Difference between revisions of "Contracts for Sale of Goods (11:III)"

Revision as of 04:58, 9 August 2021

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by the Law Students' Legal Advice Program on August 5, 2021.

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 may 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 and not meant to be taken literally as a contractual term (see 11:IV G. False or Misleading Advertising)

Whether a statement is a term, representation, or puff affects the remedy available to the consumer: damages (see D. Remedies for Breach of Contract below), rescission (under a claim of misrepresentation; see 11:IV G. False or Misleading Advertising), or no remedy, respectively. For this Chapter, we are concerned with terms of a contract.

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 (Wickman Machine Tool Sales Ltd. v L. Schuler A.G., [1974] AC 235). The three types of terms are as follows (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, [1962] 2 QB 26, [1962] 1 All ER 474 at para 49):

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. If a manufacturer/supplier/seller breaches a condition, the buyer is entitled to terminate any further obligations under the contract and sue for damages.

Anticipatory breach is where one party (say, the seller) communicates their intention to breach in the future. The aggrieved party (here, the buyer), if aware of the impending breach, could accept the repudiation by the seller and terminate the contract, ending all future obligations except for the seller’s obligation to pay the damages that stem from non-performance. Or, the aggrieved party could not accept the repudiation and may wait for the future breach to actually occur before pursuing damages (e.g., if they think 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 contract is not terminated, meaning that the innocent party must continue to perform its own obligations under the contract (e.g., the buyer must still pay for the good) but can sue for damages for breach of warranty.

3. Innominate or Intermediate Terms

Innominate or intermediate 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: For certain terms, the SGA specifies whether they are conditions or warranties. The SGA also implies some terms as conditions or warranties even if they are not expressly included in the contract (see C. Provisions of the Sale of Goods Act below)

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(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 (which is the value being exchanged in the contract, whether money or goods) has its value measured in monetary terms: see Messenger v Green, [1937] 2 DLR 26 (NSSC). Thus, if a total price is attached, there will be a sale, even if payment is in goods rather than money.

According to s 6(3) of the SGA, a contract of sale may be absolute or conditional. If the contract is subject to some condition to be fulfilled later, it is called an agreement to sell.

Under s 8 of the SGA, it provides that the contract may be either written or oral.

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

Under ss 16 – 19 of the SGA, many terms are implied into contracts for the sale of new items. When these implied terms can and cannot be expressly waived by the seller is governed by s 20. The SGA also defines these terms as conditions or warranties, thus determining 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 2: Exemption from Implied Contractual Terms below).

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

Under s 16(a), the SGA 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)

Under ss 16(b) and (c), the SGA provides implied warranties that in the future the buyer will enjoy undisturbed possession of the goods, free from any liens, charges, security interests, or other encumbrances in favour of third parties that are unknown to the buyer at the time the contract is made. For example, a contract of sale for a good may be made between a seller and buyer where a third-party lender made a loan to the seller with this good as collateral. If the secured creditor (the lender) subsequently makes claims against the buyer who was unaware of this security interest in the good at the time of sale, 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.

NOTE: Description refers to generic characteristics of a good and does not include words of praise about the good.

Most sales will be sales by description. The notable exception is where a buyer makes it clear that they are 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, online shopping, and purchases of products sealed in containers by the manufacturer are also sales by description.

If a sale is made by description and by sample, it is not enough that the bulk of the goods correspond with the sample; the delivered goods must also correspond with the description by which they were sold (s 17(2)).

NOTE: Specific goods (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 (a “take it or leave it” contract that is drafted entirely by one party without any negotiations with the other party) is used, it is construed as against the party who offered it (usually the seller).

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

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

Under s 18(a), if:

a) The buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required, so as to show that they rely on the seller’s skill and judgment; and
b) The goods are of a description which it is in the course of the seller’s business to supply;

then there is an implied condition that the goods are necessarily fit for such purpose. An exception occurs where the contract is for the sale of a specified article under its patent or trade name, in which case there is no implied condition as to its fitness for any particular purpose because the buyer is no longer relying on the seller’s skill and judgement.

To establish a claim under s 18(a) of the SGA, three factors must be satisfied on a balance of probabilities (Nikka Traders Inc v Gizella Pastry Ltd, 2012 BCSC 1412 at para 65):

That the buyer has made known to the seller the purpose for which it requires the goods;
The dissemination of that purpose shows that the buyer relies on the seller’s skill or judgment; and
The goods are of a description that is in the course of the seller’s business to supply.

Furthermore, the courts have held that the seller need not know the specific purpose for which the buyer wishes to use the goods; knowledge of a broad purpose is sufficient. For example, in Sugiyama v Pilsen, 2006 BCPC 265 at para 71, the court held that s 18(a) provides a warranty that a car is “a reliable vehicle for use in driving in safety on the roads” and a car being sold must be reasonably fit for such purpose. However, if the buyer wishes to use the goods for an unusual or peculiar purpose, this must be indicated to the seller.

The “Patent and Trade Name Exception” is of little effect since the courts have interpreted it narrowly. The issue remains one of reliance, and the trade names exception will apply only where the buyer’s use of the patent or trade name indicates a lack of reliance upon the seller. In other words, the exception only applies where a consumer decides to purchase goods solely because of the trade name of a product. See Wharton v Tom Harris Chevrolet Oldsmobile Cadillac, 2002 BCCA 78 at paras 38-39.

e) Implied Condition of Merchantable Quality: s 18(b)

Under s 18(b), if:

Goods are bought by description, and
From a seller who deals in goods of that description, the seller is bound by an implied condition that the goods are of merchantable quality.

(1) The Concept of Merchantable Quality

The concept of merchantable quality is difficult to define. A commonly used test, the price abatement test, asks whether a reasonable buyer, informed of the actual quality of the goods, would buy the goods without a substantial abatement of price (BS Brown & Son v Craiks Ltd, [1970] 1 All ER 823 (HL)). If the informed reasonable buyer would not buy without a substantial abatement of price, unmerchantable quality is inferred, and repudiation may be available.

Any damage to goods beyond the de minimus range may be said to render the goods of unmerchantable quality (International Business Machines v Shcherban, [1925] 1 DLR 864 (Sask CA), [1925] 1 WWR 405).

This section also applies to the sale of used goods, as well (s 18(b)). However, there is a lower standard here: the goods must be usable but not perfect. A minor defect does not necessarily render the goods unmerchantable. See Bartlett v Sidney Marcus Ltd, [1965] 2 All ER 753 (Eng CA).

In any case, where the buyer seeks recovery of the full purchase price based on the implied condition of merchantable quality, they should be cautioned that continued use of the goods in question seriously weakens the argument that the goods are not fit for a particular purpose or are not of merchantable quality.

(2) Sale by Description

This section only applies to a sale by description (s.18(b)). This is usually not a problem since most sales are by description, except where the buyer is clearly buying a particular item on the basis of qualities known to them apart from any representations (see d) Implied Condition of Fitness for Buyer's Purpose: s 18(a) above).

(3) Seller who Deals in Goods of that Description

In addition to requiring that the sale be by description, s 18(b) also requires that the seller must “deal in goods of that description.” In Hartmann v McKerness, 2011 BCSC 927, a seller sold a watch by description over eBay and was sued for violating the implied condition of merchantability in ss 18(b). In paragraphs 43-47, the BC Supreme Court held that the seller was not one “who dealt in goods of that description” for the purpose of 18(b), as he did not specialize in watches, but rather sold a large variety of goods.

(4) Effect of Examination by the Buyer

There is an exception where the buyer has examined the goods; then, there is no condition of merchantable quality to the extent that the examination ought to have revealed the defect. However, if the average person would not have been able to spot the defect, the condition of merchantability remains. Hence, it must be determined: 1) whether the buyer examined the goods, and 2) whether the defects ought to have been revealed by the examination.

NOTE: There is no obligation on the buyer to make a reasonable examination or even any examination.

(5) Implied Condition of Reasonable Durability

The goods must be durable for a reasonable period of time with regard to their normal use (s 18(c)).

f) Implied Conditions in Sales by Sample: s 19

For a contract to be a sale by sample, there must be an express or implied term in the contract to that effect (s 19(1)).

Three implied conditions of a sale or lease by sample are set out in s 19(2):

The bulk must correspond with the sample in quality;
The buyer or lessee must have a reasonable opportunity of comparing the bulk with the sample; and
The goods must be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

The last condition can only be relied upon where the defect would not have been apparent on a hypothetical reasonable examination. Contrast this with the s 18(b) condition of merchantability for sales by description, where the buyer’s actual examination is considered.

2. Exemption from Implied Contractual Terms

a) Private Seller

Based on s 20, private sellers or lessors, as opposed to retail sellers or lessors, can explicitly exempt themselves from ss 17, 18, and 19. A retail sale is defined as one in the “ordinary course of the seller or lessor’s business.” Exemption or exclusion clauses are subject to the contra proferentem rule that such a clause, if ambiguous, may be interpreted strictly against the drafter.

b) Commercial Seller

Under s 20 of the SGA, retailers of new goods cannot exempt themselves from the implied terms in ss 16 – 19, and any clause that attempts to do so is void, subject to the exceptions listed below.

A seller who is making a retail sale in the ordinary course of business can only expressly waive ss 16 – 19 if:

The goods are used (except s 16, which also applies to used goods);
The purchaser, even a private individual, intends to resell the goods;
The lease is to a lessee for the purpose of subletting the goods;
The purchaser intends to use the goods primarily for business;
The purchaser is a corporation or commercial enterprise; or
The seller is a trustee in bankruptcy, a liquidator, or a sheriff.

Where a commercial dealer includes a disclaimer clause exempting the transaction from ss 16 – 19, the clause is void (no legal force or effect), unless one of the above exceptions applies. A seller who does not ordinarily sell the goods in the contract may also exclude themselves out of ss 17 – 19.

3. Buyer’s Lien

Amendments to the SGA in 1994 created the buyer’s lien, which gives priority to a consumer who has paid some or all of the purchase price of the goods but has not taken possession before the seller goes into receivership or bankruptcy.

4. Buyer’s Obligations and Seller’s Rights

A seller’s rights arise from a breach of the buyer’s obligations. The buyer has two main obligations: (1) to pay the price, and (2) to take delivery. A breach of either of these obligations does not necessarily give rise to all of the seller’s possible remedies as outlined below. One must consider the severity and consequences of a breach to determine the seller’s remedy. The seller has two classes of rights under the SGA: (1) personal rights against the buyer for price or for damages, and (2) in rem rights to the goods.

a) Seller’s Personal Rights

(1) Action for the Price: s 52

This action arises when the property in the goods has passed to the buyer, and the buyer neglects or refuses to pay; or where the price is payable on a certain day and the buyer neglects or refuses to pay. This remedy involves the seller seeking the price of the goods.

(2) Damages for Non-Acceptance: s 53

This is an alternate remedy to action for the price. The prima facie rule for damages is set out in s 53(3). The seller is entitled to be paid an amount equal to the difference between the negotiated price and the market price for the goods. However, this rule may be displaced where there is either no available market or the goods are unique, in which case the damages will be assessed based on the estimated loss incurred by the seller stemming from the breach (s 53(2)).

b) Seller’s In Rem Rights

(1) Unpaid Seller’s Lien: ss 43 - 45

To get an unpaid seller’s possessory lien (the right to retain the goods until the whole of the price has been paid), the seller must be an “unpaid seller” as set out in s 42. An unpaid seller may retain the goods beyond the specified delivery date. Where goods are to be delivered in instalments under a single contract, the seller may exercise a lien over any part of the goods if any part of the price is outstanding (s 45). If the goods are sold on credit, the seller is not entitled to a lien, except under ss 44(1)(b) and (c) where the term of credit has expired, or where the buyer is insolvent.

The right of lien may be lost if:

The price is paid or tendered (s 44(1));
Delivery is made to a carrier or bailee (not the seller’s agent) without reserving a right of disposal (s 46(1)(a));
The buyer or his or her agent lawfully obtains possession (s 46(1)(b)); or
There is a waiver (s 46(1)(c)).

(2) The Right of Stoppage in Transit: ss 47 - 49

This right can be exercised in accordance with s 47 when the seller is unpaid, the buyer is insolvent, and the goods are in the hands of a carrier.

(3) The Right of Resale: ss 43(1) and 51

The seller has the right to resell:

a) If the goods are perishable, or if notice of an intention to resell is given to the buyer by the unpaid seller, and the buyer does not pay within a reasonable time. In this case, the seller may resell the goods and recover damages from the original buyer for any loss from the breach of contract (s 51(3));
b) If the seller has expressly reserved the right to resell in the contract (s 51(4)).

NOTE: If the buyer defaults and the contract provides that the seller may resell the goods in that situation, the seller may still claim damages (s 51(4)).

5. Other Sale of Goods Act Provisions

a) Stipulations as to Time

Under s 14, unless there is a different intention, stipulations as to the time of payment do not go to the essence of a contract of sale (i.e. they are not conditions).

b) Stipulations as to Quantity

Under s 34, if the seller delivers a quantity of goods either greater or lesser than that contracted for, the buyer may either reject the entire shipment, or accept the quantity delivered and pay accordingly, or, if the quantity is greater than ordered, reject the balance over that ordered. There is likely an exception when the difference in quantity is so slight as to be de minimis.

c) Stipulations as to Price

Under s 12, where a contract is silent as to price, the court will infer a reasonable price, but where the price would be too vague for the court to infer, there may be no consensus upon an essential term, and therefore no contract.

d) Installments

Under s 35(1), a buyer need not accept delivery by instalments unless that is agreed to. Where a contract is for separately paid instalments, circumstances and construction of the contract determine whether a breach allows for repudiation of the entire contract, or only a right to sue for damages regarding the defective instalment.

6. Rules as to Transfer of Title and Risk

The SGA sets out five key rules regarding the transfer of title (and thus risk) of goods between the seller and the consumer in ss 22 – 23. Generally, the intent of the parties is the overriding consideration in determining when title to the goods passes (s 22). However, if the parties did not consider or address the issue of transfer of title in the contract, then the rules under s 23 apply.

The first four rules pertain to specific goods, while the fifth rule pertains to unascertained goods.

NOTE: Recall that specific goods are goods that are agreed to be the only goods whose transfer will satisfy the contract, while unascertained goods are goods that are agreed to be the subject matter of the contract.

For an unconditional contract for the sale of specific goods in a deliverable state, then title (and thus risk) passes at the time of contract formation, regardless of when the payment or delivery is made (s 23(2));
For a sale of specific goods where the seller is bound to perform something to put the goods in a deliverable state, then title (and thus risk) passes when the task has been performed and the buyer has been notified (s 23(3));
For a sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test, or perform any other task to appraise (set the price of) the good, then title (and thus risk) passes when the appraisal has been performed and the buyer has been notified (s 23(4));
For the sale of goods subject to approval, then the title (and thus risk) passes when the consumer signifies their approval or after a specified or reasonable amount of time (ss 23(5) and 23(6)); and
For the sale of unascertained or future goods by description, then title passes when the goods are unconditionally appropriated to the contract by the seller (i.e. set aside specifically for sale to the consumer) with the assent of the buyer or the seller delivers the goods to a carrier pursuant to a contract and does not reserve a right of disposal (ss 23(7) and 23(8)). See Bevo Farms Ltd. v Veg Gro Inc., 2008 BCCA 66 for an example of unascertained goods (tomato seedlings) that became unconditionally appropriated when the seller contracted with the carrier for delivery, and thus title and risk had passed to the consumer when the goods were destroyed.

The timing of transfer of title affects the consumer’s legal rights in ways including, but not limited to, the following:

If property was supposed to pass to the consumer by a specified time, but the seller does not deliver by that time, then this is a breach of contract. See A. Identifying and Classifying the Terms of a Contract to determine whether this is a breach of condition or breach of warranty, which determines the remedies available to the buyer;
Whichever party has property of the goods is presumptively the person who is responsible for the goods, if something happens to the goods. See Kovacs v Holtom, [1997] A.J. 775 for an example where a convertible was destroyed while being restored at the defendants’ garage shop, and the defendant was liable to the consumer for damages as title (and thus risk) did not yet pass to the consumer under rule #2 (s 23(3)); and
Whether the seller or the buyer has title to the goods may affect third party claims to the property (e.g. a creditor who has a security interest in the goods).

D. Remedies for Breach of Contract

Actions for breach of contract are covered in ss 52 – 57 of the SGA. Common law and equitable remedies may exist as well.

1. Damages Generally

Generally, the object of damages is to put the injured party in the same position they would have been in had the other party performed their contract obligations (“expectation damages”).

At common law, to be awarded damages for breach of contract, those damages must be in the reasonable contemplation of both parties at the time the contract was formed. If the damages are too remote, they may not be recoverable under contract law. Both sides must be aware of the circumstances at the time of formation that would lead to damages if an obligation went unperformed or underperformed. This may encompass either implied circumstances, if reasonable, or special circumstances that were communicated at the time the contract was formed (Hadley v Baxendale (1854), 156 ER 145 (Eng Ex Div)). Damages that were substantially likely and easily foreseeable at the time the contract was formed will be deemed to have been in the reasonable contemplation of the parties. Once the type of loss is found to have been foreseeable, the extent of damages can be recoverable even if the degree of damages is so extensive as to be unforeseeable.

Parties have a common law duty to mitigate their damages from the date of the contractual breach. In a contract for the sale of goods, this means buying the goods elsewhere and suing the party who breached the contract for the additional amount paid for the goods over the contract price. In a contract for services, such as roof repair, this means hiring another party to do the repairs and suing the original party for the difference in price paid, if any. There is some jurisprudence that suggests when it is not feasible for a party to mitigate, they are excused from doing so. See Southcott Estates Inc v Toronto Catholic District School Board, 2012 SCC 51.

2. Breach of Warranty

For a breach of a term of the contract that is a warranty, the only available remedy will be damages. The innocent party must continue with the contract while seeking damages.

In a contract for the sale of goods governed by the SGA, the standard measure of damages is “the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach” (s 56(2)). Where the warranty pertained to quality of the goods, the loss will be calculated as the difference between the cost of obtaining the goods in the market and the contract price of the goods (s 56(3)). Thus, a buyer who has negotiated a good deal can recover the difference between their expected savings and the market price. Under s 57, it states that s 56 does not affect recovery of special damages or interest, if otherwise available by law. The common law governs the recovery of special damages. For special damages to be recoverable, both parties must have been made aware of their possible incursion at the time of formation of the contract.

3. Breach of Condition

For a breach of condition, the aggrieved (innocent) party can affirm the contract and seek damages in the future, or terminate the contract which discharges future obligations but still allows for the recovery of damages. The offending party has “repudiated” the contract by acting in a way that expresses the intention to no longer be bound by the contract, and the aggrieved (innocent) party can accept or reject that repudiation.

a) Repudiation

The buyer’s primary right for a breach of a condition is to repudiate the contract and reject the goods. This can normally be exercised regardless of the actual quantum of loss or benefit to the parties. However, the right to repudiate may be lost under the SGA.

In the case of a rightful repudiation, the buyer may refuse further payment, and in addition, seek either damages or restitution from the seller. The consequence of wrongful repudiation termination (the buyer repudiates when they did not have the right to do so; e.g. because the seller breached a warranty rather than a condition) is that the buyer is liable to the seller for their own breach of condition. So, it is important to determine whether or not repudiation is justified before taking any action, by determining the nature of the term the seller breached.

(1) When a Breach of Condition is Treated as a Breach of Warranty

Under s 15(4), it specifies two circumstances where, unless the parties contract otherwise, any breach of condition (including the implied statutory conditions in ss 16 – 19) must be treated as a breach of warranty (1) in a contract for sale of specific goods when property has passed to the buyer or (2) where the buyer has accepted the goods, or part of them.

(2) Specific Goods: Upon Passage of Property

When s 15(4) is combined with ss 23(1) and (2), the result is that, for a sale of specific goods in a deliverable state, the buyer loses the right to repudiate as soon as the contract is made.

However, courts may avoid this harsh result by (1) implying a term allowing the buyer to accept the goods and later reject them: see Polar Refrigeration Service Ltd v Moldenhauer (1967), 60 WWR 284, 61 DLR (2d) 462 (Sask QB) at para 22, (2) finding a total failure of consideration: see Rowland v Divall (1923), 2 KB 500, (3) finding the intent for property to not pass immediately (ss 22 and 23(1)), (4) finding that the goods are not specific, or (5) finding ss 23(3), (4) or (5) to be applicable.

(3) Unascertained Goods: Upon Acceptance

For a sale of unascertained goods, the buyer loses the right to repudiate upon acceptance of the goods (s 15(4)).

Under s 38, if the buyer has not previously examined the goods, there is no acceptance unless and until the buyer has had a reasonable opportunity to examine them. However, under s 39 a purchaser has accepted the goods once (1) the seller is notified by the buyer of acceptance, (2) the goods are used in a manner inconsistent with the seller’s ownership (e.g. reselling the goods to a third party), or (3) the goods are retained without being rejected within a “reasonable time”.

The court determines a reasonable time for inspection and possible rejection by looking at all the circumstances surrounding the transaction.

b) Damages for Breach of Condition

As mentioned above, the innocent party has a choice in the face of a breach of condition. They may:

Accept the repudiation, terminate the contract, and sue for damages right away. In this scenario the buyer is no longer responsible for their obligations under the contract; or
If they have a legitimate interest in doing so, may affirm the contract, wait for the date of performance, and sue for damages for any defect in performance at that date. In many cases involving one-time sales, the performance date will be contemporaneous with the date of the payment/delivery/breach, rendering this a moot point.

In deciding whether or not to affirm a contract in order to assess damages at a later date, the client should consider the implications of their duty to mitigate the loss. In a sale of goods, purchasing the goods from someone else can often mitigate damages because generally, no special interest exists in purchasing the particular goods from a particular vendor, so any substitute should suffice.

c) Specific Performance

If an aggrieved party does decide to affirm the contract, specific performance may be available for a contract of sale for specific goods. Specific performance is a court order compelling performance of a contract in the specific form in which it was made (SGA, s 55). In certain circumstances, it may be available at common law for unascertained goods (Sky Petroleum Ltd v VIP Petroleum Ltd, [1974] 1 WLR 576, [1974] 1 All ER 954). Specific performance is a discretionary (for judges to award) equitable remedy and will only be granted if damages are inadequate; for example, where the goods are unique or otherwise unavailable. According to s 3(1)(c) of the Small Claims Act, RSBC 1996, c 430, Small Claims Division of the Provincial Court of British Columbia can grant specific performance in an agreement relating to personal property (e.g. not real property like land or real estate).

4. Rescission

The remedy of rescission seeks to undo a contract and is available for misrepresentation. See 11:IV G. False or Misleading Advertising for a fuller discussion of what constitutes misrepresentation. Rescission is an equitable remedy that sets the contract aside and seeks to restore the parties to their original, pre-contractual positions. This usually means return of the goods and return of any payment made. Because it undoes the contract, no damages in contract law can be claimed beyond the restitution necessary to return the parties to their pre-contractual positions; however, damages may be available in tort law, such as for deceit or fraud. Because rescission is an equitable remedy, delay in bringing the action or acceptance of the goods may bar rescission.