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Report No. 38 the UNIFORM SALE of GOODS ACT INSTITUTE OF Report No. 38 1982 CanLIIDocs 1 THE UNIFORM SALE OF GOODS ACT INSTITUTE OF LAW RESEARCH AND REFORM EDMONTON, ALBERTA October, 1982 i Table of Contents PART 1 - REPORT SUMMARY CHAPTER I. INTRODUCTION 3 a. Purpose of Report 3 b. Evolution of the Ontario Report 3 c. Referral to the Uniform Law Conference 4 d. Need for reform 7 CHAPTER • II. ADOPTION OF THE UNIFORM ACT 11 1982 CanLIIDocs 1 a. Desirability of Uniform Act 1 1 b. Desirability of uniformity 12 CHAPTER I I I. CONTENT AND ORGANIZATION OF REPORT 15 CHAPTER IV. ADDITIONAL PROTECTION FOR THE RELIANCE INTEREST 19 a. Formation of the contract of sale 20 b. Firm offers 28 c. Offers inducing reasonable reliance 33 d. Unilateral contracts 35 e. Contractual modifications 38 f. Express warranties and remedies for breach thereof 45 CHAPTER V. IMPOSING MINIMUM STANDARDS OF CONTRACTUAL BEHAVIOUR 60 a. Unconscionability 60 b. Good faith 66 c. Firm offers 72 d. Contractual modifications 72 CHAPTER VI. ASSERTING ISSUE-ORIENTATED RULES AT THE EXPENSE OF GENERAL CONCEPTUAL RULES 73 i i a. Formation of the contract of sale 73 b. Reducing the significance of property (or t i t 1e) 74 i ) The existing law 75 i i ) The Uniform Act 87 i i i ) Property 90 iv) The buyer's special property 95 v) Bankruptcy of the seller 99 vi) Risk 100 1982 CanLIIDocs 1 vii) The seller's right to sue for the price 107 vi i i ) Rejection of non-conforming goods 109 c. Unilateral contracts 11 0 d. Extended warranties 11 0 e. Express warranties 128 CHAPTER VI I. MODERNIZING AND STREAMLINING SALE OF GOODS LAW 129 a. Statute of Frauds 129 b. Parol evidence rule 132 c. The hierarchy of contractual terms 140 d. Redefining goods 157 e. Remedies changes 162 i) The indexation of remedies 163 i i) Rights of cancellation 163 iii) Quantifying the injured party's damages 164 iv) Recovery of money paid on contractual breakdown 166 v) The seller's restitutionary claim for benefits received by the buyer 167 i i i vi ) Specific performance 169 vii ) Fraud and misrepresentation 173 CHAPTER VIII. SALVAGING BARGAINS AND PREVENTING WASTE WHEN THE CONTRACTUAL PROCESS OR CONTRACTUAL PERFORMANCE BREAKS DOWN 177 a. Formation of the contract of sale 177 b. Unsettled price 177 c. Output and requirements contracts and exclusive dealing agreements 180 1982 CanLIIDocs 1 d. Strict tender, rejection and cure 184 e. Impossibility of performance 197 f. Adequate assurance of due performance and anticipatory repudiation 206 CHAPTER IX. STATUTORY ENUNCIATION OF UNCLEAR AND c UNWRITTEN LAW 216 PART 2 - UNIFORM SALE OF GOODS ACT WITH SUGGESTED AMENDMENTS 219 INSTITUTE OF LAW RESEARCH AND REFORM The Institute of Law Research and Reform was established January 1, 1968, by the Government of Alberta, the University of Alberta and the Law Society of Alberta for the purposes, among others, of conducting legal research and recommending reforms in the law. Its office is at 402 Law Centre, University of Alberta, Edmonton, Alberta, T6G 2H5. Its telephone number is (403) 432-5291. The members of the Institute's Board of Directors are W.E.Wilson ,Q.C. (Chairman); J.W. Beames, Q.C.; W.F. Bowker, Q.C.; Professor C.R.B. Dunlop; George C. Field, Q.C.; Emile Gamache, Q.C.; W.H. Hurlburt, Q.C.; Professor J.C. Levy; D. Blair 1982 CanLIIDocs 1 Mason, Q.C.; Thomas W. Mapp; and R.M. Paton. The Institute's legal staff consists of W.H. Hurlburt, Q.C., Director; John L. Dewar, Allison Dunham, Baz Edmeades, George C. Field, Q.C., M. Deborah MacNair, Thomas W. Mapp, and Margaret A. Shone, Counsel. ACKNOWLEDGMENT The Institute wishes to acknowledge the contributions of Michael G. Bridge, of the Faculty of Law, McGill University, formerly a Counsel on the Institute's legal staff, in the preparation of Report No. 38. Professor Bridge prepared extensive discussion materials for the Institute's Board of Directors, he attended meetings of the Board and actively participated in its deliberations with respect to the Uniform Sale of Goods Act, and he was the draftsman of this Report. However, the Institute's Board of Directors assumes sole responsibility for the opinions and recommendations contained in Report No. 38. 1 SUMMARY The origins of this report lie in the Report on Sale of Goods issued by the Ontario Law Reform Commission in 1979. The Ontario Law Reform Commission put its recommendations and draft bill before the Uniform Law Conference of Canada with a view to the adoption of the latter as uniform legislation. The Uniform Law Conference then appointed a committee to consider the subject of reform of Sale of Goods law and in 1981 this committee reported 1982 CanLIIDocs 1 back to the Uniform Law Conference recommending the adoption as uniform legislation of a revised version of the Ontario Law Reform Commission's draft bill. This recommendation was accepted and the revised draft bill became the Uniform Sale of Goods Act. The Uniform Act has two principal aims: first, to modernize existing Sale of Goods law; and secondly, to render this body of law sufficiently flexible to respond to the changing conditions that will inevitably occur in the years ahead. Existing Sale of Goods law is based on the Sale of Goods Act, which was first enacted by the United Kingdom Parliament in 1893. The purpose of the Sale of Goods Act was not to reform the law but simply to codify the developments that had taken place in the course of the nineteenth century. It is outdated in two major respects. First, it is based on a conception of Contract law that is no longer current in the late twentieth century. The enactment of the Sale of Goods Act has prevented Sale of Goods law from responding to changed social and economic conditions to the same degree as the general common law of Contract. In this regard, particular difficulties have been posed by the subject of 2 breach of the contract of sale. Secondly, the Sale of Goods Act places heavy emphasis on title, an abstract concept, as a universal guide for determining the rights and duties of parties to a sale of goods contract. The Uniform Act, on the other hand, is committed to the goal of examining each legal problem arising between a buyer and a seller in its functional setting and solving that problem in the fairest and most efficient manner. Consequently, the Uniform Act modifies the rules relating to risk, the buyer's entitlement to reject goods and the seller's 1982 CanLIIDocs 1 right to sue for the price. The aim of the Uniform Act to make Sale of Goods law adaptive to future conditions is served in two principal ways. First, the drafting of individual sections is left as open-textured as the interests of certainty allow, so as not to tie the hands of judges dealing with novel problems. Secondly, the Uniform Act is designed to reduce the gap between law and practice and to be practical, flexible and responsive to the needs of the business community. A heavy emphasis is therefore placed on trade custom and practice. The Institute of Law Research and Reform also favours the goals pursued by the Uniform Act and therefore recommends, subject to certain conditions, its adoption by the Province of Alberta. 3 SALE OF GOODS CHAPTER I. INTRODUCTION a. Purpose of Report The purpose of this report is to evaluate the Uniform Sale of Goods Act, adopted as uniform legislation by the Uniform Law Conference of Canada at its 1981 annual meeting in Whitehorse, and to consider whether it should be recommended to the Government of Alberta for legislative adoption. 1982 CanLIIDocs 1 b. Evolution of the Ontario Report The sale of goods reference to the Uniform Law Conference stemmed from the Ontario Law Reform Commission's 1979 Report on Sale of Goods. The origins of the project lie in the report issued by a sub-committee to the Commercial Law Subsection of the Ontario Branch of the Canadian Bar Association. This sub-committee judged existing sales law to be deficient in a number of respects and recommended that Ontario replace the existing law with Article 2 of the Uniform Commercial Code (hereafter Article 2) 1 in view of the magnitude of trade conducted between Ontario and the United States. On September 29, 1969 the sub-committee's report 2 was approved by a resolution of the Ontario Branch of the Canadian Bar Association and submitted by this body to the Minister of Justice. In February, 1970 the subject of sale of References to individual sections of Article 2 will be styled in the following way. For example, section 2-601 of Article 2 of the Uniform Commercial Code will appear as UCC 2-601. 2 The report of this sub-committee may be found in Appendix 7 of Volume III of the Ontario Law Reform Commission's Report on Sale of Goods. 4 goods was referred by the Attorney General to the Ontario Law Reform Commission (hereafter the OLRC) and serious work was begun in 1972. The research for the project was directed by Professor Jacob Ziegel of the Faculty of Law at the University of Toronto, and he presented a research report, summarizing the various research papers and recommendations, to the OLRC. The OLRC examined this report at length and its decisions were reduced to legislative draft form by Professor Ziegel and a number of colleagues. In 1982 CanLIIDocs 1 1979, the OLRC published its Report on Sale of Goods (hereafter, the OLRC Report) which also contained a Sale of Goods Bill (hereafter, the OLRC bill) in draft form.
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