Sections 14 and 15 of Ontario’s Sale of Goods Act (SGA) imply into every contract of sale certain conditions: fitness for purpose, merchantability and, if sold by descrpition, that the goods correspond with the description. While these conditions are implied, s. 53 of the SGA permits parties to contract out of these and other provisions of the SGA, provided they do so through one of several ways, one of which is an “express agreement”.
In Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., the Supreme Court of Canada clarified the requirements for showing that parties to a contract for the sale of goods have expressly contracted out of a statutorily implied condition under section 53 of the SGA and equivalent provisions in other provinces. While the decision does not involve a class action, it is instructive because many product liability class actions allege a breach of implied warranties and conditions pursuant to the SGA.
Writing for the majority, Justice Martin explained that exclusionary clauses should be considered using modern contractual interpretation principles, focusing on the objective intention of the contracting parties. As a result, the term “express agreement” in section 53 does not necessarily require the use of “express language” for parties to contract out of statutorily implied conditions.
Background
Pine Valley Enterprises Inc. (Pine Valley) was a contractor remediating a residential area that experienced basement flooding. It subcontracted with Earthco Soil Mixtures Inc. (Earthco) to help replace topsoil at the site urgently pursuant to a purchase order negotiated directly by the parties, without the assistance of counsel (Purchase Order).
Earthco advised Pine Valley to allow time for the topsoil to be tested to confirm its agreed-upon specifications before its delivery, rather than relying on older lab reports. However, Pine Valley wanted the topsoil to be delivered urgently. Earthco, therefore, added two clauses to its standard purchase order to note that Pine Valley “has the right to test and approve the material at its own expense at our facility before it is shipped and placed” and that if Pine Valley “waives its right to test and approve the material before it is shipped, Earthco Soils Inc. will not be responsible for the quality of the material once it leaves our facility” (Exclusionary Clauses).
After the topsoil was delivered, testing revealed that it did not match the chemical properties specified by the parties in the Purchase Order. Pine Valley sued Earthco for breach of contract, arguing, among other things, that the Exclusionary Clauses did not displace the specific statutory condition under the SGA requiring that the topsoil correspond with the description in the prior lab reports.
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