Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387
Contract; contents; terms implied by legislation; sale of goods; implied condition requiring delivery of goods of merchantable quality.
Facts: Grant purchased some woolen underwear manufactured by Australian Knitting Mills. When he wore the underwear, Grant developed an itchy rash which became acute general dermatitis. The skin condition was caused by small particles of sulphur in the wool from which the underwear was made. As well as suing Australian Knitting Mills in tort, Grant sued the retailer in contract for breach of a condition requiring the goods sold to be of merchantable quality, as implied into the contract of sale by s 14(2) of the Sale of Goods Act 1895 (SA).
Issue: Was the underwear of merchantable quality?
Decision: The court held that the underwear was merchantable.
Reason: Dixon J said (at 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."
Sulphur particles showed up in all specimens of woollen underwear that were analysed. This same underwear was being sold as underwear in the market in large quantities to people who were not affected by the sulphur. Therefore, despite the 'defect', the goods were merchantable as underwear.
Note: The decision that the underwear was merchantable was later reversed by the Privy Council (a court to which there is no longer a right of appeal from the High Court of Australia). Since then, Dixon J has confirmed his test, and other judges have applied similar, though differently worded, tests to determine whether goods are merchantable. See David Jones Ltd v Willis (1934) 52 CLR 110 and George Wills & Co Ltd v Davids Pty Ltd (1957) 98 CLR 77.