Sale by keara

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                        Sale Summary – Fall 2000, Prof. Jobin

INTRODUCTION
A. Evolution of Modern Sales
   The Anglo-Canadian Position
                                                   th            th
     Sales law is mainly a product of the late 18 & early 19 C developments, prompted primarily by the
        industrial revolution.
     The Act was "to reproduce as exactly as possible" the existing law of sales, which led to the enactment
        of the UK Sale of Goods Act, 1893.
     The British Act was copied throughout the common-law Commonwealth, including all common- law
        provinces in Canada, with Ontario adopting in 1920 although some significant changes came about
        slowly
   American Sales Law
     The differences between the US and UK acts are mainly the Wide definition of warranty (US), the
        Unitary classification of terms (US), the Different regime of buyer remedies and the Treatment of
        documents of title
     All the states eventually adopted the Uniform Commercial Code. The UCC has a much wider
        scope – the provisions are broader which allows the law to change and not be stuck on details.
   Note on Codification and Sources of Sales Law
     Con codification:
         Incompatible with "free" spirit of common law
         Freezes growth and responsiveness to changing conditions - particularly important for
            commercial law
         It deals only with sales of goods but not with similar products
     Pro codification:
         Certainty & predictability are as important as flexibility (the c/l was a mess for a non-lawyer)
         busy practitioners shouldn't need to plough through pages of frequently conflicting decisions to
            ascertain the law
         The Act provides for default terms so you don‟t have to spell out everything in the K.
         In a federal system and on an international level, meaningful uniformity can only be achieved by
            uniform legislation
   Interpretation
     For what is not touched by the Act, the rules of c/l K apply
     Bank of England v. Vagliano Bros, [1891] AC 107
         Lord Herschell expressed the opinion that case law prior to codification is irrelevant.
             The proper course is to determine the statute's "natural meaning" without regard to prior law,
                then assuming that the statute probably intended to leave existing law unaltered, to see if the
                words of the enactment bear an interpretation in conformity with this view.
     So look at words (regular meaning), then at the case law when ambiguities
   The ratio in Vagliano is more often breached than followed: see Ashington Piggeries, Harwick Game
    Farm, Cehave NV.
   SGA provisions are presumptive and can be eliminated or modified by express agreement or by usage (s.
    53) - therefore the course of dealing and usage of trade are important sources in determining the
    agreement between the two parties.
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B. Civil Code and Statutes
   Sale is a mix between nominate and innominate K

1. Sources of law for K of sale

   CCQ:
     In book of obligations, in the section on nominate K
     General rules for all K obligations – ex. Promise to sell, offer and acceptance 1398 ff.
     1794: K of sale for residential premises – incorporates by reference the regime of warranty from K of
      enterprise
     integrative interpretation of CCQ – be consistent with other nominate K

2. Relationship between statutes and code

   Common law: statutes have precedence over cases
   Civil law: preliminary provision
     In harmony with the QC Charter, general principles of law
     Lays down the jus commune
     Code is the foundation – have other laws that complement or make exceptions
     If there is a clear conflict, the Code loses – ex. consensual K are formed by mere consent and have no
        form requirements but for K of sale, consumer law states that it must be written and there are formal
        requirements

Part 1: Consumer Ks
A. General Remarks
   1960-70 era of consumerism
     Concern with hidden costs, etc.
     Problems with itinerant merchants i.e. door to door salesman, cheap products, misrepresentations,
        etc.
     Demand made by interest groups - Association of Consumers, Ralph Nader.
   First Consumer Protection Act in Ont. in 1966.
   In 1974, Business Practices Act.
   In QC, 1971 QCPA, amended several times and so comprehensive it is considered a model for the rest of
    Canada. It falls short of being a code. France actually has a code.
   1980s there was a stabilization and standardization – consensus on part of businesses (live by the rules)
    and consumers (we are protected)
   In the 1990s, the crisis in public budgets has caused harm to the QCPA, less money for the enforcement
    mechanisms. Went from 14-2, now back to 5 inspectors.
     2 big battles successful – breast implants and cigarettes

1. Problems of market economy

   concentration of industry and distribution chains
     pervasive effects on consumers include loss of bargaining power, K of adhesion and standard form K
       reduce ability to shop around and compare, tricky advertising, concealing of part of costs of
       bargaining, repossession by force, conditions for warranty, increased interest rates for low income
       classes, disparity of resources between consumers and merchants
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CCQ:
   1377: general rules of the chapter apply to all K, regardless of nature
   1384: definition of consumer K
   1432: in case of doubt, interpretation in favour of person who Ked the obligation (debtor), but if the
    purchaser is a consumer, then it is interpreted in favour of the consumer (broadly)

QCPA:
   2: Act applies to all K between consumer and merchant in the course of business for goods or services
   5: Act does not apply to K of insurance, for gas and electricity, for telecommunications
   6: Act does not apply to securities or immovables
   17: K interpreted in favour of consumer
   261: Can‟t derogate from the Act
   262: unless otherwise provided for by the Act, consumer can‟t renounce her rights

OCPA:
   1: definitions
   33: Act applies despite agreement or waiver to the contrary
   34: (1) definition of consumer sale – K for sale of goods made in the ordinary course of business to a
    purchaser for the purchaser‟s consumption or use (2) implied conditions or warranties from SGA

2. The Development of Canadian Consumer Law

   what binds consumer problems together is the perception that they affect the individual as a purchaser of
    goods and services for his personal use or consumption
   characteristics of consumer problems:
     disparity of bargaining power
     disparity of knowledge concerning the goods and services
     disparity of resources between the 2 sides – ability to obtain redress, ability of supplier to absorb cost
        of defective product
   Issues of protection of consent and fair price – lesion, form and disclosure
   Minimum standards of quality and safety
   Efficiency in vindication of rights – law might held some classes of persons
     Class action – ex. Dow Corning (breast implants)
     Small claims court – mainly used by professionals suing for fees
     Mediation – growing slowly
     Direct recourses to manufacturer
     Punitive damages – exceptional in civil law
   Ex. rent to own Ks.
     K of instalment has restrictions that protect the consumer
     We are now seeing K to rent and then K to buy. The rent is high. There was a case where a TV
        worth $400 went for a total of $1100 over 2 years. In case of default, lessee returns the goods.
     Jobin: disguised instalment sale and should be null as fraud because it does not comply with the
        form. Need to give the law some teeth – punitive damages.
   Reprehensible conduct and undue advantage – false and tricky advertising
   Equity
     Clause of forfeiture of term – need prior notice and court can decide whether it‟s an appropriate
        remedy
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3. Sources of consumer K law

   Statutes:
       QCPA 261-2, OCPA 33, consumers cannot waive their rights at time of formation. Some waivers are
     admitted when a breach has materialized and the consumer knows that she has a right to vindicate.
   All of the CPA can be considered public order (protection), therefore mandatory
      Garcia Transport (SCC)
          QC case having to do with public order of protection (as distinguished from public order of
             direction). Some forms of renunciation are possible.
 General law – civil law:
   CCQ 1432 (interpretation of K), 1435-7 (abusive clauses).
 General law – common law
   Ex. unconscionability

B. Formation
1. Lesion and Unconscionability

 Different in QC and ON.
 In ON, the doctrine of unconscionability has a broad field – Hunter Engineering (SCC, 1989).
   characteristics of unconscionability:
       Unequal bargaining power
       Stronger party takes advantage of the relationship to impose unfair terms
   Not restricted to consumers
   There is also the Interest Relief Act
 In QC, 1405, lesion may be a ground of relief only in cases provided by law. Consumer Ks are one such
  section (QCPA 8).
       1406: legal definition of lesion except where there is a derogation (objective and subjective)
       QCPA uses a different concept of lesion
 In US, UCC allows unconscionability as grounds of relief.
 Public policy considerations:
   The objective is to ensure protection of consent of weaker property.
   Desire to promote equity by providing remedies for unfair prices
   Balanced against sanctity of K. This is the test.

How should we interpret QCPA 8?

Gareau Auto v. CIBC [1989] R.J.Q. (QC. C.A.) – leading case
Facts:
 C purchased a boat from G for $11,144.00, payable in instalments. Respondent Bank financed the
   payments for C.
 After having used the boat only one time, C regretted his purchase.
 Having defaulted on the first three payments, the Bank takes action to reclaim the selling price of the
   boat. C contests this and asks that the K be annulled.
 C claims that he is unable to meet his payments, asks that he be reimbursed for the amount of money
   already paid out and in exchange, he will return the boat to G.
Sup Ct. Holding:
 Judge allowed K to be annulled under ss. 8 & 9 QCPA. concluding that the K was exorbitant and
   excessive based on the fact that it offered no utility to C & was beyond his financial means. Judge
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   rejected the action of the bank, ordered the return of the payments to date and that C return the boat to
   G.
CA Claim:
 Appellant now claims the K should not be annulled based on the fact that there is no lesion. Appellant
   wants banks‟ claim against C to be upheld. C & the bank both claim that the K is lesionary.
Issue:
 Is the K lesionary? Can C have the K annulled under ss. 8 & 9 QCPA?
Holding:
 Yes. K is lesionary and subsequently annulled.
 Boat is considered to be of no use to C and offers no utility. Boat is returned to G.
 Analysis of the limited use of lesion as demonstrated in 1012 CCLC: ss. 8 & 9 QCPA and 1040 CCLC
   are derogations from this article that stipulates that lesion cannot be the sole cause of annulment for
   adults. Furthermore, according to s. 41 IA, a liberal interpretation should be given to ss. 8 & 9 QCPA as
   they intend to remedy abusive Ks and protect consumers.
 S. 8 QCPA: Objective and subjective criteria either of which, if met, is sufficient to prove lesion. Objective
   standard assesses whether or not there is a disproportion in the prestations and “si cette disproportion est
   considérable au point de léser gravement le consommateur.” If the court finds this to be the case, the
   result is an irrebutable presumption of exploitation. Subjective standard is in regard to the state of the
   consumer. The court will assess whether or not the obligation is “excessive, abusive or exorbitant.”
 S. 9 CPA: the subjective standard of s. 8 QCPA (an obligation which is excessive in that it puts the
   person‟s patrimony in peril) is assessed by the 3 criteria illustrated in s. 9 QCPA.
       (1) Condition of the parties: Obliges the merchant to investigate the financial situation (direct
            economic consideration) of consumer at the time of K
       (2) The circumstances in which the K was concluded: The merchant is obliged to inform himself on
            the circumstances surrounding negotiation and conclusion of the K, and not the Kant‟s personal
            life,[UNLESS, the consumer is acting manifestly abnormal] and
       (3) The advantages that result from the K for the consumer: Is the object necessary? Useless? K
            stands a better chance of being annulled if object has no use for the consumer.
 NB: Judge is applying a subjective form of lesion to the facts of this case. There is nothing objectively
   wrong with the K but subjectively speaking, the court found it to be harsh and onerous.
 NB: not many cases where the K has been struck down by QCPA 8.
 Result: merchant must investigate into consumer‟s situation.
 Jobin: judgment goes too far. If the merchant does not investigate, they take the risk. A merchant may
   refuse K except if there is discrimination. Could argue that it would be discrimination based on socio-
   economic situation.

   Alleatory K may not be challenged on the basis of lesion – ex. gambling

   We are not looking for bad faith on the part of the merchant, so a K can be annulled even if the seller was
    in good faith.

2. Form of the K

 A large number of Ks must be in writing, in duplicate, signed, etc.
   QCPA 23 ff and OCPA 19ff
 This requirement is derogation from consensualism, to ensure the well-informed consent of the
  consumer. Here you do not have to prove an error or fault, only the absence of the form.
 The remedy is nullity - QCPA 271, OCPA 19
   We have a grandfather clause, QCPA 271(3), the merchant can avoid nullity if he proves the
      consumer suffered no prejudice. In particular, QCPA 26 provides that the K will be in French unless
      expressly agreed to by both parties.
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3. Disclosure

   Merchants must disclose a certain number of things. In particular, cost of credit.
     QCPA 67-72, 150.1 ff and 150.24 ff (long term leases), 155 ff (label on motorcycle – mileage, repairs,
       accidents).
     OCPA 24-5
     Remedies for breach of disclosure
        Nullity, QCPA 19 and 271 for requirement of form.
        For credit K, in QC the consumer may ask that all costs of credit be annulled (QCPA 271(2)). In
           ON, merchant cannot recover whole or part of the non-disclosed part OCPA 27.
        In QC instalment sales, the consumer may ask that the sale no longer be a conditional sale. In
           other words, the title passes right away – QCPA 135
            Great loss for merchant because they lose their security
        In QC in 1699+, when the prestation cannot be returned, it will be returned in value.

4. Right to cancel, withdraw, rescind

 Based on consensualism
 The right of the consumer to unilaterally rescind without going to court – extra-judicial resolution
   Don‟t have to give reason
   Find this for itinerant merchants
      OCPA 21, QCPA 59
 US calls it the cooling off period.
 Any credit K in QC can be rescinded – QCPA 73, 150.3, 202-203
   Health clubs it is 1/10 the period of the K.

C. Trade Practices
 Some are reprehensible
   Dealt with in QCPA, OBPA
 Prohibited or regulated clauses, exoneration clauses and penal clauses.
   Exoneration clauses - merchant shall not be liable for lateness, etc. Not valid QCPA 10, CCQ 1474,
     1732, 1733, OCPA 33
   Penal clauses
      QCPA 13 suggests they would not be valid, but CA interpreted it narrowly, so now they are valid
         in principle.
          So the only way to challenge is on the basis of abusive clauses 1437 and abusive penalty
             clauses 1621-22. CCQ is not restricted to consumer Ks.
      In ON, no particular rule on penalty clauses, it‟s under the c/l, will not be valid if the penalty
         clause exceeds the amount that would be awarded in compensatory damages.

   When a consumer makes a K, an instalment sale in particular, the merchant will not do the financing
    himself or herself. They will assign it to a finance company.
     If there is a problem with the merchandise, and you would not have paid, wait to be sued and then
       invoke non-performance as a defence.
     Can‟t do this against a third party.
     You then have to sue the merchant, and have a plaintiff‟s burden.
     ON, QC, and the Feds all agree that the claim for the price may not be severed. There can be
       transfer, but it‟s all or nothing. Therefore, you can raise the breach against the bank.
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           OCPA 30-1, QCPA 102-3, Bills of Exchange Act 191 (Fed).

D. Obligations of the Merchant
 Statute often different from general law
   Ex. CCQ, 3 year prescription period, QCPA, 1 year
 But statute doesn‟t affect general laws
   OCPA 34(2), 35, QCPA 270

1. Remedies available – Quebec

Punitive damages: sometimes punitive damages are justified – systematic fraud, systematically committing
prohibited trade practices
 Ex. Jobin v. Therien – J sold cars damaged in accidents. T bought one, it couldn‟t be fixed. $3k
   punitive damages.
 Ex. buys car from GM, financing transferred to GMAC. Car needs repair, takes unduly long time, claim
   short on parts. GMAC keeps collecting payments. Punitive damages.
 Ex. where you have substandard quality and safety. Pinto that explodes when hit on side. Mfr. did not
   fix because costs of paying damages less than fixing the problem.
 Helps vindicate rights. Small claims are a waste of time, money and energy. Getting punitive damages is
   an incentive to sue.
 Need reprehensible conduct on the part of the mfr.
 QCPA 272 lists punitive damages, but makes no qualifications. Available in any case. CCQ 1621 lists
   factors to be considered when computing damages. First, only when allowed by law.
 3 trends:
   1) Now disappeared. Originally gave punitive whenever the merchant was at fault to set an example.
        Jobin feels one must be reasonable, where the conduct is not objectionable, no punitive damages.
        Sometimes you may have breach w/o bad faith.
   2) Fraud or misrepresentation
   3) Clear disregard for the requirements of the law – but awards are small (most in $500-$3000 range).
        Jobin suggests this is insufficient to fulfil the deterrent function. Much higher for breach of QC
        Charter ($1.8M)

2. Remedies available – Ontario

   Business Practices Act 2, 4.
    Deals with false or deceptive representations, nullities, punitive damages
    What is odd is that unconscionability is the basis for punitive damages. So punitive damages are only
     allowed when there is both a misrepresentation and unconscionability. Range of $1000-3000 in
     practice.
 No provision in OCPA, therefore have to apply the general law
   Vorvis. Wrongful dismissal case, where punitive damages were asked for and denied. SCC went on
     to state conditions for punitive damages for breach of K - conduct harsh, vindictive and malicious.
     What is interesting is that it does not affect the lower court decisions that held that when there is a
     breach of K and statute, punitive damages can be awarded.
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E. Obligations of the Consumer
1. Rights and remedies of merchants

 Self-help remedies – seller can take back goods by entering premises and taking away the goods without a
  judgment
 Alleviate financial burdens of consumers
   QCPA 93, OCPA 28 – allow for prepayments
 Forfeiture term (acceleration clause) – if there is default of payment, the merchant can claim the entire
  balance
   In ON, the clauses are valid and operate
   In QC, their enforceability requires prior notice, may involve the court, and also applies for the
      resolution of the K
       Default regime – merchant gives notice QCPA 104 ff. Consumer has 30 days to remedy the
          default (the instalment, not the full amount). If the consumer can‟t pay, the court may intervene.
       Power of courts – judge has great discretion and will take into account what was paid/total debt,
          the value of the goods, the reason for default
           Forfeiture available to merchant
           Change modalities (schedule) of payment
           Consumer may return the goods


Credit Mercedes-Benz v. Champagne [1993] R.J.Q. (QC. C.A.)
FACTS:
  signed a K to lease a second-hand car. Weeks later, having lost his job,  brought car to dealer, since he
   could no longer pay the rent.  sent him a notice of forfeiture of the term and claimed the outstanding
   balance.  said could just return the car by virtue of QCPA 107-109
 Superior court held that 107-109 QCPA did apply, judging the situation of the  was due to external
   factors and that the risk of loss at the moment of resale was low.  claimed that the judgement was
   contrary to correct interpretation of the law.
ISSUE:
 Interpretation of 107-109 QCPA.
HELD:
 trial judgement upheld
 Art. 109 can‟t be interpreted in a manner that compromises credit.
 Law is aimed at protecting the consumer who, following events independent of his will, finds self
   deprived of revenue that he was counting on at the moment of K‟ting the obligation.
 Can‟t return property just b/c of a temporary difficulty or a difficulty resulting from debtor‟s decision.
 However, an unforeseeable situation, as here, generally constitutes an external factor.
 To invoke 109, it is not necessary that making the consumer pay would require total liquidation of all his
   goods. Such an interpretation of „capacity to pay‟ (art.109(e)) would deprive arts 107-109 of their utility.
   (So therefore seems only to deal with the available liquid assets of consumer.)
 The unlikely possibility of selling a movable so heavily hypothecated doesn‟t justify rejection of the
   consumer request. Anyway, risk of loss at the moment of resale is limited.
 Therefore, request of consumer granted taking into consideration the situation of the debtor and an
   analysis of the consequence of returning the good for the creditor.

2. Repossessing goods under instalment sale

   Consumer may default after a few payments, or near the end
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   Consumer may be able to afford smaller payments
   OCPA 23 – if the buyer has paid for 2/3 of the price, then seller must go to court to repossess the goods
   QCPA 139-146 – the threshold is ½ of the price and the seller must five notice
   Judges have been quite fair

PART 2: SALE
A. Nature
1. Scope

History of the SGA
 English Sale of Goods Act of 1893.
 Copied almost everywhere in the Commonwealth, including Canada.
 Used to be very technical, a small breach would land you in trouble
 British made some changes:
    Introduced parallel act dealing with services
    Introduced flexibility
 The Act was redone in 1979. Basically the same with a few changes.
    No Canadian provinces have adopted the changes introduced by British

SGA, 1893
   Movement towards codification in commercial law areas
   The goal of the large number of Acts passed in the 19th C was to make the law accessible, not remedy any
    defects.
   The problem is that it reflects the law at the end of the 19th C, and has not changed much. More nuances
    have been introduced since, and are not reflected in the law.
   There is also a problem, in that the people who drafted it learned their drafting in K, i.e. very precise
    giving the judges as little discretion as possible. The end result is that it works great at first, but prevents
    evolution. It is now viewed as kind of a dinosaur.
   It has been reformed a little, but politics make it fairly difficult. The UK does a lot more as far as reform,
    much more than K.
   The one saving grace is you can pretty much ignore it if you want. All of the substantive obligations can
    by waived by parties.
   What is relevant is the definitions - can‟t really K out of them.
   Note that most of the cases we read are pretty old. Anyone who has the kind of money to litigate it to the
    appeals level, will have K‟d out of the Act.

   You can also K out of most provisions in the CCQ, but not all. This alone makes it a little more
    significant. Also, the parties here will K out less. Jobin: often you will see attempts to K out limited
    provisions, warranty etc, however a blanket K out of the CCQ would not be valid.

Definitions
 1708: Sale is a K between seller, who transfers ownership, and a buyer, who obligates himself to pay for
   the price. Dismemberment may also be transferred by sale.
 2103: K of enterprise. K of sale where the work or service is merely accessory to the value of the
   property supplied.
 Civil law adopts the perspective that different rules should apply for different types of K. Innominate K
   rules apply by default. Nominate Ks are generally not the norm in c/l.
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    SGA 2(1) – Sale is a K whereby the seller transfers or agrees to transfer the property in the goods to the
     buyer for a money consideration. There may be K of sale between one part owner and another.

Who does it apply to?
 Here is the most significant difference between the Civil and c/l. The title of the act is Sale of Goods. It
  was introduced for commercial parties. The Civil applies to immovables and services, etc. Any sale.
  Note that there can be an assignment of claim, which now no longer counts as a sale. There is also a
  question of whether an intellectual property right is a real right, which would mean it was a sale, or a
  personal or sui generis right, which would not be.
 Legislation dealing with consumer sales takes precedence

What sorts of things do they apply to?
 SGA applies to goods (chattels, personal) but not to immovables
 CCQ applies to everything

What sorts of transactions?
 What is a sale? There must be a price, i.e. money. No gifts.
 What about selling below price? Then it is a gift in civil. In the c/l, there is no such thing as a K of gift,
  so it would still be a sale.
 Barter? Not a sale in either common or civil
 Partial barter? Sale in common law. Also, if the value of the goods given in return is specified, this is a K
  of sale. Not a big question in the civil law.

2. Distinction with other Ks

    Lease and K for service (enterprise) are similar
      Lease: make payments over time, ownership does not pass

Helby v. Matthews [1895] AC 471 (HL)
Facts:
 H gave possession of a piano to B. B made monthly payments – if made for 36 mos, B would own the
   piano, but B could terminate the agreement at any time by returning the piano. B pledged the piano to M.
   H tried to get the piano back from M. M said he acquired the piano in good faith.
Issue:
 Did B buy or agree to buy the piano (K of sale)?
Held:
 K of lease.
 To characterize a transaction, we must look at its true substance and not its mere words. "But the
   substance must, of course, be ascertained by a consideration of the rights and obligations of the parties, to
   be derived from a consideration of the whole of the agreement".
    An agreement to buy imports a legal obligation to buy. B was under no obligation to buy. He had an
        option to buy by paying stipulated payments for 36 months. He would have become the purchaser by
        exercising that option.
 The court distinguished this case from Lee v. Butler, where there was an agreement to buy. Although the
   purchase money was to be paid in two instalments, there was an obligation to buy.
 Characterization of the K as an agreement to buy (sale of goods) would have brought it under S.9 of the
   Factors Act. (Ontario's equivalent of S.9 FA is SGA 25(2)) which states that a buyer in good faith can
   keep.
 Smith: doesn‟t agree that the owner should get back the piano. Holding would have been different in
   civil.
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Hire-purchase agreement
 Option to purchase is at the end
 There is no transfer of property until the end, unlike an instalment sale
 If the purchase price is trivial, it is a lease with an option. Economically, it is an instalment sale

   K for service is not a sale in the c/l

Borek v. Hooper (1994), 18 OR (3d) 470 (Div. Ct.)
Facts:
 Sale of abstract painting. Paint cracked after 2 years – suing for failure of merchantable quality
Issue:
 Is this a K of sale or a K of service?
Held:
 K of service
 The criteria to determine if a K is for work and materials or a transaction of sale, is the fact that the
   material is of no importance as compared with the labour and skill involved.
    Here, it is a K for work and materials because it is a work of art.
    However, plaintiff wins on the English c/l implied condition of fit-for-purpose.

B. Formation
1. Miscellaneous

J. Schofield Manuel v. Rose (1975), 9 OR (2d) 404 (Co. Ct.)
Facts:
 Rose retains the services of S for interior decorating. R supplied with 3 estimates. Defendant signs the
   bill, but not the plaintiff. Defendant argues that this was an executory K, which, by virtue of OCPA 19,
   has to be done in writing. )
Held:
 The Court says the Ks are binding. This is not an executory K, which means to be done in the future, but
   was an executed K – so did not have to follow signing req‟t.
 Jobin: narrow view
 The Court twisted the meaning of “executory” because the requirement default would have caused
   something it did not want to cause.
 Reasons for formalities are 1) evidence of the k and 2)cautionary effect (protection of consumer).

Form: generally
 civil law rule of consensualism 1385 – generally does not require a form for a movable
    CCLC – 2 types of lack of consent – no meeting of the minds (don‟t have same object in mind) or
       unable to consent (on drugs…not legal incapacity)
    Jobin: absence of consent will be treated as relative nullity in the future because in CCQ, absolute
       nullity is reserved for cases where the public interest is at stake – 1417.
                                                 rd
    form requirements to be opposable to 3 parties – registration 1455, 2938-41, 2946
 Common law meeting of the minds SGA 4 – written or oral, implied

Form for sale of movables
 usually no conditions to make it opposable
 exception for K that are financing devices – registration is required
 common law: functional approach to determine whether they need to be registered
12
    Civil law: case by case - certain types of sales must be registered ex. 1745
                                          rd
      Could be opposable against 3 parties even when they are not aware of the existence of the K –
         Jobin feels this is not perfect

Form for sale of immovables
 Same as movables 1385
                                                rd
 Form requirements for K to be opposable to 3 parties – 1455, 2938-41, 2946
 Common law requires sale of land to be in writing – Statute of Frauds

Sale of residential immovables
 1785 ff
 protects natural persons if the sale is by a promoter or builder
 K of sale has to be preceded by a preliminary K which contains a promise to buy and a right to withdraw
     Includes anticipated budges and expenses for sale of a unit within something containing at least 10
        units
     Remedy is nullity 1793
 Implicit requirement of form ensures full disclosure and well-informed, free consent
     Implicit because it does not say that the preliminary K needs to be in writing – but requirements can‟t
        really be accomplished without writing. Jobin: case can be made that this is a requirement of form.
 1794 – leg. has imposed on professional vendor/builder/promoter the more onerous guarantees
    contained in the K of enterprise.
     Guarantee against loss, construction defects for 5 years
     Guarantee of good quality of the materials – superior protection under 2103
     Extra-K liability still applies
     Jobin: broad definition of promoter should be used, so that it includes someone who plays a role in
        conception and development of the building
 Preliminary K must include:
     promise to buy - 1785(1)
     stipulation that promisor may withdraw within 10 days of signing – 1785(2)
     indemnity for exercise of this can‟t exceed ½ of 1% of sale price – 1786(2)
     names and addresses of both parties, sale price, work to be performed, delivery date, real rights –
        1786(2)
 1793 – to annul the principal K, don‟t need to go through fraud and error, sufficient to prove serious
    prejudice resulted from the fact that there was no preliminary K
     definition of lesion 1405 ff can be used to prove serious prejudice but Jobin argues that serious
        prejudice is larger than lesion
 undivided or divided co-ownership
     1787 – sale of a fraction of an immovable comprised of at least 10 dwellings, seller is required to give
        buyer a memo of information (1788-92)

Offer and acceptance – civil law
 offer contains all the essential elements of the sale – price and the object
 is there delay? If no, can be revoked at any time prior to acceptance
 if delay, can‟t revoke before expiration
 if no delay given, offer‟s up after a reasonable delay
 acceptance – silence doesn‟t mean anything
 K is formed at the moment and place where the offeror receives the acceptance, irrespective of the mode
   of communication between the parties – 1387
                                                                                                           13
Sale of property on trial
 1744 – presumed to be made on a suspensive condition, which is when the buyer is satisfied with the
    property
 1744(2) – where the trial period is not stipulated, the condition is fulfilled upon the buyer‟s failure to
    inform the seller of his refusal within 30 days after delivery
 don‟t need to expressly say it‟s on trial, look at presumed intention of the parties, convention,
    circumstances, usage
 modify the general regime of sale – ownership isn‟t transferred and the seller has its usual obligations
 buyer is the administrator of property of another charged with simple administration – hold and conserve
    the thing
 when buyer is satisfied, the condition applies retroactively to exchange of consents. When buyer is not
    satisfied, return the prestation
 CCQ doesn‟t address whether the buyer‟s refusal must be reasonable. Mignault says it can‟t be capricious,
    convention says look at usage

Price
 Civil law: price must be ascertained or ascertainable at the time of formation, 1373
 Common law: general principle that price must be fixed at the time of K
     SGA 9 expands on this - price may be fixed by K, or by a method the parties may agree to at the time
      of formation.
     The c/l also refers to the course of dealings, i.e. how the parties have behaved in the past.
 Problem: when you have an agreement that is silent on price, is there a K?
     Beaudoin v. Rodrigue – if only a general rule exists, strike down the K So we have a problem in
      QC, as there are many Ks that rely on the seller to determine the usual fair price. Jobin thinks the
      code should be amended on this point.
     The c/l uses the rule of reasonable price, which may be fixed, by the court SGA 9(2). UCC and
      Vienna Convention use similar solutions.

Beaudoin v. Rodrigue [1952] B.R. 23 (QC. C.A.)
Facts:
 An action was taken by the seller against the buyer to pay for a shipment of molasses. The seller claimed
    to have brought the molasses to the buyer's premises; at which point, the buyer allegedly denied ever
    ordering them. He thus refused to take them. The seller - suing for payment of the goods - brought to
    court a written order form that was signed by the buyer, in an attempt to prove the K. The defendant
    denied the sale of the molasses, claiming the invoice was a forgery from a previous sale/invoice.
Issue:
 This case is illustrative of the minimum requirements re: determinate and determinable, and the impact an
    absence of price can have on Kual relations.
Held:
 The burden - a very difficult burden at that - is on the defendant to deny the signature or the substance of
    the K on which the signature is found. Fortunate for the defendant that the court believed the defendant
    and the court therefore did not have to get into all of this.
 The court read the order form and observed that the element of price was missing from the invoice. No
    price was specified, therefore, it was held that no K existed. If there is no evidence of a stipulated or
    determinable price, then there cannot be a K of sale. The court cannot imply a price.
14
Côté v. Bouchard [1995] R.J.Q. (QC. Sup. Ct.)
Facts:
 B undertook to build an old age home. He wanted to sell once construction finished. Gives right of first
   refusal to C. B realizes he can get more for the property. Sells it to his company C brings action to get
   title.
Issue:
 Can C get interlocutory injunction?
Held:
 Criteria for interlocutory injunction: apparent sufficient right (serious question), suffer irreparable harm or
   inadequately compensated with damages, balance of inconveniences.
 Prima facie, sale to company of the property was to not comply with the option – therefore can‟t invoke
   separate legal person (317) (corporate veil lifted)
 Price was determined in the option K but B never offered property to C at that price
 Interlocutory injunction warranted in this case

Romanesky v. Romanesky [1989] R.D.I. (QC. C.A.)
Facts:
 Property in question is the family farm. Rsr. had a right of first refusal if Rjr.1 and Rjr.2 sold the property
   to a third party. Rsr argued that when Rjr2 sold his property to his partnership, he should have given Rsr
   right of first refusal. Rsr is asking for resolution of the sale.
Held:
 Breach of K of option to purchase does not lead to resolution of the K of sale. Option creates personal
   rights, not real rights.

2. Promise to sell

 Much more important in the civil law than c/l, especially with respect to sale of goods
 No particular provision in SGA
 CCQ: 1710-1712, 1396-1397
 C/l: promise is an undertaking or obligation
 Civil: promise is an undertaking to make a K
   Agreement: owner of house undertakes to sell to a potential buyer who may or may not undertake to
      buy. A K to make a K – not a sale yet.
   2 kinds of promises:
      1. Unilateral: I promise to sell you my house @ $X for a certain time. You agree with the price, but
           no undertaking. An option is a unilateral promise.
      2. Bilateral: I promise to sell, you promise to buy.
 Distinction between promise to sell and right of first refusal:
   Right of first refusal – if I decide to sell my car, you will have the first chance to buy it. “Seller” is not
      obligated to sell the property.
       May specify the price of the property
       Not the same as a unilateral promise, especially if the price is not indicated. Also, seller can not
           sell the property
       If breached, right to damages – does not give a real right in the property (Romanesky)

Differences between common and civil
 Civil:
    Cause is not consideration.
    Bilateral promises are OK
    Unilateral: cause is the advantage/interest that purchaser has in seeing deal work
                                                                                                               15
 Common:
   Any promise must have consideration to be valid
   Bilateral promise is OK – exchange of promises
   Unilateral promises/options are more problematic – need consideration of some value going both
      ways. Potential buyer doesn‟t have this, but can stretch consideration in some situations (ex. $1 –
      peppercorn)
   Won‟t accept arguments that unilateral promises increase chances of buying, close to legal fiction
 In c/l, the promisee is giving up something, but not in the civil law

Problems with promises:
 Specific to civil law: effect of a promise, especially bilateral or a unilateral promise that has been accepted?
    Unilateral option taken up – A promises to sell car to B for $X. B has y days to decide. B accepts by
      saying “yes, I will buy at those conditions”. Commitment is by both A and B, therefore it is now a
      bilateral promise.
    When an option is taken up, it becomes a bilateral promise. But is it a sale?
       Lively debate under CCLC
       Mignault J – while a Prof., argued that intention of drafters to follow Code Napoleon and CCLC
          was poorly drafted. It is a sale.
       BUT CCLC 1476 doesn‟t say this
       See Therrien v. Arto QCCA 1982 (dissent for Mignault J‟s view)
           Majority: it is a promise, but not a sale. There was no intent to follow French civil code.
       Why does this matter?
           If it is not a sale, then between the date of the promise and the date of the sale there is no
               transfer of ownership. The seller must carry insurance. The seller has no obligations of sellers
               (warrant, latent defects, etc), just the obligation to transfer title in due course.
           If it is not a sale, can‟t be registered. In Therrien, T had registered promise to protect his
               rights. A wanted to strike registration.
           Real estate agent doesn‟t have right to commission until the sale. What happens if the
               building burns down?
           1396(2) – codifies majority in Therrien – undertaking to make the K of sale, it is not a sale
               (rule is suppletive)
                Exceptions:
                    In the instrument of promise, the parties transfer ownership at the time of acceptance
                        of the promise
                    1710: when there is delivery by the seller and possession by the buyer, the promise is
                        tantamount to a sale. Protects 3rd parties who believe that B is the owner of the
                        property and mat be more likely to extend credit.
                         Ex. Baron v. Bergeron
                             Immovable was delivered. Argued that title is deemed to have passed because
                                of this promise and delivery.
                             Held: 1710 is suppletive and can be derogated from
                         Jobin: 1710 should be of public order
    1396(1) – deeming provision. Offer deemed promise in certain circumstances. Note: legal regime of
      offer is not the same as legal regime of promise.
       Offer is a unilateral juridical act – A expresses intention to be bound to sale of X at $Y
       Unilateral promise – A intends to transfer ownership of X at $Y. B consents to X at $Y but does
          not commit to purchase (merely consider it)

   Remedies available when the promisor doesn‟t fulfil the promise
              rd
     If the 3 party is in good faith, there is no reason to disturb the title
16
            Exception – 2938, 2946 give preference to those who register first. 2962 gives preference to
             buyer who riled on the registry in good faith (this art. is being reconsidered)
        Promisee entitled to damages for breach of K (the promise) – both common and civil
        Right to specific performance
          c/l: general remedy for breach of K is damages. Specific performance is the exception, especially
             with fungibles. Specific performance more likely if the object is unique (ex. painting, antique)
          Civil: 1590 is the general rule for remedies. Promisee may choose either damages or specific
             performance. Movables 953 – action in revendication.
        Action in passation of title – 1712
          Ex. Baron
              Constructive – judgment creates the transfer
              Declaratory – if the transfer of ownership has already occurred by means of the 2 exceptions
                 above
              Mistake made by defendant in asking for this remedy
          Specific to immovables (may be invoked for movables, lease, etc)
          Order of the court for defendant to sign the deed of sale (and if defendant is the buyer, then to
             pay the price) within a specified time (30 days). If the defendant fails to do so, the judgment itself
             constitutes title. Judge orders registrar to register the judgment as a deed of sale.
          When is it possible?
              Promise to sell condo that doesn‟t exist – can‟t get this action if the cadastral lot is not created
                 because you need an object to transfer
              KEY: property must still be in the hands/patrimony of the promisor. Good or bad faith of a
                 3rd party is relevant. If there is bad faith (full knowledge)
                  Damages – inducing breach of K (Clairol) 1397(2)
                                                         rd
                  1397(1) – can‟t cancel sale to 3 party even if there was bad faith, can sue for extra-K
                      liability
                       Public policy: stability of immovable transactions. Opposite direction of CCLC where
                           fraud gave court power to resolve the 1st sale between promisor and 3rd party and to
                           award passation of title to promisee.
                  Punitive damages? c/l, OK. Civil, only if QC Charter 49 applies. Peaceful enjoyment of
                      property (6) – some judges interpret this broadly, but CA tends to reject this approach.
        Interlocutory injunction – 752 CCP

Therrien v. Arto [1981] CA
Nature of action:
 Motion for the radiaton of the registration of a promise of sale
Parties:
 A prospective buyer ("T."), a seller ("A."), and a real estate agent ("R.") acting on behalf of A.
Facts:
 T K with R. (the real estate agent) to make on offer on the hotel. T. then signs an offer to purchase,
   prepared by R. (on A.'s behalf).
 R. then makes a counter-offer specifying, inter alia, the delay for acceptance by T. T. accepts and signs the
   counter-offer.
 A Claims never to have seen the signed counter-offer. A. accepts another offer from a third party. T.
   hears about the second offer and registers his acceptance (the signed counter-offer).
Issue:
 Whether offers could be registered. In other words, what is the legal effect of the acceptance of offer to
   sell/buy?
Held:
 Registration is invalid and therefore radiated. Pare J. dissents.
                                                                                                              17
 In respect of the legal nature of the offers, both judges agree that T.'s acceptance of the counter-offer did
  not convey any real rights in the property to T. They concede, however, that his acceptance may have
  given him the right to become the eventual owner and therefore conveyed a personal right. The counter-
  offer accepted by T is not a K of sale but a promise to sell/buy. Since the offer did not convey title, it
  may not be registered. In support of this conclusion, Montgomery J. cites the Court of Appeal's decision
  in De Rosa v. Dupuis, which stands for the proposition that a synallagmatic promise is not tantamount
  to a K of sale and therefore does not convey real rights.
 Pare, J. (dissenting)
   Once a promise of sale is accepted, the beneficiary of the promise has a real right in the property. A
      distinction is drawn between:
       a promise which has not yet been accepted ("un simple avant-contrat generateur de droit
            personnel seulement") and
       a promise which has been accepted, in which case a K is formed obliging one party to buy, and
            the other to sell. That the "sale" may be imperfect and be subject to a suspensive condition (i.e.
            the signature on the deed of sale) matters little. Once the offer has been accepted, the beneficiary
            holds an eventual real right in the property, a right which may be registered.
   Argues that if A. now seeks to radiate the registration, it is because A. wants to frustrate T.'s rights
      and sell to a third party which has offered A. more money for the property. T.'s registered right in the
      hotel is therefore opposable to the second buyer.

Baron v. Bergeron (1997) CQ
Facts:
 1 Sept., both parties sign promise of sale K – plaintiffs promise to buy mobile home for $25K. Also,
   defendant signs an agreement where he promises to sell the home and has received $2K towards the
   purchase.
 Plaintiffs are asking for resolution of the sale K, defendant wants passation of title.
Held:
 Plaintiffs can‟t rely on 1738 to have the K resolved as they didn‟t send a notice in writing to the
    defendant.
 Defendant‟s claim for passation on title – he gave notice to the plaintiffs. But in order to get the remedy,
    he also has the obligation to offer the other party, for signature, a K of sale that reflects the promise to
    sell and the intention of the parties. He did not do so, therefore, the remedy is unavailable to him.
 The promise to K is not the same as the ultimate K 1396. But 1710 – promise of sale K with delivery and
    possession is equivalent to sale (this presumption was rebutted in this case)

C. Transfer of Ownership and Risk
1. Transfer of ownership

 Technical subject
 Important to know when title passes. The person with title can go over all other creditors.
 Risk usually accompanies ownership
 Cases are not usually about the actual passing, they are about the consequences of passing the property,
  like who bears loss to fire, etc.
 This is a confusing area, because cases are often result oriented, without much theoretical consistency.
  US tries an issue oriented approach. They don‟t ask who has title, they look at who should get it in the
  end. Usually pre-paid buyers will win. In Canada they will usually lose. This is all in the UCC 2.
 The rules are applied more neutrally when there is a creditor situation. In those cases, who should win is
  not as clear. Also, in this situation, you want to have more clarity since it is a big field of business.
18

Ascertained property
 Specifically identified
 Ex. all inventory in the warehouse

Unascertained property
 Identified as to its nature or quantity, but not specifically identified at the time of consent
 Concerned about the consent of the buyer

i)    Civil law
 Property must be certain and determinate (as to kind only)
 All immovables are ascertained
 Ascertained property passes to buyer by mere consent of the parties 1453(1)
 Conditions:
   Object must be ascertained
       Item yet to be built is unascertained
       Sale by measurement (count, weight, measure)
           1601 – specific performance except in certain circumstances
   Information of the buyer 1453(2) – informed of individualization, may be implied, may be carrier of
      buyer who has the info
 Transfer of risk generally follows title. Ex. Sale, transfer of title after 14 days, delivery happened in 5
  days. Loss occurs between 5-14 days. Jobin: 1456(2) narrow exception, after delivery, fall into general
  rule. Since there is a proviso leaving title with the seller, seller bears the risk.

Interprovincial Lumber v. Matapédia [1973] (QC. C.A.)
     seller had to measure lumber

ii)      Common law
     Property must be ascertained

OLRC Sales Report
 The focal role in sales law is to transfer property from buyer to seller. Its importance is seen as rules have
  been developed on transfer of risk, the right to payment of the price, etc. Other non-sales rules affect the
  transfer of title as well such as the right to claim goods in bankruptcy or recover from 3 rd parties in
  conversion. SGA can‟t regulate the transfer of property for all these other instances of transfer of
  property although it can be asked to ascertain similar governing principles.
 Determination of time of transfer of title turn on very subjective factors in the SGA making predictions
  of potential litigious issues very difficult. These factors are addressed in s.17 and 18 where title can not
  pass before the goods have been ascertained, and when so, the parties' own intentions govern as to the
  time of transfer.
 To be able to claim a property right, the buyer must be able to show property right in a particular good(s).
  This cannot b done if the goods are unascertained (SGA 17). When ascertained, it turns on the intention
  of the parties (SGA 18) – and if no intention is clear, we turn to SGA 19.
   if specific goods in deliverable state, property passes when k is made
   but if seller bound to do something, it passes when work is done and when notice is given to the
      buyer (same when seller must weight, measure, etc. the goods)
   also, if conditions set in order to have acceptance of buyer, it passes after such acceptance (express or
      implicit)
                                                                                                            19
Rules on passing property
1) The goods must be ascertained.
2) The parties can stipulate when the property passes – their intentions rule
3) If the parties didn‟t say, we look at the presumptions in SGA
    Does the seller still have anything left to do with the goods?
    Is the K conditional in any sense? If the sale is conditional on the buyer getting financing, then
        property will not have passed until the condition is met.


Varley v. Whipp [1900] 1 QB 513 (Div. Ct.)
Facts:
 P offering to sell D a machine he knew of but did not own - referred to it as a second-hand reaping
   machine that was one year old. D agreed to buy reaper w/out having seen it. When D got machine, he
   realized it was very old, mended, and of no use to D. He returned it w/out paying. P brought action to
   recover purchase price from D, claiming D had accepted machine and thus property in it had passed to
   him – he could hence only recover damages (the condition having turned into a warranty). D claimed sale
   was by description with no match of that desc.
Issue:
 Were the words used by the seller with regard to the machine part of the description, or did they merely
   amount to a collateral warranty? Did property pass?
Held:
 If property in machine passed to D, then D cannot reject it.
 This was a sale of goods by description - this category must attach to all sales where the buyer has not
   seen the goods, and buys by description alone. The req‟t that it be of the said description is a
   CONDITION before the passing of property and a warranty after.
    SGA rules for passage of property for sale of specific goods do not apply (that is s.19 which says that
       property passes when k made) since it is a conditional k – conditional to the goods corresponding to
       the description. To know when property passes, must look at the intention of the parties (s.18).
    Here, it could not be at the signing of the k since the P did not own the goods. So the intention was
       that the goods pass when D accepted– here, was never. Hence, s.12 does not kick in to make it a
       breach of warranty.
 Smith: description goes to the identity of the subject matter and not to its quality. The Judge does not
   make the differentiation b/w s.14 and collateral warranty – the mere fact that it does not fit description
   does not mean it is a breach of a collateral warranty – that is if it does not go at the root of the K
 The conclusion though is that if it is not seen, a breach of descriptive words is a breach of a condition.

   As it stands, this case does not make sense. Why did he do this? Probably because he wanted the buyer
    to win. The buyer probably should have the right to reject, especially in the case of specific goods. A lot
    of people interpret this as a drafting error, that SGA 12(3) was meant to mean goods that had been
    inspected, sort of a caveat emptor thing.

   Next case deals with unascertained goods. Can‟t K out of this, because you can‟t say you know what they
    are if you don‟t.

Carlos Federspiel & Co., S.A. v. Chas. Twigg & Co., Ltd., [1957] (QBD)
Facts:
 P carries on business as merchant in Costa Rica. D carried business as manufacturer of children's bicycles
   and tricycles in England. P agreed to buy certain goods which D agreed to sell him. The agreement was
   contained in an order in writing from P to D and an acceptance in writing from D to P. The price was
20
   paid by P. The goods were to be shipped by D to P. Before the goods were shipped, D was put into
   receivership.
 s.17 – no property passes until ascertained
 s.19(5) – is an exception to this rule if the goods are unconditionally appropriated to the k, unless a
   different intention appears.
Issue:
 Were the goods appropriated to the K by the sellers with the consent of the buyers so as to pass
   ownership to the buyers?
Held:
 A mere setting apart or selection of the seller of the goods, which he expects to use in performance of the
   K, is not enough.
 To constitute an appropriation of the goods to the K, the parties must have had, or be reasonably
   supposed to have had, an intention to attach the K irrevocably to those goods, so that those goods and
   no others are the subject of the sale and become the property of the buyer (easier way – delivery).
 It is by agreement of the parties that the appropriation, involving a change of ownership, is made (but this
   is not a problem since it can be implicit agreement if seller sets them aside)
 An appropriation by the seller, with the assent of the buyer, may be said always to involve an actual or
   constructive delivery. If the seller remains in possession he becomes a bailee for the buyer. (doesn‟t add
   much)
 Under s.20 of the SGA (s.21 of our Act) ownership and risk are normally associated. So, where the goods
   are at the seller's risks, that is a prima facie indication that the property has not passed to the buyer (can be
   Ked-out)
 Usually, but not necessarily, the appropriating act is the last decisive act to be performed by the seller.
 Here, the Court decided that the intention of the parties was that ownership was to pass on shipment
   since it appeared to be the decisive act to be done by the seller for the performance of the K and this
   intention was not displaced by the correspondence exchanged between the parties. There was no actual or
   constructive delivery. There was no suggestion of the goods being at the buyer's risks. The last two acts to
   be performed by the seller i.e. sending the goods to Liverpool and having the goods shipped on board
   were not performed.
 Therefore, there was no appropriation of the goods and the action fails.

In re Wait [1927] 1 Ch. 606, [1926] All ER Rep. 433 (CA)
Facts:
 Both the debtor (Db) and claimant (Cl) are grain merchants. A K of sale for 1000 tons of wheat to be
   shipped from the US on the Challenger was made. After that K was made, but before delivery, the Db
   made a K with Cl for the sale of 500 tons of the wheat on that ship. Cl paid for the wheat after shipping,
   but before arrival in England. Db went bankrupt before delivery of the wheat to Cl, and in the end, 530
   tons of wheat remained with the trustee.
Held:
 The claimants never received a bill of lading, warrant, delivery order or any other document representing
   title to the wheat, and no particular 500 tons can be ascertained to belong to Cl. Cl demand specific
   performance based on s.50 SGA Act but the remedy is available "in action for breach of K to deliver specific
   or ascertained goods."
    When the K was made, there were no specific goods identified, and there were none ascertained at
        any time later. To say “the wheat on that ship” is not sufficient b/c can‟t say which 500 tones out of
        the whole shipment is his.
    Transfer of property doesn't occur except in accordance with the intent of parties (terms of the K,
        conduct, circumstances) and s.18 (unless a different intent is evident).
                                                                                                            21
 What about using equity? No, can‟t go outside the Act and say it was paid in trust – the SGA specifies that
  specific performance is only available for ascertained goods – it shows it wanted to eliminate equity rights.
  Exception: if the parties have created these equitable rights – trust.


In Re Goldcorp Exchange [1995] AC 74 (PC)
Facts:
 G sells gold bullion. Customers would mostly buy it by purchasing non-allocated metal meaning that
   when you paid the price of the metal you received a certificate stating you hold an amount of metal stored
   and insured for you by the company. Customers all believed that they were not just buying an investment
   but gold itself.
 The company is now going to through some major economic problems and the customers got to know
   that there was a shortfall in available bullion and it appears that their faith in the vendor had been
   misplaced. The company has debts greater than its entire assets so that the purchasers were at risk of
   losing the money paid.
 G gave floating charge over all the assets to the bank – does it include the gold bullion?
Issues:
 Did the property in any bullion pass to the customers immediately upon the making of the purchases
    Simply by virtue of the K of purchase itself? (1a)
    By virtue of the written and oral statements made in the brochure and by the company's employees?
        (1b)
 Did the property in any bullion subsequently acquired by company pass to the customers upon
   acquisition? (2)
 When the customers paid over the purchase $ under the K of sale, did they retain beneficial interest in
   them by virtue of an express or constructive trust? (3)
 Should the court now grant a restitutionary remedy of a proprietary character in respect of the purchase
   $? (4)
Buyer’s arguments:
 Bullion in vaults (1a)
    Proprietary interest in the bullion – NO. SGA 17 says that for unascertained goods, no passing until
        they are ascertained. Since the identity of the goods is not known, the intention of the parties is
        impossible to do (transfer title to goods unknown). Property rights must be in something (property).
        (Re Wait)
    Vendor declared himself trustee in bulk of the buyers, each with their own share. Possible
        arrangement. Trust property must be identifiable but can have share in pile of gold for each
        beneficiary.
         Problem: essence of a trust is that the trustee is restricted in what she can do with the property.
            No restriction was considered in the K – NO TRUST.
    Tenancy in common – need everyone‟s approval to deal with the property.
 Estoppel argument (1b)
    Seller induced buyers to believe that they had real ownership in the gold.
                                                                                                    rd
    Note: not fighting with the seller, fighting with the bank. Estoppel can‟t be used against 3 parties.
        Estoppel can only be used as a shield, not as a sword.
    Estoppel does not create proprietary rights
 Bullion bought after the K
    Argue that it was bought for B.
         Problem: the goods are unascertained.
         Inconsistent with the nature of trusts because it was mixed with other property (trust property
            must be kept separate)
    Seller is a fiduciary and has the obligation to act in the best interests of the B
22
       Constructive trust (can‟t argue express because there is no intention) gives proprietary remedy and
        beats out other creditors
     NO: only vulnerable because the K was breached. Need something more to have a fiduciary
        relationship.
   Restitutionary constructive trust
     Fiduciary relationship: NO
     Constructive trust to reverse unjust enrichment – but G has not been unjustly enriched
     Free-standing or remedial constructive trust - NO
         Constructive trust even though there is no U/E. Ex. employee‟s rights when Co. goes
            bankrupt. Impose a constructive assets over the assets to a certain extent
         Not popular in England (Canadian courts are fast and loose with constructive trusts but
            hesitate when dealing with security)
 Money
   Must show proprietary interest in the money – not under the K of sale. Need to make trust
    argument.
   Quistclose trust – money held on trust until the property is transferred. NO. Not intended. The
    essence of a quistclose trust is that the money is kept separate. This was not done and it is unlikely
    that the seller would have done so,.
   Remedial trust argument cause at the end of the day, it just ain‟t fair – protect us against the bank.
    The Court says it was a standard transaction for the bank and the sale is normal. Can‟t create a trust
    here cause would have to do it everywhere and that ain‟t the purpose of the legislation.

Notes:
 The Court makes clearer the question left in the air In Re Wait, that is that you cannot go to equity
  except if the parties create equitable rights in or outside (“we‟ll hold it for you in a separate chamber”) the
  K.
 Although it is an English case, it would apply here (note that constructive trust is more popular in Canada
  though)
 Need for reform since the rights turn on things buyers are totally unaware of.
  UCC gives property rights when portion of a bulk.
 The real problem resides in the use of one concept, the one of passing of property, to determine all other
  issues. We should look at issue differently & their underlying concerns.
   US adopts an issue-oriented approach. Between them and the person they are fighting with, who
       should win? At a certain points, courts have to go back to property-type requirements.

Protecting the prepaying buyer:
 The buyer who has prepaid all or part of the price before the goods are delivered is in a vulnerable
   position
 Possible solutions:
    Have the agreement provide that title will pass to the buyer as soon as the seller beings work on the
       chattel and the buyer has made the first payment. (not practical for mass-produced goods)
    Require the seller to hold the buyer‟s advances in trust until the goods are ready for delivery. (most
       sellers will find this unacceptable)
    Ask the court to declare a remedial constructive trust in favour of the prepaying buyer on the grounds
       (a) that, not having performed its part of the bargain, it would be unjust to allow the seller to retain
       the purchase price and (b) that the seller‟s assets shouldn‟t be augmented for the benefit of the seller‟s
       secured and unsecured creditors.
    SGA 17 – in the case of a K for sale of unascertained goods, no property in goods is transferred to the
       buyer until the goods are ascertained.
    UCC 2-502 – entitles buyer to recover goods identified to the K where the seller becomes insolvent
       within 10 days of receiving the first instalment price
                                                                                                            23
        Allow the buyer to acquire a buyer‟s purchase money security interest in respect of prepayments
         similar to the purchase-money security interest available to the unpaid seller
        For consumer buyers, confer a statutory or non-possessory lien in favour of the buyer along the lines
         proposed in BC LRC report
        Establish a compensation fund for the reimbursement of buyers comparable to the compensation
         funds established in several provinces for protection of travellers and buyers of motor vehicles
        Require the seller under the K to provide a stand-by letter of credit in the buyer‟s favour

Consequences of passing of property
 Practical consequences which flow from the mere passing of property from seller to buyer
    If the property in the goods has passed to the buyer, he will generally have good title to them if the
      seller becomes insolvent while the goods remain in his possession
    If the goods are delivered subject to a reservation of title (or property) by the seller, the seller may
      have a good title should the buyer become insolvent
                       rd
    Right to sue a 3 party for damage to, or loss of the goods, may depend on who has the property
    Risk passes prima facie when the property passes
    Seller can only sue for the price if the property has passed
    Where the K involves a sale of specific goods the title in which has passed tot he buyer, the buyer may
      lose his right of rejection – SGA 12(3)
 What passing of property does not affect
    Buyer‟s non-entitlement to possession until he has paid the price – SGA 27, 39
                                                               rd
    Power of a seller in possession to pass good title to a 3 party acting in good faith and without notice
      – SGA 25(1)
    Seller‟s possessory lien for the unpaid price and right to resell the goods in case of default – SGA
      46(3)
    Buyer‟s right to reject non-conforming goods - SGA 33-34
    Locus of the risk of loss where delivery has been delayed through the default of one of the parties –
      SGA 21(b)

2. Sale of property belonging to another

i)    Common law
 A seller can transfer no better title than he himself has – nemo dat rule
   Want to protect property rights
 Exceptions to nemo dat rule
   The Nemo dat rule says that a buyer cannot acquire better title than a seller had. However, there is an
      estoppel argument against this rule which is that if the original owner represented to the whole world
      that he had good title and his agent sells it to a buyer in good faith – this one is not liable but the seller
      (original owner) is. If we didn‟t have this exception, everyone would be scared of buying anything.
   Sanctity of commercial transactions – if you think that you ate buying something, you should get good
      title (not that convincing)
   SGA 25(1) – seller in possession exception (Pacific Motor Auctions)
   SGA 25(2) – buyer in possession (Newtons of Wembley)

Pacific Motor Auctions v. Motor Credits (Hire Finance) [1965] 2 All ER 105 (PC)
Facts:
 Respondent had a sale-leaseback agreement with Motordom, a car dealer. Under this agreement
   respondent bought cars from Motordom at ninety percent of their selling price and leased them back to
   Motordom in order to obtain hire-purchase Ks with Motordom's customers. When Motordom
24
   encountered financial difficulties, respondent cancelled Motordom's permit to handle the respondent's
   cars.
 At that time, appellant who had previously supplied Motordom with several cars required Motordom to
   pay. It then purchased several cars from Motordom promising to re-sell them to Motordom if Motordom
   paid its debt. Motordom did not reveal to appellant that it had no authorization to sell the cars. Moreover,
   Motordom presented itself as the sole owner of the cars. The trial judge found that appellant to be a bona
   fide purchaser.
Issue:
 Where a vendor retains uninterrupted physical possession of the goods, why should an unknown
   arrangement, which substitutes a bailment for ownership, disentitle the innocent purchaser to protection
   from a danger which is just as great as that which the section is admittedly intended to protect him?
Held:
 s.25(1) is interpreted as providing additional protection to innocent purchasers (in good faith and w/out
   notice) in sales by sellers in possession of goods but without proper titles. 1st sale the 2nd, the 2nd if in good
   faith gets title.
    BUT the words "where a person having sold goods continues or in possession of the goods" in
        s.25(1) SGA, mean that we need more than mere possession – we need sold once and kept
        continuous possession until the second sale. If not this, nemo dat applies
Smith
 The goal of the legislator is that physical appearance should prevail
 Seems like the Court did not analyze the fact that the 25 cars were sold very quickly to the auctioneer who
   knew the involvement of the finance company
 The Court says the arrangement of the finance company was hidden to the regular buyer – so if they want
   to stay hidden, they have to face the consequences.

Newtons of Wembley v. Williams [1965] 1 QB 560 (CA)
Facts:
 (Plaintiffs (P)--->Marks(M)--->back to P--->(A)--->Biss(B)--->Defendant(D)
 The K between P and A provided that title to the car would not pass until the cheque A gave P had
   cleared. A drove the car and was registered owner. The cheque was bad and P notified the authorities and
   did all it could to get the car back. Meanwhile A went to Warren Street (a regular centre for used car
   dealings) and sold the car to B, and B sold it to D. Eventually P found out D had the car and demanded
   return. D refused, P sued D. The lower court held that D was entitled to retain the car. This court stated
   that under common law, A had no title to give and B obtained no title, however, D relies s.25(2) of the
   SGA equivalent.
Issue:
 The issue here is whether A is a mercantile agent acting in the ordinary course of business under s.25(2).
   "Where a mercantile agent has, with the consent of the owner, been in possession of goods...any
   sale...which would have been valid if the consent had continued, shall be valid notwithstanding the
   determination of the consent.."
Held:
 The court recognized that P had done everything to terminate the K and withdraw the consent, but A still
   had possession of the car.
 The reasoning is unclear, but the court appears to find A is a mercantile agent because he had consent in
   the beginning and had possession of the car. In addition, based on Warren Street being established as a
   common market for selling used cars, the sale was in the ordinary course of business of a mercantile
   agent.
 The court therefore, held that if B acted in good faith, then the requirements of s.25(2) are met and D was
   entitled to retain the car.
                                                                                                              25
Smith
 The Court gives “mercantile agent” a serious meaning while he thinks that it was a legislative slip. He also
  doubts that a street market satisfies the ordinary course of business requirement.
 But in conclusion, he believes that the correct result was reached b/c between P and D, D was the less
  careless (P should have got certified cheque).

Proposals for Reform
 Courts should take into account:
    Who is in a better position to prevent & who acted recklessly
    Who‟s better able to deal with the problem (insurance,…)
 The current rule is imperfect as it analyses only some factors & make them determinative. There is also
   much twisting of the rules.
 s.22 should have a reasonable care standard – make it less clear but more logical

Problem: Cheap or Expensive
Facts:
 Option to purchase that is exercised, and deposit is paid. The seller breaches and sells to a TP. TP is in
    good faith. Option price was $100, purchase price was $75k, deposit was 10%, and seller offers $15k to
    compensate. Question of when ownership passed
Issues
 Breach of K
 Was the ownership transferred when Robert exercised the option?
 Is an action in passation of title available?
Did ownership pass?
 K states that ownership will pass when the notarial deed is signed. Robert is bound to proceed with the
    sale
                                                                                                          rd
 Sale is consensual K between buyer and seller. Requirements of form are to set up the K against 3
    parties. Ownership could be transferred between owner and seller on the sale.
 In this case, there was no transfer of ownership. Louis would be bound by the sale.
     1396(2) – promise is not tantamount to a sale
     courts can look at the intent of the parties – they undertook to do a sale in the future
     1/10 of price paid is a small amount
 action for passation of title
     1397, even if the TP is in bad faith by inducing breach, they have good title
Sale to 3rd party
                                                    rd
 Transfer of ownership has no effect vis-à-vis 3 parties.
 Registration of competing deeds – if the promise amounted to a sale, it can be registered. Therefore, it is
    a race to register first
Damages for breach of K
 We could have recourse for the difference between market price and K price. Total would be refund of
    deposit, return of option price, and the difference between market and K price.
 Punitive damages? NO Would not fall under QC Charter 6 (enjoyment of property)
 Why are we talking restitution of prestations if the K is binding? It should be damages, compensation,
    etc. Jobin says that any K that is annulled or resolved gives rise to a return of prestations – 1699.

ii)      Civil law

     1714 and following is incomplete, all of the rights of all of the parties are not there. Only refers to the
      victim. Must turn to warranty of ownership to complete the regime.
26
Rights of the owners against the buyer
 Revendication
    1714 gives the right of revendication to the owner. This is part of the more general rule in 953,
       2919(2) that gives the owner the right to follow and repossess.
    1714(2) - restrictions having to do with the sale of movables by seller in the ordinary course of
       business to a buyer in good faith
        revendication is possible but the owner must compensate the buyer for the price paid – preserves
           the security of commercial transactions. The law says that if you buy from people in business, you
           will be protected.
        Buyer must claim the refund before handing over the property – Piché.
        Note that it is the purchase price, even if it is greater than what the owner is willing to pay.
        Good faith of the buyer (Entreprises Maurice Canada)
            2805 – presumption of good faith (Jobin feels this should be a the beginning of CCQ)
            Owner must prove the buyer is in bad faith. Good faith involves an honest belief that the
                seller was the true owner. Must look at each aspect of the transaction.
            2943 – presumption of knowledge of registration.               Could apply to other facts (not
                Entreprises Maurice Canada). The presumption is rebuttable for immatriculated
                immovables.
            Begin with general presumption in 2805 and then turn to 2943
 Nullity – 1714(1)
                                                                                          rd
    Sale takes place between seller and buyer and in 99% of cases, the owner is the 3 party
    Derogation from privity of K, but is pragmatic
    3 exceptions
        Sale made under authority of justice – 1714(1). Ex. sale by sheriff in execution of judgment
        Acquisitive prescription – 1714(1). Possessor will become owner by mere passing of time. 3 years
           for movables in good faith, 10 years for the rest – 2917-19
        Immatriculated immovables – 2962. Doomed because government didn‟t have the means to
           apply it. Registry deemed to be a true reflection of the title.

Entreprises Maurice Canada v. Cossette et Frères [1980] C.S.
Facts:
 MC Ked out a truck to Remorques Val D'or for painting and sanding. Sometime later when repossessing
   their truck MC discovered their truck in Cossette‟s parking lot. It got there the following way: 1) Val D'or
   when in possession of MC went bankrupt and thus the bank brought in a receiver to liquidate the assets.
   2) Through a sale by receiver CPR bought a truck for 1000$ and then sells it to Cossette. Note: Cossette
   and CPR have the same shareholder.
Issue:
 Can MC revendicate his truck?
Held:
 MC can revendicate because Equipment CPR was in bad faith.
 Article 1488 CCLC "The sale is valid if it be a commercial matter". In the case at bar there is no doubt
   that we are dealing with a commercial matter, and that normally, such a transaction creates a bar to
   revendication.
 However this only applies when one is in good faith.
 While there was no direct evidence of bad faith, the circumstantial evidence was sufficient to establish bad
   faith:
   1) The truck was registered in MC name.
   2) CPR purchased a truck worth 12,000$ for 1000$.
   3) "Avant l'acquisition elle fut avisée par le demandresse de son droit de proprietaire". It was established
       that title was passed 10 days after MC letter stating his ownership was received.
                                                                                                               27

Piché v. Laurentide Finance Co [1983] (CA)
Facts:
 Appellant (buyer), in good faith, bought a car from the seller which belonged to respondent by virtue of a
   conditional K. Owner (respondent) sued to revendicate. Appellant did not contest this and a judgment
   was rendered. He then sued respondent for the price he paid for the car but his action was dismissed.
Issue:
 Did the appellant's failure to defend the original action deprive him of his right to recover the purchase
   price?
Held:
 Yes, appellant's failure to contest the original action by Laurentide did deprive him of his right to claim
   payment price.
 1489 CCLC provided: If a thing lost or stolen be bought in good faith in a fair or market, or at a public
   sale, or from a trader in dealing in similar article, the owner cannot reclaim it, without reimbursing to the
   purchaser the price he has paid for it.
    Reimbursement is a sine qua non for taking possession and if the matter is not raised at that stage, the
       issue between the parties is settled and it is "irrecevabilité pour chose jugée".
    Although payment of price paid is a pre-condition to revendication, if it is not fulfilled, buyer must
       raise the issue at the beginning of the case to claim that it is property which is lost or stolen in order
       to get reimbursement.
    Appellant was in full possession of the facts and the wording of the code is such that since he failed to
       oppose Laurentide's action, he gave up his right of retention and his right to be reimbursed.
    Ignorance of the law or of your rights is irrelevant. The owner may have preferred to leave the thing
       with the buyer rather than pay the purchase price but to make this decision, the owner must know at
       the time s/he seeks to revendicate what the true situation is. It is too late after repossession to reclaim
       the price.

Rights of the buyer against the seller
 Nullity – 1715. Lacking transfer of ownership (application of nemo dat rule)
    The buyer may be in bad or good faith.
    Not application of the general remedy of error (1400).
    Relative nullity because it is a matter of private interest – 1421.
    The buyer and true owner can both ask for nullity in the case of sale of something belonging to
       another.
    Advantage is that the buyer can get back the sale price
    Nothing prevents the buyer for asking for compensation of sale price from the owner and the seller –
       increase the chances of being paid for the buyer in good faith
    There cannot be double compensation. Each liable party would be liable in solidum, for the entirety of
       the amount that had not yet been made. 1714 clearly gives the true owner standing to sue, even
       though he is not party to the K.
    Why can the owner ask for nullity? The remedy was given to limit litigation. They want there to be
       one case between all the parties. The idea was not to give a separate benefit to the owner. 1714 says
       the owner is bound to refund price if in good faith. Can then sue for the price from the wrong seller.
 Damages
    Buyer may suffer some loss (ex. bought item with a view to selling it)
    Nullity does not include a right to damages
    1714 – no mention of damages and loss
    Rights and remedies of warranty of ownership will be available to the buyer
        1723-5, but damages not mentioned there.
        Use general law for breach of K - 1458(1).
28

Rights of the owner against the seller
 What about expenses involved in recovery? The owner cannot claim against a buyer in good faith.
 May have a claim against anyone in bad faith, including the seller. Under 1457, there is a right in damages
   for negligence, don‟t have to prove malicious intent. Only have to prove that the seller knew that it was
   selling the property of another.

Closing remarks
 CCQ is less protective than the SGA
    Nemo dat rule is almost swallowed up by the exceptions. The buyer will usually keep the property
 SGA was designed to deal with commercial transactions, while the CCQ was designed to deal with all
   transactions, civil or not.
                                             th
 It may be also that the courts in the 19 C were concerned with protecting buyers. In fact, the CCLC
                         th
   passed in the late 19 C was more protective of buyers than CCQ. In many cases the result would be the
   same as under the current SGA, with no right to revendicate, etc. The phenomenon may be due to the
   fact that insurance will also cover revendication costs.

3. Warranty of Ownership

i)    Civil law
 Also called warranty against eviction
 Right to use the full enjoyment like any other owner. Would cover this case, as well as non-disclosed
  dismemberments.
 In both common and civil, includes material disturbance of the buyer (occupation by the seller). Ex.
  farmer sells lot to another farmer and uses adjacent lot to cross, store stuff, etc. (Jobin will not discuss
  this - 1724)
 In civil, the warranty includes restrictions that come from public law restrictions as well. Ex. zoning by-
  law. Included in 1725.
 Will not discuss remedies for warranty of ownership (damages 1458, for other remedies 1590ff)

Warranty for private law restrictions
 General Conditions
   Disclosure – Forget
   Notice - 1738
       When the buyer discovers defect, he must give notice to the seller within reasonable delay. There
          is an exception when the buyer knew or is presumed to have known.
       This is a new rule, the purpose is to allow the seller to remedy the problem and give the buyer
          clear title.
       Idea is to discourage litigation.
       Rule inspired by case law. Courts had decided that in case of latent defect, there must be a default
          notice. We will see that 1739 has the same requirement for latent defects.
       Notice is not a procedural requirement, it is substantive. Action will be dismissed if the buyer
          goes to court without giving prior notice (Baron)
           Recall: no proper notice was given when the buyer discovered the defect of title. There was
              no right of action because seller did not have the chance to remedy the defect.
 Hypothecs - 1723(2).
   The seller is bound to discharge property of all hypothecs, even declared, unless the buyer has
      assumed them. Disclosure is not sufficient.
   Remedy: seller is bound to discharge property of all hypothecs
   Purpose: ensure buyer gets clear title to largest extent possible. Gives buyer specific performance
      (discharge of hypothec). Buyer can still ask for resolution or another remedy – 1590.
                                                                                                          29

Warranty for public law limitations
 In late 1800‟s, problem – purchaser didn‟t know restrictions their immovable was subject to until after the
  sale (city sent a notice). Seller had no obligation to tell the buyer.
 Solution: restriction is like a servitude, it limits the use I can make of my immovable. Therefore, apply
  CCLC rules re warranty.
 Kraus (zoning by-laws) codified in 1725.
 Larin – zoning by-law
 Gersten – apartment only had one fire exit
 Compliance with the Act of Safety in Public Buildings – Residence Gisele & Girard
 Requirements:
   Violation must exist at the time of the sale (the buyer can‟t change stuff and blame the seller) and
       there must be no misrepresentations. If there are fraudulent misrepresentations – nullity, damages,
       quanti minoris.
        If G & G had bought building as is with no misrepresentations, they probably wouldn‟t have
           ground for relief because it was on them to ask the seller or the city about bylaws.
        KEY FACTOR: misrepresentations by the seller.
        What if seller didn‟t know they were misrepresentations? It is their obligation to disclose and they
           should find out all rights and encumbrances on the building.
        COMMON STRATEGY: allege fraud, probably won‟t get it, but worth a try
   Buyer should know restrictions that apply to every building
        No duty for seller to disclose and no warranty
        Restrictions which are particular to neighbourhood, zone, city are not common and should be
           disclosed
            What is a general public law restriction? Admin law standard which applies throughout
               province Ex. Act on Safety in Public Buildings – but in 1999, QC C.A. held that a
               restriction in this Act was covered by warranty and seller had an obligation to disclose.
                General regime of ownership is essentially private, but public law encroaches onto that
                    regime at times. Jobin: No answer as to when the public law will be so general in its
                    ambit that it will amount to a general public law exception to private law regime of
                    property.
 Warranty triggered where you‟ve got an exception to the law of ownership
   Anything that limits the ownership of the property, the seller has an obligation to disclose that to the
       buyer unless it is a limitation that applies to all property (general).
        Ex. the servitude of running water (private). The issue is whether there are public law limitations
           which are as widespread as the servitude of running water. It was thought that the Act on Safety
           in Public Buildings was one, but court held otherwise.
 4 conditions to 1725(2)
  1. Disclosure – seller must disclose limitations. Mere fact of naming the law is enough.
  2. Latent problem – violation of restriction must be latent (hidden, no apparent to prudent and diligent
       buyer). Objective test and consider the expertise of the buyer.
  3. Public law restriction not registered – Jobin: strange
  4. Notice – 1738. Must give notice to the seller of letter from city admin, give seller a change to
       challenge the allegation
 If the restriction is registered, there is no warranty
   Goes against the principle that I‟m entitled to believe building is in compliance unless I have some
       indication otherwise, then I must search
        Here, I must search (City Hall, etc ) regardless
   Interpret 1725 in light of 2943
        Presumption of knowledge of all registered deeds (Ex. question re disclosure attached to deed of
           sale between seller 1 and seller 2, but no disclosure to subsequent buyer)
30
          But 2943 is not a substitute for 1725 – 1725 excludes general rules because it is very specific (just
           because registered, can‟t get out of disclosure)

Concept of eviction by the act of the seller
 1732 – personal fault
 What happens when a third party has rights over a property sold from another seller to another seller then
   to a buyer? It should fall into the category of an eviction by a third party. However, when it was the
   seller who gave a right to a third party, this invokes the seller‟s liability. Theoretically, the seller is to
   provide a full right of ownership, so is at fault for pre-existing dismemberments.

Exoneration clause
 1733 – defect known or should have been know to the seller and not disclosed, there is no exoneration
 Would be against good faith to allow exoneration clause without disclosure.
 Who is presumed to know? Professionals in the area. Also, 2943 – presumed to know registered right.
 1732 – but in no case may the seller exempt himself from personal fault

Sale at the buyer’s own risk
 have to find the magic words, an exoneration clause does not qualify
 need the work RISK
 1733(2) – criticized recently because it conflicts with good faith. Seller knowing the defect and not
    disclosing – no warranty.
 Limitations:
     Will not protect seller from eviction by his own personal fault (1732) and won‟t protect against
        eviction by a 3rd party (Forget)
     1733– buy from a seller who is a professional seller and there can be no sale at the buyer‟s own risk



Forget v. Goyer
Facts:
 Goyer owned land and a nearby island. She sold the island to her brother and gave him servitude over the
   land to get to the island, as well as a servitude for parking on the land.
 She later sold the land to Forget. The K of sale disclosed the right of way, and stated that the buyer
   accepts the property with ALL servitudes.
 After the sale, Forget obtained a copy of the deed of sale of the island and became aware of the parking
   servitude, which had not been specified in the deed of sale of the land. This parking servitude gave
   parking rights to Goyer‟s brother and his entire family. Forget then took an action to annul the sale.
Issue:
 Can buyer annul sale based on undisclosed parking servitude?
Held:
 Yes
 Goyer raised 3 defenses:
   (1)      The parking servitude was an accessory to the right of way
   (2)      The clause in the sale K states that buyer accepts the property with all servitudes
   (3)      The servitude was apparent
 The Court rejected all 3 defenses on the ground that there is a substantial difference between a right of
   way, which is transient, and a parking servitude for many people, which can disturb the peaceful
   enjoyment of the buyer.
 The Court also held that there was no obligation on the buyer to check for any additional servitudes at the
   registry office (this is confirmed at 1723 CCQ). Rather, the seller must disclose all servitudes.
                                                                                                            31
 Moreover, the exclusion clause in the K of sale cannot protect the seller since the servitude was created by
  her own personal act i.e. of granting the servitude to her brother. The only way to be exempted from the
  consequences of your personal act is to specifically include such a limitation in the K of sale.
 Jobin: Prof. Lamontagne argues that 2943 applies here. If the deed has been registered, this will satisfy
  the duty to disclose, the buyer will be presumed to know. Jobin thinks the opposite. The new CCQ
  does not distinguish between the case where the buyer is hidden or registered. So doesn‟t think it can
  apply. The biggest controversy was about latent defect. For it to occur, must the buyer have it examined
  by an expert? Gao said yes. Durnford said no. One more article from each. Then Gao went out west
  and became a judge.

Résidence Gisèle & Gérard v. De Rose 1999 (QC. C.A.)
Facts:
 G & G own a building they want to convert into senior‟s home. Currently had 9 rooms, add an additional
   5. They did not indicate on the municipal renovation permit that they were adding 5 more rooms.
 Sell the residence a few months later. Rose decides he wants to buy the senior‟s home. G & G tell him
   not to house more than 9 persons at a time or he will have to declare revenues for the residence.
 Building must comply to the Act on the Safety of Public Buildings because there are more than 10
   residents.
Issue:
 Were there latent charges limiting the use of the property that should have been disclosed by the seller at
   the time of the sale?
Held:
 Yes. Buyer could not be expected to be aware of regulations falling outside the normal property regime.
 2 criteria:
    Do the regulations creating the servitude fall outside the normal property regime?
    Could their existence be ascertained by the state of the property?
Issue:
  What is the impact of the misrepresentations made by G&G?
Held:
 G& G made misrepresentations regarding the property in order to get R to buy it.
 R entitled to damages.

Larin v. Curadeau 1997 (QC C.A.)
Facts:
                                                                      rd
 Sale of an apartment block with 2 garages. Tenant storage in one, 3 party in the other. Buyer wanted to
   operate the garage commercially. Seller says that you can‟t have store because can‟t put up commercial
   signs outside. Believed that they could rent out storage. Took into account rental income of $300 a
   month for storage.
Issue:
 Is there a warranty of ownership under 1725?
Held:
 No.
 Defect was not latent.
 No misrepresentation on the part of the seller.
 Buyer did not act in prudent and diligent manner. They knew that it was a residential area and that signs
   would be prohibited. They could make the connection that the building could not be used for
   commercial purposes.
 Jobin: tell the whole truth.
32
Lévis Mushroom Farm v. Cité de Lévis [1969] SCC
Facts:
 In 1949, the Crown in right of Canada ceded to the D certain lands in the city on the condition that the
   lands would only be used as a public park, failing that would revert back to the Crown. In 1955, P‟s
   predecessors purchased at their risks all the rights that the D held in the land with the intention, as
   approved by D, to cultivate mushrooms.
 In 1960, Court maintained an action taken by the Crown to annul the grant for failure to abide by the
   conditions.
 P instituted action to set aside sale of 1955 for fraud and claimed damages arising from the eviction.
   Action dismissed.
Issue:
 Did the D commit fraud, allowing the sale to be set aside?
Held:
 No
 D sold not the immovable designated in the deed but all the rights it had in these lands and the sale was
   made at the risk of the buyers. Parties excluded all form of warranty.
 Whether P had knowledge at the time of the sale of the restrictive covenants was immaterial.
 Eviction was not the result of the personal acts of the D
 Jobin: borderline case

Problem: Patricia
Facts:
 Patricia buying a house from Terry that has an outstanding hypothec.
 The hypothec has been registered.
 Terry cannot be reached to be given notice of the problem.
Issues:
 What are the problems with not being able to give notice? Seller has a right to notice. The rationale is to
   give the seller a chance to remedy the problem. Should Patricia lose the warranty because she can‟t find
   him? Given that Terry refuses to fix the problem anyway, the notice would not have changed anything.
    Jobin is of the view that if all reasonable steps have been taken, that is sufficient.
 What about the registration? 1723(2) even if it is registered, warranty is still owed. The presumption in
   2943 is not relevant. Can‟t afford it is not a defence. Bank cannot refuse payment of everything owed.
 Will the court issue an order knowing that Tom does not have the means to pay? The remedies are then
   limited to resolution of the sale or reduction of price.
 The last argument is that the Tom can‟t pay back the bank because it is a floating rate and is impossible to
   determine the price.

ii)       Common law
     SGA 13-17 – heart of the SGA, buyers most likely to use this part
       Sue upon the implied obligations
     How much do these things add to the general law?
                                                                       th
       One would suppose that since the Act was made to codify 19 C law, not much. This is not entirely
        accurate, as 19th C law was rigid and undeveloped compared to today.
       Often you will get something different under the general law, sometimes better sometimes worse.
         Ex. SGA will allow you to rescind for even the most trivial breach, whereas the general law makes
            a distinction.
         Looks like Chalmers was a little sloppy in drafting, and ended up changing the law a little. In the
            19th C, caveat emptor was much stronger. If you had seen the goods, the SGA limited your
            recourses quite severely.
                                                                                                               33
Implied obligations
 13(a) – implied condition that the seller has the right to sell the goods
   obligation to pass good title to the goods – passing property is essential to K of sale
   agent has the right to sell but doesn‟t have title
 13(b) – warranty that the buyer will be able to have and enjoy quiet possession. Ex. sale of property of
  another.
   Quiet possession – no one should be able to prevent you from using the goods in the normal way in
      which they are used
 13(c) – where there are encumbrances, there is no quiet possession
 CRUCIAL: is it a condition or a warranty?
   If a condition is breached, you can rescind the K, send back the goods, ask for $ back, damages.
   If it is a breach of warranty, only get damages.

Niblett v. Confectioners Materials Co Ltd. [1921] All ER Rep. 459 (CA)
Facts:
 sale of 3000 cases of condensed milk. Buyers (App.) are seeking damages from sellers (Resp.) on the
   ground that 1000 of the cases being labelled "Nissly" by sellers, were not in accordance with the K of sale,
   since Nestlé Co. claimed that the use of term "Nissly" constituted an infringement of Nestlé Co's
   registered trade mark. At the first trial, the judge uses the prior view that the scope of the implied
   obligations of sec. 13 had to be restricted to acts and omissions of the vendor.
Issue:
 can the buyer recover damages from the sellers on the grounds that the goods delivered were not in
   accordance with the K of sale?
Held:
 The seller should bear the liability. Both s.13 (a) and (b) apply:
    s. 13 (a) states that there is an implied condition in a sale on the part of the seller that he has the right
       to sell those goods. Here, the sellers could have been refrained to sell by Nestle anytime even though
       they had title to the goods. So in selling to the buyers, they were in breach of a condition.
    s.13 (b) states that there is an implied warranty that the buyer will enjoy quiet possession of the
       goods. Here, Nestle is disturbing that quiet possession. The Court simply says that the seller can be
       liable for this disturbing – a kind of strict liability. Interference has to be legal in nature.
 It is important to note that the judge gives to s.13(a) a much wider effect then was prior recognized – the
   vendor must have the right to sell, point final. Also not restricted to acts and omissions of the vendor.

   Smith: The issue is which party should suffer from the mistake. The SGA says the seller should. But if
    the seller is not the manufacturer, but only a distributor who passes on several different goods, how
    would he know about an infringement? The SGA says he‟s liable anyway – he can, after, sue up the chain
    in a separate action. 2 types of argument to this:
     Policy argument – incentive structure – to act efficiently, carefully. He‟s in a better position
     Language of rights and obligations – who caused problem? – backward looking

Rowland v. Divall [1923] All ER Rep. 270 (CA)
Facts:
 Buyer, having bought a stolen car from seller, took possession of it and sold it to a third party. Buyer
   found out it was stolen 4 months after having purchased it from seller. Car seized by police. Buyer
   demands reimbursement of the price on the grounds of total failure of consideration ("consideration" in
   the sense of "promise")
Issue:
 Can P get money back?
34
Held:
 There was an implied condition on the part of seller that he had a right to sell the car and unless
   something happened turning the condition into a warranty, the K can be rescinded – SGA 13(a).
 Seller argues that buyer is compelled to treat the condition as a warranty (as a result of the use of the car)
   and therefore, can only get damages. However, this argument is problematic on 2 grounds:
   1. SGA 13(a) applies when property passes to buyer whereas in this case, the property did not pass
        because seller did have the right to sell.
   2. In support of this argument, seller raises cases where buyer got part of what he Ked for; i.e. "The
        plaintiff has had the enjoyment of what he stipulated for" .
         Buyer did not receive any portion of what he agreed to buy and could not have enjoyed what he
            stipulated for. Yes, a car was delivered, but seller had no right to sell it. Therefore, he did not get
            what he paid for, i.e. a car with good title. The use of the car is immaterial in determining whether
            the condition was converted into a warranty. VERY FORMALISTIC VIEW (Smith)
 Seller argues that there can never be a rescission where a restitution in integrum is impossible and that
   buyer cannot rescind because he cannot return the car.
    The reason for buyer's inability to return the car (i.e. the fact that seller had not title to it) is the very
        thing of which he is complaining and seller cannot set up as a defence to the action his own breach of
        the implied condition that he had a right to sell.
Smith:
 Makes 13 a super-condition that can‟t be turned into a warranty. Could never have a sale where the seller
   doesn‟t have title. Buyer would also never be able to sue for damages because no K
 But this is the law and must apply it in similar case
 Decision is very favourable to P – problem because it sets a general precedent.
Key points:
 Affirms total failure of consideration rule
 If no sale, there can be no enjoyment
 Condition can‟t be downgraded to warranty by acceptance of goods
Note:
 For restitution, need
    breach of condition
    no acceptance of the k
    total failure of consideration (this one is an extra one for restitution)
 The failure of consideration must be total. It also shows that courts can go around the rule – here, they
   say that possession w/out title gives no benefit.
 No acceptance since nothing to accept (sale with no title).
 With this logic, had the plaintiff sued for damages, he would have got nothing
 How come buyer is getting money back? Because, in fact, seller is making 2 promises:
   (i)      to perform (i.e. deliver)
   (ii)     to give money back if total failure of consideration (seems normal)

Butterworth v. Kingwsway Motors [1954] 2 all ER 694 (QB)
Facts:
 A woman (Rudolph) in good faith sells a car in which she does not yet have full title under a hire-
   purchase agreement. A chain of sales goes on with the car.
 Rudolph---to-----Kennedy----sells     to------Hayton-----------Kingsway     (Def)------     sale    to
   Butterworth(Plaint).
 When the woman learned that she had sold the car in breach of the implied condition under section 13(a)
   of the SGA, she informed the company from whom she had originally hired the car (Bowmaker). They
   write to Butterworth saying $ is owed. He starts a claim against Kingsway. Before the defendant returns
   any money, the woman pays the last moneys owing on the hire-lease K.
                                                                                                                35
Issue:
 Can P rescind the K and get back the price?
Held:
 There was fundamental breach on the part of the defendant vendor and the plaintiff purchaser elected to
   treat that breach as a repudiation of the K of sale.
 Following Rowland, even though the defendant got clear title following the final payments by the woman
   in her K of hire-lease, this does not change the fact that at the time of the issuance of the writ the plaintiff
   was entitled to rescind the K and by issuance of his writ crystallized his right to receive repayment of the
   purchase price.
 When the woman finally did get title to the car, that title so acquired went to feed the previously defective
   titles of the subsequent purchasers.
Rules in this case:
1. If you are entitled to repudiate a K at a certain date and issue a writ to that effect on date, then that right
   is crystallized regardless of subsequent actions by the other party to fulfil their end of the bargain.
2. You can feed title. It changes from a condition to a warranty.
Issue:
 Can each person in the chain of purchases claim this same amount from their respective sellers?
Held:
 Yes.
 Everyone would have the right to rescind. (fiction)

    Note: Where the seller has breached his condition of title, the buyer is entitled to recover the price
     without any allowance being made for the use of the goods. (See Rowland v. Divall; Butterworth v.
     Kingsway Motors).

Note on implied warranty of freedom from encumbrances
 Little significant jurisprudence on 13(c)
 May grow in importance because a conditional sale is now treated as a full-fledged security agreement –
  there seems little justification for saying that a buyer under such an agreement who resells the goods
  without disclosing the security interest is guilty of the implied condition of title. Correct to say there is a
  breach of warranty under 13(c).

4. Risk

i)      Common law

Risk of loss
 Unless otherwise provided, a frustrating event discharges both parties from further obligations under the
   K. The result does not necessarily follow from loss of, or damage to, the goods.
 Tests for when risk passes:
    When the K is concluded
    When title in the goods is transferred
    When the seller has delivered the goods, actually or constructively
    When the buyer has actually received the goods
 Tests above can actually be combined into 2 tests:
    Those that turn upon identification and appropriation of the goods to the K
    Those that apply a delivery or control test
 21(1) SGA – res perit domino , irrespective of delivery
 UCC and Vienna Convention on International Sale of Goods – risk is on the seller between the
   making of the K and delivery
36
     When property perishes before the risk of loss passes to the buyer, the K is frustrated and all obligations
      are discharged – SGA 8
       Controversial and subject to debate
                                                                                            th
       purpose is to codify doctrine of frustration, but the doctrine has evolved since 19 C and SGA 8 does
          not include these new developments

Critique of the current rule
 Title test ignores insurance factors, disregards the fact that the party in possession of the goods is best
    able to ensure their safekeeping and to determine the cause of an accident, overlooks the fact that until
    the seller has delivered the goods, he has not completed his Kual obligations
     Rejected long ago by business community – trade terms f.o.b. and c.i.f. transfer the risk of loss to the
        buyer when the goods are delivered to the carrier, regardless of the locus of title
 Delivery test is superior

Risk of loss and the effect of the party’s breach
 21(a) SGA – only express provision that deals with the question of whether and to what extent normal
   rules for transfer of risk of loss should be modified when one or the other party is in breach of his Kual
   obligations at the time of loss

ii)   Civil law
 Practical implications – property destroyed, damaged. Who must carry insurance? Who bears the loss?
 Rules on the loss of property complimented by the rules on loss of K
   Impossibility of performance in civil
   Frustration in common
 2 problems:
  1. moment of passing of risk of loss
  2. loss of the property and resolution of the K

Preliminary remarks
 Moment of transfer of risk is generally the moment of transfer of ownership – ask: who is the owner?
   (recall: passing of property rules – ascertained)
 For today, assume ascertained. The rules today apply to bulk sales, goods to be taken from specific
   inventory.
 What if there is partial loss? Ex. 25% of crops destroyed by fire. 1562, 1794(2)
 What about condition for rules on the impossibility of performance of K
    Ex. fire at dealer‟s garage. To prove superior force, must identify the cause of the fire. In common
       law, would be enough to show that the dealer was no negligent.
    Will buyer‟s negligence be discussed? Do we need proof of superior force to bring up impossibility or
       is proof of no negligence enough?
        1470(2) – superior force is unforeseeable, irresistible
 Most of these rules are suppletive and many K derogate from them.

Moment of passing of risk of loss
 GENERAL RULE: risk of loss passes to buyer at the same time as ownership
 Rationale: owner will collect fruits/income from the property, so it is logical that they should bear the
  loss. Criticized lately.
   Loss which occurs pre-delivery. K transfers ownership, delivery months later. Risk on buyer/owner
      here even though the seller was in the best position to control the situation. Also, the buyer is often a
      consumer and the seller is better able to bear the loss.
                                                                                                                  37
     For instalment sales, ownership transfers at the last payment. Loss before then falls on the seller even
         though the buyer is in the best position to control the situation. Seller has fulfilled its obligations, no
         duty to look after the property.
          Advice to seller: get security so that the item is returned if the buyer goes bankrupt
   No possibility of invoking 1457 here because there is a K. Negligence would be 1458 (Kal liability for
    breach)
   1456(2) – risk now on the seller until the property is delivered
   1746 – for instalment sales, the buyer will bear the loss (codifies Létourneau v. Laliberté)
   Instalment sales to consumer – QCPA 133 and 1746 places the risk on the seller.
     Rationale: here, the loss of the property hurts the seller less than the buyer so seller should insure the
         item.
   If the item is a rare, irreplaceable good
     Seller owes no damages to buyer if there is superior force
     If seller was negligent, liable for all foreseeable damages

Impact of loss of property on resolution of K
 If the loss was caused by superior force, the seller is discharged of obligation to deliver – 1693
 Buyer will not be obligated to pay the price if there is pre-delivery loss because the obligation to deliver
  and the obligation to pay the price are the cause of each other

Solutions for risk of K
 Risk will be on buyer whether owner or not. Buyer will have to pay the price even though he has not
   property. Buyer suffers big loss
 Buyer does not pay price, the risk of the K falls on the seller. Ex. Loss of property, no new property,
   buyer doesn‟t pay. Appears even, both parties relieved of obligations.
    Assumption of the law: of the 2 parties, the seller is the one with the greatest expectations/benefit in
       the K (profit, loss of sale)

What does the law say?
 Cash sale, loss after delivery. Both common and civil put the loss of k on the owner, so the buyer must
  pay the price. No resolution, no frustration.
   1456(1), common law judges and commentators
 Cash sale, loss before delivery.
   Common: general rule is that the buyer suffers the loss of the K too, so must still pay the price. No
      frustration.
   Civil: 1456(2) is an exception that places the loss of the K and property on the seller, therefore seller
      can‟t collect price
 Conditional sale, loss after delivery but before last payment (ownership hasn‟t passed).
   Common: SGA 8, K is frustrated, therefore loss falls on seller because property hasn‟t passed
   Civil: buyer bears the loss and must keep paying the price
 Ex. I buy flowers for delivery tomorrow but pay today. Flowers aren‟t delivered because they froze
  overnight. Issues:
   Ascertained? If yes, then
   Negligence by florist, if none
   Superior force (civil), proof of no negligence (common)?
   If superior force (civil) or proof of no negligence (common), florist does not have to deliver more
      flowers
   Do I get my money back?
       1456(2) – risk is on seller
       common: risk is on buyer, out of luck
38
Létourneau v. Laliberté [1957] C.S.
Res perit domino: Under the CCLC, the owner bears the risk.
Facts:
 In this case it was a conditional sale. It had a suspensive condition. The object of the K was a chainsaw, it
   was left in the woods during the lunchhour and when the B returned, it was gone. Now, B does not want to
   pay for the object. The S says that B has to pay.
 B argues res perit domino – S still has title. S argues that it is only owner for security purposes and has
   discharged all its obligations.
Held:
 B bound to pay the balance.
 There was no fault by the B, he was not negligent wrt to the disappearance of the chainsaw ( ie assume theft
   is a superior force). Once the saw was delivered, the only obligation of B was to make payments. B bears
   the risk of the loss as he was in possession of the saw.
 CCLC: This case was an anomaly. It incorporates the UCC wrt risk and possession.
 CCQ: This was not a conditional sale but a K of sale subject to a term. Art. 1456(2) CCQ says that the
   debtor of the delivery obligation bears the risk until performed. The debtor of the delivery obligation is
   the S, he has performed, and therefore the risk is with the B.

D. Seller’s Obligations
1. Introduction

    General law is the law of K
    Duty of disclosure – one clear difference between common and civil
    Situation: Statement by seller turns out to be false, the buyer is upset. What relief can the buyer get under
     the general law?
      3 arguments that the buyer can make
         1. buyer entered the K under mistake or error – nullity
         2. buyer says that seller broke word – action for breach of K because seller broke promise
         3. seller lied or misled buyer – get some sort of relief, extra-K action
      The reason this area is complex is due to the overlap of the above. Can‟t get an answer to one
         without knowing what the outcome of the others would be. Civilian would say that we have a very
         narrow view of mistake, which is true, but our doctrine of misrepresentation is broad, so will
         encompass much of what civilians would call mistake.

Overview of the law
 Significant statements made before the K was made, turn out to be false
   1. Mistake – get out of the K, restitution
       Very difficult to establish in common, especially in a commercial setting. Both parties must be
          mistaken and it must go to the root of the K.
       Smith: only seen mistake work where you try to sell something that doesn‟t exist. Ex. McRae,
          Australian government tried to sell a tanker that didn‟t exist, off a reef that didn‟t exist and it was
          held not to be mistake.
       In civil, you will argue error.
   2. breach of K
       Was the statement Kal? If yes and it was false, damages for breach of K.
           If the statement was written, there is not question that it is Kal
           If the statement was oral, more difficult
               Questions to ask:
                    Is it part of the K?
                                                                                                             39
                    Intention – did the person making the statement intend for it to be part of the K?
                    Look at objective appearance. When was the statement made? Before the K
                        signed, brochure form a long time ago, closer to negligence, more likely to be
                        considered Kal.
                         May have collateral K – vendor made promises and in return, buyer promises
                            to enter into original K
                         Sometimes the original K will say that it is the entire K, therefore courts try to
                            find another K. If you say that the original K supersedes all other K on this
                            matter, courts more reluctant to find a collateral K.
                         How serious was the statement?
                         How important was it to the buyer?
                         Did the vendor assume responsibility for the information or did he tell the
                            buyer to talk to others?
                    Parol evidence rule – where you have a written K, can‟t introduce oral evidence
                         Not applied often
                         When trying to introduce oral evidence that contradicts the written K, the rule
                            is likely to apply. Ex. K says that truck will only carry 1 tonne and if you try to
                            introduce statement that it was carry 2 tonnes, may be a contradiction.
                What remedies do you get?
                  Back to the general law
                    Damages for expectation – value of profit you expected to make, the value of the
                        promise
                    Right to rescind, can also sue for damages
                    If the statement is a term, might have the right to rescind depending on the
                        significance
                         Breach of a condition – rescind
                         Breach of a warranty – damages
                         Innominate term, could be either a condition or warranty. Can‟t determine
                            until breach.
3. tort option
    if the statement is not part of the K, must go to tort. Note: may be able to go to tort even if breach
       of K (argue both at the same time)
    is the statement a misrepresentation?
        Show that the statement is false
        Statement of fact. Can‟t sue on mere opinion but courts have techniques for turning opinions into
           facts.
        Reliance, entering into the K. Statement must be a reason for entering into K (can be trivial, ex.
           car had full tank of gas).
    Legal consequences of misrepresentation
        In principle, can get rescission, even if it is a trivial misrepresentation (result is harsh and courts
           tend to avoid it). There is also the possibility of restitution or damages.
        Damages in addition to rescission or as an alternative to rescission?
            It matters what kind.
                Fraudulent – difficult to prove, must have intent. Get damages
                Negligent – Tort. There must be a special relationship, something close to K (not difficult
                   to find) when the party signed the K. Get tort damages.
                Innocent – not tort, therefore no damages but can get rescission. The error must be
                   shared, very often not fundamental.
            Courts calculate damages on tort basis – reliance interest
                Ex. Financial advisor promises that if you invest $500 you will get $1500. It goes to 0
                   instead. K will give you $1500, expectation interest. In tort, you will get reliance, what
40
                  you would have had not relying on the misrepresentation (remember you must show
                  relationship), so here $500. The only way you could get more in tort is if you can show
                  forgone opportunities. This is why you will want to sue in K. You don‟t have to show
                  reliance or special relationship plus you will get max $$. Reliance rules may be a little
                  more generous in tort, but not enough to make a difference. Occasionally, limitation
                  period in K may run out sooner, it runs from K, tort runs from when damage is suffered.
              Typically in commercial markets, there is no difference between reliance and expectation
                  interests.
         Can you exclude liability for misrepresentation?
           In principle, yes for negligent and innocent, but not for fraud.        Courts may be reluctant to
             exclude liability for negligent misrepresentation if the clause is overly broad. In a commercial
             setting, may be valid if the K says that only what is written is part of the K.

The making of business Ks
 It is far from easy to determine exactly at what point a statement ceases to be a mere advertising
   commendation and becomes a representation to be imported into the K.
    Over the course of the negotiations the seller may be represented at different times by different
       persons whose authority to make representations on his behalf may not be very clearly defined, in this
       respect it is the representative's apparent authority that matters more than his real authority, he may
       submit a wealth of published material in the shape of catalogues and specifications all of which may
       influence the buyer to acquire the product.
    It is in the interest of the seller to make sure that at the time the K of sale is entered into, all irrelevant
       and casual statements regarding the goods are clearly excluded from the scope of the K proper.
 If a K says that only what is in writing constitutes the representation, the clause will sometimes be set
   aside. But often enough, in a regular k, statements are not included in the k.
 The buyer can rely up on the order document, but also in other ruling documents, for instance, the
   Purchasing Officers Association conditions, which provide the following: The goods shall:
    conform as to quantity, quality and description with the particulars stated in the order,
    be of sound materials and workmanship
    be equal in all respects to the samples, patterns or specifications provided or given by either party

Esso Petroleum v. Mardon
Facts:
 Lease K of an Esso Service station, in consideration of estimated throughput of the station told by Esso's
   officials. However, the estimation was high. Reality was 70,000 gallons/year instead of 200,000 estimation.
   M is seeking damages for breach of warranty and for negligent misrepresentation based on the false
   estimate of probable throughput of the service station.
Issue:
 Was there a breach of a collateral warranty?
Held:
 If a representation is made in the course of dealings for a K for the very purpose of inducing the other
   party to act upon it, and actually inducing him to act upon him, by entering into the K, that is prima facie
   ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral.
   Suffice it that it was intended to be acted upon and was in fact acted on.
   Although Esso says its an opinion and not a statement of fact, Denning says the warranty was that they
   were making this statement with care (diligence). Here no diligence
Issue:
 Did E make negligent misrepresentations?
                                                                                                             41
Held:
 Denning says that in the case of a professional man, the duty to use reasonable care arises not only in K,
   but is also actionable in tort.
 Hedley Byrne covers this proposition: if a man professes to have special knowledge or skill, and makes a
   representation with the intention to induce the other party to enter in the K with him, he is under a duty
   to use reasonable care to see that the representation is correct, and that the given information is reliable.
 In our case the presentation was made negligently. It was a fatal error, and therefore because of this
   misrepresentation they are liable for damages.
 Smith: Denning is wrong at the end when discussing damages. Can‟t get rescission because it‟s too late.
   Also, in principle, there is a difference between reliance and expectation interests.


Cehave N.V. v. Bremer Handelsgesellschaft m.b.H., [1976] 1 QB 44 (C.A.)
Facts:
 K for citrus pulp pellets. Express term that goods be shipped in good condition. Implied term of SGA –
   goods be a merchantable quality. After a major fall in the market price of the citrus, the defendants
   rejected an entire shipment on the ground that one of the units was damaged -- as it turns out, the
   defendants, however, managed to buy the citrus through a third party at a fraction of the original price.
Issue:
 Was the express term “good condition” a condition or warranty?
Held:
 Neither. It was innominate term, the significance of which could not be determined until breach.
 Where a condition is breached, however slightly, it gives the other party a right to rescind and to sue for
   damages, unless he by his behaviour waived the condition, in which case he was bound to perform his
   future obligations but could sue for the damage he suffered.
 Where a warranty is breached in any respect, however serious, the other party was not quit of his future
   obligations, his only remedy was to sue for damages.
 The determination of whether it‟s a condition or warranty is made at the time of the K. Although this is
   the law, caselaw typically looks at the effects of the breach. Also, caselaw has found a third category,
   which is b/w condition and warranty (HongKong Fir), it is the innonimate (intermediate) terms:
    We have to look at the effects: if the breach is serious (goes to the root of the k), can refuse, but if
        trivial, can only sue in damages. In this case, the breach was minor, therefore breach of warranty.
    The SGA does not contradict this even though it talks only of conditions and warranties. Smith:
        whether Denning is right or not is a matter of statutory interpretation but his attempt to introduce it
        was sensible.
 Breach of implied condition of merchantable quality. SGA says it‟s a condition. Denning overrules the
   trial judge on a question of fact and says the goods were of merchantable quality but there was a breach of
   a warranty.


Bunge Corporation v. Tradax Export S.A. [1981] (HL)
Facts:
 shipment of Soya meal - it was agreed that the buyer would give the sellers 15 days' loading notice -- the
   sellers received a short notice and subsequently claimed damages from the buyers for breach of K
 The appellants had argued another test which the court rejected, namely, whether the breach was actually
   committed and whether that default deprived the party not in default of substantially the whole benefit of
   the K (they want it to be an innominate term):
Issue:
 Was it a breach of a condition?
42
Held:
 Yes
 Court rejected the test of “gravity of the breach” on the ground that on the date of the breach there
   would be excessive uncertainty as to the rights and obligation of the parties. It would be commercially
   undesirable.
 In commercial K, time provisions are always considered as conditions. We need clear rules!

 For payment, need to stipulate in the K that payment is an essential term (condition). If payment is
  concurrent or before deliver, seller doesn‟t have to deliver.
 Time is of the essence in commercial K. In consumer K, there are no prefixed rules.
Notes:
 The seller's implied obligations in SGA: 13-16 of title, description, merchantability, fitness for purpose,
  and conformity to sample, are all treated as conditions. This leads to problems as the one Denning faced.
 The Vienna Sales Convention – all terms are innonimate - If it results in such detriment to the other party as
  substantially to deprive him of what he is entitled to expect under the K, unless the party in breach did not foresee and a
  reasonable person of the same kind in the same circumstances would not have foreseen such a result.
 The British Law Commissions have reviewed the law in this area and recommended only minor change,
  namely, that in consumer matters the buyer could reject however slight the breach, whereas in non-
  consumer matters rejection was only available if reasonable.
 American sales law has long adopted the position of the "perfect tender rule" which calls for strict
  compliance with all terms of the sales K.

                                                  Statement




                            K                                                      Tort



          Condition      Warranty     Innominate                 Innocent       Negligent       Fraud
          Rescission or Damages       Rescission or                                             Damages
                                                                 Rescission     Damages
          damages                     damages




Civil law
 Breadth of relief for error – don‟t need to get into misrepresentation
 If the error was the reason for entering into the K (determinative), that is going to be enough
 We don‟t bring tort in here because of 1458
 1400 – false statement. Error is relatively easy to prove. The K will be set aside and will get restitution
   for prestations.
 Damages?
    If you suffer a loss because of the fault of the other, get damages on Kal level (expectation).
         Statement part of the K
         If not part of the K, but just a statement made as part of the K story, damages if fault
            Fraud 1407 – need intent. There is no equivalent for negligent misrepresentation.
            From the general law - good faith 6-7, part of the general theory of obligations
 Possibility of reduction of price – 1407
 Possibility of punitive damages – 1621
                                                                                                  43
 QCPA 219 ff – offence to make false statements. QCPA 253 – presumption where a false statement was
  made, it was determinative.

2. Delivery

i)     time and place

Obligations of the seller under CCQ
 Delivery (includes description) and quality

Obligations of the seller under common law
 Delivery, description, merchantable quality, fitness for use
 Hard to distinguish between merchantable quality and fitness for use.

Delivery under both systems
 General notion of delivery
 Notion of time
 Correct quantity
 Definition in Jobin: does not merely mean physical delivery. It means putting the buyer in control over
   the property. Give buyer keys, deeds, title.
 Not the same as passing of property. Title can pass before delivery. Typically happened at the same time,
   but not necessary
 Both have obligation to deliver on time
    Common law – harsh (clear and certain)
        Bunge – in commercial K, time is of the essence, therefore it is a condition of the K, giving right
           to rescind
        Hartley – time is of the essence
        SGA 11 – depends on the term of the K whether time is of the essence. Smith: why isn‟t it more
           specific?
            Allen - sale of car to consumer. Delivery not late, but even if it had been late, time was a
               warranty and not a condition.
    Civil law – 1736 (more flexible)
        Buyer of movable property may consider the sale resolved if there is failure to deliver (has to be
           breach by operation of law). 1597 defines operation of law as something major, done after when it
           would have been useful. 1595 can serve notice of default, must perform within a reasonable time.
    Which rule is better?
        Some cases where common law is inappropriate – goods made to order, 5 minutes late for
           delivery. If buyer made a bad deal, will want to get out of the K
        Common law is not so harsh when dealing with fungible goods.
        Common law is certain – this may be important, especially when dealing with someone you don‟t
           know overseas.
        Smith: civil law rules may be better
    Damages for late delivery – general rules
    Can parties stipulate rules of breach?
        Common law – yes
        Civil law – yes, but remember 1604(2) (default of minor importance, can‟t stipulate resolution).
           Controversial because sophisticated parties couldn‟t stipulate that time is of the essence.
    Do you need to go to court for rescission?
        Common law: no. Go to court to get $ back, but not for rescission.
44
        Civil law: traditional rule is that you have to go to court. But QC has moved closer to c/l – for
         later delivery, K can be resolved extra-judicially if the requirements are met.
          Note: 1736 only applies to movables. If it is an immovable, (a) you don‟t have the right to
              resolve extra-judicially (Jobin’s view) and (b) you go back to the general law 1604, 1597.
      What if no date is stipulated?
        Civil: immediate, but Jobin notes that it is not appropriate in some cases, therefore reasonable
        Common: reasonable – SGA 28(2)
               Allen
    Both see quantity as an aspect of delivery
      SGA 29, CCQ 1737
      If seller doesn‟t deliver enough, buyer can reject the goods
         Common law: all or nothing, can also get reduction in price
         Civil law: 1737 – resolution if the difference causes serious prejudice, also possibility of reduction
            of price
      If seller delivered too much
         Common law: reject the whole lot, reject the excess or keep the excess. If you accept the excess,
            buyer pays for it at K price
         Civil law: 1737(2) – can‟t reject the whole. Can pay for the excess at the K price or return it.
             Jobin: argues that rejection still exists – go to the general provision of resolution.
             Smith: disagrees! Thinks 1737 ousts the general rule

Interdependence between delivery obligation and the obligation to pay
 Only matters if the buyer has to pay in advance or at delivery – SGA 27, CCQ 1591
 What is payment is to be made later and the seller is worried that the buyer can‟t pay?
     Common law: anticipatory repudiation – buyer tells you she can‟t pay, you can consider the K
       breached, don‟t deliver
     Civil law: if the buyer is insolvent, you don‟t have to deliver

Issues raised in the civil law
 Accessories
    Obligation to deliver accessories 1718 – those things necessary for the buyer to fully enjoy the
       property. Ex. document of title (1719), keys, instructions, etc.
    In c/l, accessories are not mentioned in SGA but you will find rules for land, cars, that require seller
       to hand over the deeds. As for keys, instructions, etc, they are implied to be part of the K
    Jobin: warnings about dangerous defects are not mentioned in law of K or law of sale, mentioned in
       extra-k – 1468. Can‟t use it against someone you have a K with, therefore, have to bring it in as an
       implied term under 1434.
    Juridical rights – sometimes when you buy property, you get the legal rights the owner had. Ex. right
       of way for land is accessory, therefore goes with the property.
        Is this really part of delivery? The law says the rights are automatically transferred to the seller.
           Seller has the obligation to inform the buyer of these rights.
        Ex. collecting rent, get rights under the lease that the former owner had – 1937
        Ex. Kal right to sue who the seller bought the goods from. 1442 – rights pass with the property.
 Conformity
    Obligation that the goods conform with the K (in c/l, this falls under description)
    1720 – seller must deliver area, quantity, or contents specified in the K
        Obligation goes beyond and includes quality, colour, etc, whatever was agreed upon. It is more
           comprehensive that the obligation of description in c/l.
    Some overlap with quality
    Question of fact: did the buyer get what was agreed upon?
                                                                                                                45
         Question of law: what is the consequence of a lack of conformity?
           Refer back to what was said earlier about quantity
           1737 – buyer can get a reduction in price or resolution or damages under the general law
              not clear whether you can get resolution extra-judicially. Jobin: you can ignore 1737 and go
                 under the general law, 1605 (operation of law or notice). Smith: might work.

KEY POINT: DELIVERY IS A BROADER CONCEPT IN THE CIVIL LAW

Hartley v. Hymans [1920] All ER Rep. 328
 In ordinary commercial Ks for the sale of goods, the rule is clearly that time is prima facie of the essence
  with respect to delivery.
 The essential juristic result, when time is of the essence of the K, is that a vendor who has failed to deliver
  within the stipulated period cannot prima facie call upon the buyer to accept delivery after that period has
  expired. The buyer can plead the seller's default and assert that (s)he is not ready and willing to carry out
  his K.

Allen v. Danforth Motors Ltd. (1957), (Ont CA)
Facts:
 Plaintiff is seeking to recover $$ paid by her as the purchase price of an automobile. Since no delivery date
   was specified in the written K, the plaintiff relied on a discussion with the dealer in which it was
   apparently agreed that delivery would occur in 2 - 3 days. The car was available for delivery within 10 days
   of the date of K, but the plaintiff repudiated the K and cancelled the order.
Issue:
 In trying to work out what is a reasonable time, can the court refer to extrinsic evidence?
Held
 The parole evidence rule works when the law requires the k to be in writing; Extrinsic evidence (of the
   discussion concerning delivery) is, therefore, inadmissible to contradict, vary, add to or subtract from the
   terms of the document.
 Even if the plaintiff were entitled to prove by extrinsic evidence that a date for delivery was stipulated,
   there is no indication that the time so stipulated was of the essence of the K, for a breach of which the K
   could be repudiated. The crucial question arises from the construction of the contact, and in the absence
   of a specified date of delivery in a K for the sale of goods must be delivered within a "reasonable time".

Smith: For the reasonable time standard, should it be a standard of care (time should have taken w/out
being negligent & if something out of his control happens, disposes of more time) or the time in the business
(if there‟s a flood, we don‟t care – what is industry std?)?
 Allen chooses the first option but mixes it with the second – normal trade practice coupled with std of
     care.
 The problem arises when it‟s a unique product and there is no trade practice established
 Chas Rickards: If a buyer does not insist on the original time of delivery (he waives it), he induces the
     seller to rely on this and the buyer cannot treat it as a condition anymore – reliance (effect of s.12(1)). So
     no problem in waiving (except situation of duress), but what happens if no other date is set? Reasonable
     expectation, industry norm.
 Civil law: 1595 – notice of time. Sufficient time sounds like standard of care but it is not clear what test is
     appropriate.

ii)       seller’s obligation regarding description
     closest to the obligation of conformity in civil
     often overlaps with merchantable quality and fitness for use
     SGA 14 – words are important but confusing
46
        Where there is a K of sale by description, it is a condition that the goods will conform with the
         description
          Background info: Chalmer‟s was codifying a sale by description, where the buyer had never seen
             the goods.
          We need to identify:
              Sale by description?
              What parts are descriptive?
              Is there correspondence?
          The concept was broadened to include seen goods, which doesn‟t make sense!



Varley v. Whipp (1900- Eng)
Facts:
 P offering to sell D a machine he knew of but did not own - referred to it as a second-hand reaping
   machine that was one year old. D agreed to buy reaper w/out having seen it. When D got machine, he
   realized it was very old, mended, and of no use to D. He returned it w/out paying. P brought action to
   recover purchase price from D, claiming D had accepted machine and thus property in it had passed to
   him – he could hence only recover damages (the condition having turned into a warranty). D claimed sale
   was by description with no match of that description
Issue:
 Can the goods be rejected on the basis of a breach of description?
Held:
 Yes, under SGA 14.
   1) If property in machine passed to D, then D cannot reject it since s.12(3) says that once the property
       has passed, the condition must be treated as a warranty; The req‟t that it be of the said description is a
       CONDITION before the passing of property and a warranty after.
   2) passing of property – s.18 says it passes when parties intend it to pass.
   3) Normally, we would go to s.19 (Rule 1) and say they have passed but the judge interprets the k as a
       conditional k (s.19(rule 4)) which has for effect to make the property pass upon acceptance. Thus,
       SGA rules for passage of property for sale of specific goods do not apply (s.19 (rule 1)) since it is a
       conditional k – conditional to the goods corresponding to the description.
   4) To know when property passes, must look at the intention of the parties (s.18) and the judge
       interprets the party to have had the intention to make property pass when D accepted (Here, it could
       not be at the signing of the k since the P did not own the goods) – here, was never accepted Hence,
       s.12 does not kick in to make it a breach of warranty.
 Smith: The judge manipulates the passing of property rules to make it just. Had he not considered it a
   conditional k, it would mean that all conditions turn into warranties when we are in the presence of
   ascertained goods – which would make no sense.

    If we go under SGA 14, we don‟t need to show seriousness of breach and can rescind for something
     trivial

Beale v. Taylor (1967) (EngCA)
Facts:
 D believed the car to be a 1961 Herald - put ad in paper for sale of 1961 Herald - P went to see car; rode
   in it but did not drive it – he paid D and drove car away, noticing severe steering problems on the way
   home - took it to garage: car actually halves of 2 cars welded together
Issue:
 Can sale of description apply to seen goods?
                                                                                                           47
Held:
 There is sale by description even though the buyer is buying something displayed before him: a thing is
   sold by description so long as it is sold not as a specific thing but as a thing corresponding to a
   description.
 The deviation of the goods from the description was not apparent
 Smith: not a huge leap, but went further because he had to rely to some extent on what the seller said

THEREFORE: “sale by description” has been replaced by “did you rely on the description”
 Still gives you more than under the general law because you can rely on trivial matters. Ex. glass dial
  won‟t crack under heat, it breaks. Part costs $1 to replace. SGA 14, you can reject the whole machine.

Arcos Limited v. E.A. Ronaasen and Son [1933] AC 470,[1933] All ER Rep. 646 (HL)
Facts:
 The sellers agreed to sell wood to the buyers. The K specified the type of wood and the size. The staves
   were required by the buyers for making cement barrels, and this was made known to the sellers in
   circumstances that implied a condition that they should be fit for that purpose. The buyers examined the
   goods and claimed to reject them on the ground that they were not of a K description (slight deviation in
   size). (really – the price of wood had gone down meanwhile, buyer wants to get out of K
Issue:
 Did the buyer have the right to reject the goods on the basis of a breach of description?
Held:
 Yes. If the written K specifies conditions of weight, measurement and the like, those conditions must be
   complied with. If not, the buyer has a right to reject it. That's the "perfect tender rule".
 Smith: This shows that the slightest deviation can justify the breach of a condition of description and
   rescission (there is although a very modest exception where a deficiency or excess in quantity which is
   microscopic and which is not capable of influencing the mind of the buyer will not entitle him to reject
   the goods for de minimis non curat lex). This case is an example of the lack of the good faith principle in
   English law.

Criticism of SGA 14
 Allows for rescission for minor problems
     Ex. order cabinets, it is missing a know, should you be able to reject the goods? According to SGA
        14, yes. Under general law, probably not. But is the seller going to come back and put on the knob?
        Probably not. Therefore as strong remedy will force the seller to comply.
     Smith: good for consumer K
     Ex. Used some dowels that aren‟t redwood inside the cabinet. No change in appearance, slight
        difference in durability, would be expensive to fix. SGA 14 too harsh, probably acting in bad faith if
        rejecting the goods.

Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (1976) (HL)
Facts:
 Defendants bought a new oil tanker but wanted to reject it on the ground that the seller allegedly deviated
   from an intermediate charter provision that the ship had to be built at "Osaka Zosen", Japan and not
   somewhere else. It was built 300 miles away due to the large size of the vessel. (The price of oil had
   meanwhile fallen)
Obiter:
 Wilberforce rejects the decisions on s.14 finding them too technical and harsh on the seller. The facts of
   this case demand that the normal rules of K law apply – the gravity of the breach must be of importance
   (Hong Kong Fir).
48
 that is, the court needs only ask itself (with respect of the description) "whether a particular item in the
  description constitutes a substantial ingredient of the identity of the thing sold, and only if it does to treat
  it as a condition" allowing rejection of the good.
 The buyer cannot reject the ship in this case as the nature of the breach (i.e., building the ship outside of
  Osaka Zosen) does not constitute a breach of a Kual condition.
 Smith: Wilberforce should have said unseen

3. Quality

    SGA 15(2) introduces new obligation for seller, backed up by fitness for use (15(1))
    Merchantable quality – objective. From the perspective of the market place
    Fitness for use – subjective. From the perspective of the buyer

i)   Merchantable quality
 Goods bought by description , from a supplier, implied condition of merchantable quality
 Scope of 15(2)
   Goods bought by description
      Meant to apply to sale of unseen goods, now also applies to sale of seen goods
      SGA 14 – every sale is a sale by description, but the concept is narrowed to terms (descriptive
          statements) that the buyer relied on
      What does it mean in 15(2)?
           If you are suing for breach of merchantable quality, what is the defect? Did you rely upon the
              seller being responsible?
               Similar to 14
               Not difficult to meet the threshold of reliance, unless a private seller (but recall: 15(2) does
                   not apply to that situation)
                    If you looked at the goods, you are not relying on the seller (already caught by 15(2),
                       you won‟t succeed)
   Does the seller deal in goods of that description?
      May have a commercial seller dealing in something they normally don‟t sell. Ex. Mfr seller off
          excess delivery trucks
   Condition of K. What happens of the breach is trivial?
 Meaning of merchantable quality
   Traditional – resalable. Ex. silk bought to be resold and the quality is not good enough to be resold.
     It is an objective test – ask the market whether others would buy it
   Modern – salable. Roughly the same as resalable. Courts ask what others think.

Hardwick Game Farm v. Suffolk Agricultural and Poultry Producers Association [1968] Eng CA
Facts:
 The buyer purchased Brazilian groundnut food extraction which was contaminated with some toxin
   leading to the deaths of the buyer's pheasants. These groundnuts were usually sold as food for other
   animals, and even after knowing they were poisonous, the seller kept on selling them for these other
   animals.
Issue:
 Was the condition of merchantable quality breached?
Held:
 It is not a breach of the condition of MQ (but is a breach of condition of fit-for-use).
 Reid defines the content of merchantable quality as follows: Merchantability "is that the goods in the form
   in which they were tendered were of no use for any purpose for which goods which complied with the
   description under which these goods were sold would normally be used, and hence were not saleable
                                                                                                        49
  under that description. This is an objective test: were of no use for any purpose...must mean would not
  have been used by a reasonable man for any purpose..."
 Low boundary – all that is needed is that, had buyers known of the defect, some (not all, not most) of
  them would still have bought the goods under this description. Here, kept on having at least one suitable
  purpose.
 Smith: MQ must be distinguished from fitness for use. s.15(2) is an objective test – not this buyer but
  some of them. This decision seems to say that even if only 4% of the buyers kept on buying, it would
  satisfy the test.

 Is this decision correct? There was no warning that about the poison. Lack of warning doesn‟t come up
  in this test.
 Strict liability for 15(2).
   But these are no Kal terms, they are imposed by law
   No fault required
   Sellers are big people, they should lose. It gives buyers someone else to sue.
       Will give some incentive to sellers to take care of who they buy from
   Part of the explanation lies in tort – in c/l, can‟t recover for pure economic loss

   Smith: criticizes c/l for not giving the seller the right to cure the defect. CCQ 1739 gives the right to
    cure. The buyer must give notice of defect before claiming damages.

Merchantable quality – the first limb of Hadley
 The breadth – anything that may make you not want to buy the product (colour, cosmetic, etc)
 15(2) if the buyer has examined the goods, the warranty will not cover what should normally be
  discovered in that inspection. Smith thinks of it as if the buyer has the chance to inspect and doesn‟t, he
  has waived his rights.
   Some courts say a cursory look is examination, ex. barrels of glue, did not open them
   Good defence if you can show that at least some buyers would continue to buy knowing of the
      defect, they may still be of merchantable quality. In practice, 15(2) is interpreted very narrowly, but
      15(1) is very broad, and covers many of the gaps left by 15(2).

International Business Machines Co. Ltd. v. Shcherban [1925] Sask. C.A.
Facts:
 Defendants refused to accept a computing scale from the plaintiffs (respondents) because a piece of glass
   which covered the dial was broken. When the scale arrived at Hafford, the plaintiffs recognized that it was
   not in a deliverable condition and sent the defendants a letter asking them to have the repairs made at the
   plaintiff's expense
Issue:
 Was there a breach of merchantable quality?
Held:
 Yes
 15(2) means that the article is of such quality and in such condition that a reasonable man acting
   reasonably would after a full examination accept it under the circumstances of the case in performance of
   his offer to buy that article whether he buys for his own use or to sell again.
 A reasonable person would not accept the machine with the broken dial. The defendants were in their
   legal rights in refusing to accept the scale until it was put into a merchantable shape. Even though the
   plaintiffs contended that the cost of the glass was trifling and this should be a consideration for the court,
   the judge refused to do so. When the consignment contains but a single article which is unmerchantable,
   the maxim de minimis non curat lex has no application.
50
     Strong dissent: He wants to apply the maxim de minimis non curat lex. According to this Judge, the trial
      Judge proceeded on a wrong principle in awarding damages. He claims if the defendants were not justified
      in rejecting the scale, the plaintiff was only entitled to damages.

 Smith: the justification behind this case is that the seller will be more able to fix the good or give you
  another (you shouldn‟t have to sue for 25 cents defect you can‟t fix yourself).
 The problem though is that since we say we can reject for trivial defects, if the market price falls, you can,
  in bad faith, reject for a trivial defect. We should hence build in a right of cure in reasonable time on part
  of seller.

ii)       Fitness for purpose
     15(1) - where the buyer makes intended use known, relies on the seller, and the seller is in a normal
      course of trade, there is an implied warranty of fitness for use.
     As a matter of history, this section was intended to address the foreseeability of damages and special
      notice requirements. Remember that you can get normally foreseeable losses. However, the second bit
      of Hadley v. Baxendale is that if you give notice, then they can be held liable for weird losses.
     The two branches of 15 are meant to approximate the two branches in Hadley.
     These days, mere notice is not enough. Ex. tell taxi driver you are heading to catch Concorde for $$$$
      deal. Need Kal undertaking for extra responsibility,
       Reflected in 15(1), where it must be shown that the buyer has reasonably relied. They‟re not saying
          that this is an implied term of the K, but pretty close.
       However, like 15(2), 15(1) has expanded greatly.
     This is a condition, in the K‟al sense. It is not limited to sales by description. (recall from previous
      discussions that it doesn‟t really matter)
     It has to be something that is sold in the seller‟s normal course of business – similar to “seller who deals
      in goods” in 15(2)
     Did the buyer reasonably rely on the seller that the goods are fit for their use?
       Communication
       Particular purpose
       Reliance (examination comes into play here)

     Recall: Hardwick Game Farm
       Ground nut extract for pheasants with a bit of poison. Was of merchantable quality because others
         would buy it.
       Distributor and sub-distributor are making the claim
       Held: not fit for purpose.
          Particular purpose – court rewrote the section. Originally meant to apply to unusual, can apply to
              ordinary purpose. Result is that prima facie, 15(1) will apply to every sale. Here, the buyer‟s user
              to sell in smaller quantities to feed animals is a particular purpose.
          Communication – Court widens it. If general purpose, nothing needs to be communicated
              because it is assumed that the seller knows about it.
          Reliance – court also relaxes this requirement. Reliance can be partial, as long as it is relevant to
              the defect. Presumption of reliance where the seller knows the purpose. It is rebuttable.
         IMPORTANCE OF HARDWICK: Makes 15(1) available to the ordinary buyer in ordinary case.
         Fitness for use is a general obligation for the seller.


Ashington Piggeries Ltd. v. Christopher Hill [1972] (HL)
Facts:
 mink food, one ingredient is toxic for minks
                                                                                                              51
Issue:
 Was the communication of the particular purpose satisfied?
Held:
 The particular purpose (food required for minks) was communicated.
Issue:
Was there reliance?
Held:
 Had it been toxic only for minks, then no reasonable reliance – however it was dangerous generally for
   animals. The buyer need only prove that their loss resulted from the presence of a toxic ingredient in the
   food. The herring meal contained DMNA, a poison to which all animals are sensitive (and to which mink
   are particularly sensitive.)
 The buyer thus demonstrated that the food was unsuitable. It didn‟t matter that the buyer was more
   expert than the seller of mink-specific problems and even specified the ratios.
 The onus then falls on the seller but he was unable to demonstrate that the food would have been fit to
   feed animals other than mink.
 Hence the reliance req‟t is met

 Another issue was whether or not the goods were goods "of a description which it is in the course of the
  seller's business to supply" as required by s.15(1) and 15(2). The sellers had argued that they were not
  dealers in mink food. This was rejected by Lord Wilbeforce.
   The purpose of the section is to limit implied conditions of fitness or quality to persons conducting
       business, as distinct from private persons. Goods "of a description..." means goods of that kind (food
       for animals), and nothing more. It is in the course of a seller's business to supply goods if he agrees to
       supply the goods when ordered.
 Third party liability: The sellers pursued the suppliers of the herring meal used to compound the food.
 Lord Wilberforce held that the herring meal was unsuitable, and that the suppliers were liable for breach
  of an implied condition of fitness. The suppliers knew of the purpose (for use in animal feed) and though
  this purpose was wide, it was sufficiently particular. The seller is liable if it is reasonably foreseeable (if
  not unlikely) that it will be used by minks. The circumstances of the sale were such that the suppliers
  would also have been aware of the sellers' reliance upon the suppliers to provide a product reasonably fit
  for the purpose.

SUMMARY: If the product is unfit for any reasonably foreseeable use, or the use is unforeseeable and the
buyer gives notice, except where the buyer is clearly an expert, there will be seller liability

   What about cases where the use is so unusual, that it is not reasonably foreseeable?
     Go back to original meaning of 15(1) – becomes a question of fact
       Particular purpose
       Communication
       Reliance

   Seller can explicitly exclude SGA 15 in K of sale to avoid liability. Buyer may not want to buy the goods
    but it is worth a try.

   What if it takes a long time for the unfitness to become apparent?
     Past prescription period, may not rescind or reject the goods
     The condition turns into a warranty

Warnings
 Why didn‟t the seller warn about the product?
52
 They are relevant to whether the product is fit. Product may become fit if there is a warning, but depends
  on the facts. If the warning is in small print, unlikely to be fit.
 The product liability regime in tort in c/l is weak, therefore, a broad interpretation of 15(1) gives
  something close to recovery for economic loss for product liability under civil law.

Are there any cases where you would need to use 15(2) because 15(1) wouldn’t work?
 Something used for a particular use, works well, but has a cosmetic defect, therefore not of merchantable
   quality, even though fit for use. Court could easily say that a cosmetic defect makes the product unfit for
   use, but as a matter of practice, they use merchantable quality.
 Smith: could do away with merchantable quality and rely solely on fitness for use.

iii)    Warranty of quality

Introduction
 Warranty of quality or against latent defect = warranty of quality (1726ff)
 Equivalent to merchantable quality and fitness for use in c/l – laws are different but often yield the same
    results
     In both:
         Relationship between seller and buyer – don‟t forget mfr liability
         Durability
         Fitness for purpose – QC
         Warranty of good working order
         Dangerous defects (something wrong with the product makes it dangerous) – safety
         Inherent danger (Ex. dynamite, oil, alcohol) – safety
         Non-dangerous defects

Reform of CCQ
 Codification of case law on mfr liability – 1468, 1469, 1473
 1794 – sales of residential immovables by Kors and homeowners, incorporates warranties of K of
   enterprise into this K of sale
 replaced CCLC 1530 on latent defects (bring action within a reasonable delay) with 1739 (give notice
   within reasonable time)
    This improves the position of the buyer without causing any prejudice to the buyer.
    There are no remedies specific to latent defects, so we go to general law 1604, 1590, etc. if it is
       important, there is a right to the resolution of the sale. If it is minor, there is a right to reduction of
       price or damages. Note that 1728 requires knowledge by the seller at the time of sale in order for
       damages to be awarded. If there is no knowledge, only have the right to reduction in price or
       resolution. There is also the right to specific performance – 1601 but Jobin found not cases on this
       issue.

Concept of defect
 Concept is to provide buyer with full enjoyment. Anything less than full use or that makes the property
   totally unfit for full use will be a defect.
 The property must be fit for every foreseeable use - 1736. QCPA 37 is more explicit. If you buy a car in
   Montreal it must be fit for use in the summer and winter. The civil law did not have the same debates
   regarding fitness. The test is foreseeability. First question: Was the use foreseeable, if so there is a
   warranty. This will include presentation, i.e. cosmetics, if it impacts the consumer‟s use. It can apply to
   the comfort, for example of a residential immovable.
                                                                                                              53
Cook v. Warren [1992] C.S.
Facts:
 C family bought a nice house in Hudson. House had bat colony in the walls. Holes in the façade of the
   building allowed the bats to get it. Mrs. C couldn‟t stand this, impossible to get rid of bats, she moved out.
   Mr. C (owner) brought an action for nullity on the basis of a latent defect. Bat‟s didn‟t damage the house
   in any way. No threat to human health or safety, just made the house uncomfortable.
Issue:
 Is this a defect? Is there a breach against the warranty of quality?
Held:
 Serious latent defect, therefore resolution of K.
 Take into account cost of repairs, utilitarian factor, economic consequences, psychological factor.
 If they had known of the defect, they would not have purchased the house.
 Home is unsuitable for the purpose of a family home

   Jobin: if you feel this goes too far, you can give alternative of a reduction in price 1604. Court didn‟t
    consider this here but could have. Judge has discretion to calculate the reduction based on the cost of
    repair, expert evidence on the devaluation.

Gestion Rodney v. Dominion
Facts:
 Sale of bottle caps for maple syrup bottles. Seller‟s rep visited bottling plant. Problem: caps were
   designed for bottling in lukewarm conditions, buyer used high temperatures. The caps couldn‟t withstand
   the heat and had to be discarded. Buyer sued seller and mfr.
Issue:
 Was this an unusual use or were the circumstances enough to inform the seller?
Held:
 Seller, through the rep, knew of the situation, so the seller should have sold caps suitable for hot
   temperatures. Goods defective, K set aside, damages.
 Manufacturer did not know of the unusual purpose, therefore not liable.

   The defect may sometimes be dangerous – ex. defective wiring

La St-Maurice v. General Motors of Canada
Facts:
 Defect in gearbox, which causes oil in gearbox to overheat. Also, defect in gauge would cause oil to
   overflow onto the engine and catch fire. Owner of truck insured by St-M (subrogated into rights of
   buyer)
Issue:
 Defect?
Held:
 Yes.
 In civil law, between seller and buyer, dangerous defects treated in the same way as non-dangerous
   defects.
 Extra-K liability of mfr too

   Occasionally, will have to choose between warranty of quality and rules on compliance for delivery of
    exact thing ordered
     Borderline cases – capacity of equipment to do certain things
         Ex. tractor engine, unfit for purpose specific because it can‟t pull as big a load
             Non-compliance with order – don‟t have to meet all warranty of quality conditions
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              Warranty of quality – must meet the 6 conditions

Concept of warranty of quality in CCQ
 1726 – unfit for purpose
 QCPA 53, interpreted as bringing in 1726 definition of defect.
 Fitness for purpose - Jobin thinks there is no difference between lack of this and warranty of quality but
   might be because there terms are used in different spots
    1726 – fitness for purpose in definition of warranty of quality
    QCPA 37 – warranty for fitness for purpose
    1854 – for K of lease, warranty for fitness for purpose, not warranty of quality (no warranty for latent
      defect)
 1729 – warranty of durability. Fit for a reasonable time after purchase.
                                         nd
 Warranty of good working order for 2 hand vehicles – QCPA 159, 164

6 Conditions for warranty of quality
 Serious
    1726 – test is relatively subjective
       If the buyer had known of the problem, wouldn‟t have bought it or would have paid less
       Compare this against 1401 for fraud, same concept.
    What is serious? Look at:
       Cost of repair vs. price of the object. If the difference is significant, then the defect is serious
       Inconvenience, decrease in enjoyment/usefulness
    Cook – not serious defect on the use of the property. The value of the property declined
       Expensive to redo the walls. Jobin: prefers approach of looking at the cost of repair as it is more
           objective than 1726
       Devaluation of the property – not clear-cut.
       2 issues:
           1. Is there a serious defect? Discomfort can qualify
           2. Is it serious enough to get relief? If the fear was the only evidence, it would be difficult to
               decide, but we have evidence of cost of repairs, devaluation
       Held: resolution because serious latent defect
    2 thresholds of seriousness
       to be considered a defect
       more serious to get resolution as opposed to a reduction in price
 Prior to the sale
    If the property malfunctions or deteriorates prematurely in comparison with identical property, there
      is a presumption that the defect existed prior to the sale – 1729.
       Buyer needs to should that the property deteriorated/malfunctioned prematurely.
            Advantage: don‟t need to find evidence that the defect actually existed when they bought the
               property
       Seller can rebut the presumption by showing that the buyer misused the property (Ex. using truck
           as dunebuggy)
    St-Maurice - defective gearbox and dipstick. GM alleged that the user was abusing the truck by
      pulling too heavy a load. The presumption of fact that the defect existed at the time of sale was not
      used here. The buyer had the burden to that he did not misuse the property and that the truck
      malfunctioned prematurely (required in every case) . However, it was demonstrated that the fire could
      have occurred even when the truck was used properly. The court ruled that it was still a defect that
      existed prior to the sale and it was premature, therefore 1729 applies.
    2847(1) - if certain facts are proved, then a presumption is attached to those facts
                                                                                                           55
   2803 - whoever wants to vindicate a right has the burden of proof. Buyer just can‟t say 1729, so it‟s
      presumed to exist at the time of the sale. B has to show evidence that the property deteriorated
      prematurely, he did not misuse the property. Then he can rely on the presumption of 1729.
   The goods should last in good condition for a reasonable period of time. The problem of durability
      has become a matter of defect.
       1729 – fit for a reasonable time after purchase
       In 1978 with the reform of the QCPA, the merchant has the obligation to warranty durability.
          1729 does the same thing.
       Note that since it is in the CCQ its application is broader than the QCPA. Applies to second
          hand as well. It is only limited to professional sellers. Applies not only to seller, but to mfr,
          distributor, etc.
       2904 prescription does not run against people who could not act.
           The period (3 years) only begins to run when you discover the problem and not from time of
              K
       There is a presumption that the defect existed at the time of sale - 1729. So what do you have to
          prove?
           The defect was premature compared to similar products. The seller can rebut this by showing
              improper use or maintenance. This applies to both movables and immovables. There are
              restrictions at 1732 on clauses limiting the rights of the buyer. Before relying on 1729, check
              the K to make sure there are no clauses limiting seller‟s liability. Remember, if seller is
              personally at fault, exoneration clause is thrown out.
           Practically, this relieves the buyer from proving that the defect existed at the time of the sale
              when it is difficult to do so
 Unknown to the buyer
   If you buy something knowing it has a defect, too bad - 1726
 Latent
   Must not have been apparent upon careful inspection to the average person without turning to an
      expert. There used to have been many cases where the buyer would have had to hire an expert.
       Placements Jacpar: CA says this is a matter of circumstances. Age, apparent condition, price
          paid, etc. will all be factors.
       Problem is that the court will not decide until after the fact. Changes Leveigne. Guy bought a
          commercial building. He examined it and found a bulge in an exterior wall. Discovered that the
          bulge was part of a major structural fault. SCC found that it was apparent defect, as an expert
          would have seen it in a second. So this stood for the idea that you had to have everything
          inspected. This was 1961.
   We now have 1722 – don‟t need an expert. Gets rid of both above.
   What is a careful inspection?
       Bon père de famille. Careful examination of the property. You have to act seriously. You do not
          have to make a thorough examination. Don‟t have to dig up a foundation.

        In Placements Jacpar the problem was with the roof. The only indication was some tiles that
         had started to detach. He asked about them and the seller said it was irresponsible tenants. This
         was a lie. So he detected a problem and asked about it.
    The question arises about the language of 1726, will there ever be a situation when an expert will still
     be required? Yes, when a layperson discovers a clue that there is a defect and is unable to ascertain
     the cause.
      General proposition that the buyer is not presumed to be an expert in the property. This is clearly
         a policy to favour or facilitate the buyer. In the civil law, caveat emptor has been rejected. If
         there was any doubt the reform of the CCQ took care of that. No longer is an expert required.
         In the long term it will hopefully be an incentive for there to be goods of high quality offered.
56
 Known to seller (for damages)
    If the buyer knew, no warranty
    See duty to disclose above. Knowledge by the seller is a pre-condition for damages.
    Knowledge is irrelevant for reduction of price, resolution, or specific performance. However, if there
      was no knowledge, damages are not an option.
    1728 – there must be knowledge, imputed or actual
    Difference between 1728 and QCPA 53
       QCPA 53(3) the seller is presumed to have known.
       1728 there is presumption, but it doesn‟t say who or how it can be rebutted
    Touchette v. Pizzagalli: prudent and diligence person is not enough, you have to exhaust all
      options.
    Kravitz: Pratte J. says that although he was of the opinion that the presumption was irrebuttable, he
      didn‟t have to rule on it. The CA says the only binding ruling has been Samson. Rebuttable through
      showing reasonable care, diligence, bon père de famille, etc.
 notice
    1738-9 – buyer must give seller notice within reasonable time for action latent defects, title.
    Requirement of substance, not procedure.
    Must be in writing, within a reasonable delay.
          St-Maurice
          CCLC 1530 – close to 1 year at most, usually a few months. Should be the same under CCQ.
           Delay begins to run when the buyer could suspect seriousness of defect
           If seller knew or was presumed to know about the defect, can‟t complain about tardy notice but
            still entitled to notice.
      If you‟ve given notice, can you still lose your rights under prescription? Yes.
        Notice must be given within reasonable delay.
        2925 – prescription period is 3 years. Action must be brought within that time.
      Can you still lose them by waiving them? No case on it, but no reason why not.
      Smith: not sure whether the requirement is for prescription or waiver. The reason is to prevent
       litigation, want to give to other party the right to remedy the defect. Perhaps good faith – once buyer
       knows of defect, type of bad faith if buyer lets seller believe all is well.
      Jobin: Why do you lose the right if you haven‟t brought it in time? It may be more difficult for the
       seller to remedy, also it will be hard to decide if it is a latent defect (covered by warranty), or a
       subsequent defect.
      Reduces litigation by limiting claims. Allows the seller to fix the problem.
        Find similar right to cure in UCC, Vienna Convention
      Sanction for the requirement – 2 positions
       1. Default notice requirement 1595 ff. Defendant can decide to execute, give plaintiff reduction in
            price, exempted from legal costs. No legal costs for the defendant if notice is not given.
       2. Condition of substance – lose rights and remedies if you don‟t comply with 1739. Jobin’s view.
      Can buyer be exempted?
        Make comparison with default notices, warning that you consider the debtor in breach.
        Sometimes it makes sense to exempt the buyer. Ex. urgent water leak in pipes.
        Allow grounds of exemption in 1597 to apply by analogy to 1739. Courts have added other
            situations, such as the seller knows fully about the problem.

Clauses that vary the law
 1732 – add, limit, diminish rights
    Exoneration clause meshed in with clause extending liability. Ex. GM extended warranty in Kravitz
      (specific performance, no right to reduction in price or damages)
 1733(2) – sale at buyer‟s risk from non-professional seller, exoneration clause will protect the seller
                                                                                                              57
   Problems with restrictions
     Some belong to general law of obligations – 1474(1) fraud, 1474(2) for bodily or moral injury
     1733(1) – when seller knew or was presumed to know of the problem, the clause is not valid if the
       defect is not disclosed
        new in CCQ but established in Kravitz (which comes from French law – if professional seller
           knows something or is presumed to know, there is a duty to disclose, if not disclosed, guilty of dol
           (fraud by silence))
            Issue: who is presumed?
                Professional seller, retailers, wholesalers…
                Layperson who know because of suspicions
                Public policy: ensure buyer has minimum protection under the law

Sale of a residence by Kor or promoter
 1794 – if built or to be built, Kor is subject to warranties of K of work (enterprise 2100 ff)
     warranties against losses, defects of construction – 2118, 2119
         defects of building or ground which jeopardize the solidity of the building
         no exoneration clause – the warrant is of public order
         Protects buyer, gives rights and remedies against the Kor, subKor, architects, engineers…

Placement Jacpar Inc. v. Benzakour (1989) CA
Facts:
 Buyer Jacpar brought an action seeking (1) a reduction in price and (2) damages against the seller
    Benzakour alleging a breach of the warranty against latent defects under art. 1522 CCLC in connection
    with the sale of a 40 unit apartment building.
 Two defects relating to the roof & concrete structure which resulted in water damage.
 Buyer had inspected the building on two separate occasions. On the first visit, he conducted a cursory
    inspection of the building with the agent, and looked in a few apartments. The buyer then made an offer
    to purchase conditional upon a second inspection.
 Buyer was accompanied by the agent and seller during this second visit; a more thorough inspection in
    which many more apartments were examined. Buyer again expressed his concern over the problems with
    the floor covering, and the seller assured him that this had been caused by negligent tenants who had left
    their windows open.
 Buyer did not bring an expert with him to inspect the building on either visit.
Issue:
 Where the defects latent or apparent?
Held:
 A defect is apparent (and therefore not latent) if it could have been detected by a buyer acting prudently
    and diligently.
 Key question to be addressed was whether the buyer should have engaged an expert in order to meet this
    standard of reasonableness.
 An exhaustive or in-depth investigation is not required. A defect is latent if it cannot be detected by an
    attentive yet summary examination. For this building, what was required was a visual examination of the
    principal elements of the outside and the inside of the building, of the roof, and of a selection of
    apartments.
 To determine whether a defect is apparent, must look at:
    1. Status of seller: the more a seller is a professional, it is more likely that defect is considered hidden.
    2. Status of buyer: the more the buyer is a professional, the more likely a defect was apparent.
    3. Nature of property: if commercial real estate, for instance, a more thorough inspection will be
        expected than personal use property.
    4. Age of property: the older the property, the more likely that a defect will be considered apparent.
58
  5. Price: the more expensive the property, the more intense the inspection should be. But, if the
     property is of the same nature (2 houses), the cheaper property should be subject to more vigorous
     inspection; may be a reason for the inferior price.
  6. Type of defect: what would be apparent to the diligent buyer
  7. Behaviour of the parties: General rule: seller only has to notify buyer of latent defects. If apparent, it
     is not necessary. But the courts have occasionally modified the general rule. If the circumstances
     where misleading or fraudulent statements were made, a defect normally considered apparent may be
     deemed hidden.
 Defect was latent because the seller deceived the buyer as to the nature of the defect.

Labrecque v. Roy (1998) C.S.
Jobin: highly recommended for the exam
Facts:
 Sale of a house that had some defects. The seller knew at least a little that there may be a problem. There
   was an unusually high degree of humidity.
Held:
 The judge faults the seller for not having disclosed the humidity. It is important to distinguish this from
   other types of fraud under 1401. Silence, otherwise known as the duty to disclose, is the ultimate form of
   fraud. The party must take the initiative to tell of the problem.
 This is a new trend in the civil law. This development is based on the new principle of good faith. The
   judges got hold of this principle and it is spreading all over. This is a new duty of the seller. In this
   particular context, it poses some problems, in that it is already addressed in 1733(1). When the buyer did
   not disclose a defect they should have, an exoneration clause will not save. However, note that the duty
   was originally limited to overpowering exoneration clauses. Now it has been extended to everything.

Samson et Filion v. Davie Shipbuilding [1925] SCC
Facts:
 Samson sold a bunch of second hand piping for ship building. They had bought it from a scrap yard. In
   one of the pipes was an explosive substance. A guy tried to weld it and it exploded. In the Worker’s
   Compensation Act, the family had recourse against the employer, who then sued Samson. This case was
   referred to in Ménard v. Bernier.
Commentary:
 In Ménard, the Que. CA examined presumptions of knowledge. There are two classes of persons who
   are presumed to know. Sellers (even a layperson) who had suspicions about the existence of a defect. The
   second is where the buyer relies on the seller regarding the quality. In the Samson, there was reliance,
   they were in this business and the buyer bought from them for that reason. Note that there must be
   grounds for the reliance. A seller of scrap iron will not inspire confidence. So it is not the mere fact of
   carrying on some business, it will depend on the situation. A third category is a manufacturer, who will be
   presumed to know about the defect. It is rebuttable by showing that the seller took reasonable
   precautions and could not have discovered it.

Ménard v. Bernier (CA)
Facts::
 B and M both raised pigs. M also sold agricultural products. Sacbec sold pharmaceutical products and
    instruments for vets. B, without a conventional guarantee, bought a barrel of mineral oil from M who had
    bought it from S, also without guarantee. B used the oil on the pigs and it caused serious damages.
Issue:
 Did M have knowledge of the defect?
Held:
 The proof did not establish the delictual liability of M.
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 With respect to the Kual liability B did not ask for the termination of the K according to Art.1526 but for
  damages according to Art. 1527. According to Art. 1527(2), M cannot be legally presumed to know if the
  defect because the article applies to merchants who sell the thing as a profession and it does not apply to
  ordinary vendors.
 Case law has established that if the presumption does arise, it can be rebutted in cases where the
  circumstances show that knowledge by the vendor was impossible and common sense demands he should
  be free from liability.
 The presumption is rebuttable by proof that the nature of the defect was such that its existence could not
  have been suspected by the vendor and that he could not, by any precaution which he might reasonably
  be expected to take, have discovered it. He uses Samson v. Filion as reference.

Problem: Costly Yesterday’s House
Facts:
 Guy buys a house. Inquires as to heating costs, insulation, roof, and pipes. Is told they are fine, they
   were redone recently, and heating costs were normal for a house of the age. He is told the house is 100
   years old. Inspects them himself and is satisfied. Finds out later that the house was built around 1945
   and that it has typical under insulation for that period. Also the pipes leak.
Commentary on insulation:
 Jobin doesn‟t think this would work under fraud for 1401. He views that the fact that the house is newer
   than was represented means that it was of better quality than represented. Should Michelle have revealed
   other facts then she did? If you don‟t ask to see the heating bill, the seller doesn‟t have to show.
 Was it a latent defect? It does not have to do with safety. If it did it would have to have been up to snuff.
   Under 1726 he can show he would not have paid as much had he known. The judge in the case said that
   it was in line with what was built in those days. So it is not a defect, let alone serious. Note that in this
   case it has deteriorated beyond what the standards would have been in those days. The case must assume
   a certain amount of deterioration along with the ageing of the house.
 1400 will allow resolution if there was determinative error.
Commentary on pipes
 Pipes were said to be in good condition, replaced 5 years ago. He tested several faucets, water pressure
   OK. When he moved in, he noticed traces of water on the ceiling. Assume that it is serious enough to be
   a defect
 Is the defect latent? Could her have seen something when visiting the house? Assume that he did not see
   anything in the attic. Did he make a reasonable inspection? Remember, no obligation to bring in an
   expert (1726(2)). Defect was latent. He tried faucets, not trace of water on ceiling and walls at time of
   purchase.
 What if, on the evidence, the defect didn‟t exist at the time of inspection? Defect must exist at the time
   of the sale for warranty of quality.
 Even if an expert had examined the house at the time of the purchase, defect would still be latent because
   there is no obligation to open the walls and ceiling. There was no indication of a problem.
 What about her statement that the pipes were in good condition and replaced 5 years ago?
    Is it a basis for liability? If yes, is the legal ground fraud? If you assume that the pipes were replaced
       and there is no indication of bad faith, there was no fraud.
    Assuming good faith, can she be blamed for not knowing the condition of the pipes?
    Cost of repairs can be claimed either as damages or as a reduction in price
    1442 – her rights against the plumber pass along to him.
 Borderline case: defect was latent at the time of inspection, becomes patent before closing. If by chance
   the buyer discovers the problem, then look farther, but can‟t blame buyer for not making repeat
   inspections.
 EXAM: address possibility of fraud – she said something that wasn‟t true. Raise all possible arguments,
   raise damages (1728) (not possible here because there was no knowledge). We are left with a reduction in
   price – 1604.
60
In c/l
                        nd
 Change the facts to 2 hand goods
 SGA will not apply because it is not a professional seller
 Will have to turn to the general law of K – misrepresentation which reduced him to k, or amounted to a
    guarantee
     Heating and insulation – no misrepresentation
     Plumbing – she is not knowledgeable on plumbing, therefore no reliance and no implied guarantee
 Caveat emptor will prevail

4. Buyer’s remedies

i)     General rules

 Specific performance is rare, except when the breach is failure to deliver a unique object.
   Civil will allow it more often than c/l.
 SGA 50 – specific performance may be available for specific or ascertained goods. The implication is that
  it will not be available for unascertained goods. This is generally the position of the c/l
 Remedies: resolution, rescission, specific performance, damages, price reduction

Loss of remedies for buyer
 Prescription period
    General law
        3 years for K and tort in CCQ - period runs from the time the defect is known
        3 years for tort and 6 years for K in c/l
    need for certainty, finality
 waiver of rights
    general law, not specific to sale or K
    EC, agreement to settle
    Can be explicit – I won‟t sue
    Implied – look at the facts. Smith thinks the c/l is a little quicker to find implied waiver, but not
       much
 Particular rules in c/l for losing the right to rescind
    Breach of a condition become breach of warranty
        Still get damages unless time‟s up or waiver
    There is no equivalent in the civil. Can‟t lose right to resolved unless prescription runs out or waiver
        Smith: not exactly sure why. Note that it is easier to get the right to rescind in the first place in
          the c/l, because most obligations are conditions. Also, in the c/l you can stipulate that something
          will give right to rescind.
        1604 – no right to rescind if trivial breach, notwithstanding any stipulation in the K
    SGA 12(3) – where a K of sale is not severable and the buyer has accepted the goods or it is specific
       goods and property has passed, breach of a condition will not give right to rescind.
        Varley – buyer couldn‟t reject the goods because property passed at the moment of the K (19(1))
        This means you cannot reject once the K is signed and the goods are ascertained.
        Smith: Sloppy drafting in 19(1). Probably thinking about prepaid buyers and bankrupt seller.
          Chalmers was thinking about protecting the buyers. In that respect the rule is a good one.
          However, 12(3) is still there, UK got rid of it.
           As we saw in Varley, courts will try to get around that. They will say it is conditional on
               delivery of goods. They are saying it because they want to help the buyer.
                                                                                                             61
ii)      Acceptance by buyer

     Once the goods are accepted, right to reject is lost. Acceptance here is not the ordinary meaning of the
      word used in SGA 26 dealing with delivery. Here it is something like the affirmation of the K, I accept
      these goods despite the defect.
       What is acceptance? SGA 34 has 3 ways to accept
          1. Communication, when the buyer intimates the goods have been accepted (relates to waiver)
          2. Buyer does an act inconsistent with the ownership of the seller, like reselling (relates to implied
              waiver)
          3. Lapse of reasonable time (prescription period). Note that in c/l lapse in time works regardless of
              whether you knew of the defect.

Home Gas Ltd. v. Streeter [1953] 2 DLR 842
Facts:
 The defendant went to the plaintiff‟s showroom to buy a stove. A cheque for $75 was given as a deposit
   for a new stove. Four months after the order had been given the stove was installed. The stove never
   worked properly and after numerous complaints and attempts to contact the seller it was not fixed. The
   buyer therefore stopped payment of the cheque for the balance of the stove. The plaintiff asks the court
   to give it judgement for the amount of the cheque.
Issue:
 Did buyer have the right to rescind the K?
Held:
 If there was ever a case where a purchaser was entitled to reject the goods this is it. The buyer may return
   the goods or offer to return them and it is sufficient to signify his rejection of them by stating that they
   are not according to the K and they are held at the vendor's risk.
 As far as the evidence is concerned, the defendant, although trying desperately to have the stove put in
   order, did not reject it
 Lapse of reasonable time under 34(c)
 The stove in this case falls within the description of specific goods in SGA 12(3) and there was no express
   or implied term in the K of sale that it could be rejected. This does not, however, fortunately for the
   defendant, mean that she has no redress. She is entitled to damages.

 Smith: significant that the judge does not discuss the part of 12(3) which clearly states that no rejection
  possible if specific good and property has passed
 Seems harsh because buyer constantly complained and was led by seller to believe that the problems
  would be fixed. Smith thinks the result would be different today.

Hardy & Co. v. Hillerns and Fowler
Facts:
 Wheat ship unloads, buyer sells goods. 3 days after unloading, buyer realizes the goods didn‟t meet the
   description. Buyer could‟ve returned the wheat after 1 day. Buyer had no reasonable opportunity to
   examine the goods.
Held:
 SGA 33 says where the buyer has not examined the goods, he shall be deemed not to have accepted until
   he has had reasonable time to do so.
 Buyer has done an act inconsistent with the ownership of the seller. Therefore under SGA 34, you have
   accepted.
 34 trumps 33.
 Smith thinks this works and is a form of waiver. The next question is has the sale been such an
   inconsistent act? One interesting argument was tried. The argument was made that the goods had
62
     passed, so how could the buyer do anything that was inconsistent with the seller‟s rights. Court rejects
     this, otherwise this would always be the case. What we are asking is if the buyer has done anything that is
     inconsistent with it going back to the seller. Rescission is a reversion of property rights. Court says this is
     an inconsistent act. They are following a bit of authority, but could have gone the other way. Smith
     thinks it would probably be good if they had gone the other way, this is a little harsh. Here it was a trivial
     defect so the court was not very sympathetic to the buyer. Remember they do not lose the right to
     damages.

Rafuse Motors v. Mardo Construction
Modern approach
Facts:
 Tractor not able to do what the seller said it would. Buyer does not reject until 2 months later. Lots of
   complaints.
Held:
 Court says that if the acts inconsistent with the rights of the seller are done because of the seller‟s actions,
   they don‟t count. Here the buyer kept it for so long because the seller kept saying he would fix it and
   keep trying to use it.

    Brings Canadian c/l closer to UCC – acceptance doesn‟t count if induced by the seller‟s assurances
      But UCC goes farther – acceptance induced by difficulty of discovery
          May appear months or years later
      Lapse of time is measured from the time of sale, so could lose warranty for latent defects based on the
         passage of time
      1739 – time runs from the time the defect could reasonably be discovered
      Smith: may not be as harsh as it looks, because you can still get damages. In practice, the court will
         play with the time period a bit. Reasonable lapse of time is factual, not legal. Also, remember this is
         just to limit the right to reject, a particularly strong right that can really hurt the seller.

E. Manufacturer’s liability
    Three things:
     1. dangerous defects – death, bodily harm, property damage, pure economic loss
     2. inherent dangers – normal feature of the property sold, but dangerous
     3. defects generally speaking, especially where the claim is made by a sub-purchaser
                                              rd
         professional seller, with buyer, 3 party, or sub-purchaser on the other side
         Essentially movable, but 1442 applies to immovables. (Winnipeg Condo for c/l)

Rationale for holding manufacturer liable
 Deterrence, spreading the cost of the accident
 Law and economics – cost of the accident. Used to argue that if the manufacturer is made liable,
   overhead will increase and so will the price. Theory was that the mfr would be thrown out of the market.
   Now reconsidered.
 Disincentive, counter-productive – mfr is encouraged to test products for a long time before putting them
   on the market
    Controversial for medications – patients want the drugs but don‟t want to wait for testing
 Move to cap mfr liability
 Ensures effective vindication of rights of sub-purchaser
    Ex. retailer goes bankrupt, sub-purchaser has no one to claim against, unless he goes through tort
      Kravitz
    Hollis – 2 rationales
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    1. Public health and safety
    2. Correct imbalance of information between the mfr and buyer

1. Liability for dangerous defects

Kal liability vis-à-vis co-King party
 Ross v. Dunstall – buyer bought directly from mfr
    Don‟t forget 1728
    Clear case because K of sale was between mfr and buyer

   Cohen v. Coca-Cola (1967) SCC
     P moving the bottles, one explodes, he is hit in the eye and loses it
     While C-C experts said that accident couldn‟t have happened the way P said, SCC said there was no
      reason to set aside the testimony of the victim.
     Jobin: since 1967, no mfr has won a case

Liability in tort of manufacturer towards 3rd party for dangerous defect
 Donoghue v. Stevenson, Ross v. Dunstall
 Civil – 1468, mfr liable in tort

Problems
 Need/desire to provide full compensation for victim
 Opportunity to provide sub-purchaser with some rights and remedies to get reduction in price or
   resolution of sale when the retailer is out of business
 No K between buyer and mfr
    Privity – judges try to get around this to give direct rights to sub-purchaser/buyer
        can‟t get back the price in tort, problem of evidence too(can‟t rely on presumptions in K) –
           obligation of means (victim proves fault)
        c/l – problem in recovering pure economic loss
 difficult to define scope, condition of warranty, because it‟s fairly new



Desaulniers v. Ford Motors
Facts:
 In July 1971, the plaintiff bought a car that was manufactured by Ford from a dealer. On February 3 1972
   (seven months later), the car was destroyed by fire. The facts show that the car was driven only 300 miles
   and was regularly inspected. An expert report was submitted confirming that the damage resulted form a
   short circuit, and that the protective device failed to function. The plaintiff submitted a report with
   conflicting results. The plaintiff alleged a latent defect and sued Ford for $3442. At the trial the quantum of
   damages was fixed at $2600. The plaintiff received the sum from his insurance and gave them subrogation.
   They instituted the proceeding against Ford to recover the amount.
Held:
1) There's a 'lien de droit' created between the manufacturer and the buyer. The dealer bound itself with Ford
   to warrant the car.
2) The seller must comply with Art. 1522 CCLC, which obliges him to warrant the buyer against latent defects
   which might render the thing unfit for its purpose or for the use for which it was intended.
3) Applying the doctrine of 'res ipsa loquitur', the court is allowed to draw presumptions of fact from the
   evidence. The court believed it was a safer conclusion to conclude that the fire resulted from a latent defect.
64
4) Even though the action was taken December 20, 1972 (ten months later), it cannot be considered tardy
   because the employees of Ford were advised as to when the fire occurred. Also in the interval, a number of
   letters were exchanged with respect to the solution and the potential role of the insurers.
Application of the case to Art. 1729:
 If the article was applicable to the case, the same conclusion would be reached. Art. 1729 makes sense if
   just "a" defect is presumed  i.e. the buyer does not have to show there's one, the article does not refer
   to "the" defect.

General Motors v. Kravitz
Facts:
 K. bought a car from Plamondon, a GM dealer. K complained of defects from day one and despite
   attempted repairs, dealer did not fix the problem. 11 months later, K tendered the car and ask for
   reimbursement.
Issue:
 Can the ultimate buyer sue the manufacturer directly?
Held:
 First, manufacturers and professional sellers must notify purchaser of latent defects. They have presumed
   knowledge. They cannot contract out of this responsibility.
 Second, a conventional warranty limiting GM‟s liability is null & void (given the first point)
 Third, there is a direct remedy between the manufacturer & ultimate buyer. While 1023 CCLC (1440
   CCQ) states that a contract only has effect between contracting parties (GM Canada  Plamondon),
   there are exceptions. One exception is that some rights are so intimately related to the property that they
   are transferred as accessory thereto.
 Therefore GM is jointly & severally liable. For GM Canada, it would have to pay K the amount that
   Plamondon paid for the car PLUS an amount in damages equal to the balance that K paid for the car.
 The court finessed this question by saying that the rights of the seller were passed on. The buyer was
   stepping into the dealer's shoes, and exercising his rights against the manufacturer. In the CCQ, today, it
   is no longer subrogation in the same way as in Kravitz.
 The CCQ allows for a "vertical privity of k." The buyer is now suing in his own right as all these other
   persons owe him the same obligation as the seller.
 The manufacturer etc. is actually are stepping into the shoes of the seller. As such, the warranty of quality
   is not only owed by seller to the buyer, but is also owed by manufacturer. This obligation is owed directly
   be the manufacturer to the final buyer

Dorion v. Lehouillier
This case attenuates Kravitz, as follows:
 Even if you sell the property to someone else, you may be passing on your rights against the vendor, but
  you don't lose the right to sue your vendor. You, as purchaser become vendor, are not giving up your
  personal right to sue the person who sold to you.
 Conclusion: 1730 is limited to buyers who dealt directly with the commercial seller. To get beyond that, a
  subsequent buyer must use 1442.

2. Liability for inherent dangers

Obligation to warn of inherent dangers
 Tort and K obligation (for K of sale with professional seller/retailer/wholesaler/manufacturer)
 Is there a duty to warn? Only in the 1960s did this start to develop. Today there are still problems with
   the scope of the duty.
 SGA 15 - if there are no instructions for dangerous products, it is unfit for use. The conditions are the
   same for K and tort. Jobin feels this is good. Why should the buyer be compensated differently than his
                                                                                                     65
   neighbour who came to help? No problem with mfr liability in delict as 1468, 1469, 1473 codified the
   case law.

5 conditions for inherent dangers
1. reasonably foreseeable to mfr (a) the chance that a risk will materialize and (b) the circumstances in which
    there is a danger
     based on the ordinary use of the product – Hollis
     1467 – test of foreseeability is of negligence
     only dangers arising from an unforeseeable abnormal use of thing will not covered
         Ex. man eating uncooked pork
         Ex. buy 4l of paint, bad quality, seller won‟t take it back, action dismissed because paint kept on
             shelf for 6 years – not foreseeable that product would sit on shelf for so long
2. danger unknown to victim
     1473(1)
     Lambert – imply the condition. Doctrine of assumption of risks can apply in this situation
3. latent or unforeseeable to the victim
     1473(1) – no warranty where the defect is apparent
     Test of reasonableness – what would a reasonable person foresee as the risk?
         Ex. man lost toes on lawnmower, sued mfr. for failure to warn. Court said no, everybody knows
             they are dangerous.
         Ex. Changing tire on machine, tire propelled into air, mechanic injured. Mfr argued that
             mechanic was an expert, should know not to put face over machine. Contributory negligence, but
             the design of the machine was unusual and needed to give info. Expertise of the plaintiff will be
             taken into consideration. (Royal Industries)
     Not the same as the danger unknown to the victim because as soon as there is knowledge, there is no
        protection.
     Common law – Lambert
         His expertise was not a bar because engineer would not have ought to have known about the
             product
4. the greater the danger, the stronger the warning
     Ex. Lambert – the sealer had a warning but it was insufficient given the nature of the product
     Must be explicit, detailed, rigorous
     Hollis – mentioned in passing
5. danger has to be known or presumed to be known by mfr
     1473(1) or (2) – no mention of knowledge in delict
     in K, mfr presumed to know of defect, same standard applied for dangers
     QCPA 53 – excluded discussion on knowledge
     No provision in OCPA
     In tort, mfr is frequently presumed to have knowledge – Hollis

Development risk
 Inherent danger or dangerous defect which was not known at the time the product was placed on the
   market
    Must be absolutely impossible to know given the state of science at the time. Ex. thalidomide side
      effects only emerged years later.
 Public policy issues:
    Who should bear the risk? Mfr or victim?
        Manufacturer:
           Over time, the mfr will take longer to test products before marketing. Ex. Health Canada
              withheld drugs for AIDS patients because afraid of development risks.
           Courts are reluctant to make mfr liable, especially where there is no negligence
66
              In Europe, there is a directive on mfr liability
              1473(2) was not easily adopted
 solutions in civil law
   1473 - development risk is a ground of defence (applies to extra-K)
   London v. Lankasher Insurance – At time elevator built, there were 2 types of brakes. Later
      discovered that one was better. Elevator broke down, safety brake broke. Look at the standard at the
      time of manufacturing. At that time, could not know the differences, therefore not liable.
   In K, there is nothing mentioned in chapter on sale or QCPA
       Jobin: interpret K consistent with delict, would have defence of development risk
 Solutions in common law
   Tort
       US has moved from negligence to strict liability, but there is a shift towards admitting the defence
          of development risk
       In Canada, Hollis could stand for a case on development risk (no other cases) as there were a
          small number of cases known at the time of surgery. But SCC said the danger was known.
   K
       Problem of inherent danger not considered conceptually different from defect. If sold without
          warning, the product was not fit for use. Fitness for use is strict liability, therefore knowledge is
          irrelevant. Therefore, development risk not an issue
       Benefits victims

Duty to inform users as developments occur
 Good sense answer – yes!
 1473(2) – express duty to warn when the problem is discovered
    for K, Jobin argues that it should be interpreted same way (1434 – implied terms of K)
 common law tort – Hollis
 common law K – strict liability for problems of development risk, therefore no issue about giving
   warnings later
    efficient compensation of victims
    if warning given, less accidents, less claims
    limitation period starts running at the time of the K

Doctrine of learned intermediary
 Hollis – in exceptional circumstances, mfr may give the warning to someone other than the ultimate user.
  Intermediary must be competent (ex. doctor) and product meant to be used under her supervision.
   Jobin: no reason why this can‟t be applied in civil
 Donoghue (dictum) – duty owed to ultimate user where there is no reasonable possibility of intermediate
  examination of the product
   Modified by Hollis – duty owed to intermediary and not ultimate user

Will exoneration clause be maintained in breach of mfr’s duty to warn?
 Unconscionability, particularly when dealing with danger if the victim is a consumer (SGA 15). If not,
 In K, under the general law, there is implied duty to warn of danger/defect
 Claim in tort – Rivtow Marine
 Clause will be interpreted narrowly

Conclusion on duty to warn
 Flooded with warnings, it may be technical or hard to understand, or it may be plain stupid (ex. can‟t fly
   with cape)
 Only effective in tort, if warning given, mfr will be exempt
                                                                                                           67

Lambert v. Lastoplex
Facts:
 Engineer seals floor in his basement. Warning on the seal that the product is flammable but it didn‟t
   explicitly say to turn off pilot light. Big explosion. L badly burned and home damaged.
Issue:
 Did the mfr discharge duty to warn?
Held:
 No

Martin v. Industries Pittsburgh [1982] C.S.
Facts:
 Co. mfrs doors and windows out if wood. Buys wood preservative from P who knows that some doors
   will be painted. The preservative is only meant to be used for varnished wood. After a few months, the
   oil comes through the paint
Issue:
 Did the mfr. have the obligation to warn against inherent danger?
Held:
 Mfr. owed duty to warn against inherent danger. The label on the can was destined for the ultimate user
   and was equivalent to a written guarantee provided by the mfr to the user. Therefore, there is a Kal link
   between the 2 and mfr had obligation to diligently disclose info.
 No mention on the label that product would damage paint. Buyer has every reason to believe that the
   label was complete.
 Mfr is liable for the damages.

Royal Industries v. Jones [1979] C.A.
Facts:
 J was a mechanic who had apparatus to change tires which required special way to operate it. No
   warning. Tire blown off the machine, J badly injured.
Issue:
 Did the mfr have a duty to warn?
Held:
 Yes. Machine worked differently than similar machines.
 J 50% responsible for accident because he got too close to the machine (did not follow usual safety
   precautions)
Note:
 Under CCLC, when the user was also negligent, apportionment of liability. But under CCQ 1473, leg
   said there would be no compensation where there used to be contributory negligence. Therefore, today,
   Jones would get nothing.

Hollis v. Dow Corning
Facts:
 P had breast implant surgery; implants mfgrd. by Dow. One of the implants ruptured months afterward.
   Literature accompanying the product warned of risk of rupture during surgery but not post-surgically
   “from ordinary, non-traumatic, human activities.” This risk was not well-known among surgeons at the
   time, but Dow had already had several complaints.
 Dow claimed that (a) its warning sufficed to discharge its duty toward P, and (b) even if it did breach duty
   to warn, this breach was not the proximate cause of Hollis‟ injuries - as surgeon wouldn‟t have told her
   anyway, or she would‟ve elected for implant anyway.
68
Issue:
 Did Dow fulfil its duty to warn?
Held:
 No. Given the intimate r.ship between medical products and the consumer‟s body, and the resulting risk
   created to the consumer, there will “almost always” be a heavy onus on mfgrs. of medical products to
   provide clear, complete and current info concerning the dangers inherent in the ordinary use of their
   products. Dow knew of the risks of rupture from ordinary stresses of life. It had a duty to convey its
   findings concerning both the “unexplained” ruptures and the harm caused by loose gel much sooner than
   it did. The duty to warn is a continuing one. The manufacturer can only be said to have discharged its
   duty to the consumer when the intermediary‟s knowledge approximates that of the manufacturer.
Issue:
 Was Dow‟s breach the proximate cause of accident, or was the damage made too remote by intervening
   factors?
Held:
 Dow‟s breach of its duty to warn caused the accident. You apply a subjective test to see whether Ms.
   Hollis would‟ve elected to have surgery had she known of the risks. She says no, so that‟s that. Would
   the surgeon have passed on the warning? Perhaps Dr. Birch wasn‟t great at warning patients of risks, but
   Dow can‟t put the onus on victim to prove something about a hypothetical scenario concerning her
   doctor‟s conduct: it‟s enough that Dow breached its duty to warn and that she wouldn‟t have had the
   surgery if warned.

Létourneau v. Imperial Tobacco
Facts:
 L started smoking in 1964 at age 19. The first warning on cigarette packages appeared in 1972. In 1994,
   warnings about addiction came out. She bought patch to stop smoking, and is asking for the price of the
   patch from mfr. Mfr defending itself forcefully.
Held:
 Judgment rendered on the basis of judicial knowledge (facts judges know without hearing facts in
   evidence)
 In 1964, there were reports that cigarettes were more or less dangerous
 Consumer ought to get info about things it does/buys. She was presumed to have known smoking was
   dangerous. She tried to quit earlier but no success, therefore she knew smoking addictive.
Note:
 Circular reasoning – she was held to have known about the dangers, therefore, can‟t sue on failure to
   warn. Distinguished from US cases because there, it was discovered at trial that mfr know nicotine was
   carcinogenic and addictive and they purposely added more. Facts went beyond public knowledge.
 Small claims court – not a heavy precedent.

Rivtow Marine v. Washington Iron Works
Facts:
 P operator of a barge fitted with a crane designed, manufactured by D. P, upon learning of a fatal
   accident caused by a defective crane identical to the P‟s, withdrew it from service for repairs during the
   peak of logging season. Sued for cost of repair and for profits lost while the barge was out of service.
Held:
 Recognized a duty on the part of the D to warn P of the defects as soon as they became known. His
   failure to do so what the immediate consequence of the P's economic loss. However as regards the cost of
   repairs, they could not be recovered from the D because to do so would be to allow recovery for breach
   of an implied warranty of fitness (which the SCC did not recognize in this case on the part of the D
   because the case was decided on principle of Tort and not of K).
                                                                                                             69
 Jobin: clear attempt to avoid precedents that deny recovery of pure economic loss – small step.
   Restricted to where mfr knew of the defect and failed to warn.
Dissent  (picked up in Winnipeg Condo)
 (Laskin J) His argument rests on the fact that had P‟s crane caused physical damage, then all foreseeable
   damages (including cost of repair) would have become recoverable.
 He concludes that: "It is foreseeable injury to person or to property which supports recovery for
   economic loss suffered by a consumer or user who is fortunate enough to avert such injury. If recovery
   for economic loss is allowed when such injury is suffered, I see no reason to deny it when the threatened
   injury is forestalled."
 As regards the recovery of the cost of repairs, Laskin rests the recovery on the principle of the P's duty to
   mitigate his damages. He points out that: "it may be reasonable for the P, upon learning of the threat of
   likely injury from its continued use, to expend money for its repair to make it fit for service. Such an
   expenditure then becomes part of the economic loss for which D must respond."

3. Rights of sub-purchaser

Avoiding privity of K in civil law
 1442, 1730, jurisprudence on collateral K of warranty
 1442 – rights of parties to K pass to successors of title (Kravitz). Allows buyer to have direct remedy
   where retailer is insolvent, but can be applied across the board. Applies to immovables, other rights, K of
   enterprise for construction (in c/l tort – Winnipeg Condo)
 Dorion – perverse effect of Kravitz reasoning
    Defect found in chain, then sold to present owner. Middle person suffered damages, told sorry, all
       your rights have been transferred to new owner, therefore you can‟t sue. Court said this was
       ridiculous, can‟t use Kravitz to deny the remedy. Rights and remedies are transferred but only insofar
       as necessary. Intermediate owner retains rights to warranty, to protect its interest.
 1730 – mfr also bound to warrant the buyer in the same manner as the seller (retailer). The effect is that
   the mfr is bound to warranty from the last sale. (QCPA 53(4) is the same)
 Why do we have the 2 mechanisms?
    Ex arbitration clause, or giving court outside QC jurisdiction, buyer will have to hire an expert in the
       other jurisdiction. Kravitz rule is not practical.
    Ex. choice of law clause between mfr and wholesaler, may choose one not as favourable to buyers
       and buyer may have no rights at all
    1730 provides another way of finding the mfr liable. Jobin believes the 2 are needed.
    Problem with 1730 – if the seller gives a greater warranty than the mfr, may lead to higher expenses
       for the seller. Ex. machine, seller guarantees if for other use.
    Buyer would have no right because wholesaler new of defect. Kravitz doesn‟t overcome this
 Collateral K of warrant between the mfr and the user
    Desaulniers - overruled by CA, but SCC overruled CA for the reasons of TJ
    If there is some warranty given by mfr to user, court willing to read in a K of warranty (document
       destined for buyer)

Common law K
   Sperry Rand - representations made by the distributor and mfr created warranty
     Judgment criticized
     Based on the presumed promise between mfr and buyer. Could have used misrepresentation
     Provides strict liability to the buyer. If you argue misrepresentation, have to prove negligence, have
      problem of economic loss
     Jobin: useful legal fiction
70
Tort
 In c/l, problem with compensation of economic loss
 Civil law
    1607 – any loss must be direct and immediate consequence of breach
    1613 – loss must be foreseeable consequence of breach
    Kravitz – don‟t exactly know the nature of the loss
    Martin – claim is for reduction of value of product
    1468, 1469, 1473 codify jurisprudence for dangerous defects
       1468 ff only apply to extra-K
       Subsequent purchaser are Kal (1442, 1730), therefore 1458(2) prevails. Jobin argues that the right
           to opt should not be denied because the K between the mfr and buyer is just a legal fiction
 c/l – Rivtow, Chabot, Winnipeg Condo

Murray v. Sperry Rand Corp. et Sperry Rand Cnd(1979) Ont. HC)
Facts:
 M was a farmer who bought a forage harvester manufactured by Sperry Rand Corp. SR Canada Ltd. was
   the distrib. in Canada and Church was the dealer who sold it to Murray. Church's salesman gave M a sales
   brochure of the harvester which made certain representations about the harvester's features and
   performance. Church, his salesman and a representative from SR Canada visited M‟s farm and M
   explained to them his type of farming and the operation for which he intended to use the machine. He
   received assurances that the harvester will perform as described in the brochure. Machine fell very short
   of expectations the result of which were long delays and loss of some crop.)
 Church, seller, was liable as a signatory to the K and as a party to the representations.
Held:
 The representations made to the plaintiff were collateral warranties because they were made with the
   intention of inducing contractual relations.
 The plaintiff was entitled to the benefit of the implied conditions of fitness for purpose and merchantable
   quality in SGA s.15.
 Liability of Manufacturer: Notwithstanding that SR Corp. was not a party to the K between plaintiff and
   Church, it manufactured the harvester and it published the sales brochure and those representations in the
   brochure amounted to collateral warranties, the breach of these creates liability upon the manufacturer.
   These representations in the brochure were made with the intention of inducing the recipient of such
   representations to purchase the product described.
 Liability of the Distributor: SR Canada could be liable on two grounds. First, as agent of the
   manufacturer. Second, the dist. gave the same warranties Church gave at the meeting on the farm.

   The doctrine of collateral K as a method for avoiding privity problems with respect to manufacturers'
    representations doesn't surmount all the difficulties. For example, what if the buyer didn't see the
    representations but relied on the info. of a friend who saw or heard it. Could this doctrine be invoked?
    Also, here, reliance (tort/neg misrep) would have been more appropriate instead of making it a K. But
    harder to make it fit under tort, especially at that time. Also, if can‟t prove negligence, you‟re stuck with
    innocent misrepresentation.

Chabot v. Ford Motors Co. Of Canada Ltd. (1983) 39 OR
Facts:
 The plaintiff bought a car from Ford's dealer. The car was destroyed by a fire caused by a defectively
   installed plug. P sued the dealer in K for breach of warranty. He also sued the manufacturer in tort for
   negligent manufacture and in K for breach of the manufacturer's warranty.
                                                                                                                 71
Held:
 As for the tort action, until an accident occurs due to a defective part, the only remedy available to the
   buyer is in K for breach of warranty; if there is an accident caused by the defective part, a tort action also
   arises. In this case, the plaintiff is claiming for the damage caused to the truck by the defect. The Court
   distinguishes this case from Rivtow where the plaintiff was claiming for the cost of repairing the defective
   part and the economical loss incurred during the time of the repairs. Here, the defect destroyed the truck
   –Ford is liable for the negligent manufacture of the defect that caused the damages. Chabot can recover
   damages.
 Jobin: another attempt to try and overcome the difficulty of economic loss. Has not been followed or
   overruled.

Winnipeg condominium Corp. v. Bird Construction Co. Ltd. - SCC
Facts:
 A land developer contracted with the defendant for the construction of an apartment building. The
   defendant sub-contracted the masonry work. The building was then sold to the plaintiff. Eleven years
   later, a portion of the cladding fell from the building without causing further damage. Inspections
   revealed structural defects in the masonry work. The plaintiff had the defect repaired and is trying to
   recover the costs from the defendants.
Held:
 (Laforest J.) One can recover for reparation of defects caused by another when the non-repairing can
   cause danger to the safety of the occupants. Contractors (as well as sub-contractors, architects and
   engineers) who take part in the design and construction of a building will owe a duty in tort to subsequent
   purchasers (...) - If it can be shown that it was foreseeable that a failure to take reasonable care in
   constructing the building would create defects that pose a substantial danger to the health and safety of
   the occupants.
 The plaintiff doesn't need to prove damage, he must only prove negligence. The underlying policy
   justification is the promotion of socially responsible behaviour on both sides (constructor and owner).
 Jobin: significant step in the law. Accepted that this would apply to mfr when product is dangerous for
   humans.
    Struck by the fact that there is no mention in Rivtow or Winnipeg Condo about giving the mfr the
        chance to repair at a lower cost (like notice in civil)

   Traditional approach – restricted damages, not an incentive for mfr to be careful
   New approach – likely be a deterrent, mfr will act more carefully

Jobin: 2 observations
1. Nothing said about dangers only threatening to property
2. Nothing said about defects that are not dangerous at all, just result in decrease in value

Facts of Winnipeg Condo in civil law
 Same issues don‟t arise
 Claim in damages, not for the value of the property itself (that is under resolution)
 Jobin: argue that civil law would allow for compensation for repairs to prevent future losses

The Concern with Overlap Between Tort and Contract Duties
 The contractor has a duty to take reasonable care in the construction of a building even in the absence of
   a contractual relationship. There is no risk of indeterminate liability. The fact that successors in title have a
   right of action does not make the class of potential claimants indeterminate. Nor is there a risk of
   indeterminate amount because there is a requirement that the defect must constitute a real and substantial
72
  danger for the occupants of the building and the liability will be limited to the reasonable costs of repairs.
  The burden of proof will be on the owner to show serious risk and negligence of the contractor.
 Finally, there is no risk of indeterminate time because the contractor will only be liable for the "useful life
  of the building". Furthermore, as time passes, it becomes more difficult for the owner of the building to
  prove the negligence of the contractor.

Notes and Questions on Manufacturer's Liability
 Uncertainties remain as whether the manufacturer can be held liable when there has been no physical
    injury or damage to property, but only a financial loss. The case law on this subject is abundant and
    inconsistent.
    1. The Impact of Winnipeg Condo
        a) Does the decision apply to defective chattels?
             The decision clearly seems to apply to defective chattels. Although La Forest J. does not
                address the issue, he relies on Laskin's dissenting opinion in Rivtow, which case involved
                defective chattel.
        b) Internal or external physical damage or the threat thereof?
             Liability of the manufacturer arises when there is damage to property other than the chattel
                containing the defect (extraneous), but it is not sure that it arises when the damage is caused
                to the other parts of the chattel containing the defective element (internal). Chabot suggests it
                does, although in Junior Books Ltd. v. Veitchi Co. [1982] 3 WLR 447, the court said that
                the manufacturer is liable only when extraneous damage is caused by the defective chattel.
        c) Scope of recovery under the Winnipeg Condo doctrine
             Should the plaintiff only recover the sums incurred in adverting the danger or should he also
                recover for the cost of replacing the defective element? In Winnipeg Condo, the SCC
                awarded plaintiff the cost of dismantling and replacing the cladding, but the Court did not
                explain the theory of the award.
        d) Recovery for negligent defects not constituting a danger to persons or other property
             The manufacturer is not liable if the defect is not dangerous. This is inferred from La Forest's
                judgement in Winnipeg Condo. However, part of his judgement could as well cover the
                cases where the defect is not dangerous. The author's suggestion is that the answer (...) lies in
                warranty law and that if current law is inadequate (because of privity barriers and such like) it
                would be better to expand the warranty rules than to burden a manufacturer with unbounded
                economic negligence claims.
2. The Quebec Civil Law Position
 In Kravitz, it was held that a serious latent defect in the care justified the cancellation of the sale. GM's
    legal warranty against latent defects given to the dealer also passed to the subsequent purchasers: (...) it is a
    claim that is tied to the thing to which it relates. In Kravitz, he car had not been involved in an accident
    and the plaintiff was not basing his claim on any delictual liability of GM. (...) [U]nder the Quebec law, a
    manufacturer is liable to the ultimate buyer for breach of the implied (legal) warranty that his goods are
    free from inherent defects. GM and the dealer were held jointly and severally liable.

Conclusion on mfr liability
 Not a great deal of legislation
 C/l – collateral K is a smart legal fiction, needed
 Civil – reform of CCQ, 1468 ff adopted
    Solidifies and clarifies the law
    Strict liability, not negligence – 1468 ff, 1442 (Kravitz), 1730
 European directive of 1985 – strict liability for various types of losses (adopted by respective domestic
   law by 1995)
                                                                                                             73
F. Buyer’s Obligations
   Take delivery – accept the goods
     In c/l, breach of obligation seller‟s remedies (SGA 48).
     In civil, 1740, in addition, seller can terminate K

1. Obligation to pay the price

   Pay taxes, insurance, construct something – obligation of buyer depends on the clauses. These items are
    assimilated to the obligation to pay the price and gives seller rights and remedies of failure to pay price.
     Romanesky – father had right of first refusal. Right breached. Agreement attempted to assimilate to
        price the right of first refusal. The language was unclear here, may work in other cases.

2. Common law remedies

 Withholding delivery/lien
   Lien – SGA 38-39
      Seller can resell the goods if they are perishable, upon giving notice to buyer – SGA 46
      Right to withhold delivery
          C/l well ahead of civil law.
          Complement to lien, stoppage in transit of the goods where, after giving the goods to carrier,
              it becomes known that buyer won‟t pay
          SGA 42-44
          Need insolvency
 No equivalent concept of prior claims in c/l
   Have lien under general law
   Make K conditional sale to get more protection
   Add in clauses of self-help remedies
 Action for payment of price
   Seller will prefer to withhold property
   Jobin: generous to seller, can cover almost all situations
   SGA 47(1) – whenever property has passed, open even there is no delivery yet
   SGA 47(2) – whether the goods have been appropriated to the K or not, date specified for payment
     of price
   SGA 27 – provides that payment and delivery take place concurrently but 47(1) would take
     precedence

3. Civil law remedies

 Withholding of delivery/lien
   If non-payment occurs before delivery, seller can keep the goods – right of retention 1591, 1592
   Right to withhold delivery – 1740(2) if buyer has demonstrated inability to pay
 Prior claims
   Seller of immovable no longer have prior claims. Need to have a hypothec to get protection.
   Maintained for movables sold to natural persons not carrying on an enterprise – 2651(2)
       Drafters of CCQ wanted to abolish it , but appropriate in some cases
       Consistent with 2685 – hypothecs without delivery (only persona carrying on enterprise can get a
          hypothec without delivery)
                                                                  rd
 In CCLC, there were some measures of protection of buyer and 3 party in K of loan – 1040a ff
                                                      rd
 Reform of CCQ, technique of protecting buyer and 3 party extended
74
     Law of hypothecs , notice, property in payment extended to other situations (instalment sale)
     
     Jobin: serious flaw that it was not extended to lease agreement, consumer sale
     
 Payment of price
   1590 ff – general application of rules of remedies
   Obligation to pay the price is personal, not real. Seller may have a hypothec on the property, in which
     case, right to resolve.
      Ex. Sale2, if buyer2 doesn‟t have the cash flow, can get credit by assuming the balance of price
         owed under sale1. Seller1 not paid, brings a personal action against buyer1 and buyer2
         (assumption of balance of price is imperfect, doesn‟t change obligation of buyer1) and real action
         for hypothec against buyer 2 only (buyer1 doesn‟t have the property)

i)   Sale of movable
 Resolution for sale of movable – 1741
   Extra-judicial resolution, useful if buyer is insolvent
   Revendication – complement to resolution. Seller doesn‟t have possession of goods, have to go to
     court for revendication (unless buyer is willing to hand over property)
   Effective with respect to competing creditros – 1741(2) (take precedence over seizing creditors)
   Conditions of 1741
      Move quickly – 30 days from delivery
      Property has to be in the same condition. Ex. if bricks, can‟t demolish wall to give back to seller
                                                      rd
      Property must not be in the hands of 3 party who has actually paid for the goods. Ex. sell
         pickup, buyer doesn‟t pay, within 30 days sells to buyer2, right to revendicate against buyer2
         depends on whether buyer2 has paid in full.
                               rd
          Good faith of 3 party irrelevant for 1741 (only relevant for 1604, 1605)
      Purchaser must be in default or put in default. (1595 – where you don‟t need to put the debtor in
         default)
      Revendication possible as long as hypothecary creditor has not obtained surrender. Where there
         is a hypothec and the debtor is in default, send notice. Creditor has the right of surrender – get
         property from debtor. Creditor is not the owner, simply managing the property (simple
         administration)
          Note: surrender is not the same as seizure – 2763, 2768. Seizure is based on CCP.
   Very powerful remedy, prevails against banks
   What if outside the 30 days or it is a sale with term? Fall into general law of resolution (1604)
   Judicial proceedings – whether resolution is judicial or extra-judicial, revendication requires the court.
     In practice, will seize before judgment so that the goods can‟t be resold during the proceedings
   Cash sale – doesn‟t provide for payment to be made at a later date
   Give default notice prior to resolution, but no notice required at resolution. In practice, buyer learns
     of resolution when seller applies for revendication.

Problem: Exercise Machine
Remedies for Gilbert against Fitco in civil law
 Kal – 1730, 1442 (Kravitz)
 If dangerous defect, argue 1468 ff. It was a dangerous defect because Jacqueline was injured. 1458(2)
   might prohibit extra-K.
 K of warranty
    As sub-purchaser, Jobin argues that he has a choice between K and extra-K.
 Remedy for order to replace the machine, resolution, (warranty provides for replacement)
Remedies for Gilbert against Fitco in common law
 Can‟t rely on fitness for use (SGA 15) because there was no sale between mfr and G and there is no rule
   of running of warranty under K of sale.
 Collateral warranty ensures compensation
                                                                                                       75
     Damages for inconvenience and lesser of 2 amounts (1) replace machine (2) fix machine
      
     No specific performance because not unique object
      
 Remedy in tort? Claim is for inconvenience
   Negligent misrepresentation – liable
   Chabot? But machine not broken, only the bolt is broken, therefore NO
   Rivtow? Mfr, having discovered defect, has duty to warn. But here, don‟t know whether Fitco knew
     of the defect, or whether isolated event
   Winnipeg Condo? Dangerous defect
      G not asking for steps taken to prevent the accident as it has already occurred. He is claiming
         inconvenience.
      Cost of doing things to prevent injury
      Smith: restricted to expenses necessary to prevent injury. Jobin thinks this view is too narrow
      Machine not dangerous in house if unused.
   Jobin: no remedy in tort
     Donoghue – inconvenience

EXAM: To solve problem, look at each precedent that could possibly apply. Look at the facts. Are the facts
of our case similar enough to apply by extension? Look at the legal basis for the rules. Put forward
alternative arguments.

ii)       Sale of immovable
     Policy considerations:
       Stability of immovable property – real estate not affected easily by legal problems
       Sanctity of K
       Protection of buyer, rules of equity
                                                                 rd
       Balancing of competing interests – buyer and seller, 3 parties
     Law is public order in this area, therefore the requirements are strict
     Operates in same was as taking of payment of hypothecs
       Before reform of CCQ, no rules on this, had CCLC 1040a ff which required notice to be given
           Giving in payment – by agreement, not by law. 1801 – now prohibited and replaced by new
               regime, resolution of sale of immovable
       2778 ff – taking of payment
       2757 ff – notice
     4 conditions
      1. 1741 – can‟t resolve unless there is s clause. Jobin would dispense this condition.
      2. 1742(2) – first 5 years of K. After that, action for payment of price.
      3. Prior notice to buyer and sub-purchaser – 1743(1)
           Must be registered
           Incorporates by reference the law on remedies for hypothecs - 2757 ff (notice)
           Indicate intention to resolve. If seller changes mind, need another notice.
      4. authorization by tribunal 2778 (incorporated by 1743(1))
           new in CCQ, no criteria to guide judge
           2 conditions:
                at least ½ of the debt secured has been paid. Ex. sale for $300K, $100K cash and $200K
                   secured, wait until $100K paid
                agreement
           turn to QCPA 109 ff, leg has laid down criteria – by analogy
     2 restrictions
      1. right of buyer or sub-purchaser to remedy the default (pay amount within 60 days)
76
         amount owed at time of payment and interest and legal costs but nothing else (no penalty, no
          balance of price, automatic termination)
       at expiry of 60 days, seller can apply to get resolution or can wait – 2761(2). Until resolution,
          buyer can remedy.
       Penalty clause, acceleration clause, applies outside the 4 corners of resolution
       Min 60 days grace, practically longer.
  2. Right of buyer or subsequent hypothecary creditor to force the seller to sell the property (by
      agreement or judicial authority) - 2779
       Resolution process underway, say they want the building sold. If resolution proceeds, subsequent
          hypothecary creditors loss real rights. Might have enough $ from sale to pay everybody.
       Guarantees that the claim of the seller will be paid in full
       Seller loses control of the situation – protection of legitimate interest of hypothecary creditors and
          3rd parties
       Seller is selling in the capacity of administrator of the property of another – must reasonably
          protect the interests of all involved
 Effects of resolution - drastic
   Voluntary (K)
   Judgment – constitutes title and is registered – 2781
   Al real rights are extinguished
 1743(2) overrides some rules in 2779 ff. In case of resolution, all rights after date of registration of sale
  disappear.
 1699 ff – person who returns the property owes nothing for use, unless there is negligence

iii)  instalment sale
 1745 – had to be registered for certain goods. Remember, all sales of immovables must be registered.
 3 classes of goods, 2 regimes
 not limited to movables, but would be unusual for it to apply to immovables

            Consumer                             For enterprise                          Vehicles, etc
No registration required – 1745(2)     Registration required - 1745(2)        Registration required – 1745(2)
a contrario
Protection of 3rd parties – 1749(1),   Protection of 3rd parties – 1749(1),   Protection of 3rd parties – 1749(1),
QCPA 138ff a contrario                 2757 ff, 2778 ff                       2757 ff, 2778 ff, QCPA 138 ff a
No particular protection, rely on      Only conditional security can be       contrario
CCP.                                   given                                  Distinguish between whether it
                                       Regime for immovables                  was a consumer sale or was for
                                       incorporated by reference              enterprise
                                                                                                                                                                                                                     77
                                                                                  Table of Contents

SALE SUMMARY – FALL 2000................................................................................................................................................ 1

INTRODUCTION ........................................................................................................................................................................ 1
    A. EVOLUTION OF MODERN SALES ............................................................................................................................................ 1
    B. CIVIL CODE AND STATUTES................................................................................................................................................... 2
       1.    Sources of law for K of sale ........................................................................................................................................ 2
       2.    Relationship between statutes and code ...................................................................................................................... 2
PART 1: CONSUMER KS .......................................................................................................................................................... 2
    A. GENERAL REMARKS .............................................................................................................................................................. 2
       1.  Problems of market economy ...................................................................................................................................... 2
       2.  The Development of Canadian Consumer Law ........................................................................................................... 3
       3.  Sources of consumer K law ......................................................................................................................................... 4
    B. FORMATION ........................................................................................................................................................................... 4
       1.  Lesion and Unconscionability ..................................................................................................................................... 4
                             Gareau Auto v. CIBC [1989] R.J.Q. (QC. C.A.) – leading case .......................................................................................... 4
       2.   Form of the K .............................................................................................................................................................. 5
       3.   Disclosure ................................................................................................................................................................... 6
       4.   Right to cancel, withdraw, rescind .............................................................................................................................. 6
    C. TRADE PRACTICES ................................................................................................................................................................. 6
    D. OBLIGATIONS OF THE MERCHANT ......................................................................................................................................... 7
       1.   Remedies available – Quebec ..................................................................................................................................... 7
       2.   Remedies available – Ontario ..................................................................................................................................... 7
    E. OBLIGATIONS OF THE CONSUMER .......................................................................................................................................... 8
       1.   Rights and remedies of merchants .............................................................................................................................. 8
                             Credit Mercedes-Benz v. Champagne [1993] R.J.Q. (QC. C.A.) ......................................................................................... 8
         2.        Repossessing goods under instalment sale .................................................................................................................. 8
PART 2: SALE ............................................................................................................................................................................. 9
    A.        NATURE ............................................................................................................................................................................ 9
         1.     Scope ........................................................................................................................................................................... 9
              History of the SGA ............................................................................................................................................................................... 9
              SGA, 1893............................................................................................................................................................................................. 9
              Definitions ............................................................................................................................................................................................ 9
              Who does it apply to? ......................................................................................................................................................................... 10
              What sorts of things do they apply to? ............................................................................................................................................... 10
              What sorts of transactions? ................................................................................................................................................................. 10
         2.        Distinction with other Ks .......................................................................................................................................... 10
                       Helby v. Matthews [1895] AC 471 (HL) ............................................................................................................................ 10
              Hire-purchase agreement .................................................................................................................................................................... 11
                       Borek v. Hooper (1994), 18 OR (3d) 470 (Div. Ct.) ........................................................................................................... 11
    B. FORMATION ......................................................................................................................................................................... 11
       1.  Miscellaneous............................................................................................................................................................ 11
                           J. Schofield Manuel v. Rose (1975), 9 OR (2d) 404 (Co. Ct.) ............................................................................................ 11
              Form: generally .................................................................................................................................................................................. 11
              Form for sale of movables .................................................................................................................................................................. 11
              Form for sale of immovables .............................................................................................................................................................. 12
              Sale of residential immovables ........................................................................................................................................................... 12
              Offer and acceptance – civil law ........................................................................................................................................................ 12
              Sale of property on trial ...................................................................................................................................................................... 13
              Price.................................................................................................................................................................................................... 13
                           Beaudoin v. Rodrigue [1952] B.R. 23 (QC. C.A.) .............................................................................................................. 13
                           Côté v. Bouchard [1995] R.J.Q. (QC. Sup. Ct.) .................................................................................................................. 14
                           Romanesky v. Romanesky [1989] R.D.I. (QC. C.A.) ......................................................................................................... 14
         2.        Promise to sell ........................................................................................................................................................... 14
              Differences between common and civil .............................................................................................................................................. 14
              Problems with promises: .................................................................................................................................................................... 15
                       Therrien v. Arto [1981] CA ................................................................................................................................................ 16
78
                             Baron v. Bergeron (1997) CQ............................................................................................................................................ 17
     C. TRANSFER OF OWNERSHIP AND RISK ................................................................................................................................... 17
        1.  Transfer of ownership ............................................................................................................................................... 17
              Ascertained property .......................................................................................................................................................................... 18
              Unascertained property ....................................................................................................................................................................... 18
                 i) Civil law................................................................................................................................................................................... 18
                          Interprovincial Lumber v. Matapédia [1973] (QC. C.A.) ................................................................................................. 18
                 ii) Common law ............................................................................................................................................................................ 18
              OLRC Sales Report ............................................................................................................................................................................ 18
              Rules on passing property................................................................................................................................................................... 19
                          Varley v. Whipp [1900] 1 QB 513 (Div. Ct.) ..................................................................................................................... 19
                          Carlos Federspiel & Co., S.A. v. Chas. Twigg & Co., Ltd., [1957] (QBD) ........................................................................ 19
                          In re Wait [1927] 1 Ch. 606, [1926] All ER Rep. 433 (CA) ............................................................................................... 20
                          In Re Goldcorp Exchange [1995] AC 74 (PC) ................................................................................................................... 21
              Notes: ................................................................................................................................................................................................. 22
              Protecting the prepaying buyer: .......................................................................................................................................................... 22
              Consequences of passing of property ................................................................................................................................................. 23
         2.        Sale of property belonging to another ....................................................................................................................... 23
                 i) Common law ............................................................................................................................................................................ 23
                        Pacific Motor Auctions v. Motor Credits (Hire Finance) [1965] 2 All ER 105 (PC) .......................................................... 23
                        Newtons of Wembley v. Williams [1965] 1 QB 560 (CA) ................................................................................................. 24
              Proposals for Reform.......................................................................................................................................................................... 25
                            Problem: Cheap or Expensive ....................................................................................................................................... 25
                 ii) Civil law................................................................................................................................................................................... 25
              Rights of the owners against the buyer ............................................................................................................................................... 26
                        Entreprises Maurice Canada v. Cossette et Frères [1980] C.S. ........................................................................................... 26
                        Piché v. Laurentide Finance Co [1983] (CA) ..................................................................................................................... 27
              Rights of the buyer against the seller .................................................................................................................................................. 27
              Rights of the owner against the seller ................................................................................................................................................. 28
              Closing remarks .................................................................................................................................................................................. 28
         3.        Warranty of Ownership ............................................................................................................................................. 28
                 i) Civil law................................................................................................................................................................................... 28
              Warranty for private law restrictions .................................................................................................................................................. 28
              Warranty for public law limitations .................................................................................................................................................... 29
              Concept of eviction by the act of the seller......................................................................................................................................... 30
              Exoneration clause ............................................................................................................................................................................. 30
              Sale at the buyer’s own risk ................................................................................................................................................................ 30
                         Forget v. Goyer ................................................................................................................................................................... 30
                         Résidence Gisèle & Gérard v. De Rose 1999 (QC. C.A.) ................................................................................................... 31
                         Larin v. Curadeau 1997 (QC C.A.) .................................................................................................................................... 31
                         Lévis Mushroom Farm v. Cité de Lévis [1969] SCC ......................................................................................................... 32
                            Problem: Patricia ........................................................................................................................................................... 32
                 ii) Common law ............................................................................................................................................................................ 32
              Implied obligations ............................................................................................................................................................................. 33
                         Niblett v. Confectioners Materials Co Ltd. [1921] All ER Rep. 459 (CA) ......................................................................... 33
                         Rowland v. Divall [1923] All ER Rep. 270 (CA) ............................................................................................................... 33
                         Butterworth v. Kingwsway Motors [1954] 2 all ER 694 (QB) ........................................................................................... 34
              Note on implied warranty of freedom from encumbrances ................................................................................................................ 35
         4.        Risk ............................................................................................................................................................................ 35
                 i) Common law ............................................................................................................................................................................ 35
              Risk of loss ......................................................................................................................................................................................... 35
              Critique of the current rule ................................................................................................................................................................. 36
              Risk of loss and the effect of the party’s breach ................................................................................................................................. 36
                 ii) Civil law................................................................................................................................................................................... 36
              Preliminary remarks ........................................................................................................................................................................... 36
              Moment of passing of risk of loss....................................................................................................................................................... 36
              Impact of loss of property on resolution of K ..................................................................................................................................... 37
              Solutions for risk of K ........................................................................................................................................................................ 37
              What does the law say? ...................................................................................................................................................................... 37
                        Létourneau v. Laliberté [1957] C.S. ................................................................................................................................... 38
     D. SELLER’S OBLIGATIONS ...................................................................................................................................................... 38
        1.   Introduction............................................................................................................................................................... 38
              Overview of the law ........................................................................................................................................................................... 38
              The making of business Ks ................................................................................................................................................................. 40
                      Esso Petroleum v. Mardon .................................................................................................................................................. 40
                      Cehave N.V. v. Bremer Handelsgesellschaft m.b.H., [1976] 1 QB 44 (C.A.) .................................................................... 41
                                                                                                                                                                                                              79
                    Bunge Corporation v. Tradax Export S.A. [1981] (HL) ..................................................................................................... 41
         Civil law ............................................................................................................................................................................................. 42
    2.        Delivery ..................................................................................................................................................................... 43
            i) time and place .......................................................................................................................................................................... 43
         Obligations of the seller under CCQ................................................................................................................................................... 43
         Obligations of the seller under common law ...................................................................................................................................... 43
         Delivery under both systems .............................................................................................................................................................. 43
         Interdependence between delivery obligation and the obligation to pay ............................................................................................ 44
         Issues raised in the civil law ............................................................................................................................................................... 44
                    Hartley v. Hymans [1920] All ER Rep. 328 ....................................................................................................................... 45
                    Allen v. Danforth Motors Ltd. (1957), (Ont CA)................................................................................................................ 45
            ii) seller’s obligation regarding description .................................................................................................................................. 45
                    Varley v. Whipp (1900- Eng) ............................................................................................................................................. 46
                    Beale v. Taylor (1967) (EngCA) ........................................................................................................................................ 46
                    Arcos Limited v. E.A. Ronaasen and Son [1933] AC 470,[1933] All ER Rep. 646 (HL) .................................................. 47
         Criticism of SGA 14............................................................................................................................................................................ 47
                    Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (1976) (HL) ..................................................................................... 47
    3.        Quality....................................................................................................................................................................... 48
             i) Merchantable quality ............................................................................................................................................................... 48
                    Hardwick Game Farm v. Suffolk Agricultural and Poultry Producers Association [1968] Eng CA .................................. 48
         Merchantable quality – the first limb of Hadley ................................................................................................................................. 49
                    International Business Machines Co. Ltd. v. Shcherban [1925] Sask. C.A. ....................................................................... 49
             ii) Fitness for purpose ................................................................................................................................................................... 50
                    Ashington Piggeries Ltd. v. Christopher Hill [1972] (HL) ................................................................................................. 50
         Warnings ............................................................................................................................................................................................ 51
         Are there any cases where you would need to use 15(2) because 15(1) wouldn’t work? ................................................................... 52
             iii) Warranty of quality ............................................................................................................................................................. 52
         Introduction ........................................................................................................................................................................................ 52
         Reform of CCQ .................................................................................................................................................................................. 52
         Concept of defect ................................................................................................................................................................................ 52
                    Cook v. Warren [1992] C.S. ............................................................................................................................................... 53
                    Gestion Rodney v. Dominion ............................................................................................................................................. 53
                    La St-Maurice v. General Motors of Canada ...................................................................................................................... 53
         Concept of warranty of quality in CCQ .............................................................................................................................................. 54
         6 Conditions for warranty of quality................................................................................................................................................... 54
         Clauses that vary the law .................................................................................................................................................................... 56
         Sale of a residence by Kor or promoter .............................................................................................................................................. 57
                    Placement Jacpar Inc. v. Benzakour (1989) CA ................................................................................................................. 57
                    Labrecque v. Roy (1998) C.S. ............................................................................................................................................ 58
                    Samson et Filion v. Davie Shipbuilding [1925] SCC ......................................................................................................... 58
                    Ménard v. Bernier (CA) ...................................................................................................................................................... 58
                        Problem: Costly Yesterday’s House .............................................................................................................................. 59
    4.        Buyer’s remedies ....................................................................................................................................................... 60
            i) General rules ............................................................................................................................................................................ 60
         Loss of remedies for buyer ................................................................................................................................................................. 60
            ii) Acceptance by buyer ................................................................................................................................................................ 61
                   Home Gas Ltd. v. Streeter [1953] 2 DLR 842 .................................................................................................................... 61
                   Hardy & Co. v. Hillerns and Fowler ................................................................................................................................... 61
                   Rafuse Motors v. Mardo Construction ................................................................................................................................ 62
E. MANUFACTURER’S LIABILITY .............................................................................................................................................. 62
         Rationale for holding manufacturer liable .......................................................................................................................................... 62
    1.        Liability for dangerous defects .................................................................................................................................. 63
         Kal liability vis-à-vis co-King party ................................................................................................................................................... 63
         Liability in tort of manufacturer towards 3rd party for dangerous defect ............................................................................................ 63
         Problems ............................................................................................................................................................................................. 63
                    Desaulniers v. Ford Motors ................................................................................................................................................ 63
                    General Motors v. Kravitz .................................................................................................................................................. 64
                    Dorion v. Lehouillier .......................................................................................................................................................... 64
    2.        Liability for inherent dangers ................................................................................................................................... 64
         Obligation to warn of inherent dangers .............................................................................................................................................. 64
         5 conditions for inherent dangers ....................................................................................................................................................... 65
         Development risk ............................................................................................................................................................................... 65
         Duty to inform users as developments occur ...................................................................................................................................... 66
         Doctrine of learned intermediary ........................................................................................................................................................ 66
         Will exoneration clause be maintained in breach of mfr’s duty to warn? ........................................................................................... 66
         Conclusion on duty to warn ................................................................................................................................................................ 66
80
                             Lambert v. Lastoplex .......................................................................................................................................................... 67
                             Martin v. Industries Pittsburgh [1982] C.S. ........................................................................................................................ 67
                             Royal Industries v. Jones [1979] C.A. ................................................................................................................................ 67
                             Hollis v. Dow Corning ........................................................................................................................................................ 67
                             Létourneau v. Imperial Tobacco ......................................................................................................................................... 68
                             Rivtow Marine v. Washington Iron Works ......................................................................................................................... 68
         3.        Rights of sub-purchaser ............................................................................................................................................ 69
              Avoiding privity of K in civil law ...................................................................................................................................................... 69
              Common law K .................................................................................................................................................................................. 69
              Tort ..................................................................................................................................................................................................... 70
                            Murray v. Sperry Rand Corp. et Sperry Rand Cnd(1979) Ont. HC) ................................................................................... 70
                            Chabot v. Ford Motors Co. Of Canada Ltd. (1983) 39 OR ................................................................................................. 70
                            Winnipeg condominium Corp. v. Bird Construction Co. Ltd. - SCC ................................................................................. 71
              Facts of Winnipeg Condo in civil law ................................................................................................................................................. 71
              The Concern with Overlap Between Tort and Contract Duties .......................................................................................................... 71
              Notes and Questions on Manufacturer's Liability ............................................................................................................................... 72
              Conclusion on mfr liability ................................................................................................................................................................. 72
     F. BUYER’S OBLIGATIONS ........................................................................................................................................................ 73
        1.   Obligation to pay the price ....................................................................................................................................... 73
        2.   Common law remedies .............................................................................................................................................. 73
        3.   Civil law remedies ..................................................................................................................................................... 73
                   i) Sale of movable ....................................................................................................................................................................... 74
                               Problem: Exercise Machine ........................................................................................................................................... 74
                   ii) Sale of immovable ................................................................................................................................................................... 75
                   iii) instalment sale ......................................................................................................................................................................... 76

								
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