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Contract - SOGA - General. Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc.
In Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc. (SCC, 2024) the Supreme Court of Canada allows an appeal on the contractual and statutory interpretation of the exclusion provision [SGA s.53] in the Sales of Goods Act.
Here the court states a useful summary of the implied conditions provisions of the Sale of Goods Act (here, Ontario's):B. The Sale of Goods Act
[34] A sale of goods is a particular type of contract in which “the seller transfers or agrees to transfer the property in the goods to the buyer” in exchange for monetary consideration (s. 2(1) of the SGA). Not only are they crucial to commerce, they are common, as many people buy and/or sell goods on a daily basis. Sales cover all types of goods, involve different amounts, may be a one-time purchase or a long-term arrangement and are agreed to by parties of varying degrees of knowledge and sophistication.
[35] All provinces and territories, except Quebec, have a sale of goods Act modelled on the United Kingdom’s Imperial Sale of Goods Act, 1893 (U.K.), 56 & 57 Vict., c. 71, which was itself a codification of the historical common law of sale established by the English courts during the 19th century.[2] These Acts contain a variety of statutory provisions dealing with many aspects of a sale transaction, including price, delivery and the transfer of ownership. Of particular importance to this appeal are three implied obligations that certain sellers may owe to buyers in relation to the characteristics or properties of the goods sold: fitness for purpose, merchantability and correspondence with description (ss. 14 and 15 paras. 1 and 2 of the SGA). The introduction of these legislated protections was likely intended to reverse the negative effects that arose when caveat emptor reigned and buyers were saddled with all of the risks associated with the state of the goods, except when expressly agreed by the contracting parties.
[36] The SGA further protects buyers by elevating these statutory protections to the status of implied “conditions”. Both the SGA and the common law draw a legal distinction between contract terms that constitute a “condition”, and those that constitute a “warranty” (see s. 1(1) of the SGA; G. R. Hall, Canadian Contractual Interpretation Law (4th ed. 2020), at p. 166). A term is a “condition” if its performance is fundamental to the contract, whereas a “warranty” is collateral to the main purpose of the contract. While the breach of a warranty gives rise to a claim for damages, but not to a right to reject the goods and to treat the contract as repudiated, the breach of a “condition” is so serious that the innocent party also has the option either to treat the contract as repudiated, or to treat the breach of the condition as a breach of warranty and claim damages.
[37] These three implied conditions have separate areas of application, play distinct roles and protect different interests. Together, they provide important protections, but they are not mandatory provisions that apply in all cases. Each implied condition has its own set of internal requirements before the seller is affixed with that particular legal responsibility, meaning that the legislature did not choose to imply conditions concerning the state of the goods into every contract of sale — the SGA is much more selective. For example, the implied condition of fitness for purpose in s. 15 para. 1 makes its application contingent on three factors: 1) the course of the seller’s business; 2) knowledge on the part of the seller of the buyer’s intended purpose for the goods; and 3) the buyer’s reliance on the seller’s skill or judgment (G. H. L. Fridman, Sale of Goods in Canada (6th ed. 2013), at p. 160).
[38] Importantly, s. 14 of the SGA, the one implied condition at issue in this case, applies only to those contracts in which goods are sold by description. When this implied condition is in play, it becomes very important to determine what aspects of the goods form part of their description, which is a fact-specific determination. The SGA, like the Imperial Act on which it was modelled, was not meant to “provoke metaphysical discussions as to the nature of what is delivered, in comparison with what is sold” (Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1972] A.C. 441 (H.L.), at p. 489). Not every statement made about a good is a protected part of its “description” under s. 14, and case law shows just how narrow that protected description is. Description is tied to identity and only protects those terms which identify the subject matter of the sale (see Ashington Piggeries, at pp. 467, 470, 486 and 503; see also E. McKendrick, “Sale of Goods”, in P. Birks, ed., English Private Law, vol. II (2000), 223, at para. 10.30; Bakker v. Bowness Auto Parts Co. Ltd. (1976), 1976 CanLII 1131 (AB CA), 68 D.L.R. (3d) 173 (Alta. S.C. (App. Div.)), at p. 178; Bailey v. Croft (1931), 1931 CanLII 654 (MB CA), 40 Man. R. 146 (C.A.), at p. 152; Rahtjen v. Stern GMC Trucks (1969) Ltd. (1976), 66 D.L.R. (3d) 566 (Man. C.A.), at pp. 568-69; Coast Hotels Ltd. v. Royal Doulton Canada Ltd., 2000 BCSC 857, 76 B.C.L.R. (3d) 341, at paras. 32-34; Joubarne v. Loodu, 2005 BCSC 1340, at para. 33 (CanLII); Thoms v. Louisville Sales & Service Inc., 2006 SKQB 447, 286 Sask. R. 90, at paras. 52-53; Baron v. Caragata, 2004 SKQB 43, 245 Sask. R. 208, at paras. 16-17; Total Petroleum (N.A.) Ltd. v. AMF Tuboscope Inc. (1987), 1987 CanLII 3172 (AB KB), 54 Alta. L.R. (2d) 13 (Q.B.), at p. 32; Palin v. Assie Industries Ltd., 2003 SKQB 57, 230 Sask. R. 234, at paras. 7-9; Clayton v. North Shore Driving School, 2017 BCPC 198, 70 B.L.R. (5th) 49, at paras. 84-86).
[39] As the Court of Appeal correctly observed, the case law has thus distinguished between traits that go to the identity of the goods (which pertains to description), and those which go to the quality of the goods (which pertains to merchantability and fitness for purpose). The identity of a good should not be conflated with all the words used as descriptors and instead should be limited to “words whose purpose is to state or identify an essential part of the description of the goods” (C. Twigg-Flesner, R. Canavan and H. MacQueen, Atiyah and Adams’ Sale of Goods (13th ed. 2016), at p. 128 (emphasis added)). While the quality of the goods amounts to a term of the contract, the identity of the goods connotes something that is “an essential part” of the goods themselves. Words in the contract that “merely point out the goods being sold while not actually constituting a substantial ingredient” of them do not form part of their identity (p. 128; M. Bridge, ed., Benjamin’s Sale of Goods (12th ed. 2024), vol. 1, at pp. 570-71). The question to be asked for the purpose of s. 14, therefore, is “whether the buyer could fairly and reasonably refuse to accept the physical goods proffered to [them] on the ground that [the] failure [of the goods] to correspond with that part of what was said about them in the contract makes them goods of a different kind from those [the buyer] had agreed to buy” (Fridman, at p. 157, citing Ashington Piggeries, at pp. 503-4 (emphasis added)).
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