Defective Seed Liability

Where a seed supplier supplies defective seed which substantially diminishes the value of the resulting crop, can the farmer recover his loss?  What is an appropriate measure of that loss?

These issues were recently considered by the New Brunswick Court of Appeal upon an appeal by a seed potato distributor from a trial judgement holding it liable for losses resulting from defective seed.  The distributor had sued Ontario farmers for the price of the defective seed and the farmers had counter-claimed for their resulting loss.  In considering the liability of the seed distributor, the court referenced sections of the Sale of Goods Act which impose an implied warranty that goods are reasonably fit for their intended purposes where the buyer has made known to the seller the purpose for which the goods are required, the buyer relies on the seller’s skill or judgement, and the sale is made in the course of the seller’s business.  In the case under appeal, the distributor asserted that, because the farmer had inspected the potatoes on delivery, the farmer had not relied on the distributor’s skill or judgement.

Both the trial and appellate courts rejected this argument on the basis that, while there had been a cursory inspection by the farmer on delivery which detected some defective potatoes, the potatoes had been transferred for cutting by an automatic machine immediately upon delivery and then planted.  Such an inspection was not of sufficient significance to overcome the liability of the distributor.  The trial judge had determined:

“[The farmer] did not pick [the distributor] at random.  He asked people whom he trusted to make a recommendation.  Both he and [the distributor] knew the importance of seed quality.  I find on the basis of the evidence that [the farmer] was relying on [the distributor’s] ‘skill and knowledge’.”

The farmer acknowledged his liability for the cost of the seed provided that he was permitted recovery of his resulting loss.  The farmer claimed the difference between the market value of the crop which he would have obtained had the seed not have been defective less the reduced value of his actual yield because of the defective potatoes.  In dismissing the distributor’s appeal of the trial judge’s award of this loss, the appellate court concluded:

“The [farmer] advanced only the simplest of damage claims, one based on the difference between the market value of the potato crop harvested and the market value of the crop that would have been harvested but for the planting of defective seed potatoes.  The claim falls within the general principle that an award of damages for breach of contract should compensate the plaintiff for its loss by placing it, as far as money can do, in the same position it would have been in if the contract had been fully performed on both sides …

“… The loss for breach of the warranty of quality is prima facie the difference between the value of the goods actually delivered and the value the goods would have had if the goods had conformed to the contract, that is to say, if there had been no breach of warranty … What we are looking at is the value of the harvested goods actually produced from the defective seed potatoes and comparing that figure with the value of the goods that would have been harvested from the seed had it not been defective.”

Where defective seed results in production losses and there has been the necessary reliance on the seed distributor’s skill or judgement, the seed distributor will be liable for the resulting loss.  The measure of this loss is the difference between the anticipated crop value if the seed had not been defective and the reduced crop value resulting from the defective seed.