Throughout Canada, the purchase and sale of goods is governed by provincial & territorial \u201csale of goods\u201d legislation. These laws were originally modelled on the United Kingdom\u2019s Sale of Goods Act, 1893<\/em>, [1]<\/a> and they apply in every province and territory except Quebec.[2]<\/a> In Alberta, this legislation is known as the Sale of Goods Act <\/em>(\u201cSGA<\/em><\/strong>\u201d). [3]<\/a> <\/p>\n\n\n\n In Alberta, the SGA<\/em> plays a central role in governing commercial transactions involving goods. Among its provisions are two particularly important conditions which can be implied into a contract of sale: [4]<\/a><\/p>\n\n\n\n These conditions provide significant protections to buyers of goods in Alberta, and can present a substantial risk to manufacturers and sellers of goods. Both buyers and sellers should familiarize themselves with these implied conditions to better understand their legal rights and (potential) liabilities.<\/p>\n\n\n\n In the recent decision of Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc.<\/em> (\u201cEarthco<\/em><\/strong>\u201d),<\/em> 2024 SCC 20<\/a>, the Supreme Court of Canada reviewed the history and purpose of sale of goods legislation.<\/em> [5]<\/a> Martin J., writing for the majority, stated that the introduction of these implied conditions in Canada was \u201clikely intended to reverse the negative effects that arose when caveat emptor<\/em> [\u201clet the buyer beware\u201d] reigned and buyers were saddled with all of the risks associated with the state of the goods, except when expressly agreed by the contracting parties\u201d. [6]<\/a> The sale of goods legislation was found to have two main purposes, namely (1) the protection of buyers, and (2) safeguarding freedom of contract. [7]<\/a><\/p>\n\n\n\n In keeping with the consumer protection purpose, the SGA <\/em>(as with every provincial and territorial sale of goods act) contains two important implied conditions:<\/p>\n\n\n\n Understanding these conditions is critical \u2014 especially for manufacturers and retailers \u2014 as they may apply even when the contract says nothing about them.<\/p>\n\n\n\n The implied term of merchantable quality, sometimes referred to as merchantability, is set out in section 16(4) of the SGA<\/em>: [8]<\/a><\/p>\n (4) When goods are bought by description from a seller who deals in goods of that description, whether the seller is the manufacturer or not, there is an implied condition that the goods are of a merchantable quality.<\/p>\n\n\n For goods to be sold \u201cby description,\u201d it is not necessary for the buyer to purchase the goods sight-unseen. An over-the-counter sale of goods can be a sale by description. [9]<\/a> However, if the buyer has examined the goods, the implied condition of merchantable quality does not apply with respect to defects which the examination ought to have revealed. [10]<\/a> The condition also does not apply if it is expressly excluded by contract. [11]<\/a><\/p>\n\n\n\n The general test for merchantable quality, as stated in United Grain Growers Ltd. v. Genesis<\/em>, 2002 ABQB 851, is that \u201cthe goods must be fit for the purpose for which they are normally used, and if there are several normal uses for the goods, they will be merchantable if they are fit for any of the uses, even if not for the purpose intended by the particular buyer\u201d. [12]<\/a><\/p>\n\n\n\n Other courts and commentaries have stated that:<\/p>\n\n\n It has been stated by the courts that the buyer can discharge its burden to prove that the goods were defective and that the defect (latent or patent) existed at the time of delivery by \u201cshowing that the defect probably existed at the time of delivery and by producing evidence to exclude other probable reasons for the emergence of the defect\u201d. [16]<\/a> However, the buyer is \u201cunder no obligation to disprove all possible reasons for the emergence of the defect, but rather only those which are probable causes\u201d. [17]<\/a><\/p>\n\n\n\n The implied condition of merchantable quality can assist a buyer who has received unusable or defective goods from a seller. This condition is particularly useful where the buyer did not notify the buyer of its intended use for the goods prior to the sale. Where the buyer\u2019s intended use was<\/em> made known to the seller, the implied condition of fitness for a particular purpose may apply, as detailed below.<\/p>\n\n\n\n The implied condition of fitness for a particular purpose is set out in section 16(2) of the SGA<\/em>:[18]<\/a><\/p>\n (2) When the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller\u2019s skill or judgment and the goods are of a description that it is in the course of the seller\u2019s business to supply, whether the seller is the manufacturer or not, there is an implied condition that the goods are reasonably fit for that purpose.<\/p>\n\n\n The implied condition of fitness \u201cdoes not require the goods supplied to be absolutely fit, but rather reasonably fit\u201d. [19]<\/a> Per section 16(3) of the SGA<\/em>, the implied condition of fitness for a particular purpose does not apply to the sale of a specific article under its patent or other trade name. [20]<\/a> The implied condition also does not apply where it is expressly excluded by contract. [21]<\/a><\/p>\n\n\n\n In order for the implied condition of fitness for a particular purpose in section 16(2) to apply, the buyer must prove three elements.<\/p>\n\n\n\n If the above three conditions are met, section 16(2) of the SGA <\/em>will imply a condition into the contract of sale that the goods shall be reasonably fit for the particular purpose made known to the seller. The final burden on the buyer, then, is to show that the goods purchased were not reasonably fit for that purpose. [32]<\/a> Academics suggest that this is a high bar to meet:[33]<\/a><\/p>\n\n\n For the buyer to succeed in making a case of breach of the implied condition, he must show \u201cthat the defect was such as to destroy the workable character of the thing sold thereby amounting to a fundamental and total breach of the contract.\u201d He cannot succeed, however, if he received what he ordered, even if there is a lack of quality or fitness. [citations omitted]<\/p>\n\n\n As stated above, fitness does not mean perfection. While goods must be reasonably fit for their intended purpose, they are not required to be \u201cperfect or as good as every other article of [their] kind.\u201d [34]<\/a> Generally, the implied condition of fitness will not be breached if the goods are \u201csafe and suitable for their use by the buyer in any special way he intends to use them, if known to the seller, or in the ordinary way such goods are used.\u201d [35]<\/a><\/p>\n\n\n\n To summarize, the implied condition of fitness for a particular purpose can assist a buyer who has been supplied goods which are incompatible with the buyer\u2019s intended usage of the goods, as conveyed to the seller. This condition is particularly useful in situations where the goods are otherwise of merchantable quality, such that SGA <\/em>section 16(4) is of no assistance to the buyer.<\/p>\n\n\n\n If a buyer is suing the seller for damages beyond <\/em>the total cost of the goods, the buyer must show not only that the goods were not fit for their purpose or that they were of unmerchantable quality, but also that the goods were an \u201ceffective or dominant cause of [the buyer\u2019s] losses.\u201d [36]<\/a><\/p>\n\n\n\n Importantly, if one (or both) of the implied conditions apply, it is not open to the seller \u201cto prove that he exercised reasonable care or that the defect was undiscoverable because there is \u201cstrict\u201d liability.\u201d [37]<\/a><\/p>\n\n\n\n As detailed above, either or both of the implied conditions can be expressly excluded by contract. Where such an exclusion exists, it will be valid provided that \u201cthe customer has particular notice and provided the contract is not unconscionable.\u201d [38]<\/a> In other words, the exclusion cannot be \u201ccontrary to good conscience.\u201d [39]<\/a> Unconscionability may be found, for example, where the seller knowingly sells defective product(s) to the buyer. [40]<\/a><\/p>\n\n\n\n Even if the exclusion clause was not unconscionable at the time the contract was made, a court may consider \u201cif there is some overriding public policy consideration that outweighs the strong public interest in the enforcement of contracts and if there is, the court may refuse to enforce the otherwise valid exclusion clause.\u201d [41]<\/a> Additionally, when resolving ambiguities in the exclusion clause (if any), the clause \u201cmust be strictly construed against the party seeking to invoke it.\u201d [42]<\/a><\/p>\n\n\n\n Buyers and sellers alike should review and consider the implied conditions of merchantable quality and fitness for a particular purpose prior to entering into any high-value contract of sale. Section 16 of the SGA <\/em>imposes contractual conditions which can result in major liabilities for sellers, if not properly excluded. Similarly, the conditions implied by the SGA <\/em>can provide meaningful protections for buyers which, if excluded by contract, could impact a buyer\u2019s ability to recover losses relating to low quality and\/or improperly supplied goods.<\/p>\n\n\n\n Buyers and sellers should remember:<\/p>\n\n\n Miller Thomson\u2019s Commercial Litigation group<\/a> has a broad range of litigation experience, including contract of sale disputes. If you or your business require assistance or advice in this area, please reach out to our legal team.<\/p>\n\n\n\n [1]<\/a> Sale of Goods Act, 1893<\/em> (U.K.), 56 & 57 Vict., c. 71.<\/p>\n\n\n\n [2]<\/a> See Sale of Goods Act<\/em>, R.S.B.C. 1996, c. 410; The Sale of Goods Act<\/em>, R.S.S. 1978, c. S-1; The Sale of Goods Act<\/em>, C.C.S.M., c. S10; Sale of Goods Act<\/em>, RSO 1990, c S.1; Sale of Goods Act<\/em>, R.S.N.B. 2016, c. 110; Sale of Goods Act<\/em>, R.S.N.L. 1990, c. S-6; Sale of Goods Act<\/em>, R.S.N.S. 1989, c. 408; Sale of Goods Act<\/em>, R.S.P.E.I. 1988, c. S-1; Sale of Goods Act<\/em>, R.S.N.W.T. (Nu.) 1988, c. S-2; Sale of Goods Act<\/em>, R.S.N.W.T. 1988, c. S-2; Sale of Goods Act<\/em>, R.S.Y. 2002, c. 198.<\/p>\n\n\n\n [3]<\/a> Sale of Goods Act<\/em>, R.S.A. 2000, c. S-2 [SGA<\/em>].<\/p>\n\n\n\n [4]<\/a> Ibid<\/em>, ss. 16(2) and 16(4).<\/p>\n\n\n\n [5]<\/a> Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc.<\/em>, 2024 SCC 20 [Earthco<\/em>]. For an in-depth review of the Earthco <\/em>decision, see Darin Hannaford & Adrienne Funk\u2019s 2024 article here<\/a>.<\/p>\n\n\n\n [6]<\/a> Ibid <\/em>at para 35.<\/p>\n\n\n\n [7]<\/a> Ibid <\/em>at para 41.<\/p>\n\n\n\n [8]<\/a> SGA, supra <\/em>note 3, s. 16(4).<\/p>\n\n\n\n [9]<\/a> Gerald Fridman, Sale of Goods in Canada<\/em>, 6th ed (Toronto: Carswell, 2013) [Fridman] at 177-178.<\/p>\n\n\n\n [10]<\/a> SGA, supra <\/em>note 3, s. 16(5).<\/p>\n\n\n\n [11]<\/a> Ibid<\/em>, s. 54.<\/p>\n\n\n\n [12]<\/a> United Grain Growers Ltd. v. Genesis<\/em>, 2002 ABQB 851 at para 50, citing Fridman, supra<\/em> note 9 (emphasis added).<\/p>\n\n\n\n [13]<\/a> Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd<\/em>., 2002 CarswellAlta 1923 (ABQB) at para 120 [Plas-Tex<\/em>], citing Gill v. Kittler<\/em>, 1983 CarswellAlta 245 (ABQB) at paras 101-105.<\/p>\n\n\n\n [14]<\/a> Bagh v. Danish Design Inc.<\/em>, 2009 ABPC 1 at para 38.<\/p>\n\n\n\n [15]<\/a> Fridman, supra<\/em> note 9 at 185.<\/p>\n\n\n\n [16]<\/a> Edmonton (City) v. Westinghouse Canada Inc<\/em>., 2000 ABCA 80 at para 15.<\/p>\n\n\n\n [17]<\/a> Ibid<\/em>.<\/p>\n\n\n\n [18]<\/a> SGA<\/em>, supra <\/em>note 3, s. 16(2).<\/p>\n\n\n\n [19]<\/a> Daishowa-Marubeni International Ltd. v. Toshiba International Corp<\/em>., 2010 ABQB 627 at para 118.<\/p>\n\n\n\n [20]<\/a> SGA, supra <\/em>note 3, s. 16(3).<\/p>\n\n\n\n [21]<\/a> Ibid<\/em>, s. 54.<\/p>\n\n\n\n [22]<\/a> PTI Group Inc. v. BOT Engineering & Construction Ltd<\/em>., 1995 CarswellAlta 387 at para 123 (ABQB) [PTI<\/em>].<\/p>\n\n\n\n [23]<\/a> Fridman, supra <\/em>note 9 at 161.<\/p>\n\n\n\n [24]<\/a> Ibid.<\/em><\/em><\/p>\n\n\n\n [25]<\/a> PTI, supra <\/em>note 22 at para 124.<\/p>\n\n\n\n [26]<\/a> Fridman, supra note 9 at 163.<\/p>\n\n\n\n [27]<\/a> Ibid<\/em> at 173.<\/p>\n\n\n\n [28]<\/a> PTI, supra <\/em>note 22 at para 125.<\/p>\n\n\n\n [29]<\/a> Edmonton (City) v. Lovat Tunnel Equipment Inc.<\/em>, 2000 ABQB 882 at para 329.<\/p>\n\n\n\n [30]<\/a> Gashler v. Machura<\/em>, 1990 CarswellAlta 478 at para 71 (ABQB), citing Fridman, supra <\/em>note 9.<\/p>\n\n\n\n [31]<\/a> Fridman, supra note 9 at 168-169.<\/p>\n\n\n\n [32]<\/a> SGA, supra <\/em>note 3, s. 16(2).<\/p>\n\n\n\n [33]<\/a> Fridman, supra note 9 at 172.<\/p>\n\n\n\n [34]<\/a> Fording Coal Ltd. v. Harnischfeger Corp. of Canada<\/em>, 1990 CarswellBC 343 at para 12, aff\u2019d 1991 CarswellBC 441, which applied a similar provision of the BC Sale of Goods Act<\/em>, RSBC 1979, c 730, s 18.<\/p>\n\n\n\n [35]<\/a> Fridman, supra <\/em>note 9 at 172.<\/p>\n\n\n\n [36]<\/a> United Grain Growers Ltd. v. Genesis<\/em>, 2002 ABQB 851 at para 59.<\/p>\n\n\n\n [37]<\/a> Crooked Post Shorthorns, A Partnership v. Masterfeeds Inc<\/em>., 2008 ABQB 641 at para 211.<\/p>\n\n\n\n [38]<\/a> Basaraba v. St. Albert Dodge Chrysler Ltd<\/em>., 2000 ABQB 479 at para 18 [Basaraba<\/em>].<\/p>\n\n\n\n [39]<\/a> Kassian v. Hill<\/em>, 2002 ABQB 106 at para 31.<\/p>\n\n\n\n\n
The purpose of sale of goods legislation<\/h2>\n\n\n\n
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Merchantable quality<\/h2>\n\n\n
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Fitness for a particular purpose<\/h2>\n\n\n
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Additional information on the implied conditions<\/h2>\n\n\n\n
Conclusion: Protecting your position starts before you sign<\/h2>\n\n\n\n
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