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Identity of good vs quality and exclusion of the Sale of Goods act

Ontario

,

Canada

In Pine Valley Enterprises Inc. v. Earthco Soil Mixtures Inc., 2022 ONCA 265, the appellant, Pine Valley, bought topsoil from the respondent, Earthco, for use in projects with the City of Toronto. However, the soil did not meet specifications and Pine Valley was forced by the City to replace the soil incurring a loss of approximately $350,000. Pine Valley claimed that Earthco was responsible and breached the condition implied by s.14 of the Sale of Goods Act, R.S.O. 1990, c. S.1 (the “SGA”) that where goods are sold by description the goods supplied will corresponded with that description.

Trial Decision

The trial judge found that the contract was for a sale of goods by description within the meaning of s.14 of the SGA and that Pine Valley did not get the soil it had bargained for. However, the trial judge dismissed the action on the basis of an exclusionary clause in the sale contract. The clause stated that Pine Valley could test and approve the soil before it was shipped. It also provided that if Pine Valley chose not to do so, Earthco would not be responsible for the quality of the material delivered. The trial judge concluded that this clause excluded a breach of the implied condition in s. 14 of the SGA, since Pine Valley did not do any testing before taking delivery.

Pine Valley appealed on the basis that the trial judge erred in law by finding that the exclusionary clause ousted the liability of Earthco under s.14 of the SGA and by using evidence outside of the contract to deviate from its text.

Appeal

Zarnett J.A. (Strathy C.J.O. and Simmons J.A. concurring) ruled that the trial judge had erred and allowed Pine Valley’s appeal, noting that the implied condition is s.14 of the SGA relates to the identity of the goods sold and not their quality. Section 15 of the SGA concerns fitness for the purpose of merchantability and relates to quality.

Section 14 of the SGA involves only the identity of the goods and not their quality (para 39). In a sale by description, the parties may use as broad or narrow description of the goods as they choose. The broader the description, the more difficult it will be for the buyer to claim a breach of the identity conditions. Zarnett J.A. emphasized that as long as the goods received are the goods described, it doesn’t matter whether the goods are not of the promised quality (para 40). A corollary to this is that if the goods are of equivalent quality, but do not correspond to the description, there will still be a breach of the identity condition (para 42).

In this case, the trial judge had found a sale by description and that the soil that Pine Valley had received did not match the description in the contract. Zarnett J.A. stated the significance of the difference between identity and quality to an exclusion clause is that if the wrong goods are delivered, the buyer may sue for breach of contract and the clause will afford no protection since the seller has not fulfilled the contract (para 45). Zarnett J.A. accepted that it was possible for a party, with an appropriately worded clause, to exclude the condition imposed by s.14 (para 48).

By virtue of s.53 of the SGA, the parties can contract out of liability implied by the statute if they do so by “express agreement”, which means that the language must be “explicit” and “clear and direct” (para 48-49). Zarnett J.A. pointed to the difference between warranties and conditions and stated that a clause that excludes implied warranties would not apply to implied conditions (para 50). Zarnett J.A. stated that it was clear from the cases that to exclude the implied conditions of the SGA the “meaning of explicit, clear, and direct” meant that “at the very least that the language must refer to the type of legal obligation the SGA implies – reference to a different legal obligation will not suffice” (para 56).

Although the trial judge had articulated the need for explicit language, Zarnett J.A. found that he erred by finding that the clause met this standard. The clause did not address the implied conditions of the SGA (para 58). The clause stated that Earthco would not “be responsible for the quality of the material”. Zarnett J.A. repeated that that s.14 applies to identity not quality. An exclusion of responsibility for quality cannot exclude an implied statutory condition for the identity of the goods (para 59).

The trial judge did not explain how “quality” could mean identity. The clause was neither express nor explicit. Zarnett J.A. stated the factual matrix could be used to expand the exclusion clause but could not be used to change “‘responsible for the quality’ in the exculpatory clauses to ‘responsible for the identity’, let alone add words to those clauses that were not used (such as ‘under any condition express or implied, statutory or otherwise’)”(para 63).

Zarnett J.A. concluded that the requirement of explicit, clear, and direct language to exclude a statutory condition is important to the legislative scheme (para 65). In the context of a sale by description, the parties are deemed to have the intention to include the statutory condition as to identity over an above any other obligations unless they have explicitly excluded the condition. The parties cannot rely on the factual matrix (para 68). Once the trial judge found that there was a sale by description, Earthco was deemed by the SGA to have agreed that the goods it delivered would correspond to the description provided. The exclusionary clause did not meet the test of explicit, clear, and direct language required to excluded s.14 of the SGA (para 69).

Zarnett J.A. allowed the appeal and substituted a judgment that Earthco pay Pine Valley damages in the sum assessed by the trial judge.

May 19, 2022
Pine Valley Enterprises Inc. v. Earthco Soil Mixtures Inc., 2022 ONCA 265