What are the elements of the contract governed under SGA? • Does the buyer have capacity? If not, s 7 states that the contract is void or voidable a. Void à the contract never existed, therefore there can be no enforcement or remedies b. Voidable à the contract exists until the buyer actively disaffirms it, at which point the contract is rescinded c. Rescission à the contract is set aside and the parties are set back to original position d. Contract of sale for necessaries à s 7(3) states that if an incapacitated person enters into a contract of sale for necessaries at a reasonable price then the contract stands i. If an incapacitated person pays an unreasonable price then under s 7(2) the contract is preserved and the price is replaced with a reasonable one e. Bawlf Grain Co v Ross: An incapacitated person must actively disaffirm the contract within a reasonable time of regaining capacity i. Facts: drunk buyer entered into K for wheat, only repudiated after price rose a month later ii. Reasonable time is determined dependant on the nature of the goods iii. Silence stretching past the lapse of the reasonable time period will be deemed to be affirmation • Have the parties agreed on the price? If contract is silent, then under s 12(2) the buyer must pay a reasonable price a. S 12(1) à price can be set in 3 ways i. (a) set by the contract explicitly, (b) contract sets a mechanism to agree, (c) determined by the course of dealings between the parties and the customary use of the product b. May v Butcher: An agreement to agree on price at a later time is not enforceable i. But the doctrine of reasonable price cannot be used since in such a situation the contract is not silent c. Montana Mustard Seed v Gates: A contract will not fail if it is silent on price – doctrine of reasonable price 12(2) i. Facts: contract stipulated price for certain kind of seed, but not the lower quality kind actually delivered – contract does not fail, must pay a reasonable price ii. The courts will fix a reasonable price to be determined in all the circumstances if the parties cannot agree d. S 13(1): If contract stipulates price is to be set by 3rd party valuation and that party does not, contract is avoided i. If (any part of) the goods have been delivered to and appropriated by the buyer then (1) does not apply and the buyer must still pay a reasonable price for the goods ii. If 3rd party is prevented from doing valuation by buyer or seller, party not at fault can claim damages • • Is this contract for future or existing goods? Is this contract for specific, ascertained, or unascertained goods? a. future goods: s 1 - these are goods that are to be manufactured/acquired by the seller after the making of the K i. A contract for future goods is an agreement to sell under s 9 – BoC if K does not become a sale for existing b. existing goods: goods that are owned by or in possession of the seller under s 9(1) c. specific goods: goods that are identified and agreed upon at the time of the sale d. ascertained goods: goods that were previously unascertained have now been affirmed/appropriated to the contract e. unascertained goods à goods that are not identified at the time of the sale; must contain a description i. Are intended to become ascertained, but will never become specific • Have the goods perished? Only relevant for specific goods a. A contract for the sale of specific goods à s 10 i. a contract for sale ii. of specific goods iii. goods perished at the time the contract was made iv. the seller was unaware v. therefore, the contract is void – can be used to benefit 3rd parties wanting to claim there was never a K b. An agreement to sell specific goods à s 11 i. an agreement to sell (a conditional sale) ii. specific goods iii. the goods perish due to a true supervening event iv. before the risk has passed to the buyer v. therefore, the contract is rescinded • What types of obligation exist in the contract? a. Terms in the contract can be either conditions, warranties, or intermediate i. Certain terms (eg 16-19) can never be intermediate because statute classifies them as conditions/warranties ii. breach of a condition: allows for the injured party to repudiate the contract, reject the goods, and cancel any future primary obligation iii. breach of a warranty: allows for the injured party to bring a damages claim, but not to reject or terminate iv. An intermediate term defies classification until the breach occurs, at which point the severity of the consequences are assessed to determine if it should be treated as condition/warranty (Hong Kong Fir) b. Warranty à as per s 1 a warranty is a term that is collateral to the main purpose of the contract, c. Condition à as per s 15(1), if the seller breaches a condition, then the buyer can elect to terminate the contract, or treat it as a breach of warranty and affirm the contract i. Under s 15(4), if there is a contract for specific goods and the property has passed from the seller to the buyer, then the buyer must treat a breach of condition as a breach of warranty ii. Under s 23(2), property passes in an unconditional sale for specific goods in a deliverable state when the contract is made iii. Leaf v International Galleries: the prima facie combination of s 15(4) + s 23(2) means that in an unconditional sale for specific goods in a deliverable state when the seller breaches a condition of the contact, the buyer will never have the right to reject the goods and terminate the contract (cannot reject after you accept) a. Facts: “Constable” painting – specific goods, wanted to rescind years after he had accepted painting b. Rescission is possible for misrepresentations, but only if brought within a reasonable time d. Intermediate term à Not governed by SGA, use the common law e. Hong Kong Fir v Kawasaki: to determine if breach should lead to termination – look at whether the injured party was deprived of all or a substantially the whole benefit that they contracted for f. Cehave v Bremer: Unless the beach of an intermediate term goes to the heart of the contract, it gives rise to damages, not the right to reject the goods and terminate the contract i. “Quality” can be considered an intermediate term - use the common law to classify is upon breach g. Bunge v Tradax: At common law, certain terms will always be a condition or a warranty (commercial certainty) i. A specific quantum is almost always a condition ii. Timing in mercantile contracts is a condition h. Implied terms à the court has the power to imply the terms into the contract (eg s 16-19) i. Courts will imply out of necessity, not because it is reasonable – will not do the work for the parties i. Canadian Pacific Hotels v BMO: There are two ways to imply a term into a contract: i. Operation of law – common law or statute ii. The situation of the parties – common industry practice or to give the contract business efficacy iii. Facts: BMO accountant forging checks to steal, no implied duty for customer to monitor the bank statements with reasonable care and report discrepancies within a reasonable time j. Under s 69, the freedom to contract out of any implied terms is codified i. Can do so through an express agreement, course of dealings, or usage ii. Entire contract clause: all obligations are asserted in K, no implied terms (doesn’t rule out misrep though) • • Does the contract contain an exclusion or limitation clause? If yes, what implied terms of SGA is it purporting to contract out of? is this exclusion or limitation clause valid? a. Tercon v BC: When assessing the enforceability of an exclusion clause the court must apply a 3-part test i. As a matter of interpretation, does the clause apply to the established circumstances? ii. Was the clause unconscionable at the time the contract was made? iii. Should the court refuse to enforce it based on public policy? b. General Rule: S 69 - Any right, duty or liability that would arising by implication of law can be negative or varied i. S 20: prevents the limitation of warranties under sections 16, 17, 18 and 19 in certain circumstances ii. 20(1): “retail sale” – includes every contract of sale in the ordinary course of the seller’s business, but does not include a sale of goods [in a commercial context] – basically refers to consumer transactions iii. 20(2) – unless they are used goods, declared by the seller or appear to be after reasonable inspection, parties cannot contract out of 17, 18, and 19 in consumer transactions (despite s 18(e) and 69) iv. 20(3) – for new OR used goods, parties cannot contract out of section 16 in consumer transactions a. But, 16 itself says that you can contract out of it, so could make that argument (ambiguity) c. At times, courts may refuse to enforce an exclusion clause in exceptional circumstances where something is cruel and demeaning (Gaertner v Fiesta Dance Studies) i. Facts: nurse got tricked into signing up for crazy dance lessons that costed extreme amounts of money; was promised a competition that would be filmed and sent to NY d. L’Estrange rule: you are bound by what you sign; exceptions: i. insufficient notice of onerous terms (Tilden Rent-A-Car) party looking to enforce the term must prove that it took measures to properly notify the other party b. Facts: insurance policy had extremely strict exclusion clauses for drinking, speeding, etc. ii. unconscionability: a. Inequality in bargaining power + substantial unfairness leads to a presumption of unconscionability which the stronger party must rebut (Morrison) b. Against community standards of commercial morality (Lloyds) c. Harry v Kreutziger: tricked into selling fishing boat and license for way less than market value and now, can’t get another license – found to be unconscionable a.