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Contract - SOGA - Implied Description [s.14]. 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”. . 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.
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