ARTICLE
25 June 2025

The Fine Print You Never Wrote: Implied Conditions Under Alberta's Sale Of Goods Act

MT
Miller Thomson LLP

Contributor

Miller Thomson LLP (“Miller Thomson”) is a national business law firm with approximately 500 lawyers across 5 provinces in Canada. The firm offers a full range of services in litigation and disputes, and provides business law expertise in mergers and acquisitions, corporate finance and securities, financial services, tax, restructuring and insolvency, trade, real estate, labour and employment as well as a host of other specialty areas. Clients rely on Miller Thomson lawyers to provide practical advice and exceptional value. Miller Thomson offices are located in Vancouver, Calgary, Edmonton, Regina, Saskatoon, London, Waterloo Region, Toronto, Vaughan and Montréal. For more information, visit millerthomson.com. Follow us on X and LinkedIn to read our insights on the latest legal and business developments.
Throughout Canada, the purchase and sale of goods is governed by provincial & territorial "sale of goods" legislation. These laws were originally modelled on the United Kingdom's Sale of Goods Act, 1893, and they apply in every province and territory except Quebec
Canada Alberta Corporate/Commercial Law

Throughout Canada, the purchase and sale of goods is governed by provincial & territorial "sale of goods" legislation. These laws were originally modelled on the United Kingdom's Sale of Goods Act, 1893,1 and they apply in every province and territory except Quebec.2 In Alberta, this legislation is known as the Sale of Goods Act("SGA").3

In Alberta, the SGA 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

  • the implied condition of merchantable quality, and
  • the implied condition of fitness for a particular purpose.

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.

The purpose of sale of goods legislation

In the recent decision of Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc. ("Earthco"), 2024 SCC 20, the Supreme Court of Canada reviewed the history and purpose of sale of goods legislation.5 Martin J., writing for the majority, stated that the introduction of these implied conditions in Canada was "likely intended to reverse the negative effects that arose when caveat emptor ["let the buyer beware"] 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".6 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

In keeping with the consumer protection purpose, the SGA (as with every provincial and territorial sale of goods act) contains two important implied conditions:

  1. Merchantable quality: goods must meet a minimum level of quality or fitness; and
  2. Fitness for a particular purpose: goods must be reasonably fit for the buyer's intended purpose.

Understanding these conditions is critical — especially for manufacturers and retailers — as they may apply even when the contract says nothing about them.

Merchantable quality

The implied term of merchantable quality, sometimes referred to as merchantability, is set out in section 16(4) of the SGA:8

(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.

For goods to be sold "by description," 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 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 The condition also does not apply if it is expressly excluded by contract.11

The general test for merchantable quality, as stated inUnited Grain Growers Ltd. v. Genesis, 2002 ABQB 851, is that "the 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".12

Other courts and commentaries have stated that:

  • Merchantable means commercially saleable;13
  • Goods are not merchantable if:
    • They have defects in them making them unfit for their intended purpose;14 or
    • They need something done to them before they are usable to the buyer (even if what must be done is trivial).15

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 "showing 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".16 However, the buyer is "under no obligation to disprove all possible reasons for the emergence of the defect, but rather only those which are probable causes".17

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's intended usewasmade known to the seller, the implied condition of fitness for a particular purpose may apply, as detailed below.

Fitness for a particular purpose

The implied condition of fitness for a particular purpose is set out in section 16(2) of the SGA:18

(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'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 are reasonably fit for that purpose.

The implied condition of fitness "does not require the goods supplied to be absolutely fit, but rather reasonably fit".19 Per section 16(3) of theSGA, 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 The implied condition also does not apply where it is expressly excluded by contract.21

In order for the implied condition of fitness for a particular purpose in section 16(2) to apply, the buyer must prove three elements.

  1. The seller normally deals in goods of that kind.22 Often this element is easily proven, as goods (especially high-priced goods) are typically purchased from sellers who regularly deal in those goods. In the case of a private sale, a buyer will have difficulty proving this element.23 Additionally, the implied condition is not restricted to the purchase of new goods. It can apply to second-hand goods, as long as the seller's business is to deal with such goods.24
  2. The seller had knowledge of the buyer's intended purpose for the goods.25 Where the buyer made its intended purpose known to the seller via express communication(s), this element will not be difficult to prove. Even where no intended purpose has been expressly stated to the seller, the buyer's intended purpose may "nonetheless be obvious from the character of the goods."26 In other words, the seller's knowledge can be inferred, depending on the circumstances surrounding the purchase. On the other hand, the seller will not be liable where the injury to the buyer, or the unfitness of the goods for their intended purpose, relate to "some abnormality on the buyer's part which was not disclosed to the seller and was unforeseeable by him."27
  3. The buyer relied on the seller's skill and knowledge, and the reliance was a substantial and effective inducement to the buyer to make the purchase.28 Such reliance will be presumed "when the buyer has ordered the goods for a special purpose and that purpose is disclosed to the seller so that in accepting the contract the seller undertakes to supply goods which are suitable for the purpose intended."29 The language of section 16(2) is satisfied if the reliance can be reasonably inferred by the seller and the court.30 Additionally, the buyer's reliance on the seller's skill or judgment "need not be total or exclusive" – this condition can be met where the buyer relied on the seller's skill and judgment "only in some respects."31

If the above three conditions are met, section 16(2) of the SGA 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 Academics suggest that this is a high bar to meet:33

For the buyer to succeed in making a case of breach of the implied condition, he must show "that 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." He cannot succeed, however, if he received what he ordered, even if there is a lack of quality or fitness. [citations omitted]

As stated above, fitness does not mean perfection. While goods must be reasonably fit for their intended purpose, they are not required to be "perfect or as good as every other article of [their] kind."34 Generally, the implied condition of fitness will not be breached if the goods are "safe 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."35

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's 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 section 16(4) is of no assistance to the buyer.

Additional information on the implied conditions

If a buyer is suing the seller for damages beyond 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 "effective or dominant cause of [the buyer's] losses."36

Importantly, if one (or both) of the implied conditions apply, it is not open to the seller "to prove that he exercised reasonable care or that the defect was undiscoverable because there is "strict" liability."37

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 "the customer has particular notice and provided the contract is not unconscionable."38 In other words, the exclusion cannot be "contrary to good conscience."39 Unconscionability may be found, for example, where the seller knowingly sells defective product(s) to the buyer.40

Even if the exclusion clause was not unconscionable at the time the contract was made, a court may consider "if 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."41 Additionally, when resolving ambiguities in the exclusion clause (if any), the clause "must be strictly construed against the party seeking to invoke it."42

Conclusion: Protecting your position starts before you sign

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 imposes contractual conditions which can result in major liabilities for sellers, if not properly excluded. Similarly, the conditions implied by the SGA can provide meaningful protections for buyers which, if excluded by contract, could impact a buyer's ability to recover losses relating to low quality and/or improperly supplied goods.

Buyers and sellers should remember:

  • Merchantable ≠ perfect
    • The implied condition of merchantable quality imposes a minimum standard of quality for goods sold. However, it does not necessarily provide a guarantee that the goods will meet the buyer's subjective expectation(s) of quality. To be merchantable, goods must be fit for the purpose they are normally used, and if there are several normal uses, they must be fit for at least one of these uses.
  • The implied condition of fitness may require action on the part of the buyer
    • For the implied condition of fitness for a particular purpose to be engaged, the seller must have knowledge of the buyer's intended purpose for the goods. While this maybe inferred in some cases, it is best practice for a buyer to make their intended purpose known to the seller before purchasing goods. To protect themselves, buyers should also keep detailed records of their communications with sellers regarding their intended purpose(s).
  • The importance of exclusion clauses
    • If you are a buyer: a valid exclusion clause can prevent a buyer from pursuing a seller for providing goods which are unmerchantable or unfit for the buyer's particular purpose. This is a significant risk, particularly when buying high-value or specialized equipment. To mitigate this risk, buyers should:
      • Negotiate to remove exclusion clauses from the relevant sale contract, where possible; or
      • Conduct a thorough inspection of the goods prior to purchasing.
    • If you are a seller: the lack of an exclusion clause in a sale contract can expose a seller to significant liability for losses of the buyer, including the full contract price and other economic losses. To reduce their exposure, sellers should:
      • Ensure that their sale contracts include a broad and unambiguous exclusion of the SGA's implied conditions; and
      • Review their templates regularly to ensure their risk is properly managed.

Miller Thomson's Commercial Litigation grouphas 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.

Footnotes

1. Sale of Goods Act, 1893 (U.K.), 56 & 57 Vict., c. 71.

2. See Sale of Goods Act, R.S.B.C. 1996, c. 410; The Sale of Goods Act, R.S.S. 1978, c. S-1; The Sale of Goods Act, C.C.S.M., c. S10; Sale of Goods Act, RSO 1990, c S.1; Sale of Goods Act, R.S.N.B. 2016, c. 110; Sale of Goods Act, R.S.N.L. 1990, c. S-6; Sale of Goods Act, R.S.N.S. 1989, c. 408; Sale of Goods Act, R.S.P.E.I. 1988, c. S-1; Sale of Goods Act, R.S.N.W.T. (Nu.) 1988, c. S-2; Sale of Goods Act, R.S.N.W.T. 1988, c. S-2; Sale of Goods Act, R.S.Y. 2002, c. 198.

3. Sale of Goods Act, R.S.A. 2000, c. S-2 [SGA].

4. Ibid, ss. 16(2) and 16(4).

5. Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20 [Earthco]. For an in-depth review of theEarthcodecision, see Darin Hannaford & Adrienne Funk's 2024 article here.

6. Ibid at para 35.

7. Ibid at para 41.

8. SGA, supra note 3, s. 16(4).

9. Gerald Fridman, Sale of Goods in Canada, 6th ed (Toronto: Carswell, 2013) [Fridman] at 177-178.

10. SGA, supra note 3, s. 16(5).

11. Ibid, s. 54.

12. United Grain Growers Ltd. v. Genesis, 2002 ABQB 851 at para 50, citing Fridman, supra note 9 (emphasis added).

13. Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2002 CarswellAlta 1923 (ABQB) at para 120 [Plas-Tex], citing Gill v. Kittler, 1983 CarswellAlta 245 (ABQB) at paras 101-105.

14. Bagh v. Danish Design Inc., 2009 ABPC 1 at para 38.

15. Fridman,supranote 9 at 185.

16. Edmonton (City) v. Westinghouse Canada Inc., 2000 ABCA 80 at para 15.

17. Ibid.

18. SGA, supra note 3, s. 16(2).

19. Daishowa-Marubeni International Ltd. v. Toshiba International Corp., 2010 ABQB 627 at para 118.

20. SGA, supra note 3, s. 16(3).

21. Ibid, s. 54.

22. PTI Group Inc. v. BOT Engineering & Construction Ltd., 1995 CarswellAlta 387 at para 123 (ABQB) [PTI].

23. Fridman, supra note 9 at 161.

24. Ibid.

25. PTI, supranote 22 at para 124.

26. Fridman, supra note 9 at 163.

27. Ibid at 173.

28. PTI, supra note 22 at para 125.

29. Edmonton (City) v. Lovat Tunnel Equipment Inc., 2000 ABQB 882 at para 329.

30. Gashler v. Machura, 1990 CarswellAlta 478 at para 71 (ABQB), citing Fridman,supranote 9.

31. Fridman, supra note 9 at 168-169.

32. SGA, supra note 3, s. 16(2).

33. Fridman, supra note 9 at 172.

34. Fording Coal Ltd. v. Harnischfeger Corp. of Canada, 1990 CarswellBC 343 at para 12, aff'd 1991 CarswellBC 441, which applied a similar provision of the BCSale of Goods Act, RSBC 1979, c 730, s 18.

35. Fridman, supra note 9 at 172.

36. United Grain Growers Ltd. v. Genesis, 2002 ABQB 851 at para 59.

37. Crooked Post Shorthorns, A Partnership v. Masterfeeds Inc., 2008 ABQB 641 at para 211.

38. Basaraba v. St. Albert Dodge Chrysler Ltd., 2000 ABQB 479 at para 18 [Basaraba].

39. Kassian v. Hill, 2002 ABQB 106 at para 31.

40. See Plas-Tex, supra note 13 at para 54.

41. Earthco, supra note 5 at para 71.

42. Basaraba, supra note 38 at para 20.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More