Business Relationships

The law also impacts the relationships businesses have with customers at the time of sale (Sale of Goods Act) and thereafter (consumer protection law), as well as with banks, creditors, employees, competitors, the environment, and trading partners around the world. These notes deal with these topics from a high-level perspective given the number of topics, their scope, and space limitations.

Sale Of Goods

Contracts for sale of goods are the most common type of contract. The purpose of the Sale of Goods Act was to codify the vast amount of case law that had been generated in this area.144 Freedom of contract is preserved since the parties may come to their own terms. However, the Act sets out the terms that will be implied in a contract of sale in the absence of an express agreement to the contrary. In other words, the Act provides a set of default rules. These notes will refer to the Ontario Sale of Goods Act. The statutes in the other provinces are almost identical.

Application of the Sale of Goods Act

The Act applies only to a sale of goods for money as described in Figure .

Figure: Definition of a Sale of Goods

When goods are sold together with services, the courts will determine whether the essence of the contract was the performance of a service or a transfer of goods.

Ontario, British Columbia, Manitoba, and New Brunswick do not require a contract to be in writing if the price exceeds a certain amount. In other jurisdictions, the price generally ranges from $30 to $50; in the Yukon, it is $1,000.

Passing of Property

An important implied term is the passing of property. Property passes when the ownership or title in goods is transferred from the buyer to the seller. Difficulties arise when the seller of the goods still has possession or physical control of the goods. The Act provides rules for determining when property passes under five situations, as delineated in Figure. These rules are important for three reasons: 1) they affect remedies available for breach; 2) the buyer may have to prove that he or she owns the goods in the event that the seller goes bankrupt; and 3) risk for loss or damage to the goods passes with the property unless the parties agree otherwise.

Figure: Rules on Passing of Property

Implied Contractual Obligations of the Seller

The Act distinguishes between conditions, or essential terms, and warranties, or minor terms. Breach of a condition allows the injured party to repudiate the contract and obtain release from any further obligations under it. Breach of a warranty allows only the possibility of recovering damages.

The Act implies three types of terms: those regarding 1) the seller's title, 2) the nature of the goods, and 3) delivery and payment.

Seller's Title

1. The seller has the right to sell the goods.

2. The buyer will enjoy quiet possession of the goods.

3. The goods will be free from unknown liens and encumbrances to any third party.

Nature of Goods

1. Goods sold by description will conform to that description.

2. Goods sold by sample will correspond with the sample in type and quality.

3. Goods will be of merchantable quality, that is, a reasonable person would buy them without a reduction in price despite knowing of their imperfections. This applies only if the seller normally deals with those sorts of goods. If the buyer has examined the goods, it does not cover defects that he or she should have noticed.

4. Goods must be fit for their intended use. This applies when the seller normally deals with those sorts of goods. When the buyer makes known to the seller the particular purpose for which the goods are required and relies on the seller's skill or judgment, the goods will be suitable for that purpose. This does not apply when the buyer requests a product by its patent or trade name.

When it comes to quality and fitness for use, the buyer is, to a certain extent, subject to caveat emptor (“let the buyer beware”). If he or she has had an opportunity to examine the goods, it is assumed that the buyer can and should determine the quality and fitness for his or her purpose.

Delivery and Payment

1. Delivery and payment should occur concurrently.

2. Time of delivery is a condition, but payment is a warranty. Hence, while the buyer may be entitled to discharge the contract if delivery is late, the seller will be entitled to sue for damages only if payment does not occur promptly.

3. Delivery normally occurs at the seller’s place of business.

4. The goods delivered will conform to the contract.

Contracts may contain clauses that exempt the seller from certain implied terms. However, such clauses are strictly interpreted against sellers and cannot be used to such an extent that the seller can default without penalty or harm.

Remedies

There are four general remedies and some

specific remedies for an unpaid seller, as described in Figure.

Figure : General Remedies under Sale of Goods Act

Specific Remedies for an Unpaid Seller Remedy