exception to nemo-dat - protection for 3rd party...

Contract of Sale of Goods 1Contract for Goods? 1Sales Governed by SGA or Other Barter/Sale? 1Sales Distinguished from Other Transactions 1

Sale of Goods or Contract for Labour and Materials? 1Sale of Goods or Lease/Hire-Purchase Contract? 2Sale of Intangible Property - ie through consignment 2

Elements of the Contract 2Common law preserved 2Capacity 2Fomalities 2Prce 2Categorization of the Subject Matter of a K 3Perished Goods 3Types of Obligations 3

Warranties 3Conditions 3Innominate Terms - How do courts treat terms? 3

Implied Terms 3Exclusion and Limitation Clauses 4

Consumer Protection 4

Obligations of Suppliers and Manufacturers 4The Privity Problem 4Models for Reform 4

Canadian CL Developments 4US Developments 4Quebec Developments 4

Passing of Property and Risk 5Rules Governing the Passing of Property 5

Property cannot pass in unascertained goods s. 21 5Property passes according the intention of the parties 22(1) 5Default rules for the passing of property 5

Passing Property in Specific Goods 5Passing Property in Unascertained Goods 5Importance of Passing Property 6Risk 6

The Seller’s Title Obligation 6Nature of Right to Sell Goods 6Scope of 16(a) 6Exclusion of Condition of Right to Sell 7Warranties of Quiet Possession and Freedom from Encumbrances 7

Seller’s Obligation as to Description and Quality 7Sales by Description s. 17 & 18(b) 7Implied Condition of Merchantable Quality 18(b) 7

Standard of Merchantable Quality 7Effect of Inspection or Opportunity to Inspect in 18(b) 8

Implied Condition of Durability 18(c) 8Implied Condition of Suitability for a Particular Purpose 18(a) 8Idiosyncratic Users 9Sale by Sample 9

Commercial Transactions - Fall 2017 Prof. MacDougal

Delivery 9General Duties of Sellers and Buyers under K 9Place of Delivery 10Time of Delivery 10Delivery of Wrong Quantity 10Instalments 10

Buyer’s Remedies 11Buyer’s Right to Reject the Goods 11

Loss of the Right to Reject: SPECIFIC GOODS 11Loss of the Right to Reject: ACCEPTANCE 11

Buyer’s Right to Damages and Specific Performance 12Assessment of Damages 12Limiting of Damages 13Specific Performance / Injunctions 13

Buyer’s Liens 13

Buyer’s Obligation to Accept and Pay 14

Seller’s Remedies 14Seller’s Lien 14

Seller’s Right of Resale 14Seller’s Personal Remedies 15

Seller’s RIght to Seek Damages 15Seller’s Right to Seek Debt Claim

15Exception to Nemo-Dat - Protection for 3rd party transferees16

Commercial Transactions - Fall 2017 | Prof. MacDougal |

Contract of Sale of GoodsContract for Goods?

“Contract of sale” includes both an agreement to sell as well as a sale (per s. 1). A contract of sale must fit into 6(1) in order for the SGA to apply, except for some peculiarities with respect to leases. s. 1. Definition of “goods” includes (a) all chattels personal and (b) things attached to or forming part of the land that are agreed to be severed before sale or under the contract of sale, ie growing crops that are agreed to be severed, whether or not industrial Does not include:

● Money● Choses in action → ie intangibles (assignments, for example)● Real property interests ● Labour, services.

Cases: ● Fredkin grass sold for purpose of being cut and turned into hay is a K for goods - intention of the parties is determinative. ● Carlson v Duncan perpetual right to enter land to harvest timber is not a K for goods; there must be some temporal scope, the right to

harvest cannot extend into perpetuity - agreement is a right in land.

Sales Governed by SGA or Other Barter/Sale? s. 6. (1) A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. (2) There may be a contract of sale between one part owner and another. (3) A contract of sale may be absolute or conditional. (4) If under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale. (5) If the transfer of the property in the goods is to take place at a future time or is subject to some condition to be fulfilled later, the contract is called an agreement to sell. (6) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

● The entire value of goods on one side of the transaction must be given monetary value in order to satisfy 6(1)Cases

● Messenger v Greene SGA applies in situations where goods from part of the consideration if they value of the goods is fixed in monetary terms and the goods are assigned a monetary value

Sales Distinguished from Other Transactions Sale of Goods or Contract for Labour and Materials? To be under the SGA, the K must be for the sale of goods, not a K for labour, services, or skill.

● “Monetary value test” - is the application of skill and labour in the production of the good the substance of the contract? Robinson v Graves - commissioning a painting is not under the purview of the SGA, as the agreement was in substance for the skill and labour of the painter, transfer of materials only incidental.

● If by time of K completion, the buyer has obtained an item that can be later sold as a ‘good’, the K is really a SGA contract Lee v Griffin - counterpoint to Robinson case; sale for dentures is held to be a SGA K.

Other Cases: ● K for service and supply generally = K for SGA Young and Marten Ltd. ● K for meal at a restaurant = K for SGA Gee v Whitespot claim for botulism poisoning under implied warranty of quality and fitness,

held a K under SGA ○ Possible implication about ‘high end’ restaurants; K for special services, ambience, location, etc. → not under

SGA? No implied warranty about quality and fitness?

Sale of Goods or Lease/Hire-Purchase Contract? ● As a lessee, your bailment (or leasehold) interest entitles you to enjoyment of the property, but not to absolute ownership, and is

therefore not under the SGA. However, the BC SGA does indeed cover certain leases, particularly in consumer contexts.


● Where the parties may understand the agreement to be a lease, but is actually a conditional sale, the K is governed by the SGA - 2 dominant circumstances

○ 1) If, at the end of the lease period, w/o further payment, the lessee automatically becomes the owner of the goods in question - Lee v Butler

○ 2) If, following mandatory/compulsory period of time, lessee has the option to purchase the goods at an artificially low price

○ Other factors: ■ If compulsory lease period covers the the commercially valuable life the good → conditional sale, SGA ■ If termination creates a penalty by way of liquidated damages for lessee → tends towards conditional

sale, SGA Cases

● Intention to transfer ownership in “hire-purchase agreement’ = Conditional SOG Lee v Butler - buyer had agreement that no title would vest in furniture until all payments were made after compulsory, transferred furniture to BFPV, protected under 30(2).

● Without obligations or intent to purchase good following use by lessee, the K is a “hire purchase agreement” Helby v Matthews piano for hire, lessee had no obligation, no compulsory period, free to possess piano so long as payments kept coming

Sale of Intangible Property - ie through consignment ● Owners may hire an agent to transfer property on their behalf and find a buyer. Agency contracts are not historically covered by the

SGA, but s. 59 protects 3rd parties when mercantile agents are in possession of the goods and enter into a transaction with a BFPV - the consignor is bound by the agent.

● Agency contracts that are very restrictive may be treated as a sale: ○ 1) If consignee does not find a buyer, they must purchase the property themselves○ 2) Access incident to ownership, tax burden, etc. may lead to a finding of ownership as well ○ 3) If agent finds a buyer, ownership transfers first to agent and then to buyer

Cases● Weiner v Harris consignee held to be an agent: consignor never never intended to sell the goods to the consignee, K stipulated that

goods are never owned by the consignee, consignee was only to receive remuneration, consignee had no right to buy, only contractual duty to sell the goods.

● Stephanians Carpets PPSA case, consignee had possession of the rugs, went bankrupt, creditors tried to take the carpets. Held that property of carpets remained with owner/consignor; under K consignee was to reimburse consigner, consignor had no legal right to possess the carpets, no obligation or right to buy, under K the rugs remained with consigner

Elements of the ContractCommon law preserved

● s. 73 preserves the common lawCapacity

● s. 7 incapacity can make a contract void or voidable; (3) an incapacitated person must pay a reasonable price for the goods - (1) necessaries = goods suitable to the condition in life a person, and to the person’s actual requirements at time of sale and delivery

● K’s entered into by incapacitated persons are voidable, not void - must be disaffirmed within a reasonable amount of time Bawlf Grain purchaser was drunk when purchased shipment of wheat, attempted to rescind the K a month later when the prices rose.

Formalities ● s. 8 K of sale may be made in writing, either w/ or w/o seal, or by word of mouth, or partly in writing and partly by word of mouth, or may

be implied by the conduct of the parties ● BCPA may impose formalities (not examinable) ● Email address is not of itself sufficient be considered a ‘signature’ Pereira Fernandes SA

Price ● Price is a key aspect of a sale or contract for sale, necessary per 6(1)● 12(1) price may be (a) set by contract (b) left to be set as agreed in the contract or (c) determined by the course of dealings between

the parties ○ 12(2) Or else buyer must pay a reasonable price, (3) to be determined as a question of fact dependent on the

circumstances of each case. ● Reasonable price is to apply where no price is contemplated by the parties (12(2)) Montana Mustard Seed

Categorization of the Subject Matter of a K Goods are either “existing” or “future” 9(1) - AND - either “specific”, “unascertained”, or “ascertained” - only one designation from each classification.

● Existing Goods -or- Future Good s 1(1) goods to be manufactures or acquired by the seller after the making of the K of sale; ○ 9(3) Buyer of future goods has no immediate ownership of goods, there is only an agreement to sell


● Specific, -or- Unascertained - or- Ascertained Goods

Specific Goods-1(1) “identified and agreed on at time of K”-i.e. That blue car, those 10 bushels-23 property passes immediately if there is no conditions in a K for specific goods

Unascertained Goods-Goods not identified at time of sale; have only been generically described, not separated from the larger bulk, or do not exist yet-Agreement to sell, not a sale until goods are ascertained-Default category-21 K for sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained

Ascertained Goods-Unascertained can become ascertained goods

Perished Goods ● 10 K for sale of specific goods is void if, w/o knowledge of the seller, the goods have perished at time of K formation● 11 K for sale or specific goods is avoided if, after agreement made, the goods w/o fault on the part of the buyer or the seller perish

Types of Obligations Warranties

● 1(1) “warranty” terms of an agreement that are collateral to the main purpose of the contract, breach of which gives rise to claim for damages, but no right to reject the goods and treat the K as repudiated.

● Leaf v International Galleries breach of warranty = damages only; claim for innocent misrepresentation cannot be made where a buyer already accepted the goods or when a reasonable time for inspection has passed.

● 15(2) determination is substance and form, not formality or nomenclature ● 15(4) K for sale of specific goods where property has passed, breach of condition is treated as a breach of warranty giving rise to

damages only Conditions

● 15(2) Depends in each case on the construction of the K; breach of condition gives rise to a right to treat the K as repudiated ● 15(4) K for sale of specific goods where property has passed, breach of condition is treated as a breach of warranty giving rise to

damages only ● Condition may be implied by necessity upon review of the K, surrounding circumstances, and intention of the parties ie

express language not needed to be a “condition” Bunge v Tradex Innominate Terms - How do courts treat terms?

● Does the breach deprive the innocent party of substantially the whole benefit of the K? - Hong Kong Fir if the consequence of the breach are serious, akin to breaches of a condition, the breach will be treated as a breach of condition. Conversely, if the consequences are less serious such that they do not strike at the heart of the K, than the breached terms may be treated as a breach of warranty.

● Does the term in breach strike at the root of the K? Cehave v Bremer (Hansa Nord) - minor quality issues w/ purchased citrus, had the goods returned then repurchased them at a lower price only to use the goods for the same purpose as before.

● Quantitative terms generally treated as conditions Bunge v Tradex ● Time at the essence (time = condition) in mercantile contracts Bunge v Tradex

Implied Terms ● 69 implied terms can be contracted out of w/ express terms, an express term prevails over an implied term

○ Any implied terms that arise by operation of law may be negative or varied by (a) express agreement (b) in the course of dealings between the parties or (c) by usage, if the usage is such as to bind both parties to the K

● Terms can be implied by law (CL or statute, SGA), by custom, or by necessity to give business efficacy Canadian Pacific Hotels ○ I: Should there be a duty for a customer (especially a “sophisticated customer”) of a bank to examine bank statements and

report discrepancies within a reasonable time frame as an implied term of the K? ○ H: No duty for a customer to a bank to examine statements. In the absence of a verification agreement, a customer does not

owe a duty to the bank to examine the statements. This implication would need to apply to every customer, without characterizing the customers as “sophisticated commercial customers”

Exclusion and Limitation Clauses ● Requires agreement, generally an express term in writing (unlikely to be found as an implied term) ● No general prohibitions on the use of E/LOE. So long as it is construed well and is not unconscionable, E/LOE are permitted. Some

statutes in certain contexts prohibit their use in specific Ks. Note the potentially shifting landscape given Bhasin with respect to the “duty of honest performance”.


○ E/LOE permitted under the principle that parties are free to K as they see fit, assuming they are rational and capable of making reasonable decisions → problem: in many cases bargaining power is not equal and consumers especially have no choice

● Parties can attempt to preclude use of implied terms with a general statement “no condition, warranty, express or implied, except as contained herin” → Entire K or entire obligation clause

● Tercon v BC 3 part test to determine enforceability: 1) as a matter of interpretation, does the clause apply to the circumstances? 2) Was it unconscionable at the time the K was made? 3) Should the court refuse enforcement based on public policy (onus on party seeking to avoid enforcement)

Consumer Protection20 Parties cannot contract out of protections under 17, 18, 19 unless the goods are used or described as used, or 16, whether goods are new or used. 20 therefore limits the application of s. 69 (express terms can override implied terms) 20(2) and (3) provide prohibitions for retail sales defined in (1).

● (1): Retail sale = every sale or lease made by seller or lessor in course of seller’s business, but excludes purchase for resale, purchases for business purposes, commercial enterprises, trustee in bankruptcy.

○ Key question: what is the “ordinary course of business” and is the K within in it? ○ Additional key question: what are “intended business purposes”?

● (2) prohibits exclusion of protections under 17, 18, 19 → but there is no protection for goods that are used or described as used (highly problematic)

● (3) prohibits exclusion of protection under 16 → in the case of new or used goods, term to contract out of 16 is void. Cases

● Court will generally not protect consumers from foolish Ks, but will protect parties when they are fraudulently induced into making payments Fiesta Dance Studios fraudulent dance school preys on vulnerable persons, devices elaborate hoaxes to make the students feel special and then pressures them into signing contracts for very expensive dance lessons. D told P they would film her and send the film to “New York”. There was no film in the camera - entire event was a standing joke among the staff. Held that K cannot stand

● Signature presumptive proof that the signer has actually agreed to the provision; however, signature may not be enough where terms of the K are particularly onerous - drafter must ensure they took measures to notify signer Tilden-Rent-A-Car

● Approaches for unconscionability Harry v Kreutziger: ○ 1. Inequality of both the circumstances and the process plus substantial unfairness of the K leads to a presumption of

unconscionability that the stronger party must rebut ○ 2. Action that is “sufficiently divergent from community standards of commercial morality” (Lambert’s alternative formulation)

Obligations of Suppliers and Manufacturers The Privity Problem

● Vertical privity: Manufacturer → Purchaser A → Purchaser B○ Chabot v Ford Motor Co - privity problem flipped (note impact of Fraser River) to benefit consumer; EOL between Ford

Motor Co and Dealership did not extend to consumer as he was not party to K ● Horizontal privity: A → B for C’s benefit

○ Lyons v Consumer Glass Co - beneficiary cannot bring claim against seller where they are not a party to the K - mother purchased baby bottle, exploded in child’s face, child barred from bring claim in K against the seller.

Models for ReformCanadian CL Developments Clauses in K’s intending to benefit 3rd parties may be enforced by the 3rd party in defence only if they were the type of 3rd party to whom the protective clause was intended to benefit Fraser River Pile & Dredge subrogation agreement intending to benefit 3rd party US Developments Where the seller knows the K is for the benefit of a 3rd party, that party can enforce its rights under the K and implied warranties extend to the purchasers and their immediate families Henningsen v Bloomfield Motors wife injured in exploding car, not party to purchase agreement but court held she could sue Quebec Developments Where an obligation is identified with the thing transferred, the successor by particular title of the first seller is not regarded as a third party, the dealer is not only passing title and possession entitlements but also passing on claims with regard to quality to the buyer Kravitz


Passing of Property and Risk Rules Governing the Passing of Property

Property cannot pass in unascertained goods s. 21 21 Cannot pass property in unascertained goods, property only passes in specific/ascertained goods; K for unascertained goods, no property passes until and unless the goods are ascertains.

Property passes according the intention of the parties 22(1) 22(1) Property passes at the time the parties intend the property to be transferred 22(2) for ascertaining the intention of the parties, regard must be had to the terms of the contract, the conduct of the parties and the surrounding circumstances

Default rules for the passing of property 23(1) unless evidenced by a different intention, the intention of the parties as to the time at which the property in the goods is to pass to the buyer is governed by the rules set out in this section:

● 23(2) K for unconditional sale in specific goods in deliverable state = property passes at time K is made, regardless of whether payment or delivery is postponed.

○ If the buyer has not had time to inspect, caveat emptor, however, because this provision only applies to to unconditional sales, courts have sometimes interpreted the Ks to be conditional sales.

● 23(3) K for specific goods and the seller is bound to do something to the goods for the purpose of putting them in a deliverable state = property not passed until 1) seller does the thing to put goods in deliverable state and 2) seller provides notice to the buyer that it has placed the goods in a deliverable state

○ 4 deliverable state = “when they are in such a state that the buyer would, under the K, be bound to take delivery of them”○ Deliverable state ≠ delivery but implies readiness to be shipped or picked up

● 23(4) K for specific goods in a deliverable state where the seller must weigh, measure or test the goods = property not passed until 1) that act or thing is dones and 2) the buyer has notice of it.

● 23(7) K for unascertained or future goods by description = property not passed until 1) goods are placed in a deliverable state and 2) are unconditionally appropriated to the K either a) by the seller with the assent of the buyer or b) by the buyer with the assent of the seller

○ Buyer still has opportunity to inspect before the property is transferred to him and is not burdened by 23(7) ○ 23(8) assent may be express or implied, and may be given either before or after the appropriation is made

Passing Property in Specific Goods ● Specific goods are identified and agreed upon at time of K for sale is made - if steps have yet to be taken to ascertain the

goods, property has not passed Kursell v Timber Operators - K for sale of “all trunks and branches but not seedlings and young trees” for 15 years ≠ K for specific goods in a deliverable state as that which had yet to be harvest was not identified and not deliverable until cut severed from the ground. P’s debt claim for unsevered, unharvested trees failed.

○ Ie. K did not fit into 23(2)● Default rule: 23(2) K for unconditional sale in specific goods in deliverable state = property passes at time K is made,

regardless of whether payment or delivery is postponed. ○ If the buyer has not had time to inspect, caveat emptor, however, because this provision only applies to to unconditional sales,

courts have sometimes interpreted the Ks to be conditional sales.

Passing Property in Unascertained Goods ● Until goods have been selected, separated, or manufactured and separated, there can be no transfer of property because 21 provides

that property shall not pass until the goods are ascertained – the contract is only an agreement to sell until then● Mere ascertainment will not cause property to pass – the intention of the parties is the governing factor and if no intention is

discoverable in accordance with 22(2), 23(7) applies.● Goods remaining in control of the seller generally deemed to remain the seller’s property as ‘appropriation’ has yet to occur

Carlos Federspiel v Charles Twigg ○ Factors to consider: 1) Parties must have had an intention to attach ascertained goods to the K 2) Agreement of the parties

that the appropriation is made 3) Transfer of ownership must involve actual or constructive delivery, if the seller retains possession, he does so as bailee for the buyer 4) Risk is associated with ownership 5) The appropriating act is typically the last act to be performed by the seller

● Buyer refused to assent to the appropriation of goods per 23(7) by cancelling the order Sells v Thomson the buyer was in breach of K, but seller could not bring a debt claim as property had not passed, can only bring a claim in damages

Importance of Passing Property Issue when property passes can have a major impact on 3rd parties and compliance with legal obligations such as restrictive covenants.

● Intention of parties under 22 is key consideration Liberty Wine Merchants v Isaak Commercial Transactions - Fall 2017 | Prof. MacDougal |

○ “Liberty” has RC with the mall that no other merchant would be involved in the selling of alcohol. I: Does new U-brew “Rack-It” sell alcohol?

○ “Liberty” relies on 23(3) property in specific goods where the seller is bound to do something to make them deliverable, property does not pass until the thing to make them deliverable is done by the seller.

○ “Rack It” has no government authorization to sell wine; transaction in two parts: 1) sale of the wine kit 2) service to make the wine from the kit. Goods are ascertained with employee opens a wine kit for the customer, intention of the parties is to have the property transfer at that point → intention of the parties governs; property intended to pass post ascertainment but before the goods become wine

Risk ● 25 unless otherwise agreed, the goods remain the seller’s risk until the property transfers to the buyer; when the property is transferred

to the buyer, the buyer bears the risk whether delivery has been made or not. ● Intention to be determined by terms of K and the parties’ conduct Jerome v Clements Motor Sales purchase of a used car for

cash and trade-in, new car needed some further work so seller held onto the car to finish the work and buyer held on to the trade in, new car burned in fire, held that risk of loss remained with the seller under 23(3) as the parties never agreed to an alternative intention

The Seller’s Title Obligation 16 In a K for sale or lease, unless the circumstances of the K are such as to show a different intention (for example, terms are overriden under 69) there is:

● 16(a) implied condition (remedy is termination and rejection of goods) on the part of the seller, the seller has the right to sell the goods and transfer ownership

○ But remember 15(4) K for sale of specific goods where property has passed, breach of condition is treated as a breach of warranty giving rise to damages only

○ If K not severable and buyer accepted or if K is for specific goods which have passed to the buyer; the buyer’s only recourse for breach of 16(a) is damages

○ 16(a) can also be invoked where buyer is displeased w/ goods for other reasons● 16(b) warranty (remedy is damages, but not termination) that buyer is to have quiet enjoyment and possession of the goods

○ Can be modified by K - except for retail sales 20○ 16(b) is an ongoing obligation, whereas 16(a) is a one and done

● 16(c) warranty (remedy is damages, but not termination) that the seller makes clear that the goods are not being used as collateral in a separate secured transaction

○ Can be modified by K - except for retail sales 20 ○ Seller discharges duty under 16(c) where he reveals the charge or encumbrance ○ Possible that duty only occurs when K is made, not necessarily when property passes (buyers may want to alter the K so as to

ensure seller’s reveal any 3rd party interests at time property passes); on the other hand, sellers may seek to restrict this clause as they may themselves not be aware the goods are subject to the 3rd party interest

Nature of Right to Sell Goods ● No property in stolen goods; sellers who transfer stolen goods do not transfer any property at all due to a “total failure of

consideration” (ie nothing of the essence of the K) → K returned to pre-acceptance state Rowland v Divall Because buyer received nothing, seller also to receive nothing; note although this is not recission

○ Work around restriction 15(4) places on 16(a) → total failure of consideration ≠ breach of condition● Where seller only has a bailment interest, that interest is transferred (only a partial failure of consideration) Butterworth v

Kingsway Motors ○ Lessee purported to sell car in good faith; car later resold several times; once lessee realized error and paid remaining

purchase price good title was transferred along the chain to each subsequent purchaser, however, each buyer would still have a claim for breach of warranty

○ “Ownership through estoppel” when a seller transfers a lesser interest than full ownership, the buyer, with respect to the rest of the world, has a bailment interest, with respect to the seller, has an ‘ownership’ interest. If the original seller receives title later on, that title is fed down to the latest buyer.

Scope of 16(a) ● Seller infringement of IP law precluded it from transferring the goods; 16(a) enabled buyer to reject the goods Niblett K for

containers of condensed milk, ⅓ of shipment contained goods that infringe on the trademark of another brand, buyer rejected goods● Buyer applies 16(a) to reject goods that it was statutorily barred from reselling J Barry Windsor seller sold lamps that were not

CSA approved, should not have sold the lamps in the first place

Exclusion of Condition of Right to Sell ● Implicit within a K of sale is the promise to sell the goods; an entire agreement clause will not preclude liability for breach of

16(a) Sloan v Empire Motors


Warranties of Quiet Possession and Freedom from Encumbrances ● 16(b) is an ongoing obligation Microbeads Seller sold machines that were patented by a 3rd party; the patent had yet to be

published at the time of the sale. 3rd party w/ patent sues the buyer, buyer in turn successfully sues the seller for breach of 16(b)

Seller’s Obligation as to Description and Quality Sales by Description s. 17 & 18(b)

● 17(1) in a K for sale or lease of goods by description there is an implied condition that the goods must correspond to the description.

○ Most applicable in the context of unascertained goods - not really a purpose for sale of specific goods ○ 17(2) if sale is by sample and description, it is not enough if the goods just correspond to the sample if they don’t

correspond to the description ● 18(b) if goods are bought by description from a seller or lessor who deals in goods of that description, whether the seller or

lessor is the manufacturer or not, there is an implied condition that the goods are of merchantable quality; but if the buyer or lessee has examined the goods there is no implied condition as regards defects that the examination ought to have revealed

● Must distinguish whether a statement was a representation or a term○ Breach of term can lead to damages, termination or specific performance ○ Misrepresentation (statement of fact) can lead to rescission

■ If goods are unascertained; description is always a term■ If goods are specific goods, factual statements are representations

Cases● Frey v Sarvajc - law of misrepresentation not displaced by s. 17 - sale of vehicle was said to have X KMs, turns out the

odemoter was wrong and car was previously wrecked → not a fundamental breach as vehicle still road worthy but incorrect mileage treated as breach of warranty (s. 15(4))

○ For patent defects: caveat emptor absent fraud or misrepresentation ○ Latent defects: if the seller knew or ought to have known and would not be noticed upon reasonable inspection of the goods,

the seller is responsible ■ Silence can constitute misrepresentation in context of latent defects

● Hart-Parr Company v Jones court reluctant to accept an exclusion clause limiting s. 17 if it is generic/absolute - clause read “description is for identification only...not K by description”, in K of sale for new engine, seller paints old engine

● Varley v Whipp K for specific goods can be a K for sale by description; applies to all cases where the purchaser has not seen the actual goods but is relying on the description alone - machine sold w/o buyer seeing it, ended up being used and unable to perform as described, buyer able to reject the goods

● Beale v Taylor sale of specific goods where the buyer has physically seen/tested the goods can be a sale by description where the buyer relies on the seller’s description in making the purchase.

● Taylor v Combined Buyers sale for specific goods is a sale by description insofar as the thing is expressly sold as a certain kind/class/species but statements made to the quality or other unessential attributes are not part of the description, merely representations and are inoperative unless fraudulent or actually form a term of the K

● Arcos Ltd v EA Ronassen buy can reject the goods if they don’t conform with the contract exactly, even if the goods are suitable for the purpose of the K and/or of merchantable quality - precise specifications for purchase of wooden staves; shippment occurred in winter resulting in water bloating, altering the size of the staves → condition should have been strictly conformed to even though the wood was ok - buyer right to reject

● Ashington Piggeries s. 17 cannot remedy breaches of quality but where the goods meet the description - herring meal suspected of causing death in the livestock, the meal was contaminated but no poisonous substance was added to it to make the description “herring meal” erroneous and thus subject to s. 17

Implied Condition of Merchantable Quality 18(b)Standard of Merchantable Quality

● 18(b) if goods are bought by description….whether the seller or lessor is the manufacturer or not, there is an implied condition that the goods are of merchantable quality, BUT if the buyer or lessee has examined the goods, there is no implied condition as regarding defects that the examination ought to have revealed.

Key Cases● Merchantable quality = some use but not optimal use; usable but need not be perfect condition; more

work than anticipated where some work was anticipated ≠ breach of merchantable quality Bartlett v Sidney Marcus - problems with used vehicle were revealed by the seller, however, later on it turns out more work was needed. Held that the seller was not in breach of 18(b)

● Merchantable quality = commercially saleable or the lowest quality commonly sold Henry Kendall & Sons v Lilico● If description of the goods could reasonably fulfill multiple purposes, then if the goods fail to meet one purpose but still

usable for other purposes, then they are of merchantable quality Henry Kendall & Sons - K for brazilian nut feed that had toxic mold, but could be used for either cattle feed or chicken feed (toxic to one but not the other)

○ If there are buyers would have purchased the goods at a fair market price for some other use, the goods are merchantable


Other Cases ● BS Brown & Sons v Craiks - K for textiles; seller believed purpose was for industrial use, buyer’s purpose was for dressmaking,

however, the buyers did not make clear the purposes for which the material would be put and the price was lower than typical for dressmaking

○ If a higher quality form of the good has a substantially higher market value and this price is the one stipulated in the contract, then the seller cannot provide the lower quality form and claim that it fits the description.

● Hartmann v McKerness - Online buyer thought he was buying a Patek Philippe watch, turns out the watch was an imitation. The seller indicated the watch was never sold by retail and was a test watch made for Patek Philippe; buyer argues breach of merchantable quality however the goods were found to correspond to their description, still has a purpose as a lovely watch - law will not protect imprudent buyers - caveat emptor my friends.

○ 18(b) does not apply to seller’s who do not “deal in goods of that description”● International Business Machines scale sold w/ broken glass, held to be a breach of merchantable quality as the glass, even though

the replacement cost was trivial, no buyer would desire a scale w/ a broken glass = breach of merchantable quality If no buyer would want the goods as is, even w/ very minor problems, it is a breach of merchantable quality

Effect of Inspection or Opportunity to Inspect in 18(b) ● 18(b) if the buyer or lessee has examined the goods, there is no implied condition as regarding defects that the examination

ought to have revealed. ● Where the buyer has the opportunity to inspect the goods caveat emptor applies where there is no fraud by the seller

Thornett & Fehr - parties agreed to meet during negotiation to inspect barrels of glue, buyers given reasonable opportunity to inspect but never opened the barrels, claim for breach of merchantable quality failed.

Implied Condition of Durability 18(c)● Always readily apparent, easiest to meet therefore ● 18(c) implied condition that the goods will be durable for a reasonable period of time having regard to the use to which they

would normally be put and to all the surrounding circumstances of the sale or lease ● Inherent component of durability is that the goods remain merchantable for a reasonable period of time after the completion

of K Mash & Murrel - order of potatoes spoiled prior to being shipped; breach of 18(b) and 18(c)● Durability to remain so long as goods remain in precise state as they were at the time of transfer - window following transfer of

ownership (and risk) should not be so long as to needlessly make the seller an insurer; court should take into account wear and tear Buckley v Lever - shattered clothespin injured user

○ If goods lack durability upon immediate use, they likely were not of merchantable quality to begin with

Implied Condition of Suitability for a Particular Purpose 18(a)● 18(a) If the buyer or lessee, expressly or by implication, makes known to the seller/lessor the particular purpose for which the

goods are required, so as to show that the buyer or lessee relies on the seller's skill or judgement -and- the goods are of a description that is in the course of the seller’s/lessor’s business to supply, whether the seller/lessor is the manufacturer or not, there is an implied condition that the goods are reasonably fit for that purposes w/ minor exceptions

○ Buyer must buy goods for a particular purpose ○ Purpose must be known by the seller ○ Seller knew or ought to have known that the buyer was relying on the seller’s skill to select the goods

Cases● Possible for some ongoing protection if it could be demonstrated goods sold were not reasonably fit for their purposes at

time ownership transferred Crowther v Shannon - Used Jaguar expected to last 100K; in this case the engine was faulty and only lasted 80K - fact that the vehicle was driven for several weeks post-purchased merely “staving off the inevitable” - breach of 18(a)

● Price buyer prepared to pay indicative of a particular purpose Henry Kendall v Lillico - Brazilian nuts seller knew was used to make chicken feed and was poisonous, held breach of 18(a) → but not 18(b) (good for some uses, so merchantable, but for use the buyer was to put it to)

● Circumstances the seller knows or ought to know the buyer seeks the goods for a particular purpose Baldry v Marshall ○ 1)Where a buyer asks a seller for an article which will fulfill some particular purpose, and the seller sells him an article ○ 2) Where the buyer approaches a seller indicating that he has been recommended a certain good to fulfill a certain function

and seeks seller clarification○ 3) Where the buyer approaches the seller indicating that he has been recommended a certain good to fulfill a certain function

and requests to buy that good

Idiosyncratic Users Allergic reactions are not subject to the usual strict liability imposed on the seller by s.18(a) as the law expects idiosyncratic users to disclose these peculiarities to the seller

● Griffiths v. Peter Conway The buyer must make the seller away of any peculiarities that affects the buyer in using the goods for the purpose in which the buyer is intending to use it.


○ If the seller in unaware then the seller cannot exercise her skill and judgment in relation to the suitability of the goods that they are selling

● Ingham v. Emes The burden is on the buyer to tell the seller about their known abnormality or allergy in order to claim the protection of s.18(a).

● Esborg v. Bailey Drug Co. In order to rely on an allergy/hypersensitivity, a buyer will have to show that this reaction was not uncommon: that it wasn’t unique/peculiar/isolated.

○ Test: The buyer must show (1) the product contains a harmful ingredient, (2) this ingredient is harmful to a reasonably foreseeable and appreciable class of people or potential users of the product, and (3) the buyer has been innocently injured in the use of the product in the manner and for the purpose it was intended to be used

Sale by Sample Minimal application in contemporary setting - online or advertising sales more common today. Cases of sale by sample: “what you will buy will be like this, but not this example” and “here is a small portion of what you will get”, seeing only a portion of the bulk, if the seller guarantees the nature and quality of the unseen bulk is exactly like the seen sample.

● Bulk = thing bought; sample = thing seller showed the buyer ● 19(1) K of sale/lease is one by sample if there is a term in the K, express or implied, to that effect ● 19(2)(a) implied condition that the bulk corresponds to the sample in quality ● 19(2)(b) implied condition that the buyer has a reasonable opportunity to compare the bulk with the sample

○ Note that ones the seller sells or throws out the sample, assuming no comparison has taken place, he is in breach of 19(3) → condition satisfied where the sample forms part of the bulk

○ Cannot contract out of this for consumer goods ● 19(2)(c) implied condition that the goods are free from any defects rendering them unmerchantable that would not be

apparent upon reasonable examination of the sample Cases

● In a sale by sample the seller presents the sample as he is presumed to know the quality of the goods he is selling; inspection of some of the goods ≠ not necessarily sale by sample → to be a SBS must be agreed by both parties that the goods (the bulk) are to conform to a specific standard (the sample) Cudahy Packing Co - seller inspected a large portion of the eggs but not all of them, held not to be a sale by sample; buyer cannot unfairly claim the transaction to be a ‘sale by sample’ where, having a reasonable opportunity to inspect all of the goods, the buyer neglected to do so. Inspection ≠ sample

● Reasonable inspection depends on normal trade practice and the contemplation of the parties Steels & Busks - reliance on first shipment as indication of quality and the decision to make subsequent shipments constituted sale by sample

● Reasonable examination ≠ rigourous/extensive testing; instead involves common sense approach based on the standards of everyday life Godley v Perry - toy catapult injured infant’s eye; seller argued that in examining the goods the buyer did not perform every movement → held the buyer’s cursory examination sufficient

Delivery General Duties31, 32, 33(9), 38(1), 39, 41(1)

Place of Delivery33(1), (2), (3), 36(1)

Time of Delivery14, 32, 33(4)

Quantity34(1), (3), (4), (5)

General Duties of Sellers and Buyers under K ● 31 Duty of seller is to deliver the goods, duty of the buyer is accept and pay for them, according to the terms of the K ● 32 Delivery and payment are concurrent conditions = must occur at same time

○ Must therefore place delivery time in K → if one condition is not met, there is a breach ● 33(9) Unless otherwise agreed, expenses of and incidental to putting the goods into a deliverable state are borne by the seller ● 38(1) If goods delivered not previously examine, the buyer is not deemed to have accept unless and until there is a reasonable

opportunity to inspect them to determine whether they are in conformity with the K (2) seller bound on request to afford buyer a reasonable opportunity to inspect the goods

● 39 acceptance when a) buyer intimates that he has accepted them b) the goods have been delivered to the buyer and buyer does any act inconsistent with the ownership of the seller c) after lapse of reasonable time the buyer keeps goods w/o rejecting them

● 41(1) Where the buyer does not take delivery, buyer is liable for any loss occasioned to the seller by the buyer’s refusal and a reasonable charge for the care and custody of the goods

Place of Delivery ● 33(1) whether the buyer to take the goods or the seller to send them depends on the express or implied construct of each K

○ No default; important for parties to lay out provisions for delivery ● 33(2) Default: apart from any K, the place of delivery = seller’s place of business (or seller’s residence if no place of business)


● 33(3) Modifies 33(2) If K for sale of specific goods, which to the knowledge of the parties when the K is made are in some other place, that place is the place of delivery

● 36(1) If under K the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier for transmission to the buyer is, unless there is evidence to the contrary, deemed to be a delivery of the goods to the buyer

● Note whether these are warranties or conditions, the statute is silent Time of Delivery

● 14(1) unless a different intention appears from the terms of the K, stipulations as to time of payment are not deemed to be of the essence of a K of sale 14(2) whether any other stipulation as to time is of the essence of the K depends on term of K → remember Bunge v Tradex, time of the essence for mercantile Ks

● 32 Delivery and payment are concurrent conditions = must occur at same time ○ Must therefore place delivery time in K → if one condition is not met, there is a breach

● 33(4) If under the K the seller is bound to send the goods to the buyer, but no time for sending is set, the seller is bound to send them within a reasonable time

Cases *note in most cases parties will agree on delivery time; also agree on whether deliver time is condition ● Cannot treat contracted delivery time (under 33(4)) as arbitrary; early delivery = breach; time of the essence for mercantile Ks

Bowes v Shand ● Buyer can reinstate time condition after waiving condition, so long as he provides reasonable notice; time can be of the

essence in a K for labour + goods Charles Rickars v Oppenheim - buyer provided condition for when his car being built was needed by, later extended that condition on the request of the seller’s contractor (buyer of course estopped from going back on that waiver). Once set time lapsed w/o delivery, buyer informed seller that he will be rejecting the goods and refuse payment (of note in this case seller gave buyer authority to deal directly w/ seller’s contractor)

Delivery of Wrong Quantity ● 34(1) buyer may reject delivery if seller delivered less than contracted for ● 34(2) If the buyer accepts delivered goods, the buyer must pay for them at the contract rate ● 34(3) If the seller delivers to the buyer a larger amount than contracted for, the buyer may:

○ (a) accept the goods included in the K and reject the rest -or-○ (b) reject the whole

● 34(4) If the seller delivers to the buyer a larger amount than contracted for and the buyer elects to accept all of the goods, the buyer must pay for them at the contracted rate

● 34(5) If the seller delivers to the buyer the goods contracted to sell mixed with the goods of a different description not contracted for, the buyer may (a) accept the goods that are in accordance with the K and reject the rest or (b) reject the whole

● 34(6) Section 34 subject to any trade usage, special agreement or course of dealing between the parties Note of Caution

● These rules best function for singular deliveries; if the K is non-severable and establishes a series of deliveries or instalments, and if the buyer accepts the first delivery, then the buyer is precluded from rejecting subsequent deliveries under the non-severable contract per 15(4) and can only claim damages from breaches treated as warranties

Case● Buyer entitled to accept quantity contracted for and reject the rest In Re Moor

Instalments ● 35(1) Buyer not bound to accept goods in instalments unless contractually agreed ● 35(2) If there is a ONE K for the sale of goods to be delivered in stated installments, which are to be separately paid for, and

the seller makes defective deliveries in in respect of one or more installments, or the buyer neglects or refuses to take delivery of or pay for one or more installments, it is a question in each case depending on the terms of the K and the circumstances of the case whether the breach is (a) repudiation of the whole K or (b) a severable breach giving rise to compensation claim but not a right to treat the whole K as repudiated

○ Repudiation = delivery | breach → later deliveries rejected (only subsequent deliveries can be rejected)● [If the K is not severable and the buyer has accepted some of the goods, 15(4) provides that the breach of the condition is treated as a

warranty, precluding the buyer from rejecting later deliveries. However, a buyer may argue that s. 34 is more specific so as to trump s. 15(4), enabling the buyer the reject everything, so long as all of the goods are ready to return and have not been used]

● Test for 35(2): 1) ratio must be quantitatively large which the breach bears to the K as a whole and 2) high degree of probability that such a breach will be repeated; 35(2) includes quality & quantity Maple Flock - 20 deliveries; 15 arrived ok, 16th not up to snuff, buyer not able to terminate → installment K = one K, not multiple

● If K is installment K → 15(4) limits remedy for returning goods as, if the buyer accepts any installments, he cannot reject any later ones

○ Section 35 can possibly modify 15(4), but that only applies where each delivery has a different and distinguishable payment

Buyer’s Remedies Buyer’s Right to Reject the Goods

● 15(2) Whether a term is a condition (entitling to termination) or warranty (damages only) depends on the construction of the K○ 15(3) Nomenclature does not matter


● 34 Buyer’s right to reject for wrong quantity of delivery ○ 34(1) buyer may reject delivery if seller delivered less than contracted for ○ 34(2) If the buyer accepts delivered goods, the buyer must pay for them at the contract rate ○ 34(3) If the seller delivers to the buyer a larger amount than contracted for, the buyer may:

■ (a) accept the goods included in the K and reject the rest -or-■ (b) reject the whole

○ 34(4) If the seller delivers to the buyer a larger amount than contracted for and the buyer elects to accept all of the goods, the buyer must pay for them at the contracted rate

○ 34(5) If the seller delivers to the buyer the goods contracted to sell mixed with the goods of a different description not contracted for, the buyer may (a) accept the goods that are in accordance with the K and reject the rest or (b) reject the whole

○ 34(6) Section 34 subject to any trade usage, special agreement or course of dealing between the parties

● 35 Buyer’s right to reject uncontracted for instalment deliveries or defective installments ○ 35(1) Buyer not bound to accept goods in instalments unless contractually agreed ○ 35(2) If there is a K for the sale of goods to be delivered in stated installments, which are to be separately paid for,

and the seller makes defective deliveries in in respect of one or more installments, or the buyer neglects or refuses to take delivery of or pay for one or more installments, it is a question in each case depending on the terms of the K and the circumstances of the case whether the breach is (a) repudiation of the whole K or (b) a severable breach giving rise to compensation claim but not a right to treat the whole K as repudiated

● 38 Buyer’s right to reject before examining delivered goods ○ 38(1) If goods delivered not previously examine, the buyer is not deemed to have accept unless and until there is a

reasonable opportunity to inspect them to determine whether they are in conformity with the K (2) seller bound on request to afford buyer a reasonable opportunity to inspect the goods

● 39 Buyer’s deemed acceptance ○ 39 buyer deemed to accept goods (ie unable to reject) when a) buyer intimates he has accepted them b) goods have been

delivered to the buyer and the buyer does an act inconsistent w/ seller’s ownership c) after the lapse of a reasonable time, the buyer retains the goods without indicating he has rejected them

Loss of the Right to Reject: SPECIFIC GOODS ● Buyer loses right to reject specific goods where property has passed pursuant to 15(4) and 23(2) or where the K is not severable and

has accepted some or all of the goods (15(4)). ● 15(4) K for sale of specific goods where property has passed, -or- if the K is not severable and the buyer has accepted

goods/part of the goods; breach of condition is treated as a breach of warranty giving rise to damages only● 23(2) unconditional K for the sale of specific goods in a deliverable state, property in the goods passes to the buyer when the

K is made and it is immaterial whether the time of payment or delivery or both are postponed ● Wajakowski work-around s. 15(4) in the buyer’s favour by arguing that the goods were never conditionally accepted in the first place;

only a “conditional property interest” passed as the buyer accepted the goods on the condition that the buyer was to make necessary repairs to the car

Loss of the Right to Reject: ACCEPTANCE ● 38(1) If goods delivered not previously examine, the buyer is not deemed to have accept unless and until there is a reasonable

opportunity to inspect them to determine whether they are in conformity with the K (2) seller bound on request to afford buyer a reasonable opportunity to inspect the goods → once examined and accepted, buyer loses right to reject

● 39 buyer deemed to accept goods (ie unable to reject) when ○ a) buyer intimates he has accepted them ○ b) goods have been delivered to the buyer and the buyer does an act inconsistent w/ seller’s ownership (Hardy v Hillerns)○ c) after the lapse of a reasonable time, the buyer retains the goods without indicating he has rejected them (Rafuse Motors)○ 70 “reasonable time” = question of fact

● Buyer cannot reject goods pursuant to 38(1) once the buyer indicates an acceptance that triggers 39 Hardy v Hillerns & Fowlers in this case buyer triggered 39(c); buyer received delivery of wheat, set a portion of it aside for testing, sent the rest off on a train to be resold, tests came back negative and the buyer attempted to rejected the goods on the basis of 38 - however he has already accepted them under 39(c) by using them in a way incompatible with the seller’s ownership (loading them on a train for resale)

○ If the buyer had kept the goods and had them ready for return to the seller, that may have been ok○ Seller, upon receipt of notice of the buyer’s rejection is entitled to have the goods ready at the

seller’s disposal - if the buyer has done an act which prevents the seller from resuming possession, that act is necessarily inconsistent with the seller’s ownership right → possession must go back to the seller at time of rejection, not at a later date!


● Generally several days under 39(c), but in this case entire year was permitted before the buyer rejected the goods, because the nature of the goods required a longer period of time to be tested Rafuse Motors - shitty tractor did not work in every season, election postponed until it was tested in every season

● 34(5) If the seller delivers goods contracted to sell mixed w/ goods of a different description not contracted to sell, the buyer may a) accept the goods that are in accordance with the K and reject the rest, or b) reject the whole

○ William Barker - workaround 15(4); K for coal, half the shipment was above deck, half was below. Buyer immediately sold off coal above deck and had the coal below deck tested.

○ The test came back negative, and the buyer was able to reject the coal he had left. Court took the presumption that goods conform to the K, only that which was tested could be said not to have conformed to the K and therefore could be rejected under 34(5)

Buyer’s Right to Damages and Specific Performance Damages for Non-delivery

● 54(1) if the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery

● 54(2) measure of damages = estimated loss directly and naturally resulting in the ordinary course from seller’s breach of K● 54(3) If there is an available market for the goods in question, the measure of damages = current market price or price at the

time when they ought to have been delivered, or if no time set, at the time the seller refused to deliver - K price ● Damages may also be claimed for special losses resulting from seller’s non-delivery Re Hall and Pim (subject to Hadley test: 1)

damage fairly and reasonably considered to arise naturally from the course of the breach itself - need to know what the obligation in the K was - OR - 2) damage or special losses were reasonably in the contemplation of the parties at the time of the contract, for special situations

Damages for Breach of Warranty● 56(1) Buyer may elect to treat breach of condition as breach of warranty - buyer may (a) claim diminution or extinction of the price

or (b) maintain an action for damages against the seller for breach of warranty ● 56(2) measure of damages for breach of warranty = estimated loss directly and naturally resulting in the ordinary course of

events from the breach of warranty ● 56(3) loss = value of goods buyer would have had w/ warranty complied with - value of goods buyer received ● Upon breach of implied condition for fitness of purpose, where the buyer cannot rescind, the damage is prima facie the full

purchase price, subject to diminution by such residual value, if any, the seller may be able to establish Ford Motor Company v Haley

● Sunneyside loss of profit which is the direct and natural consequence of breach may be claimed in addition to capital loss if there is no over-compensation

Interest and/or special damages claim preserved ● 57 right to interest and claim special damages preserved

○ Must use Hadley v Baxendale test for special damages

Assessment of Damages For breach non delivery, presumption is market price - K price = damages 54(2)For breach of warranty, presumption is market value of goods that were contracted for w/ warranty upheld - market value of goods received = damages 56(3)

● Market price as a proxy for damages is a rebuttable presumption, rebuttable where actual loss can be determined; function of damages is to place individuals in position they would have been but for the breach Chicoutimi Pulp Co

● Cannot claim damages for performance where P would have lost more than the expenses he would have incurred had the K been performed anyway Bowlay Logging

● Buyer cannot claim for both capital cost (reliance interest) and lost profits (expectation interest) Cullinane ● Rare losses not in the contemplation of the parties are not recoverable Heron II

○ Hadley v Baxendale 1) damages should be such as may naturally and usually arise from the breach -or- 2) special circumstances known to both parties make the loss in the reasonable contemplation of the parties as a result of the breach

● Contracting parties are liable for all such loss or expenses as could reasonably have been foreseen at the time of the breach, as a reasonable consequence of it Parsons

○ Installer of a pig hopper neglected to ensure all the flaps were open leading to mould and the death of hundreds of pigs, held that the claim in damages against the seller was not too remote

● In peace-of-mind-Ks, pecuniary damages are recoverable for mental suffering caused directly by the breach, but limited only to mental suffering relating to “sensory experiences” Wharton v Tom Harris Chevy

○ Car subject to incessant beeping noise - purchase of luxury sedan held to be a peace of mind K, awarded damages for breach of warranty (that a luxury car should be free from noise) and pecuniary damages for mental suffery


Limiting of Damages ● Claim for damages is going to be limited in two ways: remoteness and to the extent the claimant did not mitigate his losses

○ Remoteness test → Hadley v Baxendale with two branches, claim should be considered not too remote where (see pg. 345): ■ 1) damage fairly and reasonably considered to arise naturally from the course of the breach itself - need to know what

the obligation in the K was - OR - ■ 2) damage or special losses were reasonably in the contemplation of the parties at the time of the contract, for

special situations ■ As D can argue that you were unaware that the complainant was contracting for a unique specific purpose. For

complainant, it's best if there is a purposive element in the recitals to provide notice that the K is being entered into for a specific purpose

○ Mitigation → innocent party should keep his losses within reason, parties are expected to behave in a reasonable way after the contract has been broken, including taking steps to replace goods. Complainant takes responsibility for failure to mitigate, however over mitigation can also relieve the defendant.

Specific Performance / Injunctions ● 55(1) In any action for breach of K to deliver specific or ascertained goods, the court may, if it thinks fit, on the application of

P, order the K to be performed specifically w/o giving the D the option of retaining the goods on payment of damages ○ 55(2) the order may be unconditional, or on terms and conditions as to damages, payment of the price, and otherwise, as the

court thinks just, and the application by the P may be made at any time before judgement ● SP not possible where goods are not specific or ascertained Re Wait ● Injunction can be granted prior to trial where the seller’s breach would cause severe damage to the buyer Sky Petroleum -

Buyer granted injunction ‘specific performance’ of K for temporary time, even though goods weren’t specific or ascertained, b/c fuel market was in unusual state, remedy of damages would be insufficient (buyer would be bankrupt by then, had no other suppliers b/c exclusive contract w/sellers)

Buyer’s Liens Buyer’s lien s. 75 general lien for unascertained or future goods - lien over property of the type that was purchased, not necessarily that particular item. Example, buyer purchases a fridge, K breakdown, buyer has a claim to a fridge.

● 75(1) If in the usual course of a seller’s business the seller makes an agreement to sell goods and (a) the buyer pays all or part of the price (b) the goods are unascertained or future goods, and (c) is acquiring the goods in good faith for use primarily personal, family, or household purposes, then the buyer has the lien described in (2).

● 75(2) the lien under 75(1) is for the amount the buyer has paid towards the purchase price of the goods and is against: ○ (a) all goods

■ (i) that are in or come into the possession of the seller and are held by the seller for sale ■ (ii) that correspond with the description of or with any sample of the goods under the agreement to sell and■ (iii) the property in which has not passed to a different buyer under a different K of sale, and

○ (b) any account in a savings institution in which the seller usually deposits the proceeds of sales ● 76(1) the buyer’s lien is discharged when the seller (a) fulfills the K of sale by causing property in the goods to pass to the buyer

according to the K -or- (b) refunds the buyer’s money that the buyer has paid ● 76(2) Whether a buyer’s lien is to be discharged under 76(1)(a) or (b) is at the option of the seller, but a discharge under 1(b) does not

affect any right of action the buyer may have for a breach of the K ● 76(3) A buyer’s lien ceases to bind goods that are appropriated to a sale made in good faith to a different buyer, whether or not that

sale is in the usual course of the seller’s business.

Buyer’s Obligation to Accept and Pay ● 31 Duty of buyer to accept and pay for delivered goods● 14(1) valid K even where time of payment has not been agreed upon - D has onus to prove time was stipulated in K ● When the buyer orders goods from the seller w/o a time being fixed for payment or arrangements being mad for credit, he

must be ready to pay when the seller makes delivery Kay Corporation et al - discssions concerning time of payment or granting of credit irrelevant

Seller’s Remedies Seller’s Lien Seller’s lien is w/r/t to those specific goods, opposite of a buyer’s general lien. Seller’s lien only operates where specific goods or ascertained goods have been purchased (or agreed to purchase). Defence to buyer’s claim for breach of K

43 even if property has passed, an unpaid seller has: Commercial Transactions - Fall 2017 | Prof. MacDougal |

● (a) lien on the specific goods - must be in the possession of the seller (possessory lien) - for the price ○ Lien only allows seller to retain the goods until the price has been paid; a defence to a claim the buyer might otherwise make

against the seller for withholding the goods, also a defence for breach of K ○ Not a new property interest and does not allow you to deal with the goods in any way the seller would have

prior to the lien → holding the goods hostage until goods have been paid for. ○ Lien only freezes the situation, but minimal benefit for the seller as he cannot transfer goods and realize profit from them ○ Created when the buyer wrongly rejects the delivery - if no K for delivery, and seller is entitled to retain the goods until

payment, there is no need for the lien. ● (b) not responsible for …● (c) right to sell goods (separate remedy)

44 - unpaid seller of goods who is in possession of goods is entitled to retain possession until the following conditions have been met ● (a) goods have been sold w/o stipulation as to credit -or:● (b) goods have been sold on credit but the term of credit has expired -or:● (c) buyer becomes insolvent.

45 unpaid seller who has made part delivery of the goods may exercise the lien or retention on the remainder● Example; seller delivers first half, but buyer does not pay, seller can now exercise lien on remainder of goods that is

not subject to the non-payment thanks to s 45 w/o breach. → Seller lien can operate in a theoretical space between “part delivery” and “instalment”

● Generally relates only to instalment deliveries of the same sort - not contracts for different items delivered at different times - ie true instalment contracts

● Where goods are delivered in instalments and separate payment is to be made for each instalment, as a general rule and absent an express agreement, a lien cannot be claimed for a balance owing in respect of an instalment already delivered against instalments still to be delivered Snagproof v Brody

46 seller’s lien terminated when● (a) seller delivers the goods to a carrier or other bailee for transmission to the buyer w/o reserving the right of disposal of the goods -or:● (b) when the buyer or the buyer’s agent lawfully obtains possession of the goods -or:● (c) seller waives it ● 46(2) unpaid seller of goods w/ lien, does not lose the lien or right of retention merely because the seller has obtained judgement or

decree for the price of the goods

Seller’s Right of Resale If the seller who holds a lien retains ownership and transfers to a new buyer, the seller is in risk to both parties; new buyer can use 16(a) to reject the goods as the seller has given what he cannot give, and to the old buyer who may come back and pay. 51 provides a remedy for the seller. 51(1) K of sale not rescinded by the exercise of a lien.

● 51(2) when the unpaid seller who has exercised the right of lien, whether the seller is the owner or not, resells the goods, the new buyer receives good title to it w/r/t the original buyer

○ Note that if the seller is the owner anyway, 51(2) does not real work for the seller as he is already able to pass good title - it really works only for sellers who transfer what they do not have

○ Precludes breach of s 16(a)● Seller must proceed rights exactly as stipulated under statute - must send notice to original buyer that they have not paid and they

intended to sell to another party 51(3) unless goods are perishable - can proceed immediately for K of perishable goods. ○ If no notice is given, old buyer may have a claim in tort and for breach of K; new buyer may reject goods under 16(a)

● 51(4) if the seller expressly reserves right of resale in case of buyer default, then the original K of sale is rescinded, but seller still entitled to claim damages

○ Unusual event, rescission normally is a remedy for things prior to K formation 51 Breakdown

● 51(1) K of sale not rescinded by the exercise of a seller’s lien ● 51(2) When an unpaid seller who has exercised the right of lien resells the goods, the buyer acquire a good title to it as

against the original buyer● 51(3) If the goods are perishable in nature, or if the seller gives notice to the buyer of the seller’s intention to resell, and the

buyer does not within a reasonable time pay or tender the price, the unpaid seller may resell the goods and recover from the original buyer damages for any loss occasioned by the buyer’s breach of K

● 51(4) If the seller expressly reserves a right of resale in case the buyer should default, and on the buyer defaulting resells the goods, the original K of sale is rescinded by that act, but without prejudice to any claim the seller may have for damages

○ Seller cannot, however, claim for the entire value of the K where the seller retains ownership of the goods, only the difference between what he would have gotten under K and the present value of the goods RV Ward v Bignall


Seller’s Personal Remedies Seller’s RIght to Seek Damages

Damages for Buyer Failing to Pay/Accept Delivery ● 41(1) when the seller is ready and willing to deliver the goods, and requests the buyer to take delivery, and the buyer does not

within a reasonable time after request to take delivery of the goods, the buyer is liable to the seller for (a) any loss occasioned by the buyer’s neglect or refusal to take delivery -and- (b) a reasonable charge for the care and custody of the goods

○ 32 Delivery and payment are concurrent conditions = must occur at same time○ 31 buyer has obligation to accept and pay for the goods; 14(1) where no time has been set the seller may make a delivery at

any time Kay Corporation ● 53(1) if the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against

the buyer for damages for non acceptance - buyer breach of s. 31○ 54(2) measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events,

from the seller’s breach of K ○ 54(3) if there is an available market for the goods in question, the measure of damages is to be ascertained, unless

there is evidence to the contrary, by the difference between the K price and market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was set, then at the time of the refusal to accept delivery

○ 54(3) Damages = [Market price] - [K price] ■ Loss of sale claimable where K price is equal to or greater than market price, since buyer’s breach cost the seller a

sale Charver v Sullivan; Victory Motos ■ Loss of sale not claimable where there is ‘no market’ or for very unique goods (ie old used car) Lazenby

Garages - more likely to apply for a really unique good like a painting, not re ally a usedSpecial Damages

● 57 Right to seek interest and special damages reserved for seller (and buyers)○ A loss of profit can be claimed if it clearly directly and naturally resulted from the ordinary course of events from a

buyer’s wrongful neglect or refusal to accept and pay for the goods bought – if a seller can prove this, it is recoverable as damages under S53(2) BUT where seller turns around and re-sells, the seller has the burden of proving a loss of profit beyond what has been recouped by the resale: Charter v Sullivan (contract to buy a car, but buyer repudiated as he found a better price – P found another seller, but claiming loss of profit claiming he could have sold 2 cars instead of 1 if the buyer had followed through)

Seller’s Right to Seek Debt Claim ● 52(1) if under a K of sale, the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to

pay for the goods according to the terms of the K, the seller may maintain an action against the buyer for the price of the goods

○ If property in goods has not passed, then then there can be no action for the price, only claim in damages, unless the K stipulates price is payable on a certain day and the buyer refuses (52(2)) Colley v Overseases Exporters - K for leather to be shipped, ship lost and goods never arrived

● 52(2) if under a K of sale, the price is payable on a day certain, irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed, and the goods have not been appropriated to the K

Cases ● Remoteness and mitigation not applicable for debt claim. Debt is the remedy in respect of such promises to pay a liquidated sum of

money as the common law enforces this specifically. Damages are the common law remedy in respect of all other promises and of warranties: Standard Radio Inc v Sports Central

Exception to Nemo-Dat - Protection for 3rd party transferees Exceptions to NDQH as set out in 26(1)

● 51(2)● 26(2) - unless the owner’s conduct precludes the owner from denying the seller’s authority to sell → agency situation →

occurs when person who sells the goods has objensible agency to sell the goods○ Appearence of having the authority of sellers the goods courtesy of the owner’s conduct → agency by estoppel ○ Shaw v Commissioner of the Police - someone given possession of a vehhicle and purported to sell the car to

someone else, handed over all of the papers; sufficient to find apparent authority, but in fact s. 26 did not apply because there was no “sale” → K stipulated that property shall not pass until all of the payments had been made

● 27 goods sold in market overt, where the seller is licensed to operate a business, the buyer acquires title to the goods as long as they are bought in good faith and the buyer has no knowledge of the seller’s lack of title

○ Good title against the whole world ○ Seemed to be good law but never applied successfully in BC - St John


○ CAVEAT: 29 If goods have been stolen and the offender is convicted for theft, the person who has the goods lose title and it reverts back to the original owner

● 59(1) - agency provision specifically for mercantile agent→ agency generally binds the principal (unlike ostensible agency provision in 26(2)).

○ Statutory codification of the general law of agency (note it is not exhaustive, however, as general agency law always apply, even where agent is not a mercantile agent)

○ Applies to purchasers, including buyers● 30(1) - seller in possession provision → someone in possession of the goods but does not have title to the goods, but

because of their possession, it may appear to the world that they have the authority to transfer of the goods ○ Despite the fact they do not have property interest, the transfer is allowed ○ Occurs when there is a K of sale, one party has possession and the other has title (ie could be a conditional sales agreement)

and the party who has possession purports to transfer the goods ■ Similar to ostensible agency provision in 26(2)

○ Can apply to persons acquiring lesser property interests ● 30(3) - buyer in possession - same as above but flipped

Contract of Sale of Goods 1Contract for Goods? 1Sales Governed by SGA or Other Barter/Sale? 1Sales Distinguished from Other Transactions 1

Sale of Goods or Contract for Labour and Materials? 1Sale of Goods or Lease/Hire-Purchase Contract? 2Sale of Intangible Property - ie through consignment 2

Elements of the Contract 2Common law preserved 2Capacity 2Fomalities 2Prce 2Categorization of the Subject Matter of a K 3Perished Goods 3Types of Obligations 3

Warranties 3Conditions 3Innominate Terms - How do courts treat terms? 3

Implied Terms 3Exclusion and Limitation Clauses 4

Consumer Protection 4

Obligations of Suppliers and Manufacturers 4The Privity Problem 4Models for Reform 4

Canadian CL Developments 4US Developments 4Quebec Developments 4


Passing of Property and Risk 5Rules Governing the Passing of Property 5

Property cannot pass in unascertained goods s. 21 5Property passes according the intention of the parties 22(1) 5Default rules for the passing of property 5

Passing Property in Specific Goods 5Passing Property in Unascertained Goods 5Importance of Passing Property 6Risk 6

The Seller’s Title Obligation 6Nature of Right to Sell Goods 6Scope of 16(a) 6Exclusion of Condition of Right to Sell 7Warranties of Quiet Possession and Freedom from Encumbrances 7

Seller’s Obligation as to Description and Quality 7Sales by Description s. 17 & 18(b) 7Implied Condition of Merchantable Quality 18(b) 7

Standard of Merchantable Quality 7Effect of Inspection or Opportunity to Inspect in 18(b) 8

Implied Condition of Durability 18(c) 8Implied Condition of Suitability for a Particular Purpose 18(a) 8Idiosyncratic Users 9Sale by Sample 9

Delivery 9General Duties of Sellers and Buyers under K 9Place of Delivery 10Time of Delivery 10Delivery of Wrong Quantity 10Instalments 10

Buyer’s Remedies 11Buyer’s Right to Reject the Goods 11

Loss of the Right to Reject: SPECIFIC GOODS 11Loss of the Right to Reject: ACCEPTANCE 11

Buyer’s Right to Damages and Specific Performance 12Assessment of Damages 12Limiting of Damages 13Specific Performance / Injunctions 13

Buyer’s Liens 13

Buyer’s Obligation to Accept and Pay 14

Seller’s Remedies 14Seller’s Lien 14

Seller’s Right of Resale 14Seller’s Personal Remedies 15

Seller’s RIght to Seek Damages 15Seller’s Right to Seek Debt Claim 15

Exception to Nemo-Dat - Protection for 3rd party transferees 16


exception to nemo-dat - protection for 3rd party...

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