Contracts Law

Lecture 8

John Allen
Discharge and Breach - Review of Lecture 2
• Some contracts are voided or rescinded from the
start
• treated as if they never existed by the court (Lecture 3)
• Void or Voidable

• Most contracts end in discharge after some

performance
Discharge by Performance
• Performance - obligations must be performed as agreed
• Substantial Performance
• If substantially perform, other party must accept contract
and sue for damages
• If not substantially perform, other side can either:
• Affirm contract and claim damages, or
• Discharge contract and claim damages
Essential terms of the contract
• Condition = term of the contract which is substantial and
goes to the root of the bargain

• Warranty = relatively less important term

• If innocent party would NOT be substantially deprived of expected
benefit of contract due to its breach
• Must affirm contract, no option to discharge agreement
• But can claim damages for breached promise
Anticipatory Breach and Self-induced breach
• Anticipatory breach
– Indication that other party will substantially breach
contract in future
– Innocent party is released of obligations and can sue
• Self-induced impossibility
– Party renders performance impossible; not an excuse
– Contrast: frustration (neither party at fault)
Damages
• Plaintiff expects benefit of contract
– Plaintiff can sue for value of performance
• Forward-looking damages
– Plaintiff monetarily placed as if contract performed
• Calculation of expectation damages
– Expected benefits minus expected costs
Sale of Goods Act
• Codification of common law rules, in late 1800s
• Enhance certainty and efficiency for business people
• Default rules - parties generally free to agree otherwise
• Statute only applies to a “sale of goods”. Requires:
– intention to transfer ownership (e.g. not leases)
– tangible things (not intangibles or services) and not land
– price paid in cash or equivalent (e.g. not pure trade)
Transfer of property
• Transfer of ownership from seller to buyer
– Difference between ownership and possession
• Significance of ownership passing
– Different remedies if ownership passes
– Risk follows who owns the property at the time
▪ Risk: burden of loss or damage on owner
▪ Owner has the risk and could buy insurance to cover risk
Sale of Goods - implied terms - section 13
• Act implies into contract a condition that seller has
title to sell
– Seller cannot sell goods it does not own
• Act implies a warranty of clear title
– No other person can have interest in goods
– E.g. goods are not mortgaged to third party, unless
disclosed to buyer
Nature of Goods
• If the seller is in the business of selling these
goods, then implied conditions:
– Merchantable quality (s.15)
– Fit for intended purpose (s.15)
Prepare for some questions...
Sale of Goods Act:

S.2 - 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...

S.19 - Rules for ascertaining when ownership passes from seller to buyer
 Passing of Property—Default Rules Section 19
Type of Contract
Rule 1: an unconditional contract for the sale of specific goods
that are already in a deliverable state
Rule 2: a contract for specified goods that requires the seller
to do something to put the goods into a deliverable
state
Rule 3: a contract for specified goods that requires the seller
to do something to the goods (such as weigh,
measure, or test them) in order to determine the price
Rule 4: a delivery of goods “on sale or return”
Rule 5: a contract for unascertained or future goods by
description
Property Passes
∙ at the time of the contract, even if delivery and payment
occur later
∙ when the seller has done that thing and the buyer has
been notified
∙ when the seller has done that thing and the buyer has
been notified
∙ when the buyer has signified approval or adopted the
transaction or retained the goods beyond a reasonable
time
∙ when goods of that description, that are in a deliverable
state, are unconditionally appropriated to the contract by
one party with the other party’s assent
Acceptance of Goods, sections 33,34
S.33(1) 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.
33(2) ...Seller on request shall afford the buyer a reasonable opportunity of examining the goods...

S.34 The buyer shall be deemed to have accepted the goods when the buyer,
(a) intimates to the seller that the goods have been accepted;
(b) after delivery, does any act in relation to them that is inconsistent with the ownership of the
seller; or
(c) after the lapse of a reasonable period of time, retains the goods without intimating to the seller
that they have been rejected.
Question 1
● Mr. X develops botulism after eating a meal at the defendant’s restaurant.
● X claims that the food was a “good” within the meaning of the Sale of Goods
Act. He wants to sue for damages under the Act.
● Restaurant argues that the contract was a service - the preparation of a meal
- and not a “good” with the meaning of the Act.

● Sale of Goods Act, definition 1(1) - “goods” means all chattels personal [i.e.
not land], other than things in action and money, and includes emblements,
industrial growing crops, and things attached to or forming part of the land
that are agreed to be severed before sale or under the contract of sale;
Question 1 - decision
● Gee v. White Spot Ltd., 1986 CanLII 776 (BC SC) link (Text page 321)
● Yes, it was a sale of a “good”
● “...an item on a menu offered for a fixed price is an offering of a finished
product and is primarily an offering of the sale of a good or goods and not
primarily an offering of a sale of services.” (paragraph 15)
● Result?
● Implied condition that the goods are merchantable, i.e. fit for its purpose, and
compensation damages
Question 2
● Sale of Goods Act, section 2(1) - 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,
and there may be a contract of sale between one part owner and
another.
● Car Dealer accepts your car for a trade-in for another car, without
cash. However, you and seller agree that your car is worth $5,000.
● Does the Sale of Goods apply?
Answer - Question 2
● No, the Sale of Goods Act does not apply
● However, it would have applied had seller agreed to pay
you $1.00 in addition to the trade.
● Does not have to be all cash.
Question 3
● You go to jewelry store and agree to buy a particular diamond for
$5,000
● You tell store that you will return next morning to pick it up. Store
agrees to hold the diamond for you overnight.
● That evening, the store is robbed. Store had acted reasonably, but the
robbers were very devious.
● Question - Do you still have to pay the $5,000 even though the
diamond is lost?
Answer to Question 3
● Yes, you still have to pay even though the diamond is lost
● Sale of Goods Act, section 19, 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.”
● Risk remains with the owner, which is you.
● Law of bailment, duty of care, tort law? Remember, the store exercised
reasonable care, so not at fault. You should have insured diamond.
Question 4
● Same diamond example, except that the store agrees to re-cut the
diamond Tuesday morning, before you pick it up Tuesday afternoon.

● Diamond is stolen Monday evening, by the same devious robbers.

● But the store had exercised reasonable care as to security system.
● Do you still have to pay the $5,000?
Answer to Question 4
● No, the theft is the store’s loss - you don’t have to pay.
● Sale of Goods Act, section 19, 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.
● i.e. ownership did not pass to you until diamond had been cut.
Question 5
● Same diamond example, which you are to pick up on Tuesday
morning, except all that the store has to do on Monday evening is to
weigh the diamond to determine its exact price.
● Diamond is stolen Monday afternoon, by the same devious robbers.

● Whose loss is it?

Answer to Question 5
● The theft is the store’s loss - you don’t have to pay.
● Sale of Goods Act, section 19, 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.
Question 6
● Same diamond example, except on Tuesday, store allows you to take
diamond for three days on a trial basis for you to decide if it matches
your other jewelry.
● You leave the store and are immediately robbed by the same devious
robbers when you cross the street and eat at the restaurant which
serves bad food in Question 1.
● Do you have to pay $5,000 for the diamond?
Answer to Question 6
● No, you don’t. It is the store’s loss and they should have bought insurance.
● Sale of Goods Act, section 19, 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;
● (i) when the buyer signifies approval or acceptance to the seller or does any
other act adopting the transaction;
● (ii) if the buyer does not signify approval...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....
Question 7
● Same stupid diamond example, except you pick out a particular
diamond from the store’s catalogue.
● Store obtains that diamond Monday and you are to pick it up on
Tuesday.
● Monday night, the devious robbers break-in to store.
● Are you required to pay for the diamond you picked out?
Answer to Question 7
● It depends...
● Sale of Goods Act, Rule 5: property passes to the buyer “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…”
● Has the diamond has been unconditionally appropriated for this buyer?
● “Unconditional appropriation occurs only if the seller has lost the ability to use
the goods for any purpose other than fulfilling the buyer’s contract.” Can the
store keep in stock could sell it to someone else.
Question 8
● You buy a TV from a store and it is as described as having
a 70-inch screen.
● In fact, the screen is only 68 inches.
● Can you return the TV even if the store has a no return
policy?
Answer to Question 8
● Yes, you can.
● Sale of Goods Act, section 14:
● 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, it is not sufficient that the bulk
of the goods corresponds with the sample if the goods do not also correspond
with the description.
Question 9
● You buy a TV from a store and it is as described as having a
large screen.
● The packing box makes it look large, but when you open the
box, the screen is only 40 inches.
● Can you return the TV even if the store has no return policy?
Answer to Question 9
● It depends. As long as the TV is fit for its intended purpose, probably no
refund. However,
● Sale of Goods Act, section 15(1)
● “Where 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’s skill or judgment, and the goods are of a
description that it is in the course of the seller’s business to supply (whether
the seller is the manufacturer or not), there is an implied condition that the
goods will be reasonably fit for such purpose…”
Question 10
● Helene operates a Food Truck business and she tells the supplier that
she will base her entire menu during the Food Truck festival on
walnuts. Festival is on Saturday.
● Supplier agrees to deliver 50 kg of walnuts by Saturday for $2,500
● Supplier fails to deliver until Sunday.
● Helene loses profit of $50,000. What can Helene sue for?
○ $2,500?
○ $50,000?
○ $50,000 minus $2,500?
Answer to Question 10
● Can sue for lost profit - $50,000
● Maybe some deduction if could find a buyer for the walnuts, but
unlikely could recoup the full $2,500 since the festival is over.