Supreme Court of Canada digs up the dirt on the Sale of Goods Act

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

The Supreme Court of Canada issued a decision at the end of May, 2024 in a case about topsoil.  Of course, the case was not only about topsoil.  Topsoil just happened to be the subject matter of the contract at the heart of the dispute between the parties.  The Supreme Court chose to hear the case because it involved important questions about contracts for the sale of goods and the statutory conditions that are implied through legislation to form part of those contracts.

With the exception of Quebec, all Canadian provinces and territories have a statute governing the sale of goods that is modelled on a 19^th-century law from the United Kingdom – the Sale of Goods Act, 1893.  That UK legislation codified common law (judge-made, non-statutory) that had developed in the English courts throughout the 19^th century.  Passed down to Canadian law were three implied obligations that certain sellers of goods can owe to buyers related to the characteristics or properties of the goods sold even though the contract between seller and buyer might not mention the obligations: 1) fitness for purpose (that where the buyer makes known to the seller the particular purpose for which the goods are to be used, the goods will be reasonably fit for the purpose); 2) merchantability (that the goods sold by description will be of “merchantable” or reasonable quality and fit for sale in the usual course of trade); and, 3) correspondence with description (that goods sold by description will match the seller’s description of the goods). 

According to the Supreme Court in its recent decision, those implied obligations were likely imposed by judges to relieve buyers from the harsh effect of the law of “caveat emptor” (buyer beware) that left all of the risk related to the characteristics or properties of the goods on the buyer where the contract was silent on those matters.  In Ontario, the Sale of Goods Act contains the three implied obligations of fitness for purpose, merchantability and correspondence with description and makes them implied “conditions” rather than “warranties”.  Contractual terms are “conditions” where they are fundamental to the contract: breach of a condition would give the buyer the right to reject the goods from the seller.  Contractual terms that are not fundamental to the contract are “warranties”: breach of a warranty would give the buyer a claim for damages but would not entitle the buyer to reject the goods.  Where a condition is breached, the buyer would actually have the option to reject the goods or keep the goods and sue for damages (as if a warranty had been breached).

In the case that went to the Supreme Court, the issue was whether or not the parties to a contract for the supply of topsoil had “contracted out” of the implied condition in the Sale of Goods Act that the goods sold by description correspond with the description.  Parties don’t have to leave the implied conditions in place – they can use express language in their agreement to say that the implied conditions will not apply.

The buyer in the case was engaged by a municipality to remediate flooding in an area, which involved the removal and replacement of topsoil.  The buyer needed topsoil with a specific composition in order to provide the drainage required to solve the flooding problem.  The topsoil was sourced from the seller on the basis of the seller’s description, which included laboratory reports based on topsoil samples taken six weeks prior to the eventual delivery of the soil.  Although the seller warned that updated test results should be obtained, the buyer had missed project deadlines and wanted immediate delivery of the soil to avoid paying damages to the municipality.  The seller and the buyer agreed to go ahead with the transaction and delivery of the soil, but with exclusions of implied conditions.  The buyer would have the right to test and approve the topsoil before it was shipped to the site, but if the buyer waived that right the seller would not be responsible for the quality of the topsoil once it left the seller’s facility.

It turned out that the topsoil delivered had substantially more clay content than indicated by the earlier test results.  The soil didn’t drain the way it was supposed to and ponding developed on the project site, forcing the buyer to remove the topsoil and replace it with new topsoil that would drain properly.  The buyer sued the seller for damages claiming that the seller failed to deliver topsoil that had the composition of the soil shown in the test results that had been provided.

The majority of the members of the Supreme Court (there was one dissenting opinion) sided with the seller, finding that the parties had contracted out of the implied “correspondence with description” condition in the Sale of Goods Act.  Although the exclusion language used by the seller and buyer in their contract referred to “quality”, which is arguably something different than the matching of “identity” between the description of the soil (the test results) and the soil as delivered, the Supreme Court found that the buyer had chosen deliberately to assume the risk of not having further testing carried out on the topsoil before delivery.  The use of the word “quality” in the exclusion clause didn’t allow the buyer to avoid the objective intention of the exclusion clause – that the seller was not to be held liable for any claim relating to the topsoil.

Read the decision at: 2024 SCC 20 (CanLII).

 

The Mythical Inoperable Tractor

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

This month’s article doesn’t have much to do with farming, but I couldn’t pass on the opportunity to share a farming-related analogy at the centre of a recent impaired driving case.  A “mythical inoperable tractor” served as the basis for the initially (but not ultimately) successful defence of the charge. 

The facts of the case are simple.  A driver was involved in a single motor vehicle accident in the early morning hours one day in December, 2019 in the City of Toronto.  The sound of the accident had been overheard by a witness who happened to be walking home at the time. When that witness arrived at the scene, he found a vehicle stationed under a streetlight and off the travelled portion of the road and noted that the vehicle was not running and had its four-way flashers engaged.  There was a man behind the wheel of the vehicle and there was a female present outside the vehicle.  The witness did not see the accident and there were no other witnesses who had seen any accident. 

The man in the driver’s seat was arrested for impaired operation of a motor vehicle on the basis of two breath samples showing his blood alcohol over the legal limit.  At his trial in June, 2022, the accused did not call any evidence or testify in his own defence.  Instead, he relied on an expert report that was entered into evidence with the consent of the Crown.  The expert report confirmed that the accused’s vehicle was completely inoperable at the time it was discovered and was immobile.

The accused was acquitted at trial.  The trial judge accepted that the vehicle was inoperable and immobile when the accused was found sitting in the driver’s seat with a blood alcohol level above the legal limit.  There had been an accident, but it was not proven beyond a reasonable doubt that the accused was driving the vehicle at the time of the accident.  The accused was found sitting in the driver’s seat and could be found to have had the “care and control” of a “conveyance” necessary to support a conviction for impaired driving.  However, the trial judge ruled that “care and control” of a “conveyance” had not been proven beyond a reasonable doubt in spite of the following presumption set out at Section 320.35 of the Criminal Code: “In proceedings in respect of an offence under s. 320.14 or 320.15, if it is proved that the accused occupied the seat or position ordinarily occupied by a person who operates a conveyance, the accused is presumed to have been operating the conveyance unless they establish that they did not occupy that seat of position for the purpose of setting the conveyance in motion.”

The trial judge likened the situation to that of the “mythical inoperable tractor” found in the middle of a farmer’s field: could an individual seen drinking alcohol in a rusted-out old tractor with no windows or tires be convicted of impaired driving?  Would it not be unreasonable to convict where there was no realistic or even speculative risk of danger and no evidence of intent to put the tractor in motion?  The trial judge accepted that where it had been proven that a vehicle was inoperable and immobile and posed no apparent danger to the public, and there was no evidence of an intent on the part of the accused to drive the vehicle, the presumption in Section 320.35 of the Criminal Code did not provide the “care and control” of a “conveyance” necessary for a conviction.

The acquittal of the accused was appealed by the Crown to the Superior Court of Justice.  On appeal, the acquittal was overturned and the matter remitted to the Ontario Court of Justice for a new trial.  Although the appellate judge saw some “appeal” to the accused’s argument (and the trial judge’s reasoning) about the “mythical inoperable tractor”, the judge found nothing in the language of Section 320.35 of the Criminal Code that suggests that the presumption of “care and control” can be rebutted simply by establishing that a vehicle was inoperable and posed no risk to public safety.  The definition of “motor vehicle” in the Criminal Code does not exclude an inoperable vehicle.  If Parliament wished to make such an exclusion, it could through an amendment to the Code. 

What the trial judge got wrong in his decision was that there was an onus on the accused to show that he was not sitting in the driver’s seat “for the purpose of setting the conveyance in motion.”  It was not for the Crown to prove the intention; it was for the accused to prove the absence of an intention to drive the vehicle.  As the accused called no evidence at trial (save for the expert report that went in on consent), there was no evidence of an absence of intention.  The “mythical inoperable tractor” got the accused part way in rebutting the presumption of “care and control” of a “conveyance”, but not far enough.

Read the decision at: 2024 CanLII 24885 (ON SC).

Get on with your deal or lose the farm

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

A recent decision of the Ontario Superior Court of Justice tells a sad tale of sisters fighting over the family farm.  The 100-acre farm with a two-storey farmhouse and bank barn had been in their mother’s family since the 1920s.  By the time the father died in the late-2000s, the mother was living in a long-term care home, incapable of managing her property.  Her four daughters held power of attorney for property, but could not agree on how to manage the property including the farm.  For five long years, the sisters engaged in “bitter litigation”, launching court actions back and forth.

Things looked up by the end of 2015 when the sisters resolved their litigation through Minutes of Settlement.  They agreed to structure their mother’s property so that it would be divided equally among the sisters consistent with the wording of their mother’s will.  With respect to the farm, though, the will and a codicil to the will directed that the farm not be sold for one year after the mother’s death “to enable one or more of my children to find a way to keep it in the family, failing which the farm shall be sold and the proceeds shall form a part of the residue of my estate. It is my fervent wish that my children will assist one another in ensuring that, if at all possible, the farm will remain in the ownership of one or more of them.”

The sisters’ mother passed away in late-2020, triggering a countdown of sorts towards dealing with the farm property.  By the mother’s date of death, the farm was valued at approximately $1.9 million.  However, in 2014, the farm had been appraised at $890,000 and the sisters had already agreed in their Minutes of Settlement that two of the sisters would pay the other two sisters $422,750 for the farm (being one-half of the $890,000 less $44,500 real estate commission).  Each sister was entitled to one-quarter of the value of the farm property.  Title to the property was to be transferred to the purchasing sisters by a closing date to be the later of a date in February, 2016 and the date on which certain of the mother’s investment assets were to be disbursed.

The farm transaction was not completed in February, 2016.  By March, 2018, the transaction had still not been completed.  The selling sisters wrote to the purchasing sisters stating: “the agreement was not intended to extend over a period of time and needs to be fulfilled”.  They set a deadline of April 15, 2018 for completion of the deal failing which they would conclude that the purchasing sisters didn’t “intend to fulfill the Minutes of Settlement” and would “take the appropriate course of action.”

Fast-forward to 2022 and the purchasing sisters commenced a court application asking the Court to order that they could pay $422,750 to the selling sisters and that the selling sisters would have to transfer to the purchasing sisters title to the farm.  Again, as at the time of the mother’s passing in 2020, the farm had been valued at about $1.9 million – a $422,750 purchase price would represent a discount on the 2020 value of the farm of more than 50%.  It was the court application brought by the purchasing sisters that culminated in the recent Superior Court decision.

Madam Justice C. D. Braid heard the application and concluded the following: 1) the Minutes of Settlement were a contract between the sisters; 2) the purchasing sisters “repudiated” the contract by failing to complete the transaction with the selling sisters; and, 3) the selling sisters accepted the repudiation of the contract, bringing their agreement to accept $422,750 in exchange for the farm to an end.  As such, the purchasing sisters were no longer entitled to purchase the farm pursuant to the terms of the Minutes of Settlement.

While the purchasing sisters had never expressed an intention not to complete the transaction as required by the Minutes of Settlement, Justice Braid found that the purchasing sisters’ “extreme delay” meant they repudiated (or disavowed) their contract with the selling sisters.  Where a contract contains sufficiently clear terms about price, the property, and the parties, the Court will infer that the parties expect a transaction to be closed “within a reasonable period of time”.  Where a contract doesn’t stipulate a specific time of performance, the law implies a term that the contract is to be performed “within a reasonable time”.  Where delay in performance “becomes so long as to go to the root of the contract”, the contract will be considered repudiated or fundamentally breached and the party suffering the delay will be excused from performance.

Faced with repudiation of the Minutes of Settlement by the purchasing sisters, the selling sisters could have chosen to keep the contract alive and have sought to enforce the deal.  However, it was their option to accept the repudiation and end the contract.  With the Minutes of Settlement now unenforceable, Justice Braid ordered that the family farm be sold on the open market and the net proceeds from the sale be divided equally between the sisters in accordance with their mother’s will.  Her Honour did specify that the purchasing sisters were not prohibited from making an offer to purchase the farm once it was listed, but the purchasing sisters had lost the opportunity to buy the farm at the 2014 price.

Read the application decision at: 2024 ONSC 603 (CanLII).  

UPHELD ON APPEAL: 2024 ONCA 791 (CanLII).