Sale of Goods Act and warranties

The Sale of Goods Act is Ontario’s oldest commercial-sale statute, and it sits underneath every retail vehicle deal a dealer signs. Where the Motor Vehicle Dealers Act, 2002 tells a registered dealer how to trade, the Sale of Goods Act tells the dealer what the buyer is entitled to expect from the goods themselves. The Act applies to any contract for the sale of goods in Ontario, dealer to dealer or dealer to consumer. Section 9 of the Consumer Protection Act, 2002 then borrows the implied conditions across to leases and other consumer supply agreements, and voids any contract term that tries to take them away from a consumer.

For an OMVIC registrant the Sale of Goods Act answers the questions that come up after the deal closes: did the vehicle have to be roadworthy, did it have to be fit for the buyer’s particular use, did the dealer have to deliver clear title, and what happens if the buyer rejects the vehicle or the dealer is left holding an unpaid contract. The terms tested in this category are old, but the courts still apply them as written.

What this category covers

This category tests the implied terms that attach to every vehicle sale (the seller’s right to sell, the buyer’s quiet possession, freedom from undisclosed encumbrances, fitness for the buyer’s purpose, merchantable quality, and conformity with description or sample), the rules on as-is sales, when title and risk pass from dealer to buyer, what counts as acceptance, and the remedies on each side when one party walks away. Expect questions on the difference between a condition and a warranty, on the interaction between section 53 of the Sale of Goods Act and section 9 of the Consumer Protection Act, and on a dealer’s options when a customer cancels a signed contract.

Key rules to remember

The implied terms of every vehicle sale

Sections 13, 14, and 15 of the Sale of Goods Act attach a set of implied terms to every contract of sale unless the circumstances show a different intention. Section 13(a) is an implied condition that the seller has the right to sell the goods. Section 13(b) and section 13(c) add implied warranties that the buyer will have quiet possession and that the goods are free from any charge or encumbrance not declared or known to the buyer when the contract was made. Section 15 paragraph 1 is an implied condition that goods are reasonably fit for any particular purpose the buyer made known to the seller while relying on the seller’s skill or judgment, where the seller deals in goods of that description. Section 15 paragraph 2 is an implied condition that goods bought by description from a seller who deals in goods of that description are of merchantable quality, with an exception where the buyer has examined the goods and the defect should have been revealed by that examination.

Sale by description and sale by sample

Section 14 implies that goods sold by description must correspond with the description, and section 16 implies that goods sold by sample must match the sample in quality and be free from defects that a reasonable inspection of the sample would not have revealed. Where a dealer advertises a vehicle as a particular trim, model year, or condition, those words become part of the description; if the delivered vehicle does not match, the buyer can reject it.

Conditions versus warranties

Section 1 defines a warranty as an agreement collateral to the main purpose of the contract, the breach of which gives a damages claim but not a right to reject the goods. Section 12(2) confirms the test depends on the construction of the contract, and a stipulation may be a condition even if the contract calls it a warranty. Breach of a condition lets the buyer treat the contract as repudiated; breach of a warranty gives a damages claim under section 51. Section 12(3) limits the buyer’s reject right: where the contract is not severable and the buyer has accepted the goods, or where the contract is for specific goods and the property has passed, the breach of a condition can only be treated as a breach of warranty.

When property and risk pass

Section 18 says property in specific or ascertained goods passes when the parties intend it to pass; the contract, the conduct, and the circumstances determine that intention. Section 19 supplies default rules where the contract is silent. Section 21 then ties risk to property: unless agreed otherwise, the goods stay at the seller’s risk until property passes, and at the buyer’s risk afterwards, even if delivery has not happened yet. Section 22 protects the buyer’s title: a person who is not the owner cannot pass good title to a buyer, subject to limited exceptions for buyers in possession and voidable-title sales under sections 24 and 25.

As-is sales and contracting out

Section 53 of the Sale of Goods Act lets the parties negative or vary the implied conditions by express agreement. That is what an as-is clause does between commercial parties. Section 9 of the Consumer Protection Act, 2002 then overrides section 53 for consumer agreements: the implied conditions are deemed to apply to consumer leases and trades as well as sales, and any term that purports to negate or vary an implied condition under the Sale of Goods Act is void as against a consumer. So a dealer can sell as-is to another registered dealer, but cannot strip the implied conditions out of a retail contract no matter how the as-is statement is worded.

Buyer’s right to examine and acceptance

Section 33 gives the buyer a reasonable opportunity to examine goods on delivery to confirm they conform to the contract. Section 34 deems acceptance once the buyer either tells the seller the goods are accepted, does an act inconsistent with the seller’s ownership, or keeps the goods past a reasonable time without rejecting them. Once acceptance happens, the buyer loses the right to reject for breach of condition and is left with damages.

Remedies for the dealer when the customer walks away

Sections 38 to 46 give the unpaid seller a lien on the goods while in possession, a right of stoppage in transit if the buyer is insolvent, and a right of resale where notice has been given or the goods are perishable. Section 48 lets the seller sue for damages for non-acceptance, measured by the difference between the contract price and the market price at the time the goods should have been accepted.

Common mistakes

• Believing an as-is clause defeats the implied conditions in a retail sale. Section 9(3) of the Consumer Protection Act voids the clause and section 9(4) severs it from the contract.
• Assuming an as-is vehicle can carry a Safety Standards Certificate. Section 40(3) of Ontario Regulation 333/08 prohibits selling a used vehicle as-is to a non-dealer purchaser when a current Safety Standards Certificate has been issued for the vehicle.
• Letting a customer drive an as-is vehicle off the lot. If the vehicle is not roadworthy, the dealer risks both Sale of Goods Act and Highway Traffic Act exposure regardless of what the contract says.
• Taking a deposit or trade-in before a written contract is signed and refusing to return it on demand. Section 38 of Ontario Regulation 333/08 requires the dealer to return the deposit or trade-in immediately if the customer asks for it back before signing the contract.
• Holding a buyer to a sale after the dealer has delivered a vehicle that does not match the advertised description, on the theory that the contract is closed. Section 14 makes the description an implied condition.
• Confusing a condition with a warranty in the contract itself. The Act looks at substance: a stipulation can be a condition even if labelled a warranty, and the wrong label does not change the buyer’s remedy.

How OMVIC enforces this

OMVIC does not prosecute Sale of Goods Act claims directly; the Act creates private rights enforced in court. Where a dealer’s conduct also breaches the Code of Ethics in Ontario Regulation 332/08 or the disclosure rules in Ontario Regulation 333/08, OMVIC can refer the file to its discipline committee for a fine of up to $25,000 per breach, conditions on registration, or a recommendation to the registrar to revoke registration. Refusing to honour the implied conditions in a retail sale is also routinely treated as an unfair practice under section 14 of the Consumer Protection Act, 2002, opening a one-year rescission window for the consumer and a possible Provincial Offences Act prosecution by an OMVIC investigator. Many disputes also reach the Motor Vehicle Dealers Compensation Fund where the dealer becomes insolvent.

Where to learn more

The full text of the Sale of Goods Act is on this site, with anchors matching every section cited above, and section 9 of the Consumer Protection Act, 2002 explains how the implied conditions cross over into consumer leases and trades. Read those sections before the certification exam; the wording of “merchantable quality,” “fit for purpose,” and “quiet possession” is what the questions test. The DealerPrep iPhone app carries the full practice question bank for this category for paid subscribers.