A recent Supreme Court of Canada case, Earthco Soil Mixtures Inc. v Pine Valley Enterprises Inc.(Earthco), clarifies when buyers and sellers can agree to different terms than those required by sale of goods laws.
WHAT ARE SALE OF GOODS LAWS?
All Canadian provinces and territories, except for Quebec, have sale of goods laws – see, for example, The Sale of Goods Act (Saskatchewan). Those laws provide important protections for buyers, including requirements that the goods are fit for their intended purpose, of reasonable quality, and as described. But what happens when a buyer and seller want to agree to something different in their contract? The Supreme Court of Canada answered this question in Earthco .
THE EARTHCO CASE: BUYER WAIVED RIGHT TO TEST TOPSOIL COMPOSITION
In Earthco, the buyer purchased topsoil for a flood remediation project. The project had specific requirements for the topsoil makeup, so the seller initially provided lab reports confirming it met those standards. However, the buyer delayed taking delivery for six weeks. To address the risk that the topsoil composition may have changed during that time, the seller added two key provisions to the contract:
6) [The buyer] has the right to test and approve the material at its own expense at our facility before it is shipped and placed. Please contact [the seller] to arrange.
7) If [the buyer] waives its right to test and approve the material before it is shipped, [the seller] will not be responsible for the quality of the material once it leaves our facility.
The buyer signed the contract with those added terms – and ended up having to remove and replace the topsoil when its composition proved deficient.
SIMPLE LANGUAGE CAN OVERRIDE SALE OF GOODS LAWS
In the resulting lawsuit, the Supreme Court of Canada ruled in favor of the seller. The Court found that in agreeing to the provisions the seller added to the contract, the buyer had clearly accepted the risk of changing topsoil conditions.
Crucially, the Court stated that parties do not need to reference specific laws to override the default sale of goods requirements. Clear language showing the intent to agree to different terms is sufficient.
THE TAKEAWAYS: UNDERSTAND YOUR RIGHTS AND OBLIGATIONS, MANAGE YOUR RISKS
- Sale of goods laws give buyers and sellers rights and obligations.
- Buyers and sellers can agree to different rights and obligations than those set out in sale of goods laws – if the contract language clearly conveys that intent.
- To protect their interests, buyers and sellers must know their rights and obligations under sale of goods laws, and thoroughly negotiate and review contract terms. Leaving the statutory terms in place, or contracting out of them, can change which party bears the burden if issues arise with the goods.
Do not let assumptions put your business at risk. Experienced legal counsel can help you ensure your agreements clearly reflect your intentions and can help you understand and navigate your options if a dispute arises.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.