4. Business Legislation in Canada
The Sale of Goods Act (https://www.ontario.ca/laws/statute/90s01) was developed to regulate the sale of goods where no contract explicitly exists. The intent is to provide a basic set of regulations which are to be followed when selling goods within Canada. The regulations provide general rules to govern transactions. Businesses and individuals are allowed to contract out of the regulations of the Sale of Goods Act. Most individuals and businesses prefer to develop specific terms and conditions to govern their transactions (for example; payment terms, delivery dates, dispute resolution and other unique conditions).
It is important to note that some regulations do not allow businesses or individuals to contract out of the regulations. For example, the Environmental Protection Act or the Landlord Tenant Act.
The Sale of Goods Act only applies to goods that are sold or transferred between two parties. The act does allow for sellers to recoup goods in transit in the event the purchaser fails to pay in order to offset the potential loss. During bankruptcy proceedings of a purchaser, sellers often have a difficult time reclaiming their goods. Typically, these items are part of the liquidation event, and the seller receives their respective portion of the proceeds from the sale.
Under the Sale of Goods Act, sellers have obligations which they must follow. The regulations are designed to help protect the buyer from unfair actions by the seller. The following is a list of factors that every businessperson should be aware of:
- The seller can only sell goods that they own and have the right to sell. This is known as having ‘good title’. Sellers cannot transfer any goods for which they do not have good title.
- Goods cannot be sold with any encumbrances (a claim against a good by someone other than the person representing or claiming ownership). For example, a seller could not sell a car to purchaser if the car had a lien placed on the vehicle from a bank. The seller would be required to clear the lien before transferring title to the purchaser.
- A seller must sell all goods at a standard of quality which allows them to be sold to others. For example, a seller cannot not sell inventory to a retailer which, upon delivery, is found to be such poor condition that it is unable to be sold to customers.
- Sellers must present samples of the goods that are a fair representation of delivered merchandise. A seller could not for example, show a chair which fits an adult and then deliver a chair which only fits a child.
An important condition of the Sale of Goods Act is the transfer of title from the seller to the buyer. This is very important relative to the risk of ownership. For example, if a buyer in Ontario purchased goods from a seller in British Columbia and during transit the goods were damaged beyond repair, who is responsible the cost of the loss? The question of who owned the goods at what point in the journey is critical; whoever owns the goods bears the burden of the loss.
Risk follows title, so unless otherwise agreed, the goods remain at the seller’s risk until the property is transferred to the buyer. When the property is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not. There are five rules in the Act which explain who has title when:
Rule 1. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery or both is postponed.
Rule 2. Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.
Rule 3. Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.
Rule 4. When goods are delivered to the buyer on approval or “on sale or return” or other similar terms, the property therein passes to the buyer;
- when the buyer signifies approval or acceptance to the seller or does any other act adopting the transaction;
- if the buyer does not signify approval or acceptance to the seller but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time, and what is a reasonable time is a question of fact.
- Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer, and such assent may be expressed or implied and may be given either before or after the appropriation is made.
- Where in pursuance of the contract the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer and does not reserve the right of disposal, the seller shall be deemed to have unconditionally appropriated the goods to the contract.
There are several details and complex elements regarding the Sale of Goods Act. It is advisable to speak to a professional in this area before engaging in the sale of goods. However, there are some key elements which any business might benefit from knowing. The following information has been taken from the Ontario Government website.
Goods shall be deemed to be in a deliverable state within the meaning of this Act [Sale of Goods Act] when they are in such a state that the buyer would be bound to take delivery of them.
Sale and agreement to sell
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a money consideration, called the price.
What constitutes a sale or agreement to sell
Where under a contract of sale the property in goods is transferred from the seller to the buyer, the contract is called a sale, but, where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
Where price not determined
Where the price is not determined, the buyer shall pay a reasonable price, and what constitutes a reasonable price is a question of fact dependent on the circumstances of each particular case.
Sale by description
Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description, and, if the sale is by sample as well as by description.
Sale by sample
In the case of a contract for sale by sample, there is an implied condition,
(a) that the bulk will correspond with the sample in quality;
(b) that the buyer will have a reasonable opportunity of comparing the bulk with the sample; and
(c) that the goods will be free from any defect rendering them unmerchantable that would not be apparent on reasonable examination of the sample.
Duties of seller and buyer
It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them in accordance with the terms of the contract of sale.
Payment and delivery concurrent
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions – the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer shall be ready and willing to pay the price in exchange for possession of the goods.
Where no time for delivery fixed
Where the seller is bound to send the goods to the buyer but no time for sending them is fixed, the seller is bound to send them within a reasonable time.
Delivery of wrong quantity or quality
Where the seller delivers to the buyer a quantity of goods less than the seller contracted to sell, the buyer may reject them, but if they are accepted, the buyer shall pay for them at the contract rate.
Goods not in accordance with contract
Where the seller delivers to the buyer the goods contracted to be sold mixed with goods of a different description not included in the contract, the buyer may accept the goods that are in accordance with the contract and reject the rest or may reject the whole.
Rights of buyer as to examination
Where goods are delivered to the buyer that the buyer has not previously examined, the buyer shall be deemed not to have accepted them until there has been a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.
Effect of refusal to accept
Unless otherwise agreed, where a buyer refuses to accept delivery of goods and has the right to do so, the goods are not bound to be returned to the seller, but it is sufficient if the buyer communicates to the seller that acceptance of the goods is refused.
Wrongful neglect or refusal to take delivery
When the seller is ready and willing to deliver the goods and requests the buyer to take delivery and the buyer does not within a reasonable time after such request take delivery of the goods, the buyer is liable to the seller for any loss occasioned by the buyer’s neglect or refusal to take delivery, and for a reasonable charge for the care and custody of the goods.
Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to other remedies, a right of withholding delivery similar to and co-extensive with the rights of lien and stoppage in the course of transit where the property has passed to the buyer.
Right of stoppage in transit
When the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in the course of transit, that is to say, the unpaid seller may resume possession of the goods as long as they are in course of transit and may retain them until payment or tender of the price.