fall within section 14 (2), and are required by it to be of merchantable quality. Therefore one must give a meaning to "merchantable quality" which will be generally applicable. Moreover, there are no practical considerations requiring the imposition of the limitation contended for by the pursuers even in the case of goods of a description previously bought and sold. If a new use is discovered for such goods and their quality is such that there is a market for goods of that description in then ordinary state for that purpose, then these goods are commercially saleable, and consequently are of merchantable quality. The result of applying these considerations to the present case is that, although the particular cloth sold by description had previously only been sold for the manufacture of dresses, nevertheless, since it was reasonably capable of being used for industrial purposes and was saleable for these purposes at a price held by the Lord Ordinary to be reasonable, it was of merchantable quality. Accordingly I am of opinion that the effect in law of the Lord Ordinary's findings in fact, which are accepted by the pursuers, is that their case under section 14 (2) has failed, as the Lord Ordinary has decided.

But the pursuers contended that this view cannot stand with the opinions in Hardwick, and in particular with certain dicta of Lord Wright in earlier cases, which were approved by the House of Lords in Hardwick. The passage most discussed in argument was taken from the opinion of Lord Wright (then Wright J.) in Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206, at p. 213. It is in these terms:

"It seems to follow that if goods are sold under a description which they fulfil, and if goods under that description are reasonably capable in ordinary user of several purposes, they are of merchantable quality within Sect. 14 (2) of the Act if they are reasonably capable of being used for any one or more of such purposes, even if unfit for use for that one of those purposes which the particular buyer intended. No doubt it is too wide to say they must be of use for some purpose, because that purpose might be foreign to their ordinary user. Thus in Asfar v. Blundell, [1896] 1 QB 123…dates were held to be unmerchantable as dates because they had been submerged in the Thames and had become impregnated with sewage, though they were of considerable value for distillation into vinegar."

In Cammell Laird & Co. v. Manganese Bronze, and Brass Co., [1933] AC 402, at p. 430, Lord Wright, as edited by Lord Reid in Hardwick at p. 77, stated that goods would not be of merchantable quality if, in the form in which they were tendered, they were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description. Again in Grant v. Australian Knitting Mills, Ltd. [1936] AC 85, Lord Wright, delivering the judgment of the Privy Council, said (at pp. 99–100):

"…whatever else merchantable may mean, it does mean that the article sold, if only meant for one particular use in ordinary course, is fit for that use."

Counsel for the pursuers submitted that when Lord Wright referred to "ordinary user" and "any purpose for which goods…would normally be used," he meant the use to which such goods had habitually been put in the past. Therefore in the present case the goods were not of merchantable quality, because they were not suitable for the only purpose for which such goods had previously been sold, namely, dress manufacture.

It is true that such words as "ordinary user" are capable of more than one meaning, the particular meaning conveyed being dependent on the context. Normal use or ordinary use may mean customary use, as contended for by the pursuers. It may also mean use which is appropriate to the goods in their proper state, as opposed to a "foreign" use, as in Asfar & Co. v. Blundell, or to an abuse. I think that the context shows that Lord Wright used the words under discussion in the latter sense. He spoke about goods being "reasonably capable in ordinary user of several purposes," which shows that what he had in mind was the use which might be made of the goods and not the purposes to which they had previously been applied. No doubt previous uses are important in considering the uses of which goods are reasonably capable, but Lord Wright does not suggest that such uses are the only ones for consideration.

Then it was submitted by counsel for the pursuers that a passage from Lord Reid's speech in Hardwick at p. 75 inferred that the extracts from Lord Wright's opinions were to be given the meaning contended for by them. Lord Reid said:

"If the description is a familiar one it may be that in practice only one quality of goods answers that description—then that quality and only that quality is merchantable quality. Or it may be that various qualities of goods are commonly sold under that description—then it is not disputed that the lowest quality commonly so sold is what is meant by merchantable quality."

I think that his Lordship was in that passage giving illustrative examples, and that he did not mean to convey by using the phrase "commonly sold," that only previous practice is to be looked to in deciding whether goods are of merchantable quality. In my opinion the law as laid down by the House of Lords in Hardwick is summarised by Lord Morris of Borth-y-Gest at p. 97 thus:

"If therefore, goods of the contract description are tendered and if the tendered goods though having certain defects are reasonably capable of being put to a use for which a buyer knowing of the defects would be likely to buy them, then they are of merchantable quality."

If this sentence is applied to the present case, the pursuers must fail. Although the goods supplied by the defenders had certain defects which rendered them unsuitable for use as dress material, they were reasonably capable of industrial use, and in fact buyers were found for the material for such purposes.

Counsel for the pursuers also contended that the goods were not merchantable because the prices received when they were ultimately sold showed that buyers would not accept them except at an abatement of about 6d. per yard on the contract price. The fallacy of this argument is that it assumes that the contract price was the appropriate price for such goods if sold for industrial use. In Hardwick Lord Guest pointed out (at p. 108) that, in considering merchantability, regard must be had to the price which the goods can fetch. The reason is that goods may be sold at a throwaway price for use as scrap, although unmerchantable in the true sense. Approval was also given in the House of Lords to a passage from the opinion of Dixon J. in Australian Knitting Mills Ltd. v. Grant, 50 C.L.R. 387, at p. 418, in which he referred to the price obtainable for the goods as having a bearing on the question of merchantability. But in the present case the Lord Ordinary has held that the goods were capable of realising a price which was not a give-away price for defective goods, but a full price for goods of the description for industrial purposes. Accordingly, although that price was less than the price paid by the pursuers for the goods for the purpose of dress manufacture, the goods were still of merchantable quality for industrial purposes.

In my opinion the Lord Ordinary's decision is sound, and the reclaiming motion should be refused.

LORD MIGDALE .—[His Lordship narrated the facts and the procedure in the action, quoted section 14(2) of the Sale of Goods Act, 1893, and continued]—

We are not told what was the full description of these goods, but counsel for the pursuers conceded that the goods supplied by the defenders complied with the description. So the only question now before us is whether the goods delivered met the implied condition that they were of merchantable quality.

Much has been said by judges as to the meaning and effect of these words. I will content myself with referring to what Lord Reid said in Hardwick Game, Farm v. S.A.P.P.A., [1969] 2 AC 31, at pp. 74–5:

"If one puts aside for the moment the encrustations of authority their meaning [i.e. of the subsections] appears to me to be reasonably clear. But, if a whole chapter of the law is compressed into one section of a code, one cannot expect its words to apply to unusual cases without expansion or adaptation. That is the task of the court: but it is not in my view legitimate to substitute for the words of the code some general words used by an eminent judge in a particular case and treat them as a test of universal application."

His Lordship then goes on to deal with section 14(2):

"It applies to all sales by description where the seller deals in such goods. There may be a question whether the sale of a particular article is not really a sale by description but that does not arise here: these are clearly sales by description. Then it is a condition (unless excluded by the contract) that the goods must be of merchantable quality. Merchantable can only mean commercially saleable. If the description is a familiar one it may be that in practice only one quality of goods answers that description—then that quality and only that quality is merchantable quality. Or it may be that various qualities of goods are commonly sold under that description—then it is not disputed that the lowest quality commonly so sold is what is meant by merchantable quality: it is commercially saleable under that description."

Lord Reid then refers to a sale under a novel description, but counsel assured us that the description given in the present case was not a novel description.

His Lordship at pp. 76 and 77 deals with what Lord Wright said in Cammell Laird & Co. v. Manganese Bronze and Brass Co., [1934] A.C. 402, at p. 430, and rephrases it as follows:

"‘What subsection (2) now means by "

merchantable quality" is that the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description.’ This is an objective test: ‘were of no use for any purpose…’ must mean ‘would not have been used by a reasonable man for any purpose…’"

In Canada Atlantic Grain Export Co. v. Eilers, 35 L1.L.R. 206, Lord Wright said (at p. 213):

"…if goods are sold under a description which they fulfil, and if goods under that description are reasonably capable in ordinary user of several purposes, they are of merchantable quality within Sect. 14 (2) of the Act if they are reasonably capable of being used for any one or more of such purposes, even if unfit for use for that one of those purposes which the particular buyer intended."

The question in the present case is whether the goods as described were reasonably capable of being used for some purpose in addition to making into dresses. The Lord Ordinary's finding on this question is:

"…it is true to say that there was no evidence that cloth answering to the whole of the description had ever been used for any industrial purpose before this contract, although most of the witnesses could see no reason why it could not be so used for a number of different purposes, including industrial user."

This finding means that this cloth, as described, was reasonably capable of being used for industrial purposes, and this was verified later by the fact that both the pursuers and the defenders were able to sell the remainder for such uses.

Counsel for the pursuers contended that on this finding the Lord Ordinary was not entitled to conclude, as he did, that the cloth was of merchantable quality because it was reasonably capable of being used, and was saleable, for a number of industrial purposes. There was then no existing market for cloth of that description outside the dress market, which demanded a higher quality of weaving and finishing than was to be found in the cloth supplied. The words "would normally be used" in the speeches of Lord Wright and Lord Reid meant that there must be in existence a market for cloth of viscous thread of lower-grade weave at the time of the sales. In other words, there must be evidence that previous sales of cloth of that description had taken place for industrial purposes. I do not think this is sound. The question is not whether a buyer for rayon cloth in that grade of weave was to be found in a list of "Classified Trades," but whether in fact someone would buy it for industrial purposes if it was brought to his notice.

On the view which I take—that the words "would normally be used" include a potential market as well as an established one—I think the Lord Ordinary was entitled to find that the cloth sold was reasonably capable of being used for one of the purposes for which goods of that description were reasonably capable of use in ordinary user and so was of merchantable quality. The situation appears to be that there was an established market for cloth of this lower-grade standard of weave and finish for industrial purposes. That cloth had formerly been woven from cotton or jute. The defenders wove this cloth from rayon fibre on the same looms to the same standard. They had not to date sold much for industrial purposes, but when they tried to do so, they found buyers and were able to sell the whole of the orders left on their hands. In other words, there was, at the time when the orders were placed, a potential market for that grade of cloth made from rayon as well as for cloth of the same grade woven from cotton or jute.

The pursuers also contended that the cloth tendered was not of merchantable quality because, when they did sell it, they were only able to get a price for it which was substantially less than they would have got if it had been sold for making into dresses. I think the answer to this lies in a passage in the speech of Lord Reid in the Hardwick Game Farm case to which I have already referred. In [1969] A.C., at p. 77, his Lordship says:

"…if the description was so general that goods sold under it are normally used for several purposes, then goods are merchantable under that description if they are fit for any one of these purposes: if the buyer wanted the goods for one of those several purposes for which the goods delivered did not happen to be suitable, though they were suitable for other purposes for which goods bought under that description are normally bought, then he cannot complain. He ought either to have taken the necessary steps to bring subsection (1) into operation or to have insisted that a more specific description must be inserted in the contract."

The pursuers' contention about the price was founded on a statement by Dixon J. in the High Court of Australia in Australian Knitting Mills Ltd. v. Grant, 50 C.L.R. 387, at p. 418:

"The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms."

This statement of the meaning of "merchantable quality" adds to the older statement the words "without abatement of the price obtainable for such goods."

Lord Guest in the Hardwick Game Farm case, [1969] 2 AC 31, at p. 108, says that he prefers this test of merchantable quality to that propounded by Lord Wright. Lord Pearce (at p. 118) expresses the same view. He refers to a buyer who hopes to get a new motor car but is given one with buckled wings. I agree with that, but that is not the position here. A motor car delivered to the buyer with buckled wings would not comply with the description of a new motor car and so would not fulfil the terms of section 13. Here it is conceded that the cloth delivered did comply with section 13 and the Lord Ordinary has found that the description under which it was sold would cover cloth which could be used for a number of different purposes.

I think the Lord Ordinary is right when he says that those words are not relevant where the goods sold are reasonably capable of being used for more than one purpose under the same description. On the other hand they do underline the fact that goods are not of merchantable quality if the only price that can be obtained for them is a "give-away" one. In the present case if the price obtainable for industrial use had been much below the price for dress-making cloth, that factor might have indicated to the seller that it was required for a special purpose and so must be of high grade. That might bring the sale under section 14 (1), but the Lord Ordinary's ruling against that case is not challenged.

In this case the Lord Ordinary has found that the price for cloth for industrial use was about 30d. per yard and that that price was not unreasonably high. On the other hand the price which the defenders would have charged if they had been selling under section 14(1) would have been higher than 36.25d. per yard. There is no room for the suggestion that 30d. was a "give-away" price.

On the whole matter I am of opinion that the defenders complied with the requirements of section 14(2) and that the Lord Ordinary reached the correct conclusions. I would accordingly refuse the reclaiming motion and assoilzie the defenders.

The pursuers appealed to the House of Lords, before which the case was heard on 21st and 22nd January 1970.