PS International Canada Corp., operating under the firm name v. style of Seaboard Specialty, 2017 SKCA 78

Court of Appeal for Saskatchewan Docket: CACV2935 Citation: PS International Canada Corp. (Seaboard Specialty Grains and Foods) v Palimar Farms Inc. , 2017 SKCA 78 Date: 2017-09-18 Between: PS International Canada Corp., operating under the firm name and style of Seaboard Specialty Grains and Foods Appellant (Plaintiff) And Palimar Farms Inc. Respondent (Defendant) And Between: PS International Canada Corp., operating under the firm name and style of Seaboard Specialty Grains and Foods Appellant (Plaintiff) And Marc Agra Inc. Respondent (Defendant) Before: Richards C.J.S., Lane and Ottenbreit JJ.A.

Disposition: Appeal dismissed Written reasons by: The Honourable Chief Justice Richards In concurrence: The Honourable Mr. Justice Lane The Honourable Mr. Justice Ottenbreit On Appeal From: 2016 SKQB 232 , Regina Appeal Heard: March 15, 2017 Counsel: Jason Clayards for the Appellant Jordan Hardy for the Respondents Richards C.J.S. I. Introduction [ 1 ] This appeal is about the

interpretation of lentil production contracts between the appellant, Seaboard Specialty Grains and Foods, on the one hand, and the respondents, Palimar Farms Inc. and Marc Agra Inc., on the other. [ 2 ] Palimar and Marc Agra were unable to grow the quality of lentils specified by their contracts and Seaboard sued for damages. The Chambers judge dismissed Seaboard’s claims on a

summary judgment application. His decision dealt with the

interpretation of the contracts, the concept of true conditions precedent, The Sale of Goods Act , RSS 1978, c S-1, and the doctrine of frustration. Seaboard now appeals to this Court. [ 3 ] As explained below, I conclude that Seaboard’s appeal must be dismissed. II. background [ 4 ] Seaboard markets specialty crops and other agricultural products. [ 5 ] Palimar and Marc Agra have farming operations near Markinch, Saskatchewan. Palimar is run by Paul and Lia Marcotte.

Marc Agra is run by Paul’s parents, Gary and Helen Marcotte. [ 6 ] In early February of 2014, Seaboard entered into contracts with both Palimar and Marc Agra. The contract with Palimar was executed by Paul Marcotte on behalf of Palimar on February 10, 2014. In relevant part, it reads as follows: Johnston’s Contract No: W3 - 7,069 Contract Date: February 7, 2014 3:40 pm … Buyer Bonded Seller SEABOARD SPECIALTY GRAINS & FOODS PALIMAR FARMS INC. 2595 QUANCE ST., SUITE 201 BOX 26 REGINA, SK MARKINCH, SK

S4V 2Y8 SOG 3J0 ... Commodity: SMALL RED LENTILS - PRODUCTION CONTRACT Grade: #2 CANADA - Subject To Sample Acceptance Quantity : APPROX. GROSS 245 MT // 6 LOADS (600 ACRES x 15 BU/ACRE) Price: 18 CENTS/LB FOB Farm Shipment: SEP-DEC, 2014 - BUYER’S CALL Payment: 10 - 14 working days after unload Fees: $8.50/MT HANDLING TARIFF Notes: AT HARVEST, PLEASE SEND A SAMPLE TO THE ADDRESS ABOVE FOR GRADING. ACT OF GOD CLAUSE IN EFFECT, IF THIS MUST BE INVOKED CONTACT JOHNSTON’S IMMEDIATELY. BUYER HAS FIRST AND LAST RIGHT OF REFUSAL TO OVERAGE PRODUCED FROM THESE ACRES.

PLEASE INCLUDE THE LAND LOCATIONS OF THESE ACRES ON THE RETURNED CONTRACT. IN THE EVENT OF A DISPUTE REGARDING GRADE OR DOCKAGE THE SELLER WILL FILL SAMPLE AND SEAL BAGS UPON LOADING AND HAVE THE BAGS SIGNED BY THE TRUCKING COMPANY HANDLING THE LOADS. SGS GRADING WILL SETTLE ANY DISPUTES. WE APPRECIATE YOUR BUSINESS. Johnston’s accepts no responsibility on this contract.

It is the responsibility of the grain buyer to make contact and complete the arrangement. [ 7 ] The relevant part of the contract between Marc Agra and Seaboard is very similar: Johnston’s Contract No: W3 - 7,070 Contract Date: February 7, 2014 3:47 pm … Buyer Bonded Seller SEABOARD SPECIALTY GRAINS & FOODS MARC AGRA INC. 2595 QUANCE ST., SUITE 201 BOX 05 REGINA, SK MARKINCH, SK S4V 2Y8 SOG 3J0 ... Commodity: SMALL RED LENTILS - PRODUCTION CONTRACT Grade: #2 CANADA - Subject To Sample Acceptance Quantity: APPROX.

GROSS 168MT // 4 SUPER B LOADS Price: 18 CENTS/LB FOB Farm Shipment: SEP-DEC, 2014 SHIPPING - BUYER’S CALL Payment: 10 - 14 working days after unload Fees: $8.50/MT HANDLING TARIFF Notes: AT HARVEST, PLEASE SEND A SAMPLE TO THE ADDRESS ABOVE FOR GRADING.

ACT OF GOD CLAUSE IN EFFECT, IF THIS MUST BE INVOKED CONTACT JOHNSTON’S IMMEDIATELY. BUYER HAS FIRST AND LAST RIGHT OF REFUSAL TO OVERAGE PRODUCED FROM THESE ACRES. PLEASE INCLUDE THE LAND LOCATIONS FROM THESE ACRES ON THE RETURNED CONTRACT. IN THE EVENT OF A DISPUTE REGARDING GRADE OR DOCKAGE THE SELLER WILL FILL SAMPLE AND SEAL BAGS UPON LOADING AND HAVE THE BAGS SIGNED BY THE TRUCKING COMPANY HANDLING THE LOADS. SGS GRADING WILL SETTLE ANY DISPUTES. WE APPRECIATE YOUR BUSINESS. Johnston’s accepts no responsibility on this contract.

It is the responsibility of the grain buyer to make contact and complete the arrangement. Gary Marcotte added a handwritten notation reading “400 acres x 15 BU/AC” immediately after the words “4 SUPER B LOADS” on the “Quantity” line of the contract. He then signed it on behalf of Marc Agra on February 8, 2014. [ 8 ] As things turned out, the 2014 growing season in the Markinch area was extremely wet.

This had a negative impact on both the quality and quantity of lentil production. [ 9 ] Paul Marcotte contacted Steve Foster, a trader with Seaboard, on July 10, 2014, and left a voicemail saying that 20 percent of Palimar’s lentil acres had been flooded. In the message, Mr. Marcotte mentioned the “Act of God” clause in the contract and asked if Palimar could “have the contract reduced by … 20%”. Mr. Foster’s response was that Seaboard was not willing, at that time, to reduce the amount of lentils Palimar was required to produce.

He said the issue could be revisited following harvest and during the delivery phase of the contract. [ 10 ] At harvest time, in September of 2014, Palimar was concerned about the quality of its lentils and sent samples to SGS Canada Inc. for testing. On September 25, 2014, test results indicated the lentils had graded “Tough Extra Number 3 Canada”. After receiving those results, Palimar sent a sample of the lentils to Seaboard and advised that it was unable to produce the quality of lentils called for by the contract. [ 11 ] The Marc Agra story took a similar route.

In September of 2014, it sent samples to the Canadian Grain Commission for testing. The lentils were graded “Extra 3 Canada Red”. Marc Agra then sent samples of the lentils to Seaboard and advised that it was unable to produce the grade called for by the contract. [ 12 ] In or about September of 2014, Mr. Foster, on behalf of Seaboard, forwarded samples of Palimar and Marc Agra lentils to SGS for grading. SGS provided two gradings from the Palimar samples. The first was graded “Tough Lentil sample Canadian red admixture”.

This means the sample was not graded because too much foreign material was present and, as a result, a specific grade could not be given. Mr. Foster believed that, if cleaned, a sample of that type would be graded as at least Extra #3 Canada. The second Palimar sample was graded “Tough #2 Canada” by SGS. The Marc Agra lentils were graded “Tough Extra #3 Canadian”. [ 13 ] After receiving these results, Mr. Foster advised Palimar and Marc Agra that Seaboard would accept the Tough #2 Canada lentils without issue.

He also advised that Seaboard would accept any Extra #3 Canada lentils at the #2 Canada price agreed to in February of 2014.

All of this played out against the background of the fact that the price of lentils had risen sharply in 2014 and continued to rise in early 2015. [ 14 ] Palimar and Marc Agra treated their contracts with Seaboard as having been terminated and sold their production to a different company at a higher price than the one stipulated in the Seaboard contracts for #2 Canada lentils. [ 15 ] As a consequence of not having received lentils from Palimar and Marc Agra, Seaboard had to purchase replacement product on the open market at a price higher than the 18 cents per pound specified in its contracts with those two companies.

It ultimately commenced claims in the Court of Queen’s Bench seeking compensation for the additional costs it had incurred in this regard. III. the queen’s bench decision [ 16 ] Palimar, Marc Agra and Seaboard all brought

summary judgment applications and the Chambers judge proceeded to resolve the matters before him on that basis. See: 2016 SKQB 232 . [ 17 ] The Chambers judge began his analysis by dealing with the claim against Marc Agra. He construed the part of the contract reading “Grade: #2 CANADA – Subject To Sample Acceptance” (the “Grade Term”) by concluding that it did not give Seaboard the right to demand delivery of lentils of a quality lower than #2 Canada.

He also went on to find that the production of such lentils was a true condition precedent such that, unless and until #2 Canada lentils were produced, there was no obligation on Marc Agra to make any sale to Seaboard and no obligation on Seaboard to make any purchase from Marc Agra. Accordingly, he dismissed the claim against Marc Agra. [ 18 ] The Chambers judge noted that the situation with respect to Palimar was different because some of its lentils had graded #2 Canada.

He started his assessment of Palimar’s situation by rejecting an argument, based on s. 9 of The Sale of Goods Act , that its contract with Seaboard had been avoided because the contract involved an agreement to sell specific goods and those goods had perished. While agreeing that the sale had been for specific goods, i.e., a certain grade of lentils grown on identified farmland, the Chambers judge found that, while the lentils were not of the contracted quality, they had not perished.

However, the Chambers judge then went on to conclude that the contract had been frustrated because “only one sample out of more than 326 tonnes of lentils produced

by Palimar graded #2”. Bringing the other production of Palimar to grade #2 Canada or better, said the Chambers judge, would haverequired the lentils to be cleaned or blended. In his view, this was clearly not contemplated or addressed in the Palimar contract. In lightof this, the Chambers judge found there had been a “radical change” caused by a supervening event that had frustrated the contract. Hedismissed the claim against Palimar. IV. analysis [19] Seaboard submits the Chambers judge made several errors in his reasoning and that, as a result, his decision should be setaside and judgment entered in its favour against both Palimar and Marc Agra. These alleged errors relate to whether (

a) the Grade Termis a true condition precedent, (

b) Seaboard could waive non-compliance with the Grade Term, (

c) the lentils in question were specificgoods within the meaning of s. 9 of The Sale of Goods Act, and (

d) the doctrine of frustration was applied properly. I will deal with eachof these matters in turn. First, however, it is necessary to consider the applicable standard of review. A. What is the standard of review? [20] Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, is the leading authority on the standard ofreview applicable to questions of contractual

interpretation. In that decision, the Supreme Court observed that the construction of awritten contract involves reading the document as a whole and giving the words used their ordinary meaning, consistent with thesurrounding circumstances known to the parties at the time the contract was formed. The Court said the goal of the exercise is todetermine “the objective intent of the parties — a fact-specific goal — through the application of legal principles of

interpretation” (atpara 49). [21] In the end, therefore, the Supreme Court characterized contractual

interpretation as involving issues of mixed fact and law “asit is an exercise in which the principles of contractual

interpretation are applied to the words of the written contract, considered in light ofthe factual matrix” (at para 50). It follows that, as per Housen v Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235, the standard of reviewwith respect to contractual

interpretation is the standard of palpable and overriding error. The key exception to this rule arises in the“rare” situation where a question of law can be extricated from the

interpretation process. A second exception, not applicable here,concerns contracts of adhesion. In these two circumstances, the correctness standard of review applies. See: Heritage Capital Corp. vEquitable Trust Co., 2016 SCC 19 at paras 21–24, [2016] 1 SCR 306; Directcash Management Inc. v Seven Oaks Inn Partnership, 2014SKCA 106 at para 12, [2015] 5 WWR 129. B. Is the Grade Term a true condition precedent? [22] As will be recalled, the Grade Term states “Grade: #2 CANADA – Subject To Sample Acceptance”.

In considering the claimagainst Marc Agra, the Chambers judge found that the Grade Term was a true condition precedent. Thus, as a result, he concluded thatneither Marc Agra nor Seaboard had any obligations under the contract unless and until Marc Agra produced #2 Canada lentils. Thesame conclusion, obviously, would have applied to the Palimar contract if the Chambers judge had turned his mind to it. [23] Seaboard submits the Chambers judge erred in interpreting the Grade Term as a true condition precedent.

It bases its attack ona very specific ground, contending that a true condition precedent can exist only when the obligations under a contract are entirelycontingent on the happening of a future uncertain event that is dependent on the actions of a third party. This argument involves anextricable question of law and therefore raises a question subject to examination under the correctness standard of review. [24] Seaboard bases its submission on language found in Turney v Zhilka, (SCC), [1959] SCR 578, the leadingCanadian case in this area.

There, in defining a true condition precedent, Judson J. wrote as follows at pages 583–584: But here there is no right to be waived. The obligations under the contract, on both sides, depend upon a future uncertain event, thehappening of which depends entirely on the will of a third party—the Village council. This is a true condition precedent—an externalcondition upon which the existence of the obligation depends. Until the event occurs there is no right to performance on either side. Theparties have not promised that it will occur.

In the absence of such a promise there can be no breach of contract until the event doesoccur. The purchaser now seeks to make the vendor liable on his promise to convey in spite of the non-performance of the condition andthis to suit his own convenience only. This is not a case of renunciation or relinquishment of a right but rather an attempt by one party,without the consent of the other, to write a new contract.

Waiver has often been referred to as a troublesome and uncertain term in thelaw but it does at least presuppose the existence of a right to be relinquished. (Emphasis added) [25] Seaboard also refers to a variety of other cases where courts have used or repeated the “depends entirely on the will of a thirdparty” language found in Turney v Zhilka.

See: Barnett v Harrison, (SCC), [1976] 2 SCR 531 at 537–538; McCauley vMcVey, (SCC), [1980] 1 SCR 165 at 169–170; Kempling v Hearthstone Manor Corporation (1996), 1996 ABCA 254, 137 DLR (4th) 12 (Alta CA) at para 26. [26] In the large majority of the decisions in this area, including Turney v Zhilka and the other cases relied on by Seaboard, theuncertain future event in issue did, in fact, depend on the actions of a third party. So, for example, Turney v Zhilka itself concerned acondition relating to a village’s authorization to annex land.

It is not surprising, therefore, that these decisions refer to the actions of thirdparties in their discussion of the concept of a true condition precedent. [27] However, the essence of a true condition precedent is that the obligations of the parties on both sides of the contract aredependent on an uncertain future event that is not under the control of either party. In my view, the actions of a third party are not anecessary part of the puzzle. Thus, for example, if A agrees to buy B’s car on November 1 for $10,000 but only if Mount Vesuvius

erupts during the month of October, the eruption of Mount Vesuvius is without doubt a true condition precedent in that the obligations of A and B are both wholly dependent on whether such an eruption occurs. The fact that there is no “third party” who can control or cause the eruption is irrelevant to the analysis and not determinative of it. [ 28 ] Indeed, as I read Turney v Zhilka , this is what it provides.

In the passage quoted above and relied upon by Seaboard, Judson J. does indeed say that the obligations in question were dependent “… upon a future uncertain event, the happening of which depends entirely on the will of a third party—the Village council”. But, rather clearly, that was a reference to the particular facts of the case before him. Signficantly, Judson J. then immediately returned to general principles in the next sentence by saying “[t]his is a true condition precedent—an external condition upon which the existence of the obligation depends”.

There is no reference to the will of a third party in that latter sentence. [ 29 ] The decision of the Nova Scotia Court of Appeal in Hilchie v Waterton Condominiums Inc. , 2012 NSCA 126 , 358 DLR (4th) 407, is helpful here.

After quoting the passage from Turney v Zhilka relied on by Seaboard, the Court summarized the features of a true condition precedent by writing as follows: [31] Note then the ingredients and consequences of a true condition precedent: - t he condition represents a future uncertain event, the occurrence of which is beyond the parties’ control ; - neither party reserves the right to waive the condition; and - there can be no breach of contract should that event not occur. (Emphasis added) See also: Barnett v Harrison at 541 ( per Laskin C.J., dissenting but not on this point); Silver Eagle Management Inc. v Onoway (Town) , 2011 ABQB 139 at paras 38–43 , 50 Alta LR (5th) 102.

I agree with these views of the “third party” issue. [ 30 ] In the end, therefore, I am unable to accept the argument advanced by Seaboard.

The Chambers judge did not err by failing to proceed on the basis that a true condition precedent must be an uncertain future event dependent on the actions of a third party as opposed to merely being an uncertain future event beyond the control of the parties to the contract. [ 31 ] Before leaving the true condition precedent issue, I should perhaps note that the analysis of this concept in the circumstances at hand might arguably be complicated by the fact that the condition precedent identified by the Chambers judge, i.e., the production of #2 Canada lentils, is not something external to the obligations of the parties to the contract.

No submissions involving this sort of question were advanced for the Court’s consideration and, as a result, I will not explore them further or attempt to assess their significance, if any. C. Could Seaboard waive non-compliance? [ 32 ] Seaboard also submits the Chambers judge erred by failing to find that it was entitled to waive the requirement that the lentils be #2 Canada. On this front, Seaboard refers to (

a) the wording of the Grade Term (particularly the words “subject to sample acceptance”), (

b) common law principles concerning a purchaser’s right to waive a seller’s default, and (c) s. 13(1) of The Sale of Goods Act which says that a buyer can elect to waive a condition to be fulfilled by the seller. [ 33 ] This line of argument can succeed only if the Grade Term is not a true condition precedent. This is so for the obvious reason that the satisfaction of a true condition precedent is necessary before either party to a contract containing such a condition has an obligation to perform under the contract. In other words, a true condition precedent is not open to unilateral waiver.

See: Turney v Zhilka at 583–584; Barnett v Harrison at 541 and 558–559. Given that I have not accepted Seaboard’s attempt to overturn the Chambers judge’s finding that the Grade Term is a true condition precedent, its arguments about waiver must fail as well. D. Were the lentils specific goods? [ 34 ] In considering Seaboard’s claim against Palimar, the Chambers judge rejected Palimar’s defence based on s. 9 of The Sale of Goods Act .

Section 9 provides that a contract for the sale of specific goods is avoided if those goods have perished. The Chambers judge, as will be recalled, held that although the goods in question here were “specific”, they had not “perished”. As a result, he rejected this arm of Palimar’s defence. [ 35 ] Seaboard now argues the Chambers judge erred in holding that the lentils were specific goods within the meaning of s. 9 of The Sale of Goods Act . I see no need to deal with this submission. Seaboard has already won its battle on this front.

The Chambers judge rejected Palimar’s s. 9 defence by finding that the goods in issue had not perished. Palimar has not taken issue with this conclusion. Accordingly, regardless of whether or not the lentils here are specific goods, Seaboard has prevailed on this aspect of the case. E.

Was the doctrine of frustration applied properly? [ 36 ] Seaboard’s next argument is that the Chambers judge erred in his treatment and application of the doctrine of frustration. [ 37 ] In this regard, it will be recalled that, in dealing with Palimar’s contract with Seaboard, the Chambers judge found that bringing Palimar’s non-#2 Canada production up to the #2 Canada level would have required measures amounting to a drastic change in the contract and that, as a result, the contract had been frustrated. [ 38 ] The essential features of the doctrine of frustration are not in dispute.

They were explained as follows in Naylor Group Inc. v

Ellis-Don Construction Ltd., 2001 SCC 58 at para 53, [2001] 2 SCR 943: Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contractbecomes “a thing radically different from that which was undertaken by the contract”: Peter Kiewit Sons’ Co. v. Eakins ConstructionLtd., (SCC), [1960] S.C.R. 361, per Judson J., at p. 368, quoting Davis Contractors Ltd. v.

Fareham Urban DistrictCouncil, [1956] A.C. 696 (H.L.), at p. 729. [39] The Chambers judge correctly identified these principles and, as noted above, then went on to hold that the contract betweenSeaboard and Palimar had been frustrated. He did this by reasoning as follows: [105] Determining whether the contract has been frustrated requires that I consider whether holding Palimar to an obligation to deliverand sell the lentils it produced to Seaboard, at the contract price, would amount to something radically different from what the partieshad agreed to in the original contract. In my view, it would.

There is no question that grade #3 lentils are a markedly different productthan grade #2 lentils. On the evidence, only one sample out of more than 326 tonnes of lentils produced by Palimar graded #2. To bringthe other production by Palimar to grade #2 or better would have required cleaning or blending of lentils, which was clearly notcontemplated or addressed in the original contract. That process would affect the weight of the lentils, and thus decrease the quantity ofPalimar’s production.

There was no provision made in the contract for any such procedure, and to imply such a condition and requireperformance on that basis would amount to a drastic change in the contract. [106] Accordingly, in my view, the supervening event in this case created a radical change, such that the contract was frustrated. [40] Seaboard raises a number of targeted arguments aimed at establishing that the Chambers judge erred in his treatment of thefrustration issue. I will deal with them in turn. 1.

The lentils in issue [41] First, Seaboard contends that, under its contract, Palimar was required to do no more than produce and sell lentils and that,consequently, the fact the lentils graded #3 Canada, as opposed to #2 Canada, did not affect or frustrate any basic aspect of the contract. [42] I am unable to accept this aspect of Seaboard’s submission because it does not reflect the terms of the contract between it andPalimar, as that contract was interpreted by the Chambers judge.

The Chambers judge read the contract as calling for the sale andpurchase of #2 Canada lentils, not as calling for the purchase and sale of lentils generally or lentils of all grades. On this front, he wroteas follows: [84] In my view, the term “subject to sample acceptance” does not give Seaboard the right to demand delivery of a lower quality oflentils than that specified in the contract. I will explain. [85] First, the contracts in question were clearly production contracts, as opposed to delivery contracts.

In addition to bearing thatwording in the body, the contracts themselves contain no wording that places risk on the sellers, Palimar and Marc, in the event ofinability to produce or deliver the lentils called for by the contracts. [86] Second, I note that the Purchase Confirmation sent to Palimar and Marc by Seaboard on February 11, 2014 read as follows, as itrelates to the quality of grain required under the contract: Quality: Canadian No. 2 or better, 2014 Crop. [87] While this Purchase Confirmation was not executed by Palimar and Marc, it is objective evidence tending to show that theparties expected that the contracts called for #2 grade lentils, at a minimum.

The use of that clause, by Seaboard, demonstrates that it wasSeaboard`s intention to accept nothing less than grade #2 lentils, rather than to be able to accept a lower grade of lentils at its discretion.The contracts simply made no provision for production, or acceptance, of a lower grade of lentils. [43] This construction of the Grade Term does not involve a palpable and overriding error. The Term, both on its face and asconfirmed by the expert opinion of Darren Lemieux, is not a provision empowering Seaboard to require the delivery of lentils of anyquality.

Rather, it is aimed specifically at #2 Canada lentils. This is particularly clear in view of the fact that the contract is wholly silentabout the price or prices payable for such other product. In the result, therefore, I am not prepared to act on Seaboard’s suggestion that itscontract with Palimar could not have been frustrated by the production of #3 Canada lentils because it required Palimar to sell lentils ofany and all grades. 2.

The foreseeability of wet weather [44] Seaboard’s second concern about the Chambers judge’s approach to the frustration issue is to the effect that, in its submission,the doctrine of frustration should engage only when the event preventing performance under a contract was not foreseeable. It saysexcessive rainfall is foreseeable in Saskatchewan and hence wet field conditions cannot frustrate a production contract. [45] I am not persuaded by this argument.

There is a long and time-tested line of authority applying the doctrine of frustration tosituations where crop failures have been caused by weather and other natural events. The most frequently referenced case is Howell vCoupland (1876), 1 QBD 258 (CA). It concerned a circumstance where a farmer agreed to sell 200 tons of potatoes grown on his land.The farmer sowed potatoes on 68 acres, an amount of land amply sufficient, in an ordinary season and ordinary conditions, to produce amuch larger quantity than 200 tons.

However, in July and August, and without any fault on the part of the farmer, a disease attacked thecrop and reduced its yield to no more than 79 tons, an amount that was delivered to the purchaser. The purchaser then brought an actionto recover damages for the non-delivery of the balance of the 200 tons due under the contract. That claim was dismissed. Chief JusticeColeridge gave the lead opinion and addressed the case in terms that, although capable as being read at least in part as referring to a truecondition precedent, are typically taken to mean that the contract had been frustrated:

… by the simple and obvious construction of the agreement both parties understood and agreed, that there should be a condition implied that before the time for the performance of the contract the potatoes should be, or should have been, in existence, and should still be existing when the time came for the performance.

They had been in existence, and had been destroyed by causes over which the defendant, the contractor, had no control, and it became impossible for him to perform his contract; and, according to the condition which the parties had understood should be in the contract, he was excused from the performance. It was not an absolute contract of delivery under all circumstances, but a contract to deliver so many potatoes, of a particular kind, grown on a specific place, if deliverable from that place.

On the facts the condition did arise and the performance was excused. … [at 261] (Emphasis added) [ 46 ] A & BB Rice Inc. v Wigmore Farms Ltd. , 2005 CarswellOnt 7316 (Sup Ct J) , is to the same effect. Wigmore contracted to sell Canada #1 grade Richlea green lentils, supplied from its 2002 growing operations, to A & BB Rice Inc., the buyer. Rain interfered with efforts to desiccate the crop and, as a consequence, Wigmore ultimately produced only low-grade #3 Canada lentils.

Justice Ferrier held that Wigmore was excused from performing the contract. [ 47 ] I also note Rinn v Parent Seeds Ltd. , 2001 MBCA 90 , 156 Man R (2d) 191. There, a Manitoba farmer contracted to sell 132,000 pounds of black beans at a price of 27 cents per pound with the beans to be grown on his land using seeds from the ultimate purchaser of the crop. The crop was damaged by an early frost and was unsalvageable. The Court of Appeal referred to Howell v Coupland and concluded that the doctrine of frustration applied to the contract. [ 48 ] A similar approach appears to be evident in the American case law.

For example, in Squillante v California Lands, Inc. , 42 P 2d 81 (Cal Dist Ct App 4th 1935), a grower contracted to sell ten carloads of grapes of a certain quality and variety. Heat damaged the vineyards and the grower was able to harvest and ship only five carloads to the buyer. The buyer commenced an action for breach of contract. The Court of Appeal held that the grower could not be compelled to perform impossibilities and that it was not liable for a failure to comply with the contract for reasons not attributable to any fault of its own.

See also: Ontario Deciduous Fruit Growers’ Association v Cutting Fruit Packing Company , 66 P 28 (Cal Sup Ct 1901). [ 49 ] In

summary, I do not accept Seaboard’s contention that the doctrine of frustration cannot be applied in this case because the problem of excess rain was foreseeable. 3. The source of the lentils [ 50 ] Seaboard’s third line of attack on the frustration issue is that Palimar’s contract could not have been frustrated because there was no common understanding between it and Palimar about the source of the lentils.

In other words, I take Seaboard to contend that the contract could not have been frustrated by a Palimar crop failure because it anticipated Palimar obtaining the #2 Canada lentils either from its own production or by way of purchase from some other farmer. [ 51 ] This line of argument cannot succeed. There are many features of the Palimar contract indicating and confirming that the lentils in question were to be produced by Palimar, not purchased by it from third parties: (

a) the contract is styled as being a “production” contract, (

b) the “Quantity” clause refers to a specific acreage and yield per acre, (

c) the “Price” clause refers to “FOB Farm”, and (

d) in the “Notes” section, there is reference to samples being taken “at harvest” and to a right of first refusal “from these acres”. [ 52 ] In short, it is entirely clear that the contract contemplated the lentils in issue would be grown by Palimar.

The Chambers judge made no palpable and overriding error in finding, as he did at paragraph 98 of his decision, that “… the contract describes it as a production contract, calling for the production of a certain grade of lentils (#2 Canada), grown … on Palimar’s farmland” or in concluding at paragraph 104 that “… the parties contracted that Palimar would produce a certain quantity of #2 Canada lentils”. 4.

Selling at a higher price [ 53 ] Seaboard also suggests the doctrine of frustration cannot apply here because Palimar ultimately sold its lentil production to a third party at a price higher than the 18 cents per pound stipulated in its contract with Seaboard.

In this regard, Seaboard points to this Court’s decision in Hagmann v Can-Oat Milling Limited Partnership , 2004 SKCA 97 , 249 Sask R 196 [ Can-Oat ], where, in explaining why the doctrine of frustration could not apply in that case, Jackson J.A. wrote as follows: [21] The learned trial judge correctly concluded the contracts were not discharged for frustration. Frustration cannot apply for at least two reasons. First, as the trial judge pointed out, the contracts contemplated the possibility that Mr. Hagmann would not be able to fulfill his obligations and placed the risk of such loss on him. Second, Mr.

Hagmann sold all his oats to another company for more than he would have received from Can-Oat. In such circumstances, it would be unjust to find the contracts to be frustrated. (Emphasis added) [ 54 ] This aspect of the Can-Oat decision is distinguishable from the situation at hand. Significantly, and as the trial judge recognized at paragraph 107 of his decision, the Can-Oat contract expressly allocated the risk of non-performance, i.e., the failure to deliver oats of the contracted quality and quantity, to the farmer.

In those circumstances, it would indeed have been unfair to allow the farmer to escape all liability under the contract of sale while, at the same time, profiting from the delivery of his production to a different buyer. That is not the situation here.

Seaboard’s contracts with Palimar and Marc Agra are silent on the question of the allocation of the risk of an inability to produce the lentils called for under the contract. 5. #2 Canada versus #3 Canada lentils [ 55 ] Finally, Seaboard contends the Chambers judge erred in the course of his analysis of the frustration issue by finding that #3 Canada lentils were “markedly different” than #2 Canada lentils. This, of course, is a free-standing finding of fact based on affidavit

evidence and hence one that can be interfered with by this Court only if it involves a palpable and overriding error. See: Nelson (City) v Mowatt , 2017 SCC 8 , 406 DLR (4th) 1. However, as explained below, it is ultimately not necessary to answer the question raised by this aspect of Seaboard’s argument. [ 56 ] The initial point I note in relation to Seaboard’s submission is that the Chambers judge erroneously based his decision on the difference between what he called “#2” lentils and “#3” lentils.

The reality is that the sample in issue, the one submitted to SGS by Palimar, had not graded #3 Canada but Tough Extra #3 Canada. Similarly, the sales documents exhibited to the affidavit of Paul Marcotte indicate that the production of Palimar had been sold to Rayglen Commodities Inc. as Extra #3 Canada.

Extra #3 Canada is a different, and better, grade than #3 Canada as revealed by the following chart from the Grain Grading Guide : #2 Lentils Extra #3 #3 Lentils Degree of Soundness Uniform size, reasonably good natural colour Uniform size, fair colour Poor colour Copper % 3% 10% No limit Total copper and bleached % 10% 25% No limit Contrasting colours % 0.5% 2% 3% Heated % 0.5% 0.5% 1% Pealed, split and broken % 3.5% 5% 10% Other damage % 2% 5% 10% Total damage % 3.5% 5% 10% Wrinkled % 5% N/A N/A Total damage including wrinkled % 8% N/A N/A Other foreign material % 0.5% 0.5% 1% [ 57 ] In an effort to make its point that there is no significant difference between #2 Canada lentils and the Extra #3 Canada lentils produced by Palimar and in issue here, Seaboard relies on the particulars of a September 28, 2014, Analysis Report prepared by SGS for Palimar.

The Report reveals that Palimar’s sample satisfied all of the various benchmarks for #2 Canada lentils – things such as the percentage of split, peeled and broken seeds, and the percentage of copper-coloured seeds – except in two respects. These were (

a) the colour of the lentils, where the #2 Canada standard is “reasonably good natural colour” and the Palimar sample was graded “fair colour”, and (

b) the amount of what the Grain Grading Guide calls “other damage”, where the #2 Canada standard is 2.0 percent and the Palimar sample graded 2.1 percent. [ 58 ] In my respectful view, however, all of this is ultimately of no consequence. Regardless of the differences between #2 Canada and Extra #3 Canada lentils, the reality is that the Grade Term, a provision the Chambers judge characterized as a true condition precedent, called for #2 Canada lentils.

Thus, as explained above, unless and until lentils of this quality were produced by Palimar, it had no obligation to sell to Seaboard and Seaboard had no right or obligation to buy from it. Against this background, the question of whether the production of Extra #3 Canada lentils by Palimar frustrated its contract with Seaboard simply makes no difference to the bottom line of this appeal. [ 59 ] The sales records of Palimar, exhibited to the affidavit of Paul Marcotte, confirm that all of Palimar’s lentils were graded Extra #3 Canada at the time of their sale.

Accordingly, by virtue of the Grade Term, Palimar was under no obligation to sell those lentils to Seaboard. It matters not, therefore, whether Palimar’s contract with Seaboard might or might not have been frustrated as per the line of analysis pursued by the Chambers judge. [ 60 ] Thus, in the end, I find it unnecessary to deal with Seaboard’s contention that there is no significant difference between #2 Canada and Extra #3 Canada lentils or to deal otherwise with the strength of the Chambers judge’s fact finding in relation to the frustration issue. 6.

Some additional comments [ 61 ] All of this said, I am reluctant to leave the subject of frustration without noting two matters that might be the basis of questions or confusion down the road if they are not flagged. [ 62 ] First, at paragraph 27 of his affidavit, and as noted above under the “Background” heading, Mr. Foster indicated that he had advised Palimar and Marc Agra that Seaboard would “accept any Extra #3 red lentils at the #2 Canadian [ sic ] price agreed to in February, 2014”, i.e., the price agreed to in Seaboard’s contracts with Palimar and Marc Agra.

The Chambers judge made no reference to this fact in his analysis and it was not the subject of submissions in this Court. [ 63 ] Second, both the Palimar and Marc Agra contracts contain an “Act of God” provision, at least to the extent that both state “Act of God clause in effect”. This aspect of the contracts played no

part in the decision of the Chambers judge and was not referred to in the argument of this appeal. [ 64 ] By noting these two points, I do not wish to be understood as commenting one way or the other about their possible importance to this appeal. Rather, my purpose is to make it clear that, no doubt for good reason known to the parties, the Court heard no submissions about the implications of these two aspects of the evidence and that, as a consequence, I have not attempted to deal with them in arriving at my decision.

V. conclusion [ 65 ] I conclude that Seaboard’s appeal must be dismissed. Palimar and Marc Agra are entitled to equal shares of a single set of costs. “Richards C.J.S.” Richards C.J.S. I concur. “Lane J.A.” Lane J.A. I concur. “Lane J.A.” for Ottenbreit J.A.