Contracts Chart Winter

8/3/2019 Contracts Chart Winter

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CONTRACTS

ILLEGALITY AND PUBLIC POLICYIntroduction

Public policies are sometimes treated by courts and be legislators as being more significant than freedom of contract; thus contracts are sometimes said to be illegal orcontrary to public policy on various grounds.

Maddox v. Fuller (1973) The true test is whether the public interest is injuriously affected in such substantial manner that private rights and interests should yield tothose of the public.

Restraint of Trade (Effect of restrictive covenant)

Contracts, clause or combinations designed to eliminate or stifle competition, effect a monopoly, artificially hamper the course of trade or obstruct the course of trade orcommerce as it would be carried on if left to the control of natural economic forces. For example, one cant set up shop in specific area.

Shopping Center Leases may impose a restraint of trade that is in the best interest for all parties. Onus is on the party who wants to enforce restraint to prove thereasonableness for public policy (i.e. shopping mall limits the number of competing stores so that mall is a good mall).

Unreasonable restraints of trade which are illegal per se restraints interfering with competition in business and commercial transactions which tend to control market to thedetriment of purchasers or consumers of goods and services.

Restrictive Covenant/Agreement (Clause)

Protects an employer from having an employee as a competitor in the future. Restrictions can be for A) a period of time and B) within a certain geographic area General Rule: for a restrictive covenant to be enforceable it must be reasonable A) between parties and A) must be in the public interest

Solus Agreements Exclusive purchasing agreements in which one party promises to buy all his or her requirements of a certain commodity from the other party (e.g. Zehersis exclusive seller of Precedence Choice)

Illegal Contract

Illegal contracts which are in breach of a statutory regulation are unenforceable. Any property transferred under it is irrevocable, and any money paid out is lost. (Still v.Minister of National Revenue). Doctrine of Illegality is divided in 2 categories: common law illegality and statutory illegality.

Three Issues dealing with the effects of Illegality

Are contracts that offend a statute or common law head of public policy ever enforceable? Yes. Can a party ever recover money paid or property passed under the contract? Yes. To what extent are courts willing to sever offensive provision? To a fairly great extent.

Nine Types of Contracts which Offend Public Policy (Common Law) Contract to commit a crime, contract that is sexually immoral, a contract prejudicial to the public safety, a contract prejudicial to the administration of justice, a contract liable

to corrupt public life, a contract to defraud the revenue, a contract to oust the jurisdiction of the courts, a contract that tends to prejudice the status of marriage and a contract inrestraint of trade.

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Facts C Holding Ratio Notes

KRG Insurance Brokers Inc v.

Shafron

Shafron joined KRG after sellingthem his business and was subjectto restrictive covenant thatprevented him from competingwith KRG in Metropolitan Cityof Vancouver for three years

from termination When he left a number of

customers moved their businesswith Shafron to his new employer

KRG sued to enforce therestrictive covenant prohibitingcompetition

Shafron challenged thatMetropolitan City ofVancouver was not arecognized location.

SCC2009

Restraints of Trade and Restrictive

Covenants

An ambiguous clause cannot be areasonable clause, and will not beenforceable.

Notional severance has no place inrestrictive covenants of employmentcontacts

Blue line severance will rarely beuseful for restrictive covenant

In cases where there is a restraint of trade orrestrictive covenant, and as long as they are1) reasonable to both parties and 2) in thepublic interest, then the courts will enforcethem.

The clause must be reasonable to threefactors:1.) Must have reasonable geographical

scope2.) Must have reasonable time limit3.) Must be reasonable in the activities it

seeks to restrict

Reasonableness is determined by the

language of the covenant and thesurrounding circumstances, the nature andcharacter of the business employment on acase by case basis

Employers should not be invitedto draft overly broad restrictivecovenants with the prospect thatthe court will sever theunreasonable parts or read downthe covenant this would changethe risks assumed by the parties

Although the SCC said there may

be cases where a blue pencilcan be used to strike out aproblematic portion of a clause(i.e. Metropolitan), this will bedone sparingly and only when aremoval is trivial and not part ofthe main purpose of therestrictive covenant.

Still v. Minister of National

Revenue

Worked without a work permit ingood faith

CA1998

Effects of Illegality

CA allowed her to obtain UI benefitsbecause acted in good faith; dealtwith on a case to case basis and looksat true intention of parties didperson intend to harm or violatepurpose of the Act?

Language in document wasunambiguous

No other Canadian would take thejob (most Canadians would be

unwilling to take this job)

- An illegal contract may be unenforceable,but the Judge has discretion to enforce someor all of the contract where circumstancesand fairness dictate- Reflects new modern approach todetermining if a contract is void for illegalitythat is flexible and takes into consideration surrounding circumstances

Although a statute may prohibitan activity there is discretion injudgment; certainty must giveway to flexibility.

Courts construe a more flexibleview of illegality to uphold publicpolicy.

She was paying EI while workingso no depletion of the fund

If there was proof that she knewshe was not supposed to be

working than enforcement ofS.18(1) ofImmigrationRegulations would be enforced

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MISREPRESENTATION AND RESCISSIONRepresentations & Terms: Classification and Consequences

Representations are things that someone says to induce the other party to enter into a K

Misrepresentation = a representation made to someone to induce them into entering into a K that has later proven to be false.

Four kinds of misrepresentation (type of remedy you are seeking determines the type of misrepresentation)

1. Mere Puff: Has no remedy i.e. Buying a certain car does not mean you will attract girls for sure

2. Innocent: Rescission, puts party back into pre contract position(Redgrave; Smith) (Where you do not mean to tell a lie; do it recklessly)3. Negligent: Damages, puts part in position is contract was not breached (Bank of B.C.) (It is a kind of Tort)4. Fraudulent: Unravels everything, same position as if contract was not breached. Whatever best suits the victimized party (Test Kupchuck; Redican)

Also have Consumers Protection Relief is through the Consumer Protection Act

Who is Protectedan individual acting for personal, family or household purposes and not a person who is acting for business persons What is not included under the CPAS(2) of Act

Defences

Just giving my opinion on things

No longer an opinion if one person has or should have much more information than another

3 types of statements:

1. Sales talk or mere puff- representations made in advertising. NOT a term of the K2. Pre-contractual statements/representation can lead to limited legal consequences3. A statement which can be construed as a term of the K attaches more serious liabilities if broken

Advertisers are not allowed to tell an outright lie

A false representation can lead to 2 possible situations:

1. Rescission return to pre-K position, if you have been sleeping on you rights (delay in bringing rescission action, then action is void)2. Damages for breach of K general common law remedy. Compensation for what you should have received if K not breached. Post-K position.

Ways in which rescission cant apply:

1. completed K (applies to land, questionable whether it applies to goods and services)2. where there are latches (undue delay in bringing action)3. when it is impossible to put parties back to pre-contractual position (absent fraud)

Exception: fraud or complete failure of consideration

Warranty is a representation that has become a term of the K; very difficult to establish a warranty; best thing to do is to write it into the K.

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Facts/Case C Holding Ratio Notes

Redgrave v. Hurd

D (young lawyer) wanted topurchase Ps law practice & home.P told D yearly income was 300 -400; receipts showed that actualincome was 200/yr.

D refused to complete transaction;P sued for Specific Performance. Dcountersued for rescission, returnof deposit & damages for deceit

(1881)Ch. D.CA

Order for rescission & return ofdeposit

D did not get moving expenses

Had not proven deceit

The negligence of the party seeking relief isno defence for the party who has made themisrepresentation.

The party making the allegation ofnegligence has the onus of provingnegligence.

A party should not profit from their ownmisrepresentation.

Today: we would argue NegligentMisrepresentation Tort was not availableuntil 1950s here maybe old man would beforced to pay but stay in the practice

1. The person who made themisrepresentation can escapeliability if they show:

that the other party had clearknowledge of the truth and didntrely on the statement OR

the other party did not rely onthe statement (objectively)

2. Doesnt matter that the party hadthe opportunity to test the veracityof representation it only mattersthat they relied on it

Smith v. Land and House Property

Corp.

P sold hotel to D. P told D thathotel was leased to mostdesirable tenant. After purchasetenant went bankrupt.

D refused to complete

transaction, claimed P in positionto know of tenants desirability

(1884)Ch. D.CA

P misrepresented desirability oftenant to D

Shows difference between anopinion and a misrepresentation

Statement of belief isnt innocent

representation, but statement made wherematerial facts are not equally well-knownby both parties = misrepresentation

If facts are not equally known by bothsides a statement of opinion by oneknowing facts is usually a statement of

material fact, for that party implies heknows the facts to justify that opinion

If both parties have the sameknowledge, it is a statement offact

When one party has moreinformation/knowledge, it is astatement of opinion

Bank of B.C. v Wren Developments

Bank had Allan (D) sign newguarantee after Smith (D)requested release of shares. Allanthought bank still held shares.

Bank sued Allan (D) foroutstanding sum b/c nobody elsehad $

(1973)B.C.S.C.

Allan (D) is not liable to P onsecond personal guarantee. Actiondismissed

Silence does not constitute

misrepresentation and a Bank will alwaysbe held to a higher standard whendealing with the public as they have afiduciary duty to their clients

If a true representation is followed by achange in material circumstances prior toan agreement which renders the statementfalse, the representor has a duty to drawthe change to the representees attention

Silence can bemisrepresentation only for abank

Bank has a duty to check forMr. Allan before they madehim sign. Bank has a fiduciaryduty toward their customers

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Kupchak v. Dayson Holdings Ltd.

(A) purchased shares in a motelin return for 2 properties & amortgage given to (R). R sold interest in one of the properties,tore down existing bldg & builtan apartment this is after theyhad notice that they were beingblamed for misrepresentation

A discovered that Rmisrepresented past earnings ofmotel. A stopped making pmts

(1965)B.C.C.A.

Order for rescission, howeverbecause of circumstances,recession cannot take place, so thecourt referred to it as compensation

In cases of fraud, rescission is available

and monetary compensation is availableto restore parties to their pre-contractualposition

There are at least three bars to

rescission: 1) affirmation of a contract(appear to accept contract throughconduct e.g. running hotel for 4 years),

2) latches or delay (sleeping on yourrights), 3) third party interest (wherethere is a third party interest, rescissionmay not be available

Fraud = give parties whatever they want

Fraud unravels everything

HYRSKY v. SMITH

Cannot award damages for anequitable remedy damages isa common law remedy and thisis the problem in this case

Hyrsky v. Smith Monetary compensation is not availablefor rescission

KUPCHAK

Redican v. Nesbitt

D purchased leasehold propertyfrom P. 2 days after keys & leasedelivered to D, D inspected &

discovered misrepresentation onseveral crucial particulars. Dstopped payment on cheque & Psued for amount of K

[1924]SCC

D cannot claim rescission becauseK was fully executed.

Once K is executed for land(conveyance), rescission for innocentmisrepresentation is not an availableremedy for the defendants

Exception to the rule: where there is apatent defect concealed (major defect e.g.crack in foundation)

Burden falls on D to prove that there wasmisrepresentation to prove rescission

Class Note:

When you buy a house there are twocontracts:

1. Agreement to Purchase and Sale

2. ConveyanceYou have had all the time during Contract 1 tolook at the house might get damages if therewas misrepresentation but will not be able toreturn the land this could result in chaos interms of the real estate market

Red Flag - general rule oflaw: an executed (completed)K for the sale of land cannot berescinded for innocent

misrepresentation except undervery strict conditions (or hugeerror or fraud)

How to establish fraud:

1. Agent knew representation was

false, or

2. Made representation without

belief in truth

3. Made representation recklessly

or carelessly of whether it was

true or false

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Helbut, Symonds & Co. v.

Buckleton

Appellant underwrote shares in arubber company. Shares weredevalued. Respondent sued forfraudulent misrepresentation &alternatively for damages forbreach of warranty that thecompany was a rubber company

[1913]H.L.

There was no misrepresentation or

warranty made no intention thatthere should be contractual liabilitywith respect to the accuracy of thestatement

Existence of a warranty must be intended bythe parties to be a contractual term.

There are no damages available for

innocent misrepresentation (See SmithAbove)

An oral collateral contract is the same as

an oral warranty these are pre

contractual contracts to induce you into

the main contract

Oral collateral warranties aresmaller Ks that induce one toenter into a main K. Must provethat there was intention to create

a collateral K it is very rarethat a collateral K is found.

Policy rationale behind this case:trying to make contracts morecertain

Dick Bentley Productions Ltd. v.

Harold Smith (Motors) Ltd.

P brought action for breach ofwarranty on sale of car. D maderepresentations about carsmileage.

[1965]C.A.

There was ample foundation for theinference of warranty & that thewarranty was broken

Ds statement was a warranty of K &P was entitled to damages

Requirements for a warranty: If a

representation is made for purpose ofinducing the other party to enter a contract,and it actually induces the person to enterthe contract, that is prima facie ground forinferring that the representation wasintended as a warranty

Whether a warranty was intended dependson the conduct on the parties, on their words& behaviour, rather than their thoughts. Ifan intelligent bystander would reasonably

infer that a warranty was intended, that willsuffice.

To try to get around a warranty,in the written K, can put a clausein the K such as, There are nooral representations, warranties,etc. made in this contract.However, can still get around this its usually in boilerplate, whichisnt always binding.

HELBUT

- When you have one person sellingto another CPA does not apply only when between company andindividual it applies

Leaf & International Galleries

P purchased painting & discoveredit was not by the artist that hethought it was when he went to sellit 5 yrs later

[1950]C.A.

P is not entitled to rescission courtdetermined that the term was acondition of sale & not a warranty

A court will not relieve a party of a bargainif the mistake is related to the quality ofgoods rather than to their identity.

Once a buyer has accepted or is deemed tohave accepted the goods in performance ofthe K, he cannot thereafter reject but isrelegated to his claim for damages.

On a K for the sale of goods, an innocentmaterial misrepresentation may in a propercase be a ground for rescission even after

the K has been executed

If you are the P, you would arguebreach of warranty & you wouldget damages which would be thedifference of what its worth &what you paid

Note: Sales of Good Act once a

buyer has accepted, or is deemedto have accepted (passage of areasonable time) then the claim isbarred). If barred under SOGA

for delay, it will be delayed underrescission (weaker remedy)

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Concurrent Liability in Contract & in TortTheory of Concurrency

The right to sue in tort is not taken away by the K, although the K may limit or negate tort liability

The mere fact that parties have dealt with a matter expressly in their K does not mean they intend to exclude the right to sue in tort

Express-Implied Distinction

Difficult to distinguish the right to sue based on the implied-express distinction; both are considered as being equal in effect, both treated seriously in court, not evident that

expressed terms intended to oust the availability of tort remedies in respect of that duty Strictly tort remedies as a way to resolve disputes may be specified in an express clause of the K

The question on whether a concurrent action in torts lies would depend not only whether the K expressly deals with the matter, but also on the elasticity distinction b/wcommercial & non-commercial Ks, the courts perception of relative bargaining power, and finally, whether the court sees the result as just or unjust

To establish a duty to exercise reasonable care:

A special relationship must exist:1. Person is in business of giving advice2. Where person has special skill or knowledge and knows the other is relying on him for his advice; can be anyone in position to have someone rely on them3. A special relationship often arises in context of pre-existing relationship

Where there is a special relationship, you can be held liable if you fail to exercise a reasonable duty of care in rendering an opinion. (Hercules Management v. Ernst &

Young):1. Is there a sufficient relationship of proximity such that in contemplation of wrongdoer carelessness on part may likely cause damages to plaintiff?2. Are there any policy considerations to negate #1?

Degree of proximity can be established in 2 ways:

1. Defendant ought to reasonably foresee that the plaintiff will rely on representation; and2. It would be reasonable for the plaintiff to rely on the representation.

What court will look at for reasonable reliance when not so clear:

Defendant had direct or indirect financial interest to the representation that was made

Defendant is a professional or someone who possesses skill, judgment or knowledge

Advice or information was given in the course of the defendants business

Advice or information was given deliberately & not on a social occasion (this may not hold today) Advice or information was given in response to a specific inquiry or request

Advantages of Concurrent Liability: Can have more options available to you (most advantageous route)

Where concurrent liability in tort & K exists, the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular

legal consequence (Central Trust v. Rafuse)

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Facts / Case C Holding Ratio Notes

Hedley Byrne & Co. v. Heller

Easipower went to ad agency(Hedley) for loan. Ad agencysought creditworthiness & Bank(Heller) gave favourable opinionw/out checking. Easipower wentinto liquidation & Hedley sued

(1964) Launched tort or negligent

misrepresentation

Must be some sort of special relationship

between parties, and person giving theinformation, must be people in the businessof giving advice (e.g. doctor, lawyer,banker)

For a pre-contractual misrepresentation thatinduced one party to enter into a K, you cansue in either tort or for breach of K

Sodd Corp. v. Tessis

D (a chartered accountant &licensed trustee in bankruptcy)overvalued goods of company by100%.

(1977)Ont.

Pre-contractual negligentmisrepresentation induced P tosubmit its tender, therefore D isliable. D is professional accountant& trustee in bankruptcy whichcreated a special relationship &corresponding duty of care to P. Dsstipulation amounted to an overridingof the exemptory clause

Advice-giving professional has 3 options:1. Remain silent2. Give opinion but with a qualification3. Answer without qualification if this

option, then he has accepted a specialrelationship with the inquirer

Pre contractual misrepresentation may give

rise to liability in tort if a representation ismade negligently, which induces the other

party to enter into the contract (looks likeoral collateral warranty)

Reasonable person would haveknown, or ought to have known thathis representations would be reliedupon

BG Checo International Ltd. v. BC

Hydro & Power Authority

BC Hydro called for tenders toerect transmission towers. Areashouldve been cleared prior towork being started, but wasnt. Pclaims negligent misrepresentation.D tries to use clause stating that itsthe tenderers responsibility toinspect the site to their satisfaction.

[1993]SCC

D is liable for breach of K.

Specific clauses in the K overridegeneral ones

The tort duty was not limited orexcluded by any express provision. Pcan also claim for negligentmisrepresentation

Overrules Hedley: unless the partiesindicate otherwise (e.g. limited liabilityclause) you can sue in tort AND contract

Exceptions to concurrent liability: Wherethe contract is void for fraud, mistake, orunconscionability,

A clause limiting liability may not apply incases where the tort (personal wrong) isindependent or falls outside the scope of theK (e.g. personal wrong has nothing to dowith the contract)

If a K stipulates a more stringentobligation than tort law wouldimpose, then you would only suein K (would be easier to argueliability.)

If a K limits the right to sue intort, then you have to sue in K.

If the duties in tort & K aresimilar, & tort has not beenexcluded, then can sue in eithertort or K and you would useboth.

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Parole Evidence Rule Traditional Rule: Anything that is not in the written agreement is extrinsic to the agreement (any oral conversation that adds, subtracts, or contradicts something in a written

contract is parole evidence and

There will always be a written K with this rule. Everything that has been decided on is in the K, and it has been signed by the parties. Old version of rule: Anything that isnot in the agreement is extrinsic to the agreement. If anything adds, subtracts or modifies the written agreement, it is parole evidence and it cannot be added to the K.

This rule is a presumption that a document that looks like a K is to be treated as a whole K. This is a rebuttable presumption. It is open to either party to allege that there wasin addition to the written agreement an oral express stipulation not intended by the parties to be excluded, but intended to continue in force with the express written agreement.

8 Important Factors (GALLEN v. BUTTERLEY)1. You cant make 2 Ks that contradict each other2. The rule is not absolute, parole evidence rule is really just a rule of evidence and not a law3. Canadian case law has recognized that it isnt absolute.4. If the contract is induced by a oral misrepresentation that is inconsistent with the written contract, the written contract cannot stand (Bauer)5. This parole evidence rule is a strong presumption (i.e. in favour of the written document). This is rebuttable6. strongest when oral representation is alleged to be contrary to written agreement, less strong when oral representation only adds something or varies the contract7. The presumption is strongest in individually negotiated contracts & less strong in standard form Ks8. Where there is a specific oral representation versus a general exemption clause, then the presumption is less strong (favours oral evidence)

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R. v. Horse

A group trying to enforce verbalconversation b/w them & the govt

(1988)SCC

Court applied parole evidence rule Where the K is not ambiguous, there is noneed to allow parole evidence

Zell v. American Seating Co.

$1000/month, commission to bedetermined at a later date to fall

between 3 8%. Written Kreplaced commission with a bonusamount to be determined & givenat employers discretion

[1943]C.C.A.

Parties deliberately intended thewritten K to be a misleadingstatement of their real agreement

Once the parties agree that a writtenpromise is not to bind them or the writtencontract is a sham, then the written

agreement lacks legal efficacy & then paroleor other extrinsic evidence will beadmissible

Today, courts derive the mutual assent(intention) of the parties from their actionsbased on a reasonable person

Parole evidence rule does not stand up whenthe intention of the parties and expression isSO different from the provisions of thecontract

The following factors affect thestrength or weight to be attached tothe parole evidence rule:

Form & content of the writing Whether writing has been signed

Status of the parties

Circumstances surrounding thepreparation of the document

Subsequent conduct of the parties

Whether the K is a standard form

Nature & effect of the paroletestimony

The presence of a merger clausein the writing

Hawrish v. Bank of Montreal

P (lawyer) signed guarantee onbanks usual form; P had oralassurance that guarantee was tocover only existing indebtedness &would be released once theyobtained a guarantee fromdirectors.

[1969]

SCC Parole evidence expressly contradicts

the written agreement. No clearevidence of an intention to createbinding oral agreement court foundin favour of the bank

Outside evidence is only admissible wherethe provision of a written K is ambiguous

A collateral (oral) agreement cannot beestablished where it is inconsistent with orcontradicts the written agreement (this is theparole evidence rule applied)

Any agreement collateral orsupplementary to the writtenagreement may be established byparole evidence provided it is onewhich an independent agreementcould be made without writing &is not inconsistent with orcontradictory of the writtenagreement

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Bauer v. Bank of Montreal

P guaranteed loan; book debts ofcompany supposed to be assignedby bank but bank does not properlyregister; subsequent bankruptcy ofcompany bank not preferredcreditor

[1980]SCC

Parol evidence would expresslycontradict the terms of the guaranteethat gave the bank the right to abstainfrom registration & perfection ofsecurity. Hence, it would beinadmissible under parol evidencerule & any collateral agreementfounded upon it could not stand

bank was able to collect

There must be sufficient evidence of an oralmisrepresentation which induced the partyto enter a K for the parole evidence rule tobe set aside.

If the K is induced by an oralmisrepresentation that is inconsistent withthe written K, the written K cannot stand

Same decision as Hawrish

Curtis v. Chemical CleaningWhere there is misrepn that iseither innocent or fraudulent, theycannot rely on written K incontradiction of the misrepn.

Roberts v. Montex repns in a

brochure (merger clause =integration clause). Can getaround parole evidence rule ifthere is unequal bargainingpower.

J. Evans & sons v. Merzario

o During shipping machine

was stored on deck, fell off and lostinto ocean

A breach of an oral warranty

(misrepresentation)that induces a party toenter into written contract, OR there wasboth an oral and a written contract (thatwhen looked at as a whole form the entireagreement) the breach of either oral orwritten components will give rise to

damages

Counter case: Hawrish and Bauer

Lister v. Dunlop

Lister was advised by lawyer not tosign a written contract thatcontradicted an oral contract butsigned anyway

Parole evidence rule applied(probably because Lister had legaladvice)

Created a window for people to get aroundparole evidence rule by saying there clientsdid not have legal advice

Counter to Evans

Gallen v. Butterley

K for buckwheat. Seed companyfirst brought action b/c farmers didnot pay for seed. Farmers counter-sued for breach of warranty & lossof profit b/c of no buckwheat

(1984)BC CA

The word crop in this contextmeant yield. The oral warranty &the written agreement do notcontradict each other

No contradiction dont need touse parol evidence rule. Farmers lost

If there is a contradiction between writtenterms & oral representation, there is a strongpresumption in favour of the writtendocument but if there is clear evidence thatthe oral warranty was to prevail, it willprevail

8 principles (above)

Specific term overrides a generalterm

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Classification of TermsFrustration of Contract

Where existence of a specific thing, either by the term of the K or in contemplation of parties, necessary for performance of a promise in the K, duty to perform promiseis discharged if thing is no longer in existence at time of performance.

Frustration of Purpose

A party to a K will be relieved of his or her duty to perform when the objective purpose of performance no longer exists (due to reasons beyond that partys control). Thisdoctrine excuses a promisor in certain situations when the objectives of K have been utterly defeated by circumstances arising from formation of agreement, &

performance is excused under this rule even though there is no impediment to actual performance.

If a condition is breached, can repudiate K & stop performing. Would write this into the K.

If a warranty is breached, all you get are damages. Must continue performing K cannot repudiate it.

It is often not clear whether a clause is a condition or a warranty.

Key to whether youre looking for a condition or warranty: someone wants to repudiate.

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Hong Kong Fir Shipping v.

Kawasaki

24 month K (lease), owners tomaintain efficient state of ship; nopayments for repair time exceeding24 hours; ship deliveredundermanned & old/inefficient.Couldnt lease ship and kept in

drydock for total of 20 weeks. Dwanted to repudiate K & getdamages. P sued.

1962Eng.

This was a warranty

Ds were not substantially deprivedof the K

1. Hong Kong Fir test is only used whereterms cannot be identified as conditionsor warranties by traditional tests ofconstruing the K.

2. Test:a. Construe the K to see if theres a condition

or warranty;

b. Take into consideration thenature of the industry (e.g. ships tend to getlaid up in drydock);

c. If terms cannot be identified as conditionsor warranties, look at the consequences,nature & effect of the breach.

d. If the breach deprives theinnocent party of substantially the wholebenefit of the K then the innocent party mayrepudiate (stop performing/get out of thecontract). Otherwise, remedy is damages.

Hallmarks of case:

Must be an ongoing K.

Is it a condition or a warranty?

If innominate/intermediate(ambiguous) term, look atconsequences of breach (TEST).

If substantial deprivation of benefit,then can repudiate.

Hong Kong Fir test:

The party that breaches thecontract cannot use their breach asa means of rescission (still mustperform). If the breach deprivesthe innocent party of the wholebenefit (or a substantial part) theymay repudiate. Otherwise remedyis damages

Krawchuk v. Ulrychova

Cribbing horse

1996AltaProv.Crt.

Did not deprive P benefit of whole

K but gave her of her moneyback anyway

This is the Canadian application of the

Hong Kong Firtest (look at consequences& gravity of breach).

Wickman Machine Tool Sales Ltd.

v. Schuler A.G.

Provision in K that includedweekly visit from sales rep.Provision is called condition. 2clauses in conflict termination ofK & weekly visits

1974Eng.HL

Use of the word condition is notconclusive if that construction leads to anunreasonable result. Subsequent action isoften a clue as to the intentions at the timeof creation of the K.

Must write condition into K breach ofwhich will give rise to repudiation. Mustmake intention clear or will not be able torepudiate.

Denning had to harmonizebetween the 2 terms specific &general

Rule in British courts wasreviewed: cant look @subsequent actions to interpretparties intentions were at thetime of the K (British rule; inCanada, you can look @

subsequent actions)

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Discharge by Performance or BreachTo what extent is the party in default able to enforce the K itself?

In cases where breaches do not relieve innocent parties the defaulting party may enforce the K

Often K are created in a way that avoids this situation from happening, for example, building Ks may stipulate that it is a condition of the obligation to pay that the work mustbe completed & to the owners satisfaction this K would be enforceable once work is done satisfactorily

Definitions:

Deposit a sum payable in advance to secure a K. If K not performed, deposit is forfeited

Down payment a sum paid in advance toward the full sum. If K not performed, money is returned

Penaltyclause a sum provided for in a K which only becomes payable after a breach of the K. For example, for every day late, there is a daily payment

Contra proferentem decision against the person who put forward the standard form agreement. The party should have been cleared.


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Cutter v. Powell

Employment K for seamanwho died at sea withoutperforming all of hisobligations. Family tried toclaim for his wages

1795 Family not entitled to wages When someone signs an entire K, they mustcompletely perform everything in K beforethey get paid. Strict rule! Has led to themitigation of this drastic outcome.

Modifications to mitigate strict rule:

See if that clause cansomehow be severed fromthe K so that can receivepay.

Doctrine of substantialperformance ifsubstantially performed,are entitled to be paid for

itMarkland & Associates v. Lohnes

M renovated Ls property

L made some payments byrefused to pay the balance of thecontract price because of defectsin workmanship

M sues for price of contract

1973NS SC

M entitled to some money basedon partial performance minus costof defects

Elaborates on doctrine of substantialperformance

Where the contract has been substantiallyperformed but with defects, the judge willaward the completed price, minus theamount to fix the defects

Fairbanks Soap Co. v. Sheppard

D made soap machine for P. Ppaid $1000, D refused to do anymore work until full paymentmade. P sued to recover moneypaid. D countersued for fullcontracted price

1953SCC

Crt held for P. There was nosubstantial completion of K since Dabandoned it. D could not receiveany money

Where a contract is entire, or a lump sumcontract, there will be no payment unless ithas been substantially performed

Substantial completion will be assessedaccording to all of the circumstances on acase by case basis.

Case shows need for draftingclauses in the event of a breach

When a K has not been rescinded,

you have to deal with whether themoney is a deposit or a downpayment

Sumpter v. Hedges

Contractor building a house, ran outof money and abandoned project

Another contractor finishes thecontract

Original contractor sued for moneyfor work completed

1898Eng.CA

Ruling for defendant (againstoriginal contractor), no substantialperformance

When you make a contract for a lump sumand you dont substantially finish, you arenot entitled to any money

Similar toDeglman established law ofrestitution. Where someone has made someinvestment into a property & gets nothingout of it, you dont allow the other party tobenefit from it. Unjust enrichment

Contractor today would get

something back under the law of

restitution (quantum meruit) an equitable remedy

Law does not want people togain windfalls at other peoplesexpense

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Howe v. Smith

Contract for land, 500 deposit

Purchaser defaults on paymentand doesnt close on closing date

Vender wants to keep 500 poundsas a deposit

1884CA

P is not entitled to recover haslost right to both specificperformance & right to sue fordamages for its non-performance

A deposit may be construed as a forfeiture

rather than a part payment, depending onthe conduct of the parties, surroundingcircumstances, language used, and size ofthe contract on a case by case basis

Hallmarks:

Deposit is binding (almost likeconsideration) & the amount is avery small fraction of the entiresum generally a certainpercentage of the brokers fee

Courts do not generally likepenalty clauses unless they arevery fair a penalty clause comes

after the breach A deposit is never implied it

is always express

Stevenson v. Colonial Homes Ltd.

Purchaser goes into office andreceive a standard form contract

Contract has both down paymentand deposit written on thecontract

Purchaser signs under downpayment side

Purchaser decides he wants outof contrac

1961Ont.CA

Ruling for Purchaser (Taken as adown payment, if it was construed asa deposit, not entitled to money back)

To determine if there was a downpayment or a deposit must look at theintention of the parties, the language usedand the surrounding circumstances

Standard form contracts are interpreted

against the party who has brought it (contraproferentum). If there are ambiguities, theyare interpreted against the party bringingthe contract

Contra proferentem: Onus is on the partywho proffered the standard form K to makethe other party aware of the specific termslook at language, circumstancessurrounding it. (Standard form =boilerplate)

In a standard form K, the crtinterprets ambiguous terms infavour of the party signing, notthe party that submitted the K forsigning

A seller should not use wordsof uncertain meaning when hecould have removed all room for

doubt by the use of more specificlanguage as to whether pre-payment was deposit or not

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18/53

Standard Form Contracts & Exclusion ClausesWhether or not a person is bound by conditions on back of ticket:

If person receiving ticket did not know there was writing on back, he is not bound by conditions.

If he knew of writing & that it contained conditions, he is bound by them.

If he knew there was writing but didnt know that it contained conditions, he is bound by them if reasonable notice was given of conditions

Contra proferentem (strict construction) If K drafted by one party, any ambiguity goes against drafter of the K; strictly interpret the words as they appear on the K.

Fundamental breach one of the parties has failed to do what they agreed to do & breach goes to the root of the K; cannot then rely on limitation of liability clause

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Machtinger v. HOJ Industries Ltd.

2 employees of used car lot.Dismissed without reasonablenotice

Given 4 weeks notice pursuant toAct but argued they were entitledto more (reasonable notice) thenthe minimum even though they

contracted for less

1992SCC

Termination clause was a waiver(because did not need to give noticeof termination) but cannot waive outof a statutory obligation (Act) clause is null & void

The presumption is rebuttable if thecontract specifies otherwise

Common Law reasonable notice prevailsunless contract states otherwise (no lessthan minimum)

Contractual terms can be implied by fact,law or custom & usage.

Statutory interpretation isnecessary & of importance in thelegal field

Scott v. Wawanesa Insurance

Son set fire to house deliberately.Clear provision that Insurance didnot cover willful or deliberate acts.

1989SCC

Policy does not cover damage noambiguities in clauses

This particular case turned on the simplefact on whether the wording in theexclusion clause was ambiguous or not.Once it is unambiguous or clear there is noliability to the insurance company

Contra preforendum applies to ambiguities

in favour of the insured

Insurance K is the classicboilerplate K

Parker v. South Eastern; Gabell v.

South Eastern

Pls left belongings at railway. Pls

did not read nor notice limitation ofliability clause on paper ticket orposted on sign.

1877CA

Railway company did not giveplaintiff reasonable notice ofcondition

If it is generally known that such ticketscontain conditions, then the person is boundeven if the conditions are unread

If the party relying on the conditions givesreasonable notice, and has brought terms tothe attention of the other party, then theexemption clause will be upheld

If person receiving ticket did notknow there was writing on back,he is not bound by conditions; if

he knew of writing & that itcontained conditions, he is boundby them. If he knew there waswriting but didnt know that itcontained conditions, he is boundby them if reasonable notice wasgiven of conditions

Thornton v. Shoe Lane Parking

Parking garage, car dropped onplaintiff

Conditions written on ticket andposted around garage waiving

liability for person injury Posted conditions werent visible

until after formation of contract

1971Eng.CA

D cannot rely on exclusion clause;condition did not form part of K

Any unusual or onerous exclusion clause isineffective unless brought to the partiesattention before the time the contract isconcluded

Condition deals w/ personalinjury different than personalitems in car or the car itself. Iftheres going to be an exemptionfor personal injury, it must be

brought to the customersattention ahead of time b/c notnormal practice (red fingerpointing to the clause)

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20/53

Barnes v. Union Steamlines

Northern BC. Ship went to aninaccessible area in BC to bringpeople to Vancouver. Ticketpurchased once person is on ship had limited liability clause. Personwas injured

See class notes (good luck)

probably same as ratio fromMcCutcheon

This was the only companyproviding this service in the area;if found liable, they may notservice the area any longer dilemma for the court. SCCconvened twice to hear the case.Not sure what the holding is.

MUCUTCHEON (same)

TILDEN (same)

FRASER (different)

Interfoto Library Ltd. v. Stiletto

Visual Programmes Ltd.

Photographic transparencies +terms sent by P to D in bag. Notestated late charges. D claims notnot aware of charges.

1989Eng.CA

P did nothing to draw Ds attention

to condition 2 - it did not becomepart of K

In a good faith in contract where the terms

and conditions are particularly harsh, theymust be brought to the attention of theopposite party and the condition must befair (not only buyer beware, but seller befair

Judge may determine what is fair

and order damages based onmarket value

Sometimes penalty clauses aretreated as exclusionary clauses

In this case, the penalty clausewas found to be exorbitant

McCutcheon v. David MacBrayne

McCuctcheons car is lost on aferry

Conditions posted limiting liabilityNever signed risk note

McCutcheon should be fullycompensated for his car

Must prove actual knowledge that party

was aware of the terms and conditions ifone wishes to hold a party liable for the

terms and conditions (west thinks this iswrong)

If a service provider is trying to bring the

best possible service to customer and thealternative is no service, or a much higherprice of service, the courts are more likelyto consider limiting liability fair

BARNES (same)

British Crane Hire Corp. v.

Ipswich Plant Hire Ltd.

Oral agreement by D to hire Pscrane. No mention of conditions.Crane was then delivered & soonafter P in accordance with itsbusiness practice send D a printedfrom to be signed setting outconditions of hire. Before Dsigned, the crane sank in marshyground. By printed condition, Dwas required inter alia to indemnifyP against expenses incurred inconnection w/ the use of crane.

1974Eng.CA

Should D be bound by an agreementthat he had made but that wasntsigned? YES.

Objective (reasonable) person would knowthat these agreements contained exemptionclauses. Also, there had been previouscourses of dealings w/ P, & D knew thatthere were exemption clauses. D wasdeemed to know. NOT a subjective test

Where party are equal & knowthe norms of the industry, impliedterms can be inferred

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21/53

Tilden v. Clendinning

D rented car from P.

D agreed to pay additional $2/dayfor full non-deductible insurance,with stringent no alcohol clause

D did not read contract, had onedrink and crashed car

P sued for damage to vehicle

1978Ont.CA

P cannot rely on exclusion clause D not liable for damage

If a Company uses extremely stringentterms in a contract, that they do not bring tothe attention of the other party, and theterms are not intended to be relied upon,they cannot rely on the signature of theother party

Contractor inserting clausesinconsistent w/ overall purpose ofK must use reasonable measuresto bring to attention & not simplyhand over to be signed

BARNES (similar)

FRASER (different)

Delaney v. Cascade River Holidays

Delaney late addition to raftingtrip.

While boarding bus, passengerssigned std liability release. All

except Delaney received brochure

detailing liability exemption priorto trip. Paid fee for trip, and wasasked to sign release after. Wifesued for compensation

1983BC CA

D was negligent in not providing lifejackets of proper buoyancy, but Pfailed to show that Ds negligencecaused Delaneys death b/c it couldnot be shown that he would have

survived if he had worn a jacket ofmore buoyant specs

DISSENT IS NOW LAW!!!

People who go on adventures are deemed toknow there is risk and there will be awavier of liability

Dissent: Past consideration, paid for trip,

waiver came after the fact (pastconsideration is no consideration)

Insufficient notice: provision too onerous tobe singed in a rush, obligation of rivercompany to bring it to Delaneys attention(no presumption of advance knowledge ofdisclaimer); use of word standard induceda sense of security in passengers; releasedidnt mention personal injury or death

Red flag inDelaney

difference b/w this case & Tildenis that there is a personal risk, theperson knows it & probablyknows that they will have to sign

a waiver. The company has doneits part in bringing the exemptionclause to the attention of thecustomer.

SUNDANCE

party at a ski hill

somebody takes a rubber tube downmoduls after drinking

signed waiver while intoxicated

company liable because they wereaware of the intoxication (hosted

party)

no ratio provided in class, but it looks like awaiver is not valid if signed while

intoxicated

LEstrange v. F. Graucob

P bought cigarette machine from D &signed agreement w/out reading. Aclause stated any express or impliedcondition, statement or warranty,statutory or otherwise not statedherein is hereby excluded. Machinewas defective. P sued

Eng When a document containing contractualterms is signed, then, in the absence of fraud& misinterpretation the party signing it isbound & it is wholly immaterial whether hehas read the document or not

ENGLISH CASE

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23/53

Fundamental Breach and UnconscionabilityFUNDAMENTAL BREACH

Construe a K read the K as a whole. Look at all the terms & conditions & harmonize them with each other.

Primary K= the actual performing of the K (ex., security guard providing security)

Secondary K= obligations that arise when a breach occurs (look to the consequences i.e., degree of loss & see what the remedy is ex., damages)

Fundamental Breach Fundamental Breach Against

Karsales SuisseHalbutt Photo Productions (modified/overrules)

Hunter Engineering (modified)

UNCONSCIONABILITY

Considerations for unconscionable Contract (Davison v. Three spruces)

1. Was K standard form drawn up by bailee?2. Were there any negotiations as to terms or was it a sign here K?3. Was bailors (P) attention drawn to limitation clause?4. Was the clause unusual in character?5. Were representations made that would lead ordinary person to believe clause would not apply?

6. Does language of K read with clause render implied duty on bailee to take reasonable care meaningless?7. Considering all facts & representations by bailee, would the upholding of the limitation clause be an implied approval by courts of unacceptable business practices? acceptable business practices varies from industry to industry

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Facts/Case C Holding Ratio NotesKarsales (Harrow) v. Wallis

Appellant viewed car and agreed topurchase a week before delivery

Exempting clause waived liabilityto the seller for condition of carupon delivery

When delivered the car wasbutchered

Appellant refused to accept the car

Defendant sued for payments

1956C.A.

Appeal allowed (ruling forpurchaser)

Implied term in course of businessthat the car would be delivered insubstantially the same condition

When you have a fundamental breach, thecourt will strike down the exception clauseby rule of law

If a breach goes to the root of the contract,then an exclusion clause cant be relied on

Three later cases rule to the contrary

See top for counter cases

Suisse Atlantique v. Rotterdamsce 1967A.C.

When you have an exemption clause youshould construe the contract on its ownterms

No automatic striking down of exemptionclauses (the ROL does not apply


Habutt Plasticine v. Wayne Tank

Wane tank company put tanks andduraplastic pipes in plasticinecompany (exemption clause

relieving Wane Tank of liability) For grand opening wanted to showplasticine in pipes, turned onmachine and went home for thenight

Duraplastic pipes cracked fromheat, spilled on to floor of factoryand place burnt down

Denning said this is a fundamental breachthat goes to root of contract, and court willnot uphold the exemption clause because ofa rule of law

Denning attempt to resurrect Doctrine of Fundamental Breach


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25/53

Photo Production Ltd v. Securicor.

Transport Ltd.

Night patrol service, security guardstarted fire deliberately while onduty.

Exemption clause limiting liabilityof security company to personsperforming actions pursuant to theiremployment

Does exemption clause apply?

1980EngHL

Words of clause are clear A canrely on clause; liability is excluded

Court distinguishes between primaryand secondary obligations

Primary obligations: to performcontract

Secondary obligations: pay ifperformance is not carried out

An exclusion clause is to be applied to

fundamental breach by construing thecontract (determine intention of the partiesat time of signing) and not a rule of law

Where parties are of equal bargaining

power, and the risks are normally allocatedby insurance, parties should be free todetermine for themselves the terms andconditions of their contract

Whether or not an exclusionclause is to be applied to afundamental breach is a matter ofconstruction & not a rule of law(the K must be construed as itwas on the day it was signed)

This case modifies/overrules the

concept of fundamental breach

Hunter Engineering v. Syncrude

Canada

K bw def and pl was regarding 32gear boxes for $750,000 and 4

extraction gear boxes for $400,000.Merger clauses differ in both K

one stated that this was the onlywarranty & no other warranty,statutory or otherwise, would apply

1989SCC

Exclusionary clause applied b/c itexpressly excluded Sale of GoodsAct

Two approaches to exemption clauses(unconscionable v. unfair andunreasonable)

Dickson: look at intentions of party at the

time of signing, and see if there is anythingunconscionable, if not it will be upheld

Wilson: look at exclusion clause after a

breach, see if it is unfair and unreasonableand leave discretion to the courts

Both: Exemption clause should be strictly

construed against the party seeking toinvoke it. And clear and unambiguouslanguage is required to oust an implied statutory warranty

Canadian version of PhotoProduction v. Securicor

UNCONSCIONABLITY

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Davidson v. Three Spruces Realty

Bulk storage contractcontained a liability clause thatrelieved all liability to the defendant

Defendant did not takepropert precautions to protectvaluables and they were stolen(negligent care)

Defendant seeks to rely onexemption clause.

1977B.C.S.C.

Exemption clause is so unreasonablethat it cannot be enforced

If the exemption clause is so extreme that itleaves one of the contracting parties withno obligations, then it is unreasonable orunconscionable

Considerations for unconscionable K (hasfreedom of contract been abused)

1. Was K standard form drawn up by bailee(person entrusted with goods)?2. Were there any negotiations as to terms or

was it a sign here K? (adhesion K).3. Was plaintiffs (bailors) attention drawn tolimitation clause?4. Was the clause unusual in character?5. Were representations made that would leadordinary person to believe clause would notapply?6. Does language of contract read with clauserender implied duty on bailee to takereasonable care meaningless?7. Considering all facts & representations bybailee would the upholding of the limitation

clause be an implied approval by courts ofunacceptable business practices?acceptable business practices varies fromindustry to industry

Can build an arbitration clause inthat would send the matter tocommercial arbitration on thegrounds that the crts may get itwrong (better to go beforesomeone who has the expertise)

Fraser Jewelers v. Dominion

Electric Protection Co.

P contracts w/ D (securitycompany), includes limiting

liability clause. Store gets robbed, alarm company

delayed in calling police.

1997Ont.CA

D (security company) entitled to relyon clause

In determining if a clause is unconscionableits not enough to say the parties areunequal, there must be an abuse ofbargaining power

Mere inequality of bargaining power doesnot entitle a party to repudiate anagreement.

In the absence of fraud ormisrepresentation, a person is bound by anagreement to which he has put his signaturewhether he has read its contents or haschosen to leave them unread.

PHOTO PRODUCTIONS

(same)

The set of rules in Davidson not all of these need to be present.

Crt would deem that areasonable person would know.

There does not appear to be a

duty on an employee to point outan exemption clause to acustomer exception is in Tilden

when a customer asked,employees were to tell them thatthe insurance didnt cover them ifthey have been drinking.

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27/53

Solway v. Davis

Moving company leaves trailer withplaintiffs expensive goods on streetand it is stolen

Contract stated that trailer would bekept in protected yard

Limited liability clause for movingcompany based on weight(according to statute

2002C.A.

Ruling for the plaintiffs

Invoked relieve power of S.C.C. togrant relief against onerousprovisions

Dissent argued for moving companybased on statutory law limitingliability by weight

Court applied Wilsons test

Can apply test of unreasonable and

unconscionable at time of breach (Wilson),or at time of signing (Dickson)

Mistake as to TermsCourts are generally unsympathetic for mistakes that are not caused by misrepresentations (courts like to uphold contracts and rarely employ mistake to override)

Common mistake parties have same mistaken perception

Mutual mistake both parties are mistaken but do not share same mistake

Unilateral mistake one party makes a mistake while the other knows of it. Ex., A agrees to sell car for $5000 but in e-mail confirming formal offer, forgets a 0 so offer reads, Ioffer to sell you my car for $500. One party knows there has been a mistake as to terms usually price

MISTAKE, UNLIKE MISREPRESENTATION, DOESNT INVOLVE AN ORAL AGREEMENT/ PROMISE.

Snapping up a Mistaken Offer: When one party knows there is a mistake, and it is clear to everyoneHartog (below), McMasterv. Wiltshire Construction Co. where there is a mistake so obvious that anyone would know it, cannot snap up the offer. (Where there is a

mistake on the face of the record so obvious that anyone would know it; a mistake that you can see, such as miscalculation or adding mistake, quoting something by the piecewhen you know it should be by the pound, etc.)

Mistake as to quality or substance of thing contracted for must be distinguished from mistake as to term of the K in former case, it will be an error merely as to motive whichwill not avoid a K

In mutual or common mistake the error or mistake in order to avoid the K at law must have been based either upon a fundamental mistaken assumption as to the subject matterof the K or upon a mistake relating to a fundamental term of the K

In unilateral mistake, crts will apply subjective test & permit evidence of intention of the mistaken party to be adduced

Error or mistake which negatives consent is really not mistake at all b/c it prevents the formation of K due to lack of consensus & the parties are neverad idem

General rule equity follows the law in its attitude towards Ks which are void by reason of mistake. If the K is void at common law, equity will also treat it as a nullity.Equity, however, will intervene in certain cases to relieve against the rigours of the common law, even though the mistake would not be operative at law

Equity seeks the broad & more flexible approach by attempting to do justice & to relieve against hardship

Crt will afford relief in any case where it considers that it would be unfair, unjust or unconscionable not to correct it

Mistake as to terms K may be avoided

Mistaken assumptions on the part of both parties generally do not allow you to set aside the K

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30/53

R. v. Ron Engineering

K A/ K B tendering process.Error in submitting tender.

Ron forgot to include labour costs,

but no mistake on face of tender

Ron forfeited $150,000 deposit tried to get it back

1981SCC

Terms of K A clearly indicatea contractual right in the owner toforfeit the money

No money back for Ron

If a party makes a mistake that is not on theface of the record then it will be concludedthat the contract has been created

Where there is no mistake on the face of therecord (i.e., where the mistake is notobvious), an offeree can accept an offerwhich might be suspiciously low.

The court upholds the integrity ofthe bidding process & the bidderbears the risk in submitting thetender

Tenderers have own engineersthat know est. $, if somethingcomes in too low, may be alerted

Calgary v. Northern Construction

Contractor submitted a bid that wasa mistake (not on face of record)

Owner accepted mistaken bid(contract A), moved to contract B

Construction company refused tobuild building at low bid price

Owner sued for difference betweentheir low quote and second bid(difference of $400,000

1986Alta

CA

City entitled to damages of approx.$400,000

Court appliesRon Engineering. D is stuck

w/ tender. In strict K terms, an offer inspired by an

error is nevertheless an offer & may beaccepted w/ knowledge of the error (veryharsh rule in tendering process)

Smith v. Hughes

Horse trainer old oats v. newoats

Defendant refused delivery whenhe learned plaintiff was sellingnew oats

Common knowledge that horsetrainers only buy old oats

1871QB

Ordered new trial, ambiguousinstructions given to jury

OBJECTIVE TEST: If intention to

contract can be derived from someonesactions (based on a reasonable person),

they are bound to the contract, whether ornot they intended to contract

Apply an objective test when there isdoubt what would a reasonable personbelieve?

The only way in mistakenassumption for buyer to getrelief is if seller induced that

assumption Balanced buyer beware with

seller be fair

MISTAKENASSUMPTIONS

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Bell v. Lever Brothers (Common

law)

Bell & Snelling were givengolden handshakes bigcompensation packages.

Company found out that theybreached their duty & that theycouldve dismissed them w/outcompensation

1932HL

Contract is valid, ruling for Belland Snelling

A contract will not be terminated byreason that the quality of the contractdiffers from expectations unless thequality is fundamentally and essentiallydifferent than what you bargained for

It doesnt matter that Lever couldvegotten the same results (i.e., terminationof employee) another way (withoutcompensation)

Still a decisive case in K law

There are cases where themistake is so fundamental as toquality that the K will beunenforceable (Smith v.Hughes old oats).

Only time court would not

enforce a mistake as to

quality is if the mistake went

to a fundamental term

McRae v. Commonwealth

Disposals Commission

D sold P rights to oil tanker thatdidnt exist

1951AustHC

There was a K but since there wasno tanker, there was a breach of K P entitled to damages

If the party that wants to avoid K hasmade a mistake, recklessly, negligently &w/ wilful blindness, they cannot rely onthat mistake.

Where a person makes a reckless andnegligence promise then that promise willbind the person making it to the contract

Cant contract for something

that doesnt exist

(COUTURIER v. HASTIE)

Would have been decided

differently today as negligent

misrepresentation

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34/53

Great Peace Shipping v. Tfarlierif

Ship suffered damage,Mistake of law in Canada is confused we follow bothBellv. LeverandSolle v. Butcher

Contract is valid (ruling for GreatPeace), awarded full 5-day fee

There is really no room for equitablemistake, except in very rare circumstances,and the rule, as laid out in Bell v. LeverBros. applies where you have a commonassumption that turns out to be in error, thecontact is enforceable

CANADA STILL USES SOLWAY V.BUTCHER THERE HAS BEEN NO CASETHAT HAS OVERTURNED IT

The only difference in quality in thesubject matter which will allow the K tobe set aside is the difference which makesthe K impossible (its so fundamental thatit would render the K impossible).

When there a mutual assumptionof facts, and they are wrong:

1) there must be a commonassumption as to a certain stateof affairs,

2) there must be no warrantee thatthat state of affairs exists,

3) the non-existence of the stateof affairs cannot be attributable

to the fault of either party, 4) the non-existence of the state

of affairs must render theperformance of the contractimpossible,

5) the state of affairs might be theexistence or a vital attribute ofthe consideration to beprovided, or circumstanceswhich must subsist ifperformance of the contractualadventure is to be possible

This case overruled Solle v.Butcher

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Mistake & Third Party InterestsMistaken Identity

mistakes of identity usually happen because of fraud

it concerns the rights of mistaken owners not against the party with whom they contract but against innocent 3rd party interest into whose hands the subject of the transactionhas passed


Phillips v. Brooks P (jeweller) sold ring to person

who came into store. Wrote achq, but P asked for cash or forperson to wait until chq cleared.Person who bought was SirGeorge something, and said hecouldnt wait. Chq didnt clear,but in meantime the rogue soldring to 3rd party..

(1918) Crt found that property had passedfrom rogue to 3rd party, so 3rd partygot to keep ring

Court determine that Phillips had intented tocontract with the con-man, which allowedBrooks to retain title of the jewellery (asinnocent third party)

INGRAM (opposite)

Ingram v. Little Little old ladies sold car to

con-man who pays with auseless cheque

Con-man sells car to little(innocent third party)

Court gave good title to ladies (sympathy?) Found for ladies intended to K w/Hutchinson, not the rogue. No K b/w P &rogue.

When K with someone, identity ofperson is of vital importancesometimes. It was of vitalimportance to the ladies.PHILLIPS (opposite)

Lewis v. Averay

Lewis wanted to sell a car for $450

Con-man assumed the role of apopular actor managed to get thecar without paying

Then sold the car to Avery, auniversity student, who paid $200

(1972)EngCA.

There was an enforceable contract Avery allowed to keep car

There was a K but it is voidable. Jmtfor D (innocent 3rd party)

1. There is a presumption in law that the K ismade with the party who appears in personunless they intended to K with a particularperson.2. The K is voidable but only if its voidedbefore 3rdparty rights have been engaged.

If there is an enforceable contractthan a con-man can actually passgood title to a 3rdparty

Shogun Finance v. Hudson

con-man got Patels driverslicense, and bought a car

Shogun checked everything tomake sure he was who he wassupposed to be

Patel got the car, and then sold it toHudson

UKHL2003

No contract

Shogun had dealt with paper and didall the normal safeguards

Since the contract was a written document,

and not a face to face encounter, we need toconstrue the contract (look to the intentionof the parties)

Once construed, the company had intendedto contract with the real Patel who had notauthorized the agreement

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DOCUMENTS MISTAKENLY SIGNED (NON EST FACTUM)Saunders v. Anglia Building

Society

Nephew had aunt sign documentpurporting to transfer house to himwhen she dies, but documentactually said that transfer was totake place immediately. Aunt wasnegligent in signing doc

1971EngHL

Valid contract (even though signedunder fraudulent misrepresentation

K enforceable cannot rely on nonest factum because she was negligent

A person who signs a document differingfundamentally from what they believed isdisentitled from successfully pleading nonest factum if their signing of the documentwas due to their own negligence

Marvco Color Research v. Harris

Daughters boyfriend had herparents sign collateral mortgage.They signed w/out readingdocument, but relied onincorrect info given to them bybank employee that said thatchange was only as to date whenit was in fact a 2nd substantialmortgage

1982SCC

Appeal allowed (ruling forAppellants to foreclose mortgage)

3rd party won. P is entitled to acceptmortgage as valid. D was careless so3rd party should not suffer

If there has been negligence by the first

party, the doctrine ofnon est factum is notavailable (negligent first party should bearconsequences, not innocent third party

1. Non est factum is only available wherethere is no negligence on the part of theperson signing the document.2. Where there is no negligence, the test iswhether the documents are radically orfundamentally different.

3. There is a policy need for certainty &security in commerce.

ONLY IMPORTANT CASE ON

THIS TOPIC

Norside v. Strickland

Wife signed papers b/c husbandtold her to. She claimed that shehad no rights to express her ownopinion in the marriage aboutfinancial affairs.

1990NS TD

Unconscionability should be argued instead ofnon est factum

Judge may have beenoverly sympathetic

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Rectification With rectification, usually we accept that there is a K and determine whether it should be corrected

The type of mistake that results from a typo

Fairly stable & straightforward area of law

Exception to parol evidence rule which enables the crt to correct written documents that do not reflect the real agreement between the parties where there has been a mistake inthe reduction of the terms into writing

In order to decide if the remedy is appropriate, the crt must admit extrinsic evidence of matters preceding the written K

3 flags:1. There must be a common intention to agree on terms different from those stated in the document2. The parties seeking relief must be ignorant of the discrepancy at the time the document is made3. The standard of proof of a mistake requiring rectification is higher than the balance of probabilities

The standards of proof shift. Sometimes its clear & convincing evidence (ex., when the College of Physicians & Surgeons is investigating a complaint of a doctor, & theres achance of someone losing their licence/livelihood) but sometimes its BOP.

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Bercovici v. Palmer

P sold 2 businesses, but Rob Roycottage not included in K.

P seeks rectification on agreementin writing to omit cottage

D says it was always part of thedeal.

1966SaskCA

Rectification order granted to P. RobRoy was never intended to be part ofK

You can look at subsequent events to

determine what should be a fair andreasonable resolution or outcome forrectification

Rectification has a standard of proof that is

above a civil standard (balance ofprobabilities) but lower than a criminalstandard (beyond a reasonable doubt) suchas no fair and reasonable doubt or

clear and convincing evidence.

For rectification, the crt must finda common intention between theparties that exists when theparties (TD ratio)

In addition to looking at subsequentevents, rectification allows one tolook at parol evidence w/out havingto get around the Parol EvidenceRule (it comes with rectification).

Coderre (Wright) v. Coderre

Couple agrees to share matrimonialhome, wife tells lawyer

Lawyer forgets to include clausefor interest of house inseparation agreement

1975AltaSC

P not entitled to rectification

No clear convincing proof thathusband said this

1. To get rectification, there is a very high stdof proof that is just below BRD.2. To ask for rectification on the grounds ofunilateral mistake, the party asking mustprove some sort of improper conduct on thepart of the adversary.

Wife can still sue lawyer

Sylvan Lake v. Performance Ind.

real estate deal, discrepancy indimensions between oral and writtencontracts (ft. v. yrds)appellant fraudulently misrepresentedterms on written doc. And wantsrectification

Appeal dismissed with costs

Fraudulent parties should not benefitfrom their own wrongdoing

Five criteria for determining availability of

rectification

1. Must prove existence and content ofprior oral agreement(e.g. arial photo)

2. The terms of rectification must beprecise (e.g. change ft. to yards)3. Must be existence of convincing

prove (higher than civil standard, but belowcriminal standard)

4. Must show some sort of fraud orconduct on behalf of the other party (e.g.existence of third party purchaser)

5. Might have to show the exercise ofdue diligence on behalf of person seeking

rectification (at discretion of judge)

Augdome Corp. v. Gray

Merger of mining company withAugdome.

Agreement failed to include thephrase of whatever nature & kindwhen referring to its assets.

Gray owes $ to mining companybut refuses to pay

1975SCC

All assets belong to Augdome

crt added the words of whatevernature & kind to show this. D mustpay.

Here, no 3rd party rights have beenaffected

Bars to rectification

Sleep on your rights and existence of thirdparty

Fraud unravels everything

1. High burden of proof to getrectification.2. Can get rectification even thoughparties do not plead it in the firstplace.3. Can award rectification on thebasis of affidavit evidence alone.4. Rectification will not be grantedwhere 3rd party rights are affected(Wise v. Axelford Ont. CA).

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FrustrationFrustration v. Mistake

Frustration & mistake often look alike. Mistake concerns event that happened at the time of K. Frustration concerns event that hasnt happened yet.

Mistake FrustrationAssumptions at present..K..Events in future

Frustration allows the parties to walk away from their future obligations because of a supervening (unforeseen) contingency. It automatically terminates the K as of the moment of

frustration regardless of the wishes of the parties. Both parties are automatically discharged from future performance, although any obligations in force prior to frustration willcontinue to be in force.

When claims of frustration may occur:

Death

Destruction/unavailability of subject matter

Illegality

Method of performance becomes impossible

Thwarting of a common venture

Frustration occurs very rarely because most things can be anticipated. Exception: a change in the law is generally unforeseeable to the average person.

Risk is usually borne by the promisor.

1. The law of frustration deals w/ impossibility of performance because some unforeseen event has occurred. It can be contrasted w/ the law of common mistake, which deals w/the problem of impossibility of performance because some state of affairs existed at the time of contracting, but unknown to the parties, which made performance impossible.

2. The parties may either expressly allocate the risk of supervening events or, if not, it may be clear from the nature of the K that the parties intended the risk of superveningevents to lie where it falls.

3. 2 propositions follow:

A K should not be frustrated where it expressly provides for the event which has occurred, and;

A K should not be frustrated by an event which was, or clearly should have been, foreseen by the parties. In these circumstances the parties are said to haveconsciously accepted the risk so that the obvious inference seems to be that they intended the loss to lie wherever it might fall

4. Foreseeability or foresight of supervening events excludes frustration. Foreseeability is an objective test what a reasonable person would foresee.

5. If the event which has frustrated the K is attributable to the fault of one of the parties, or the event has been self-induced, the doctrine of frustration does not apply.6. Practically speaking, frustration will arise in 3 areas:

Total destruction of the subject matter;

Subsequent changes in the law which renders performance illegal;Frustration of the common venture i.e., the substantial objective that the contracting parties had in view is no longer attainable

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Taylor v. Caldwell

Music hall destroyed by fire. Psued D (music hall owner)

1863Eng.QB

Both parties excused from K K isfrustrated because music hall nolonger exists

There is an implied term in a K that the

parties intended the K to terminate shouldthe subject matter be destroyed through nofault of their own (e.g. death of musician) &not subject to any stipulations or conditions

Can. Govt Merchant Marine Ltd.

v. Can. Trading Co.

K to ship lumber from Vancouverto Australia ships not ready in

time due to dispute between govt& shipbuilders, Appellants claimcontract frustrated

1922SCC

K not frustrated no evidence toindicate that delay was notforeseeable

1. As a general rule, courts will place the riskof unforeseen events on the Promisor

2. Where an event is foreseeable acontract will not be frustrated(the doctrine

of frustration is not applicable)

Objective (reasonable person) test

Krell v. Henry

People rented rooms alongprocession route, but King Henrywas sick, and procession wascancelled

Contract frustrated

Real basis of contract was to have aroom with a view to see theCoronation

If the subject matter is not destroyed , butthe whole object of the contract is defeated,then there is a mistake of contract

WEST: Not an unforeseen event that a

procession would be cancelled, in 2006 thiswould not likely have been frustrated

CLAUDE NEON (opposite)

HERNE BAY (opposite)

Herne Bay Steam Boat v. Hutton

Boat company chartered boats &was going to take people out intothe Bay to look at the ships thatwere there for the coronation. Kingdidnt attend as planned

K not frustrated people still did go& have a day cruise but they just

didnt see the King. K is not sosufficiently different than what wasexpected since they still got benefitfrom K

As long as K is not sufficiently different &there is still some benefit, it is not frustrated

KRELL V. HENRY (opposite)

CLAUDE NEON (same)

Claude Neon General Advertising

v. Sing

P entered into K with D to make,erect & maintain neon sign. Powerrestrictions during war, so Dcouldnt illuminate sign at night. Dclaims frustration of K

1942NS SC

Contract is not frustrated (validcontract. D still gets benefit fromsign.

Where a contract is still possible, although

altered in form (but not fundamentally), thedoctrine of frustration does not apply

(HERNE BAY (same)

KRELL (opposite)

Objective reasonable person

standard established

Davis Contractors v. FarehamU.D.C.

P contracted to build houses within8 month period. Post-war labourshortage caused delay. Work took22 mos. P claimed frustration &that they were entitled to damages

1956EngHL

K not frustrated contractor shouldhave provided for risk of delayRadical Change in Performance/Obligationtest

Frustration occurs when contractualobligation become incapable of beingperformed due to no fault of either party,because the new circumstances render itradically difference from the originalcontract.

Construe the contract in light of the radicalchange

Reasonable Person is the Judge

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Facts/Case C Holding Ratio NotesCapital Quality Homes Ltd. v.

Colwyn Construction Ltd.

Purchaser (P) wants deeds to 26lots of land & vendor (D) could notprovide them because of legislativechanges which required consent bythe ministry. P wants deposit back

claims K has been frustrated.

(1975)Ont.CA

Contract was frustrated, partiesrestored to pre-contractual positions(return of plaintiffs deposit)

Doctrine of frustration is available when asupervening event beyond the control of theparties and not foreseen by them results ina radical change in the original obligation

Frustration can apply to the sale of land

One needs to assess factors whichmay constitute impossibility ofperformance in order to establishthe doctrine of frustration & inturn terminate the K

DAVIS (same)

VICTORIA WOOD (opposite)

Victoria Wood Development Corp.

v. Ondrey

P contracted with D to purchase ofland for the purpose of subdividing(intentions known to both parties),but not specified in written contract(for whole part of land)

Prior to close, law passed thatprecluded subdivision of land, Pclaimed frustration

(1977)Ont.H.C.

K was not frustrated

Legislation did not go to the veryfoundation of the agreement and didnot affect the parties abilities toperform their respective roles

The entire foundation of K was not

destroyed no frustration. (Opposite toCapital Homes)

Purchaser could have safeguardedfrom delays or zoning changes byinserting proper conditions in K

CAPITAL HOMES (opposite)

KBK NO. 138 Ventures v. Canada

Safeway Contract for purchase of

development property

Before close director ofplanning applied to have arearezoned severely restricting sqfootage (self-motivated)

D sold premises to 3rd party,P lost deposit and sued forfrustration

(2000)

B.C.C.A.

Appeal dismissed (contractfrustrated, return deposit).

Director of plannings actionswere very unusual

Intervening event went toroot of contract, entirely beyondwhat was contemplated by theparties, and radically altered themeaning of the contract

This is an example of a real frustrated

contract, more than mere knowledge onbehalf of vender regarding intention of thepurchaser (distinguished from Wood)

Application of proposition from Davis

WOODS (opposite)

DAVIS (same)

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Kesmat Invt. Inc. v. Indust.

Machinery Co. & Canadian

Indemnity Co.

D obtained easement from P toenable it to build sewer line acrossPs property. In exchange, Dundertook to obtain a rezoning &subdivision of Ds lands & to pay P$50k if it was unsuccessful indoing so. In order to get rezoningappn, D wouldve had to conductan envirl study. It did not do so &failed to obtain the rezoning. Psued to recover the $50k.

(1986)NS CA

No frustration because undertakingthe environmental study is notonerous. P entitled to jmt of $50k

Hardship, material loss or the fact that the

work has become more onerous thanoriginally anticipated are not sufficient toamount to frustration in law to terminate acontract and relieve the parties of theirobligations

If the inconvenience, hardship or materialloss is extreme, courts should consider thatthe K was frustrated

A foreseeable event, even if it causeseconomic loss, hardship or inconvenience,will not frustrate a K so as to terminate K &relieve parties of their contractualobligations

These 2 parties are of =bargaining powerwould therebe the same result if one hadmore bargaining power?Maybe

SELF-INDUCED FRUSTRATIONMaritime National Fish Ltd. v.

Ocean Trawlers Ltd.

Ministry restricted D to 3 licensesfor any of its 5 boats. D chose notto take. St. Cuthbert was 1 of the 2vessels that D chose not to licence.Ps had contracted with D for thecharter of the St. Cuthbert. Bothwere aware the amendments weremade to the Fisheries Act

1935PrivyCouncil

K was not frustrated self-induced A K will not be frustrated if frustration wasself-induced.

If the performance of the K is dependent onsomething being granted, & it was byelection that the performance wasprevented, then it is the assumption that it isthe own partys fault which frustrated the K& it cannot, therefore, rely on their owndefault to excuse them from liability underthe K

FRUSTRATION & Ks CONVEYING AN INTEREST IN LANDCapital Quality Homes Ltd. v.

Colwyn Construction Ltd.

See above

(1975)Ont.CA

Contracts Chart Winter

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