



COURT OF APPEAL FOR ONTARIO

CITATION:
    Pine Valley Enterprises Inc. v. Earthco Soil Mixtures Inc., 2022 ONCA 265

DATE: 20220331

DOCKET:
    C68141

Strathy C.J.O., Simmons and Zarnett JJ.A.

BETWEEN

Pine
    Valley Enterprises Inc.

Plaintiff
    (Appellant)

and

Earthco Soil Mixtures Inc.
,

G & L Group Ltd., Richard Outred and
    Orazio Valente

Defendants
    (
Respondent
)

Vito S. Scalisi, for the appellant

Mark Klaiman, for the respondent

Heard: January 21, 2022 by video
    conference

On appeal from the judgment of Justice Shaun Nakatsuru of the Superior
    Court of Justice, dated February 10, 2020, with reasons reported at 2020 ONSC
    601.

Zarnett J.A.:

Introduction

[1]

The appellant, Pine Valley Enterprises Inc. (Pine
    Valley), bought topsoil from the respondent, Earthco Soil Mixtures Inc.
    (Earthco), for use in a City of Toronto project designed to reduce basement
    flooding. The topsoil did not meet the Citys specifications. The City required
    Pine Valley to remove and replace it, causing Pine Valley a loss the trial
    judge assessed at $350,386.23.

[2]

Pine Valley claimed that Earthco was responsible
    for its loss. It asserted that Earthco breached the parties contract governing
    the sale of the topsoil (the Contract), specifically the condition implied
    into the Contract by s. 14 of the
Sale of Goods Act
, R.S.O. 1990, c.
    S.1 (the 
SGA
). Section 14 of the
SGA
provides that where goods
    are sold by description, there is an implied condition in the contract of sale
    that the goods supplied correspond to that description.

[3]

The trial judge made several findings that are
    not challenged in this appeal. He found that the Contract was for the sale of
    goods by description within the meaning of s. 14 of the
SGA
. He found that
    Earthco had promised to sell R Topsoil, a specific composition of topsoil
    described in test results Earthco provided, that would meet the Citys
    specifications. And he found that Pine Valley did not get the soil it
    bargained for since there was a significant variation between the soil
    promised and the soil delivered. That variation caused Pine Valleys loss due
    to the removal and replacement it had to perform.

[4]

The trial judge nonetheless dismissed the action
    on the basis of exclusionary clauses in the Contract.

[5]

The Contract provided that Pine Valley had the
    right to test and approve the topsoil at its own expense at Earthcos facility
    before it was shipped. It further provided that if Pine Valley waived its right
    to do so, Earthco would not be responsible for the quality of the material
    once it [left Earthcos] facility.

[6]

The trial judge held that by these exclusionary clauses,
    Earthco had successfully excluded liability for failing to supply topsoil that corresponded
    with the description in the Contract, that is, for breach of the implied
    condition in s. 14 of the Act, as Pine Valley failed to do its own test
    before taking delivery.

[7]

A vendor may, by express agreement, exclude the
    implied conditions in the
SGA
, but must use explicit language, which
    is clear and direct, to do so. This principle reflects a policy choice to give
    primacy to legislative purposes, unless the parties have clearly expressed
    their intention for a different private ordering of their rights and
    obligations: Geoff R. Hall,
Canadian Contractual Interpretation Law
,
    4th ed. (Toronto: LexisNexis Canada, 2020), at p. 179. The issue in this appeal
    is whether the trial judge committed a reversible error in finding that the exclusionary
    clauses constituted an express agreement composed of explicit, clear, and
    direct language sufficient to oust liability for breach of the implied
    condition in s. 14 of the Act that the topsoil supplied corresponded to the
    contractual description.

[8]

For the reasons below, I conclude that the appeal
    must be allowed.

[9]

The implied condition in s. 14 of the
SGA
,
    applicable when a sale is by description, relates to the identity of the goods
    sold  that they correspond to the description  not to their quality. This is
    in contrast to the implied conditions in s. 15 of the
SGA
concerning
    fitness for purpose and merchantability, which relate to the quality of the
    goods. The trial judge found that the Contract was for a sale by description,
    that the description was of soil with a composition as described in specific
    soil tests supplied by Earthco, and that the soil supplied did not correspond
    to the contractual description. Given these findings, which are accepted by
    Earthco in this court, the nature of the implied condition in s. 14 of the
SGA
 one pertaining to identity, not quality  is pivotal.

[10]

Nothing in the language of the exclusionary
    clauses refers clearly, directly, or explicitly to any statutory conditions,
    let alone to one about the identity of what was sold. The express language of
    the exclusionary clauses disclaims responsibility only for
quality
, not for
identity
. Although
    the language of a contract must be read in light of its factual matrix, the
    factual matrix cannot be used to overwhelm the text and insert into the
    contract an explicit exclusion of liability for breach of the statutory
    condition in s. 14 of the
SGA
concerning the identity of the goods
    that the trial judge found Earthco had promised would be supplied.

Background

[11]

In 2011, the City hired Pine Valley as a
    contractor for a project intended to deal with basement flooding in residences
    in a neighborhood in North York. Pine Valley was required to build a dry pond
    to capture excess water in the neighborhood, so that it would drain away. This
    in turn required Pine Valley to install drainage pipes and proper topsoil for
    drainage, as well as turf and recreational equipment.

[12]

The City rejected soils from several suppliers Pine
    Valley proposed to use, which led it to contact Earthco, a large custom topsoil
    provider.

[13]

The Citys specifications required a particular composition
    of topsoil. It had to be: 45 percent to 70 percent sand, 1 percent to 35
    percent silt, and 14 percent to 20 percent clay. On October 3, 2011, Pine
    Valley gave Earthco its specifications, and on the same day, Earthco provided
    Pine Valley with laboratory tests for three topsoils, one of which was R Topsoil.
    The tests had been performed in August 2011 and set out the composition,
    as among sand, silt, and clay, of each of the soils.

[14]

The August test results for R Topsoil indicated
    a composition of 46 percent sand, 36 percent silt, and 18 percent clay. Pine
    Valley shared those results with the Citys consultant.

[15]

The Citys consultant advised Pine Valley that R
    Topsoil would be acceptable if the organic matter in it were increased to between
    3 and 5 percent (which could be accomplished by the addition of peat).
[1]
R
    Topsoil was selected by Pine Valley.

The Contract

[16]

The Contract for the supply of soil was entered
    into on October 5, 2011. Although the purchaser in the Contract was named as
    Furfari Paving, the parties at trial agreed and the trial judge accepted that
    the Contract was between Pine Valley as purchaser and Earthco as seller.

[17]

The Contract was for 3,678 cubic yards of
    Screened topsoil with extra Organics added for a price of $66,168. Soil
    Testing if required was priced at $300 per test. The Contract contained the
    following two provisions (the exclusionary clauses):

6. [Pine Valley] has the right to test and
    approve the material at its own expense at our facility before it is shipped
    and placed. Please contact Richard Outred [an Earthco representative] to
    arrange.

7. If [Pine Valley] waives its right to test
    and approve the material before it is shipped, Earthco Soils Inc. will not be
    responsible for the quality of the material once it leaves our facility.

[18]

The trial judge found that even though the Contract
    only refers to soil (i.e., Screened topsoil), the subject matter of the
    Contract was R Topsoil having the composition set out for that soil in the
    August 2011 test results. He stated that:

[W]hen the factual circumstances existing at
    the time are examined, including the provision of [the August] test results of
    three soils, Earthcos communication to Pine Valley promised that it was
    selling R Topsoil which had the qualities set out in its [August] test results.
    It was not promising to sell any soil regardless of composition/texture.

Delivery of the Topsoil

[19]

Pine Valley did not exercise its right under the
    Contract to test the topsoil at the Earthco facility. After the Contract was
    entered into, Pine Valley pressed for immediate delivery, as it was under a
    City-imposed deadline and was facing financial penalties. On October 6, 2011, Pine
    Valley was advised by email from Earthco that Pine Valley had the right to
    test any material we [Earthco] prepare for you before it gets shipped. However,
    once it leaves our yard, ownership of the material (including all risks
    associated with it) passes from us to you. Put another way, we are no longer
    responsible for the material once it leaves our yard.
[2]

[20]

Pine Valley nonetheless insisted on immediate
    delivery. Topsoil was delivered between October 7 and 19, 2011 and spread on
    the site when delivered.

The Variation Between the Topsoil Promised and Delivered

[21]

In November 2011, ponding of water was
    discovered on the site. The City took soil samples for examination and testing.
    The trial judge found that the testing showed that the soil composition
    differed significantly from the [August 2011] test results of the R Topsoil and
    that [t]here was substantially more clay content in the topsoil that was
    actually delivered than what the [August 2011] test results of R Topsoil had
    indicated.

[22]

On December 2, 2011, the City officially
    notified Pine Valley that the topsoil on the site was to be removed and
    replaced. Pine Valley did so, incurring costs.

[23]

Pine Valley notified Earthco in a letter dated
    December 5, 2011 that it expected compensation. Earthco responded that Pine
    Valley had waived testing of the material before shipment and explicitly
    assumed all responsibility for the material once it left Earthcos premises.

The Trial Judges Decision

[24]

Pine Valley brought an action against Earthco
    and several other parties. At the outset of trial, the action was dismissed
    against all parties except Earthco.

[25]

Pine Valleys theory of liability at trial was
    that the Contract provided for a sale by description within the meaning of s.
    14 of the
SGA
, which provides in relevant part that [w]here there is
    a contract for the sale of goods by description, there is an implied condition
    that the goods will correspond with the description. It argued that the
    implied condition was breached as the goods did not correspond with the
    description, and the exclusionary clauses were not clear enough to exempt
    Earthco from liability for this breach.

[26]

The trial judge found that the Contract provided
    for a sale by description within the meaning of s. 14 of the
SGA
.
    After referring to case law that holds that description in s. 14 is to be
    understood as identification of the goods rather than quality, he found that
    the Contract identified the goods Earthco promised to sell as R Topsoil with
    the qualities set out in [the August 2011] test results. It was not promising
    to sell any soil regardless of composition/texture.

[27]

The trial judge then considered whether the
    implied condition of correspondence [between the goods identified in the Contract
    and the goods delivered had] been breached. He identified the test for breach
    as including a requirement that there be a significant variation between the
    goods delivered and the goods as described in the Contract, such that the buyer
    could say they were of a different kind from those agreed to be purchased. He
    found that aspect of the test to be met. He stated:

Although
the
bar
for
correspondence
between goods
and
description
is
relatively
    high,
it is clear
here that
    Pine
Valley
did
not get the soil it bargained
for
.
This
was
not
a minor variation
or
discrepancy
.
The
test results
done
at
the City
Consultant

s
insistence after the
soil
had been spread and the
expert
evidence presented
at trial
showed that
there
was
a
significant
variation between
the
soil
promised
and
    the soil
delivered
.
The
variation
was
such that it led
to
the
problem
of
ponding
in the Project.

[28]

If it were not for the exclusionary clauses, the
    trial judge would have found that the test for breach of the implied condition
    in s. 14 was met, and he would have awarded damages for that breach (which he
    assessed at $350,386.23). The trial judge found, however, that the presence of
    the exclusionary clauses led to a different result.

[29]

The trial judge considered s. 53 of the
SGA
,
    which permits parties, by express agreement, to negative liability implied by
    law. He referred to case law that requires that contractual language ousting a
    statutory entitlement under the
SGA
be clear and unambiguous. He discussed
    two Ontario cases that specifically held that liability for breach of
SGA
conditions of fitness for purpose is not excluded if the exclusionary clause
    fails to make explicit reference to statutory conditions. He distinguished
    those cases on the basis that they dealt with detailed and sophisticated contracts,
    whereas the Contract in this case was drafted in very simple language.

[30]

The trial judge observed that the exclusionary
    clauses in the Contract did not explicitly oust statutorily imposed conditions nor
    clearly articulate the parties intentions with respect to such conditions. But
    he held that they were direct and explicit that Earthco [was] meant to be
    protected from any liability if Pine Valley fail[ed] to test its soil before
    shipping, that they state unequivocally Earthco will be absolved of liability
    if Pine Valley fails to test its topsoil order prior to shipping, and that
    they specifically absolved Earthco of liability in these circumstances. He
    drew this conclusion from the wording of the Contract, as well as the following
    elements of the factual matrix: the August 2011 test results were dated; the
    soil to be shipped was taken from large mounds removed from development
    projects that would have a shifting composition as the mound was worked through
    over time; and Pine Valley was an experienced commercial purchaser. He held
    that the purpose of the provision for testing was to ensure that the soil met
    the Citys requirements, and the purpose of the exclusionary clauses was to
    avoid a situation in which a customer could fail to test and hold Earthco liable.

[31]

He concluded:

In my view, [the exclusionary] clauses  of
    the Contract are clear and unambiguous and oust the liability for the seller
    created by s. 14 of the
SGA
. While the resulting situation for Pine
    Valley was unfortunate, there is no reason why the exclusionary clauses should
    not apply to this situation. While I have sympathy for [Pine Valley], I find
    that Pine Valley made something of an expensive but calculated mistake by not
    testing the topsoil prior to shipping.

ANALYSIS

The Parties Positions

[32]

On appeal, Pine Valley argues that the trial
    judge failed to follow binding case law and thus erred in law in finding that the
    exclusionary clauses ousted the liability of Earthco under the implied
    condition in s. 14 of the
SGA
, and that he further erred in using
    evidence outside of the Contract to deviate from its text.

[33]

Earthco argues that the trial judge applied the
    correct principles and that his interpretation of the Contract, in light of the
    factual matrix, is subject to a deferential standard of review and is not the
    product of any reversible errors.

The Standard of Review

[34]

The question at the heart of this appeal is one
    of contractual interpretation, an exercise in which the principles of
    contractual interpretation are applied to the words of the written contract,
    considered in light of the factual matrix:
Sattva Capital Corp. v. Creston
    Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. Deference
    is owed to a trial judges interpretation of a commercial contract, unless an
    extricable question of law [arises] from within what was initially
    characterized as a question of mixed fact and law:
Sattva
, at para. 53.
Legal errors made in the
    course of contractual interpretation include the application of an incorrect
    principle, the failure to consider a required element of a legal test, or the
    failure to consider a relevant factor. Moreover, there is no question that
    many other issues in contract law do engage substantive rules of law:
Sattva
,
    at para. 53 (citation omitted).

[35]

In my view, whether the exclusionary clauses
    ousted the condition implied by s. 14 of the
SGA
in this case involves
    extricable questions of law. These questions relate to the legal nature of the
    statutory implied condition, the content and meaning of the legal test for
    excluding a statutory implied condition from a sales contract, and the use of
    the factual matrix to inform the meaning of the express exclusionary language. Deference
    is not owed on these questions, and a standard of correctness applies.

[36]

The trial judge made three related errors on
    these questions. First, in interpreting the exclusionary clause, he failed to take
    into account the nature of the implied condition in s. 14, which relates to the
    identity of the goods to be delivered rather than the quality of those goods.
    This distinction is important because the express language of the exclusionary
    clause only relates to quality. Second, he failed to properly interpret the
    meaning of the requirement that explicit, clear, and direct language must be
    used to exclude a statutory condition, and therefore did not give proper effect
    to the failure of the exclusionary clauses to refer to identity of the goods or
    to statutory conditions. Third, he read the language of the exclusionary
    clauses in broader terms than their actual words, which neither the requirement
    for express and explicit language, nor proper resort to the factual matrix,
    permits.

The Implied Condition in s. 14 of the
SGA
Relates to the Identity of the
    Goods Sold, Not Their Quality

[37]

Section 14 of the
SGA
, entitled Sale
    by description, provides:

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. [Emphasis added.]

[38]

Section 15 of the
SGA
, entitled
    Implied conditions as to quality or fitness, provides:

Subject to this Act and any statute
    in that behalf, there is no implied warranty or condition as to the quality or
    fitness for any particular purpose of goods supplied under a contract of sale,
    except as follows:

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 sellers skill or judgment,
    and the goods are of a description that it is in the course of the sellers
    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, but
    in the case of a contract for the sale of a specified article under its patent
    or other trade name there is no implied condition as to its fitness for any
    particular purpose.

2.

Where 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 will be of
    merchantable quality, but if the buyer has examined the goods, there is no
    implied condition as regards defects that such examination ought to have
    revealed.

3.

An implied warranty or condition as to quality
    or fitness for a particular purpose may be annexed by the usage of trade.

4.

An express warranty or condition does not
    negative a warranty or condition implied by this Act unless inconsistent
    therewith.

[39]

The subject matter of the two sections is
    different. The description referred to in the
SGA
(and comparable
    acts in the U.K. and elsewhere in Canada) involves identity of the goods, not their
    quality:
Bakker v. Bowness Auto Parts Co.
(1976), 68 D.L.R. (3d) 173
    (Alta. S.C. (A.D.)), at p. 178 ([I]t is clear that the description of which
    the section [of the
SGA
equivalent] speaks is only that which, as a term
    of the contract, identifies the subject-matter of the sale);
Ashington
    Piggeries Ltd. v. Christopher Hill Ltd.
, [1972] A.C. 441 (H.L. (Eng.)), at
    p. 466 (The language used [in the
SGA

equivalent] is directed
    to the identification of goods).

[40]

Lord Diplock noted in
Ashington Piggeries
,
    at p. 503, that in a sale by description, the parties may employ as broad or
    narrow a description of the goods to be delivered as they choose. The broader
    the description, the more difficult it will be for the buyer to argue that what
    was supplied breached the identity condition. As long as the goods correspond
    to the description  as long as they are, as far as their identity is
    concerned, the goods described  it is irrelevant for s. 14 purposes whether
    the goods are of poorer quality than promised.

[41]

Thus, in
Ashington Piggeries
, the
    identity condition was not breached by the sale of mink food made up of
    Norwegian herring meal that, unknown to the parties, contained a poisonous
    substance. The contract contained a broad description of the identity of the
    goods to be delivered: Norwegian herring meal. As far as identity was
    concerned, that corresponded to what was supplied: Herring meal is still
    herring meal notwithstanding that it may have been contaminated. Provisions of
    the agreement that the herring meal had to be of fair average quality of the
    season pertained only to the quality of the goods, not to their identity: at pp.
    472, 475.

[42]

On the other hand, in a sale by description, if the
    goods delivered do not correspond with what was promised, a breach of the
    identity condition will occur even if what is delivered is of equivalent
    quality. As the court stated in
Bakker
, at p. 181
:

Sections 16 and 17 of the Act [corresponding
    to ss. 14 and 15 of the
SGA
] imply separate conditions of the contract
    in respect of separate specified circumstances. Merchantable quality under s.
    17(4) is not to be taken as a measuring stick in determining whether goods
    correspond with their contract description under s. 16; nor is fitness for
    purpose under s. 17(2) germane to such a determination. In
Arcos, Ltd. v.
    E.A. Ronaasen & Son
Lord Buckmaster said at p. 474: The fact that the
    goods were merchantable under the contract is no test proper to be applied in
    determining whether the goods satisfied the contract description.

[43]

The distinction between identity and quality is
    important in this case. The trial judge found a sale by description. That
    description was narrow. The description  the identity of the goods  was R
    Topsoil with the composition set out in the August 2011 test results. He came
    to these conclusions (which are not in issue on this appeal as they are not
    challenged, but rather are accepted by Earthco in this court) after adverting
    to the difference between terms of a contract that specify the quality or standard
    of the goods and those that form the description. His conclusions mean that the
    composition described for R Topsoil in the August test results goes to the
    identity of the goods, not their quality. Indeed, he found that Pine Valley did
    not get what was promised in terms of the identity of the goods because of the
    significant variation in composition.

[44]

Although the trial judge adverted to the
    difference between statements about goods that go to their quality and those
    that go to identity, and found that the identity of what was to be delivered
    was R Topsoil with the composition described in the August test results, he was
    required to go further and apply that legal distinction when interpreting the
    exclusionary clauses.

[45]

The significance, to an exclusionary clauses
    interpretation, of the difference between a condition concerning the identity
    of the goods under s. 14 and one that relates to their quality was described by
    Professor Gerald Fridman in
Sale of Goods in Canada
, 6th ed. (Toronto:
    Thomson Reuters Canada Ltd., 2013), at p. 152, as follows:

If the wrong goods are delivered, the buyer
    may reject the goods proffered by the delivery, and sue for a breach of
    contract,
and an exemption or exclusion clause will not
    release the seller from liability for breach of contract, since he will not
    have fulfilled the contract in any way. On the other hand, if what is involved
    is some characteristic of the goods, not their identity, an exemption or
    exclusion clause, if appropriately worded, and if not precluded by consumer
    protection legislation, may result in the release of the seller from any kind
    of liability for breach of contract
. [Emphasis added; footnotes omitted.]

[46]

To the extent that the passage from Fridman
    suggests that the implied condition in s. 14 could never be excluded, it may go
    too far. Section 53 of the
SGA
, which provides that duties or
    liabilities implied by law may be negatived by express agreement, is broad
    enough to include the liability created by s. 14. Although the parties did not cite
    any case where the s. 14 condition had been excluded, and it appears
    counterintuitive to posit an agreement in which the seller both promises to
    deliver something specific and also excludes any promise that it will do so,
    the possibility exists.

[47]

But as is explained in the next section, there
    is a high standard  explicit, clear, and direct  that must be applied to
    language that purports to exclude any implied conditions in the
SGA
. The
    distinction between the legal nature of the implied condition in s. 14 of the
SGA
relating to the identity of the goods and implied conditions relating to
    quality is important to the question of whether that standard was satisfied,
    with respect to the identity condition, by the exclusionary clauses that only expressly
    referred to the quality of the material.

Explicit Language Must be Used to Exclude Implied
SGA
Conditions

[48]

Section 53 of the
SGA
permits the
    parties to contract out of liability implied by law, but only if they do so by
    express agreement. Section 53 provides: Where any right, duty or liability
    would arise under a contract of sale by implication of law, it may be negatived
    or varied by express agreement or by the course of dealing between the parties,
    or by usage, if the usage is such as to bind both parties to the contract.
[3]

[49]

Binding case law has explained what is meant by
    an express agreement in this context. It must be explicit and clear and direct.

[50]

In
Chabot v. Ford Motor Co. of Canada
(1982),
    39 O.R. (2d) 162 (H.C.), Eberle J. held that it is a principle of
    interpretation of exclusion clauses that while general language may be
    sufficient to exclude what otherwise might be express conditions or warranties,
    conditions and warranties implied by sale of goods acts may be excluded only by
    explicit language. And, since there is a legal difference between warranties
    and conditions, the requirement for explicit language means that an explicit
    exclusion of implied warranties does not exclude statutorily implied
    conditions: at pp. 174-75.

[51]

Chabot
was
    approved by the Supreme Court of Canada in
Hunter Engineering Co. v.
    Syncrude Canada Ltd.
, [1989] 1 S.C.R. 426. Dickson C.J. stated, at pp.
    449-50: If one wishes to contract out of statutory protections, this must be
    done by clear and direct language, particularly where the parties are two
    large, commercially sophisticated companies. This seems to be well-established
    in the case law, as Eberle J. makes clear in
Chabot
.

[52]

In
Gregorio v. Intrans-Corp.
(1994), 18 O.R.
    (3d) 527 (C.A.), at pp. 535-36, this court held: 
Although
    a vendor may exclude the implied conditions contained in
the
Sale of
    Goods Act
, he must use explicit language to do so. The court cited
Chabot
,
and its approval in
Hunter Engineering
, for this principle.

[53]

How explicit, clear, and direct must the language
    be? In
Chabot
, Eberle J. noted that a contract expressly stating that [t]here
    are no representations, warranties or conditions, express or implied, statutory
    or otherwise, other than those herein contained would exclude the
SGA
implied condition of fitness for purpose. But an exclusion clause that stated
    there were no warranties, expressed or implied, other than that expressly given
    in the transaction, did not exclude the
SGA
implied conditions, as it made
    no reference to conditions, implied conditions, or statutory conditions: at pp.
    174-75.

[54]

In
Gregorio
, the court found that the
    provision of a specific warranty, coupled with a disclaimer of all other
    express or implied warranties and any warranty of merchantability or fitness
    for purpose, was insufficient to exclude the
SGA
implied conditions of
    fitness for purpose and merchantability. The court held that such language
    failed the requirement for explicit language, as there is a legal difference
    between a warranty (which was explicitly addressed) and a condition (which was
    not): at pp. 535-36.

[55]

These well-established rules were followed in
    two cases distinguished by the trial judge:
IPEX Inc. v. Lubrizol Advanced
    Materials Canada Inc.
, 2012 ONSC 2717, 4 B.L.R. (5th) 148, leave
    to appeal to Div. Ct. refused, 2012 ONSC 5382 and
Haliburton Forest
    & Wildlife Reserve Ltd. v. Toromont Industries Ltd.
, 2016 ONSC 3767. In
IPEX
, the court found an exclusion clause that stated that a limited
    warranty was the only warranty given, and excluded all other warranties,
    express or implied, including any implied warranties of fitness for purpose or
    merchantability, did not exclude the
SGA
implied conditions: at paras. 26,
    40-41. In
Haliburton
, the court held that a clause that excluded
    representations and warranties with respect to fitness for purpose, but made no
    reference to an exclusion of a condition of fitness for purpose, did not
    exclude the
SGA
implied condition: at paras. 74-77.

[56]

The parties did not cite any case where the
SGA
implied conditions were excluded by language that lacked a reference to
    conditions and statutory. But even if other language could suffice, it is
    clear from the cases that the legal meaning of explicit, clear, and direct language
    in this context means at the very least that the language must refer to the
    type of legal obligation the
SGA
implies  reference to a different
    legal obligation will not suffice. This is the principle that explains why excluding
    the implication of a warranty or statutory warranty does not exclude an
SGA
implied condition, a different type of legal obligation.

The Trial Judges Approach to the Explicit Language
    Requirement Did Not Comport With These Principles

[57]

With respect, the trial judge erred when he
    distinguished
IPEX
and
Haliburton
on the basis that the
    contracts in those cases were sophisticated. The principles applied in those
    cases did not turn on the sophistication of the contract. As
Hunter Engineering
makes plain, the requirement of clear and direct language is one imposed
    on sophisticated commercial parties, which Earthco and Pine Valley were.

[58]

In my view, although the trial judge articulated
    the need for explicit language, he erred in law in finding that it was met even
    though the Contract did not, as he noted, explicitly address or oust the
    implied conditions in the
SGA
, or clearly articulate the intentions of
    the parties vis-à-vis the implied terms in the
SGA
.

[59]

Given the requirement for explicit, clear, and
    direct language, I return to the language of the exculpatory clauses. The
    operative words are that if Pine Valley does not test the soil, Earthco will
    not be responsible for the quality of the material. The implied condition in
    s. 14 addresses responsibility for the identity of the goods, not quality. Just
    as an exclusion that speaks to implied warranties does not exclude implied conditions
    because of the legal difference between those terms, an exclusion of
    responsibility for quality cannot exclude an implied statutory condition imposing
    responsibility for the identity of the goods, which covers different legal
    territory.

[60]

The trial judge did not explain how the word
    quality in the exculpatory clauses could mean identity. Rather, in various
    passages of his reasons, the trial judge referred to the exculpatory clauses
    without referring to the responsible for the quality wording. He said for
    example: 
The words are clear and unambiguous and say
that if Pine Valley fails to test and to approve the topsoil before shipping,
Earthco cannot be held responsible for any defects

. He also
    said that: [T]he language chosen by the parties  is direct and explicit that
Earthco is meant to be protected from any liability
if
    Pine Valley fails to test its soil before shipping. He also described the
    exclusionary clauses as stating unequivocally that 
Earthco
    will be absolved of liability
if Pine Valley fails to test its topsoil order
    prior to shipping (emphasis added).

[61]

Given the requirement that to negative liability
    under a statutory implied condition, there must be an express agreement that is
    effected by explicit, clear, and direct language, the actual language of the
    exclusionary clause must remain central to the analysis. Without deciding
    whether the type of language the trial judge used to describe the exclusionary
    clauses would, if expressed, have been sufficient, the point is that it was not
    express or explicit.

[62]

The express language could not be expanded by
    recourse to the factual matrix. The interpretation of a written contractual
    provision must be grounded in the text read in light of the entire contract. But
    there is a legal limit on the interpretive use of the factual matrix. The
    factual matrix cannot be used to overwhelm the text, or to change the meaning
    of the words used:
Sattva
, at para. 57.

[63]

The factual matrix cannot change responsible
    for the quality in the exculpatory clauses to responsible for the identity,
    let alone add words to those clauses that were not used (such as under any
    condition express or implied, statutory or otherwise).

[64]

Earthco expressed itself in broader terms than the exclusionary
    clauses in the email it sent on October 6, 2011, after the Contract was signed.
[4]
Pine Valley argues that the trial judge erred in considering post-Contract
    events in order to interpret the Contract since only facts reasonably known to
    the parties at the time of contracting  that is, on or before October 5, 2011
     form part of the factual matrix. I agree with Earthco that the trial judge
    did not use the email exchange to interpret the Contract. He noted that there
    was no allegation that the Contract was amended by the email exchange. He
    viewed the email exchange as merely confirming the parties intentions to
    adhere to the terms of the Contract. It follows that the correct interpretation
    of the Contract is not influenced, one way or the other, by the subsequent
    email exchange. Earthco does not argue that the subsequent email exchange gives
    rise to any estoppel, waiver, release, or other independent basis to resist
    Pine Valleys claim.

Conclusion

[65]

Within a general framework of freedom of contract, the
SGA
prescribes the expectations of parties to a commercial
    sale transaction such as the one between the parties. The requirement of
    explicit, clear, and direct language to exclude a statutory condition implied
    into a sale agreement by the
SGA
is important
    to the legislative scheme. Contractual interpretation must proceed recognizing
    that this requirement is superimposed on other interpretive principles.

[66]

This simple rule represents an interesting
    policy choice that differs from the [typical] principles of contractual
    interpretation, which give primacy to the parties private ordering of their
    affairs and primarily seeks to give accurate effect to their intentions without
    regard for external policy goals.
As noted above, this
    principle reflects a policy choice to give primacy to legislative purposes,
    unless the parties have clearly expressed their intention for a different
    private ordering of their rights and obligations: Hall, at pp. 178-79
.

[67]

The explicit language requirement reflects the importance that
    must be ascribed to the legislatures choice that, in the circumstances the
SGA
prescribes, the condition will be part of the sale
    agreement, without any requirement that the purchaser request or negotiate for
    its inclusion, or that the seller wanted to be subject to it. Rather, the law
    requires the condition be considered included in the parties agreement
    unless by their express language, they can be taken to have turned their
    minds to the implied condition and explicitly, clearly, and directly agreed to
    exclude it.

[68]

The objective determination of the intention of the parties,
    gleaned from the language they used in light of the factual matrix, is the goal
    of contractual interpretation:
Sattva
, at
    para. 57. But that determination must proceed on the basis that, in a sale by
    description, the parties are legislatively deemed to have the intention
    to include the statutory condition as to identity over and above any other
    obligations to each other they may have included or reflected in their
    agreement, unless they have explicitly excluded that condition. It is not
    enough that their language, in light of the factual matrix, indicates in some
    sense that the seller wanted to be responsible only in certain circumstances or
    to be subject only to limited obligations. The provision by the seller of a
    limited warranty, and disclaimer of all others, which was the case in
Chabot
,
Gregorio
,
IPEX
,
and
Haliburton
could, viewed from one
    perspective, indicate an intention that the parties had defined exactly the
    limits of the sellers obligations and the buyers entitlements. But viewed from
    the required perspective  one that privileges the
SGA
purposes  the seller in each case provided the limited warranty and the
    implied condition as to quality. The exculpatory language did not address the
    latter and the objective determination of the parties intentions could not
    lead to the conclusion that the implied condition was excluded.

[69]

For the same reasons, having made a sale by
    description as the trial judge found, Earthco was statutorily deemed to have
    agreed to a condition that the goods it delivered corresponded to that
    description unless it expressly excluded that condition. The exclusionary
    clauses did not constitute an express agreement to exclude the s. 14
SGA
condition as they failed the test of explicit, clear, and direct language.

DISPOSITION

[70]

I would allow the appeal, set aside the judgment
    dismissing Pine Valleys action against Earthco, and substitute a judgment that
    Earthco pay Pine Valley damages in the sum assessed by the trial judge,
    $350,386.23. If the parties are unable to agree on matters of pre-judgment
    interest and costs of the action, which the trial judge fixed at $52,500
    inclusive of disbursements and taxes, they may make written submissions, not
    exceeding five pages each. Pine Valleys submissions shall be delivered within
    ten days of the release of these reasons and Earthcos within ten days of the
    receipt of Pine Valleys.

[71]

Pine Valley is entitled to costs of the appeal,
    fixed in the agreed upon amount of $12,500, inclusive of disbursements and
    applicable taxes.

Released: March 31, 2022 G.R.S.

B.
    Zarnett J.A.

I
    agree. G.R. Strathy C.J.O.

I
    agree. Janet Simmons J.A.





[1]

There was ultimately no issue with the organic content of
    the topsoil.



[2]

This email was sent to Furfari Paving, who later advised
    Earthco that Pine Valley was accepting the topsoil and the conditions stated in
    the email.



[3]
In this case, there is no issue of course of dealing or usage.



[4]

See para. 19 above.


