Ontario Superior Court of Justice
Dunn Paving Ltd. v. Aerco Trading Inc.




An U.S. buyer purchased scrap metal from an Ontario seller who would clean the metal from foundry sand by a screening process at its recycling plant. As the seller was inexperienced in removal of sand, the buyer constantly found sand or fines within the scrap metal provided. This situation led to a number of price adjustments between the parties during their relationship. The parties’ relationship deteriorated when the buyer failed to make the requisite payments, and the seller detained five of the buyer’s metal containers until it received payment.

The seller initiated an action to recover the amount outstanding on the buyer’s account; the buyer counterclaimed costs for replacement of the bins and damages for the fines found in the scrap metal. The buyer did not dispute that it had an outstanding balance on its account, but it claimed that costs associated with the seller’s detention of the buyer’s bins offset its account balance. Consequently, the buyer claimed that the sale was a sale by sample, and hence, the Sale of Goods Act governed the contract. The seller disputed that the sale was sale by sample and argued that the contract was an international contract for the sale of goods and thus CISG was applicable as incorporated into the International Sale of Goods Act.

Comparing the two instruments, the Court found that their provisions on sale by samples were similar but left open the question of whether the contract at hand entailed a sale by sample. In any case, even assuming that it was a sale by sample, the Court found that the buyer could not rely on nonconformity of the goods to the sample, because it had been given sufficient time to inspect the goods and reject them. Moreover, the buyer had accepted the seller’s method of compensation by its acquiescence over a period of two years and could not now dispute the seller’s adjustment of its accounts.


Rogin J. :
[1] On November 6, 1995 the plaintiff and defendant formalized a contract under which they had been operating since approximately April 30, 1995. The defendant would purchase from the plaintiff, steel from the plaintiff's "Ford Sand Recycling Operation". This contract came about as a result of negotiations between Thomas Robson and Michael Dunn on behalf of the plaintiff, and Ron Korman on behalf of the defendant. The parties toured each other's facilities, and Mr. Korman took back to his place of business samples of the gates and risers which he would be purchasing. Mr. Robson was the accountant for the plaintiff company and concluded the negotiations on its behalf with Mr. Korman, the operating mind of the defendant.
[2] The gates and risers were scrap metal and had to be cleaned of the foundry sand. This was done by running them over a screening process at Dunn Paving, the vibrations of which, were supposed to shake off much of the sand. Dunn Paving was relatively new and inexperienced with this process, and from the start there were complaints from Aerco about the amount of sand contaminating the scrap metal. The amount of sand contaminating the scrap metal was called "fines" and was a source of continuing negotiation between the parties from the outset of their business re-lationship.
[3] Exhibit # 1 is a summary of the value of the scrap delivered between April '30, 1995 and May of 1997. It indicates, from Dunn's point of view, how much should have been paid by Aerco during the term of their business dealings. The total is $ 629,199.51 U.S. Exhibit # 4 is a summary of the payments to Dunn by Aerco, being the total of $ 16,515.26 cash, and $ 570,087.14 by cheque. The total payments are $ 586,602.40 U.S.
[4] In addition to its cash and cheque payments, Aerco was given two credits for fines (ex-cess sand) of $ 4,461.68 U.S. in approximately May of 1996 (Exhibit # 8), as well as a one time 100ton allowance of $ 8,568, also in the spring of 1996. These allowances total $ 13,029.68, and in conjunction with the payments leave a balance of $ 29,567.43 U.S. according to the plaintiff.
[5] The defendant does not seriously dispute that this is the unpaid sum. Exhibit # 2 was de-scribed by Mr. Korman as an internal document of Aerco, detailing an ongoing summary of the de-liveries of sand. It is in his handwriting but only details deliveries until May 20th of 1997. The same document, augmented by Mr. Robson's handwriting (Exhibit # 3) indicates five more deliveries in May, and shows, according to Mr. Robson, an outstanding balance of $29,620.91. In view of Mr. Korman's evidence on the point I accept that the Dunn Paving summary is more accurate and that the unpaid balance is $ 29,567.43. The significant parts of Exhibits # 2 and
# 3 are not the out-standing balances. The significance of Exhibits # 2 and # 3 illustrate what I find to be the con-cessions with respect to fines given by Dunn to Aerco.
[6] Robson testified, and Korman did not disagree, that the column marked "% fines" repre-sented an ongoing adjustment in the contract for contamination. The evidence was that the loads were weighed when they left the Dunn plant, and that they were reweighed when they reached a scale in Michigan at MAC Metals. MAC Metals ultimately bought the scrap from Aerco. Aerco was a neightbour of MAC Metals and did not have its own scale. Robson testified and it was not dis-puted, that the lower of the two weights would constitute the tonnage upon which payment was based. This was a further accommodation in respect of contamination. The discrepancies could also be accounted for because of settling of the load and loss of sand in transit. The MAC weights were generally lower than the Dunn Paving weights.
[7] It appears that until the end, Robson and Korman spoke over the phone on a regular ba-sis. Korman would call and complain about too much sand in the load and generally an adjustment would be agreed to on the phone. This is evidenced by the column "% Fines", on Exhibit # 2 and # 3. In cases where there was more than a 5 or 10 % percent adjustment an investigation was made, and an accommodation was eventually arrived at.
[8] In addition to Exhibits # 2 and # 3, this accommodation is discussed in Exhibits # 14, # 8, # 1 (the foreign adjustment column) Exhibit A and Exhibit # 6.
[9] It is argued by Aerco, that the contract is a sale by sample governed by The Sale of Goods Act . Dunn Paving argues that 1) it is not governed by The Sale of Goods Act since it is an international sale governed by The International Sale of Goods Act . 2. Dunn also argues that it is surprised by this defence since it was not pleaded.
[10] The two acts are not dissimilar when they speak of sale by sample. In any event I find that even if this was a sale by sample, Aerco had ample time to inspect the goods when they arrived at the MAC scales and exercised any right of rejection by claiming the adjustment for "fines" as they arose. They were then given credit for the sand as evidenced in Exhibits # 2 and # 3 and the adjustments made.
[11] In addition, even if this was a sale by sample, over the term of the contract, Aerco acquiesced in the method of adjustment and cannot now be said to complain and ask the court to go back to day one and revise the course of business dealings between the two companies between April of 1995 and May of 1997.
[12] Aerco at no time relied on Dunn's expertise and Aerco knew at all times what it was purchasing. The fact that it ended up with more sand than expected was as Mr. Robson wrote in Exhibit # 6 Aerco's risk. In any event Aerco was compensated by the adjustments.
[13] In the event, there will be judgment in favour of Dunn Paving on the claim for $ 29,567.43 in U.S. funds and interest at the statutory rate from the date of issuance of the claim.
[14] It is clear that the contract came to an end on or about May 23, 1997 which was the date of the last shipment. Relations between the plaintiff and defendant had been deteriorating as evi-denced by Mr. Robson's threatening letter of May 29, 1997 (Exhibit # 6) and Mr. Korman's letter of June 16, 1997, originally Exhibit A. Although the date is unclear and the evidence is mostly hearsay, the last dealings between the plaintiff and the defendant occurred on the day that Mr. Korman from the defendant company had a telephone conversation with Mr. Dunn of the plaintiff company. Korman was obviously not paying by that time and Dunn was upset. For our purposes the operative part of the conversation was a threat by Dunn to keep the Aerco vehicles at the Dunn yard unless payment was made. Eventually the Aerco trucks were returned to Aerco, but five of the Aerco containers were detained. Those containers remain in the possession of Dunn Paving to this day. If the hearsay part of the conversation is true, Mr. Korman had good reason to pursue their re-turn only through the court process. The detention of the containers gives rise to part of the counter-claim.
[15] The main part of the counterclaim is a request for reimbursement of an amount for the "fines" as discussed supra . For the same reasons that I discussed in rejecting the "sale by sample argument" I reject this argument. Mr. Korman on the point testified inter alia as follows:
[16] 1) "... I was not happy with the settlement, but accepted it and wanted to pursue it ..."
[17] 2)" Since the adjustments he discussed it with Mr. Schwartz who agreed to take the product. After Korman was told 'take it or leave it'."
[18] Again I infer that although the contract was less profitable by that time Aerco was still willing to live with it. That part of the counterclaim is therefore dismissed.
[19] Dunn Paving argues that Aerco cannot maintain a claim for damages for detention of the containers, as their actual owner was Aerco Metals not Aerco Trading Inc., the named defen-dant. The containers were purchased by Aerco Metals from McClain Industries Inc. through a lease purchase agreement with Advent Capital Corp. (Exhibit # 13). Mr. Korman testified that he was the principal of both Aerco Trading Inc. and Aerco Metals. I reject the argument of Dunn Paving. Aerco Trading Inc. had a sufficient property interest in the containers to maintain this claim.
[20] Dunn Paving argues that Aerco could have had the containers back by simply asking for them or bringing an action for their return. Under normal circumstances Aerco should not have to bring two separate actions arising out of one set of circumstances. Under the circumstances here, when Korman testifies to a direct threat from Dunn, who does not testify, which testimony I accept, and is uncontradicted, it would be patently unreasonable to force Aerco into that position.
[21] Dunn Paving argues that if I accept the counterclaim the value should be restricted to the depreciated value of the bins on the day they were detained. There is no way to establish that value and I reject the concept in any event. Under these circumstances, the value to Aerco Trading Inc. would be the value of the replacement costs of the bins on the day they were detained, so as to interrupt their business affairs as little as possible. It is only by immediately replacing them at the time of their detention that Aerco can be placed in the same position it was before they were de-tained.
[22] The only value that Aerco could establish on the purchase price of the bins was $ 3,996 U.S. for the three bins mentioned in Exhibit # 13: Mr. Korman's testimony that he replaced the other two at a price of between $ 3,000 and $ 3,900 each, is the only evidence with respect to the value of the other two bins.
[23] Under the circumstances there will therefore be judgment on the counterclaim for $ 17,988 U.S., being three bins at $ 3,996 and two bins at $ 3,000. Interest will be awarded on the counterclaim from the date of issuance of same.
[24] Success is divided. If counsel wish, costs may be addressed within 30 days in written submissions, exchanged.
[25] Judgment accordingly.}}


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