Preload Co. of Canada v. City of Regina et al.

Preload Co. of Canada v. City of Regina et al.
Collection
Supreme Court Judgments
Date
1959-11-02
Report
[1959] SCR 801
Judges
Locke, Charles Holland; Cartwright, John Robert; Fauteux, Joseph Honoré Gérald; Abbott, Douglas Charles; Martland, Ronald
On appeal from
Saskatchewan
Subjects
Contract
Priorities and hypothecs
Decision Content
Supreme Court of Canada
Preload Co. of Canada v. City of Regina et al., [1959] S.C.R. 801
Date: 1959-11-02
The Preload Company of Canada Limited (Plaintiff) Appellant;
and
The City of Regina (Defendant) Respondent.
Harrison Cooley Hayes, Trustee (Plaintiff) Appellant;
and
The City of Regina (Defendant) Respondent.
The City of Regina (Plaintiff By Counterclaim);
and
Harrison Cooley Hayes and The Guarantee Company of North America (Defendants By Counterclaim).
1959: May 18, 19, 20, 21, 22; 1959 : November 2.
Present: Locke, Cartwright, Fauteux, Abbott and Martland JJ.
Locke J., owing to illness, took no part in the judgment.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN.
Contracts—Agreement to manufacture and deliver concrete pipe—Bond furnished for performance—Defective pipe—Breach of contract treated by one party as a repudiation—Whether breach of implied conditions under s. 16(1) and (2) of The Sale of Goods Act, R.S.S. 1953, c. 353— Whether contract wrongfully repudiated—Damages. Surety—Whether variations in contract without knowledge or consent of surety—Whether surety liable for breach of contract by principal.
The plaintiff company contracted with the defendant municipality to manufacture and deliver a type of prestressed concrete pipe. The defendant surety company bonded the plaintiff for the due performance of the contract. The pipe produced was defective, the cause of the failure being the use of calcium chloride in the manufacturing process. The municipal engineer, who by the contract was made the sole judge of all matters connected with the proper carrying out of the works, rejected the pipe. The municipality elected to treat the alleged breach of contract as a repudiation, and the plaintiff company sued for damages on the ground, inter alia, that the contract had been wrongfully repudiated. The municipality obtained the pipe from another source and, by counterclaim, sued for damages for breach of contract and also claimed against the surety the amount of the bond. Subsequently, the trustee for the plaintiff company, which had made an assignment in bankruptcy, commenced a second action.
The trial judge dismissed the actions and allowed the counterclaim for damages, and also directed payment by the surety in the amount of its bond. These judgments were affirmed by the Court of Appeal. The trustee and the surety appealed to this Court.
Held: Both appeals should be dismissed.
The contention, based on the municipality's conduct before entering the agreement and on the terms of the agreement itself, that s. 16(1) of The Sale of Goods Act did not apply because the municipality did not rely upon the plaintiff's skill or judgment, could not be entertained. That question of fact was decided by the Courts below in favour of the municipality. There was ample evidence on which to base such a finding and a preponderance of evidence justified the conclusion reached.
The Courts below found that there had been a breach of the implied condition contained in s. 16(2). The only issue remaining in this Court on this point was the question as to whether or not the goods had been bought by description. That question must be answered in the affirmative, and, therefore, there was a breach of the statutory condition. The use of calcium chloride, in itself, was not a breach of the specifications. The plaintiff made the decision to use it and informed the municipality which took no action. By the terms of the contract the municipality had the right to reject the pipe containing calcium chloride; furthermore, it had the right to refuse pipe which failed to satisfy the implied conditions of s. 16(1) and (2) of the Act. In the light of all the circumstances-, the municipality was entitled to infer that the plaintiff did not intend to be any longer bound by the contract and, therefore, the municipality was justified in electing to treat the breaches as a repudiation.
On the issue of damages, the municipal engineer's right to take over the plant was optional. Furthermore, there was no evidence to conclude that the municipality was able to take over the plant and to produce satisfactory pipe.
As to the liability of the surety. The first main ground of defence on this point was that the municipality had improperly agreed to variations in the contract without the knowledge or consent of the surety. The use of calcium chloride did not involve a variation in the specifications relating to materials. As to the use of hot water instead of steam in the curing process, this kind of variation was recognized by the bond as being permissible and, consequently, the rule in Holme v. Brunskill (1878), 3 Q.B.D. 495 at 505, did not apply so as to assist the surety in this case.
The further contention that the municipality, having acquiesced in the use of calcium chloride, could not as against the surety claim damages resulting from the defects in the pipe so processed, could not be entertained. The municipal engineer was not asked to make a decision as to its use or of that of hot water. He had no reason to forbid their use. The municipality did not acquiesce in the breaches of the contract which resulted from the failure to fulfil the implied conditions of s. 16(1) and (2) of the Act. All that the municipality was doing was to rely upon the plaintiff's skill and judgment, which it was entitled to do.
APPEALS from a judgment of the Court of Appeal for Saskatchewan1, affirming a judgment of Graham J. Appeals dismissed.
C. F. H. Carson, Q.C., R. M. Balfour, Q.C., A. Findlay, Q.C., and J. R. Houston, for the plaintiff, appellant.
E. C. Leslie, Q.C., and D. O'C. Doheny, Q.C., for the defendant by counterclaim Guarantee Co. of North America.
J. L. McDougall, Q.C., E. D. Noonan, Q.C., and G. F. Stewart, Q.C., for the defendant City of Regina.
The judgment of the Court was delivered by
Martland J.:—The respondent, the City of Regina (hereinafter referred to as "the City"), in order to augment its water supply, decided to construct a pipe line from Buffalo Pound Lake to Regina, a distance of some 36 miles. In 1949, its officials commenced to collect information in connection with this project, including the type of pipe proposed to be used.
On April 5 of that year Mr. Shattuck, the assistant superintendent of Waterworks for the City, wrote to the appellant, The Preload Company of Canada Limited (hereinafter referred to as "Preload"), at Montreal, requesting, for purposes of estimating and design, information as to prices on several sizes of pre-stressed concrete pipe. Information was furnished by Preload and thereafter there was further correspondence between Shattuck and Preload respecting prestressed concrete pipe. Preload opened an office in Regina and discussions took place between City officials and officials of Preload.
During the course of these discussions Mr. Doull, the general manager and later the president of Preload, told Shattuck that the pipe they proposed to supply was a good quality product, would have a long life and would be satisfactory for the job. He stated that it would be as good as, or better than, steel pipe. He also stated that Preload was expert in prestressed concrete. Similar statements were made by Doull to Mr. Farrell, then the superintendent of Waterworks for the City.
In August, 1950, the City issued instructions to bidders who would tender on the supply of pipe for this line. The type of pipe specified in these instructions was steel pipe, or concrete pipe with a steel shell. The instructions then went on to say:
Contractors may submit alternate bids. Where bids are submitted on pipe other than those specified, the contractor shall submit with his tender complete specifications. Where possible, reference should be made to American Water Works Association Standard Specifications.
The pipe proposed to be manufactured by Preload was concrete pipe without a steel shell. There were no specifications for this type of pipe recognized as standard.
A tender was submitted by Preload, accompanied by specifications for the supply of pipe for the project. In the letter, dated October 13, 1950, accompanying the tender it was stated, among other things:
Our Company is the only one specializing in the design and construction of prestressed concrete on this Continent. Our associated companies operate in many parts of the world, including the United States, Great Britain, South America, South Africa and Australia, thus making available the technical knowledge and experience of many countries— through our organization.
* * *
We have provided a design utilizing the most up to date techniques available in this field of manufacture. Prestressed concrete, over the past decade, has been recognized by the engineering world as a material of ever increasing usefulness, and its application to pressure pipe and other circular structures is one in which we have played a major part in world development. You will note that under our design a much smaller tonnage of steel is required. This we believe is a most important consideration, in view of the critical shortage of this material in our National economy. We are able to achieve this by the nature of our process and design; by the use of extremely high quality wire for the prestressing; and by the use of concrete of a much higher strength than that used in other processes. The reduction in steel tonnage will of course be reflected most favourably to you should there be an upward swing in freight rates or steel prices, necessitating the application of escalator clauses contained in your contract form.
Bids for the supply of pipe for the project were received by the City on October 16, 1950. Shortly afterwards Preload issued a letter, addressed to the councilmen and citizens of Regina, in which it' was stated:
The pipe, proposed by the Preload Co. of Canada, is a high grade, durable concrete pipe, bound with finest grade spring steel wires and is fully responsive to all requirements set out by your engineers. Further, the performance of this proposed pipe is backed up by this company's bond for faithful performance in excess of one million dollars.
* * *
In these days of world preparedness we cannot overlook the importance of steer conservation in the natural interest. A steel pipe line for your project alone would require about 11,000 tons of critical steel plate. Our product employs much less critical, material and the spring steel for our pipe, which, while being of a less critical variety, requires only 1,500 tons. This saving in critical steel in no way detracts from the quality of the finished-product. This staggering fact is accounted for by the very great superiority of strength of the steel employed.
Messrs. Farrell and Shattuck, having received advice from a firm of consulting engineers, recommended to a meeting of the City council, held on October 23, 1950, in favour of the acceptance of the tender submitted by The Vancouver Iron Works, which had bid for the supply of steel pipe, although its bid (the second, lowest) was, comparatively, some $275,000 in excess of that submitted by Preload. Their reason was the fact that the pipe-proposed to be supplied by Preload was a comparatively new type of pipe and had not yet been widely accepted. On October 26, 1950, the Regina City Council resolved to accept the tender of The Vancouver Iron Works.
On October 23, 1950, Preload wrote a letter of protest to the City council, regarding the recommendation of the engineering department, in which it was stated:
We do not believe there are any technical, objections applying to our product, which do not also apply to the pipe recommended. 'We do firmly believe there are many favourable features inherent in our product, which are not common with the pipe' recommended. We further believe that any objection brought forward, can be reasonably answered and we request that an opportunity be given us to provide these answers.
On October 26, 1950, Preload wrote to the Mayor of Regina, enclosing telegrams and reports received from various authorities regarding its design and pipe experience and a brief with respect to the experience and background of Preload. This letter concluded with the sentence:
This clearly proves that this type of pipe has been in use for eight years and has been satisfactory in every way.
Because of a shortage of steel, The Vancouver Iron Works was unable to carry out its contract. Negotiations were then carried on by the City with Preload, which ultimately resulted in the submission of a bid by Preload on February 19, 1951. It was proposed by Preload that the pipe would be made, at the City's option, under one or other of the specifications already submitted. One of these was the set of specifications accompanying the tender of October 13, 1950; the other a set referred to as Canada Gunite Specifications, which had been sent to the City by Mr. Doull as president of that company on February 5, 1951.
Specimen pipe manufactured by Preload in Montreal was subjected to tests in that city in the presence of Mr. Shattuck and Professor de Stein of McGill University, an expert retained by the City.
Shattuck also corresponded with an engineer in Australia regarding the performance there of Rocla pipe, a type similar to that proposed to be manufactured by Preload. Prior to the execution of a contract with Preload, Shattuck visited Chicago to see the city engineer and his assistants there to discuss their experience in the use of prestressed concrete pipe.
A contract was finally made between the City and Preload on July 13, 1951. It consisted of a short agreement, a longer agreement, attached specifications and drawings. In the agreements Preload is referred to as "the Contractor".
Clause 2 of the short agreement provided as follows:
2. That the Contractor will manufacture and deliver to the City approximately One Hundred and Eighty-seven Thousand and Thirty (187,030) Feet of Thirty-six (36) Inch non-cylinder, prestressed concrete pipe, and specials, for the Supply Line from Buffalo Pound Lake Filtration Plant to Regina, as set out in the attached Specifications, Addendum and Drawings, in accordance with the terms and conditions shown in the said Specifications and Addendum, for the sum of Two Million, Four Hundred and Eighteen Thousand, Five hundred and Seventeen Dollars and Thirteen Cents $2,418,517.13), subject to escalation occasioned by changes in the cost of labour, materials or freight rates referred to in the attached agreement.
The short agreement also provided that Preload should furnish a bond for the proper performance of its agreement, conditioned in the sum of 50 per cent. of the tender price and that time should be of the essence of the agreement.
The long agreement, which appears to have been patterned on a building contract, contained a number of provisions. I will refer only to those which were submitted by counsel to be material to the issues involved in this appeal.
Clauses 1, 3 and 4 read as follows:
1. COVENANT TO DO WORK
That in consideration of the mutual covenants herein contained the Contractor covenants and agrees to and with the City that he will well and sufficiently do, execute, perform and finish in a true, perfect, thorough and workmanlike manner all the works as set out in the plans, specifications and addenda hereto attached, for the prices stated in the tender as accepted by the City, which plans, specifications and addenda are incorporated in and form parts of this contract.
3. WORK TO BE COMMENCED
The work of setting up a pipe manufacturing plant shall be started within ten days of being awarded the contract. The sequence of operations shall be such as to insure the manufacture of completed pipe not later than Dec. 1, 1951.
4. DELIVERY
Delivery shall be made at the Contractor's plant in Regina, beginning not later than May 15, 1952. Pipe manufacture shall be completed by April 1, 1953 unless the period of completion is extended by the Engineer under the powers herein conferred on him. At least 1/16 of the total length of pipe and specials to be supplied under this contract shall be completed each month between Dec. 1, 1951 and April 1, 1953. The capacity of the Contractor's construction plant, sequence of operations, method of operation and the forces employed shall, at all times during the continuance of this contract, be subject to the approval of the Engineer and shall be such as to insure the completion of the work within the specified period of time.
Clause 6 empowered the engineer to grant extensions of time for the completion of the work. Clause 7 related to applications by the contractor for such extensions of time, which were to be made to the engineer in writing. It stated that the failure or neglect of the contractor to make application for extensions as provided should constitute a waiver on his part of any right to the same.
Clause 8 provided:
8. ENGINEER IN CHARGE FOR CITY
The Engineer shall have full charge of the works and if not personally present he shall be represented By an assistant Engineer or Inspectors, and the Contractor at all times shall have on the works some competent person who he has advised the Engineer has full power to act for him in all matters pertaining to the contract.
Clause 9 empowered the engineer to appoint an assistant engineer or inspectors to aid him in carrying on the works.
Clause 10 provided that, in case of failure or neglect by the contractor to carry on the work with the expedition or in any other manner as directed by the engineer, or the contractor's refusal or neglect to do or abstain from doing anything which, by the terms of the contract, he was required to do when authorized, directed or required by the engineer, the engineer was entitled to take over the works or any part of them.
Clause 11, dealing with plans, specifications and details, provided, inter alia:
The plans and specifications will be supplemented by details when found necessary. Before proceeding with any part of the work the Contractor shall consult the Engineer as to whether details are necessary. In event of the Contractor failing to take such action he shall make good at his own expense any defect or alteration caused thereby.
All directions given by the Engineer to the Contractor or arrangements made adding to or varying the plans, specifications and details incorporated in the contract shall be in writing.
Clause 13 read as follows:
13. THE CONTRACTOR TO SUPPLY MATERIALS, LABOUR AND PLANT
The Contractor, unless it is herein specified otherwise, shall provide and furnish all materials, labour and plant together with all proper and required facilities for removing and transporting same that shall be necessary for the proper carrying out and completion of the works.
Clause 14 enabled the engineer to obtain samples of material required to be supplied by the contractor for approval before delivery of the same at the site of the works. Clause 15 provided that plant or materials which the engineer decided were not in accordance with specifications or up to sample should not be brought upon the site of the works.
Clause 19 provided for the suspension of operations on the direction of the engineer, if he decided they could not satisfactorily proceed.
Clause 22 reserved the right to the City to change the alignment, grade, form, length, dimensions or materials of the work under the contract whenever any conditions or obstructions were met that rendered such changes desirable or necessary.
Clause 23 read, in part, as follows:
23. PAYMENTS
The Contractor shall receive monthly payments at the rate of eighty per cent (80%) of the estimated value of the pipe actually completed and shop tested. No payments shall be made for the cost of materials which have been delivered to the Contractor's fabrication plant, but which have not been fabricated into pipe. Payments will be made monthly at the rate of fifteen per cent (15%) of the estimated value of pipe which has been laid down and field tested. These payments will be made on Progress' Certificates, which certificates shall not be taken or considered as an acceptance of the work or that portion of it then done, or as an admission of the City's liability to the Contractor in respect thereof. The' operation or acceptance by the City of a portion of the work before the completion of the whole is not to be considered ah acceptance of the same by the City.
Clause 31 dealt with the responsibility of the contractor regarding the laying of pipe. It was contemplated that the actual laying would be done by another contractor, but the contractor was required to furnish a competent representative to advise regarding the pipe laying. This clause contained the following provision:
The pipe manufacturer shall replace in site any "materials furnished by him which shall have been proved to be defective at any time up to two years after the pipe line has been laid and tested and the Completion Certificate has been issued to the pipe-laying Contractor.
Pipe, specials, etc., so replaced shall be properly installed, jointed, and bedded in place by the pipe manufacturer.
Clause 40 provided as follows:
40. ENGINEER SOLE JUDGE
The parties to this contract have agreed each with the other that the Engineer shall be the sole judge of all matters connected with the proper carrying out by the Contractor of the works herein described and that all difference between the parties as to whether the Contractor has or has not complied with the provisions of this contract are left to the judgment and decision of the Engineer as sole arbitrator, and his decision shall be final and shall not be varied or set aside on any grounds other than those on which the award of a sole arbitrator appointed under the "Arbitration Act" would be, and no action or suit shall be commenced by either party hereto to enforce any of the provisions of this contract until after the Engineer has given his decision with respect thereto, or has on request neglected or improperly refused same. No action shall be brought by the Contractor against the City to recover any portion of the contract price or for extras, except upon a Progress Certificate or upon the Completion Certificate.
The specifications attached to the contract were those submitted by Mr. Doull and referred to as the Canada Gunite Specifications, but varied to some extent as a result of meetings between Doull and Shattuck. Shattuck requested and obtained provision for more stringent test requirements, which were incorporated in an addendum to the agreement.
The provision for final inspection at the plant provided:
5. FINAL INSPECTION AT PLANT
The pipes shall be given final superficial inspection at the manufacturer's yard just prior to loading for delivery. This inspection to be made by a representative of the project engineer and his stamp shall signify his inspection.
This inspection shall not be considered a waiver of the responsibilities of the manufacturer for the ultimate performance of the pipe under the contract, but rather a check control of the handling of the pipes by the various parties involved in the work.
After execution of the contract, Preload proceeded with the construction of a plant at Regina and commenced the manufacture of pipe in February, 1952. A request for extension of the completion date was made on February 4, 1952, and as a result the completion date was extended from April 1, 1953, to June 15, 1953. No further request for extension of time was ever made by Preload.
Pipe production was carried on by Preload from February, 1952, to the beginning of December of the same year. There were many difficulties in production and Preload was never able to meet the delivery requirements of the contract. There was a high percentage of rejections of pipe in relation to the total pipe produced. Such rejections resulted from failure to pass the test requirements at the plant.
In November, 1952, some sections of line having been laid, line tests were conducted. Serious failures occurred in pipe in the fine. By December 3, 1952, this situation had become so serious that it was agreed that production should cease until the cause of the failures could be ascertained. Studies were then made by both Preload and the City, each of which called in experts to assist, and information was freely exchanged.
On the hearing of the present appeal it was not disputed by any party that the cause of the failure of the pipe was the use of calcium chloride in connection with its manufacture.
In making the pipe a steel mould was used to which were affixed 24 longitudinal steel wires, which were then placed under a condition of tension. A mixture of sand and cement was then placed on the steel mould by means of compressed air. The pipes were of the bell and spigot type and this latter process was effected while the pipe was standing on the bell end. After this first application of sand and cement to create the core of the pipe it was subjected to heat and humidity, a process called "curing". This involved the hardening of the substance. Following this, further steel wire was wound around the core in the form of a spiral. After this a further "covercoat" of cement sand mortar was applied by means of compressed air. Finally the steel mould was removed.
It was discovered that there was a tendency for the mixture for the core and for the covercoat to "slump" as the pipe stood upright if it did not set quickly enough. To counteract this difficulty Mr. Chiverton, then Preload's superintendent of the plant, in April, 1952, decided to use an admixture of calcium chloride in the mix, the result of which would be to hasten the setting process. The use of calcium chloride for the purpose of hastening the hardening of a concrete mixture was not novel, but, on the contrary, had often been used in practice for such a purpose.
It appeared later, however, that the result of its use in this particular process had created a condition in which corrosion of the spiral steel wires developed. No one had suspected, prior to the failure of the pipes, that such a consequence would result from the use of calcium chloride. Calcium chloride had been used in the manufacture of all pipes made between February and December of 1952, after the first 85 pipes. Chiverton advised Shattuck of his intention to use calcium chloride about the time that it commenced to be used. Chiverton did not give evidence at the trial, but Shattuck described what occurred in the following portion of his examination for discovery:
Q. Preload considered it necessary? A. Yes.
Q. And did you … A. I didn't consider it in any way at all. They wanted to use it.
Q. Now I gathered from your evidence in chief, Mr. Shattuck, that you felt that if Preload wanted something done, like the addition of calcium chloride, it was really no concern of yours, subject to you having the right—but it wasn't really up to you, to use that expression, it was really up to Preload—they told you what they needed at the time, but it was really up to Preload to … A. I think that is a fair description of it.
In another portion of his examination for discovery, when asked whether he had approved of the use of calcium chloride, Shattuck said: "I knew of it. I did not approve of it or disapprove."
After the investigations into the cause of the pipe failures had been completed Shattuck, as project engineer, on May 1, 1953, wrote the following letter to Preload:
May 1, 1953.
Attention—Mr. R. M. Doull
Preload Company of Canada Ltd.,
7325 Decarie Blvd.,
Montreal, Quebec.
Gentlemen :
The causes of corrosion of prestressing wire have now been ascertained beyond reasonable doubt. As you have expressed the wish to resume work under your contract, you will no doubt be doing so shortly. When you -do start operations, you are to commence the manufacture of class 2 pipe and continue with that class until further notice. The following points shall be observed in future operations;
1— Calcium chloride shall not be used in the making of either concrete cores or concrete Covercoat. Calcium chloride was not specified so its elimination does not require a change in specification.
2— All curing of concrete shall be done, using steam. Steam curing was specified, therefore reverting to steam curing requires no change in specification.
3— Your method of prestressing the circumferential wire shall be revised and improved. You have already taken steps to revise the prestressing procedure. No change in the specification is required for this.
4— The concrete cores shall be trowelled so as to offer a smooth and regular bearing to the circumferential prestressing wire in order to eliminate potential corrosion cells. I believe you have already taken steps to provide for smoothing of the concrete cores. Here again, no change will be required in the specification which states that work shall be performed to the satisfaction of the Engineer.
There is no evidence to support the idea that Kalicrete cement had any part in the corrosion of the circumferential steel wire and provision for no contact between steel and kalicrete is therefore not considered necessary. If, however, you wish to apply ¼ inch of Portland cement gunite mortar over the prestressing wire before the Kalicrete Covercoat is applied, you may do so at your own expense.
All of the pipe made with calcium chloride which have been examined show that the circumferential prestressing wire is corroded and the pipe are therefore defective. I consider that all the pipe made with calcium chloride do not conform to the requirements of the specifications for pipe to be provided under your contract with the City and they are hereby rejected.
The specifications call for the replacement of pipe found to be defective. You will therefore replace all the pipe which is now rejected. The pipe which are defective may be reconstructed by rewinding them and placing a new covercoat. Before rewinding they should have a thin coat of mortar shot on and trowelled smooth. The method of reconstructing these pipes has been discussed with you and I think we are in agreement regarding the method to be used.
Since at best the completion of this pipeline will be delayed far beyond the completion date as set out in the contract, you will be expected to make every effort to speed the manufacture of new pipe and the necessary reconstruction or replacement of pipe already made.
Further payments on new pipe will not be made until the pipe already paid for has been satisfactorily dealt with by the Company, or until the value of new pipe exceeds the value of pipe which was accepted on the basis of the shop test and which is now being rejected.
Yours very truly,
AS/mg
cc-Preload-Regina. A. SHATTUCK,
Airmail Project Engineer.
Preload replied, by letter dated May 18, 1953, as follows:
May 18th, 1953.
Mr. Allan Shattuck,
Buffalo Pound Project,
CITY OF REGINA,
Sask.
Dear Sir:—
This is to acknowledge receipt of your letter dated May 1st, 1953.
We note your comment: "The causes of corrosion of prestressing wire have now been ascertained beyond reasonable doubt." We would be glad if you would advise us specifically to what causes you refer.
You state that all the pipe made with calcium chloride does not conform to requirements of the specifications, that such pipe is rejected and you presume it to be defective. These allegations are unfounded. The use of calcium chloride was undertaken with all requisite consent and accordingly does not represent a departure from the specifications adopted by you. There is no evidence that any substantial number of pipe is defective, we deny that they are, and in any event we deny your right retroactively to reject, without any examination, pipe which has been previously approved, tested, and accepted by you, both in all tests envisaged in these specifications and under other more onerous tests not therein contemplated.
As you have been previously advised, the City's actions have enormously accentuated the difficulties and expenses to which we have been subjected and have placed us in a position of sustaining heavy losses and operating costs during the protracted period in which you have withheld your approval to resume operations.
In dealing with your proposed changes as set forth in your letter of May 1st, we would again draw your attention to the recommendations of Dr. J. P. Ogilvie that the circumferential steel wire should be protected from contact with Kalicrete, but, naturally, this is a matter in respect of which final responsibility must rest with you.
We must respectfully submit that there is nothing in the agreement or otherwise to justify the arbitrary decision embodied in your letter of May 1st to withhold progress payments by reason of any claims that the City has or may have in respect to past operations on the production of pipe tested and approved by you.
Notwithstanding our difference of opinion we are as we always have been prepared to proceed with the completion of the contract in an expeditious manner following the manufacturing procedure set out in your letter of May 1st, provided that payments on your part conform to the contract. We would therefore invite you to reconsider your decisions not to effect progress payments.
We would also expect that the City honor its outstanding payments owing to us, payments of which has now been deferred for a considerable period of time, without any justification whatsoever.
In the event that we are unable to agree on these points and on the question of responsibility in respect of past operations, we are nonetheless prepared to continue production of pipe on the basis of the regular progress payments, with the elements of difference between us being submitted to adjudication by the Courts.
You will appreciate that the present communication is written without prejudice to our claims against the City of Regina.
We would appreciate a reply to these proposals at your earliest convenience.
Yours very truly,
THE PRELOAD COMPANY OF CANADA LIMITED
Per: (signed) R. M. Doull
R. M. Doull, President
RMD: c
Further correspondence ensued, but neither party varied from the position which it had taken in these letters. No application for an extension of time was made by Preload and on June 16, 1953, the day after the extended date of final delivery, Shattuck, as project engineer, wrote to Preload referring to the unfulfilled delivery requirements of the contract, to the fact that no new pipe had been manufactured after December 3, 1952, and stating that, in his opinion, for these reasons and those stated in his letter of May 1, 1953, Preload had not properly carried out the work in accordance with the contract. At that time Preload had delivered approximately 50,000 feet of pipe out of a total contract requirement of 187,030 feet.
On June 15, 1953, Preload had made a proposal of compromise or arrangement under The Companies' Creditors Arrangement Act.
On June 19, 1953, Preload commenced action against the City, seeking a declaration that pipe made with calcium chloride conformed to the requirements of the specifications contained in the contract, or as amended, that the responsibility for defects in the pipe was that of the City and that Preload was entitled to complete the contract and for a reasonable time to do so. Alternatively it asked for damages.
There were subsequent Court proceedings in relation to cl. 40 of the contract to determine whether the matter in dispute should be arbitrated, which resulted in a decision by the Court of Appeal of Saskatchewan that the clause did not have that effect.
On November 13, 1953, the City wrote to Preload, setting out alleged breaches by Preload of the contract going to the root of the contract and alleging that Preload had evinced an intention no longer to be bound by the contract. The City elected to treat this as a repudiation of the agreement.
On November 19, 1953, a contract was made by the City with Dominion Bridge Company Limited for the construction of a steel pipe line. Subsequently that company completed construction of the line.
The City filed a statement of defence and counterclaim, joining The Guarantee Company of North America (hereinafter referred to as "the Surety") as a defendant to the counterclaim, claiming against it the amount of its bond.
On January 22, 1954, Preload made an assignment in bankruptcy and the appellant Harrison Cooley Hayes (hereinafter referred to as "the Trustee") was appointed trustee. The trustee was, by Court order, substituted for Preload as plaintiff in the action and later, on March 15, 1955, he commenced a second action against the City which, by Court order, was consolidated with the first action. The second action was launched because of the changed position of the parties since the first one had been commenced.
At the trial the two actions by the trustee against the City were dismissed. It was declared that the City had a debt provable against Preload in bankruptcy for $1,281,407.55 and another debt, likewise provable, in the amount of $3,296.74. Judgment was given in favour of the City against the surety for the amount of the bond, $1,209,258.57, or such lesser amount as remained unrealized by the City against Preload in bankruptcy. Costs were given to the City.
Appeals from this judgment by the trustee and the surety were dismissed by unanimous decision of the Court of Appeal of Saskatchewan2. From that judgment the trustee and the surety have appealed to this Court.
The learned trial judge and the Court of Appeal reached the conclusion that Preload had been in breach of the implied conditions contained in subss. 1 and 2 of s. 16 of The Sale of Goods Act of Saskatchewan, R.S.S. 1953, c. 353. Section 16 of that Act provides as follows:
16. Subject to the provisions of this Act and of any Act 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 seller's skill or judgment and the goods are of a description which it is in the course of the seller's business to supply, whether he be the manufacturer or not, there is an implied condition that the goods shall be reasonably fit for such purpose;
2. Where goods are bought by description from a seller who deals in goods of that description, whether he is the manufacturer or not, there is an implied condition that the goods shall be of merchantable quality:
Provided that if the buyer has examined the goods there shall be no implied condition with regard to defects which 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.
Each of these Courts found as a fact that the City made known to Preload, expressly or by implication, the particular purpose for which the goods were required, so as to show that the City relied upon the skill or judgment of Preload.
On the argument of this appeal counsel for Preload conceded that the contract was one for the sale of goods, that the City made known to Preload the particular purpose for which the goods were required, that the goods were of a description which it was in the course of Preload's business to supply and that the pipe produ