IMPLIED WARRANTIES UNDER BC’S SALE OF GOODS ACT IN CONSTRUCTION
British Columbia’s Sale of Goods Act (“SGA”) implies a warranty of fitness, merchantability and durability for all goods sold or leased in the province. These implied warranties are based on the principle of “strict liability,” meaning that, if a business sells or leases materials or equipment that fall below these implied standards, it will be liable, irrespective of any negligence or misrepresentation on its part. This article offers a primer on how these implied warranties impact the construction sector and best practices you can employ to mitigate risk.
The Implied Warranties of Fitness, Merchantability and Durability
Section 18 of the SGA implies that goods sold or leased in British Columbia must be:
- reasonably fit for a specific purpose;
- of merchantable quality; and
- durable for a reasonable period of time.
(a) Reasonably Fit
The implied warranty of reasonable fitness simply means that the goods being purchased or leased are suited for their intended use. In construction, the intended use of materials or equipment is often obvious (think hardwood floors, bricks or window panes), so the buyer or lessee does not necessarily need to explain their use beforehand for the warranty to apply. When the intended use is not obvious or there are specific performance requirements that need to be met (i.e., terrains, climactic conditions, weight and payload capacities), the buyer or lessor should explain these for the implied warranty to have force.
(b) Merchantable Quality
Merchantable quality effectively means that the product is of a ‘good enough’ quality to be sold or leased. The context in which the sale or lease occurs will impact whether this warranty will apply. If the sale or lease is through a catalogue or website, then the materials must arrive in the same condition as they were described. However, when the sale or lease occurs in-person and the buyer or lessee has an opportunity to perform an inspection prior to purchasing, there will be no implied warranty for patent defects (defects that an inspection would have readily revealed). However, latent defects (those which would not have been readily discovered) would still be subject to the warranty. As the name suggests, the implied warranty of merchantability does not apply to private sales.
Durability refers to the reasonably expected lifespan of the equipment or materials at the time of the purchase or lease. The question of durability is more nuanced as a number of factors can impact the lifespan of a product – as the old adage goes, your mileage may vary. To determine whether the implied warranty of durability has been breached, courts consider the condition of the product at the time of the sale or lease (for example, its age, prior uses, kilometres, known defects) to any excessive wear and tear caused by the owner or lessee (use, poor upkeep, climactic conditions).
Written vs. Implied Warranty
Suppliers can potentially limit the SGA’s implied warranties with an express warranty. For example, courts have found express warranties that exclude, in writing, a specific component, as having this effect. A clause that provided that any implied warranty was “limited to the applicable warranty duration period” as specified in the written warranty, was also held by the courts to limit the duration of the SGA’s implied warranties.
Generally speaking, the implied warranties under the SGA are only imposed on the most immediate supplier of the product. However, in construction, it can also apply to labour and material contracts where the supply of materials is “more than incidental” to the provision of the contractor’s services. An owner or a contractor may also be able to sue the manufacturer directly if it was its promotional materials that had persuaded them to purchase the product.
The claimable damages for a breach of an implied warranty include consequential losses and pure economic losses. Consequential losses refer to any losses resulting from the breach of the warranty, including personal injury, property damage or loss of income. As you can imagine, these can quickly add up. Pure economic loss means monies expended to repair or replace the damaged equipment or materials. Express warranties will often include language that will seek to limit or exclude liability for consequential damages.
The SGA’s implied warranties are easy to overlook, but can have a significant impact on liability. Below are some key takeaways to keep in mind to reduce risk when buying, leasing or supplying goods or equipment:
- The SGA’s implied warranties do not apply to private sales and will only apply to businesses who supply goods in their ordinary course.
- The SGA’s implied warranties may also apply to contracts for work and materials where the supply of materials is more than incidental to the provision of services under the contract. This means that an owner may have recourse against the contractor directly for breaches of the implied warranties.
- A pre-inspection should be performed when equipment or materials are bought in person. Defects that could have been discovered in a pre-inspection will not receive warranty coverage (but those that could not have been will).
- Written warranties can limit the SGA’s implied ones. In any written contract, you would be well-served to include language to expressly exclude warranties of fitness for purpose, merchantability or durability. Similarly, any implied warranty or condition as to merchantability or fitness should be limited to the applicable warranty duration period specified in the express warranty.