Contracts (Forbes) - 2016
Contracts (Forbes) - 2016
Contracts (Forbes) - 2016
Table of Contents
INTRODUCTION TO CONTRACTUAL REMEDIES ....................................................................................6
DAMAGES ..................................................................................................................................................... 6
Damages Calculation ............................................................................................................................ 6
Hadley v. Baxendale (1854)– UK - Page 50 – Remoteness Test .......................................................... 6
Victoria Laundry Ltd v. Newman Industries Ltd. (1949) – Eng. CoA - Page 56 .................................... 7
SPECIFIC PERFORMANCE AND INJUNCTION ......................................................................................................... 8
Warner Bros Pictures Inc. v Nelson (1937) – Page 137 ......................................................................... 8
FORMATION OF THE CONTRACT ....................................................................................................... 10
1) INTENTION TO CREATE LEGAL RELATIONS .....................................................................................................10
Balfour v. Balfour (1919) – Page 299 ..................................................................................................10
Merrit v. Merrit (1970)– Page 302 – Test For Contracts In Close Relationships ...............................10
Family Law Act (1990) – Page 303 ......................................................................................................11
Jones v Padavatton (1969) – Page 304 ...............................................................................................11
Simpkins v Pays (1955) - Page 302 ......................................................................................................12
Rufos v Brewster (1971) (Australia) ...................................................................................................12
Ermogenous V Greek Orthodox Community (Australia) .....................................................................13
Canadian Taxpayers Foundation v Minister of Finance for Ontario (2004) – Page 308 .....................13
Parker v Clark (1960) - UK ...................................................................................................................13
Carlil v Carbolic Smoke Ball Company (1893) – Page 359...................................................................14
Rose and Frank Company v JR Crompton & Brothers Limited (1923) (England) - Page 306 – Test for
Contracts In Commercial Relationships .............................................................................................15
Jones v Vernon Pools Ltd. (1938) – Page 307 – Application of R+F Clause ........................................15
2A) OFFERS MECHANICS ...............................................................................................................................16
Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953) – Page 184 ....................16
Boyer and Co v D&R Duke – Page 181 ................................................................................................16
Harvey v Facey (1933) (UK) – Page 180 ..............................................................................................17
Johnston Bros v Rogers Bros (1899) – Page 178 .................................................................................17
Carlil v Carbolic Smoke Ball Company (1893) - Second Look (Offer of Unilateral Contract) .............18
The Satanita (1895) (England) – Page 387 .........................................................................................18
MJB Enterprises v Defence Construction (1999) – Page 211 ..............................................................19
2B) DURATION OF THE OFFER ........................................................................................................................20
Dickinson v Dodds (1876) – P.194 – Offer Revoked ...........................................................................21
Petterson v Pattberg (1928) - P-S1 - Offer Revoked ..........................................................................22
Errington v Errington (1952) (England) – P.368 ..................................................................................23
Shuey, Executor v. United States (1875) – P.S5 – Offer Revoked .......................................................24
Livington v Evans (1925)– P.S7 – Rejection and counter-offer ..........................................................25
Barrick v. Clark (1951)– P.S9 – Offer lapse without stipulated lapse date .......................................26
Manchester Diocesan Council for Education v Commercial & General Investments (1969) (England)
– P.190.................................................................................................................................................28
3) ACCEPTANCE ...........................................................................................................................................29
3A) COMMUNICATION OF ACCEPTANCE ..........................................................................................................29
Felthouse v Bidnley (1862) – Page 196 – Acceptance needs to be communicated ...........................29
Cole-McIntyre-Norfleet Co. v Holloway (1919) - Page S.15 – Exceptions to Acceptance Being
Communicated....................................................................................................................................30
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Contracts Summary - Forbes
Household Insurance v Grant (1879) – Page 236 – Postal Acceptance Rule .....................................30
Entores v Miles Far East Corporation (1955) – Page 248 – Telephone Acceptance Rules................32
Eastern Power v Azienda (1999) – Page – Fax Machine Acceptance .................................................32
Electronic Commerce Act, 2000 (Ontario) – Page 253 ........................................................................33
Summary .............................................................................................................................................34
3B) TIME AND PLACE ...................................................................................................................................34
Eliason v Henshaw (1819) – Page 200 ................................................................................................34
Holwell Securities Ltd. v Huges (1974) – Page 245 – PAR Exceptions ................................................35
Henthorn v Fraser (1892) – Page 241 – Test for when PAR will Apply ..............................................36
3C) ACCEPTANCE OF UNILATERAL CONTRACT ...................................................................................................36
Carlil v Carbolic Smoke Ball Company (1893) – Page 359 – Third Look .............................................36
4) CONSIDERATION..................................................................................................................................38
4A) GENERAL ..............................................................................................................................................38
Tobias v Dick and T. Eaton Co (1937) – Page 265 – No Consideration ..............................................39
4B) SUFFICIENCY OF CONSIDERATION..............................................................................................................40
Thomas v Thomas - Page 260 – Adequate consideration irrelevant ................................................40
Stilk v. Myrick – Page 268 – Performance of Existing Duty ...............................................................40
Hamer v Sidway (1891) – Page 259 – Detriment as consideration ...................................................41
White (Executor) v. Bluett (1853) – Page 258 – Illusory Consideration .............................................42
Dalhousie College v Boutillier Estate (1934) – Page 295 ....................................................................42
The Seal – Page 309 ............................................................................................................................43
Linton v. Royal Bank of Canada (1967) – Page 310 ............................................................................43
4C) PAST CONSIDERATION ............................................................................................................................43
Roscorola v Thomas (1842) – Page 317 .............................................................................................43
Lambleigh v Brathwait (1615) – Page 315 – Past Consideration Exception ......................................44
4D) PERFORMANCE OF AN EXISTING DUTY.......................................................................................................44
Hartley v Posonbly (1857) – Page 269 ................................................................................................44
New Zealand Shipping v Sattherwaite (1975) – Page 269 ..................................................................45
Williams v Roffey Bros. & Nicholls (1991) – Page 276 – Amending Agreements ..............................45
NAV Canada v Greater Fredericton Airport Authority (GFAA) (2008) – NB CoA - Page 279...............46
Wind River Ventures v British Columbia (2009) – BCSC - Page 284 ...................................................48
Foakes v. Beer (1884) – Page 285 .......................................................................................................48
Sihree v Tripp – Overruled in CoA .......................................................................................................49
Mercantile Amendment Act RSO 1990 – Page 289 – Part performance............................................49
4E) PRIMARY ESTOPEL..................................................................................................................................49
Central London Property Trust v. High Tree House (1947) – Page 324 – Rules of Promissory
Estoppel ..............................................................................................................................................50
John Burrows Ltd. V Subsurface Surveys (1968) – Page 330...............................................................51
D&C Builders v. Rees (1965) - Page 337 ..............................................................................................52
Combe v Combe (1951) – Page 326 ....................................................................................................52
Crabb v. Arun Distirct Council – Page 343 – Propriety Estoppel ........................................................53
Maher v Walton Stores – Australia- Common Law Estoppel .............................................................54
Summary of Consideration ..................................................................................................................54
5) CAPACITY TO CONTRACT...........................................................................................................................55
Nash v Inman (1908) – Page 546 – Sale to an Infant .........................................................................55
Toronto Marlboroughs Hockey Club v. Tonelli (1976) – Page S.18 .....................................................56
6) CERTAINTY OR ASCERTAINABILITY OF TERMS ............................................................................................56
Scammel and Nephew v. Outson (1941) – Page 227 ..........................................................................57
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Contracts Summary - Forbes
Hillas v Arcos (1932) – Page 224 – Factors courts consider to interpret contract ............................58
Walford v. Miles (1992) – Page 232 – Contracts to Bargain in Good Faith .......................................58
Empress Towers v. Bank of Nova Scotia (1990) - Page 231 – “Agree to Agree” Clauses ..................59
Edper Brascan Corporation v. 117373 Canada (2000) – Qualified Empress Towers – Page 233 ......59
Calvin Consolidated v. Manning (1959) – Page 229 – Arbitrator as an ascertaining mechanism ....60
British American Timber Co. v. Elk River Timber Co. (1933) – Page 217 – LoI as a contract ..............60
Bawitko Investments v. Kernels Popcorn ............................................................................................61
Green v. Ainsmore Consolidated (1951) – Page 220 ...........................................................................61
TERMS OF CONTRACT ...................................................................................................................... 62
1) INTERPRETING WRITTEN CONTRACTS .....................................................................................................62
Pym v. Campbell (1856) – Page 505 – PER exception #2 ...................................................................62
Morgan v. Griffith (1871) – Page 504 – PER Exception #3 .................................................................63
Hawrish v. Bank of Montreal (1969) – Page 501 ................................................................................63
Southern Resources Ltd. v. Techbomin Australia (1990) – Page S.21 – PER Exception #4 ................64
Sattva Capital v. Creston Corp (2014) SCC – Page S.23 – Current Canadian law...............................65
Ledcor Construvtion v. Northbridge Insurance (2016) – SCC ..............................................................65
2) IMPLIED TERMS OF CONTRACT ..............................................................................................................66
Codelfa Construction v. State Rail Authority – Page S.26 ...................................................................66
The Moorcock......................................................................................................................................67
Liverpool City Council v. Irwin – Page S.31 ..........................................................................................68
Sale of Goods Act 1990 Ontario ..........................................................................................................69
3) DUTY TO PERFORM IN GOOD FAITH .......................................................................................................69
Bhasin v. Hrynew (2014) – SCC - Page S.35........................................................................................69
Greater Vancouver Sewage and Drainage Authority v. Wastech (2016) ...........................................70
4. EXCLUSION CLAUSES ............................................................................................................................71
McCuthcheon v. MacBrayne Ltd. (1964) - HL – Page 477 ..................................................................72
Harris v. Great North Railroad ............................................................................................................72
Parker v. South Eastern Railway Company (1877) – UK CoA – Page 471 – Test for “Ticket Cluases”
.............................................................................................................................................................73
Union Steam Ship v. Barnes (1956) – SCC ...........................................................................................74
Thomson v. London, Midland and Scottish Ry Co. ..............................................................................74
Olley v. Marlborough Court.................................................................................................................74
George Mitchell. v. Finney Lock Seeds Ltd. (1983) – HL – Page 558 ...................................................75
Hunter Enginerring Co. v. Syncrude Canada Ltd. (1989) – SCC – Page 563 ........................................76
Tercon Contractors v. British Columbia (2010) – SCC – Page 574 – Test for Enforcing Exclusion
Clauses ................................................................................................................................................77
DEFECTS IN CONTRACTUAL RELATIONS ............................................................................................. 80
1) MISREPRESENTATION...........................................................................................................................80
A) VARIETIES IN MISREPRESENTATIONS .......................................................................................................80
Redgrave v. Hurd – Page 756 – Fraudulent Misrepresentation ........................................................80
Esso Petroleum Co. v. Mardon (1976) – Eng. CoA – Page 777 – Negligent Misrepresentation ........82
B) REMEDIES ..........................................................................................................................................82
I) RECESSION .........................................................................................................................................82
Redican v. Nesbitt (1924) – SCC – Page 761 .......................................................................................83
O’Flaherty v McKinley (1953) – Nfld CA – Page 765 – Innocent misrepresentation..........................84
Leaf v International Galleries (1950) – CA – Page 764........................................................................85
II) DAMAGES ...............................................................................................................................................85
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Contracts Summary - Forbes
Heilburt Symons & Co. v Buckleton (1913) – HL – Page 749 – Collateral contract ............................85
Shanklin Pier Ltd. v Detel Products Ltd. – Page S.43 ...........................................................................86
Esso Petroleum Co. v Mardon (1976) – QB CA – Page 777 – Second Look.........................................87
2) MISTAKE ................................................................................................................................................87
A) COMMON MISTAKE .................................................................................................................................87
Bell v Lever Bros. Ltd (1932) – HL – Page 806 – Common Mistake at Common Law ........................88
Solle v Butcher (1950) – Page 812 – Equitable Mistake .....................................................................88
Great Peace Shipping v Tsavliris Salavage (2002) – UK CoA Page 817 – New Test for Common
Mistake ...............................................................................................................................................89
Miller Paving Ltd. v Gottardo Construction (2007) – Ont. C.A. – Page 825 ........................................90
B) MUTUAL MISTAKE ...................................................................................................................................91
Raffkes v Wichekhaus (1864) – UK – Page 786 ...................................................................................91
Smith v Hughes (1871) – UK – Page 793 .............................................................................................91
C) UNILATERAL MISTAKE...............................................................................................................................92
Hartog v Colins & Shieds (1939) – 1939 – Page S.45 ..........................................................................92
Ron Engineering v R (Ont) (1981) – SCC – Page 838 ...........................................................................93
Cundy v Lindsay (1878) – HL – Page 434 – Mistake in Correspondence ............................................94
Ingram v Little (1961) – UK CoA – Page 438 – Face to Face Mistake.................................................94
Lewis v Averay (1972) – UK CoA – Page 443 - Likely bad law in Canada ..........................................95
C) MISTAKE AS TO DOCUMENTS (NON-EST FACTUM) ...................................................................................96
Saunders v Anglia Building Society (1971) – HL – Page 451 ...............................................................96
Marvco Colour Research v Harris (1982) – SCC – Page 463 ................................................................98
E) FRUSTRATION ..........................................................................................................................................98
Knell v Henry (1902) ............................................................................................................................98
3) ILLEGALITY ..............................................................................................................................................99
Oldfield v Transamerica Life (2002) – SCC -Page 683 .........................................................................99
In the Matter of Baby M (1988) - NJSC - Page 671 ..........................................................................100
Gordon v Ferguson (1961) – NSSC – Page S.47 .................................................................................101
Shafron v KRG Insurance Brokers (2009) – SCC – Page 673 ..............................................................101
Yango Pastoral Co. v First Chicago Australia Ltd (1978) – High Court Australia – Page S.53...........102
St. John Shipping Corp v Joseph Rank Ltd. (1957) - QB – Page S.61 ................................................103
Ashmore, Benson, Pease & Co. v Dawson Ltd. (1974) – Eng CoA – Page 691 ..................................104
5) UNCONSCIONABILITY AND UNDUE INFLUENCE........................................................................................105
Marshall v Canada Permanent Trust Co. (1968) – Alberta SC – Page 601 .......................................105
Macaulay v Schroeder Music (1974) - HL – Page 637 .......................................................................106
Lloyds Banks v Bundy (1975) – HL – Page 611 ..................................................................................106
Royal Bank of Scotland v Etridge (2001) – HL - Page 619 .................................................................107
ENFORCEMENT, BREACH AND REMEDY .......................................................................................... 109
1) PRIVITY ............................................................................................................................................109
Tweddle v Atkinson (1861) - UK – Page 375 .....................................................................................109
New Zealand Shipping Co. v Satterthwaite & Co. – Page 397 .........................................................110
London Drugs v Kuehne & Nagel Ltd.................................................................................................111
2) FRUSTRATION ........................................................................................................................................112
Taylor v Caldwell (1863) - UK – Page 858 .........................................................................................112
Davis Contractors v Fareham UDC (1956) – HL - Page 898 ..............................................................113
Frustrated Contracts Act – Page 910 ................................................................................................114
3) REMEDY ...............................................................................................................................................114
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Contracts Summary - Forbes
A) DAMAGES .............................................................................................................................................114
Interests Protected – Fuller and Perdue Article ................................................................................114
Measurement of Damages...............................................................................................................115
Ruxley Electronics Ltd v Forsyth (1994) – Eng CoA – P.s76 ...............................................................115
Groves v John Wunder Co. (1938) – Minneapolis SC – Page 40........................................................116
Sale of Goods Act 1980 .....................................................................................................................116
Howe v Teefy (1927) – Page S.84 ......................................................................................................117
Fidler v Sunlife ...................................................................................................................................117
Whitten v Pilot Insurance ..................................................................................................................118
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Contracts Summary - Forbes
Contracts is mainly common law as opposed to statute. We look at other jurisdictions to fill
some gaps via persuasive precedent. We have progressed from “a contract is a contract is a
contract” to the concept of putting a party back to as if the contract has been performed (concept
of fairness)
Damages Calculation
Someone failed to provide a $10,000 car in a contract.
• How much would it take to purchase a similar car?
o Replacement car is $12,000, so damages of $2,000 is awarded.
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Contracts Summary - Forbes
If special damages not communicated when the contract is made, then the
person who breached should not be held responsible as it was not contemplated
at the time entering contract.
Notes • This is the exception to the general principle of damages – damages are
awarded unless it is too remote.
• Information needs to be contemplated and considered in the bargain as if
full information provided
• Jackson v. Royal Bank of Scotland (2005): the appropriate characterization
of the breach depends on the terms of the contract, its business context, and
the reasonable contemplation of the parties – what can be considered as
arising naturally must include mentioned 3 components.
• Before 18th century, juries had free reign on awarding damages that led to
excessive verdicts; judges began to exercise control over jury by ruling on
evidence, new trials, instructing jury of proper awards.
Victoria Laundry Ltd v. Newman Industries Ltd. (1949) – Eng. CoA - Page 56
Facts • Plaintiff ordered boiler and received it ~20 weeks after time set out by
contract; initial judgment did not provide damages for loss of profit as it was
thought it was too remote.
• Newman Industries knew plaintiff was in business of laundry and required
boiler for business immediately.
• Because of not having enough laundry capacity, Victoria Laundry lost a
lucrative special contract from the Ministry of Supply.
• In a letter, Victoria Laundry pressed Newman for the need to expedition.
Case is appeal from plaintiff who argued trial judgement was narrow
interpretation.
Issue(s) Can Victoria Laundry recover loss of profits for delay of delivery that would
have been earned if delivered on time?
Decision Appeal allowed, assessment of damages referred to referee.
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Contracts Summary - Forbes
Reasoning • Purpose of damages is to put party of was breached into same position.
Common law entitles one to recover losses if it was reasonable foreseeable at
the time of contract.
• Reasonably foreseeable depends on knowledge then possessed by party who
later committed breach. In this case, it was determined that Newman (as
engineers) could reasonably foresee what the purpose of the boiler’s usage
was for.
• To be liable, it is not necessary that Newman had asked what the loss is liable
from breach.
• Newman clearly knew more than layman as to the use of boilers given
expertise and highly technical advertisement.
• However, for plaintiff to recover profits from lucrative (special) contracts,
defendant would have had to know at time of agreement of this opportunity.
It would be too late if performance is already underway, this needs to be
known when contract was bargained.
Ratio • In cases of breached contract, the party is only able to recover the part of the
loss reasonably foreseeable at the time of contract. It is sufficient if party was
likely to see the loss.
• For the plaintiffs to recover profit, the defendants would have had to know at
the time of contract the prospects and terms of such contracts.
Notes • The court does not reimburse for the loss of the government contract, because
the profits from this special contract were not foreseeable.
• Contract is different that tort because contract allows you to restrict damages
and the tort test is much broader for damages.
Damages may be limited by mitigation. You must take reasonable steps to mitigate the amount
of the loss. If one does not take these steps, their award may be reduced.
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Contracts Summary - Forbes
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Contracts Summary - Forbes
Merrit v. Merrit (1970)– Page 302 – Test For Contracts In Close Relationships
Facts • Husband left the matrimonial home to be with another woman; Husband
(defendant) signed and dated a paper that in consideration of wife paying
mortgage and housing expenses, he would transfer the house to her once
the mortgage was fully paid.
• Husband paid 40 pounds monthly to wife, part of which would go towards
paying off the mortgage. However, once the mortgage was fully paid, the
husband refused to transfer the house.
This is an appeal by husband – trial found that wife was the full
beneficiary owner.
Issue(s) Does the written agreement between the separating spouses constitute an
enforceable contract?
Decision Appeal dismissed – upheld decision of trial court.
Reasoning • Domestic arrangements are not intended to create legal relations, but this
does not necessarily apply where parties are not living in amity and rather
separated (or in process of).
In this case, the ruling of Balfour v. Balfour does not apply.
Ratio • Intention to create legal relations not subjective but rather what would a
reasonable person regard the agreement as an intention to be binding.
• Objective test for contracts in close relationships: Was there intention
under the circumstances to create legal consequences in close
relationships?
1) Presumption against intention to create any legal relationship
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Contracts Summary - Forbes
Salmon J:
• found contractual obligation but believed that time was expired; appeal
allowed
Atkinson J:
• agreed with Danckwerts; appeal allowed
Reasoning Danckwerts J:
• Objective test When between close relations, the presumption is against
intention to create any legal relationship, there is a rebuttable onus on
party claiming contract to show that in this situation there was intention.
• In this case, the daughter needs to rebut that intention was there. However,
this is deemed to be a family arrangement based on good faith promises
made not intended to be enforceable legal agreements.
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Contracts Summary - Forbes
Salmon J:
• Onus on daughter to prove intention, and if so, whether it was sufficiently
certain to be enforceable – objective test heavily weighed the
extraordinary facts including persuasions, letters from lawyers and extent
of circumstances, but no contract as the time frame for law school expired.
Atkinson J:
• No intent to create legally binding contract.
Ratio The principles of Balfour v Balfour expand to other relations such as between
mother and daughter. Also extends to more distant family circles and friends
(Simpkins v Pays and Parker v Clark).
Notes Discussion throughout case about what daughter gave up to go to law school
points to severe detrimental reliance.
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Contracts Summary - Forbes
Reasoning • Despite them being family members, it was clear that there was a
significant commercial arrangement with business interests.
Ratio There are cases between family members, where the intention is clearly in a
commercial context, that a contract can be found and rebuts the presumption
of no contract.
Notes This case was an insurance case subrogated the case between the family
members.
Canadian Taxpayers Foundation v Minister of Finance for Ontario (2004) – Page 308
Facts
Issue(s) Are political promises contractual?
Decision No – they are not.
Reasoning It is not the role of courts to intervene and enforce such promises and pledges
made.
Ratio Political platforms and promises are not contracts.
Notes
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Contracts Summary - Forbes
Notes
Bowen LJ:
• Ordinary rule of English law is that acceptance of offer needs to be
notified to person who makes the offer so that the two minds may come
together.
• It is sufficient to act on the proposal without communicating acceptance
when person who makes offer expressly or implies in the offer.
• Can look at offer, the character of the transaction in advertisement cases
can infer that the person is not to notify acceptance of offer before
performance – it would not make sense for this offer to be accepted first.
Ratio • An advertisement can constitute a unilateral contract, which can be accepted
by fulfilling the conditions of the contract; no formal acceptance required.
• The determination of a serious offer will be determined from the words and
actions.
• The terms of the contract (if vague) will be interpreted purposively from the
contract.
• The offeror can determine how acceptance of offer will be made.
Notes
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Contracts Summary - Forbes
Rose and Frank Company v JR Crompton & Brothers Limited (1923) (England) - Page 306 –
Test for Contracts In Commercial Relationships
Facts • Plaintiff is US handler of JR’s product (tissue paper) and had a history of
contracting.
• In 1913, they used a document to govern future dealings, but had clause
that the agreement is not a legally binding contract and not subject to laws
of US or England.
• JR dissatisfied with Rose and Frank so refused to perform as per the
document.
Presumption that commercial interests express a contract. The rebuttable
presumption is on the party expressing no contract. Objective reasonable
person test.
Issue(s) Should written agreement be constituted as a contract giving rise to legal
relations?
Decision There is no contract.
Reasoning • Even in business, parties may have intention not to be legally bound, if
explicitly expressed.
• Some commercial relations may have presumption of the contract that
needs to be rebutted.
Ratio • Objective test for contracts in commercial relationships: Was there
intention under the circumstances to create legal consequences?
1) Presumption that commercial relationships and interest express a
contract.
2) The rebuttable presumption onus is on the party expressing there is no
contract.
3) Reasonable person/objective test
• A clause can exist that expressly waives any legal relations/enforcement.
Notes Certain types of contracts that are repugnant to have express waivers; this is
not one of them.
Jones v Vernon Pools Ltd. (1938) – Page 307 – Application of R+F Clause
Facts • Jones says he correctly guessed the wining matches and mailed it to
Vernon Pools.
• Vernon Pools claims it never received the ticket and further cites a clause
on the reverse side of the ticket that says it is not obligated to pay out any
winnings (clauses is similar to Rose and Franks).
Issue(s) Is there a contract made that requires the winnings to be paid to Jones?
Decision No contract- Rose and Frank type clause is valid and indicates no legally
binding relationship.
Reasoning • Court determined that it they enforced contract, Vernon Pools would go
out of business because anyone could claim they had mailed in winning
matches.
• The only way to avoid this type of gambling clause would be to have a
similar clause that was used.
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Contracts Summary - Forbes
Ratio No-legal contract clauses (Rose and Franks types) can rebut the intention to
create legally binding contracts.
Notes
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Contracts Summary - Forbes
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Contracts Summary - Forbes
Ratio A quote is to name current price - does not mean will be available at time of
contract.
Notes • The court noted that Harvey v Facey is persuasive precedent against
plaintiff’s case.
• The case cites Harty v Gooderham which is similar but where the court
found that there was a contract because D said “we will be happy to have
an order from you” when the Plaintiff made the first inquiry. This type of
definitive language distinction is what can determine if there was a
contract offer made or not.
Carlil v Carbolic Smoke Ball Company (1893) - Second Look (Offer of Unilateral Contract)
Facts • Defendant advertised it would pay 100 pounds to whoever gets influenza
after using their smoke ball 3x/day for 2 weeks; the money was deposited
into a bank account
• Plaintiff used the ball as directed and became ill but Carbolic refused to
payout.
Trial court awarded the prize, defendants appealed.
Issue(s) Carbolic makes a second argument that they cannot make an offer to
everybody that has a smoke ball and that this was not intended to be an offer
and if it was it was an illegal bet.
Decision Appellate court deems there is a contract.
Reasoning • With these performance offers, the court decides in is not necessary to
individualize.
Ratio Offer of Unilateral Contract – the nature of the offer is that if you do X, I
will pay you a sum of money. By doing these things, the performer accepts the
offer. However, the performer does not have an obligation to perform if they
choose not to. By the time the contract is formed, the performance is
completed.
Notes With unilateral contracts, there can be issues with withdrawing the
contract once the act has already been performed. The next cases will
look into these issues.
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Contracts Summary - Forbes
Decision Yes – there as an obligation that if there was any breach of these rules,
damages would be paid.
Reasoning • Satanita entered into obligation: that if you want to sail for our matches
you cannot do so unless you submit yourselves to the conditions which
have been laid down, and by doing so enter into obligation with owners of
yachts who you are competing with.
• Main contract with yacht club + collateral contract with everyone that
enters contract with same offer and acceptance
Ratio When enter contract with Yacht Club, also made offer to other yacht owners
entering the race “offer to you that if I foul you during race, I will pay you
damages”. Each other yacht owners accepts the offer when signing the same
form.
Notes • This broadcasted offer is accepted when you put your boat into the water
and start racing. This is an offer of unilateral contract.
• This is also considered a collateral contract because it is supplement to
the main contract administered by the yacht club.
• Would a reasonable person see this as a contract between individual yacht
owners?
• Didn’t sue in Torts because limitation on tort damages in admiral law.
• Similar cases will show up where common contract with more than one
party for common benefit. E.g. common obligations in lease for common
benefit of tenants leasing store space in mall – if one tenant not following
rules of lease another store owner may be able to sue. For this, Satanita is
a good case.
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Contracts Summary - Forbes
Decision Damages awarded for breach of contract based on expectations of losses (this
could be a lot of money for loss of profit from tender contract)
Reasoning • Respondent argued privilege clause gave it discretion to award contract to
anyone, or to not award contract at all, as along as they treat all tenderers
fairly. Reading tender documents in harmony with privilege clause, which
does not override obligation to accept only compliant bids. Discretion to
accept not necessarily lowest bid, retained by owner through privilege
clause, is discretion to take more nuanced view of costs that price quoted –
privilege clause is compatible with obligation to accept only compliant
bid, but does not mean have obligation to accept only lowest compliant
bid.
• Appellant argued respondent under obligation to award contract B to
lowest compliant tender; as Sorochan was invalid should have gone to
appellant – argues explicit terms of Contact A awarded to lowest
compliant bid and even if not, then it is an implied term (Court argues no
explicit nor implied term).
• Submission of a tender in response to an invitation to tender may give rise
to contractual obligations (contact A), quite apart from the obligations
associated with the construction contract (contract B) to be entered upon
acceptance of attender, depending upon whether parties intend to initiate
contractual relations by submission of a bid.
• Even though not under obligation to award to lowest bidder, by awarding
contract to Sorochan, respondent breached obligation to appellant, and the
other tenderers that it would accept only a compliant tender – respondent’s
defence that is considered in good faith is no defence to breach of contract
Ratio Acting in good faith or thinking that one has interpreted the contract correctly
are not valid defences to an action for breach of contract.
Notes • Privilege clause allows tenderer not to be bound by necessarily by lowest
priced bid.
• RFP is invitation to treat, submission of tender bid is an offer and
acceptance of bid results in contract.
• There can be two types of issues in an RFP dispute:
o Bidder reneges (i.e. mistake made)
o Proponent doesn’t comply with the RFP in selected the contractor.
• An RFP is a collateral contract between parties; it says if sufficient terms
are met in bid, the tenderer has an obligation to the bidders.
• See R. v Ron Engineering
• This case is a very good modern interpretation of collateral contracts.
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4. OFFER CAN LAPSE *this can be stipulated in the contract or an implied lapse date
(reasonable period of tome)
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Lehman J:
• Believes judgment should be affirmed; argues that fundamental justice if
promisor causes of failure of performance either of an obligation or
condition upon which his own liability depends, he cannot take advantage
of this failure.
Ratio An offer in a unilateral agreement offered can revoke until such that is
performed.
Notes • There is a clear issue with the ruling here. There was no chance given at
Pattberg’s home to perform the contract for which was Petterson’s
intention. In this case, it is said that there is only an offer of payment and
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not formal tender of payment that was made before Petterson revoked
offer.
• Forbes: agree ratio is correct law, unilateral contract only accepted when
performance is complete – even after commencing some of the
performance. Would not be problem if we have a bilateral contract (“I will
bring you the cash for mortgage on this day…”) and both sides would have
had an obligation to perform.
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• On July 27 1868, court found that facts did not constitute arrest but merely
giving information that was conducive to arrest.
Issue(s) How do you revoke offer made to work at large?
Decision Appeal dismissed – could not recover the balance of the 15k reward.
Reasoning • Offer was revoked on November 24, 1865, notice was published. Offer
was revocable at any time before it was accepted and before anything had
been done in reliance upon it – no contract until terms complied with.
• Withdrawn through same channel made with – claimant engaged in action
to entitle to reward five months after offer had been withdrawn, immaterial
that he was ignorant to the fact that it was revoked- offer of reward was
not made directly to him but published proclamation, should have known
that it could be revoked in the way it was made.
• Revocation can be made if published in same way as offer was made
(same newspapers), exception to Dickinson rule that revocations have to
be communicated.
Ratio There is an exception made the requirement of communication revocation of
offer. That is, for offers made to the world at large, revocation only needs to
be communicated in the same way the offer was made.
Notes If Ste Marie was a bounty hunter whom was on a mission to find Surrat,
would there be a collateral contract? It could be argued that the unilateral
contract should not be revocable without damages because performance was
engaged.
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Barrick v. Clark (1951)– P.S9 – Offer lapse without stipulated lapse date
Facts • Executors of estate, Barrick, owners of parcel of land, conducted
negotiations for sale.
• Respondent, Clark, residing in Saskatchewan, inquired by letter Sept 8,
1947 whether would be interested in sale of land.
• Barrick responded Oct 10, 1947 inquiring what land is worth; Clark
October 16, 47, did not answer inquiry but made it clear cash was
available if price reasonable and asked what price would be.
• Oct 24, 1947 Barrick said would accept any satisfactory cash offer and
that Kostrovsky, tenant over the years, was anxious to buy land – would
look into reasonable price but in meantime Clark could make an offer to
get immediate attention
• Oct 30, 1947, Clark offered 14.5k for possession any time between Jan 1-
Mar 1, 1948
• Nov 15, 47 Barrick made counter offer 15k, can close immediately with 2k
initial payment and transfer of clear title Jan 1, 1948 (live counter offer)
• Letter received Nov 20, 47 opened by Mrs. Clark as Mr. Clark was out of
town for about 10 days. Mrs. Clark said would try to locate husband and
requested that hold deal open until Dec 1, Barrick made no reply. (inquiry
about the offer)
• Clark returned Dec 10, 47 and wrote to Barrick mentioning 14.75k was
fair but agreed with 15k, enclosed 2k deposit asked for transfer to be
drawn up and agreed to pay balance on or before Jan 1 (sends letter of
acceptance)
• Dec. 11 – Clark learns that Barrick had sold the property to someone else.
(revocation)
• In meantime, Hohmann, also of Sask, but without knowledge of Clark`s
correspondence, under date of Nov 28, inquired of Barrick regarding land
and on November 30 offered 15k
• Dec 11, Clark heard of Hohmann`s purchase and wired Barrick noting that
he trusted that Barrick received Mrs. Clark`s wire to keep deal open.
• Dec 12 Barrick replied, that he was requested to hold deal open for ten
days until your return, held deal open until Dec 6 when received offer
from Hohmann of 15k that was accepted.
Issue(s) Was Clark`s acceptance on Dec 10 of offer dated Nov 15 within a reasonable
time?
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Decision Appeal allowed – Clark did not accept the offer within reasonable time. The
offer had lapsed, being incapable of being accepted on December 10th.
Reasoning • Barrick did not specify time, just as soon as possible. Reasonable time
depends on:
1) nature and character of subject matter and normal course of business
in negotiations leading to sale as well as
2) circumstances of offer
3) conduct of parties in negotiation.
• Reasonable time for land is longer than stocks as less fluctuations in price /
longer than goods of perishable character.
• Mrs. Clark asking for offer to remain open does not enlarge reasonable
time if the offeror elects, as he did to not make reply.
• Offeree given reasonable time to accept, and only by acceptance is he
given any rights against the offeror.
• Clark desire by initially offering price, and immediately accepting counter
offer upon his return
• Circumstances:
o considered factors that possession could not take place until March
1, nor could farm until spring in order to give a longer lapse date –
o but also had demand to sell, which shortens the lapse date.
o Parties insisted on speed
o Dec 10th acceptance date is not a reasonable amount of time to file
paperwork and diligence to close for Jan 1 st.
• Nov 15 letter from Barrick, show indications that December 10th beyond
reasonable time for acceptance.
• Conduct:
o If offer was acceptable then could close immediately by preparation
of agreement and 2000 initial payment
o Respondent asked to give answer as soon as possible – indicates
promptness
o Clearest indication is that after acceptance of offer, formal APS
would be executed in exchange for payment of 2k and balance paid
on Jan 1, 48 when conveyance would be given – absurd to think
could accept offer as late as Dec 10 given the resultant short
timeline between acceptance and closing of deal
• As matter of law, offer should not remain open until respondent actually
received it upon his return
• Type of contract, circumstance of offer speaks to length but the conduct of
parties clear indication of promptness and urgency.
Ratio If there is no stipulated lapse date, the offer lapses after a reasonable period of
time.
Notes • Should the letter from Mrs. Clark make any difference – speaks to legal
theory behind lapse: if there is no stipulated lapse date then offer lapses
after reasonable period of time because it is an implied term of the offer,
the offeror is saying will lapse after reasonable period of time, only thing
that offeror knows at time of the offer can be relevant
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o Her letter was not mentioned in the SCC judgment which suggests
her letter was not a factor.
o Her correspondence was after the date of the offer and so it could
not effect it.
Manchester Diocesan Council for Education v Commercial & General Investments (1969)
(England) – P.190
Facts
Issue(s)
Decision
Reasoning Buckley:
• Where offer made in terms which fix no time limit for acceptance, offer
must be accepted within reasonable time to make contract.
o If reasonable time passes either: treated as withdrawn OR may be
said offeree has refused it.
• Second alternative involves objective assessment of facts and
determination of question whether on facts the offeree should in fairness to
both parties be regarded as having refused the offer. mind of offeree, but
offeror needs to be aware of this as well, bilateral – then Mrs. Clark’s offer
become relevant.
• Until offer has been accepted, open to offeror at any time to withdraw or
put limit on time for acceptance, offeree can at any time refuse the offer
or, unless has been guilty of unreasonable delay, accept it.
• Prefers second alterative to the first one, however traditional theory is first.
If don’t stipulate then reasonable period of time implied by offeror.
• Offeree view point communicated to offeror after acceptance of contract,
allows for changing circumstances to be accounted for after offer accepted.
Ratio
Notes • This helps support cases where there is still some activity occurring after
the offer in order to extend the lapse date. Some of the factors may be
relevant to the fact pattern.
• Always put in a lapse date in your contracts. Put the precision in the
offer.
• If an award is offered, it also lapses after a reasonable period of time.
• Loring v. City of Boston
o Offer is made in April 1837 for reward given for apprehension of
arsonists.
o Four years later, Loring gives information that results in arrest and
conviction of arsonist.
o Loring sues for reward after performance of offer.
o Court says that the offer has lapsed – performance must be done in
a reasonable period of time.
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3) Acceptance
3A) Communication of Acceptance
Felthouse v Bidnley (1862) – Page 196 – Acceptance needs to be communicated
Facts • Felthouse negotiated to purchase a horse from his nephew.
• There was a mix-up with the price, as the uncle offered less than the
nephew desired. The uncle gave a definite offer (splitting the difference
between two offers) “and said if I don’t hear back I will assume horse is
mine” to the nephew in January, however no response was given, and no
actions were performed as the horse remained in the possession of the
nephew.
• In February, the nephew sold all of his farm stock in an auction, and the
horse, despite the nephew's instructions that the horse was not to be sold in
auction as it was sold.
• Felthouse sued the auctioneer, Bindley, in tortious conversion to recover
the horse.
Felthouse was successful at trial, receiving £33, which Bindley appealed.
Issue(s) Did the nephew accept his uncle’s offer? Or was the horse still his property at
the time of the auction?
Decision Appeal was allowed – there was no contract between Uncle and Nephew to
complete say of horse.
Reasoning • Willes, writing for a unanimous court, says that it is clear here that nothing
had been done at the time of the auction to imply that the property had
changed hands to the uncle, and the nephew had given no acceptance.
• Therefore, with no acceptance or implied acceptance through actions the
property remained that of the nephew at the time of the auction, and the
uncle has no case against the auctioneer for selling goods that were not
owned by the nephew.
• If the nephew wanted to enter the contract he must have given clear
indication of his acceptance, which he had failed to do.
Ratio • Silence does not constitute acceptance. Acceptance must be communicated
to the offeror.
• Exception: Unless the offeror in the offer, indicates that acceptance need
not be communicated, silence by the offeror does not eliminate need for
acceptance.
o This could only apply if it were the nephew suing the uncle, not
vice versa.
• You cannot impose obligations on an unwilling party, such as duty to reply
or be bound.
Notes Nephew already has purchase price of horse from auctioneer, in effect Uncle
is trying to get purchase price of horse from auctioneer as well. (It is the
Uncle suing the auctioneer).
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Bramwell LJ:
• If no communication, where letter or message is delivered, then no
acceptance of the offer. Acceptances should not differ from other notice
such as resignation or payment.
• While not allowing acceptance by post would be hard for the acceptor to
make arrangements on the belief the bargain was completed, it would be
equally hard on the offeror who may have may arrangements on the belief
the offer was not accepted (letter was lost in mail).
• If an offer is sent by hand and it is revocable before it reaches there, but
not the same with the post office, why is there an arbitrary distinction?
Ratio Acceptances sent by post are considered a contract once the letter is delivered
to the post office.
Notes • What if postal office didn’t deliver because of mistake of offeree
addressing envelope?
o Postal acceptance rule – subject to fault analysis, failure of
communication because of something offeree did then this rule
doesn’t apply.
Henkel v Pape
• Postal acceptance rule only applies when communication involves
intermediation of third party (delivering acceptance) and its non-
instantaneous. Acceptance is good when put out of the hands of the
offeree and not when received by the offeror. Not just post, but a
broader range.
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Entores v Miles Far East Corporation (1955) – Page 248 – Telephone Acceptance Rules
Facts THIS CASE IS THE INTRODUCTION OF THE FAULT ANALYSIS
FOR INSTANANEOUS COMMUNICATION
Case outlines 3 situations for telephone communication
Issue(s)
Decision 1) If the line goes dead in the middle of the phone conversation and you do
not hear the full acceptance of the contract. There is no contract. If the
man wishes to have a contract, he must call back and ensure he was
heard.
2) If the offeree does not know that the acceptance does not go through, but
the offeror does not ask for the message to be repeated The offeree can
reasonably assume there is a contract.
3) If the offeror does not receive the message without his fault, yet the sender
reasonably believes it went through There is no contract.
Reasoning
Ratio
Notes If the communication doesn’t fall under the Electronic Commerce Act
(i.e. it is instantaneous, but not electronic such as fax or phone), then it
goes back to the common law established here under Entores v. Miles.
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Notes
Definitions
(1) In this Act, “electronic” includes created, recorded, transmitted or stored in digital form
or in other intangible form by electronic, magnetic or optical means or by any other
means that has capabilities for creation, recording, transmission or storage similar to
those means and “electronically” has a corresponding meaning;
(2) “electronic agent” means a computer program or any other electronic means used to
initiate an act or to respond to electronic documents or acts, in whole or in part, without
review by an individual at the time of the response or act; …
19(1) An offer, the acceptance of an offer or any other matter that is material to the formation or
operation of a contract may be expressed
o (a)by means of an electronic information or an electronic document; or
o (b)by an act that is intended to result in electronic communication, such as
Touching or clicking on an appropriate icon or other place on a computer
screen, or
Speaking
• Can accept electronic icon by hitting button on the screen – has
some importance
Legal Recognition of Electronic Contracts
(3) contract is not invalid or unenforceable by reason only of being in electronic form.
Errors, Transactions with Electronic Agents
(21) an electronic transaction between an individual and another person’s electronic agent is not
enforceable by the other person if,
o (a)individual makes a material error in electronic information or an electronic
document used in the transaction;
o (b)electronic agent does not give individual opportunity to prevent or correct the
error;
o (c)on becoming aware of the error, the individual promptly notifies the other
person; and
o (d)in case where consideration is received as a result of the error, the individual
(i)returns or destroys the consideration in accordance with the other
person’s instructions, or if there are no instructions, deals with the
consideration in a reasonable manner, and
(ii)does not benefit materially by receiving the consideration
Time of Sending of Electronic Information of Document
22(1) electronic information or an electronic document is sent when it enters an information
system outside ender’s control or if sender and addressee use same information system, when it
becomes capable of being retrieved and processed by the addressee.
Presumption, Time of Receipt
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S.22(4) – electronic info or electronic doc is deemed to be sent from the sender’s place of
business and received at the addressee’s place of business.
Summary
• When does an offer lapse?
o It can be explicitly stated in the offer.
o If not explicitly stated, then look at a reasonable period of time depending on:
Nature of contract
Circumstance of offer
Conduct of parties during negotiation.
• Do things happen after the offer that effect its lapse?
o If the theory of lapse is implied term offer, then things after the offer may be
relevant from a different point of view – but traditional point of view more
prominent.
• Acceptances have to be communicated to be effective.
• Exceptions of communicating acceptance when conduct of the offeree is such that it can
be deemed; if past transactions operated like this in the last; industry standard; the terms
of the offer; PAR.
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Henthorn v Fraser (1892) – Page 241 – Test for when PAR will Apply
Facts • Defendant (offeror) hand delivers offer for sale of land.
• Plaintiff lives in a different city. He decides to accept the offer and
plaintiff posts a letter of acceptance at 4pm which arrives at 8:30pm.
• Defendant got a better offer and so posts a revocation of the offer at 12pm
and it arrives at 5pm.
o By time Plaintiff posts an acceptance at 4pm, defendant already
posted revocation.
• Defendant argues that because offer made in person, could reasonably
expect acceptance to be required in person and therefore PAR should not
apply.
Issue(s) Does the PAR apply in this situation, such that the acceptance could be said to
have come into effect immediately on posting and before the revocation?
Decision Contract – the PAR applies.
Reasoning • According to ordinary usage, offeror could have reasonably expected to
receive acceptance by post.
• It would be unreasonable to assume in person acceptance because the
parties live in different cities.
• The PAR does not apply to revocations, which are only good when
communicated and a person who has made an offer must be considered as
continuously making it until revocation brought to knowledge of person to
whom it was made that it is withdrawn.
Ratio Test for when PAR will apply:
1) Accepted by ordinary usage (it is reasonable to use this type of
communication)
2) Acceptance by post is stipulated in contract.
3) Offer is given by mail.
4) Post is no less advantageous for offeror.
• If postal acceptance rule doesn’t apply, general rule from Fieldhouse –
acceptance is good when communicated//received.
• Revocations are deemed when they are received; acceptances deemed
when they are posted.
Notes
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o Williams v Carwordine
A reward is out for a murder and a woman is beaten almost
to death. She knew about the reward but was motivated
primarily by the fact that she was going to die and not by
the reward. She does not die (despite thinking she was) and
sues for the reward.
The individual can have two motivations for performing the
reward and not her primary motivation for having
performed the conditions of the unilateral contract.
o Smirnis v Toronto Sun Publishing
Toronto Sun offered $100,000 reward for information
leading to arrest and conviction in Bernardo murders.
Smirnis (shady character) reveals that he thinks it is
Bernardo but Police feel that he doesn’t fit the profile.
They come back to Smirnis after the DNA test from the
crime scene is positive to Bernardo. Thy are able to get to
convict Bernardo and Smirnis says he is entitled to the
award.
However, the police and the Sun say that he is not the
proximate cause of the conviction.
The court holds that there is a contract and should be
apportioned based on the usefulness of information.
Awarded 10K.
Character of individual should not affect the reward he gets
and that the information needs to be relevant and helpful,
but does not need to be the proximate, or solely responsible
for the conviction.
Ratio • If an offeror under a unilateral contract is not going to get notice of the
performance through performance itself, then the offeree has an obligation
to notify the offeror within a reasonable period of time.
• An individual must have the contract in mind when performing the
conditions for the acceptance to be good. Yet, we see in Williams v
Carwordine, it does not need to be primary motivation.
Notes • In a bilateral contract, both parties agree to a performance. When a
contract is formed by acceptance of the offer, each side is obligated to
perform.
• In a unilateral contract, the performer is not bound to perform. The
performance constitutes the acceptance of the offer and once it is accepted,
only the offeror needs to perform. The question becomes, do you need to
give the offeror notice.
• Forbes argues that Smirnis shows that taking a motivation of greed is not
valid for not giving someone the award.
4) Consideration
4A) General
• There needs to be consideration in both ways to enforce a contract.
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• “A contract is not enforceable unless the promisor receives some benefit or promisee
concurs some detriment at the request of the promisor” – (Homer v Sedway)
• Bargains require that both sides require something. If you go back in the legal history, the
courts never wanted to create the doctrine of consideration. However, there judgments
started stating that there was a consideration or reason for the promises being made and
that these were required in order for promises to be considered enforceable.
• Courts believed that they should enforce that the promisor demonstrates their sincerity by
affixing their family seal to the promise. Then, this was deemed to be consideration.
“Signed, sealed and delivered”.
o Now you can sign and seal by signing, affixing a circle with an X, etc.
• If there is a situation with a bare promise, you stick a seal onto it and that should remedy
any issues.
• A consideration must be the following:
1) Consideration has to be real, not illusory – must move from promisor (Thomas v
Thomas; White v Bluett)
2) BUT, it does not need to be adequate – we don’t ask for a fair deal.
3) A promise in exchange for a promise is good consideration (Harrison v Cage). There
needs to be certainty for what the promises are and adequate to be enforceable.
4) Moral obligation is not consideration (Eston v Kemjon).
5) Can be detriment requested by promisor, sufficient if it refrains you from doing what
you have a right to do (Hanmer v Sidway).
6) Not performance of an existing duty (Stilk v Myrick)
7) A promise to not do something you have no legal right to do is not good
consideration.
8) Past consideration isn’t enforceable – consideration has to be contemporaneous with
the promise; except where performance requested by promisor in circumstances
where payment would be expected.
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Contracts Summary - Forbes
• You accept the offer by putting an order in for grain grinders. Contract at
that point is for the number of units ordered. If you put in another order
later, there is another contract. D cannot revoke while there is an offer.
Ratio Something that looks like a formal contract, can still fail to be enforceable for
lack of consideration.
Notes • Contract can be fixed by setting amount of grain grinders to be sold by
plaintiff.
• A seal would solve this problem of lack of consideration.
Patteson J:
• Express agreement to pay, not a voluntary gift. The rent is not incidental to
assignment of house, instead being payable to the executors.
• “Pious respect” is not good consideration because it is illusory and not
real. It’s recited consideration, but not good consideration. It doesn’t
move from the person who has to enforce the contract (executor). It also
doesn’t have any value.
• However, the promise to pay rent and repair the property is real and has
value. Law of consideration doesn’t ask if it’s a good bargain as long as
consideration is valid.
Ratio Consideration must be real and not illusory. It must move from the promise,
who should be getting something in exchange for the promise, to the promisor.
The adequacy of consideration is irrelevant.
Notes
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• The ship captain, the defendant, promised the other crew members,
including the plaintiff, that if he could not find replacement workers, he
would pay the group the wages of the deserted members.
• Upon arriving in London, the defendant refused to pay the extra wage.
Issue(s) Was the offer sufficient to bind the defendant in a contract?
Decision No – the contract is void of consideration.
Reasoning • The sailors were already obligated to bring the boat back to London so
them simply continuing their work is not good consideration.
• If you are bound in a contract to give a certain performance and you enter
into an amending agreement and one of the parties gets more, that
amending agreement isn’t enforceable because one of the parties didn’t get
consideration (the captain didn’t get anything more).
• This may have been different if the sailors were at liberty to quit services
earlier or if the captain fire the two men and others were to take on more
responsibility.
Ratio Performance of an existing duty is not good consideration for an amending
agreement or a new contract.
Notes • It is likely now that the amending agreement would be enforceable.
• There is an exception (Scottson v. Pegg):
o If you have a contract between A and B for a performance, and C
offers B a contract of the same value; B can agree with a third
party to do something that you’re already bound in contract to do
with A.
o The consideration for C is having the contract fulfilled and the
opportunity to enforce performance onto B.
o If B doesn’t perform, he will be sued by both A and C. There is
obligation for same performance under two separate contracts.
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consideration was “of the subscription of others”. There must be more than
mere expenditure of money on something at the school.
Ratio Voluntary promise cannot be converted into binding legal contract by
subsequent action of the promisee alone without consent, express or implied,
of the promisor.
Notes
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Contracts Summary - Forbes
Issue(s) Did Plaintiff provide enough consideration to bind Defendant to later promise
quality about horse?
Decision No contract. No consideration for later promise, bargain already formed when
statement made.
Reasoning • Plaintiff provided no consideration for that later promise. Therefore, it is a
bare promise and not binding.
• Consideration must be in the present, not the past.
• The earlier consideration offers by plaintiff (money for the horse) has no
impact on the future promise of the defendant.
Ratio Consideration must be contemporaneous with the promise made. A promise
after a bargain is struck is not good consideration.
Notes
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Williams v Roffey Bros. & Nicholls (1991) – Page 276 – Amending Agreements
Facts • Roffey Bro contracted to renovate 27 flats and subcontracted carpentry to
Williams.
• Williams did some of the work but then ran into financial difficulty and
said the price was too low to enable the plaintiff to operate satisfactorily
and at a profit.
• Roffey was going to be liable under a penalty clause so they offered
Williams more money to complete the contract on time.
• After Williams does the work, Rofffey says agreement isn’t enforceable
because he was already bound for the original amount for the same
performance.
• Williams argues that Roffey got benefit of getting contract on time and
avoiding the penalty. Roffey says that is an illusory consideration because
any benefit didn’t move from one to the other in that the plaintiff did not
do any more work than he was already bound to do.
Issue(s) Was there valid consideration for an amending agreement?
Decision Yes – there is a contract. The practical benefit constituted valid consideration.
Reasoning • Court was attempting to fix Stilk; as long as Roffey didn’t enter into
amending agreement under duress, the practical benefit is sufficient to be
consideration for the amending agreement.
Ratio • If A entered into a contract with B to do work in return for payment by B
and:
1) At some stage before A complete obligations, B has reasons to
doubt whether A will, or will be able to, complete side of bargain
AND
2) B promises A additional payment in return for A’s promise to
perform contractual obligation on time AND
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NAV Canada v Greater Fredericton Airport Authority (GFAA) (2008) – NB CoA - Page 279
Facts • NAV wanted a specific piece of landing equipment to extend the runway
of the airport (instead of moving an existing piece of equipment from
another runway).
• GFAA was not contractually bound to pay, but agreed to do so “under
protest” in a letter to ensure that the extended runway became operational.
• Later, the GFAA refused to pay for the landing instrument. They
attempted to settle the matter under arbitration. The arbitrator held that
under the existing contract between the parties – which is the “Aviation
and Services Facilities Agreement” (ASF) - that NAV had no claim to
reimbursement. In fact, once NAV insisted on the purchase of new
equipment, under the ASF, they had the duty to purchase that equipment.
However, there was a new binding contract that was supported by
consideration and so NAV Canada was entitled to reimbursement.
The Arbitrator’s ruling was overturned at the Queen’s Bench and NAV
Canada appealed.
Issue(s) Was the promise made by GFAA to buy equipment in exchange for NAV
continuing to perform contract duties sufficient consideration?
Decision There is no contract – no sufficient consideration made.
Reasoning • The promise made by the GFAA to reimburse NAV in exchange for
continuing to perform its contractual duties to secure and install the
equipment is modification to the existing contract but is not supported by
“fresh consideration” (Stilk v Myrick).
• Plaintiffs forbearance from breaching existing contract does not qualify as
fresh consideration.
• Plea of detrimental reliance is not valid basis for enforcing an otherwise
gratuitous promise as “promissory estoppel can only be evoked as a shield
and not sword”
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• The doctrine is from Denning; if amending original agreement in circumstances where it was
intended to be acted upon and it was acted upon, there is no new contract, but an equity
arises – which will stop the party from insisting on strict legal rights under the original
agreement.
• Whereas in Willians v Roffey a new contract formed through an amending agreement – but
under promissory estoppel, only equity will arise which will estop party from enforcing
original legal rights.
• Estoppels do not create contracts; they cannot be brought about for an action; they can
only be used as defences. “Shield not Sword”
Central London Property Trust v. High Tree House (1947) – Page 324 – Rules of Promissory
Estoppel
Facts • In 1937, High Trees House leased a block of flats for a rate of £2500/year
from Central London Property. Due to WWII, the occupancy rates were
drastically low.
• In January 1940, the parties made an agreement to reduce rent by half.
Neither party stipulated the length of time.
• In 1945, the flats were in full occupancy.
• The new receiver of High Tree House argued that there was no
consideration for the amendment to the original contract and sues for the
original rents in arrears.
Issue(s) After making a promise to a promise to amend a contract that is not backed by
consideration, can the promisor sue the promise based on the original
contract?
Decision Judgement for the plaintiff – can collect full rent from time of full occupancy
in 1945.
Reasoning Denning J:
• Development in law of estoppel, previously unable to rely on estopell
without consideration or representation to the future. This is developed to
where courts honoured where promise made which was intended to create
legal relations, and which to knowledge of the person making the promise,
was going to be and in fact acted by whom the person whom it was made.
• A party who waives a part of the performance of a contract may later re-
instate that portion if it would not be unjust or violate the reliance of the
other party.
• The rent waiver was only meant to cover the wartime. It was not unjust to
raise the rent back to the original amount after the war, when the defendant
was able to pay it again.
• A party may retract the waiver by reasonable notification received by the
other party that strict performance will be required of any term waived.
• Full rent was payable from the time the flats were at full occupancy in
1945. However, the full rents would not have been able to be collected
from 1940 because equity would have estopped plaintiff from collecting (it
provides a defence)
Ratio The rule of promissory estoppel states, that if you have:
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• Wife argued there was a promissory estoppel as she had acted on the
promise to her own detriment.
• Wife makes more money than the husband.
Trail judge agreed with wife and enforced the promise under promissory
estoppel; relied on Central London. Defendant appealed.
Issue(s) Can a promissory estoppel become a legally binding contract?
Decision No – promissory estoppel does not create a contract.
Reasoning Lord Denning:
• Central London case should not be stretched so broadly; cannot plead
promissory estoppel as a plaintiff to form a cause of action where none
existed before. “promissory estoppel serves as a shield, not swords”
• Can only plead promissory estoppel a party to stop another party from
insisting on their strict legal right under an original contract when it would
be unjust/unequitable to do so.
Ratio • Equitable estoppels do not create a cause of action because they do not
form contracts. They are shields to be used to defend against enforcement
of original contract where promises or assurances given to alter original
contract, not to create a contract.
Notes
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Summary of Consideration
• This begins with Stilk, the duty to perform an existing performance is not good
consideration. Denning did not agree with this and look at the history and saw that from
Jordan v. Money where estopell could only be when representation for present contract,
not future.
• If William’s v Roffey Bros becomes law in Ontario – once amending agreement, it is
enforceable because practical benefit is consideration for new contract. If that case is
right, why would you ever argue promissory estoppel again? The problem gets fixed
because amending agreement is now enforceable due to practical benefit. But, we don’t
know if Williams v. Roffey is good law in Ontario so we may need to go through process
of promissory estoppel.
• Rundown:
1) No consideration in an amending agreement (Stilk, Foakes v Beer)
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2) Was there real consideration (bilateral agreement as both parties got something different)
(Hartley; Pennel’s Case)
3) Can we argue Williams v Roffey? ( Don’t know if this is good law in Ontario, but it is
probably persuasive as it has been adopted by CoA NB)
4) Does MLAA? Acceptance of lesser sum for satisfaction of lesser sum
5) Promissory/Equitable Estoppel argument
o MLAA and Promissory Estoppel may not be necessary, as they are more difficult, if
Williams v. Roffey applies, but we are not at that point of law development yet.
5) Capacity to Contract
Nash v Inman (1908) – Page 546 – Sale to an Infant
Facts • Plaintiff, a tailor, sold the defendant, a minor, expensive clothing.
• Defendant did not pay for the clothing and the plaintiff sued the defendant
claiming that the clothes were “necessities”, pursuant to the Sale of Goods
Act and therefore payment should be made at a reasonable price.
• Defendant’s father argued that his son was away at university and was
amply supplied with the proper clothes for necessities.
Trial judge ruled in favour the in infant minor, holding that while
clothing may be a necessity for life, the defendant did not need any more
clothing at that time.
Issue(s) In order to claim an item is “necessary” pursuant to the Sale of Goods Act,
should court only consider character of goods or also needs of individual at the
time of the sale?
Decision Appeal dismissed – judgement in favour of the minor.
Reasoning Cozens-Hardy J:
• Sales of Goods Act requires consideration of both the character of the
item and the need the individual has to determine whether an item is
“necessary”.
• Although the item is necessary in general, it is not necessary in current
requirement and since the boy was a minor, contract is not valid.
• The law is developed that the plaintiff has the burden of proof to show
that the articles were necessary.
Fletch Moulton J:
• In theory, infant is incapable of making a contract in the strict sense of
the words; will imply an obligation only if supply necessary and will
enforce obligation against the estate of the infant.
• This obligation imposes a fair payment, not agreed upon price, in
respect of needs being satisfied, not really a contract.
Ratio • Minors (i.e. infant) and the mentally incapable are not bound by contracts
into which they enter – even though the other party may be bound by the
contract.
• A contract is voidable by the minor including when they reach the age of
majority, however, if at the age of majority, they accept the contract or act
consistently with the terms, the contract becomes binding.
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Exception:
• Where a plaintiff can prove that the sale of goods provided to the infant or
mentally incompetent are necessities pursuant to the Sale of Goods Act
(they are suitable to a) his or her conditions in life and b) to his or her
current requirements – then the contract is legally binding).
Notes
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Hillas v Arcos (1932) – Page 224 – Factors courts consider to interpret contract
• In determining the meaning of imprecise language, the courts will consider the following
concepts:
o Past dealings between the parties,
o Industry standards,
o Correspondence between the parties before coming into an agreement, and
o Forms the parties have used before.
• Courts will try based on evidence to determine what the terms were. If they can, there is a
contract on those terms. If they can’t, the contract fails.
• A contract is enforceable if its terms can be ascertained through a mechanism or factors
that can show intention to agree on certain terms.
• Parties agree to negotiate in hope of effecting a valid contract – the no bargain except to
negotiate – may be under contract to negotiate if there is good consideration though
damages are likely to be minimal unless jury decides that opportunity to negotiate was of
some appreciable value to injured party.
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Notes
Empress Towers v. Bank of Nova Scotia (1990) - Page 231 – “Agree to Agree” Clauses
Facts • Empress Towers (the landlord) has 5-year lease with BNS to lease a space
for a bank.
• Lease says at the end of 5 years; the parties have agreement to attempt to
mutually agree to market rent for a second 5-year term.
• Before the lease is up, the Bank presents terms for the second 5-years of
the years of the lease, based on research and says to landlord to
negotiation. Empress does not reply till day of lease expiration.
• On the day lease is set to expire, Empress agrees to rent terms but asks for
$15,000 additional one-time payment (rumour that one of the Empress
owners lost $15,000 in bank heist).
• Empress Tower seeks to obtain writ of possession (eviction) under
Commercial Tenancy Act, but BNS argues Empress Tower did not follow
their “agreement to agree”.
Issue(s) Was the renewal clause void under uncertainty?
Decision Judgement in favour of Plaintiff.
Reasoning • Agreement to agree to second term is not enforceable because it is not
clear.
• But, court rules that landlord had implied obligation to negotiate in good
faith. Even though generally there is no contract because there was an
agreement to agree.
Ratio • Agreements to agree cannot be enforced.
• The court will try, wherever possible, to give the proper legal effect to any
clause that the parties understood and intended to have legal effect.
Notes • This is bad law. How can we have implied enforceable obligation to
negotiate in good faith when it hasn’t even been stated its terms, especially
when other cases have ruled there is a good faith clause there a contract
still doesn’t exist?
• This case is unique to its own set of facts, the landlord had a secondary
motive. We can essentially ignore this case and instead focus on
Walford v. Miles.
• The SCC decline to hear the case, so it still exists.
• You get the sense that the Bank’s assessment of market value rent is
reasonable, so the ask for the $15,000 could be see as bad faith. What are
the damages that one could allege?
Edper Brascan Corporation v. 117373 Canada (2000) – Qualified Empress Towers – Page 233
• An implied obligation to negotiate in good faith is enforceable only in situations where it
is obvious that a party negotiates in bad faith.
• Good faith exists whenever the negotiation takes place within an existing contract.
• If we must treat Empress Towers as good law, then it is confined to only those facts.
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British American Timber Co. v. Elk River Timber Co. (1933) – Page 217 – LoI as a contract
Facts • Parties enter into binding contract purchase timber rights, contract partially
performed – provided for survey and cruise of limits as preliminary to
formal agreement of sale in usual form in such cases in BC.
• Formal agreement not drawn up and plaintiff sues for specific performance
of the executed agreement – appellant argues execution of formal
agreement was a condition precedent to respondent’s rights to sue.
• Plaintiff alleges that a memo of understanding with defendant is a contract.
Defendant alleges that it’s not a contract but merely an agreement to agree
to the terms as at a later date.
Issue(s) When is a letter of intent/memo of understanding sufficient to be a contract?
Decision Contract – judgement for the plaintiff.
Reasoning • Clause 10 of agreement reads according to usual form adopted in cases in
BC.
• Clause 10 also includes provisions that make the agreement applicable
such as timber to be sold, parties, purchase price, and time of payments.
• The memo contains all the requisite elements of a contract and can be held
to be a contract.
• Mutual assent to terms of informal agreement may be sufficient where a
formal agreement is contemplated notwithstanding the failure to execute it.
Ratio If a pre-contractual document is complete and has all the elements of a
contract, then it may be held to be a contract.
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Notes • You can include and Rose and Frank clause and/or a Green and Anismore
(below) clause to ensure that these documents are not considered contracts.
• The more complicated or unique the agreement, the less likely the pre-
contractual document will be held to a binding contract.
• This says there can be a contract without completeness.
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Terms of Contract
1) Interpreting Written Contracts
Now we assume that a contract has all 6 building blocks – how does the court interpret them?
Parole evidence rule: once the contracts has been memorialized in a written document, we look
to that document to determine the interpretation of the contract “within the 4 corners of the
document”. All other external considerations are irrelevant.
• The policy consideration behind this that people know they need to ascertain the rules of
the contract within the “four corners”.
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• PER doesn’t stop you from proving that there is a condition precedent for
the effectiveness of the contract. Need to be suspicious of this as could be
set up without grounds.
Ratio The parole evidence rule (PER) only protects documents that are contracts on
their own. You can prove that a document is not a contract in the first place
by submitting evidence (outside the four corners of the contract), which
demonstrate unconscionability, mistake, invalidity, or misrepresentation.
Notes
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Reasoning PER does not allow you to plead a collateral contract if it conflicts with the
terms of the written contract.
Ratio A collateral contract offends the PER if the collateral contract conflicts with
the terms of the main contract. If the verbal agreement of collateral contract
does not conflict with the terms of the written document, then the collateral
contract is admissible.
Notes Include an “entire agreement” clause to avoid this issue. This would state there
are no other conflict agreements/terms of contract other than those stated
within documents of the existing document. Here, we would have a
“presumption/non conclusory” idea that we do not have a conflict of terms.
Southern Resources Ltd. v. Techbomin Australia (1990) – Page S.21 – PER Exception #4
Facts • Contract that says the plaintiff is supposed to get a 3% smelter interest
from minerals produced on defendant’s property.
• Defendant says when we said “3% smelter interest,” we meant a 3%
interest present from the minerals from one specific smelting process.
• Defendant says when we said “minerals,” we meant minerals other than
gold.
• The plaintiff points to the words of the document and says from all
minerals produced and that this is clear.
Issue(s) Are the words of the contract sufficiently ambiguous as to justify the setting
aside of the parole evidence rule to determine the meaning of the words?
Decision Judgement for the Plaintiff. PER applies, terms of contracts are patently clear,
no ambiguity as to terms or subject matter.
Reasoning • If the words are ambiguous, then the parole evidence no longer applies and
the court permits other evidence to determine what the document means.
As a general rule, you don’t allow the party to say when they refer to Net
Smelter Interest, that they mean something specific or other then its
general meaning.
• First, the court must interpret the words. If they are clear, then the contract
stands. The PER rule applies where the words are clear.
• If the words are ambiguous, the court must determine if the words are
certain enough to make the contract enforceable and may allow evidence
to determine whether the contract is valid.
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• The terms of the document are not ambiguous enough to permit the
meaning alleged by the defendant.
Ratio If the words of the contract are unambiguous, then the PER applies. If the
words of the contract are ambiguous, then the PER is set aside and the court
will permit evidence that clarifies the terms of the contract.
Notes
Sattva Capital v. Creston Corp (2014) SCC – Page S.23 – Current Canadian law
Facts • Dispute over how many shares a broker should get as commission. They
were entitled to a certain value of shares.
• Defendant says that clause of how many shares the plaintiff can claim as a
finder’s fee is limited to the equivalent monetary amount at the time of
completing the commissionable sale.
• Plaintiff says that it was set at the time of the contract, and that they can
claim the number of shares equivalent to when the contract was signed
(significantly more stock number because stock price went up).
• There is a difference between 1.5m and 7m.
Company appealed under the BC Arbitrators Act; an appeal of an
arbitrator’s decision could only be made under error of law and not error
of fact.
Issue(s) Did the arbitrator make an error in law by considering surrounding
circumstances present at the time of the contract be considered when
interpreting the terms of a contract without saying there was any ambiguity?
Decision PER still applies, but should consider surrounding circumstances.
Reasoning • Court should interpret the contract within the “factual matrix” at the time
of the contract. This was found not to be in violation of the PER. Court
finds that arbitrator did not make an error of law and should be able to
look at surrounding circumstances in light the factual matrix.
• Surrounding circumstances: consist of anything which would affect the
way in which the language of the document would be understood by a
reasonable man.
• Does not dismiss PER because instead of overriding terms of contract,
evidence to shed light on surrounding circumstances are used as an
interpretive aid to help judges determine the terms.
Ratio While surrounding circumstances may be considered in interpreting terms of a
contract, they must never be allowed to overwhelm the expressed words of the
agreement. But, PER still applies.
Notes • Court seems to think they made a bit of a mess here and it needs to be
fixed.
• The reaction to this case was that you better win your case at first instance
and it has become extremely difficult at appeal.
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• One of the terms of the contract is that insurance company will “deny
claims to faulty workmanship”.
• Ledcor is completing the project and they bring in a subcontractor to clean
all the windows. This subcontractor scratches windows which caused
$1.2M in damages.
• Northbridge refuses to pay claim due to faulty workmanship.
Trial judge finds that the insurer is responsible under the policy; AB CoA
reverses this decision.
Issue(s) Did the Alberta CoA err in entertaining the appeal? This is strict error of law,
so the standard of appeal is a matter of correctness. If it is an error of fact, the
standard of appeal is reasonableness.
So what is the basis of appeal in contract interpretations. Sattva clearly caused
some issues with the “factual matrix”.
Decision • If you are interpreting standard form contract, in effect there is a little
factual matrix involved.
• If interpreting a negotiated contract, there may be a larger factual matrix to
consider.
• Provision in the standard form contract that wasn’t negotiated is a question
of law not fact.
• Therefore, the standard of review is correctness.
Reasoning Standard form contracts reviews is correctness as it is a matter of law.
Negotiated contracts are the only ones subject to Sattva.
Ratio
Notes This is the court backing off of Sattva.
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• The intention was that the construction would happen 24/7, free from
injunction.
• The court prohibits P from working Sundays and working through the
night.
• P will be forced to breach the contract, because they will not be able to
finish the contract in time.
• P’s equipment will be tied up for a longer period, preventing them from
making other money. money. Because of the fixed price, they will be
losing money.
• P goes to court to find an implied term of contract, which states that the
parties made the contract on the basis that P would not be prohibited by
court and could work 24/7, so need time extension.
• P also argues that because the implied term of contract was breached, they
should be given a greater sum of money.
Issue(s) Should the court imply a term in this formal written contract?
Decision No implied term – Ruling for the defendant.
Reasoning • The court holds that the term is not necessary to the contract and to its
business efficacy.
• P took a risk that was inherent to the contract itself. The bidding process
implied this risk.
• The term, therefore, is not so obvious as to go without saying. The
contract is further not particularly capable of clear expression.
• Lastly, if the contract is a fixed-price contract, then altering the price or
implying a term that alters that price conflicts with the writing of the
contract.
Ratio In order to imply a term of contract by implication of fact, one must meet the
following conditions:
1. Implication of the term must be reasonable and equitable.
2. The term must be necessary to give business efficacy to the contract,
such that the contract would not function without the implied term.
(The courts really focus on this)
3. The term must be so obvious, as to “go without saying.”
4. The term must be capable of clear expression.
5. The implied term cannot conflict with an express term of the contract.
(The courts really focus on this)
This is an extremely difficult test to meet.
The Moorcock
Facts • D is renting a jetty for use by ships. The ship will come in, pay the rental
fee and use the jetty to discharge cargo.
• The parties know that when the tide goes out, the boat will be damaged on
bottom.
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4. Exclusion Clauses
• An exclusion clause is any clause that eliminates your right to any remedy from a breach
of contract or legal duty:
o Exclusive liability
o Limitation of liability (Parker)
o Litigation limitation clause or a certain remedy (Hunter)
o Limitations of statutory rights from Sale of Goods Act
• These could limit you from any liability from anything arising from the contract. Because
of this, the court sometimes has a reaction to these results.
• These clauses are not bad per se, where they become bad is if they are included in
standard from contracts creating an unfair balance. This is where the courts tend to
become involved.
• Exclusion clauses must be contemporaneous with the contract.
• There are two approaches:
A) Classic – Is this clause a part of the contract? (McCutcheon) A contract is a contract is
a contract
B) Modern – If the clause is part of the contract, how do we interpret it?
• There are multiple ways to be bound by these clauses:
o Signed contract
o Assented to the agreement (and the exclusion clauses)
o No signature but past dealings (this will depend on whether there was knowledge
in past dealings)
o Ticket cases (knowledge = bound, lack of knowledge = reasonability)
• 1954 - Lord Denning: An exclusion clause does not apply when there is a fundamental
breach of contract. “rule of law” approach. However, how is this fair if it is a
negotiated contract?
• 1967 – Swiss Atlantique and confirmed in Photo Production – when you look at an
exclusion clause, you apply a rule of interpretation. Looking at the contract was the
clause meant to apply?
o This looks as aspects such a risk/reward, intention of breach, etc.
o This isn’t construing a contract but just the court saying they will enforce an
exclusion clause if it is fair and reasonable.
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to the conditions as though you signed it. Allegations of ignorance about the
content of the conditions are not defence
Notes
Parker v. South Eastern Railway Company (1877) – UK CoA – Page 471 – Test for “Ticket
Cluases”
Facts • Parker hands bag in bag check and gets ticket with limitation of liability
clause for items > £10.
• He doesn’t read it and says he thought it was a receipt.
• Parker's bag, which was worth more than £10, was lost.
At trial, the jury found for Parker as it was reasonable for him not to
read the ticket.
Issue(s) Should an individual be bound by the exclusion clause placed on a ticket if he
knew there was writing on the ticket but was not aware that the writing
contained conditions?
Decision Appeal granted. A new trial is held
Reasoning Here, Parker saw the writing but didn’t bother to look at it, nor had he signed
anything. In these circumstances, must look at:
1) Is it reasonable for person claiming no knowledge to make that claim
credibly given the nature of the document and the knowledge of the
person? If you can pass that test and show you are unaware, then ask;
2) Has the person relying on the clause done what is reasonable in the
circumstances to bring the limitation clause to your attention? (e.g.
bold type, different colours, etc) If they have done so, the exclusion
clause is part of the contract. If they failed to it, the exclusion clause is
not part of the contract.
Ratio TEST
1) If the party knows that the document contains writing, but does not read it
to find out that it contains conditions, he is bound by any exclusion therein,
same as if you had signed. It is no defence to allege ignorance.
2) If the party does not know there is writing, whether or not the exclusion
clause applies depends on:
1) is it reasonable for person claiming no knowledge to make that
claim credibly given a) the nature of the document and b) the
knowledge of the person?
2) If yes, has the person relying on the clause done what is
reasonable in the circumstances to bring the limitation clause to the
person’s attention? (for eg. Bold type, different colours, etc). If they
have, exclusion clause is part of the contract. If they failed to do so,
exclusion clause is not part of the contract
Notes
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Hunter Enginerring Co. v. Syncrude Canada Ltd. (1989) – SCC – Page 563
Facts • Syncrude ordered 32 mining gearboxes from Hunter which were
fabricated by a subcontractor. The specifications were provided by
Syncrude, but Hunter designed the gearboxes.
• The second contract, between Syncrude and Allis-Chambers, was for
the supply of an extraction conveyor system and included four
extraction gearboxes to drive the machinery.
• Those gearboxes were built according to the same design as the mining
gearboxes supplied by Hunter and were fabricated by the
subcontractor. The gearboxes entered service on November 24, 1977.
• Both contracts included time-limited warranties. The Allis-Chambers
warranty also stated it represented the only warranty given, and no
other warranty or conditions, statutory or otherwise, were to be
implied.
• The warranty was for 24 months, or for 12 months after the gearboxes
entered service. Both contracts provided that the laws of Ontario were
to apply.
• In September and October of 1979 defects were discovered in the
gearboxes which were repaired at a cost of $400,000.
• Allis-Chambers denied responsibility due to the expired warranty.
Syncrude sued claiming a fundamental breach, but failed at trial. The
Court of Appeal found that there was a fundamental breach because
statutory warranty was excluded by terms of the contract, which was
appealed to the Supreme Court
Issue(s) Is Hunter Liable for repairs to the gearboxes? Is the exemption clause
effective?
Is Allis-Chambers liable under the doctrine of fundamental breach?
Decision Clause is effective.
Reasoning Wilson J (with L'Heureux-Dubé concurring):
• Held that a fundamental breach is a breach that deprives a party of
substantially the whole benefit of the contract.
• As the gearboxes in this case were repairable, this was not a fundamental
breach.
• Rejects the notion that exclusion clauses would have to be per se fair and
reasonable at formation as this would be too subjective. However, the
courts can easily analyze a clause after a breach has occurred to see
whether the result has been unfair, allowing courts to avoid complicity in
unfair bargains and balancing freedom, paternalism and fairness to find a
standard of commercial reality.
• Unconscionability rests on inequality of bargain power between the
parties. There can been no unconscionability if the parties are of equal
power.
• She considers two options the court has:
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Dickson J:
• The warranty clauses in the warranty period expired.
• Disagrees with Wilson J’s approach to doctrine of fundamental breach.
• Adopts Photo Production to treat fundamental breach as a matter of
contract construction.
• Disagrees with Wilson J’s suggestion of assessing the reasonableness of
the contract terms.
• The court should not disturb the bargains the parties have struck. However,
the courts should replace the doctrine of fundamental breach with a rule
that holds the parties to the term of their agreements, provided the
agreement is not unconscionable.
• The unconscionability doctrine should be used to determine if an
inappropriate allocation of risk between the parties should be struck down.
Ratio Only where the contract is unconscionable should the courts interfere with the
agreements the parties have freely concluded.
Notes FUNDAMENTAL BREACH ANALYSIS IS DEAD
Tercon Contractors v. British Columbia (2010) – SCC – Page 574 – Test for Enforcing
Exclusion Clauses
Facts • BC Ministry of Transportation and Highways issued request for proposals
for building new highways
• Tercon and Brentwood submitted proposals.
• The RFP included a broadly worded exclusion clause excluding liability
on the part of the Province for any damage claims arising “as a result of
participating in this RFP”.
• Brentwood sent submission stating that it wanted to join bid with another
company, which was ineligible for bidding process.
• Govt never responded and ultimately it came down to Tercon and
Brentwood. Brentwood was selected.
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• Tercon sued the Ministry for damages on the basis that acceptance of an
ineligible bid constituted a breach of contract, and that the breach had cost
it an award of the project.
Trial judge held that the Brentwood bid breached the provisions of the
tending contract and that the exclusion clause did not bar recovery for
this breach.
Issue(s) 1) Did the province breach the tendering contract by accepting a bid from an
ineligible bidder?
2) Does the exclusion clause bar a claim for damages for breach of the
tendering contract?
Decision (5/4) Restored trial judgement. Exclusion clause does not apply. It included
circumstances there were different than breach
Reasoning Cromwall J (5):
• Noted that the RFP model is a little more complicated than the simpler
Ron Engineering Contract A/Contract B model, where the terms of
Contract B are fully articulated from the outset, but that this did not impact
the analysis of the case at hand, and further, it was not necessary to
explore in full detail all the terms and conditions of Contract A.
• The bid was ineligible and that the Ministry was aware, noting that
Brentwood had a “material change in its team structure”.
• “It is time to lay the doctrine of fundamental breach to rest. Here,
Cromwell agrees with Binnie’s (minority) the analytical approach to
the applicability of an exclusion clause, but disagreed with the
interpretation of the clause.
Binnie J:
• Accepts the finding of the lower court that the RFP had been breached and
then explores to claim for relief from the exclusionary clause.
• There are two separate questions to address a clause’s applicability:
1) Whether there was a statutory or other legal reason why the parties
would not have been free to negotiate the exclusion clause. And
2) If there were any other reasons why the clause should not be enforced
in the circumstances (such as fundamental breach)?
• There is a three-part test for assessing enforceability in this
question:
i. As a matter of interpretation, does the clause apply to the
circumstances established?
ii. If it applies, was it conscionable at the time the contract was
made?
iii. If it applies and is valid, should the court nonetheless refuse
enforcement based on an overriding issues public policy (the
onus of proof of lying with the party seeking to avoid
enforcement)?
Look for factors of grossly unfair bargain, unreasonable bargaining
power and unfair advantage taken.
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• Binnie found that the exclusion clause does apply as Tercon did
participate in the RFP process; Tercon was a major contrct with the
same amount of free bargaining power as the government.
• On public policy argument, there is a public interest in fair and
transparent bidding, it cannot be ratcheted up to defeat the enforcement
of Contract A in this case. The provinces conduct was not sufficient to
require the cause not to be enforced.
Ratio Test for assessing enforceability of exclusion clauses, the courts must
apply a three part test:
1) As a matter of interpretation, does the clause apply to the
circumstances established?
2) If it applies, was it conscionable at the time the contract was made?
3) If it applies and is valid, should the court nonetheless refuse
enforcement based on an overriding issues public policy (the onus
of proof of lying with the party seeking to avoid enforcement)?
Notes CONFIRMS FUNDAMENTAL BREACH IS DEAD
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a) Varieties in Misrepresentations
Redgrave v. Hurd – Page 756 – Fraudulent Misrepresentation
Facts • Redgrave, an elderly solicitor, advertised for a partner to join the business
and buy the accompanying house.
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• He told Hurd that the practice brought in £300 income when it was only
£200.
• He said Hurd could check records but he didn’t (in fact they showed no
business).
• Hurd did not inspect the papers, until he realized the truth just before
completion of the agreement. He had signed the contract but he refused to
go through.
• Redgrave sued for specific performance and Hurd counterclaimed for
rescission based on fraudulent misrepresentation. Nothing in the contract
referenced how much income or revenue was generated by the company so
plaintiff argues PER.
Issue(s) Should the contract be rescinded on the grounds of fraudulent
misrepresentation?
Decision Yes. Fraudulent misrepresentation. Contract is voidable and set aside.
Reasoning • An individual who induces another to enter a contract through fraudulent
misrepresentation cannot claim the defence that the other failed to exercise
due diligence to escape liability.
• Where the misrepresentation goes to inducing another to enter a contract,
the law assumes the individual entering the contract was induced by the
representation to do so.
• This is rebuttable when the individual knew the statement to be false or did
not act in reliance of it.
Ratio • In cases of fraudulent misrepresentation, the damage awarded in
contract is rescission, while the damage awarded in tort is damages (i.e.
money). You can only receive contract damages if you can imply that
there is a collateral contract implied in the bargain.
• To be a material representation; the contract needs to induce the formation
of the contract. It is an inducing representation if it would induce a
reasonable person into the contract.
• Fraudulent misrepresentation occurs when the maker of the
misrepresentation
1) The statement is knowingly false
2) Does not know whether the representation is true, has no basis for
belief in its truth, and does not believe it is true.
o If the misrepresentation would induce a reasonable person to
enter a contract, then the law assumes the individual entering
the contract was induced by misrepresentation to do so.
o The misrepresentation does not need to be the only factor
influencing the other party to enter the contract, it just needs to
be an inducing factor.
Exception: This inference does not apply where the individual knew the
statement to be false ahead of time or did not act in reliance of the false
statement. If an individual makes a false representation, alleging that the
individual could have proven the representation false through due diligence is
no defence.
Notes
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Esso Petroleum Co. v. Mardon (1976) – Eng. CoA – Page 777 – Negligent Misrepresentation
Facts • Esso builds gas stations but before they build, they do a thorough put
survey to monitor traffic in a particular area to see how much gas will be
pumped.
• They conclude that this station will pump 200,000 gallons per year.
Mardon rents the service station expecting revenue based on that number.
• No term of lease indicates any specific volume.
• Esso did their survey on basis of creating entrances and exits off the main
road and the city subsequently said no, that they would need to use side
road.
• Mardon took over and spent years trying to make it work but it wasn’t
financially viable. Esso then brought an action for possession against
Mardon
Issue(s) Should P recover in breach of an implied warranty (contract) or negligence
(tort) under Hedley Byrne (special knowledge)?
Decision Judgement for plaintiff.
Reasoning Denning J:
• Innocent misrepresentation gives no right to damages, to recover need
either fraudulent misrepresentation of collateral warranty. In this case, not
a warranty or guarantee of 200000 gallons, but it was forecast made by
party with special knowledge and skill.
• P can successfully recover for either a breach of an implied warrant
(contract) or negligence (tort), but cannot recover in both. The motivation
behind damages is that the injured party be restored to their original
position. P cannot recover twice. When D found out that it based its study
on the wrong facts, it had a duty to alter the study accordingly. Esso
possessed special expertise and breached their duty of care.
Ratio If negligent misrepresentation induces the formation of contract, person may
have a tort remedy as long as they can fulfill Hedley Byrne requirements (ie.
special knowledge, reliance, etc.).
Notes Hedley Byrne v. Heller:
Established the tort negligent misrepresentation If an individual
professes to have special knowledge (a lawyer, an accountant, an
expert) and that individual makes a representation to someone where:
(1) it is reasonable to assume the representation will be relied upon and
(2) that person relies upon the representation, and
(3) the representation turns out to be false, then the individual with
expert knowledge can be sued for the tort of negligent
misrepresentation unless he or she took reasonable care to ensure the
representation was correct.
b) Remedies
i) Recession
• Recession occurs when we can set the contract aside (voidable contract)
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(a) the contract was completed (i.e. when the cheque was given for the
keys), and innocent misrepresentation after the completion of a
contract does not support rescission, and
(b) the misrepresentation is not significant enough to consider the
vendor’s consideration false.
Ratio BAR TO RESCISSION: A fully executed contract for land is bar to
rescission in the case of innocent misrepresentation, unless the
misrepresentation is of such a substantive degree that it renders the
consideration given for the contract false consideration. If the
misrepresentation is fraudulent then this principle does not apply. An
individual should not be able to profit from his fraud.
Notes
Winter J:
• The buyer is afforded a reasonable period to inspect the goods after
purchase to determine if they are the goods that the vendor represented
them as being.
• If the buyer does not inspect the goods within that time, then the buyer
must accept the responsibility and losses her right to sue.
• In this case, a reasonable time elapsed and P forfeited her right to sue (Leaf
v International Galleries).
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II) Damages
Heilburt Symons & Co. v Buckleton (1913) – HL – Page 749 – Collateral contract
Facts • Heilbut Symons & Co were rubber merchants who were underwriting
shares of what they claimed was a rubber company.
• Buckleton called up a manager at Heilbut to inquire about the shares. In
response to the questions, the manager stated that they were "bringing out
a rubber company".
• Based on this statement, Buckleton purchased a large number of shares.
The shares turned out not to be for a rubber company at all.
• The shares later dropped because of a problem with the rubber trees.
• Buckleton brought action for fraudulent misrepresentation and for
damages for breach of warranty that the company was a rubber company
whose main object was to produce rubber.
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Issue(s) Was there a collateral contract to the main contract to take the shares in
consideration that the company was a rubber company?
Decision Judgement for D. No collateral contract.
Reasoning Lord Moulton:
• Just because the vendor states a fact of which the buyer is ignorant doesn’t
mean that there is a warranty.
• Intention of parties is only deduced from the totality of the evidence.
• At common law, there is no right to damages for an innocent
misrepresentation.
• Courts often try to sidestep this by finding a collateral contract where there
was only an innocent representation.
• There needs to be evidence that there was a real inducing factor that
Buckleton only would have entered contract if it was a rubber company.
• In this case the statement was made in response to an inquiry-
representation as to specific thing, nothing more- no evidence either party
thought contractual liability would attach to it.
Ratio To obtain damages on a collateral contract for innocent misrepresentation, the
plaintiff must show that the parties had a real intention (animus contrahendi)
to create two contracts (i.e. the representation must be clear and separate).
Notes
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2) Mistake
• The parties don’t have the same view of the facts – and these mistakes get folded into the
execution of the contract. The parties just aren’t seeing the bargain in the same way.
• If there is a mistake, cam we render the contract void?
• There are different types of mistakes.
• You usually only plead mistake if you need a property right. If you see fraudulent
representation, you can plead no contract. However, if there is a bar to recession, turn to
mistake be able to void the contract and then argue property.
A) Common Mistake
• A mistake that is shared between the parties. Both parties think the same thing – but they
are wrong.
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Bell v Lever Bros. Ltd (1932) – HL – Page 806 – Common Mistake at Common Law
Facts • Lever Bros. hired Bell to be the Chairman of a subsidiary company of
Lever Bros for 5 years.
• After 3 years, they don’t need him anymore so they make a contract to pay
him 30000 pounds to terminate the employment.
• Later on in the year, Lever Bros. find out that Bell had been making his
own profits on the side without disclosing them to the company.
• Lever Bros bring an action against him for the return of 30000 pounds
arguing that there is common mistake. They said they would not have
offered him severance if they knew he was competing.
• Bell argues that he did not know he was competing with Lever Bros.
• Both thought they were entering contract to end a five-year employment
contract when in fact the contract was terminable for cause and that this is
a mistake as to the substance of the contract.
Issue(s) Can plaintiff terminate the contract and get back their money due to common
mistake? Is this a mistake that is fundamental and of substance?
Decision Judgment for Bell. No mistake as to substance of contract, only mistake as to
quality.
Reasoning • The mistake went to the quality of the thing contracted for and not the
substance of the contract.
• Defendant thought they were terminating employee with a five-year
contract, when they were getting rid of an employee who they had actual
cause to terminate.
• Gives an example of a sale for a sick horse compared to the sale of a sound
horse. If both parties believe that horse is sound, but it turns out the horse
is sick, then the party buying the horse has no remedy.
Ratio A common mistake must go to the substance of the thing contracted for, not
the quality of the thing contracted for. May be mistaken in identity of
contracting parties or existence of the subject matter of the contract.
This makes common mistake very difficult to prove.
Notes
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• Soelle goes to the rent control office and asks if the flat is subject to rent
control.
• Determines there is a rent control and rent should be only £140 not what
was leased at £250.
• Soelle asks that the lease be set aside
Issue(s) Can plaintiff set aside the lease because both plaintiff and defendant made a
mistake about whether the flat was rent-controlled?
Decision Judgment for defendant.
Reasoning Lord Denning:
• Two types of common mistake:
o 1) Common mistake at common law—renders the contract void,
but not this case because mistake as to quality BUT
o 2) Common mistake at equity—was there a fundamental mistake
– would the parties have entered the contract but for the mistake?
• Equitable common mistake renders the contract not void, but voidable—
rescission is available as a remedy if there is no bar to rescission.
• In this case, plaintiff was responsible for letting defendant know that the
flats were not subject to rent-control. It would be inequitable for plaintiff
to benefit from the mistake that he made. On this basis, plaintiff cannot
recover.
Ratio Equitable common mistake: A contract can be set aside in equity if the
parties were under a common mistake about facts or their rights, if the mistake
was fundamental and that the party seeking to set it aside was not himself at
fault.
Notes • Equitable common mistake is easier to prove – however – there must not
be a bar to rescission.
• If there is a bar to rescission – then you must be able to prove common
mistake in order to void a contract.
Great Peace Shipping v Tsavliris Salavage (2002) – UK CoA Page 817 – New Test for
Common Mistake
Facts • Defendant needs someone to assist to bring a ship back to port and to save
the crew, because the ship may be going down.
• Defendant concludes that plaintiff has a ship that could help. They make a
contract for five days of salvage.
• Defendant finds out that plaintiffs’ ship is 400 miles away and not 35
miles away and so he finds someone closer and contracts with them.
• Defendant then cancelled the contract with plaintiff and refused to make
any payments after found someone closer.
• Plaintiff brought an action claiming $82,500 for payment of the contract or
for damages.
• Defendant disputed the claim on the basis that the contract had been
formed under a fundamental mistake (both parties thought the 2 vessels
were in closer proximity and they weren’t) and that the contract should be
void or voidable and they should be entitled to rescission.
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Miller Paving Ltd. v Gottardo Construction (2007) – Ont. C.A. – Page 825
Facts
Issue(s)
Decision
Reasoning • Suspect that you are within your rights to argue an equitable common
mistake in the area. Court does say that when argue common law common
mistake, you look at Great Peace Shipping and go through the four
elements of it.
• On the facts of the case, English Court of Appeal says that this isn’t
common law mistake because performance of the contract wasn’t
impossible.
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• When the D found out about the mistake, they didn’t say no K but kept it
in place to see if there is someone closer.
Ratio Equitable common mistake is not dead in Ontario. Great Peace not adopted in
Canada yet.
Notes
B) Mutual Mistake
• Occurs when the parties have a different view of the contract (this is not a shared
mistake) and each of these views a reasonable.
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• Hughes refused to pay and Smith sued for breach of contract, for the
amount delivered and for damages for the amount for oats that were still to
be delivered.
Issue(s) Should we set this contract aside for mutual mistake?
Decision No - Ordered new trial
Reasoning Lord Blackburn:
• For mutual mistake, both views must be reasonable and defendant’s claim
here is not reasonable because he agreed to buy the specific oats that he
saw, thus representing he was contracting on plaintiff’s terms.
• You can’t later try to opt out of a contract because it wasn’t what you
thought it was if there is no misrepresentation.
Ratio • If one of the parties intends to make a contract on one set of terms and the
other intends to set a contract on another set, then the parties are not in
agreement and there is no contract.
• Where one of the parties has an unreasonable view of the facts, then the
contract exists on the terms of the individual with the reasonable
perception of the facts.
Notes
C) Unilateral Mistake
• One party knows that the other party is mistaken.
• The court says there are two types of unilateral mistake:
o “snapping up the offer” when they know a mistake was made by the other party.
o “rogue cases” where one of the party causes the mistake - this is a type of fraud.
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get the published price wrong and receive hundreds of online orders
(automatically accepted) before they discover their error - e.g.
advertising a £299 television on the website for £2.99. Retailers can
avoid having to supply at the mistakenly low price if the court finds
that the would-be purchasers must have known that the advertised
price was clearly a mistake.
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Ratio • Bids at once become irrevocable if filed in conformity with the terms
and conditions under which the call for tenders was made, if such
terms so provide.
• Obiter: may be mistake if egregiously low and the other party knows to
snap up.
Notes
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• Hutchinson represented self as someone else. This man then sold the car to
Little, and the man disappeared.
• Little then sold car to another dealer.
• Ingram now sues Little for the return of the car or damages for tort of
conversion.
Trial judge said that plaintiffs’ mistake as to the identity of person she
was dealing with prevents formation of contract so plaintiff should
recover. Defendant appeals.
Issue(s) Is there an actionable unilateral mistake here?
(There is a bar to rescission because of 3rd party intervention, so they need to
plead unilateral mistake to make contract void)
Question becomes: Was the mistake fundamental? Who did they intend to
contract with?
Decision Contract void for mistake. Judgement for P. Ingram gets car back.
Reasoning • You start with a presumption that the party intended to contract with the
person in front of them.
• Here, sisters only intended to deal with Mr. Hutchinson and the mistake
was fundamental to the transaction.
• Acceptance addressed to Hutchinson who was not the offeror, so no
contract.
• The analysis begins with a presumption: you presume that you are
contracting with the person in front of them.
• In order to rebut this presumption, you have to show that the identity is a
fundamental and that you took some level of diligence to confirm.
Ratio Face to Face Mistake: In cases of face to face negotiations, the same result
may be reached as in Hartog, if the appearance is still that the mistake is
fundamental, and the innocent party has undertaken some level of diligence to
indicate that it is. The presumption in these kinds of negotiations is that the
parties are not fundamentally mistaken, but you can rebut that presumption.
Notes
Lewis v Averay (1972) – UK CoA – Page 443 - Likely bad law in Canada
Facts • Lewis sold his car to a man, a “rogue,” pretending to be the actor from
Robin Hood, and the cheque he got was stolen and worthless.
• Lewis asked for verification and was shown Studio pass with Richard
Green name.
• The “rogue” then sold the car to Averay and got away with the money.
• Lewis is now suing Averay for damages for tort of conversion.
Issue(s) Was there a contract under which the car passed property from Lewis to the
rogue?
What is the effect of a mistake by one party as to the identity of the other?
Decision Contract. No fundamental mistake (2 of 3 judges) and all three deny remedy
Reasoning Lord Denning:
• Unilateral mistakes to do not make a contract void, but rather makes it
voidable, subject to bars to rescission.
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• Here there was a bar to rescission (intervening third party rights) and
therefore no remedy. (This is NOT the law in Canada, however).
• On this basis, the original seller should bear the loss caused by the
mistaken identity.
Ratio • The traditional void contract remedy in changed in favour of a voidable
contract which is subject to bars to recession. However, Prof does not
think you could argue equitable remedy like this in Ontario.
Notes How do we distinguish these two car cases?
• In the first case, there was a positive act taken to establish that you thought
identity was important (Ingram checked the phonebook to verify that a
person named Hutchison lived on named street).
• If you act to verify that the statements made were true, then the courts are
more likely to accept it as evidence that the identity of the person was
material to the contract being made
What about Denning’s judgment?
• Arguably more equitable in the result (innocent third party would not
suffer)
BUT Following Great Peace Shipping, we would likely say now that there is
no equitable remedy for mistake. (This could be argued though because
there is no binding Canadian judgement)
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• Mrs Gallie died before the litigation reached the House of Lords, and was
represented by Saunders as the beneficiary of the estate (ie. Wally).
• Argue that deed should be taken away from the building society because
Gallie was mistaken about what she was signing.
Issue(s) Can the contract be set aside on a plea of non est factum?
Decision No – judgement for the defendant.
Reasoning Lord Denning:
• A plea of non est factum should be about whether the document is
radically different from what was intended to be signed.
• You can disavow the document while the property is in the hands of the
other party, but once it’s in the hands of a third party, you can’t. That is a
bar to rescission.
Lord Pearson:
• Agrees with Denning about class/content issue and adopts his formulation
that in order to plead non est factum the mistake has to be to a document
that was radically or fundamentally difference than what was intended.
• However, Lord Pearson says that the result should not be voidable
contracts in non est factum. However, someone who was careless should
disentitle you from pleading non-est factum.
• Even if Gallie asked for document to be read to her, they wouldn’t have
read the right thing. So Gallie was not careless.
• However, the document was NOT radically or fundamentally different
than what she intended.
Ratio 1) The essence of the plea of non est factum is that the person signing
believed that the document was radically different in character or effect
than what was signed.
2) A person pleading non est factum must have taken steps to determined
what the document was about. Was the person careless?
3) A plea of non est factum can only apply to those who are blind, illiterate,
or through no fault of their own do not have a real understanding of the
document.
4) To make the pleas, there must be a fundamental difference between what
the claimant signed and what she thought she signed. It must be left to the
courts to decide what exactly this means.
Notes
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E) Frustration
• The parties aren’t mistaken at the time of contract, but before the contract is performed,
that is radically different from what the parties could anticipate.
• The courts do not void the contract but rather say that performance is excused.
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3) Illegality
• Some say that the result of illegality is a void contract. Prof does not like this analysis.
You would think that if your contract was void, you would be able to go after your
property rights. However, we see from these cases is that the courts are deeming illegal
are unenforceable, but they do not support them getting their property back.
• Illegality actually renders a contract unenforceable. It does not render it void or voidable.
If property is transferred, courts will not assist with remedy.
• We have:
o Contracts that are in restraint of trade: the contract is deemed good, but the court
just takes out the restraint clause.
Restraint of trade is illegal at common law due to public policy.
o Contracts that are illegal under statute:
The contract is illegal
The contract is not illegal but the way you perform the contract is illegal.
• The heads of illegality policy:
a. Societal values tell us that we don’t expect these types of contracts to be enforced.
(Oldfield v Transamerica Life).
b. Contracts to defraud the revenue authorities (Alexander v Rayson)
c. Contracts which promote corruption in public office (such as a bribe) (Parkinson v
College of Ambulances)
i. Parkinson wanted Knighthood and pays a donation to the college to have the
asset with this. He argues for the return of his money but does not get it
because of corruption.
d. Contracts for an immoral purpose (Wilkinson v Osbornw)
i. Public policy must be in accord with the governing principles that the
community has adopted. There should be some value for the community as a
whole of what is right and not just the judges view.
• Richardson v Mellish: “public policy is an unruly horse” and should be restricted.
• We must weigh conflicting social policies:
o Enlargement or restriction of liability because of anticipated salutary effects on
future behaviour or prevent some harm.
• In Printing & Numerical Registering Co. v Sampson, Justice Jessel argued paramountcy
of public policy requires feedom to contract freely and voluntarily.
• In Tercon, the Canadian case, the SCC emphasised the courts retain power to refuse to
enforce a contract on basis of public policy – freed of contract like any freedom can be
abused.
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If yes, is the non-compete clause more broadly drawn than necessary to the
purchaser/employee’s valid business interests, in terms of geography and
time?
How much distance is the right amount of distance? How long is the right
amount of time?
Yango Pastoral Co. v First Chicago Australia Ltd (1978) – High Court Australia – Page S.53
Facts • First Chicago lent Yang 132K secured by mortgage.
• Statute says it’s illegal to bank in Australia unless you have a banking
license.
• Yango signs up for a guaranteed loan before their banking license is
complete.
• The loan was secured by a mortgage, incorporated a guarantee given by
the other defendants.
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• Yango’s loan goes into default and they say bank shouldn’t be able to
enforce guarantee because loan was signed up for before the bank got their
license. Implied the K is illegal.
• When defendant defaulted on the loan, plaintiff sued defendants (Yango
and guarantors).
Trial found for First Chicago, upheld by CoA, appealed by Yango.
Issue(s) Whether Banking Act on its proper construction, prohibited the making or
performance of contract?
Decision Contract – judgement for the plaintiff.
Reasoning • The contract is not automatically unenforceable.
• The purpose the legislation was not to prohibit banking contracts, but to
ensure that the banks would carry on their business in a way that keeps
them solvent.
• The purpose is to protect individuals who are putting money in the bank
and not to protect those borrowing from the bank.
• In fact, defendant’s actions contradict the purpose of the statute in that not
paying loans tends to make banks insolvent.
• Further, the penalty imposes a fine for every day that the bank carries
business without a licence, not for every loan contract the bank makes out
without a contract.
• On this basis, the statute did not mean to prohibit these contracts or rule
them as illegal.
• The conclusion is that the bank pays the fine, but the court enforces the
contract.
Ratio Test for indirect illegality:
1. What is the purpose of the statute, on its proper construction? Is the
statute meant to protect the person claiming the illegality?
o If the plaintiff is protected under the statute, then it should be treated as
enforceable
2. What is the penalty of the statute?
o If yes to 1) and the penalty does not relate to the illegality of the
contract, then unlikely contract will be found to be illegal.
Notes
St. John Shipping Corp v Joseph Rank Ltd. (1957) - QB – Page S.61
Facts • Plaintiff loaded his ship so that it was submerged 11 inches below the load
line.
• The fine imposed on Plaintiff for doing so is a maximum of £100 per inch,
pursuant to the Merchant Shipping Act.
• Plaintiff was charged £1100 for its infraction.
• Plaintiff made an additional £2295 for overloading, which covered the fine
and caused Plaintiff to profit from wrongdoing. Defendant is upset that
their cargo could have been potentially ruined by Plaintiff’s negligent
overloading, withheld the additional £2295 to punish plaintiff further for
their infraction.
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Issue(s) Whether defendant can set aside contract because plaintiff performed the
condition of contract in an illegal manner (overloading the ship beyond its
load line)?
Decision Contract – judgement for plaintiff
Reasoning • Contract itself was not illegal, only the performance was and wasn’t done
intentionally when contemplated contract of carriage.
• Contract enforceable, and D must pay shipping costs.
Ratio General Rule:
A contract which is expressly or impliedly prohibited by statute is
unenforceable, regardless of the intentions of the parties to it. Application
depends on proof of parties’ intentions to break the law at the time the contract
was made:
a. If one party intends to perform illegally then they can’t enforce
contract, but other party can
b. If both parties agree to an illegal performance, then neither can
enforce contract
Ashmore, Benson, Pease & Co. v Dawson Ltd. (1974) – Eng CoA – Page 691
Facts • A piece of engineering equipment was being moved on a truck. They knew
the truck was not licenced to support this type of load.
• It was too heavy and ended up tipping over and causing damage to the
equipment.
• Company (Ashmore) is trying to get damages from the movers (Dawson)
but movers say the load was too heavy for the vehicle (it was contrary to
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the Road Traffic Act which had a 30 tonne limit, and this load was 35 tons)
and that the performance of contract was illegal.
Issue(s)
Decision
Reasoning • Contract is legal, but performance is illegal.
• It’s not a matter of whether you can prove an illegal agreement, it is a
matter of whether you had known that the contract could only be
performed illegally.
• Contract is unenforceable because they had to have known that it was
illegal at the formation of the contract.
Ratio Neither party can enforce the contract if the parties agreed to the illegal
performance, or they must have known that the contract had to be performed
illegally.
Notes
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• The bank already knew that the son’s business was going to go bankrupt
regardless of Bundy mortgaging his house, and they just wanted to lessen
their loss.
• So, son goes bankrupt, bank wants to sell the house and they bring action
against Bundy to evict him.
Issue(s) Is the contract unconscionable?
Decision Contract is voidable due to unconscionability.
Reasoning Lord Denning:
• Transaction was unconscionable because bank knew that the son’s
business was going to fail and used the ability to get the guarantee to limit
their losses on a loan. Shouldn’t have taken security from Bundy when
they knew the loan was going to fail.
• However, the contract may have been upheld if the father had received
independent legal advice.
• There is an inequality of bargaining power based on:
1. Consideration from the bank was grossly inadequate
2. The relationship between the bank and Bundy was one of trust and
confidence.
3. Relationship between son and Bundy was such that Bundy’s natural
love and affection had much influence over him.
4. Conflict of interest between bank and Bundy, the father should have
gotten independent advice.
Ratio In most cases customer who signs bank guarantee cannot get out of it;
exceptions where a guarantee is not legally enforceable if the guarantor is a
volunteer or a family member to the debtor and where unequal bargaining
power, unless that guarantor receives independent legal advice about the risks.
Notes
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• It is okay for the person giving the advice to could be associated with the
other party.
o Canadian courts have said this would not be independence
CIBC v Bartlo.
Ratio As long as you are not aware of there being actual influence, just a
presumption of influence and as long as the person who is in the weaker
position gets independent legal advice, than that balance the situation and the
contract is not voidable.
Notes
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Contracts Summary - Forbes
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Contracts Summary - Forbes
If you meet these two requirements, courts are entitled to make principled
exceptions, small excursions into the law, when necessary to make fair and
equitable results. Power and duty to make incremental changes to common
law to reflect emerging needs and values of our society This principled
exception applies in narrow circumstances – only to employees who are
performing the exact contract that contains the limitation clause.
Notes “major reforms of law of privity should come from the legislature but the
court has power and authority to make incremental changes and exceptions ot
the law”
2) Frustration
• When will we, on some occasions, excuse performance on a contract that is otherwise a
good contract?
• This is different from mistake because as the time of the formation of the contract, the
parties are not mistaken. But after the formation of the contract, something happens that
could not have been imagined.
• Need to determine what the legal test is to know when to trigger frustration.
• Need to determine what you do in a case of frustration for a deposit, partial performance,
etc. How do we settle the rights and obligations of the parties.
• Frustration does not occur when something is deemed impossible, it can just ben
materially different or difficult that makes the contract excusable.
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Contracts Summary - Forbes
Ratio • If the nature of the contract is such that the parties must have known at the
time of contracting that it cannot be fulfilled unless some specified thing
continued to exist, it is not a positive contract. An implied condition exists
that the parties will be excused from performance if that thing ceases to
exist without fault of the parties.
Old Test:
1) Whether the performance would have been expected to continue in
spite of the event; was one of the parties expected to be responsible for
this sort of risk? If so, there is no frustration.
2) Was this a situation that was meant to be covered by the contract or is
this an event that is so out of contemplation that performance should
be excused?
Notes
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Contracts Summary - Forbes
You can contract out of the entire Frustrated Contracts Act – you can even contract out of
frustration by inserting a “Force Majeure Clause”. This says that there is an anticipation of
some frustration events (such as an act of god) and that these will no longer frustrate the contract.
However, you need to be specific to include what qualifies to be protected by this clause.
3) Remedy
a) Damages
Interests Protected – Fuller and Perdue Article
Reliance interest: Plaintiff in reliance on promise of defendant changes his position – neglected
to enter into other contracts/spent other sums of money on expectation that defendant would
perform – award damages for purpose of undoing harm; put in position as it contract had been
performed.
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Contracts Summary - Forbes
Measurement of Damages
• General rule is that you need to prove not just your case but also what the measure of
your loss is and that can be difficult.
• Generally, it is the difference between the contract price and the market price. If you are
awarded this difference, you should be able to go out and purchase the goods from
someone else.
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Contracts Summary - Forbes
• This award would put the plaintiff in a far better position than if
performance would have done.
• Had the contract been performed, the plaintiff would have $12K , whereas
the damages suggested by the majority would give the plaintiff 60K!
Nothing special about this particular property that it had special value
specifically desirable for particular use.
Ratio
Notes Commercial Damages
• Lesser of cost of performance and economical value of performance
Personal Damages
• Should a person be able to get the damages they bargained for?
• If I did something for personal reasons, I am entitled to the damages of
performance.
• Cost of replacement performance provided this amount this be
reasonable (Forsyk)
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Contracts Summary - Forbes
Fidler v Sunlife
Facts • Insured was diagnosed with chronic fatigue syndrome and fibromyalgia
and was receiving long-term disability benefits.
• Despite lack of medical evidence that insured could return to work, insurer
terminated benefits after video surveillance showed insured driving and
shopping.
• Insured brought action for payment of benefits.
• One week prior to trial, insurer agreed to reinstate benefits and pay
outstanding amounts plus interest.
Trial judge awarded insured aggravated damages of $20,000. Award was
upheld on appeal to Court of Appeal. Insurer appealed.
Issue(s) Is loss of enjoyment, mental distress actionable in contract?
Decision Trial judgement restored. 20K for aggravated damages.
Reasoning • SCC agreed with trial judge that punitive damages weren’t appropriate in
this case.
• While the insurer's conduct in denying benefits for over five years in the
absence of medical support was extremely troubling, it was not sufficiently
so as to justify interfering with the trial judge's conclusion that there was
no bad faith to warrant an award of punitive damages.
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