Seller Beware: Ontario Court of Appeal on Requirements to Exclude Statutory Warranties and Conditions

April 19, 2022

Written By Ranjan Agarwal, Ilan Ishai and Ethan Schiff

The Ontario Court of Appeal recently released Pine Valley Enterprises Inc v Earthco Soil Mixtures Inc [Pine Valley], which reminds businesses that all sales of goods are subject to warranties and conditions under the Sale of Goods Act unless there is explicit, clear and direct language to the contrary.

In Pine Valley, the Court of Appeal reversed a trial judge's decision dismissing a claim for breach of the statutory condition that the goods correspond to their description (under section 14 of the Sale of Goods Act). Pine Valley bought topsoil from Earthco that did not meet the compositional specifications of sand, silt and clay described in the contract, and sued on the alleged breach. The trial judge determined though that the parties had agreed that Pine Valley needed to make objections about the soil before it left Earthco’s facility. In other words, the agreement of purchase and sale provided Pine Valley with the opportunity to test the topsoil, and also provided that Earthco would "not be responsible for the quality of the material once it [left the defendant's] facility." Having made this finding, the trial judge dismissed the claim because Pine Valley did not make a timely objection.

In reversing the trial judge's decision, the Court of Appeal reminds us that "explicit" and "clear and direct" language is needed to oust application of Sale of Goods Act conditions and warranties. Among other things, clauses that exclude statutory "warranties" will not also exclude statutory "conditions." Following this approach, the Court of Appeal held that the contract's reference to Earthco not being responsible for "the quality of the material" once it left Earthco’s facility did not provide explicit, clear and direct language to oust the statutory condition that the product supplied would correspond to the contractual description. It followed that the trial judge's determination that the parties intended to absolve Earthco of liability once the product left Earthco’s facility was not enough to override the applicable warranties.

In coming to this decision, the Court of Appeal held that whether the agreement at issue provided the essential explicit, clear and direct language excluding application of the Sale of Goods Act was a question of law. So it was not subject to the deference generally afforded to a trial judge's contractual interpretation. Going forward, it also means that similar disputes may properly be adjudicated without a trial by a motion for summary judgment or motion to strike the claim.

More generally, Pine Valley serves as a strong reminder of the importance of using precise language in agreements of purchase and sale to the extent that the parties do not wish to include warranties and conditions implied under the Sale of Goods Act. Broad language generally suggesting that the parties intend to limit seller liability may not suffice. Vendors in particular should review their sales agreements to ensure appropriate language is used.

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