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Contracts - Sale of Goods Act. Pine Valley Enterprises Inc. v. Earthco Soil Mixtures Inc.
In Pine Valley Enterprises Inc. v. Earthco Soil Mixtures Inc. (Ont CA, 2022) the Court of Appeal considers a Sale of Goods Act case, focussing on s.14 - "the implied condition in the contract of sale that the goods supplied correspond to that description":[34] The question at the heart of this appeal is one of contractual interpretation, an “exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. Deference is owed to a trial judge’s interpretation of a commercial contract, unless “an extricable question of law [arises] from within what was initially characterized as a question of mixed fact and law”: Sattva, at para. 53. “Legal errors made in the course of contractual interpretation include ‘the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor’…. Moreover, there is no question that many other issues in contract law do engage substantive rules of law”: Sattva, at para. 53 (citation omitted).
[35] In my view, whether the exclusionary clauses ousted the condition implied by s. 14 of the SGA in this case involves extricable questions of law. These questions relate to the legal nature of the statutory implied condition, the content and meaning of the legal test for excluding a statutory implied condition from a sales contract, and the use of the factual matrix to inform the meaning of the express exclusionary language. Deference is not owed on these questions, and a standard of correctness applies.
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The Implied Condition in s. 14 of the SGA Relates to the Identity of the Goods Sold, Not Their Quality
[37] Section 14 of the SGA, entitled “Sale by description”, provides:Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description, and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. [Emphasis added.] [38] Section 15 of the SGA, entitled “Implied conditions as to quality or fitness”, provides:Subject to this Act and any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:1. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description that it is in the course of the seller’s business to supply (whether the seller is the manufacturer or not), there is an implied condition that the goods will be reasonably fit for such purpose, but in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.
2. Where goods are bought by description from a seller who deals in goods of that description (whether the seller is the manufacturer or not), there is an implied condition that the goods will be of merchantable quality, but if the buyer has examined the goods, there is no implied condition as regards defects that such examination ought to have revealed.
3. An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.
4. An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith. [39] The subject matter of the two sections is different. The “description” referred to in the SGA (and comparable acts in the U.K. and elsewhere in Canada) involves identity of the goods, not their quality: Bakker v. Bowness Auto Parts Co. (1976), 1976 CanLII 1131 (AB CA), 68 D.L.R. (3d) 173 (Alta. S.C. (A.D.)), at p. 178 (“[I]t is clear that the description of which the section [of the SGA equivalent] speaks is only that which, as a term of the contract, identifies the subject-matter of the sale”); Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1972] A.C. 441 (H.L. (Eng.)), at p. 466 (“The language used [in the SGA equivalent] is directed to the identification of goods”).
[40] Lord Diplock noted in Ashington Piggeries, at p. 503, that in a sale by description, the parties may employ as broad or narrow a description of the goods to be delivered as they choose. The broader the description, the more difficult it will be for the buyer to argue that what was supplied breached the identity condition. As long as the goods correspond to the description – as long as they are, as far as their identity is concerned, the goods described – it is irrelevant for s. 14 purposes whether the goods are of poorer quality than promised.
[41] Thus, in Ashington Piggeries, the identity condition was not breached by the sale of mink food made up of Norwegian herring meal that, unknown to the parties, contained a poisonous substance. The contract contained a broad description of the identity of the goods to be delivered: “Norwegian herring meal”. As far as identity was concerned, that corresponded to what was supplied: “Herring meal is still herring meal notwithstanding that it may have been contaminated”. Provisions of the agreement that the herring meal had to be of “fair average quality of the season” pertained only to the quality of the goods, not to their identity: at pp. 472, 475.
[42] On the other hand, in a sale by description, if the goods delivered do not correspond with what was promised, a breach of the identity condition will occur even if what is delivered is of equivalent quality. As the court stated in Bakker, at p. 181:Sections 16 and 17 of the Act [corresponding to ss. 14 and 15 of the SGA] imply separate conditions of the contract in respect of separate specified circumstances. “Merchantable quality” under s. 17(4) is not to be taken as a measuring stick in determining whether goods correspond with their contract description under s. 16; nor is fitness for purpose under s. 17(2) germane to such a determination. In Arcos, Ltd. v. E.A. Ronaasen & Son Lord Buckmaster said at p. 474: “The fact that the goods were merchantable under the contract is no test proper to be applied in determining whether the goods satisfied the contract description…”. [43] The distinction between identity and quality is important in this case. The trial judge found a sale by description. That description was narrow. The description – the identity of the goods – was R Topsoil with the composition set out in the August 2011 test results. He came to these conclusions (which are not in issue on this appeal as they are not challenged, but rather are accepted by Earthco in this court) after adverting to the difference between terms of a contract that specify the quality or standard of the goods and those that form the description. His conclusions mean that the composition described for R Topsoil in the August test results goes to the identity of the goods, not their quality. Indeed, he found that Pine Valley did not get what was promised in terms of the identity of the goods because of the significant variation in composition.
[44] Although the trial judge adverted to the difference between statements about goods that go to their quality and those that go to identity, and found that the identity of what was to be delivered was R Topsoil with the composition described in the August test results, he was required to go further and apply that legal distinction when interpreting the exclusionary clauses.
[45] The significance, to an exclusionary clause’s interpretation, of the difference between a condition concerning the identity of the goods under s. 14 and one that relates to their quality was described by Professor Gerald Fridman in Sale of Goods in Canada, 6th ed. (Toronto: Thomson Reuters Canada Ltd., 2013), at p. 152, as follows:If the wrong goods are delivered, the buyer may reject the goods proffered by the delivery, and sue for a breach of contract, and an exemption or exclusion clause will not release the seller from liability for breach of contract, since he will not have fulfilled the contract in any way. On the other hand, if what is involved is some characteristic of the goods, not their identity, an exemption or exclusion clause, if appropriately worded, and if not precluded by consumer protection legislation, may result in the release of the seller from any kind of liability for breach of contract. [Emphasis added; footnotes omitted.] [46] To the extent that the passage from Fridman suggests that the implied condition in s. 14 could never be excluded, it may go too far. Section 53 of the SGA, which provides that duties or liabilities implied by law may be negatived by express agreement, is broad enough to include the liability created by s. 14. Although the parties did not cite any case where the s. 14 condition had been excluded, and it appears counterintuitive to posit an agreement in which the seller both promises to deliver something specific and also excludes any promise that it will do so, the possibility exists.
[47] But as is explained in the next section, there is a high standard – explicit, clear, and direct – that must be applied to language that purports to exclude any implied conditions in the SGA. The distinction between the legal nature of the implied condition in s. 14 of the SGA relating to the identity of the goods and implied conditions relating to quality is important to the question of whether that standard was satisfied, with respect to the identity condition, by the exclusionary clauses that only expressly referred to the “quality of the material”.
Explicit Language Must be Used to Exclude Implied SGA Conditions
[48] Section 53 of the SGA permits the parties to contract out of liability implied by law, but only if they do so by “express agreement”. Section 53 provides: “Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.”[3]
[49] Binding case law has explained what is meant by an express agreement in this context. It must be “explicit” and “clear and direct”.
[50] In Chabot v. Ford Motor Co. of Canada (1982), 1982 CanLII 2051 (ON SC), 39 O.R. (2d) 162 (H.C.), Eberle J. held that it is a principle of interpretation of exclusion clauses that while general language may be sufficient to exclude what otherwise might be express conditions or warranties, conditions and warranties implied by sale of goods acts may be excluded only by explicit language. And, since there is a legal difference between warranties and conditions, the requirement for explicit language means that an explicit exclusion of implied warranties does not exclude statutorily implied conditions: at pp. 174-75.
[51] Chabot was approved by the Supreme Court of Canada in Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426. Dickson C.J. stated, at pp. 449-50: “If one wishes to contract out of statutory protections, this must be done by clear and direct language, particularly where the parties are two large, commercially sophisticated companies. This seems to be well-established in the case law, as Eberle J. makes clear in Chabot”.
[52] In Gregorio v. Intrans-Corp. (1994), 1994 CanLII 2241 (ON CA), 18 O.R. (3d) 527 (C.A.), at pp. 535-36, this court held: “Although a vendor may exclude the implied conditions contained in the Sale of Goods Act, he must use explicit language to do so”. The court cited Chabot, and its approval in Hunter Engineering, for this principle.
[53] How explicit, clear, and direct must the language be? In Chabot, Eberle J. noted that a contract expressly stating that “[t]here are no representations, warranties or conditions, express or implied, statutory or otherwise, other than those herein contained” would exclude the SGA implied condition of fitness for purpose. But an exclusion clause that stated there were no warranties, expressed or implied, other than that expressly given in the transaction, did not exclude the SGA implied conditions, as it made no reference to conditions, implied conditions, or statutory conditions: at pp. 174-75.
[54] In Gregorio, the court found that the provision of a specific warranty, coupled with a disclaimer of all other express or implied warranties and any warranty of merchantability or fitness for purpose, was insufficient to exclude the SGA implied conditions of fitness for purpose and merchantability. The court held that such language failed the requirement for explicit language, as there is a legal difference between a warranty (which was explicitly addressed) and a condition (which was not): at pp. 535-36.
[55] These well-established rules were followed in two cases distinguished by the trial judge: IPEX Inc. v. Lubrizol Advanced Materials Canada Inc., 2012 ONSC 2717, 4 B.L.R. (5th) 148, leave to appeal to Div. Ct. refused, 2012 ONSC 5382 and Haliburton Forest & Wildlife Reserve Ltd. v. Toromont Industries Ltd., 2016 ONSC 3767. In IPEX, the court found an exclusion clause that stated that a limited warranty was the only warranty given, and excluded all other warranties, express or implied, including any implied warranties of fitness for purpose or merchantability, did not exclude the SGA implied conditions: at paras. 26, 40-41. In Haliburton, the court held that a clause that excluded representations and warranties with respect to fitness for purpose, but made no reference to an exclusion of a condition of fitness for purpose, did not exclude the SGA implied condition: at paras. 74-77.
[56] The parties did not cite any case where the SGA implied conditions were excluded by language that lacked a reference to “conditions” and “statutory”. But even if other language could suffice, it is clear from the cases that the legal meaning of explicit, clear, and direct language in this context means at the very least that the language must refer to the type of legal obligation the SGA implies – reference to a different legal obligation will not suffice. This is the principle that explains why excluding the implication of a warranty or statutory warranty does not exclude an SGA implied condition, a different type of legal obligation.
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[65] Within a general framework of freedom of contract, the SGA prescribes the expectations of parties to a commercial sale transaction such as the one between the parties. The requirement of explicit, clear, and direct language to exclude a statutory condition implied into a sale agreement by the SGA is important to the legislative scheme. Contractual interpretation must proceed recognizing that this requirement is superimposed on other interpretive principles.
[66] “This simple rule represents an interesting policy choice that differs from the [typical] principles of contractual interpretation, which give primacy to the parties’ private ordering of their affairs and primarily seeks to give accurate effect to their intentions without regard for external policy goals.” As noted above, this principle “reflects a policy choice to give primacy to legislative purposes, unless the parties have clearly expressed their intention for a different private ordering of their rights and obligations”: Hall, at pp. 178-79.
[67] The explicit language requirement reflects the importance that must be ascribed to the legislature’s choice that, in the circumstances the SGA prescribes, the condition will be part of the sale agreement, without any requirement that the purchaser request or negotiate for its inclusion, or that the seller wanted to be subject to it. Rather, the law requires the condition be considered included in the parties’ agreement unless by their express language, they can be taken to have turned their minds to the implied condition and explicitly, clearly, and directly agreed to exclude it.
[68] The objective determination of the intention of the parties, gleaned from the language they used in light of the factual matrix, is the goal of contractual interpretation: Sattva, at para. 57. But that determination must proceed on the basis that, in a sale by description, the parties are legislatively deemed to have the intention to include the statutory condition as to identity over and above any other obligations to each other they may have included or reflected in their agreement, unless they have explicitly excluded that condition. It is not enough that their language, in light of the factual matrix, indicates in some sense that the seller wanted to be responsible only in certain circumstances or to be subject only to limited obligations. The provision by the seller of a limited warranty, and disclaimer of all others, which was the case in Chabot, Gregorio, IPEX, and Haliburton could, viewed from one perspective, indicate an intention that the parties had defined exactly the limits of the seller’s obligations and the buyer’s entitlements. But viewed from the required perspective – one that privileges the SGA purposes – the seller in each case provided the limited warranty and the implied condition as to quality. The exculpatory language did not address the latter and the objective determination of the parties’ intentions could not lead to the conclusion that the implied condition was excluded.
[69] For the same reasons, having made a sale by description as the trial judge found, Earthco was statutorily deemed to have agreed to a condition that the goods it delivered corresponded to that description unless it expressly excluded that condition. The exclusionary clauses did not constitute an express agreement to exclude the s. 14 SGA condition as they failed the test of explicit, clear, and direct language. . Prevost v Gilmour
The case of Prevost v. Gilmour (Div Ct, 2009) was an example of an application of the Sales of Goods Act to a simple transaction involving collector coins:[1] I am persuaded that the appeal on the merits should fail. At its core, the appeal could only succeed if the sale of coins could be characterized as a “sale by description” in accordance with s. 14 of the Ontario Sale of Goods Act, which provides that where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description.
[2] Both the appellant and the respondent were sophisticated in the business of buying and selling coins, and had dealt with one another on previous occasions. The parties communicated with each other over a number of weeks with respect to the sale of the respondent’s entire coin collection, consisting of some 700 or 800 coins, of which approximately 20 were of significant value. The appellant took possession of the entire collection for a full week to permit him the opportunity to examine the coins. One in particular was tested and found to be fraudulent and was removed from the collection. The appellant was under no time restraint in his ability to examine the coins as to their authenticity. In effect, the contract was for the sale of specific goods, made available to the appellant for examination of any kind, and constituted the only goods to be sold under the contract: see Fridman, Sale of Goods in Canada, 5th edition, p. 53.
[3] In such circumstances, section 14 of the Ontario Sale of Goods Act did not apply. Even if the section were to apply, the trial judge found that the goods were excepted by s. 15(2) of the Act, because the appellant examined the goods, which was an appropriate finding given the facts of the case.
[4] The evidence reveals that there were no collateral warranties or misrepresentations that would attract the right of recession of the contract to purchase.
[5] Moreover, the complaint of the appellant that the subsequent independent analysis of the coins showed that numerous coins were counterfeit was found not to have been proven, based on credibility findings made by the learned trial judge.
[6] Even assuming that the coins complained of as being counterfeit were in fact so, the doctrine of caveat emptor applied, as found by the trial judge: see King v. Foote (1961), 1961 CanLII 191 (ON SC), O.R., 489 (Ont. H.C.J.) and Shapiro v. Banque Canadienne Nationale et al, 1981 CanLII 2642 (MB QB), [1981] 4 W.W.R., 560 (Man. C.A.), more recently approved in Mautner v. Metcalf (2008), 2008 CanLII 3969 (ON SC), 42 B.L.R. (4th) 309, 164 A.C.W.S. (3d), 889 at para 7. . Solea International BVBA v. Bassett & Walker International Inc.
In Solea International BVBA v. Bassett & Walker International Inc. (Ont CA, 2019) the Court of Appeal dealt with an unusual case involving Ontario's International Sales Conventions Act, S.O. 2017 (formerly the International Sale of Goods Act). It made no particularly interesting points of law but is an example of this rarely litigated law.
. Meyknecht Lischer Contractors Ltd. v. Stanford
In Meyknecht Lischer Contractors Ltd. v. Stanford (Div Ct, 2006) the Divisional Court concluded on Sale of Goods Act grounds that a fence company selling and installing a fence at the instruction of the property owner has no responsibility to ensure that it comply with local by-laws:[14] With respect to Mr. Stanford’s arguments relating to the Sale of Goods Act, the Trial Judge correctly rejected this argument. Section 13 of the Sale of Goods Act is intended to guarantee the integrity of the purchaser’s titular interest in the property in question. There was no evidence to indicate that Mr. Stanford’s title to the fencing material that made up the fence was defective.
[15] With respect to the application of s. 15.1 of the Sale of Goods Act, a condition of that section is that the purpose for which the good is purchased must be communicated to the seller. The purpose of the 2002 fence was to enclose the entire back yard and pool of Mr. Stanford. The fence met that purpose. Furthermore, based on the facts found by the Trial Judge that Mr. Stanford made the decisions to purchase the chain link fence and the location of its installation on his own, there was no evidence to show that Mr. Stanford was relying on the expertise of the MLC to help him choose either the type of fence or its location, which would be a stipulated condition of the application of s. 15.1 of the Sale of Goods Act.
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[27] Finally, I can find no error in the rejection by the Trial Judge of Mr. Stanford’s arguments regarding ss. 13 and 15.1 of the Sale of Goods Act. The Trial Judge rightly found that Mr. Stanford, in all of the circumstances of the case, bore the responsibility for ensuring that the pool installation and the enclosure complied with all of the applicable by-laws. That being the case, it could hardly be concluded that MLC deprived Mr. Stanford of the use and quiet possession of his property, namely the fence.
[28] In Humen v. Le Baron Outdoor Products Ltd, [1989] C.L.D. 1196, Hoilett D.C.J. establishes the intention of s. 13 of the Sale of Goods Act. He states at para. 9:...It is clear from a reading of the other two subparagraphs of Section 13, which I have hereafter cited for ease of reference, that what Section 13 is intended to guarantee is the integrity of the purchaser’s titular interest from any other competing property…… [29] On the facts as found by the Trial Judge in this case, there was no defect in the title to the fencing material sold that made up the fence. Mr. Stanford’s difficulties arose not out of the fence itself but out of the installation of the fence, which was done on his own instructions in ignorance of the applicable by-laws with the responsibility for ensuring that the applicable by-laws were complied with resting with him. I find the facts of this case quite distinguishable from those found in Gencab of Canada Ltd. v. Murray-Jensen Manufacturing Ltd. (1980), 1980 CanLII 1629 (ON SC), 29 O.R. (2d) 552 (H.C.J.).
[30] With respect to Mr. Stanford’s arguments regarding s. 15.1 of the Sale of Goods Act, I find the reply arguments of MLC found at paras. 59 to 67 persuasive. On the facts as found by Trial Judge, the purpose of the fence can be found to have been to enclose his entire back yard. It met that purpose. The Judge made no error in coming to this conclusion in light of the fact that she also found that Mr. Stanford was responsible for ensuring that the fence complied with the applicable by-laws.
[31] Furthermore, there was evidence on which the trial judge could reasonably conclude that, given the active role Mr. Stanford played in choosing the nature of fence, obtaining the necessary permits and directing the location of the installation of the fence, he did not rely on MLC’s expertise in either helping him to choose the type of fence or to determine its location.
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