Contracts for Sale of Goods (11:III)

Generally, consumers have no right to return goods or cancel a contract simply because they decide the goods are no longer wanted or needed. However, it is often only after the goods are purchased that damages or defects are discovered. In such cases, a purchaser may have a remedy if it can be shown that a term of the contract has been breached. It may also be the case that the business has a refund policy of which the consumer can take advantage.

This section outlines the protection that consumers have against the problems that may occur after a purchase has been made. To understand one’s legal rights, it is necessary to know the differences between terms, representations, and mere puffs.

A. Identifying and Classifying the Terms of a Contract

A term of the contract is a promise made by the manufacturer or seller regarding the character or quality of an article. It can be either written or oral. Written terms will generally be straightforward to identify. Whether an oral statement can be properly considered a term may be less obvious. Not everything said by the seller will be a term of the contract. To be a term, the statement must be a specific promise that makes up part of the contract.

If a statement is not a term, it will be either a representation or a puff. A representation is a material statement of fact made to induce the other party to enter the contract. A puff is vague sales talk not meant to have any legal effect. For example, a statement that, “This is a wonderful car,” would be a puff.

If a statement is a term of the contract, it can be a condition, warranty, or innominate term. A well-drafted contract will characterize particular terms as conditions or warranties, though the wording used in the contract will not always be determinative. The difference between the three types of terms is as follows:

1. Condition

A condition is a term that is so essential to the agreement that its breach is considered to be a substantial failure to perform the contract. A breach of a condition is said to go to the root of the contract. In other words, the breach is such that it deprives the innocent party of “substantially the whole benefit” of the contract. Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, [1962] 1 All ER 474 at 489. Breach of condition entitles the buyer to terminate any further obligations under the contract and sue for damages. The aggrieved party, if aware of the impending breach, could accept the repudiation of the other party and terminate the contract, ending all future obligations except for the damages that stem from non-performance. Or, the aggrieved party could not accept the repudiation, and may wait for the future breach to occur before pursuing damages (e.g., if he or she thinks that there is still a chance that the contract will be performed).

2. Warranty

A warranty is a term of the contract that is not so essential. A warranty must be performed, but its breach is not considered to go to the root of the contract. This meaning of warranty should not be confused with other uses of the word such as in “one-year maintenance warranty”. When a warranty is breached, the innocent party must continue to perform its own obligations under the contract but can sue for damages.

3. Innominate Terms

Innominate terms arise out of the common law, but unlike conditions and warranties, they are not mentioned in the SGA. An innominate term is one that may be treated as either a condition or a warranty, depending on how severe the consequences of a breach turn out to be. Whether an innominate term is a condition or a warranty is for a judge to decide. Note that the SGA specifies whether certain terms are conditions or warranties.

B. Determining if the Sale of Goods Act Governs the Contract

The SGA applies to transactions that can be characterized as contracts for the sale of goods. Any transaction that is not for the sale of goods does not receive the benefit of the SGA. Hence, the subject matter of the transaction must be goods and the essential elements of a contract must also be present.

1. Goods

Goods include all personal chattels, other than “things in action” (e.g. cheques, insurance policies, money). Things attached to real property, which the parties agree to sever before sale, or under the contract of sale, are included (s. 1). Note that registration in the Land Title Office may be advisable to avoid possible characterization of the goods as real property or fixtures, so that the SGA may apply to the transaction.

According to ss 1 and 9, the SGA covers existing and future goods. Future goods are goods to be manufactured or acquired by the seller after the making of the contract of sale.

According to ss 1 and 6(1), general property or title in the goods must pass – not merely a special property or interest. Thus, for example, a contract of bailment is not covered.

Contracts for skill and labour alone are not contracts for the sale of goods, so the SGA does not apply to them. However, if a contract is for labour and materials, then the SGA could apply to the materials (e.g. a contract to paint a house with paint supplied by the contractor).

2. Contract of Sale

According to s 6(6) of the SGA, a contract of sale includes an agreement to sell as well as a sale. Thus the definition covers conditional sales.

Section 8 provides that the contract may be either written or oral.

According to s 6(1), the SGA applies only where the purchaser agrees to buy goods with money as consideration. Hence gifts, barters, or exchanges are not subject to the SGA’s implied conditions and warranties. However, a court may avoid this result by finding two separate contracts rather than a barter, as long as the consideration, whether money or goods, has its value measured in monetary terms: see Messenger . Green, [1937] 2 DLR 26 (NSSC). Thus, if a total price is attached, there will be a sale, even if payment is in goods.

3. Lease Contracts

The SGA applies to lease contracts if the goods are leased for personal, family or household purposes.

C. Provisions of the Sale of Goods Act

Sections 16 – 19 of the SGA imply many terms into contracts for the sale of new items. Section 20 governs when these implied terms can and cannot be expressly waived by the seller. The SGA also defines these terms as conditions or warranties, thus defining the remedies available if breached.

1. Implied Conditions and Warranties

The vital part of the SGA for the consumer is ss. 16 – 19, which may add statutory conditions and warranties to a contract for the sale of goods, subject to the possibility of exclusion (see Section III.C.2: Exemption from Implied Contractual Terms).

a) Implied Condition of Title: s 16(a)

Section 16(a) provides that, subject to contrary intentions, there is an implied condition that the seller has the right to sell the goods. In an agreement to sell goods at a later date, there is an implied condition that the seller will have the right to sell the goods at the date the buyer takes possession.

b) Implied Warranty of Quiet Possession: ss 16(b) and (c)

Sections 16(b) and (c) provide implied warranties that in the future the buyer will enjoy undisturbed possession of the goods, free from any liens or other encumbrances in favour of third parties that are unknown to the buyer at the time the contract is made. If a secured creditor subsequently makes claims against the buyer, the buyer can sue the seller for damages resulting from breach of this implied warranty. The quantum of damages would likely be the amount of the liens outstanding so that the buyer could pay them off.

c) Implied Condition of Compliance with the Description: s 17

Under s. 17, when goods are sold by description, there is an implied condition that they correspond to the description.

Most sales will be sales by description. The notable exception is where a buyer makes it clear that he or she is buying a particular item on the basis of its qualities known, independent of any representations by the seller. Generally, where a buyer purchases a product because of a vendor’s representations about its features (which may have been offered either gratuitously or in response to the buyer’s questions), this will be a sale by description, with the vendor’s representations forming part of the description. Catalogue purchases and purchases of products sealed in containers by the manufacturer are also sales by description.

NOTE: Specific (as opposed to unascertained) goods are goods that, at the time the contract is made, are agreed to be the only goods whose transfer will satisfy the contract. For example, in a sale of a new chair, if the parties agree that a specific chair is to be the subject matter of the contract, the sale has been of specific goods. So, if the seller attempts to deliver a different chair, which is identical in every way, except that it is not the actual chair agreed upon, the seller has breached the contract. Unascertained goods are goods that are agreed to be the subject matter of the contract at a point in time after the contract is made. For example, in the sale of a new chair, if the parties agree only on a specific type of chair, but do not specifically single out any individual chair, the sale has been of unascertained goods.

Although s 17 cannot be excluded in retail sales of new goods, it may be excluded in private or commercial sales, subject to the contra proferentum rule. The contra proferentum rule states that a contract, if ambiguous, is construed as against the party who wrote it. Where a standard form contract is used, it is construed as against the party who offered it.

A sale by description may also raise s 18(b) issues (see Section III.C.1.e: Implied Condition of Merchantable Quality).

d) Implied Condition of Fitness for Buyer’s Purpose: s 18(a)

Under s 18(a), if: