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Table of Contents
Scope of the Sale of Goods Act ....................................................................................................................................5
Sale of Goods Act, ss 1 & 2 ......................................................................................................................................5
Sale v Barter ............................................................................................................................................................5
Messenger v Greene (Buyer does not have to pay money if goods expressed in monetary terms) ......................5
Leases .......................................................................................................................................................................5
Helby v Matthews (Agreement to buy must have a legal obligation, not revocation) ..........................................5
Work & Materials ...................................................................................................................................................5
Borek v Hooper (Contracts for skill and labour governed by common law and CPA) ........................................5
Keillian West v Sportspage Enterprises (Goods or services depend on substance of the contract) .....................5
Gee v White Spot (Sale of food is a contract for goods and requires implied warranty of fitness) ......................6
Consignment, Sale & Return .................................................................................................................................6
Factors Act ...........................................................................................................................................................6
Weiner v Harris (Application of 2(1), any sale by mercantile agent is as valid as owner doing it) .....................6
In re: Richardson (Term “consignment” not conclusive of arrangement, look to conduct) ................................6
Atari Corporation v Electronic Boutiquestores (Sufficient notice fulfilled when available for pick up) ............7
Arora v Whirlpool (SGA requires privity to enforce provisions) .........................................................................7
Scope of Consumer Protection Act ..............................................................................................................................7
Overview ..................................................................................................................................................................7
Consumer Protection Act, ss 1-3, 9 .........................................................................................................................7
Formation of Sales Contracts .....................................................................................................................................8
Sale of Goods Act, ss. 3, 4, 6, 9, 10 ..........................................................................................................................8
Basic Obligations of the Buyer & Seller ....................................................................................................................8
Under the SGA – Delivery and Payment (Time of the Essence) .........................................................................8
Sale of Goods Act, ss 11-12, 26-36, 54 ................................................................................................................8
Hartley v Hymans (Whether time is of the essence depends on construction, but usually is) ..............................8
Allen v Danforth (Where silent, goods must be delivered within a reasonable time) ..........................................8
Chas Rickards v Oppenheim (Time can be of the essence after it is waived if reasonable notice given) ............9
Sunstrum v International Building (Buyer must set a final delivery date if they wish to repudiate) ...................9
Implied Conditions and Warranties ..........................................................................................................................9
Conditions v Warranties ........................................................................................................................................9
Sale of Goods Act, ss 12-16, 51 ................................................................................................................................9
S 13(a)(b): The Right to Sell (Condition) and Quiet Possession (Warranty) ................................................... 10
Rowland v Divall (Seller has no right to sell stolen goods, which is different from fraud) ............................... 10
Niblett v Confectioners Materials (Right to sell breached where legal restrictions prevent a sale) ................... 10
Butterworth v Kingsway Motors (Right to sell post-sale can be perfected to legitimize transactions) .............. 10
Patten v Thomas Motors (Repudiation cannot occur after title has been perfected) .......................................... 11
Microbeads v Vinhurst (Warranty for quiet possession continues post-delivery) .............................................. 11
Ahlstrom Canada v Browning Harvey (SB: Wrongly decided) ......................................................................... 11
S 14: Description (Condition) .............................................................................................................................. 12
Overview ............................................................................................................................................................ 12
Andrews Bros v Singer (Can contract out of implied conditions of SGA but not express term of K) ................ 12
Varley v Whipp (14 works w/ 33: goods can be rejected if they don’t meet description at inspection) ............. 12
Beale v Taylor (Breach can occur despite inspection if defect not readily apparent)......................................... 12
Harlingdon v Christopher Hull (S 14 not applicable where buyer relies on judgment not description) ............ 12
Arcos v EA Ronaasen (S 14 can be relied on when there is a minor variation unless de minimus) ................... 13
Ashington Piggeries v Christopher Hill (Description of quality is not a description)........................................ 13
Reardon Smith v Yngvar Hansen-Tangen (Every word related to identity must be fulfilled) ............................ 13
S 15(2): Merchantable Quality (Condition) ........................................................................................................ 13
Sale of Goods Act, s 15(2) .................................................................................................................................. 13
Hardwick Game Farm v SAPP (Merchantability means commercially saleable) .............................................. 13
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BS Brown v Craiks (Price is a factor & evidence against merchantability if substantially lower) ..................... 14
IBM v Scherban (Minor Defects: Would a reasonable man accept in condition it was in at delivery) .............. 14
Casden v Cooper Enterprises (IBM not applicable if large, custom-made product of complexity) ................... 14
Bartlett v Sidley Marcus (Merchantable quality requires usable condition, not perfection) .............................. 15
Crowther v Shannon Motor (Cars to be useable for reasonable time, with repair costs considered) ................. 15
Presley v MacDonald (An express warranty will allow a buyer to claim for damages) .................................... 15
Mash v Joseph Emanuel (CIF contracts require merchantability to remain over transit) .................................. 15
Sumner v Webb (Merchantability does not mean that there shall in fact be persons to buy on resale) .............. 15
Egekvist Bakeries v Tizel (Exception to Sumner: seller liable if they know of restrictions on goods) ............... 16
Thornett v Beers (Buyer cannot rely on condition if they fail to perform proper inspection) ............................ 16
15(1)(3): Fitness for Use (Condition) ................................................................................................................... 16
Overview ............................................................................................................................................................ 16
Hardwick Game Farm v SAPP (Purpose means a purpose known or communicated to the seller) ................... 16
Fording Coal v Harnischfeger (Fitness is required for the reasonably expected lifespan of the good) ............. 17
Ashington Piggeries v Hill (Reliance need not be total reliance; partial reliance qualifies) .............................. 17
Ingham v Emes (P must disclose known peculiarities) ...................................................................................... 17
Innovative Automation (Purpose must be sufficiently communicated) .............................................................. 17
Baldry v Marshall (Trademark exclusion applies when buyer does not rely on skill/judgement) ..................... 17
Crozier v A&P (Fitness not applicable where only unfit b/c of peculiarity of buyer) ........................................ 17
S 16: Sales by Sample ........................................................................................................................................... 18
Overview ............................................................................................................................................................ 18
Steels v Bleecker Bik (Reasonable examination means what the industry standard is) ...................................... 18
Private Sales .......................................................................................................................................................... 18
Frey v Sarvajc (Caveat emptor applies to private sales – s 15 does not apply) ................................................. 18
Claims by the Buyer Against the “Non-Seller” Manufacturer ......................................................................... 19
Overview ............................................................................................................................................................ 19
Murray v Sperry Rand (Manufacturer may be liable if they induce P to enter contract) ................................... 19
Arora v Whirpool (All claims must be brought against the dealer/seller unless warranty) ................................ 19
Chabot v Ford Motor Company (Claims arise through warranty from the manufacturer) ................................ 19
Characterization of Contractual Terms.............................................................................................................. 19
Overview ............................................................................................................................................................ 19
Cehave v Bremer (Classification depends on seriousness of the breach) ........................................................... 20
Bunge Corp v Tradax (Exception for mercantile K’s & time: look to nature, subject matter, etc.) ................... 20
Consumer Protection Act, ss 6-13, 55-65 .............................................................................................................. 20
Overview ............................................................................................................................................................ 20
General Provisions ............................................................................................................................................. 20
Risk of Loss and Frustration .................................................................................................................................... 20
Sale of Goods Act, ss 7, 8, 17-25 ............................................................................................................................ 20
Risk of Loss ........................................................................................................................................................... 21
Jerome v Clements Motor Sales (Courts look to circumstances in addition to statute) ...................................... 21
Alfred Mills Ltd. (Section 21 paramount as delay places risk on party at fault) ................................................. 21
Frustration............................................................................................................................................................. 22
Howell v Coupland (Where specific goods perish through no fault of seller, they avoid liability) ................... 22
Ocean Tramp Tankers (Fundamentally different circumstances can give rise to frustration) ........................... 22
Transfer of Title ......................................................................................................................................................... 22
Between Buyer and Seller .................................................................................................................................... 22
Sale of Goods Act, s 19 ...................................................................................................................................... 22
RBC v Saskatchewan Telecommunications (Future goods must be ascertained for property to pass) ............... 22
Carlos Federspiel v Chias Twigg (If silent, need irrevocable intention to attach & appropriation) .................. 23
Caradoc Nursuries v Marsh (Delivery requires final appropriation or tender) .................................................. 23
Sells v Thomson (Assent can be implied and withdrawn) .................................................................................. 24
In re: Wait (No equitable interest; property passes when appropriated; partial payment no good) ................... 24
In re: Goldcorp (Buyer can have no interest in goods unless they are separated out of the bulk) ..................... 24
Transfer of Non-Owner – Rights of Innocent Third Parties ............................................................................. 24
Sale of Goods Act, ss 22, 24, 25 (Exceptions to Nemo Dat Rule) ...................................................................... 24
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Leonard v Ielasi (Estoppel: carelessness by original owner allows innocent third party to take title) ............... 25
St John v Horvat (Innocent third party protected if they are purchasing from a mercantile agent) ................... 25
Pacific Motor v Motor Credits (Seller in Possession: Possession means physical possession) ......................... 26
Worcester v Cooden (Seller in Possession: You can retake property unless actual notice) .............................. 26
Shaw v Police (Buyer in Possession: Disposition must involve some transfer of interest in property) ............. 26
Newtons of Wembley v Williams (Buyer in Possession: Rescission must occur prior to transfer) ..................... 27
Stolen Goods .......................................................................................................................................................... 27
Fraud...................................................................................................................................................................... 27
Lewis v Averay (Voidable Title: Fraud/Mistaken ID makes voidable before 3 rd party acquires) ....................... 27
Car & Universal Finance v Caldwell (Voidable Title: Reasonable steps required to void contract) ................ 27
Seller’s Remedies for Buyer’s Breach ...................................................................................................................... 28
Sale of Goods Act, 36-49, 51 .................................................................................................................................. 28
Action for Price (Section 47) ................................................................................................................................ 28
Overview ............................................................................................................................................................ 28
Colley v Overseas Exporters (Property must pass to the buyer for an action for price to be available) ............ 28
Stein, Forbes, & Co v County Tailoring Co (Property must pass to buyer; application with CIF) .................... 29
Measurement of Damages (Section 48) ............................................................................................................... 29
Overview ............................................................................................................................................................ 29
Charter v Sullivan (Marketplace is where buyers & sellers present & price fluctuates per demand) ................ 29
Anticipatory Repudiation and Measure of Damages ......................................................................................... 29
Overview ............................................................................................................................................................ 29
Tai Hing v Kamsing (Damages assessed on likely delivery date for anticipatory repudiation cases) ................ 29
Stockloser v Johnson (A buyer may be entitled to relief of forfeiture but will lose deposit in earnest) ............. 30
Rights of the Unpaid Seller Against the Goods ....................................................................................................... 30
Sale of Goods Act, 37-46 ........................................................................................................................................ 30
Seller’s Lien ........................................................................................................................................................... 31
Dennant v Skinner (Lien can be exercised after property passes but not after possession) ................................ 31
Re: Grainex Canada (No obligation for further deliveries until balance paid) .................................................. 31
Stoppage in Transit ............................................................................................................................................... 31
Jobson v Eppenheim (In transit means before the buyer or their agent takes possession) ................................. 31
Affect of Sub-Sale (Section 45)............................................................................................................................. 31
Mordaunt Bros v British Oil (Different tests of assent for specific and unascertained goods) .......................... 31
DF Mount v Jay and Jay (Transfer of document to title defeats seller’s lien) ................................................... 32
Rights of Carriers ................................................................................................................................................. 32
Booth Steamship v Cargo Fleet Iron (Transit co has claim against seller who stops in transit) ........................ 32
Seller’s Rights of Resale ....................................................................................................................................... 33
RV Ward v Bignall (Seller can resell perishable goods; if non-perishable, notice creates condition) ................ 33
Commission Car Sales (Must account for deposit and refund a portion of the deposit if surplus) .................... 33
JC Lyons v May and Baker (No such thing as a buyer’s lien)............................................................................ 33
Bankruptcy and Insolvency Act, Section 81.1 ...................................................................................................... 33
Goldman Sachs v Pantano Energy (Court can extend time limits under certain circumstances) ....................... 34
Buyer’s Remedies for Seller’s Breach ...................................................................................................................... 34
Sale of Goods Act, ss 14, 29, 30-34 ........................................................................................................................ 34
A) Right of Rejection (ss. 33, 34).......................................................................................................................... 34
Home Gas v Streeter (Buyer must give notice of intention to reject in reasonable time) .................................. 34
Hardy v Hillerns (Buyer deemed to accept if he does something contrary to seller’s ownership) .................... 35
Public Utilities v Burroughs Business (Reasonable time may be extended by representations) ........................ 35
Rafuse Motors v Mardo Construction (Buyer not deemed to accept if inducements are made) ........................ 35
Hart-Parr Co v Jones (Acceptance may depend on seller’s conduct, such as concealing nature) ..................... 35
William Barker v ED T Angius (Buyer can reject mixed shipments when they relate to quality) ...................... 35
A1) Rejection and Instalment/Severable Contracts ........................................................................................... 36
Overview ............................................................................................................................................................ 36
Maple Flock v Universal Furniture (Is breach such a kind that we can infer future issues?) ............................ 36
JC Lyons and Co v May & Baker (Buyer cannot reject goods they already paid for; no lien)........................... 36
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B) Damages ............................................................................................................................................................ 36
Overview (Prima facie deals only with s 15(1) or 15(2) and issues of fitness or merchantability) ................... 36
Sale of Goods Act, ss 49-51................................................................................................................................ 37
Slater v Hoyle (Buyer can bring claim for damages even if they resell at market value) .................................. 37
Wertheim v Chicoutimi Pulp Co (Added profit must be taken in to account; contrasting Slater) ...................... 37
Bence Graphics v Fasson (If goods are modified and resold, effect of resale must be accounted for) .............. 37
Louis Dreyfus v Reliance (If sub-sale is in contemplation of parties at time of contract  account) ................ 38
Atlantic Potato v Messerman (Example of when to apply Slater and when to apply Bence) ............................ 38
Cullinane (A plaintiff needs to elect to claim EITHER capital loss OR loss of profits) .................................... 38
R. G. McLean (Damages may reduce, extinguish, or exceed outstanding balance owed to seller) .................... 38
Sunnyside Greenhouses (Loss of profits before duty to mitigate arises and capital loss recoverable) ............... 39
C) Duty to Mitigate & Impecuniosity .................................................................................................................. 39
Overview ............................................................................................................................................................ 39
Freedhoff v Pomalift (Impecuniosity is no defence to failure to mitigate) ......................................................... 39
General Securities v Don Ingram (Damages recoverable even where you have no means to mitigate) ............ 39
Ladgen v O’Connor (Losses are recoverable if expenditures are foreseeable) .................................................. 40
Tai Hing v Kamsing (No duty to mitigate where anticipatory repudiation is ignored) ...................................... 40
D) Contributory Fault & Remoteness ................................................................................................................. 40
Overview ............................................................................................................................................................ 40
Treaty Group v Drake International (Damages reduced if wronged party contributes to fault) ........................ 40
Victoria Laundry v Newman (Special circumstances must be known to the buyer or foreseeable) ................... 40
Heron II (Not remote if in reasonable contemplation of parties and not unlikely to occur) .............................. 41
Culligan of Canada v Mustapha (Contracts different than torts but will likely fail if they fail in torts) ............ 41
Transfield Shipping v Mercator Shipping (Regard must be had for what risk is being undertaken).................. 42
E) Remedies in Equity .......................................................................................................................................... 42
Sale of Goods Act, s 50 ...................................................................................................................................... 42
Sky Petroleum v VIP Petroleum (Interlocutory injunction possible where damages are insufficient) ............... 42
Cohen v Roche (Ordinary damages only for goods of ordinary nature that have no particular value) ............... 42
F) Consumer Protection Act .................................................................................................................................. 42
Overview ............................................................................................................................................................ 42
Section 7: Non-Application of Arbitration Act .................................................................................................. 43
Section 9: Quality of Goods and Services .......................................................................................................... 43
Section 14: False, Misleading, or Deceptive Representations............................................................................ 43
Section 18: Rescission of Agreement for Unfair Practices ................................................................................ 43
CIF Contracts – Letters of Credit ............................................................................................................................ 44
Overview ............................................................................................................................................................ 44
E Clemons Horst v Biddell Bros (Documents are legal title and buyer must pay when received) ..................... 45
Kwei Tek Chao v British Traders (Buyer loses right to reject if he sells conditional interest)........................... 45
Hamzeh Malas v British Imex (Bank must pay despite disputes as to quality; absolute obligation) .................. 45
JH Rayner v Hambros Bank (Seller must provide documents in EXACT compliance w/ instructions) ............ 46
Michael Doyle v BMO (Confirming bank liable for failing to examine the documents properly) ..................... 46
United City Merchant v RBC (Fraud exception only applicable if seller commits fraud, not 3 rd party) ............ 46
Disclaimers and Limitations of Liability ................................................................................................................. 46
Sale of Goods Act, s 53 .......................................................................................................................................... 46
Tercon v BC (Court assess exclusion clauses via coverage, unconscionability, & policy) ............................... 46
Hans v Volvo Trucks (Vulnerability as a high burden & offending party must act on it) .............................. 47
Chabot v Ford (Exclusion clauses must be explicit and precise) ....................................................................... 47
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Scope of the Sale of Goods Act
Sale of Goods Act, ss 1 & 2


Section 1: “Goods” means all chattels personal, other than things in action and money
Section 2(1): a contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in the goods to the buyer for money consideration, called the price
Sale v Barter
Messenger v Greene (Buyer does not have to pay money if goods expressed in monetary terms)
Facts
 Store owner sues defendant under agreement they had where P provided groceries if
D provided pulpwood at set value
Reasons
 The agreement is governed by the SGA. Value was in monetary terms, an account
was kept, and there was outstanding money owed.
 Interpreted as the P agreeing to sell provisions if the D agreed to sell and the P
agreed to buy pulpwood to approximate the value of the bills
Rule
 Sales includes all agreements by which property is parted with for valuable
consideration, whether there be a money payment or not, provided the bargain be
made and the value measured in money terms
Leases
Helby v Matthews (Agreement to buy must have a legal obligation, not revocation)
Facts
 P was the owner of a piano that he gave possession of to D, who sold to pawnbroker.
 Contract said that unless and until the full sum was paid the piano was the P’s
 D could terminate the lease at any point and return the piano
Reasons
 An agreement to buy imports a legal obligation to buy. All the D undertook was to
make payments so long as he kept the piano (a lease).
Rule
 An agreement to buy “if he does not change his mind” is not an agreement to buy
Holding
 This is not a contract for the sale of goods, so the pawnbroker cannot rely on “buyer
in possession” protections
Work & Materials
Borek v Hooper (Contracts for skill and labour governed by common law and CPA)
Facts
 Custom painting made for P but started yellowing after three years
Reasons
 Case law interpreted contract for skill and labour as one where certain materials pass
to the P as ancillary to the main contract
Rule
 At common law, a person hired to do work has an implied warranty that the materials
used to carry out the job will be of good quality and reasonably fit for purpose
Holding/
 This case is decided by common law rules, NOT the SGA
Notes
 Predates SGA provisions. CPA comes in to force after and contains a provision
stating that the quality in a contract for services must be satisfactory.
Keillian West v Sportspage Enterprises (Goods or services depend on substance of the contract)
Facts
 Contract for 20K pamphlets with a personal guarantee to pay outstanding amounts
Issues
 Is this a contract for goods or services? If services, not covered by SGA.
Reasons
 A work of art is likely to depend more on skill and judgment of the artist than on the
actual materials involved, but this was not the case here. No evidence that the
work/skill as opposed to the pamphlets themselves were material to the success of
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Rule

Holding/
Notes

the softball tournament
To determine whether a contract is for goods or services, a court will establish
whether the substance of the contract was the skills and labour involved or the
goods themselves
The contract was for the delivery of completed chattels in which the chattels
themselves were more important that the skill applied to their production
Gee v White Spot (Sale of food is a contract for goods and requires implied warranty of fitness)
Facts
 P claims damages for poisoning he suffered at WS
Reasons
 Case law has moved away from Old Innkeeper rule and regard it as a sale of goods
 The person ordering is liable to pay for it, so it follows that there is a warranty that it
is reasonably fit for consumption
Rule
 The sale of food is a contract for the sale of goods and there is an implied warranty
that it be reasonably fit for human consumption
Consignment, Sale & Return
Factors Act
 Section 1: mercantile agent is someone who in the customary course of business as an agent has
authority to sell goods or consign goods for the purpose of sale, or buy goods, or raise money on
security
 Section 2(1): where they have consent of owner, any disposition made in the ordinary course of
business is as valid as if the agent were expressly authorized
 Section 9: the true owner has the right to recover possession at any time before the disposition or
ask for the money they are lawfully entitled to
Weiner v Harris (Application of 2(1), any sale by mercantile agent is as valid as owner doing it)
Facts
 P manufactured jewellery that the D pawnbroker received from F, who was
employed as a mercantile agent
Reasons
 No person who is a mercantile agent can buy what he is instructed to sell. He has a
right to pledge goods pursuant to the Factors Act
 F acted contrary, but the pawnshop was not aware so they acquire good title
 Also relied on “sale or return” clause that requires approval, but the mere fact that the
contract says “sale or return” is not conclusive of nature of contract. Not true sale or
return because F did not have right to buy b/c he was an agent.
Rule
 If you entrust goods to a mercantile agent with the understanding that they will sell
on your behalf, any sale or pledge is as valid as it you did it.
Holding
 Pawnbroker took valid title to goods
In re: Richardson (Term “consignment” not conclusive of arrangement, look to conduct)
Facts
 D claims that goods were not property of P and were not the property of the debtor
but were held by the debtor on consignment (title remains with D)
Reasons
 Document says consignment, but subsequent conduct shows no intention to deal on
that basis
 No separate accounts, proceeds not kept separately, no accounting, visits only for
view of further orders, etc.
Rule
 Term “consignment” is not conclusive of arrangement if future conduct suggests
otherwise
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Atari Corporation v Electronic Boutiquestores (Sufficient notice fulfilled when available for pick up)
Facts
 D paid for games delivered “for sale or return” giving them two months to decide to
keep them or not
 D wrote to P saying they would stop shelving goods and that they can come pick
them up at the warehouse
Reasons
 When goods are delivered to the buyer “for sale or return,” the property passes when
(a) buyer signifies approval or does any act adopting transaction or (b) if he retains
goods without notice of rejection then on the expiration of the fixed time allotted (or
reasonable time if not affixed)
 A contract “for sale or return” creates a bailee relationship where holder is
responsible until acceptance or rejection
Rule
 Sufficient notice as per s 19 of the SGA in a sale or return contract requires the buyer
to sufficiently identify the goods and indicate that they are available to be picked up
within a reasonable amount of time
Holding/
 Notice was sufficient as the D made goods available for pick up within reasonable
Notes
time
Arora v Whirlpool (SGA requires privity to enforce provisions)
Facts
 Class action against Whirlpool for unpleasant smell in washing machines, but no
privity due to purchasing from store (Sears, the Bay)
Reasons
 The P’s bought their machines from stores, so Whirlpool is not a person who sells or
agrees to sell goods under the SGA
Rule
 Provisions in the SGA require privity: must be against the person selling the goods
Scope of Consumer Protection Act
Overview





SGA applies to business-to-business and business-to-individual transactions
CPA applies to business-to-consumer transactions, where consumer means an individual acting
for personal, family, or household purposes and does not include businesses.
CPA also applies to goods that are leased, services, and sale of goods. SGA does not include
leases or services, so in business-to-business transactions where there are leases or services there
are no statutory protections.
You cannot agree to waive your rights under the CPA. Different than the SGA where parties can
contract out. Any warranties businesses provide are additional protection only.
Section 7 also says that parties cannot agree in advance that any disputes will be submitted to
arbitration. If you are a consumer, you have a right to bring claim in Superior Court of Justice and
arbitration clauses are not enforceable. However, parties can agree to arbitration after the dispute
arises.
Consumer Protection Act, ss 1-3, 9




Section 1: Consumer agreement means an agreement between a supplier and a consumer in
which the supplier agrees to supply goods or services for payment
Section 2: Act applies to all consumer transactions if the consumer or person engaging in
transaction with consumer is in Ontario, unless regulated by other statute
Section 9(1): quality requirement says supplier is deemed to warrant that the services supplied
will be of a reasonably acceptable quality
Section 9(2): leased goods have same implied conditions and warranties as in SGA with
necessary modifications (reasonably fit for purpose, merchantable quality)
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
Section 9(3): parties cannot waive implied conditions or warranties, and if leased goods,
provisions cannot be waived by the parties for the implied warranties and conditions
Formation of Sales Contracts
Sale of Goods Act, ss. 3, 4, 6, 9, 10




Section 3 (Capacity): capacity is regulated by the general law to contract, but where there are
necessaries (goods suitable to conditions in life) they can be sold to minors or the mentally
incompetent (or drunk)
Section 4 (Form): contracts can be written, made orally, partly both, or implied from conduct
(unless corporation)
Section 6(2) (Kinds of Goods): good can be either existing at the time or future goods, even if
based on contingency
Section 9 (Setting Price): price can be fixed or left to be fixed or determined by course of
dealings that has existed between the parties before
Basic Obligations of the Buyer & Seller
Under the SGA – Delivery and Payment (Time of the Essence)
Sale of Goods Act, ss 11-12, 26-36, 54
 Section 11 (Time Stipulations): unless otherwise stated, stipulations as to time of payment are
not of the essence of a contract (not a condition, meaning if breached the other party cannot
regard it as repudiation). This depends on the terms of the contract.
o SB: people are always late paying, so if every time a deadline was breached we would
have too many broken deals and courts would be flooded
Hartley v Hymans (Whether time is of the essence depends on construction, but usually is)
Facts
 D agrees to buy yarn to be delivered in September, but it is not
Rule
 Whether time is of the essence depends on the terms of the contract (no
presumption), but in commercial transactions this is frequently the case even if not
strictly stated.
Holding/
 SB: not paying attention to s 11 here, where time being of the essence is not the
Notes
default.
 Once this stipulation has been waived, parties are estopped from relying on it. If they
want it reinstated, they must give reasonable notice.
 If of the essence, a vendor who has failed to deliver cannot call upon buyer to accept
delivery after the period
Allen v Danforth (Where silent, goods must be delivered within a reasonable time)
Facts
 P entered into a contract for a car and paid the full price in advance although no date
was specified in the contract
 Date was verbally agreed upon but not followed
Reasons
 Court did not allow this b/c it was agreed upon orally, but now you can agree orally
Rule
 Where no delivery date is specified, the goods must be delivered within a reasonable
time (question of fact to be determined by judge)
Holding/
 Held that time was not of the essence because it was agreed to orally, but because of
Notes
the new legislation this would be decided differently
9
Chas Rickards v Oppenheim (Time can be of the essence after it is waived if reasonable notice given)
Facts
 D ordered a Rolls Royce and requested a body be built on it. It was late, and D said if
it was not ready by July 25 he would not accept, and it did not get there until
October.
Reasons
 There was an original stipulation that time is of the essence, and this was waived. If
this were it, D would be bound to accept.
 However, D gave notice saying that if not delivered by July 25, he would refuse.
 It would be unreasonable if the D, having been lenient and waiving the initial time,
would be prevented from insisting on reasonably quick delivery.
 Factors: time required to finish the job; has the party been pressing for delivery; have
they given prior notice; is it especially important that delivery occur before the date;
was original date of the essence
Rule
 Time can be of the essence after the initial stipulation is waived so long as reasonable
notice is given
Holding
 Delivery by July 25 was of the essence
Sunstrum v International Building (Buyer must set a final delivery date if they wish to repudiate)
Facts
 P contacted D for steel building. Building was not delivered on time and P said he
would still accept by end of June.
 In mid-July, still no building, so S entered in to a new contract and rejected the
building.
Reasons
 Time is of the essence when there is an express stipulation in the contract that the
time fixed must be complied or where circumstances of the contract indicate it must
be complied with
 It was essential here b/c it was a mercantile contract with a fixed time and failure to
deliver would be a breach
 P, by his conduct, led D to believe that he would not insist on stipulation b/c he
waited 3mos to tell him
 Deposit was made in earnest to show that P was serious, and D is entitled to
repudiate the contract and retain it
Rule
 A buyer must set a final delivery date if they want to be able to repudiate and not
have to accept something delivered well beyond the date
Holding
 Time was not of the essence, so P cannot repudiate. D keeps deposit.
Implied Conditions and Warranties
Conditions v Warranties


Condition: goes to the heart of the contract. If it is breached  can be repudiation.
Warranty: If there is a breach, there can be no repudiation, but wronged party can sue for
damages. Generally guided by language of SGA. If it says warranty, it is a warranty.
Sale of Goods Act, ss 12-16, 51


Section 12(1): where subject to a condition fulfilled by seller, buyer may waive condition or elect
breach as breach of warranty and not as a ground for treating the contract as repudiated.
Section 12(3): where contract of sale not severable and buyer has accepted goods, or where for
specific goods and passed to the buyer, the breach of any condition can only be treated as a
breach of warranty unless there is a term of the contract to that effect
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Section 13(a): an implied condition that the seller has a right to sell the goods at the time when
property is to pass
Section 13(b): an implied warranty that the buyer will have and enjoy quiet possession
Section 13(c): an implied warranty that goods will be free from charge/encumbrance in favour of
a third party not declared or known to the buyer at the time of contract
Section 14: where description, there is an implied condition that goods will correspond, and if by
sample as well as description, not sufficient that bulk of goods correspond if others do not
Section 15: no implied warranty or condition as to quality or fitness, except as described (caveat
emptor)
Section 15(1): where buyer makes known the purpose and relies on seller’s skill or judgment, and
goods are in course of seller’s business to supply (whether manufacturer or not), there is an
implied condition that goods will be reasonably fit for such purpose unless for the sale of a
specified article under its patent or trade name
Section 15(2): implied condition of merchantable quality unless examined
Section 15(3): an implied warranty or condition as to quality or fitness may be annexed by usage
of trade
Section 15(4): express warranty or condition does not negative a warranty or condition implied
by this Act unless inconsistent therewith
Section 16: sale by sample where there is a term to that effect; includes implied conditions that
(1) bulk will correspond in quality; (2) buyer has reasonable opportunity to compare; and (3)
goods are free from any defect rendering them unmerchantable that would not be apparent on
reasonable inspection of the sample
S 13(a)(b): The Right to Sell (Condition) and Quiet Possession (Warranty)
Rowland v Divall (Seller has no right to sell stolen goods, which is different from fraud)
Facts
 P bought car from D that was stolen.
Reasons
 Seller argues 12(3) that since buyer accepted he cannot treat implied condition in
13(a) as a breach of condition
 The fact that the P used the vehicle before he discovered the breach makes no
difference b/c P did not receive any part of contract.
Rule
 Where a seller has not right to sell the goods, the implied condition in 13(a) cannot
be turned in to a warranty after acceptance
 Seller has no right to sell stolen goods (different from fraud)
Holding/
 D violated 13(a) as he did not have a right to sell the goods and s 12(3) cannot assist
Notes
due to total failure of consideration
Niblett v Confectioners Materials (Right to sell breached where legal restrictions prevent a sale)
Facts
 Sale of condensed milk that had label of “Nissly” which is similar to “Nestle”
 Prior to contract, sellers were subject to injunction preventing them from selling
products under this label and gave u/t not to.
Reasons
 B/c of injunction and u/t, seller had no right to sell the goods
 The right to sell means the seller has power to vest full and complete rights over the
goods to the buyer. Can’t be restrained by legal process brought by another.
Rule
 Right to sell goes beyond ability to pass good title. If seller can be stopped by legal
process from selling goods, he has no right to sell them.
Butterworth v Kingsway Motors (Right to sell post-sale can be perfected to legitimize transactions)
Facts
 First buyer did not pay all instalments when she sold car to another (acted in good
faith) and a chain of sale happened up to the D and P.
11
Reasons





Rule

Holding/
Notes


P used car for 11mos when he received notice from original seller
Under a conditional sales agreement, title rests with the seller and only passes once
all payments are made.
All parties acted in good faith with no intent to defraud.
Notice had effect and when they sold the vehicle they had no right to do so as title
remained vested.
By repudiating, P not caught by 12(3) as court is willing to extend time for buyer to
reject goods in cases where there is no right to sell.
Where a person sells goods in which he does not have a right to sell but this is later
perfected, title continues through subsequent transactions.
Breach of 13(a). P entitled to full refund even though he used it for 11mos and was
therefore not returning the same thing he had purchased.
Once original buyer made the full payment, it legitimized all subsequent sales. B/c P
gave notice before, he was not caught by act and could get full refund, but the other
parties would only have claim for damages.
Patten v Thomas Motors (Repudiation cannot occur after title has been perfected)
Facts
 Similar facts to Butterworth where there is a car and a chain of parties. Original
buyer secured a loan against it and lender repossessed the car.
Reasons
 Buyer here not entitled to refund b/c by the time they sought the refund title had
already been legitimatized (loan was paid off).
Rule
 Cannot repudiate after title has been perfected
Holding/
 Under PPSA, lender would register car and perfect their interest so that would govern
Notes
any sale and lender could recover.
Microbeads v Vinhurst (Warranty for quiet possession continues post-delivery)
Facts
 D bought road-marking machine that was faulty so they stopped paying. Part way
through lawsuit, another company said the machines infringed their patent and
sought an injunction.
Reasons
 At the time of the sale, neither party knew about patent issue b/c specifications had
not been published until after
 It would be too limiting for warranty to end when buyer takes delivery
 Both parties are innocent, but seller in better position to bear the loss since it was
their goods that infringed
Rule
 Right to quiet possession applies not only at the time of contract but into the future
Holding
 P infringed patent, which constitutes a violation of 13(b)
Ahlstrom Canada v Browning Harvey (SB: Wrongly decided)
Facts
 P buyers bottles that are later banned b/c they tended to explode
Reasons
 P obtained exactly what it bargained for, so a loss several months later must be borne
by them
 Section 22 says when property passes, so does risk.
Holding/
 SB: wrongly decided. Section 22 does not mean that if 13(b) is breached then too
Notes
bad. Section 22 should mean that if the goods are lost/stolen after the sale, it is on the
buyer.
 Microbeads also not brought to the court’s attention.
12
S 14: Description (Condition)
Overview
 If description is provided, the goods must match
 Can work both ways: if vague description the seller benefits; if precise, buyer does
 Description is a breach of condition, so buyer can repudiate if in breach
Andrews Bros v Singer (Can contract out of implied conditions of SGA but not express term of K)
Facts
 P car dealer sued D manufacturer for delivering a car with miles on it when he
contracted for a new car. Contract excluded other implied warranties.
Reasons
 Parties can exclude provisions in SGA as long as CPA does not cover it.
 The contract excludes implied terms, but “new car” was express
Rule
 If a contract expressly refers to a condition you cannot use an exclusion clause to get
out of it, but you can contract out of the SGA provisions.
Holding
 P cannot rely on s 14, but there was a condition that the car is new that was express.
Varley v Whipp (14 works w/ 33: goods can be rejected if they don’t meet description at inspection)
Facts
 P offered to sell D a second-hand farming machine. Said it was nearly new, only one
year old, and rarely used. Buyer did not examine before delivery.
Reasons
 Where goods have not been examined previously, buyer has reasonable opportunity
to inspect and can reject if not good enough.
Rule
 Provision generally only applies where buyer does not have opportunity to inspect
goods at the time of contract. If he did not, he can reject based on the implied
condition in s 14.
Holding/
 P can rescind the contract and recover what he paid b/c s 33 gives reasonable
Notes
opportunity to examine to ascertain if in conformity. If they do not, buyer can reject
based on s 14.
Beale v Taylor (Breach can occur despite inspection if defect not readily apparent)
Facts
 P bought car advertised as specific model but later found out it was a mixture of two
cars and had a smaller engine. P had a chance to test the car.
Reasons
 Even though P bought particular item and inspected, he is still entitled to rely on the
description b/c there was a hidden problem not readily apparent on normal inspection
 A description concerning condition could be unessential to its identity, so
requirement of good condition is not part of description
Rule
 A breach of s 14 can occur despite the buyer conducting a valid inspection if the
defect is not readily apparent on a normal inspection
Holding
 This was a sale by description. Judgment for buyer.
Harlingdon v Christopher Hull (S 14 not applicable where buyer relies on judgment not description)
Facts
 P art dealer bought painting from D dealer that was described as by a particular artist.
P later discovered it was a forgery (unknown to D).
Reasons
 P did not rely upon description.
 In this market, caveat emptor applies. The industry is often about skill and judgment
of the buyer, so despite description, true state of affairs was buyer exercised its own
judgment in the purchase.
 Cannot rely on sale by description when not in the reasonable contemplation of
parties that they are relying on it. This determination is based on the evidence.
Rule
 Section 14 cannot be invoked where buyer does not rely on description but rather
their own judgment.
13
Holding

P relied on his own skill and judgment, not the D’s. Cannot recover.
Arcos v EA Ronaasen (S 14 can be relied on when there is a minor variation unless de minimus)
Facts
 Sale of barrel staves where wood would be ½ inch thick
 Market for barrel staves tanked and buyer discovered only 15% were ½ inch while
the rest were about 1/16th thicker.
Reasons
 Difference here may be minor but it is 5% difference
 If you want a margin of error it needs to be express
Rule
 A buyer can rely on s 14 where the goods delivered do not conform to the description
in the contract even though the variation may be minor
Holding/
 De minimus exceptions do exist, like if you order 5 tonnes and it is 55lbs off (very
Notes
minor)
Ashington Piggeries v Christopher Hill (Description of quality is not a description)
Facts
 P purchased “herring meal of fair or average quality” for minks but they all died of
liver disease
Reasons
 The P contracted for herring meal and they received herring meal. This is what s 14
is meant to cover, not descriptions as to quality.
Rule
 A description of quality is not a description that is necessary for identifying the
product itself
 Test is whether the good is what the buyer bargained for or what men in the market
would think after looking at the goods (straightforward inquiry)
Holding
 P loses: he got herring meal, which is exactly what he contracted for
Reardon Smith v Yngvar Hansen-Tangen (Every word related to identity must be fulfilled)
Facts
 P entered contract for lease/charter of oil tanker to be built in a particular shipyard
but it was built elsewhere
Reasons
 This is not a sale of goods; it is a charter arrangement.
Rule
 Every word in the description that relates to the identity of the goods is required to be
fulfilled
Holding/
 If this was a sale of goods, the buyer probably would have won. The seller is
Notes
required to manufacture per the specifications set out in the contract.
S 15(2): Merchantable Quality (Condition)
Sale of Goods Act, s 15(2)
 Section 15(2): where goods are bought by description from a seller who deals in goods of that
description, whether they are 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 for defects that ought to be revealed
 “From a seller who deals in goods of that description” includes if a seller is selling goods for the
first time
 “Whether the seller is the manufacturer or not” means it does not only apply to manufactured
goods, it applies to commodities as well
 “Merchantable” means commercially saleable (can resell them)
Hardwick Game Farm v SAPP (Merchantability means commercially saleable)
Facts
 H had about 2000 breeding pheasants, and a large number of them died from the
poison that was supplied by S
Reasons
 Other animals like cattle could eat it with the contamination, so it could be resold.
14
Rule


Holding/
Notes


Evidence that this is commercially re-saleable for other purposes
Merchantability means commercially saleable, and that includes a wide-range of
possibilities. At one end of the scale, perhaps only one quality of goods will fit the
description, or several qualities may fit a particular description in which case all the
seller is obliged to deliver are goods of the lowest quality that is commonly sold.
Goods were of merchantable quality and not in violation of 15(2)
If the seller knew they were feeding pheasants, the outcome would change. But they
did not know this.
BS Brown v Craiks (Price is a factor & evidence against merchantability if substantially lower)
Facts
 Sale for rayon cloth, but the seller did not know that it was to be used for dresses and
had they known this they would have not provided it.
Reasons
 This was a sale by description and the cloth complied with the description
 Cloth was not suitable for making dresses, but it was suitable for a number of
industrial uses, even though it was sold for higher than clothe that would be used
 Test must be read in light of the facts and issues, you need to consider price and other
factors. If the price of higher quality is substantially higher, then it cannot be right for
the seller to tender goods of lower quality and say they fit description.
Rule
 Price is a factor in determining if goods are merchantable. If they can only be sold at
a substantial discount, this is evidence against merchantability. However, an
abatement or small reduction in price does not turn cloth into an unmerchantable
product.
Holding/
 Cloth was merchantable because it was capable of being used for industrial purposes
Notes
and was saleable for a number of these purposes.
IBM v Scherban (Minor Defects: Would a reasonable man accept in condition it was in at delivery)
Facts
 S refuses $300 scale b/c a piece of glass covering scale was missing. Would cost 2530 cents to replace.
Reasons
 A reasonable man, buying the scale in question to resell to a customer, would not
accept it with the glass of dial broken. The glass kept dust out and protected the
machine from damage. It would not work for same amount of time without it.
 Where a single good is in question, de minimis has no application. The seller cannot
compel purchaser to accept something with a broken part.
 Must be saleable when delivered to the buyer, and the buyer is not required to accept
goods that contain defects.
Rule
 Test: would a reasonable man accept the good in the condition it was in when
delivered to the buyer? If minor defects, courts find they will.
Casden v Cooper Enterprises (IBM not applicable if large, custom-made product of complexity)
Facts
 P entered contract with D for 60ft custom sailing yacht
Reasons
 IBM was correct: if products have small, interchangeable, manufactured parts the
court insists that sellers deliver products in perfect condition. If large, custom-made
products, the court cannot be as demanding. One must look at the circumstances and
examine what a reasonable person acting reasonably would after a full examination
accept in performance of an offer to buy an article.
Rule
 When an article is custom-made, involving the continuous cooperation of the buyer,
and is as complicated and expensive as the boat was, the concept of merchantability
must adjust so as to take into account these circumstances.
15
Bartlett v Sidley Marcus (Merchantable quality requires usable condition, not perfection)
Facts
 D car dealers sold car to P disclosing defects. When P brought car to a garage, there
were a number of things wrong with it. He had driven it for four weeks.
Reasons
 Goods are not merchantable if of no use for any purpose or if they are only meant to
be used for one purpose, even if they are not fit for said use.
 The article may be of some use though not entirely efficient for the purpose. It may
not be perfect if it is usable.
 This meets the test: it is roadworthy, meaning driveable along the road in a safe way.
Requiring more work does not mean it is not fit for use as a car.
Rule
 A good is merchantable if it is usable condition, even if not perfect.
Crowther v Shannon Motor (Cars to be useable for reasonable time, with repair costs considered)
Facts
 P drove a car for 2000 miles before the engine seized
Reasons
 When a buyer buys a car, he should know defects will appear, but this was a major
defect.
 If a car does not go for a reasonable time and the engine breaks in a short period, this
is evidence to show that it was not reasonably fit for the purpose in which it was
sold.
Rule
 A product should be used for a reasonable time. To determine, courts will look at the
cost of the repair as a factor.
Holding/
 SB: court in Bartlett was pissed b/c the claim was for $45. Both were decided by
Notes
Denning but different outcomes due to size of defect.
Presley v MacDonald (An express warranty will allow a buyer to claim for damages)
Facts
 P bought car under 30-day 50/50 warranty that excluded other agreements. Also
issued certificate of fitness that said it was in safe condition, but the car had a broken
transmission.
Reasons
 Buyer beware when buying a used car without warranties, but there were two here
Rule
 An express warranty will allow a buyer to claim for damages
Holding/
 Certificate was a warranty and was breached. If it were not for 50/50, P would get
Notes
full costs.
 SB: today, 50/50 likely invalid under CPA as an attempt to contract out of implied
conditions and warranties
Mash v Joseph Emanuel (CIF contracts require merchantability to remain over transit)
Facts
 Potatoes in CIF were found to be rotten and unfit for human consumption upon
arrival at port.
Reasons
 Implied warranties extend to the time at which, in the ordinary course of transit, the
goods should reach the defendant, and not only to that time, but that it continued
until the defendant should have a reasonable opportunity of dealing with them in the
ordinary course of business.
Rule
 In CIF contracts, merchantability means that goods must remain merchantable for a
reasonable time, which means time of arrival and opportunity to deal them in
ordinary course of business.
Holding/
 If seller provides a warranty this will cover the time and limit the claims the buyer
Notes
can make.
Sumner v Webb (Merchantability does not mean that there shall in fact be persons to buy on resale)
Facts
 D sold tonic to P that they knew was intended for Argentina. Unknown to P, tonic
16
Reasons


Rule

contained illegal ingredient and was not capable of resale in Argentina.
Merchantable quality means goods comply with description so as to be good tender.
Does not mean that there can legally be buyers of that article, but this does not mean
the seller can sell goods as merchantable when they know there are restrictions.
Merchantability does not mean there shall in fact be persons ready to buy the goods
(does not cover legal title or the right to sell goods, it means it complies with
description)
Egekvist Bakeries v Tizel (Exception to Sumner: seller liable if they know of restrictions on goods)
Facts
 D sold berries to P and knew that they were subject to an order requiring them to be
held in a certain location until released. D ignored this and shipped it
Reasons
 D in breach knowing that they could not ship the blueberries to the P. Different from
Sumner b/c of knowledge of restriction.
Thornett v Beers (Buyer cannot rely on condition if they fail to perform proper inspection)
Facts
 Sale of vegetable glue where D had seen casks and conducted an exterior
examination but never looked inside b/c they were short on time.
Reasons
 15(2) states no implied condition as to defects examination ought to have revealed.
Rule
 If a buyer exercises right to inspect they should conduct normal inspection for a
product of this sort. If the buyer fails to do so or takes a shortcut, they are not
conducting the inspection they ought to have.
Holding
 D conducted an inspection and cannot rely on 15(2)
15(1)(3): Fitness for Use (Condition)
Overview
 Can apply when not necessary for buyer to express their purpose (if you are buying food at a
grocery store, you don’t need to express that it is for consumption)
 If seller recommends goods that are not fit for the purpose expressed by the buyer, then the claim
under s 15(3) comes up
 Does not apply when goods used beyond their lifespan, or where buyer has failed to disclose
some type of unusual peculiarity that is pertinent to the situation
 Can include some reliance or full reliance on seller’s input/recommendation
 Trade Name Exception: where sale made under patent/trademark there is no implied condition
regarding fitness for a particular purpose (i.e. buying an iPhone 6 that does not do something you
expect it to)
Hardwick Game Farm v SAPP (Purpose means a purpose known or communicated to the seller)
Facts
 H had about 2000 breeding pheasants, and a large number of them died from the
poison that was supplied by S
Reasons
 Obligation is to deliver a product that is healthy to consume.
 This food was not fit because it contained a hidden defect
 It was edible by other animals, but still caused negative effects
Rule
 “Purpose” means a purpose known or communicated to the seller, and may be
expressed in narrow or wide terms. The narrower the purpose, the narrower the
suitable class of goods. No need for buyer to make known what is already reasonably
known.
Holding
 Product was not reasonably fit for its intended purpose
17
Fording Coal v Harnischfeger (Fitness is required for the reasonably expected lifespan of the good)
Facts
 P bought electric shovel that operated for 5 years before it had to be shut down
Reasons
 Defect existed at the time of the sale, and failure occurred well before anticipated
lifespan
Rule
 Fitness is not required merely on the date of sale, but for the reasonably anticipated
life span of the goods, provided they are used throughout their life span for the
purpose intended
Ashington Piggeries v Hill (Reliance need not be total reliance; partial reliance qualifies)
Facts
 P purchased “herring meal of fair or average quality” for minks but they all died of
liver disease
Reasons
 The buyer relied on the seller’s judgment that ingredients furnished would be
suitable for animal feed
Rule
 Partial reliance is all that is necessary; total reliance is not. Did the buyer rely in part
on the seller’s skill and judgement?
Holding/
 Sellers liable.
Notes
 Exception would exist if seller could show that product was harmful to minks but no
other animal, as this idiosyncratic feature of minks would escape liability. Seller
must show issue is some factor under the buyer’s control.
 Even though this was the first time the supplied dealt in this product, this does not
matter.
Ingham v Emes (P must disclose known peculiarities)
Facts
 P hair was dyed and she suffered dermatitis due to Inecto Rapid formula.
Reasons
 P had used this before and failed to disclose her negative reaction
Rule
 There is a duty on a P to use reasonable care in disclosing peculiarities that will
effect fitness of the product
Innovative Automation (Purpose must be sufficiently communicated)
Facts
 P hired D to install automated process at P’s factory but did not make known info
that would allow them to design a system to meet buyer’s needs
Rule
 Buyer’s purpose must be sufficiently communicated to the seller in order for the
buyer to rely on seller’s skill/judgement as per the SGA
Holding/
 The P did not sufficiently communicate their intended purpose and cannot rely on the
Notes
seller’s skull/judgment
Baldry v Marshall (Trademark exclusion applies when buyer does not rely on skill/judgement)
Facts
 P asked for a car that was good for touring and D recommended the Bugatti
Reasons
 The trademark exclusion does not apply here because the buyer made known he
wanted the good because it was recommended for his particular purpose
 Mere fact that contract was described as a Bugatti does not matter, as it was only
done after the buyer communicated his purpose to the seller and the seller made a
recommendation
Rule
 Did the buyer specify the trade name in such a way as if he was satisfied that it will
suit his purpose and that there is no reliance on the skill or judgment of the seller
Holding
 Trademark exclusion does not apply
Crozier v A&P (Fitness not applicable where only unfit b/c of peculiarity of buyer)
Facts
 P bought Kraft peanut butter and became ill from botulism poisoning.
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Reasons


Rule
Holding/
Notes


D brought evidence that P was first person in the entire world to suffer this kind of
botulism from peanut butter
Botulism did not exist when she bought the peanut butter or consumed it, but
developed when it was inside her
Fitness does not apply where lack of fitness is due to buyer’s peculiarity
P developed condition due to features peculiar to her, even though she didn’t know
about it. Court dismissed her action on basis of peculiarity/idiosyncratic rule.
S 16: Sales by Sample
Overview
 Usually occurs when seller does not have complete stock for sale at the time of contract, so they
undertake to supply the goods that will correspond with the sample
 Such goods come with a warranty that they are free from any defect making them
unmerchantable that would not be apparent on examination
 If contract says “sale by sample,” this is pretty strong evidence that this applies. However, it is
not always so obvious.
 Main Question: Court must see if seller who exhibits sample effectively represent that bulk of
goods will correspond with the sample, or is the sample provided one in which buyer takes own
risk regarding whether bulk will conform
 Sale by sample should be one in which goods sold should answer the description of a small parcel
or portion of the goods that have shown to the buyer at time of sale
Steels v Bleecker Bik (Reasonable examination means what the industry standard is)
Facts
 P bought rubber from D that became discoloured due to a chemical that was not
noticeable upon the visual examination
Reasons
 This was a sale by sample: the Ds first furnished a sample and all subsequent sales
were to conform “as previously delivered”
 For 16(2)(c) you have to determine what the normal industry standard is, and here it
is a visual examination
Rule
 The implied condition in section 16(2)(c) that “goods will be free from any defect
rendering them unmerchantable that would not be apparent on reasonable
examination of the sample” provides buyers with a remedy where the discrepancy
with the sample is discoverable upon an examination that is within the normal
industry practice
Private Sales
Frey v Sarvajc (Caveat emptor applies to private sales – s 15 does not apply)
Facts
 P bought a truck by private sale where D failed to advise that the truck was
previously a “total loss” vehicle
Reasons
 Private seller is not required to disclose defects that are obvious unless they are
actively concealing them.
Rule
 There are no s 15 protections for private sales: caveat emptor applies. All other
sections covered.
Notes
 If vendor were to conceal latent defects  fraud
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Claims by the Buyer Against the “Non-Seller” Manufacturer
Overview
 Situation: when buying a defective iPhone from BestBuy, you usually have no claim against
Apple due to privity issue
 Only recourse buyer has in practical terms is where the manufacturer provides a new product
warranty, which gives you contractual rights. There is another route in Murray where you
establish a contract based on information that buyer relies on.
Murray v Sperry Rand (Manufacturer may be liable if they induce P to enter contract)
Facts
 P agreed to buy farm equipment from local supplier after looking at brochures and
meeting with a local rep of the manufacturer who made representations. Machine
sucked.
 P sues seller, SR US, ad SR Canada
Reasons
 Dealer induced sale based on sale brochure published, creating liability
 Manufacturer should be liable for breach of terms in brochure as it is no different
than if manufacturer had sat down with P and made those representations
Rule
 When representations are made to induce the P to enter a contract, they will give rise
to a collateral warranty from the manufacturer
Holding/
 Seller is liable as a signing party under s 15(1)(2)
Notes
 Sperry Rand is liable for breach of warranty even though no direct contractual
relationship with the person to who the warranty was given
 Note: you can find consideration b/c P paid dealer, and a large portion goes to
manufacturer
Arora v Whirpool (All claims must be brought against the dealer/seller unless warranty)
Facts
 Whirlpool washing machines made clothes smell bad
Reasons
 New product warranty does not apply b/c it is designed to replace defects in
workmanship/materials. The problem here is design.
Rule
 There is no claim under the SGA against a manufacturer. All claims must be brought
against the seller unless there is a warranty that was breached.
Holding/
 Very hard to sue manufacturer unless you have a warranty that was breached
Notes
 Fraser River: can use expanded privity as shield in event you are sued, but not as a
sword to advance a claim that you could not previously advance due to privity rules
Chabot v Ford Motor Company (Claims arise through warranty from the manufacturer)
Facts
 P bought car from dealer. Car blows up b/c of screw up at Ford factory.
 There was a new car warranty for repairs.
Reasons
 Per new car warranty, P can have claim against dealer and Ford. Ford undertook in
the warranty to repair vehicle in event of a problem, a complete destruction is kind of
a problem.
Rule
 Claims arise through warranty from the manufacturer
Characterization of Contractual Terms
Overview
 Issue: what do we do when a term is identified as neither a condition nor warranty?
 Summary: Courts tend to favour HKF and Cehave when intermediate terms are involved. If a
term has been recognized as a condition  courts treat it as a condition. If categorized as
condition in case law  treat it as a condition. If parties expressly designate  follow that.
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Lastly, courts may consider implication from nature of the contract, subject matter, or
circumstances, and make a value judgment about commercial significance of term.
Cehave v Bremer (Classification depends on seriousness of the breach)
Facts
 P sells pellets to D and when they arrive some had gone bad so D rejects them all
Reasons
 Denning relies on Hong Kong Fur to look at seriousness of breach as statute does not
deal with this issue
 In this case, only a small portion of the cargo had gone bad, so this should be met
with a small allowance or damage claim
Rule
 Test: does the breach substantially deprive the innocent party of the benefit of the
contract? If serious  condition; if less serious  warranty.
Bunge Corp v Tradax (Exception for mercantile K’s & time: look to nature, subject matter, etc.)
Facts
 Contract for soybeans in instalments where 15 days notice required for name of the
ship. Buyer gave 13 days and seller purported to reject.
Reasons
 Despite HKF and Cehave, it remains open to parties to maintain any breach of such
provision or obligation as to entitle the innocent party to having regard the contract
as repudiated.
 Courts should not readily declare terms as conditions, but they should also not be
hesitant in mercantile contracts (particularly if time involved)
Rule
 Hong Kong Fur does not apply to time requirements in mercantile contracts. In these
cases, it is important to ask if breach of the term and what consequences are attached
in the contract; or if silent, what ought to be attached having regard to contract as a
whole
Consumer Protection Act, ss 6-13, 55-65
Overview
 SGA applies to business-to-business and business-to-consumer. CPA applies to businessconsumer. Neither deal with private sales, so implied conditions respecting quality will not apply
to private sale transactions in either.
 CPA adds that if a buyer is a consumer (for personal or household use), the parties cannot
contract out of application of Act (like you can w/ SGA) and arbitration clauses are not
enforceable (as they are in business-to-business)
General Provisions
 Section 9(1): any service provided must be of reasonably acceptable quality
 Section 9(2): the implied conditions/warranties under SGA apply with necessary modifications to
goods that are leased or traded or otherwise supplied
 Section 9(3): you cannot negate or vary any implied condition/warranty under SGA or under this
Act (if leased goods where SGA applies with modifications  cannot contract out)
Risk of Loss and Frustration
Sale of Goods Act, ss 7, 8, 17-25
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Section 7: where there is a contract for specific goods and the goods without the knowledge of
the seller have perished at the time the contract is made, the contract is void.
o Codification of Bell v Lever Bros, where subject matter has disappeared pre-contract and
they are unaware, the contract is void
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Section 8: where there is an agreement to sell specific goods and subsequently the goods without
any fault of the parties perish before the risk passes to the buyer, the agreement is avoided
o Further performance by either party is not required, but see Alfred Mills
Section 19: unless a different intention appears, the following are rules for ascertaining the
intention of the parties as to the time at which the property is to pass
o Rule 1: where there is an unconditional contract for the sale of specific goods in a
deliverable state, the property in the goods passes when the contract is made and it is
immaterial whether the time of payment or the time of delivery or both is postponed
o Rule 2: where there is a contract for specific goods and seller is bound to do something
to the goods to get them in deliverable state, property passes when that is done and notice
to the buyer is given
Section 21: unless otherwise agreed, the goods remain at the seller’s risk until the property
therein is transferred to the buyer, but, when the property therein is transferred, goods are at
buyer’s risk whether delivery has been made or not, but:
o 21(a): Where delivery has been delayed through the fault of either party, goods are at the
risk of party at fault as regards any loss that might not have occurred but for such fault
o 21(b): Nothing in this section affects the duties or liabilities of either seller or buyer as a
bailee of the goods of the party
Courts are very flexible in determining when property transfers. It is a matter of looking at the
circumstances and the contract, and the default rules that apply
Risk of Loss
Jerome v Clements Motor Sales (Courts look to circumstances in addition to statute)
Facts
 P bought car for two trade-ins and further payment if D installed new battery. Before
the battery was installed the showroom burnt down.
Reasons
 Rule 2 applies b/c the dealer had to install a new battery and property does not pass
until that is done. This means that risk remained with seller until they did this and
gave notice.
 Regardless of the Act, there are other issues at play. Court concludes that it was the
intention that property not pass until seller has been paid in full, which they had not.
If other way around, they would have no power to collect, and they could be seized if
buyer went bankrupt post-delivery.
Rule
 Courts will look at not only the SGA but also the circumstances of the case.
Holding
 Risk is still with the seller until they complete the battery job (and are paid)
Alfred Mills Ltd. (Section 21 paramount as delay places risk on party at fault)
Facts
 P buys meal under unconditional contract for sale of specific goods but seller failed
to make delivery on proper date and there was a fire. Buyer agreed to resell the meal,
so now they had to purchase it elsewhere.
Reasons
 Not as simple as the rules suggest. Generally speaking, risk passes when property
passes. Where delivery is delayed by fault of one party or the other, goods are at the
risk of the party at fault.
 Seller was effectively a warehouse for the buyer as bailee, and this gives an
obligation to take reasonably good care of the goods.
Rule
 Section 21 takes precedence over Section 8 (see below): where there is a delay b/c of
seller, the seller is at risk.
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Frustration
Howell v Coupland (Where specific goods perish through no fault of seller, they avoid liability)
Facts
 P bought potatoes from D that had just begun to grow when disease struck
Reasons
 This was for the sale of specific goods (specific quantity from specific crop), so
property had not passed to buyer
Rule
 S 8: a seller can avoid liability when damage occurs through no fault of their own
Ocean Tramp Tankers (Fundamentally different circumstances can give rise to frustration)
Facts
 Shipping contract where ship was prevented from delivering due to hostilities in
Black Sea.
Reasons
 One approach is to say no frustration b/c contract said to avoid war zones (selffrustration, so no defence)
 Court said if they had to go around the canal they would have to go around Africa,
and this would be considerably longer
 Where contract deals with event  terms govern outcome
 Where contract does not deal w/ it  general rules regarding frustration apply
 Where parties contemplate situation but do not deal with it  general rules apply
Rule
 Test: if in carrying out of contract a fundamentally different situation arises for
which the current contract has no provision, and it would be unjust to hold them
bound to the original contract, then the contract is at an end and the doctrine of
frustration applies
Holding/
 Note: not a sale of goods case, but sets out approach to frustration in common law
Notes
 If one encounters a situation that renders performance radically different from what
was undertaken, then it may be the contract has been frustrated. In those situations,
we compare the new and old situation and compare how different it is. A more
onerous or expensive outcome is often not enough; rather, it must be positively
unjust to hold the parties to the terms of the original agreement.
Transfer of Title
Between Buyer and Seller
Sale of Goods Act, s 19
 Section 19 (Rule 5(i)): where contract is for unascertained or future goods by description and
goods of that description and in a deliverable state are unconditionally appropriated to the
contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the
seller, the property passes to the buyer, and such assent may be expressed or implied and may be
given either therefore or after the appropriation is made.
RBC v Saskatchewan Telecommunications (Future goods must be ascertained for property to pass)
Facts
 T was constructing trailers for ST, but was indebted so RBC secured company.
Reasons
 The making of progress payments is but one factor to be considered in the
determination of intent of the parties (ST argued progress payments transferred title)
 Cannot find intent from conduct or contract, so the general rules apply.
 Title and ownership did not pass until goods in a deliverable state were
unconditionally appropriated to the contract. The respondent is entitled to retain the
payment.
 These trailers were future goods, as they were not yet in a deliverable state b/c
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Rule
Holding/
Notes
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manufacturing not done; consequently, not unconditionally appropriated. Even if
they were at the point where they could be appropriated, this is an action that has to
take place on the part of the seller with the assent of the buyer.
Involves something like calling ST and saying they are almost ready, come inspect
Future or unascertained property passes to the buyer when goods are ascertained
Application of Rule 5(i)
The reason ST wanted to fight this was b/c they made advanced payments prior to
delivery, and tried to argue that these payments accelerated the process. Illustrates
problem where in case of future or unascertained goods and the buyer pays a portion
of the price, there is a risk that goods may not get delivered to you.
Carlos Federspiel v Chias Twigg (If silent, need irrevocable intention to attach & appropriation)
Facts
 D made bikes for P under FOB, but a receiver was appointed to manage the co.
Receiver refuses to send the goods, even though they were boarded and fully
ascertained.
Reasons
 Here, the goods were still at the seller’s risk, so that is prima facie an indication that
the property had not passed to the buyer.
 Usually the appropriating act is the last act to be performed by the seller (involves
identification of goods, making them ready, isolating them, and informing buyer that
they are now ready. If buyer takes goods, this is an assent. If something remains to be
done, this is prima facie evidence that property does not pass until final act or acts
have been done.
 Setting aside/selection  NOT ascertained. Need irrevocable intention to attach
goods and parties agreeing on appropriation.
 Generally speaking, appropriation by one party with assent of the other involves
actual or constructive delivery to the buyer, as in most case appropriation and
delivery go together. Appropriation and constructive delivery take place, followed by
actual delivery later.
Rule
 Contract is paramount, and absent terms, there needs to be an irrevocable intention to
attach particular goods to contract and the parties must agree to appropriation.
Holding/
 Intention was the ownership should pass on shipment (loaded on board to go to Costa
Notes
Rica) b/c that was the emphasis and there is no contrary intention. Intention of FOB
is that property not change title until loaded.
Caradoc Nursuries v Marsh (Delivery requires final appropriation or tender)
Facts
 D agreed to buy shrubs and trees (unascertained goods) but debate as to delivery.
 P tries to sue for payment, but can only do this after delivery.
Reasons
 Transfer of property does not occur by mere selection and loading on seller’s truck
b/c they could change their mind and turn around
 It is not essential for final acceptance by buyer, tender is sufficient
 Appropriation is to be implied by the terms of the contract. It has to be performed by
seller (selection, loading, delivery), and this can constitute appropriation, much like
ordinary shipment of goods.
 Buyer can prevent property from being passed to them. If the buyer had refused to
name a ship on which the goods could be loaded, and in that sense refused delivery,
the seller would not be able to argue that the property had passed to the buyer and
would not be able to collect the purchase price.
Rule
 Transfer does not occur through selection, there must be appropriation or tender
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Sells v Thomson (Assent can be implied and withdrawn)
Facts
 D ordered books from P that were to be selected by P and shipped. Buyer later
revoked that arrangement and their ability to choose on their behalf. Seller continued
to select after revocation.
Reasons
 In this case, there is an implied assent to the appropriation of goods by the seller.
Rule
 Assent to appropriation can be implied and withdrawn
Holding/
 Once the notice to withdraw authority was given the Ps could no longer appropriate
Notes
goods without D’s assent
In re: Wait (No equitable interest; property passes when appropriated; partial payment no good)
Facts
 CIF contract for grain (unascertained) where Wait buys grain and sells a portion to a
third party who already paid him without receiving CIF documents. Basically, subbuyer pays Wait for goods and all Wait gave was promise to deliver at future date.
Reasons
 W borrowed money to pay for documents, and gave documents to bank as security.
When he went bankrupt, legal title (documents) was with bank.
 Whatever equitable title may have existed absent the SGA (for third party), these
have been set aside by virtue of the Act. It could not have been Parliament’s intention
to leave or create equitable rights that would be inconsistent with and more extensive
than those in the Act.
 Bank who finances transactions in this way would be left in limbo if sub-buyers
could assert claims of equitable title against goods over which the bank is claiming
title.
Rule
 Whatever equitable title existed absent SGA is now set aside. Must be appropriation.
Holding
 Bank has title to property. Sub-buyer is out of luck.
In re: Goldcorp (Buyer can have no interest in goods unless they are separated out of the bulk)
Facts
 G insolvent so bullion could not pass to people who paid for them already.
Customers bought certificates that they could exchange with seven days notice.
Reasons
 No equitable title: what investors were dealing with were unascertained goods, and
the buyer cannot obtain title to unascertained goods until they are ascertained and
specific parcels are set aside.
 Bullion was an unallocated asset unconnected to any purchaser
 Tracing not possible b/c they were not of a special character and were ordinary funds
received that fell in general funds with no limits placed on how to spend money
Rule
 Buyer cannot obtain title to unascertained goods until they are ascertained and
specific parcels are set aside
Holding/
 Gold had not set aside or segregated in favour of particular investors, so they were
Notes
not entitled to bring claims of a proprietary nature to be given their share of gold.
 No property in the goods is transferred to the buyer until the goods are ascertained.
As in Wait and Goldcorp, this means that a person who buys goods forming part of a
larger bulk can have no interest in the goods unless and until they are separated out
of the bulk.
Transfer of Non-Owner – Rights of Innocent Third Parties
Sale of Goods Act, ss 22, 24, 25 (Exceptions to Nemo Dat Rule)
 Nemo dat means that you cannot sell what you do not have. This is preserved in the opening
words of s 22, but there are exceptions, and b/c of these, there’s not much left of the rule.
 Section 22: Subject to this Act, where goods are sold by a person who is not the owner thereof
and who does not sell them under the authority or with the consent of the owner, the buyer
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acquires no better title to the goods than the seller had, unless the owner of the goods is by
conduct precluded from denying the seller’s authority to sell, but nothing affects:
o The Factors Act or any enactment enabling the apparent owner of goods to dispose of
them as if he, she, or it were the true owner; or
o The validity of any contract of sale under any special common law or statutory power of
sale or under the order of a court of competent jurisdiction
Section 25(1) (seller in possession): Where a person having sold goods continues or is in
possession of the goods or of the documents of title to the goods, the delivery or transfer by that
person, or by a mercantile agent acting for that person, of the goods or documents of title under a
sale, pledge or other disposition thereof to a person receiving the goods or documents of title in
good faith and without notice of the previous sale, has the same effect as if the person making the
delivery or transfer were expressly authorized by the owner of the goods to make the delivery or
transfer
o Summary: if seller retains possession of goods and later sells them to another, the third
party who is unaware of the sale acquires good title. First buyer has claims for
damages/breach, but not recourse for goods itself b/c of 25(1) protections.
Section 25(2) (buyer in possession): Where a person having bought or agreed to buy goods
obtains, with the consent of the seller, possession of the goods or the documents of title to the
goods, the delivery or transfer by that person, or by a mercantile agent acting for that person, of
the goods or documents of title, under a sale, pledge or other disposition thereof to a person
receiving the goods or documents of title in good faith and without notice of any lien or other
right of the original seller in respect of the goods, has the same effect as if the person making the
delivery or transfer were a mercantile agent in possession of the goods or documents of title with
the consent of the owner.
Section 24 (voidable title): when the seller has a voidable title thereto but the seller’s title has
not been avoided at the time of the sale, the buyer acquires a good title to the goods, if they are
brought in good faith and without notice of the seller’s defective title
Leonard v Ielasi (Estoppel: carelessness by original owner allows innocent third party to take title)
Facts
 P bought a car and lent it to another who registered it in his name (P knew) and sold
it to D. D paid in good faith.
Reasons
 How can it possibly be said that the P acted responsibly by doing nothing after she
found out that the car was registered in their name? This is careless.
Rule
 Where an owner is careless with regard to property, an innocent third party takes title
to the transferred property.
Holding
 P was careless, so D gets good title.
St John v Horvat (Innocent third party protected if they are purchasing from a mercantile agent)
Facts
 P gave D van to sell, but only with authorization. D sold it and forged her signature
w/ out reimbursing P.
Reasons
 Factors Act: Where a mercantile agent is in possession of goods with the consent of
the owner, or the documents of title, a disposition of goods made by the agent by a
bona fide purchaser for value in ordinary course of business is valid as if the agent
were expressly authorized. Protects innocent buyer.
 A mercantile agent is someone who is in the customary business of selling goods as
an agent. Here, the dealer sold vehicles and routinely sold cars for others.
 Act is meant to deal with situations where goods delivered to agent but agent does
not sell according to instructions or fails to pay proceeds. Reflects policy that people
who buy goods in good faith should be protected and person who chose agent should
bear the loss.
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Rule
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Holding/
Notes
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In order to be exempt by Factors Act, must (1) be a mercantile agent (2) who is in
possession of goods (3) with the consent of the owner and (4) made a sale in the
ordinary course of a mercantile agent (5) where the buyer has acted in good faith and
without notice that the mercantile agent did not have authority to enter the
transaction
If there were other circumstances, like no registration papers or not giving the keys
over, this would not be in the ordinary course of business so the buyer could not rely
on this protection.
Pacific Motor v Motor Credits (Seller in Possession: Possession means physical possession)
Facts
 A dealer held cars s/t floor plan arrangement with MC, who owned the cars but hired
the dealer to authorize sales. MC withdraws authority to sell, but dealer sold anyway.
Reasons
 D acquired the cars, sold to MC for financing, but never transferred physical
possession. They then sold to bona fide purchase for value who did not know about
withdrawal of authorization.
 “Or is in possession of the goods” means that if a person sells goods and continues in
possession, he may to a bona fide buyer make good title
Rule
 “Or is in possession” means actual, physical custody regardless of any private
transactions between the seller and purchaser which might alter the legal title under
which the possession was held
Worcester v Cooden (Seller in Possession: You can retake property unless actual notice)
Facts
 C owned a car, fraud falsely bought it, and sold to W. C retook possession before W
obtained possession but did receive documents.
Reasons
 It is clear that the fraud continued in physical possession, so when C retook the car,
there was clearly a transfer back to them of property in the goods.
 C acted in good faith without notice of the sale to W.
 C can rely on 25(1) and say they got the car back from a seller who remained in
possession, and this was a disposition when they retook it.
 May have argued constructive notice, but court says constructive notice that there
may be another disposition is not enough; you need actual notice.
Rule
 You can regain your property from a seller in possession, unless there is actual notice
of another disposition to a third party.
Shaw v Police (Buyer in Possession: Disposition must involve some transfer of interest in property)
Facts
 N sold car to L, who agreed to sell to P. Police repossess car b/c of bounced check.
Reasons
 Where a buyer is in possession of goods with the seller’s consent, and the buyer
resells the goods, the new buyer obtains good title. They are entitled to assume that
the first buyer is a mercantile agent acting for true owner.
 Court says no to 25(2) claim. This section only applies in the case where there is a
sale agreement or an agreement to sell goods, not where you place goods in the hands
of a mercantile agent.
 P also did not suffer a loss, they obtained a car without having had to pay for it
 Critical Factor: P did not buy the car; they agreed to buy it. Property in the car was
not intended to pass until L was paid. L was not paid, so property never passed.
Rule
 Section 25(2) only applies where a person has bought, or agreed to buy, goods from
the true owner. An agent purchasing the vehicle on behalf of another does not
amount to a buyer in possession.
 Where person has bought goods or agrees to buy goods – then if the buyer resells the
goods, that purchaser for value gets good title to the goods even though there may be
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a dispute between the first seller and the first buyer
Newtons of Wembley v Williams (Buyer in Possession: Rescission must occur prior to transfer)
Facts
 P sold car to Andrew on condition that property not pass until they are paid. Cheque
fails and Andrew sells to another. P takes all reasonable steps to rescind once cheque
bounces.
Reasons
 P took all reasonable steps, and at common law, would have regained title. However,
Andrew purchased the vehicle, had possession with consent, and resold before
original P took steps to undo it.
 D did not know cheque had bounced, P had not taken steps prior to transfer, and D
did not know steps were being taken.
 Transfer from Andrew to D was as if the transfer was made by A who is regarded as
like a mercantile agent selling with consent of the owner
Rule
 P must take all reasonable steps to rescind the transfer prior to subsequent transfer
taking place
Stolen Goods
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Innocent buyer cannot rely on section 25 in the case of stolen goods b/c person they buy from has
not obtained the consent of the owner.
Stolen goods are distinguished from cases we look at where the buyer in possession or seller in
possession obtained possession with consent, even if fraudulently.
Fraud
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Section 24: When the seller of goods has a voidable title thereto but the seller’s title has not been
avoided at the time of the sale, the buyer acquires a good title to the goods, if they are bought in
good faith and without notice of the seller’s defective title.
In these cases, a valid contract is entered in to but there is a total failure of consideration that
allows the owner to regain property, as contract is voidable. Owner can takes steps by contacting
buyer and saying that they want goods back.
Voidable, not void automatically.
Lewis v Averay (Voidable Title: Fraud/Mistaken ID makes voidable before 3rd party acquires)
Facts
 L sold car to rogue, who sold it to A
Reasons
 When two parties come to contract, the fact that one party is mistaken as to identity
of the other does not mean no contract, it means contract is voidable so long as he
does so before third parties have in good faith acquired rights under it
 When dealing is had between a seller like L and a person who is actually there
present before him, the presumption is that there is a contract, even if fraudulent.
Rule
 Mistaken identity makes a contract voidable before third party acquires rights in
good faith
Car & Universal Finance v Caldwell (Voidable Title: Reasonable steps required to void contract)
Facts
 C sold car to N, but found out next day cheque was bad and notified authorities. N
sold to M, who knew of the problem, and then sold to P.
Reasons
 True owner rescinded when they have the right to avoid due to fraud and sufficiently
exercise that election if upon learning of the fraud they take all reasonable steps to
recover the goods, even if they cannot communicate directly to a rogue.
Rule
 True owner can exercise right to void voidable contract by taking all reasonable steps
to recover goods, they need not communicate directly to fraud.
Holding/
 Steps were taken prior to reselling. Had they waited, it would be no good.
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Notes
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Mere intention is not enough: they must take concrete steps.
Seller’s Remedies for Buyer’s Breach
Sale of Goods Act, 36-49, 51
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Section 47 (Action for Price): claim which seller has for price of goods where property passes
but buyer refuses to pay
Section 47(2): allows the seller to maintain an action for the price where date of payment is fixed,
regardless of whether goods have been delivered
o Also, if time is stipulated as “on demand” and the buyer refuses when demanded, seller
can sue for price
Section 48(2): the measure of damages is the estimated loss directly and naturally resulting in the
ordinary course of events from the buyer’s breach
Section 48(3): Where there is an available market for the goods, the measure of damages is to be
ascertained by the difference between the contract price and the market or current price at the
time or times when the goods ought to have been accepted, or, if no time was fixed for
acceptance, then at the time of the refusal
o Rebuttable presumption referred to as prima facie rules for claims under 48 and 49
o If market falls  seller has claim for difference
o If market rises  buyer has claim for current market price
Section 49: mirror of 48 but for buyer in cases of non-delivery
Section 51(1): where breach of warranty by seller, the buyer is not by reason of such breach
entitled to reject the goods but may (a) set up against seller the breach of warranty in diminution
or extinction of the price or (b) maintain an action against the seller for damages for breach
Section 52(2): measure of damages for breach of warranty is estimated loss directly and naturally
resulting in the ordinary course of events from the breach
Action for Price (Section 47)
Overview
 NOT damages, this is claim for outstanding debt. Definite sum fixed by contract as opposed to
a broken obligation as per damages.
 Advantages: need only prove price is due, no damage, no need to mitigate, interest payable
 Where a deposit is paid and the seller sues for price  seller must give credit
 Buyer’s action in refusing to pay for goods must be wrongful (no right under contract)
 When payment and delivery are concurrent conditions, seller can still sue for price without
delivery as property may already have passed (or could exercise lien right)
 When goods are sold on credit (30 days notice), seller cannot enforce claim until period is over
and buyer has not paid
 Where payment is by cheque, the seller cannot sue for balance in advance of date on cheque
 Property has to pass, but this can happen in absence of possession.
 If seller takes steps to prevent them, they cannot claim and will be restricted to damages, but
47(2) might apply if a date is fixed
 Seller drafts statement of claim and defendant is served, giving them a 20-30 day notice to file
intent to defend. If they fail, there can be a default judgment and registrar can note in default and
they admit all allegations. Unlike damages, you do not need to serve affidavit evidence.
Colley v Overseas Exporters (Property must pass to the buyer for an action for price to be available)
Facts
 Seller sues buyer b/c they delivered to dock but buyer refused to name a ship
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Reasons
Rule
Holding/
Notes
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Goods have not been loaded on board under the FOB, so property does not pass
Property must pass to buyer for seller to have an action for price
In the absence of anything else in contract that might provide for payment before
loading, they cannot sue for price if property does not mass
Stein, Forbes, & Co v County Tailoring Co (Property must pass to buyer; application with CIF)
Facts
 Shipment of sheepskins under CIF where terms said “net cash against documents”
 Buyer refuses documents so seller had to get someone to intercept them
Reasons
 In CIF, rule is property passes when payment is made upon presentation of the
documents
 If property were to pass earlier, seller would lose security over goods. Policy wise, it
would add complications. Here, seller can retake goods.
Rule
 Property must pass to the buyer before the seller can sue for purchase price
Holding/
 If the seller sues  must give property to buyer (cannot sue and retake)
Notes
 If seller resells  cannot sue for price
Measurement of Damages (Section 48)
Overview
 In cases where you cannot sue for price, you sue for damages (but have to measure)
 48(2) captures Hadley rule, which makes contract breaker responsible for damages that arise
directly and naturally from the breach.
 In cases where innocent party has at the time the contract is made brought a special situation to
the other party and the contract is broken, buyer entitled to special circumstances they
communicated. This part is not in the SGA, but s 52 says nothing restricts the rights of either party
to collect interest or special damages. Special damages has been interpreted to mean circumstance
damages in Hadley.
Charter v Sullivan (Marketplace is where buyers & sellers present & price fluctuates per demand)
Facts
 S agreed to buy car for $773. Had it gone through, C would have profit of $97. S
repudiated, so buyer sold to another for $773.
Rule
 What constitutes an available market is a marketplace where buyers and sellers are
present and the market price of the product will fluctuate depending on the demand.
If demand is high  price up; if demand low  price down.
Holding/
 C fails b/c he did not lose anything and sold car at same price b/c it was fixed by
Notes
manufacturer
Anticipatory Repudiation and Measure of Damages
Overview
 Damages are assessed at day of breach under the requirement for current market price above
 Anticipatory Repudiation is where buyer says they will reject prior to delivery date. Seller can:
o Accept repudiation and let obligations end (not pay/deliver)  mitigate and take steps to
claim damage for difference if loss on resale
o Reject repudiation  contract remains open and seller must deliver if buyer changes
mind
Tai Hing v Kamsing (Damages assessed on likely delivery date for anticipatory repudiation cases)
Facts
 No date is specified and there is an anticipatory repudiation by one party
Reasons
 In this situation, the court will have to hear evidence as to when delivery would have
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Rule
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likely been made and damages will be assessed based on the likely delivery date
General rule is assessed on day of breach and in these cases there is none, so we
should not depart from ordinary principle
Where no time is specified, damages assessed on likely delivery date
Stockloser v Johnson (A buyer may be entitled to relief of forfeiture but will lose deposit in earnest)
Facts
 P agreed to buy plant/equipment over time. P made 1 or 2 but failed to make
remainder, so D seized equipment and P sued to reclaim money.
Reasons
 Unlike other cases in that buyer is suing the seller. Denning says buyer should bring
claim to grant relief against forfeiture of money paid.
 Sums forfeited were not out of proportion to damages seller may have suffered or
unconscionable
 Seller entitled to keep deposit b/c it was in earnest, meaning it was there to signify or
demonstrate that buyer was committed to completing the transaction. When they
decide not to, they forfeit it.
Rule
 A buyer will lose their deposit if it was in earnest when they fail to complete a
transaction
Holding/
 Seller is entitled to take back equipment and buyer forfeits right to get money back.
Notes
 Depends on claim: if they paid 90% and refused to pay remainder, buyer would have
decent claim to get back
Rights of the Unpaid Seller Against the Goods
Sale of Goods Act, 37-46
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Section 38(1): Where property has passed, the unpaid seller has three rights: (a) retain a lien for
price of goods (hold until paid or tendered), (2) stop goods in transit and retake possession, or (3)
resell the goods
Section 40: Where unpaid seller has made part delivery, you can exercise lien right or retention
on rest unless the part has been made under such circumstances as show an agreement to waive
lien or right of retention
Section 42: When buyer becomes insolvent, the unpaid seller has the right of stopping the course
of transit and resume possession as long as they are in course of transit and retain until paid
Section 43(1): goods shall be deemed in transit from time they are delivered to a carrier until
buyer or agent takes delivery from carrier
Section 43(2): if buyer or agent obtains delivery of goods before arrival at destination, transit is
at an end (seller loses right to lien since they lost possession)
Section 44(1): unpaid seller may exercise right of stoppage in course of transit either by taking
actual possession of goods or by giving notice of a claim to carrier or bailee who has possession,
and such notice may be given either to the person or person’s principal, and in the latter case the
notice shall be given at such time and under such circumstances that the principal by the exercise
of reasonable diligence may communicate to the servant or agent
o Seller has to get in contact with carrier or transport company and can ask that goods get
returned to them or that they be delivered to another location
Section 45: lien or stoppage not affected by any sale or disposition that buyer may have made,
unless seller assented to it, unless document of title has been lawfully transferred
Section 46(4): where the seller expressly reserves right of resale in case the buyer should make
default, and on the buyer making default, resells the goods, the original contract of sale is thereby
rescinded, but without prejudice to any claim the seller may have for damages
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o
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Reason is for greater certainty to allow seller to resell the goods and make sure effect is
to rescind contract, as per Bignall
Sections 37 and 38 allow seller to exercise lien over the goods until they are paid by the buyer
and allow seller to enforce concurrent condition of delivery and payment. Seller obtains
protection enabling them to hold on to goods until paid in full so they do not have to resort to
other means.
Seller’s Lien
Dennant v Skinner (Lien can be exercised after property passes but not after possession)
Facts
 D sells five cars to fraud for fake cheque, so D sues S to retake possession
Reasons
 Sale for specific goods, so property passes when contract is made (hammer drops)
 Under s 27, delivery and payment are concurrent conditions (unless otherwise
agreed, such as on credit) so D could have insisted on cash or certified cheque then
 D also could have held physical possession as per his lien, even though property has
passed to buyer
Rule
 An unpaid seller may exercise their lien right after property has transferred, but not
after possession has been obtained
Re: Grainex Canada (No obligation for further deliveries until balance paid)
Facts
 Seller supplied canola oil for years on instalment before buyer went bankrupt, owing
seller 200K. Buyer’s trustee makes demand for more delivery but seller would not
unless paid, so they stop goods in transit.
Reasons
 Is there conflict between s 30 (severing defect in instalment contracts) and s 40 (lien
on partial delivery)? Lien rights are separate and apart from determining whether a
buyer is in s 30 breach of instalment contract.
Rule
 Where trustee makes known they have no intention of paying, seller is not obliged to
make further deliveries until prior balances are paid
Stoppage in Transit
Jobson v Eppenheim (In transit means before the buyer or their agent takes possession)
Facts
 Goods were delivered to buyer’s agent and then shipped to the buyer. Buyer becomes
insolvent and seller tries to retain lien and stop goods in transit.
Reasons
 Section 43 says duration of transit is from time of carrier for purpose of transmission
to buyer until buyer or buyer’s agent takes delivery of goods
 Agent means that transit continues until buyer or buyer’s agent takes delivery of the
goods for some purpose other than carrying them as a carrier and is fact dependent
 Works so long as there is a common carrier, once no longer common (like warehouse
where agent was to pick up), you lose the right.
Rule
 In transit means time from loading on carrier to time the goods reach the buyer or the
buyer’s agent. Once there is no longer a common carrier, the right desists.
Holding/
 Seller cannot retake possession b/c they were effectively in the hands of the buyer
Notes
(via agent) when the insolvency occurred
Affect of Sub-Sale (Section 45)
Mordaunt Bros v British Oil (Different tests of assent for specific and unascertained goods)
Facts
 Parties entered in to contract where delivery would go directly to sub-buyer but
payments would come from buyer. Seller entered these instructions in to system and
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Reasons
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Rule
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Holding
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allowed delivery to go straight to sub-buyer. Buyer fell behind and seller refused to
continue making deliveries.
Seller can lose right to lien by agreeing to waive the lien (we agree to deliver goods
to buyer or sub-buyer regardless of lien rights we might have)
Seller can exercise lien or stoppage in transit unless: seller indicated intention to
allow sale to go to buyer and sub-buyer and waive any claim or seller assents thereto
If sub-buyer is claiming rights to goods, then they must show the seller has
relinquished their rights over the first buyer in the event they fall behind
When determining whether the seller has assented to the transaction, we must look at
whether the good is a specific good or an unascertained good.
SPECIFIC GOOD  may be more readily inferred that seller assented or assumed
position of bailee (and evidence like name in system is okay)
UNASCERTAINED GOOD  must demonstrate seller renounced any right. It is
not enough to demonstrate that sub-sale was brought to seller’s attention and that
sub-seller acknowledged receipt of information. We need evidence that seller was
prepared to proceed with transaction involving sub-buyer irrespective of the rights
that the seller had against the first buyer in respect of the goods. If aware they are
going to a sub-buyer, this should raise an inference, but not conclusive.
Seller’s action did not rise to the level of assenting to the transaction
DF Mount v Jay and Jay (Transfer of document to title defeats seller’s lien)
Facts
 Seller anxious to get rid of peaches so buyer bought on condition that he receives
money from sub-buyers. Seller allows warehouse to deliver. Buyer gives bad cheque
and seller tries to rescind.
Reasons
 Where document to title is transferred for valuable consideration and in good faith,
seller’s lien is defeated.
 Delivery orders were issued reciprocally (two from each party). Court says there can
only be one (so first delivery order okay), which would have allowed delivery.
However, the buyer transferred his own delivery orders to the sub-buyer, not the ones
he got from the seller. Placement of the word “the” has consequences for
interpretation.
Rule
 Where the document to title is transferred for valuable consideration and in good
faith, seller’s lien is defeated.
Holding/
 It can be inferred that the seller assented to the resale of the goods, effectively
Notes
renouncing their lien so they cannot rescind
Rights of Carriers
Booth Steamship v Cargo Fleet Iron (Transit co has claim against seller who stops in transit)
Facts
 Seller stopped goods in transit so shipping co was stuck with it and sued seller.
Reasons
 During insolvency, seller can interfere with the contract to which they are not a party
by stopping delivery in transit.
Rule
 When seller elects to stop goods in transit, it does not terminate contractual
relationship. It simply restores possession or lien, but seller must continue to hold
goods for buyer if they do pay.
 PERISHABLE  sell without notice to buyer
 NON-PERSIABLE  must give notice of intention to resell and reasonable time to
come up with money (time of essence is now condition so if you give two weeks and
they do not pay then you can treat as repudiation and rescind, then sue for damages)
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Holding/
Notes
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Seller liable to shipper if they are not paid by buyer b/c they have right to interfere in
contract between buyer and shipper
Seller’s Rights of Resale
RV Ward v Bignall (Seller can resell perishable goods; if non-perishable, notice creates condition)
Facts
 Seller sold two cars to buyer, who later changed his mind. Seller demanded payment
thinking property had passed, but he was able to sell one of the cars.
Reasons
 S 46 allows buyer to resell immediately if perishable, and if not, with adequate notice
where time becomes of the essence. If the buyer fails to pay, condition is breached
and seller can regard as repudiated and is free to resell (as first contract of resale
comes to an end).
 To the extent property has already passed to first buyer, they are not liable for
conversion
 If they do less well on resale, they can bring claim for damages against the initial
buyer to make up the difference.
 Buyer cannot claim breach of contract for non-delivery, damages.
Rule
 Unpaid seller has right to resell goods upon giving notice of intention (nonperishable), which makes time of payment a matter of essence. But a mere exercise
of rights does not rescind contract so seller must ensure they can perform. They just
give notice of intention to resell and reasonable time, and notice has effect of
creating a condition.
Notes
 Good summary of lien rights and the right to resell the goods
Commission Car Sales (Must account for deposit and refund a portion of the deposit if surplus)
Facts
 Buyer buys car for a trade in car as a deposit, but later tried to return the new car and
back out. Buyer sues to get deposit back and seller counterclaims for loss on resale.
Reasons
 Where the seller exercises their statutory lien rights/stoppage in transit, there is an
obligation on seller to account for the deposit and resale proceeds, and if a surplus
remains, the dealer must refund the remaining portion to the buyer
 Seller lost their lien right by losing possession
 They regained possession after the car was returned, so there were no lien rights
involved as buyer forfeited deposit. It was not selling pursuant to any lien, it was
selling b/c he had voluntarily returned the car and this is not in ss. 37-46.
Rule
 Seller must account for deposit, and if there is a surplus, refund a portion of the
deposit to the buyer
JC Lyons v May and Baker (No such thing as a buyer’s lien)
Facts
 Buyer purchased goods and wanted to reject them, hoping to get their money back as
they had paid in full. Buyer rejected, but said they would not return goods to seller
until seller refunded the amount.
Rule
 There is no buyer’s lien in common law or statute
Bankruptcy and Insolvency Act, Section 81.1
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Designed to protect unsecured creditors who provide goods to businesses on credit where those
buyers go bankrupt or in to receivership. Previously, they had provided goods on credit, the goods
would go to the trustee in bankruptcy or receiver and would be used to pay down all of the debts
of the business in question.
Section 81.1: allows unsecured creditor/seller to repossess goods once they have been delivered
if the purchaser bought them for a business who went bankrupt and if:
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o There is a written demand within 15 days of bankruptcy or becoming s/t receivership
o Goods were delivered within 30 days of bankruptcy or becoming s/t receivership
Gives priority over other secured creditors for tight windows
Goldman Sachs v Pantano Energy (Court can extend time limits under certain circumstances)
Facts
 Bankruptcy occurs around Christmas time, and there was an according delay.
Rule
 Court will allow an extension under certain circumstances.
Buyer’s Remedies for Seller’s Breach
Sale of Goods Act, ss 14, 29, 30-34
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Section 14: implied condition that goods match description
Section 29(1): Where the seller delivers to the buyer a quantity of goods less than the seller
contracted to sell, the buyer may reject them, but if they are accepted, the buyer shall pay for
them at the contract rate.
Section 29(2): Where the seller delivers to the buyer a quantity of goods larger than the seller
contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or
may reject the whole, and if the buyer accepts the whole of the goods so delivered, the buyer shall
pay for them at the contract rate.
Section 29(3): Where the seller delivers to the buyer the goods contracted to be sold mixed with
goods of a different description not included in the contract, the buyer may accept the goods that
are in accordance with the contract and reject the rest, or may reject the whole.
Section 30(2): Where goods delivered by instalments that are to be separately paid for and the
seller makes defective deliveries in respect of one or more instalments or fails to deliver one or
more instalments or the buyer neglects or refuses to take delivery of or pay for one or more
instalments, it is a question in each case depending on the terms of the contract and the
circumstances of the case whether the breach of contract is a repudiation of the whole contract or
whether it is a severable breach giving rise to a claim for compensation but not to a right to treat
the whole contract as repudiated
Section 33(1): where goods delivered that buyer has not previously examined, the buyer shall be
deemed not to have accepted them until there has been a reasonable opportunity to examine for
purpose of ascertaining whether they conform to contract
o Generally, they must do so expeditiously
Section 34: the buyer shall be deemed to have accepted the goods when the buyer:
o (a) Intimates to seller that goods have been accepted
o (b) After delivery, does any act that is inconsistent with ownership of seller
o (c) After the lapse of a reasonable period of time, retains the goods without intimating to
the seller that they have been rejected
A) Right of Rejection (ss. 33, 34)
Home Gas v Streeter (Buyer must give notice of intention to reject in reasonable time)
Facts
 Buyer purchased stove that never worked properly so they stopped payments
Reasons
 Buyer could have rejected much earlier but they failed to communicate rejection. In
order to reject, they would have to give notice of intention; however, buyer tried to
get the stove operating and never rejected in fact.
 Buyer could have rejected under the implicit intention of purpose provision and sued
for damages
Rule
 Where a buyer has held on to a good for too long without intimating to the seller that
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Holding/
Notes
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he intends to reject the goods, he is deemed to have accepted
Buyer may not have intended to accept delivery, but they did. They were given leave
to bring a counterclaim for damages.
Hardy v Hillerns (Buyer deemed to accept if he does something contrary to seller’s ownership)
Facts
 Buyer received shipping documents before inspecting cargo, took samples, and sent
it to a sub-buyer. Cargo was of inferior quality so they stopped transport and took
possession, purporting to reject.
Reasons
 Under ss. 33 & 34, where a buyer has not previously seen the goods, they are
allowed a reasonable opportunity to inspect and are not deemed to accept until they
have inspected. Seller must give buyer time to inspect.
 Section 34 is independent from 33, and the governing factor is the buyer’s decision
to ship wheat to the sub-buyer and take steps to do it.
Rule
 A buyer cannot reject goods that he accepted and will be deemed to have accepted if
he performs an act that is contrary to the seller’s ownership.
Holding/
 Even though the buyer could rely on right to inspect, the transmission of cargo to the
Notes
sub-buyer was inconsistent with the seller’s ongoing ownership. Simply agreeing to
sell but not shipping would probably be okay and allow for rejection.
Public Utilities v Burroughs Business (Reasonable time may be extended by representations)
Facts
 Buyer rejected a computer he had received but continued to use it until the seller sent
a new one
Reasons
 Continued use did not nullify rejection as the seller was informed of the rejection and
allowed the buyer to keep using it (business judgment)
Rule
 Where it can be inferred that time to reject was extended based on the representations
made by the parties in the course of their negotiations, the court will extend the time.
Rafuse Motors v Mardo Construction (Buyer not deemed to accept if inducements are made)
Facts
 Buyer bought tractor he was told was equivalent to what he wanted. He gave fair trial
but tractor frequently broke.
Reasons
 Tractor had been sent on a trial basis and accepted on that basis. Any delay in
rejecting arose b/c of inducements made by the seller. It was kept b/c the seller
encouraged them to give it a lengthy trial period.
Rule
 For the purposes of s 34(c), when the court is determining whether a reasonable
amount of time has lapsed, the court will consider whether the seller made any
inducements to the buyer to test the goods or use it on a trial basis, and if they did,
the buyer will not have been deemed to have accepted the goods for the purposes of s
34(c) and is entitled to reject
Hart-Parr Co v Jones (Acceptance may depend on seller’s conduct, such as concealing nature)
Facts
 Contract was made for a new engine, but as time went by the paint began to wear and
the buyer discovered it was used
Reasons
 If buyer accepts something different from what they agreed to, they are normally not
entitled to reject this item, but this is different. This time, the seller concealed the
nature of the goods so that the buyer could not know.
Rule
 Acceptance may depend on the circumstances and the conduct of the seller, including
concealing the nature of the goods
William Barker v ED T Angius (Buyer can reject mixed shipments when they relate to quality)
Facts
 Coal on ship was on top and bottom decks, where the bottom was not the same
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Rule
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Holding
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quality as ordered
A buyer can accept the goods that match the quality requirements or portion that do,
and can reject the lower quality goods.
Judge decided in their favour, but didn’t agree (he said contract just said coal)
A1) Rejection and Instalment/Severable Contracts
Overview
 Case where instalments paid over time on either dates or need basis.
 Single agreement (not multiple) where you are separately billed and paid for (not at end)
 Section 30(2) speaks to defective deliveries in instalment contracts but does not speak to what
happens when they fail to make any delivery. Similarly, in the case of the buyer, the defects
might lead to refusal to accept or failure to pay.
 Defective delivery can lead to two scenarios:
o Contract remains in force and defective delivery is severed off and dealt with by the
parties (damage claim, for example) OR
o Regard contract as repudiated and relieve further deliveries and payment (but one
delivery probably not sufficient)
 Example: if buyer does not pay for one instalment, this is probably not enough for repudiation,
so the seller must continue to deliver and seek damages through severing that incident off.
Maple Flock v Universal Furniture (Is breach such a kind that we can infer future issues?)
Facts
 3 blocks to be delivered each week and not to exceed certain amount per. 16th
delivery was too much. Buyer accepted further deliveries but later repudiated and
stopped paying.
Rule
 Whether it is repudiation depends on facts of each case. If it is such a kind or takes
place in such circumstances that reasonably lead to the inference that subsequent
issues will arise, the whole contract may be regarded as having been repudiated. To
make that determination, we have two tests (quantitative and likelihood of breach)
 Quantitative: what percentage of delivery was defective?
 Likelihood of Future Breach: is breach exceptional or likely to occur again?
Holding/
 Here, percentage of delivery was only about 1.5% and the breach was exceptional.
Notes
The seller was careful and the instance complained of was isolated in the course of
deliveries.
 Note: there may be cases where a singular breach would be so serious as to justify a
termination of the agreement as a whole, but not the case here.
JC Lyons and Co v May & Baker (Buyer cannot reject goods they already paid for; no lien)
Rule
 Looking at buyer’s right to reject as reminder that if a buyer is rejecting goods that
they have already paid for, then they cannot claim a lien over those goods for a
refund. No such thing as buyer’s lien. Buyer who has examined and wants to reject
has to return to seller before receiving payment back.
B) Damages
Overview (Prima facie deals only with s 15(1) or 15(2) and issues of fitness or merchantability)
 Buyer has lost right to reject goods, or problem arises later, so they can claim breach of warranty
and a proportion of sale price can be reduced or extinguished. If they have paid, they can get
damages.
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Damages are calculated through (2) and (3) rules: resulting from ordinary course of events and
prima facie rule that absent other evidence it is value at time of delivery and value if they had
answered the warranty.
o Value if warranty answered – value at time of delivery
Prima facie rule applies when dealing with quality of goods; it doesn’t apply if suing b/c of
wrong description (presumably you would reject, but if not, might bring claim). If you accept
goods of a different description, there may be other breaches of quality or warranty down the road
that are covered.
Prima facie rule is that damages are calculated through current market price and is found
throughout the Act.
Example: Defective goods that are delivered are worth $75K, but had they met the warranty,
they would be worth $100K. Buyer has damage claim of $25K.
Example: What happens if the buyer receives less quality but is able to resell those goods to a
sub-buyer for $100K? They still have a claim for $25K.
Sale of Goods Act, ss 49-51
 Section 49(3): Where there is an available market, the measure of damages is to be ascertained
by the difference between the contract price and the market or current price of the goods at the
time or times when they ought to have been delivered, or, if no time was fixed, then at the time of
the refusal to deliver.
 Section 51(2): The measure of damages for breach of warranty is the estimated loss directly and
naturally resulting in the ordinary course of events from the breach of warranty.
 Section 51(3): In the case of breach of warranty or quality, such loss is, in the absence of
evidence to the contrary, the difference between the value of the goods at the time of delivery to
the buyer and the value they would have had if they had answered to the warranty.
Slater v Hoyle (Buyer can bring claim for damages even if they resell at market value)
Facts
 P buyers inferior cotton but is able to sell it at normal market value
Rule
 If buyer is lucky enough – for reasons that have nothing to do with the seller – to
resell goods at same value without a claim being made against them, this does not
effect the claim the first buyer has against the seller
Notes
 This case by Court of Appeal stands in contrast to Wertheim of the Privy Council
Wertheim v Chicoutimi Pulp Co (Added profit must be taken in to account; contrasting Slater)
Rule
 Added profit in sub-sale has to be taken in to account b/c the general rule for
assessing damages is to put the party in the position they would have been had the
contract not been broken.
Bence Graphics v Fasson (If goods are modified and resold, effect of resale must be accounted for)
Facts
 BG made decals for containers, bought film from F, and then sold them. Film turned
yellow, so BG sued for defective goods. BG paid $500K and claimed more than this
in damages, even though they had sold it off and received no actions against them.
Reasons
 Because F knew about BG’s business, both parties knew loss could only incur if
BG’s customers made complaints (knowledge, subsequent complaints key factors)
Rule
 If goods are received, modified, and resold (and seller knows at time of sale), then
effect of resale may have to be taken in to account by a court assessing damages.
Holding/
 BG has to take effects of resale in to account and b/c they did not incur any loss, they
Notes
had no claim against Fasson
 SB: some suggestion that BG could have said they were not willing to force inferior
goods on their buyers and Court would award damages if they did not require
38

subsequent product elsewhere. Prima facie rule is displaced.
SB: if there were subsequent complaints, BG would succeed
Louis Dreyfus v Reliance (If sub-sale is in contemplation of parties at time of contract  account)
Facts
 Contract for sugar where buyer was delayed as an injunction prevented sugar from
being shipped. This lasted two months and during that time the value of sugar fell.
Reasons
 Profit or loss on sub-sale is generally irrelevant to assessment of damages.
 This case is in line with Bence b/c there the seller knew of the sub-sale. In Slater,
they did not know.
 Where seller knows buyer has committed to deliver same goods to sub-buyer under a
specific contract, then effects of sub-sale are within reasonable contemplation of
parties to original contract. Consequently, buyer may be required to take effects of
subsequent sale in to account when making a claim against the original seller.
Rule
 If sub-sale is not in contemplation, damages are assessed without reference. If seller
has special knowledge of a particular sub-sale, or it is within their contemplation
when contract was made, buyer may have to account to increase damages payable (or
seller can reduce).
Holding/
 Post-Bence case. Bence causes discontent as many were happy with Slater and the
Notes
self-help remedy of the prima facie rule.
Atlantic Potato v Messerman (Example of when to apply Slater and when to apply Bence)
Facts
 Contract for sale of potato seeds that generated ¼ of expected crop.
Reasons
 Nothing in this case dispels the prima facie rule. Farmers were sellers of potatoes and
would not bring case within special circumstances rule of Hadley test.
 Normally, sub-sales are to be ignored; however, communication of specific details
regarding possible sub-sales at time contract is made may result in different outcome
where you do take effects of sub-sale in to account.
Rule
 In some cases, Slater is valid while in others where the seller has particular
knowledge Bence Graphics is valid.
Cullinane (A plaintiff needs to elect to claim EITHER capital loss OR loss of profits)
Facts
 P claims capital loss as a result of having been supplied deficient equipment that
costs $14K and had resale value of $7K. Buyer brings claim for loss of profit b/c
machine produced at lower level.
Rule
 Where capital loss and loss of profit claims, the P must make an election
Holding/
 Typically arises when purchasing a piece of equipment but item does not work as
Notes
planned. It therefore does not generate the revenues, and because of this failure (or it
costs more to operate than it should have), profits are less. Buyer can bring loss of
profits claim or capital loss (item as configured does not perform as it is supposed to
and difference in marketplace value, which is much simpler).
R. G. McLean (Damages may reduce, extinguish, or exceed outstanding balance owed to seller)
Facts
 Printer never worked despite efforts of seller to fix.
Reasons
 Court cannot simply dismiss claim for price b/c machine did not work properly.
Seller needs a defence for balance claim, and buyer can use damages that they have
suffered as a means of reducing or extinguishing the balance.
 Buyer entitled to be compensated as if contract had been performed as intended, in
which case the P would have to pay the purchase price and any damages suffered
would reduce or extinguish it, and may in fact exceed it.
 Buyer cannot forgo an offer and continue to run up damages. The fact that they did
39
Rule

not have money to buy new machine could not be a defence; at some point, you have
to mitigate (buy new item, substitute item, accept seller’s offer to refund)
A seller is still owed a balance for defective goods, but damages can be used to
reduce or extinguish the outstanding debt, and may exceed it.
Sunnyside Greenhouses (Loss of profits before duty to mitigate arises and capital loss recoverable)
Facts
 S operated greenhouse and D was supplier of glass panels that began to turn yellow
and yields declined. S replaced panels in time for next crop season, but made damage
claim for faulty goods, characterizing loss of profits as being the sales lost in the crop
year when dis-colourization was greatest and replacement had not occurred.
Reasons
 Generally, you have to elect for either or. But, that approach ignores duty to mitigate,
and if duty to mitigate is taken in to account, P may recover profits covering the
period before duty begins.
 In McLean, printer never worked, but they could have received both up to point of
mitigation.
Rule
 A buyer can claim damages for both capital loss and loss of profits for profits lost are
from before duty to mitigate arises.
Holding/
 In this case, in that last season the duty to mitigate had not fully developed as enough
Notes
light came through initially, but by the end, it was evident they needed replacing and
this was done. P was rewarded capital costs for replacing panels and loss of profits
for time leading up to mitigation of loss.
C) Duty to Mitigate & Impecuniosity
Overview
 Party has to take reasonable steps to mitigate their losses so that they do not run them up.
Defendant can allege failure to mitigate and present evidence to reduce damage award.
 What happens if the buyer cannot afford to mitigate? What happens if this inability is due to loss
they incurred as a result of original equipment not working?
Freedhoff v Pomalift (Impecuniosity is no defence to failure to mitigate)
Facts
 F runs ski hill and enters contract w/ co that installs lifts. F borrows money and P
knew, as installation was delayed b/c he had to get financing. Lift doesn’t work and
revenue declines, so F falls behind in payments and bank seizes property.
Reasons
 It was evident to P that if the lift did not work, F would lose money and his business
 However, this is no defence.
Rule
 Impecuniosity is no defence to failure to mitigate damages
Holding/
 F cannot recover b/c his inability to afford a lift was too remote a factor.
Notes
 DOES NOT HOLD UP TO CASE LAW
General Securities v Don Ingram (Damages recoverable even where you have no means to mitigate)
Facts
 Another case where P cannot mitigate due to impecuniosity
Reasons
 When D agreed to finance the purchase, they must have realized that if they refused
to advance monies upon arrival of goods, respondents would be unable to take it up
and car manufacturer would sever relations.
 Highly probable that respondents would be forced out of business as a result and
suffer pecuniary loss naturally resulting there from.
Rule
 Impecuniosity is a defence for failure to mitigate when known or ought to have been
known to defendants. Where impecuniosity is caused by actions of D, no defence.
Holding/
 SCC case against Freedhof. GS knew position DI was in and would likely lose his
40
Notes
business, so he can bring damages even though he did not have means to mitigate.
Ladgen v O’Connor (Losses are recoverable if expenditures are foreseeable)
Facts
 P owned car that was damaged in collision by D. Car had to be repaired and b/c P
had no ability to rent replacement at commercial rates, he had to pay higher rate.
Rule
 If it is foreseeable that the injured party would have to borrow money or incur some
other kind of expenditure to mitigate their losses, then these losses may be recovered.
Holding/
 Strike two against Freedhof
Notes
 Note: this is a torts case where damages are measured differently. Test for
remoteness in contracts is assessed at what was in the contemplation of the parties at
the time the contract was made.
Tai Hing v Kamsing (No duty to mitigate where anticipatory repudiation is ignored)
Facts
 Buyer agrees to take deliveries and says before deliveries that he will not accept
Reasons
 Seller has a choice: (1) accept repudiation (at the time or before performance),
mitigate damages, and sue for loss if you incur one on resale OR (2) ignore
repudiation and hope that the buyer will accept delivery.
 In the latter, you are not obligated to mitigate damages because damages have not yet
occurred as no breach has yet occurred.
Rule
 Where party ignores anticipatory repudiation, they do not have to mitigate b/c
damages have not yet occurred
D) Contributory Fault & Remoteness
Overview
 Contributory negligence does not apply, but contributory fault does
 Contributory Fault: a defence that the seller might use in certain cases to say buyer is partly
responsible for damages that they suffered, and so the buyer’s damages should be reduced
 Part I (Hadley): a contract breaker is responsible for damages that occur naturally as a result of
the breach
 Part II (Hadley): a contract breaker may be responsible for additional damages where special
circumstances were brought to their attention prior to the contract being made
Treaty Group v Drake International (Damages reduced if wronged party contributes to fault)
Facts
 TG needed a bookkeeper and DI helped find employees. They recommended S who
was convicted of fraud before and did it again.
Reasons
 TG set up conditions that allowed S to take money. If they had tighter control, there
would be no loss, or at least much less.
 Negligence Act is meant to remedy the common law where if you are 1% responsible
the action was dismissed and instead wanted to apportion liability. This does not
apply to contract cases.
Rule
 Damages can be reduced if the wronged party contributes to fault
Holding
 TG partly liable.
Victoria Laundry v Newman (Special circumstances must be known to the buyer or foreseeable)
Facts
 VL runs laundry business and wants to expand so they contract w/ N for new boiler.
Boiler was late and VL has loss of profits, in particular for a lucrative contract they
missed.
Reasons
 Purpose is to put party in position they would have been if their rights had been
observed.
41
Rule
Holding/
Notes
SIX STEP PROCESS FOR ASSESSING REMOTENESS IN BREACH OF CONTRACT
1. Relentlessly pursuing “position they would be in” is too harsh and would allow party
to receive complete indemnity for all losses regardless of how predictable they are.
B/c contracts are entered into voluntarily, parties have option to plan for breach,
restrict amount of damages, or recover special damages.
2. Party is only entitled to recover damages that were, at the time of the contract, in the
contemplation of the parties when they made the contract.
3. Reasonable foreseeability depends on the knowledge then possessed by the party
committing the breach. What was in the reasonable contemplation of the parties
based on the knowledge they had then?
4. Imputed knowledge means that everyone as a reasonable person knows the ordinary
course of things and the losses liable to result from a breach (arising naturally).
Actual knowledge is of special circumstances that allow for the P to recover remote
damages.
5. D does not need to have actually asked what loss is liable to result. Parties often do
not contemplate breach at time of contract. It suffices that if he considered the
question, he would as a reasonable man conclude that loss was liable.
6. It is enough that D could foresee that the loss was liable to result – on the cards –
enough if the loss was a serious possibility or real danger (1/52).
 Potential for the lucrative contract was not in the contemplation of the seller.
 Heron II has a lot to say about this. See below.
Heron II (Not remote if in reasonable contemplation of parties and not unlikely to occur)
Reasons
 Lord Reid worried that foreseeability would get mixed with torts, and that the
degrees in 6 were problematic.
 Most situations shall be regarded as being within the contemplation of the parties,
but a result though foreseeable as a substantial possibility that would only happen in
a small minority of cases should not be regarded as having been within their
contemplation.
Rule
 Where a D has a particular knowledge of an industry or event, they may be held to a
higher standard in contract of what was in their reasonable contemplation – as they
are more familiar with certain circumstances than the reasonable man is
 In awarding damages, a loss will be considered as not too remote if it could have
reasonably been in the contemplation of the parties and if it was “not unlikely” to
occur
Holding/
 SB: degree of likelihood Lord Reid is describing as within contemplation are
Notes
damages that are not unlikely to occur, meaning something less than 50% but above
1/52
Culligan of Canada v Mustapha (Contracts different than torts but will likely fail if they fail in torts)
Facts
 M bought bottled water with a dead fly in it and he became seriously ill
Reasons
 Need to distinguish between tort law and contracts; in the latter, damages are
governed by expectations at the time the contract is made.
1. Hadley is governing case on remoteness
Rule
2. “Contemplation of parties at the time contract is made” forces you to think of where
remoteness is tested and is a good test
3. When suit brought in contract and tort and claim falls short in tort, it will almost
certainly fail in contract.
Holding
 Damages too remote for M to recover
42
Transfield Shipping v Mercator Shipping (Regard must be had for what risk is being undertaken)
Facts
 Ship owners gave charter co ships that were brought back late, during which time
charter rates dropped before they could get ships to another co. Owners sue for loss
of profit they would obtain under the potential contract.
Reasons
 Had they addressed their mind to the topic, they would have thought about the fact
that if it is late then the rates may drop and the owners may lose on next agreement.
This is not unlikely to occur.
 Wrong to hold party responsible for risks that people in that market would not
reasonably be considered to have undertaken
 If a person undertakes a large unpredictable risk, they are entitled to be paid a
premium for assuming that risk. Court must decide if laws for which compensation is
sought is of a kind or type for which the contract ought to fairly have accepted
responsibility
 Similar to Victoria Laundry where liability for loss was a high form of risk not
known. Here, parties have no idea what is in store next or what rates will be when
contract is entered in to.
Rule
 Court will look at if risk is of the kind or type that would fairly be accepted. What
would have reasonably been regarded as the risk being undertaken in the situation?
Holding
 Damages limited to 10 days they were late.
E) Remedies in Equity
Sale of Goods Act, s 50
 Section 50: In an action for specific or ascertained goods, the court may direct that the contract
be performed specifically, without giving the defendant the option of retaining the goods on
payment of damages, and may impose such terms and conditions as seem just
Sky Petroleum v VIP Petroleum (Interlocutory injunction possible where damages are insufficient)
Facts
 Contract for long-term fuel supply where D tries to terminate b/c they now have to
buy at a higher price and would lose a lot of money.
Reasons
 S 50 is for specific or ascertained goods, and here the petroleum is not specific or
ascertained as it is not separated
Rule
 Interlocutory injunction may be granted by the court by an order not involving
specific or ascertained goods in cases where damages would not provide a sufficient
remedy to the P
Holding
 Court grants injunction to require seller to make ongoing deliveries
 At trial, they will determine if P exceeded their credit limits
Cohen v Roche (Ordinary damages only for goods of ordinary nature that have no particular value)
Facts
 P purchased chairs at an auction but D refused to deliver
Rule
 Where goods are of ordinary nature (no particular value), the court will only allow a
claim for ordinary damages
Holding
 P awarded ordinary damages.
F) Consumer Protection Act
Overview
 Covers consumer transactions, which means a consumer and business. Consumer is buying goods
or services from business for personal or household use.
 Applicable if either party is in Ontario
43

What CPA does is provide consumers with rights and protections in addition to those in the SGA,
which can apply to business-to-business or consumer-to-business
Section 7: Non-Application of Arbitration Act
 Parties cannot agree to arbitration, so if there is a clause, it is not enforceable b/c either party can
take the dispute to the Superior Court of Justice. Parties can agree to arbitration after dispute
arises, but not before.
Section 9: Quality of Goods and Services
 Section 9(1): The supplier is deemed to warrant that the services supplied under a consumer
agreement are of a reasonably acceptable quality
 Section 9(2): The implied conditions and warranties applying to the sale of goods by virtue of the
Sale of Goods Act are deemed to apply with necessary modifications to goods that are leased or
traded or otherwise supplied under a consumer agreement
 Section 9(3): Any term or acknowledgement, whether part of the consumer agreement or not, that
purports to negate or vary any implied condition or warranty under the SGA or this Act is void
Section 14: False, Misleading, or Deceptive Representations
 Section 14: It is an unfair practice for a person to make a false, misleading, or deceptive
representation
Section 18: Rescission of Agreement for Unfair Practices
 Section 18: Any agreement, whether written, oral, or implied, entered into by a consumer after or
while a person has engaged in an unfair practice may be rescinded by the consumer and the
consumer is entitled to any remedy that is available in law, including damages
44
CIF Contracts – Letters of Credit
Overview
Step 1:
Contract 1

Step 2: Buyer
obtains letter
of credit


Step 3: IB
instructs CB
Step 4: CB
instructs
seller and
obtains docs
Step 5:
Confirmation
of docs

Step 6: Docs
sent to IB




International buyer purchases goods from domestic seller (Contract 1: Sales
Contract). Seller is concerned that if they ship overseas and buyer doesn’t pay,
it is hard to fix. So Seller asks for letter of credit to guarantee payment once
goods are shipped (Contract 2: Paying Fee to Issue Letter of Credit).
Buyer goes to bank in their jurisdiction (issuing bank) and asks for letter of
credit in favour of Canadian seller (Contract 5: Right of Seller to Make Claim
Against IB If Failure To Pay).
Letter of credit is a guarantee issued by the bank to pay a certain amount of
money upon presentation of documents. Buyer gives IB instructions as to when
the funds can be released to the seller, which is the main control they have. To
execute, they get in touch with domestic bank (Contract 3: Appointment as
Agents in Canada).
IB gets in touch with CB to tell them letter of credit is in place in accordance
with buyer’s instructions, and supplies instructions to the bank.
CB gets in touch with seller and says to bring in documents. Once this is done,
seller will load goods aboard ship and receive bill of lading (document of title),
proof goods are on board, and an insurance policy.
CB checks over docs to make sure they match instructions and then makes
payment to the seller and takes custody of the documents (Contract 4).
Note that Contract 4 is not really a contract, but courts have held that seller has
the right to sue CB if they refuse to pay in respect to docs that conform.
CB sends docs to issuing bank where they are examined to ensure compliance. If
compliant, IB reimburses CB for money transferred to seller and contact buyer
45
to say docs are here so come pay us.
Step 7: Final
 Buyer looks over docs and pays issuing bank, which will provide docs in return.
Payment
 The above timeline all takes place before documents arrive. Buyer can inspect and reject, but if
they do, they are hoping seller will reimburse b/c payments already through. Buyer rejecting these
goods does not have a lien over those goods.
 Letter of Credit: most often a seller will insist that they be irrevocable, which means that if in
place and they load goods the buyer cannot revoke that arrangement. Also autonomous in sense
that payment under letter of credit is triggered by presentation of documents at various stages. If
there are issues between buyer and seller concerning quality, it is not a concern of the banks.
 Once things are in motion, it is extremely difficult for buyer to prevent banks from making
payments when they are presented with documents that conform to requirements.
E Clemons Horst v Biddell Bros (Documents are legal title and buyer must pay when received)
Facts
 Buyer refuses payment under CIF until goods arrive b/c terms said “buyer required to
pay $90 per 112lbs in net cash” instead of “net cash against documents”
Reasons
 Once goods are loaded they are appropriated to contract. Delivery effectively
amounts to delivery of goods to purchase b/c property passes once loaded and risk is
with buyer (but insured).
 Bill of Lading represents goods in fact and in law, so property passes when they pay
for and receive it. BOL carries full rights of ownership.
 In most cases (including here), no other optional time can be inferred since obligation
is to deliver documents and buyer must pay. Only reasonable that buyer pays when
legal title passes.
 Policy reason is to protect seller from limbo: they would have to take physical
possession in foreign port until payment.
 Note: goods may revert back to seller if rejected upon inspection.
Rule
 Buyer is required to pay on presentation of documents even if goods will not arrive
until some time after as delivery is not physical delivery, it is the documents that
represent the goods in fact and in law.
Kwei Tek Chao v British Traders (Buyer loses right to reject if he sells conditional interest)
Facts
 CIF where buyer pledges document to bank for security. Buyer also resells goods to
sub-buyer. Sub-buyer rejects and there is lawsuit to recover purchase price that buyer
paid.
Reasons
 Buyer has two opportunities to reject: (1) reject documents for non-conformity or (2)
reject goods upon examination
 Reject documents  buyer does not pay and banks pay seller
 Reject goods  part with money and takes chance as to whether they will get money
back as unsecured creditor
 When the buyer pledged their docs to the bank, they pledged a conditional property
interest but retained a reversionary interest and did not lose right to reject the goods.
 If the buyer sold the conditional property and delivered goods, this would be
inconsistent with any ongoing rights the seller might have.
Rule
 A buyer maintains the right to reject goods unless he sells his conditional property
interest and delivers goods, NOT if he retains reversionary interest
Hamzeh Malas v British Imex (Bank must pay despite disputes as to quality; absolute obligation)
Facts
 CIF for two instalments of steel rods. Buyer sought injunction to restrain seller from
dealing with letter of credit.
46
Reasons

Rule

Holding

Based on policy argument that if the court was to seek an injunction, it would freeze
the system of financing and that system would break down completely b/c they know
you can get an injunction to prevent IB from paying.
Opening of confirmed or irrevocable letter of credit between buyer and seller
requires the seller to be paid regardless of disputes as to quality. Bank has an
absolute obligation to pay when presented with conforming documents.
The bank is required to honour the terms of the letter of credit  no injunction.
JH Rayner v Hambros Bank (Seller must provide documents in EXACT compliance w/ instructions)
Facts
 Bank refuses to pay b/c invoice from seller and Bill of Lading have different
descriptions. Expert testifies these are the same thing and this is well known.
Reasons
 Compliance is one way in which buyers protect themselves where they have
practically no other remedy. They provide detailed instructions to IB and specify
what type of docs they need.
 IB may know nothing, even less so in a foreign country. No one is expected to do
independent research. If you act in accordance you get reimbursement, but if you
depart, you do so at your own peril.
 Expert evidence is of no consequence.
Rule
 Where a person ships goods in relation to a CIF contract that is confirmed by letter of
credit, the seller must meet exact compliance with instructions.
Michael Doyle v BMO (Confirming bank liable for failing to examine the documents properly)
Facts
 CIF in four instalments. Government inspection certificate did not meet
requirements, but too late to reject first two so IB rejects last two. Replacements were
received for 4th shipment but not 3rd, and BMO (CB) had accepted all docs.
Rule
 A confirming bank will be liable for failing to examine the documents properly.
Holding/
 BMO unconditionally accepted documents seller had provided, so it was their error
Notes
in not noticing this.
United City Merchant v RBC (Fraud exception only applicable if seller commits fraud, not 3rd party)
Facts
 CIF contract had requirement that goods be loaded by December 15. They were
loaded on December 16 and loading brokers falsely inserted December 15 on docs.
Reasons
 Purpose of firm irrevocable letters of credit is to give seller assurance of being paid
before giving custody. IB and CB have contractual duty to honour letter when seller
presents conforming docs, and must pay seller.
Rule
 Fraud exception is only applicable where fraud is on part of the seller, not a third
party.
Holding/
 Loading brokers are the ones who committed fraud, not the seller, so no exemption.
Notes
Bank not relieved of liability even with material misrepresentation of fact.
Disclaimers and Limitations of Liability
Sale of Goods Act, s 53

Section 53: 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.
Tercon v BC (Court assess exclusion clauses via coverage, unconscionability, & policy)
Facts

Tender bidding where BC accepts ineligible bid, so Tercon sues for damages. There
47
Rule
Holding/
Notes
is an exclusion clause, which was said to allow BC to escape liability.
TEST FOR ASSESSING APPLICABILITY OF EXCLUSION CLAUSE
1. Does the clause apply to the circumstances that have arisen in the case? This
depends on analyzing and interpreting what the clause says. If it does not capture the
particular breach, the analysis is over.
2. Is the clause unconscionable at the time the contract was made? Courts look at
inequality of bargaining power, vulnerability of one party at hands of the other, etc.
If unconscionable, analysis over and damages assessed.
3. Is there a public policy reason as to why the clause should not be enforced? To
decide, court will look for a principle that supersedes the public policy principle of
upholding contracts.
 SB: Probably a rare event.
 Court was split 5-4 w/ majority of the view that clause did not meet Step 1 as it did
not cover the incident due to over-broadness.
Hans v Volvo Trucks (Vulnerability as a high burden & offending party must act on it)
Facts

Reasons



P buys truck from dealer and finance with Volvo’s financial services. Truck does not
work and P sues finance co (along with dealer and manufacturer)
Exclusion clause was meant to protect Volvo from being sued for mechanical
problems, and this is exactly what happened here. Volvo protected.
P did not receive ILA and there was an overwhelming imbalance in bargaining
power. Other party knew, and took advantage of it. But Step 2 requires high burden
and this is a normal commercial transaction where Volvo did not act on vulnerability.
With regard to public policy, court says no compelling reason, but there is a
compelling reason to uphold it as finance companies are not in a position to inspect
goods. If they had this obligation, the risk cost would be passed on to the customer.
Chabot v Ford (Exclusion clauses must be explicit and precise)
Facts

Reasons



Notes

C buys car and it goes up in flames. New car warranty agreed to fix or repair car for a
period of time and contained exclusion clause that it be the only warranty applicable
and is expressly in lieu of all other warranties express or implied.
This clause did not mention statutory conditions, simply warranties.
Contra preferentum applies. To extent Ford wants to rely on clause, it will be
interpreted against them and any ambiguity is resolved in favour of C. SGA has
implied conditions, and exclusion clause only excludes warranties.
Section 12(3) may say that once goods accepted conditions are treated as warranties,
but this does not change anything, as it is still a condition, it is just treated as a
warranty. Only the remedy is altered.
Claim brought under SGA ss 15(1) & 15(2)