Contracts Final Exam OutlineLaw 108A

ZS

2013With Professor Mary Anne Waldron

Table of ContentsOffer and Acceptance.........................................................................2

Battle of the Forms..................................................................................3Formalization and Certainty......................................................................3Correspondence.......................................................................................4Consideration: benefit to the promisor or detriment to the promisee..........4

Post-Contractual Modifications..................................................................................5Other Issues With Consideration................................................................................6

Intentions..........................................................................................7Non Bargain Promises........................................................................7

Past Consideration...................................................................................7Reliance and Estoppel..............................................................................7

Unilateral Contracts...........................................................................9Revocation of Unilateral Contracts............................................................9

Third Party Beneficiaries..................................................................10Mistaken Identity and Non est Factum – Void and Voidable Contracts.12

Chart of Void/Voidable............................................................................12Mistaken Identity...................................................................................12Non est Factum......................................................................................13

Contract Interpretation....................................................................13The Parol Evidence Rule..........................................................................13Clauses Excluding Liability......................................................................15Misrepresentation..................................................................................16

The Relationship between Torts and K – Negligent Misrepresentation....................18Residual Powers of the Court in Contract Enforcement.......................18

Unconscionability, Undue Influence and Duress........................................18Unconscionability.....................................................................................................19Undue Influence.......................................................................................................19

Penalties and Forfeitures........................................................................20Common Law Illegality............................................................................21Statutory Illegality.................................................................................21Mitigating the Consequences of Illegality.................................................22

Mistakes..........................................................................................22Mistakes About Contractual Terms..........................................................23Mistake in Assumptions..........................................................................23

Rectification of Documents......................................................................................24Frustration = mistake as to what will happen in the future.......................24

Remedies.........................................................................................25Specific Performance..............................................................................25Remoteness...........................................................................................25Intangible Injuries and Punitive Damages................................................26Mitigation..............................................................................................27

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Offer and AcceptanceA contract is a promise that is legally enforceable.

An offer should contain all the terms that the parties will agree upon.1) timetable: offer is timetable and acceptance is showing up

a. an example of unilateral K2) offeree can bind the offeror to K because offeree has power

of acceptance

Denton v. Great Northern Railway

Company(1856)

3) no offer if terms not agreeda. invitation to treat: there is room for

discussion and negotiation, and thus not an offer

b. quotation of prices is not an offer to sell

4) terms of offer can change before acceptance

5) test whether a binding obligation may originate in ad addressed to general public is “whether the facts show that some performance was promised in positive terms in return for something requested” (Williston, Contracts)a. sometimes if terms of ad clear enough,

can be seen as offer – but ambiguous

Johnston Brothers v.

Rogers Brothers (1899)

Lefkowitz v. Great

Minneapolis Surplus Store

(1957)

D promised low price for flour. P orders next day. D replies saying price gone up. P sues for promise of low price.

D refused to sell P a certain fur piece which it had offered for sale in a newspaper ad. Ad contained price, mode of acceptance, and product.

6) policy considerations can guide court determination of what is offer and acceptancea. ex. if taking the product off the shelf

constitutes acceptance, this would be absurd because then customer will not be able to put product back

Pharmaceutical Society of

Great Britain v. Boots Cash Chemists

(1953)

Boots operated shop where substances were displayed in self-service area and customer could only escape by passing area under supervision of pharmacist.

7) where an offer is made in terms which fix no time limit for acceptance, the offer must be accepted within a reasonable time to make K

8) 2 possible views if over reasonable timea. withdrawnb. refused – this is preferred because less ambiguous

Manchester Diocesan Council for

Education v Commercial &

General Investments Ltd

(1969)9) until offer has been accepted, open to the offeror at

any time to withdraw or put limit on time for acceptance10) acceptance needs to be communicated to the buyer

a. when you have an agent, they are acting on your behalf, and communicating something to the agent is like communicating to the principle

Larkin v. Gardiner(1895)

Held: merely signing document not enough, acceptance is when offeror knows of the signature.

11) Canadian law does not recognize a firm offer – need considerationa. a promise that you will leave the offer open is not an

enforceable promise

Dickinson v. Dodds(1876)

12) acceptance has to be on the terms of the offer – means offeror can dictate place, time, mode of acceptance etc.

13) otherwise, it becomes a counter-offer

Eliason v. Henshaw(US 1819)

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14) offeror cannot impose silence as a mode of acceptancea. Consumer Protection Act states do not have to buy unsolicited goods this

shows legislation not allowing offeror to impose silenceBattle of the Forms

1) usually winner is the one who gets the last word, and must use offer/counter-offer analysis

2) or, the terms on both sides are to be construed together, and “conflicting terms may have to be scrapped and replaced by a reasonable implication”

3) additional terms in an acceptance are to be considered as suggestions for additions to K, not a counter-offer as long as they don’t materially alter the K

Butler Machine Tool Co Ltd v. Ex-Cell-O

Corporation (England) Ltd

(1979)

Uniform Commercial Code (US)

4) terms and conditions of K A are dependent upon tender call, including implied irrevocability of a bid in return for fair shot at being selected

5) cannot make a K to agree in the future, but you can make a K that delineates the 2nd K specifically enough so that the terms of the 2nd K cannot be renegotiated after the making of the 1st (which is the case in K A and K B)

6) note that in most jurisdictions statutes regulate the tendering process to ensure efficiency and fairness in allocating government contracts, but not in Canada

MJB Enterprises v. Defence

Construction(1999)

Formalization and Certainty1) if an essential matter in the K is left

undetermined, there is no K price is an ex. of essential matter

2) no agreement to agree3) note that May and Butcher is an

unusual case – usually, you do not have to fill out all the details for there to be a K

May and Butcher,

Limited v. The King

(1929)

Terms of agreement between supplier and purchaser uncertain – price, place of delivery, etc. to be determined in future. D refuses to sell because P offering price that D finds insufficient.

4) court will imply term if possiblea. infer parties’ intentions by looking at past dealingsb. standard of the trade

Hillas v. Arcos (1932)

c. if one party benefitted with condition that they would abide by K, this points towards enforceability of Ki. does not matter that parties said

they would agree from time to time because there was arbitration clause (third party would intervene) – so not an agreement to agree

d. market standards

note that: Classique Coaches was seeking to get an unfair advantage (i.e. paying less for the land) this probably influenced court’s reasoning

Foley v. Classique Coaches,

Limited (1934)

P sells gas; D owner of motor coaches. Agreement for D to buy land beside P for $1100; agreement contingent on D agreeing to purchase all gas from P. After 3 years, arguments about price and quality of gas. D decided that since price was not part of the agreement (agreement said parties would agree to price from time to time), K was insufficiently clear, so unenforceable. D

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refused to buy any more gas but wished to keep land.

Courts will try, wherever possible, to give legal effect to any clause that the parties clearly understood and intended was to have legal effect.

e. a K demands a degree of diligence; it must be negotiated in good faith and the agreements that constitute it cannot be unreasonably withheld

f. officious bystander test: imagine a nosey, officious bystander walking past two K’ing parties and asking them, whether they would want to put some express term into the agreement; if the parties would instantly reply “of course” the term is apt for implication

g. business efficacy test: assuming things to give the deal business efficacy, a term may be implied; must ask “would the K make business sense without the term?”

This case really pushes court’s gap filling abilities to the limit.

Empress Towers v. Bank of Nova Scotia

(1990)

Did not fix rent into K on renewal because it was recognized that markets should change – it was stated that the new rent would be that of market price agreed upon by both parties. Negotiations went on. Empress Towers finally responded with a huge rent to be paid and a subsequent rent $5400/month.Bank refuses. Empress Towers says Bank must move.

Correspondence1) post-box rule: acceptance being placed in the mail

established a K (but this is no longer the automatic rule – must show that it was reasonable to expect acceptance through mail)

2) where it must have been within contemplation of the parties that post might be used as means of communicating acceptance, the acceptance is complete when it is posted

3) revocation has to be communicated (offeree protected because they are not the party who has control of the mode of acceptance)

4) civilian rule – must have a moment where both minds were one, so the communication is less important; if cannot find moment were both parties were of same mind – no K, and communication was not an issue

Henthorn v. Fraser(1892)

Byrne v. Leon Van Tienhoven

(1880)

5) if offer explicitly states that notice is required in order for it to be valid then the postbox rule is overridden, even if both parties contemplated that post might be used for sending acceptance

Holwell Securities Ltd v. Hughes

(1974)

6) where the transmission is instantaneous, like a fax or telephone, the postal rule does not applya. but while telephones are instantaneous, modes like email

or fax are more difficult because they may not go through look to provincial statute to see how this is dealt with

7) K is under the jurisdiction where the acceptance is received

Eastern Power Ltd v. Azienda(1999)

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Consideration: benefit to the promisor or detriment to the promisee

1) need consideration for enforceability of leaving a promise/offer opena. marks the transaction legally as a Kb. evidence that parties themselves treated this agreement

as intending to be legally bindingc. protects reliance

2) a promise in return for a promise is good consideration

Dickinson v. Dodds (1876)

3) abstaining from complaining is not adequate consideration – no right to complain, not a real detriment to promissee

White (Executor) v. William Bluett (1853)

4) someone legally entitled to drink, smoke, play cards etc. and giving them up is good consideration (more specific than just “not complaining” in White v. Bluett, and he actually had a legal right to do these things)

Hamer v. Sidway(1891)

5) agreement to pay rent, keep up repairs is considerationa. some of the reasons for this is due to availability of

documentary evidence, and that the rent was payable directly to executors, not landlords (so executor, the promissor, benefited)

note that: respect for wishes of testator while a factor in the decision was not considered good consideration, b/c doesn’t move from plaintiff

Eleanor Thomas v. Benjamin Thomas

(1842)

6) mutuality: there must be something given in exchange for a promise; no contract if one party gets absolutely no benefita. the arrangement is an offer to allow

Tobias to purchase the machines, and as Tobias takes each machine, there is a little K formed

b. but at this point all we have is an outstanding offer to sell the machines, and the little separate Ks

Tobias v Dick and T Eaton Co

(1937)

Dick has promised to give Tobias exclusive selling agency. Tobias used trickery to get Dick to sign the agreement. Tobias made no promise to buy any machines at all. Tobias not agent for Dick since he is not under any obligation to sell.

7) “A promise may be lacking, and yet the whole writing may be ‘instinct with an obligation,’ imperfectly expressed”

8) courts may imply a promise to use reasonable efforts on behalf of the defendant to find a Ka. implied promise to use best efforts

in K performance can be considered good consideration

b. distinguished from Tobias v. Dick because Lucy is not making Wood buy anything; Wood was giving monthly reports to her (highlights the intention behind the K); and because agreement was much more detailed

Wood v. Lucy, Lady Duff-

Gordon(1917)

D is a fashionista. Entered into contract with Wood to turn her “vogue into money,” P gets exclusive right, subject to approval, to place her name endorsements on designs of others; in return he gave her half of all profit made. D breached by endorsing clothes made by other manufacturers, kept profit.

Post-Contractual Modifications1) K modifications can be rejected for public policy reasons –

ex. in this case, if agreement were enforceable it would Harris v. Watson

(1791)

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enable sailors to act opportunistically while at sea2) a promise to do what you are already obliged to do is not

good considerationStilk v. Myrick

(1908)3) subsequent modification in K needs fresh

considerationGilbert Steel

Ltd v. University

Construction Ltd

(1976)

University and Gilbert had written K for purchase of steel. Price of steel goes up and Gilbert announced an increase in price which was agreed to.

4) relaxed modern approach to K modification:a. IF A is in a K with B to do work/service

for B in exchange for payment from Band if

b. when A has not yet completed the work and B has reason to doubt A will or will be able to complete his side of the bargain, and

c. B promises A an additional payment in return for A’s promise to finish his side of the K (the work) on time, and

d. as a result of this new promise B receives, IN PRACTICE, a benefit, or avoids a disbenefit, and

e. B’s promise is not given as a result of economic duress or fraud on the part of ATHEN the benefit to B can be taken as consideration for B’s promise; promise can then be legally binding

Williams v. Roffey(1991)

Roffey Bros subcontracted some roof work to a group of carpenters, Williams. Roffey Bros were worried Williams would not complete the work on time – there are penalty clauses in the main contract for Roffey Bros. Roffey Bros promised to pay Williams a further £10,000 when the work was completed.Job gets done, but no payment.

5) change in law: variation to an existing K, unsupported by consideration, is enforceable so long as it is not procured under economic duress (in this case, court says the GFAA had no alternative – NAV by statute was required to do this and paid under protest)

6) differences with Williams v. Roffeya. NAV probably could have paid – not a case that they

were not able to pay – or they could have just moved the old equipment

b. there wasn’t really a promise to do more – GFAA was dragged into doing this

c. no doubt on one party not being able to performd. GFAA got NAV agreeing to complete K, but there was no

practical benefit

Greater Fredericton Airport Authority v.

NAV(2008)

7) absence of economic duress not only essential element (disagrees with GFAA v. NAV)

River Wind Ventures Ltd (2009)

Other Issues With Consideration8) basic rule = partial-payment of a sum is not good

consideration9) part-payment can extinguish the whole debt if agreed

Foakes v. Beer(1884)

Law & Equity Act10) general rule: if you have genuine belief that you have

good legal claim, then promise to give that claim up is good Fairgrief v. Ellis

(1935)

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consideration for another agreement11) detriment to promisee can constitute

good consideration only if it is at request of promisor

12) generally promises to give to charity are not legally enforceablea. a gratuitous promise does not have

sufficient consideration to be considered a binding contract unless the money was given for a specific purpose which can be seen as of some benefit to the promisor

13) for estoppel to apply, the promisee must rely on actual actions of the promisor, not merely a statement that they will do something

Dalhousie College v. Boutilier Estate(1934)

Boutilier pledged a sum to Dalhousie prior to his death, which he never actually paid despite being reminded of his pledge. Dalhousie sued.Estate argues there was no consideration given for Boutilier’s pledge.

Intentions1) presumption that in family and purely social relationships

there is no intention to create a legally binding relationshipa. was the K adapted at some point? flexibility of the

agreement shows it is a pure family arrangement

Jones v. Padavatton(1969)

2) presumption that agreement is legally binding if business relationship

3) presumption may be rebutted by clear expression of intent not to K

Rose v. J.R. Crompton

(1923)

Non Bargain PromisesToday, promises under seal (without consideration) are still enforced because it gives

evidence of legality, and intention to make K – modern ex. is promise to give to charity.Past Consideration

1) if you ask someone to do something where there is assumption that there must be payment, then that is sufficient consideration – implied promise to paya. may use officious bystander test

Lampleigh v. Brathwait(1615)

2) if cannot imply promise for payment, then past consideration that is executed is not sufficient for future promise

Roscorla v. Thomas(1842)

Reliance and EstoppelEstoppels stop someone from doing something.

1) if A leads B to suppose that A’s strict rights will not be enforced, A who might have otherwise been able to rely on those rights is estopped from doing soa. in this case, landlord could probably

have reinstituted his right by giving another notice

Hughes v. Metropolitan Railway Co

(1877)

Landlord by conduct led tenant to believe strict 6-months deadline for repairs would not be enforced. Tenant relied on this.

2) doctrine of promissory estoppel – if a party makes a promise and the other party relies upon the promise, the

Central London Property Trust

Ltd. v. High

1937 High Trees leased a block of flats for a rate £2,500/year from Central

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original promisor cannot take back the promise at a later stage (does not matter that there is no consideration for the modified K)

3) promises made do not last forevera. promise in this case was made in

context of war – so reasonable that rent would increase once war ended estoppel not applied

4) the difference between High Trees and Hughes is that a term is changing, and parties are enforcing a new promise (not the same as the rely/do not rely situation in previous case)

5) problem with High Trees: if no consideration – how would we then tell the difference between a binding promise and a non-binding promise?

Trees House Ltd

(1947)

London Property Trust. Due to the war occupancy rates were drastically lower. Parties made agreement in writing to reduce rent. Neither party stipulated the period. Over the next 5 years, High Trees paid the reduced rate while the flats began to fill. Central London sued for payment of the full rental costs from June 1945 onwards.

6) estoppel is only a defence, not a cause of action where one did not exist before (i.e. promissory estoppel is not a replacement for consideration)a. cannot stretch High Trees this farb. if one of the parties to a K changes the

terms and the change is relied upon, even in the absence of consideration, he cannot revert back to the previous legal relations as if the promise to alter the relations had not been made by him

c. thus, consideration remains a necessity for K formation, although not for its modification or discharge

Combe v. Combe(1951)

Held: normally forgoing right to sue is good consideration – but here 1) no evidence she promised this, 2) husband did not request it so it does not qualify as consideration, 3) statutory law preventing waiving right to sue

Mr. made an agreement to pay wife $ per year after they split up. Mrs. claims she agreed to forego her rights for recovery in court in consideration of this. Husband did not pay $, and wife sued claiming that he was estopped from ceasing his promise because she had relied upon it.

7) by accepting late payment for so many times, P gave D false sense of security that late payment was ok – but SCC says D was merely taking advantage of the friendship

8) SCC does not say you cannot have estoppel by looking at conduct, but must have substantial evidence that would lead a reasonable person to believe that there was change in legal relationship (later, the test developed in Owen Sound)

John Burrows Ltd. v.

Subsurface Surveys(1968)

P and D were friends. P sold assets to D for $. Balance was payable by way of a promissory note. D deposited shares with P. Interest is payable monthly. If default on payment of interests, then other party has a right to demand the full payment immediately. Payments were often late. P and D had big fight. P asked for full payment.

9) objective test for intentions: would it be reasonable for a person to say there was intention to affect legal relations? this intention can be inferred from

Owen Sound Public Library Board v. Mial

Developments

D wants that P submit documents before payments made. D requests corporate seal to validate one of the

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evidence10) here, estoppel applied to prevent

from terminating K – but ONCA says then Library can sue for damages for breach of K – not precisely suing on the estoppel, but collecting damages for breach of promise being enforced through estoppel this is a bold move (how sharp does the shield have to be before it becomes a sword?)

Ltd.(1979)

Held: estoppel applied, but K breached so now can sue.

subcontractors; not a required part of K but P promises to do so. P does not get seal immediately, so D does not pay. P cancels K for failure to pay. D claims they did not have to pay until P secured seal.

11) where there has been a true accord under which the creditor voluntarily agrees to accept a lesser sum in satisfaction of the greater, and the debtor acts on that accord by paying the lesser sum, then it is inequitable for the creditor afterwards to insist on the balance – estoppel appliesa. however, there must be true agreement to lesser

sumb. however, in this case there was no true accord between

P and D, as D’s wife held P to ransom – D told P if he did not accept lesser sum then he would get nothing

D. & C. Builders, Ltd. v. Rees

(1965)

Held: P did not truly agree to lesser sum, only accepted because if no $ he would go bankrupt no estoppel applied.

12) should the BCCA say that even though there was no legal promise between parties, the promise should be enforced? Huddard JA refuses to go so far and says promisee must have had an expectation of a legal relationship – i.e. did the parties intend to affect their legal relations? (Jones)a. in this case, court refuses to apply

estoppel because no intention to create a legal relationship

b. furthermore, no mutuality – if he paid off her debts and she split with him, the courts could do nothing for him

N.M. v. A.T.A.(2003)

NM made a promise to ATA to pay the balance outstanding on the mortgage of her home in England if she moved to Canada. ATA moved, but NM refused to pay off the house in England. NM did however loan ATA money to pay off the debt on a promissory note. Later NM and ATA split and since then ATA unable to find suitable work in either country.

Unilateral ContractsAn act done in response to an offer. The performance is both consideration and

acceptance.1) acceptance occurs when someone performs, need not

notify offeror of performance2) knowing of K matters when completing the

performance, but motivation does not matter in unilateral K

Williams v. Carwardine(1833)

3) no notification required to accept unilateral Ka. here, the ad was a promise and not

mere puffery

Carlill v. Carbolic Smoke Ball Company

(1893)Held: the ad was a unilateral K.

D’s ad said would give £100 to anyone who gets sick after using ball for 3 weeks. “£1000 has been deposited with bank to show sincerity”. P gets ball, uses, got sick. D refuses to pay.

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Revocation of Unilateral ContractsNormal rule for revocation: in unilateral Ks, would allow revocation while someone in middle of performance of requested action.Cases where may seem unfair to allow revocation partway through:

1) detrimental reliance2) unfair enrichment3) where offeror gains some benefit (possibly non-pecuniary) from part

performance4) where performance requires long-term effort

Ways courts deal with revocation:1) imply a term that will not revoke (Errington v. Errington)2) imply/categorize it as a promise for a promise (Dawson v. Helicopter Exploration)

1) if agent allowed to make terms of K, agent can designate what is performance and acceptance in a unilateral K

2) court can imply term into offer that offeror will not revoke offer once performance commenced

Dale v. Manitoba

(1997)

Access funding by gov. for ed. Delegated authority to U of M. Gov. changed program, and by this time U of M had promised the subsidies to continue until completion.

3) objective test for offer or acceptance – not what the party making it thought or intended, but what reasonable person in position of the parties would think it meant

Grant v. Province of New

Brunswick(1973)

Held: a reasonable person would think the gov. had offered.

Gov. offered to purchase potatoes under stabilization program. P’s application to sell potatoes to gov. denied. Gov. argues it was not offer; rather, P’s app. to sell was offer that was not accepted so no K.

4) a frequently implied term in unilateral K is that one cannot revoke once performance has begun

Errington v. Errington (1952)

5) courts prefer to interpret Ks as bilateral so parties can arrange their affairs based on faith in K, knowing it will be enforced if other party fails to follow througha. in this case, can imply bilateral K through exchange of

mutual promise (Dawson promised to take Helicopter to location of minerals and Helicopter promised to provide pilot to take Dawson)

6) now, you can argue unjust enrichment in this type of case because: Lac Minerals Ltd. v. International Corona Resources Ltd. (SCC 1989) where you transfer confidential information, you have a fiduciary relationship

Dawson v. Helicopter

Exploration Co. Ltd.(1955)

Held: bilateral K since mutual promise – Dawson promised to take Helicopter to location of minerals and Helicopter promised to provide pilot.

Third Party BeneficiariesDoctrine of privity of K: to sue in K, must be party to K, because it was be unfair if you could sue on the K but not be sued on the K.; if want to sue must provide consideration on the K.Exceptions:

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- agency (Dunlop; NZ Shipping)- assignment of rights- trust- statutory exceptions (ex. Bill of Lading Act and Insurance Acts) (NZ Shipping)- if parties to K intended to extend privity to 3rd party (Frazer River Pile)

1) privity of K: 3rd party cannot sue in K, even if it was made in benefit for him, if not party to K and consideration not moving from him

Tweddle v. Atkinson (1861)

2) exception to privity of K is if a party named in the K was acting as an agent of an unnamed partya. Dunlop argued agency, but consideration

to Selfridge did not come from Dunlop, it was Dew who gave it

b. nothing to suggest in K that Dew got the price provision for Dunlop = no indication that Dew was acting both as principle and also as agent for Dunlop

c. note: if Dunlop had written into K with Dew that Dew had to enforce price agreement with retailers, Dunlop would have been able to sue Dew

Dunlop Pneumatic Tyre

Co. Ltd. v. Selfridge & Co.

Ltd. (1915)

Held: no privity of K because no evidence of agency.

Dunlop K with Dew (wholesaler) K with Selfridge (retailer); price maintenance agreement; Selfridge sold to individuals below agreed price.

3) widow cannot sue as 3rd party but can sue as administratrix (because then she is party to K)

4) note: that today, we would probably solve this issue under an unjust enrichment claima. benefit has been transferred to the

nephew so if he does not pay, he is unjustly enriched

b. court will order remedy of resulting trust

Beswick v. Beswick(1968)

Held: widow successful in claim as administratrix.

Mr. sells business to nephew and in return, nephew promises to pay Mr. on a weekly salary and when he dies to pay widow a weekly allowance. D fails to pay.

The Eurymedon

Facts: Ajax (consignor) signs a bill of lading with Federal Steam Navigation (carrier) to

transport their drill from England to Satterthwaite (consignee) in New Zealand upon arriving in NZ, NZ Shipping Co unloads the drill and, in doing so, damages

it bill of lading had a provision that limited the liability of Federal Steam Navigation

to a maximum of £100 unless the consignor had paid more, which they had not done

therefore, Satterthwaite brings an action against the negligent stevedores, NZ Shipping Co, claiming that as a 3rd party they are not privy to K and therefore not protected by it

Ajax Machine Tool Co. Ltd.“consignor”

Federal Steam Navigation Co. Ltd

“carrier”

Bill of Lading (K) – with

liability clause to £100

NZ Shipping Co. Ltd.“stevedores” – owner of

carrier allows carrier to act as agent to NZ

A.M. Satterthwaite“consignee” – party to K

due to Bill of Lading statue

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(note that Satterthwaite can do NZ Shipping because they do so in tort, not in K – no issue privity)Issue: Is NZ Shipping (stevedores) protected by the “Himalaya Clause” of the bill of

lading?

Held: Yes. Federal Steam Navigation acted as an agent to NZ Shipping in signing the Bill of Lading with Ajax.

Rationale: court employs the exception of agent-principle relationships to extend liability

coverage of the bill of lading to the stevedores the parties must show that there was an actual agent-principle relationship:

o first, must show express agency relationship there was an express statement in the K that Federal Steam

Navigation was acting as agent for all independent contractorso second, must show that the agent had the authority to act in this manner

NZ Shipping Co was the parent company of Federal Steam Navigation

o third, must show consideration flowing from the party seeking to enforce K

court finds that the bill of lading was a unilateral K which granted anyone who transported the goods to receive benefit of the limitation clause (unloading the machine was performance and consideration both)

but stevedore was already under duty to unload the machine, so how could it form consideration? – p.396:it is good consideration if you are legally bound to one person, to make that promise to another person; because you are giving the other party a right to sue you (i.e. increasing legal liability) – which is good consideration

therefore, the act of the stevedores unloading the drill, though negligently, was acceptance and consideration of the K and allowed them to be protected by the limited liability clause

5) K implies that it covers employees since corporation does not have hands and feet – it must be the employees who carry out the work

6) relaxed agency test to allow employees to benefit from liability clauses – liability applies to employees when:a. the limitation of liability clause must, either expressly or

impliedly, extend its benefit to the employee(s) seeking to rely on it (here, the clause said it extended to “warehousemen”); and

b. employees must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the other party when the loss occurred

London Drugs Ltd. v. Kuehne & Nagel International Ltd

(1992)

Held: London Drugs acting as agents for its employees, therefore exclusion of liability extends to employees.

7) extends London Drugs privity to K exception to all 3rd parties, not just employees

8) parties to a K cannot unilaterally revoke the rights of a 3rd party if 3rd parties rights have already crystallized

Fraser River Pile and Dredge Ltd. v. Can-Dive Services Ltd

(1999)

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Mistaken Identity and Non est Factum – Void and Voidable Contracts

Void = treat as if K never existed, but cannot get the thing back if A transferred to B – but can get rights back from 3rd party (nemo dat) (but C can sue B for breach of warranty of title).Voidable = can still have valid K until one party acts to set it aside – 3rd parties can acquire rights under K if they are acquired before K set aside.Rescission = put parties back into original position – not quite the same as void.Fraudulent misrepresentation: statement made of deliberate lie, or made recklessly (i.e. not caring if it is true or false), and has a significant impact on the K voidable.Mistaken identity void. [Defence of mistaken identity does not succeed often, primarily because it has an impact on 3rd parties who do not have a chance to protect themselves.]Mistake as to nature of document (non est factum) void.

Chart of Void/VoidableVoid

Mistaken identityNon est factum

Mistaken assumption as fundamental in Bell v. Lever senseMistake in Terms

VoidableUnconscionabilityUndue influence

DuressNegligent/fraudulent/innocent

misrepresentationMistaken Identity

1) if you intend to K with person in front of you, believing he is credible when he is not, then it fraudulent misrepresentation – K is voidablea. thus, P cannot recover ring from D, who

is a valid third party purchaser

Phillips v. Brooks(1910)

R buying jewelry from P and says he is “Sir George Bullough” and gives address; P checks address; R pays with check, which is dishonoured. R sells ring to D (does not know illegality).

2) presume that person intends to K with person to whom he is addressing, unless presumption rebutted

3) distinguishes Phillips v. Brooks – said the seller in that case only knew of name after K was complete K void in this case

Ingram v. Little (1961)

4) when 2 parties create what appears to be a K, fact that one person is mistaken as to identity of other, does not mean no K, just means K is voidable – i.e. fraudulent misrepresentation

5) identity must be of vital importance in order for the mistake to count as mistaken identity

6) Lord Denning says Phillips and Ingrams are indistinguishable

Lewis v. Averay (1972)

Non est Factum7) defence of non est factum is only available where the signer

provesa. signature produced by fraudulent misrepresentationb. document was, because of a misrepresentation,

fundamentally different from what it was thought to be; and

c. the signer was not negligent in making the mistake –

Saunders v. Anglia Building Society (Gallie v. Lee)

(1971)Held: Gallie not negligent because broke glasses; even if

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burden lies with P to demonstrate he has not acted negligently consequently, non est factum cannot normally be claimed by a person of full capacity (non est factum is a doctrine that allows a signing party to escape performance of the agreement)

could read, could not understand legal jargon; however, intended nephew to have house, so doc. not fundamentally different non est factum fails.

8) anyone who is negligent/careless in signing K is precluded from relying on non est factum as against a person who relies upon that document in good faith for value

9) policy reason: the party able to prevent the loss through exercise of reasonable care should bear that loss

Marvco Color Research Ltd. v.

Harris et al.(1982)

Held: Ds careless in failing to read doc. before signing as both well educated + understood mortgages non est factum fails.

Contract InterpretationThe Parol Evidence Rule

Parol evidence = evidence of things said or written leading up to and prior to the conclusion of an agreement between the partiesParol evidence rules does 2 things:

1) could not admit evidence of what parties said when they reduced their agreement to a written signed document (many exceptions – ex. fraud, misrepresentation etc.)

2) if can admit the evidence, unless proving something like fraud, cannot use that evidence to change the meaning of a term of the document, either by adding to it, varying it, or contradicting it

Parol evidence rule is subject to exceptions (Gallen v. Allstate): when the parties to an agreement have apparently set down all its terms in a document, extrinsic evidence is not admissible to add to, subtract from, vary or contradict those terms except

1) to show that the K was invalid due to fraud, misrepresentation, mistake, incapacity, lack of consideration, or lack of K’ing intention

2) to dispel ambiguities, to establish a term implied by custom, or to demonstrate the factual matrix of the agreement

3) in support of a rectification claim4) to establish a condition precedent to the agreement5) to establish a collateral agreement (Hawrish)6) in support of claim that document was not intended by the parties to

constitute the whole agreement7) in support of a claim for equitable remedy, such as SP or rescission, on grounds

of misrepresentation (innocent, negligent, fraudulent)8) in support of a tort claim that oral statement was in breach of duty of

care1) generally principle: interpret words of

K as if they intended to do something2) courts will not take evidence of

negotiations into account when interpreting Ka. whole point of negotiations is to argue

Prenn v. Simmonds

(1971)

Held: “profit”

K that P acquire 4% interest of D’s company. D argues a necessary condition set by K not satisfied: company must earn from than £300,000.

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back and forthb. also, vague language in K is not the

result of poor drafting – sometimes parties state words vaguely so it can mean what both parties want it to mean

3) courts do look ata. aim and genesis of the K = what were

they trying to do with the K?b. functioning of the agreement – how it

was intended to workc. commercial practices and statutory

requirements of how profits are recordedd. plain meaning of wordse. what the words mean in other sections

of the K

intended to mean profits of whole group otherwise, there was no point in having the second clause, and otherwise Prenn would have total control over if Simmons gets his shares or not

Company did not earn this alone, but did earn it if subsidiaries considered.

4) parol evidence can be used to establish existence of collateral K

5) cannot use parol evidence to directly contradict a signed, written document

6) court found against Hawrish – but note that a large part of this decision probably turned on the fact that there was no evidence that the oral agreement was ever made

Hawrish v. Bank of Montreal

(SCC 1969)

7) substance of parole evidence rule – does it add to, subtract, vary, or contradicts the signed document?

8) important principles:a. contra proferentum – where you have

a written doc produced by one of the parties, and there is an ambiguity in the doc, the ambiguity will be read against the interest of the party who prepared/presented the document

b. if there is a collateral K, you must prove there was one

c. if written K induced by oral representation that is inconsistent with written K, written K cannot stand

d. presumption is not equally strong in every case (levels of presumption against oral)

- adds to K weak- subtract from/vary medium- contradictory strong- but if there is a general exclusion of

liability for any oral rep, and the oral rep. at issue is specific, presumption in favour of written K is less strong

9) principle of harmonious interpretation: look at document, and representation – can you read them together to see if they can be read as not contradictory?

Gallen v. Allstate Grain

(1984)

Held: oral agreement is a collateral K that was made to induce customers to buy product, hence oral can be admitted; principle of harmonious interpretation applied: AllState not responsible for things like natural disasters, or how much Buckwheat grows, but is responsible for crop destroyed by weeds.

Oral representation made to P that there would be no problem with weeds in buckwheat crop. P then signed standard form K to buy seeds from D and sell back crop. Clause in K that D will not be responsible for the crop. P prepared substantial acreage for the project and planted seed. Weeds destroyed the crop. P suing for breach of collateral K.

10) old rule was that once document Tilden rent-A- Front of the K said

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signed, person bound by it – court changed this rule (although only in consumer context)a. most of the time customers do not

read the K, they also know that the Clendenning did not read it

b. a reasonable person would read the document as saying that the customer would not be liable, and it would be reasonable for the customer to assume that they were protected

c. particularly onus or stringent terms must be brought to the attention of the signer

d. any efforts to inquire by Clendenning would have been futile – the employees testified that they were told to say that customer had full coverage

e. there was evidence that customers were encouraged not to read the K

Car v. Clendenning

(1978)

Held: Clendenning not bound by the exclusion clause he signed.

Note: this rule/test applies to any onerous term in consumer context with standard forms, not just exclusion clauses.

customer responsible for a list of things that might happen, but on the back there was quite a bit more. In the back, in small and faint font, said that the customer will not let vehicle be driven by a person who has drunk alcohol, whatever the quantity.

11) no general requirement that a party tendering document for signature to tell the party of onerous terms or make sure the party signing understands the doc. – only where other party should reasonably know that party signing document does not know the terms or does not understand them thus, Tilden Rent-A-Car ratio should not be seen as wiping out the rule of “you’re bound by what you sign”

Carol and Silver Store Mountain

Resorts Ltd (BCSC)

Clauses Excluding Liability1) reject doctrine of fundamental breach –

instead, whether exclusion clause applies is a matter of construction

2) 3 major principles of K interpretationa. contra proferentemb. if going to limit liability in exclusion

clause, must be clear – and if want to exclude liability for negligence, must expressly state it so (cannot use general words)

c. look at commercial context3) here, commercial context is that D gave

modest price and had little knowledge about value of P’s property – suggests that P is the one to carry the substantial risk of damage and insure against it

Photo Production v.

Securicor(1980)

Held: D not liable, clause applies.

P’s factory burnt down as result of D’s employee throwing match, starting fire. K was for D (security company) to patrol P’s factory over night for small fee. Limitation clause in K states that D will only liable for own negligence in hiring/supervising employees but will not be liable if the behaviour could not have been foreseen.

4) presumption against the existence of unconscionable Ks between sophisticated commercial parties

5) Dickson says if K unconscionable, will not apply exclusion clause, but if not unconscionable, then courts only have to interpret if the exclusion clause applies

Hunter Engineering v.

Syncrude(SCC 1989)

Held: not unconscionable and clauses

One company bought gearboxes from 2 companies; both whom it had exclusion clauses; gearbox failed.

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6) Wilson and L’Heureux-Dubé want instead to ask at the final stage: is it fair and reasonable that the exclusion clause continue to operate for the party responsible for the fundamental breach?a. courts have residual power not to apply

clause wherever it is unfair and unreasonable

apply to what happened; especially since both were sophisticated business partners so no unconscionability.

7) test for application of exclusion clauses: does the exclusion clause apply to the situation before the court, using the principles of interpretation?; if so, freedom of K prevails unlessa. the agreement is unconscionable, orb. the court nevertheless refuses to enforce

the valid exclusion clause because of the existence of overriding public policy (not just talking about unfairness, but a situation that is quite extreme ex. balancing stability/certainty in commercial bargains vs. public interest in preventing harm)

8) majority said clause does not applya. interpret “participating in the RFP”

shows that the parties did not even intend it to apply to actions outside the RFP – i.e. non-eligible bidders

b. document ambiguous, should be interpreted in favour of Tercon (since gov. drafted the K contra proferentum)

c. finally, need to interpret document as a whole – RFP was very detailed, which means no sense that gov. can just waive the whole thing

Tercon Contractors v.

BC(SCC 2010)

Held: clause does not apply, but even if it does, contra proferentum since clause ambiguous.

Note: minority disagreed because it is extremely difficult to know whether a bid is compliant or not; if litigation then risk is to the tax-payer’s purse, so it is reasonable for gov. to make exclusion as broad as possible.

Dispute over tendering process and accepting bid by ineligible party. There is an implied duty to treat all proponents fairly under K A – that is the consideration; K A prevents proponents from withdrawing bids, and binds them from accepting the main contract, K B, once selected. There thee was an exclusion clause preventing recovery of damage included by the gov.

MisrepresentationMisrepresentation: a false statement made prior to entering into K, whether written or oral, that is important to formation of KA tortious action arising in K situations, where one party induces making of K by making a fraudulent misrepresentation to the other party remedy is setting the K aside – K is voidable (as long as no 3rd party involved); and get damages in tort.Innocent misrepresentation remedy is rescission of K (rescission means undoing the K and putting parties back in position they would have been in had the K never been made), but no monetary damages.Innocent (Heilbut)

- no damages- rescission IF

possible

Collateral K- damages

Negligent- damages

(tort)

Fraudulent (Heilbut)- damages- set aside K

1) innocent misrepresentation gives no damages, only rescission

2) fraudulent or reckless misrepresentation gives rise to damages

Heilbut, Symons v. Buckleton

(1913)Held: “rubber company” is not so

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3) burden on P to show misrepresentation was collateral Ka. must look to party’s intentions and show that they had

clear intent to K4) main point to be asked = how important was the

statement to the K process?; if very important collateral K

5) note that HL was concerned that collateral Ks was a way of avoiding the principle of no damages for innocent misrepresentation

foundational to K, so innocent misrepresentation.

6) a warranty must be intended to create K obligationsa. if intelligent bystander would reasonably

infer from party’s conduct that warranty was intended, this would suffice

7) if representation made in course of dealings for the very purpose of inducing the other party to act on it, and it actually incudes him to act on it, that is ground for inferring that the representation was intended as a warranty

8) test for collateral Ka. the statement must be the basis of the

saleb. must find that the parties that the party

making the statement would have legal responsibility for its truth

Bentley Productions v.

Smith Ltd(1965)

Held: it is a warranty – parties intended it to have K force and statement made for purpose of inducing P to act on it, and P did act on it

Statement made in leading up to purchase of car, statement concerned number of miles the engine had done, and proved to be untrue – claim is that this was a collateral K.

9) test for innocent misrepresentationa. representation of fact that unknowingly are falseb. statement does not have to be so important so as to form

the basis of the sale (unlike collateral K)10) rescission of K is primarily an equitable remedy, and

thus had many requirementsa. must act promptlyb. must come with clean handsc. must be able to put parties back in original positions (so

no interference with 3rd parties rights)

Redgrave v. Hurd(1881)

11) in Sales of Goods Law, Ks divided into 2 typesa. condition – fundamental term breach

allowed buyer to reject itemb. warranty – term of lesser importance in

the K (different from how it was used previously) breach allowed to sue for damages

12) here, it was a breach of condition – fundamental (basically a collateral K), however, too long time had passed (5 years)

Leaf v. International

Galleries(1950)

Held: collateral K, but too long time passed.

P bought painting from D. D represented it was painting by Constable. 5 years later finds out not Constable. P wants rescission. At trial, was debate on if the painting was real; if we think about K as allocating risks, perhaps the parties knew there was some risk involved.

13) a person may be liable for breach of warranty notwithstanding that he has no K relationship with the person to whom the warranty is given intentions of the

Murray v. Sperry Rand

Corp(1979)

P wanted tractor. Brochure made one representation and sales rep. made

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party governs and this may lead to collateral K

14) collateral K in this case – representations made were very clear, specific and made directly to the farmer, and made to induce him to buy the machine, which would be consideration to the manufacturer; but be very cautious of making collateral Ks like this as there have not been a lot of cases that have done this

Note: here the manufacturer not party to K, but it published the brochure, which was intended as sales tool (so treat it as a promise).

another. Tractor did not perform as promised.

The Relationship between Torts and K – Negligent Misrepresentation1) when lawyers enter K into clients, it had always been held

that there was an implied term in that K, that the lawyer would carry out the work in a careful and professional reasonable manner case law says can sue lawyer in both tort and K

2) negligent misrepresentation:a. tort law will imply a duty of care when the advisee seeks

information from an advisor who has special skill and where the advisee trusts the advisor to exercise due care, and that the advisor knew or ought to have known that reliance was being placed upon his skill and judgment

b. no reason why cannot use negligence even if no K if someone undertakes to do something for you – this undertaking produces a duty, and if they do not carry out that duty carefully they can be liable for damages suffered

Hedley Byrne v. Heller(1964)

Held: no negligent misrepresentation since there was express disclaimer.

Note: when lawyers enter K w/ clients, case law says implied term that lawyer would carry out the work in professional/reasonable manner; can sue lawyer in both tort and K.

3) nobody ensured Mardon that there would exactly be a certain output of gas, but it was still a forecast that was relied on, and there was implied term that this forecast was made with unreasonable care and skill the breach is in the failure to use reasonable care and skill in making the forecast

4) can also find for negligent misrepresentation based on Hedley Byrne (undertaking + skilled advisor + reliance)

Esso Petroleum v. Mardon(1976)

5) where you have possible alternate claims in negligence or K, P can choose whichever benefits thema. but if the manner is directly covered by

K, then cannot avoid K by suing in tort – ex. if K excludes liability in negligence

b. if conflict in damages, courts should sort them out

Central Trust v. Rafuse

(SCC 1986)

Lawyer handling affairs of company and made stupid mistake; overlooked something that was a well-known provision of corporate law, caused company to lose much money – company sued for negligence + breach of K.

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Residual Powers of the Court in Contract Enforcement

Unconscionability, Undue Influence and DuressThese 3 will all result in court setting aside K – will refuse to enforce the K, and sometimes may completely rescind it.Duress asks: was party’s consent given freely?

- simply superior bargaining power is not enough to raise defence of economic duress when trying to attack the whole K (and not K modification)

- the pressure used must be illegitimate (ex. threat of criminal/tortious conduct)Undue influence attacks the consent of the person who is entering into the K (idea is that one of the parties has some overwhelming influence upon them that, in effect, means they do not really consent); once undue influence is established, then onus shifts to other party to show they took good care of the interests over whom they were exercising the influence.Unconscionability is a more controversial and new category; it deals in part with free consent, but more with the fairness of the bargain.

Unconscionability1) 2 criteria of unconscionability in Canadian

law – party wanting to use unconscionability has burden of proof (although once the prima facie argument is accepted, burden on other party to rebut it)a. gross inequality of bargaining powerb. bargain grossly unfair and improvident

Marshall v. Canada

Permanent Trust Co(1968)

Held: unconscionable.

P heard D was selling his land so visited him at old age home. P agreed to pay $7000 (considerably less the market price) and take over lease.

2) K was unconscionable as wife not in position of equal bargaining power and entered into a grossly unfair bargain with no independent legal advice

Mundinger v. Mundinger

(1968)

Divorced W looking to overturn a separation agreement which gave her $10,000 for conveying 2 jointly-owned properties to H, agreed while suffering nervous breakdown, under threat, duress by H; had gone to a solicitor but put H in rage, he gave a bit more money but not enough to match value; family physician and psychiatrist said she was not in condition to protect own interests.

Undue InfluenceUsing undue influence test: (equitable remedy) (Bundy)

1) will overborne2) proved relation of trust and confidence OR category where relation presumed3) transaction requiring explanation – burden of proof shifts

2 categories of undue influence: (Bundy)1) prove K obtained by undue influence (essentially saying that there is another

person who was so dominating that you could not truly consent – now more likely to be dealt with under duress) (Etridge)

2) relationship of trust and confidence – established in 2 ways

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a. prove itb. specific relationships in which it is presumed that there is relationship of

trust and confidence- parent-child- doctor-patient- religious advisor-disciple- solicitor-client- trustee-beneficiary

3) unconscionability requirements satisfieda. inequality of bargaining power (crucial factor was that the

bank manager knew the company was going down – he was not really trying to saved the company, he was only trying to shore up the bank’s security position)

b. and grossly unfair bargain4) in the alternative, can also prove by undue influence

a. father had proven relationship of trust and confidence with bank – and bank gained a significant advantage that needed explaining

Lloyd’s Bank v. Bundy(1975)

5) trust and confidence not presumed in spousal relationship, but it was proved

6) O’Brien principle = where you have a spouse guaranteeing another spouse’s loan, if the spouse procuring the guarantee from his wife exercises undue influence over his wife, the lender will be held to have constructive knowledge of that undue influence, and the lender will thus be held responsible for the husband’s behaviour (applies if relation is non-commercial)

7) the guarantor must explained the risks involved, and make a decision in the absence of the other person to proceed generally done through solicitor’s independent legal advice – bank must be satisfied that that guarantor knowsa. nature of documentb. practical consequences (ex. lose house, bankrupt)c. seriousness of riskd. what the credit line is fore. what benefits the guarantee will givef. then check to see if guarantor still wishes to proceed

(then bank allowed to rely on the guarantor’s agreement – and even if it is later proved that the husband exercised undue influence on the wife, the guarantee still stands)

8) Canadian courts do not always require an independent legal advisor for the guarantor, but they still need proof that the guarantor knew the list of what Etridge sets out above

Royal Bank of Scotland v. Etridge

(2001)

Issue: what should the bank do to protect itself from cases where the undue influence is against a 3rd party (wife)?

Note: normally, in order to affect a transaction, the undue influence would have to have been applied by the other contracting party or, at least, the party guilty of the undue influence would have had to be acting for the other contracting party – the bank must take steps here only because of the O’Brien principle.

Penalties and ForfeituresPenalty: provision that is included to terrify you into keeping your K obligations.

- penalties are not enforced- penalties are intended either to terrify the other party into not breaching the K,

or intended to punish the party for breaching the KLiquidated damages: (which differ from penalties)

- pre-assessment of what damages likely to be suffered, and include that assessment in the K

- courts do not hesitate to enforce liquidated damages

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Problem occurs when provision in K crosses the line, so that it is no longer a liquidated damage, but a penalty (in terroram).Forfeitures = K forcing you to give something up (ex. K provides that a breach of K will result in you giving up piece of land)

- equitable courts believed they could step in and relief parties for forfeiture agreements

- usual relief in cases of forfeiture provision is more time1) indicia to consider in determining liquidated damage vs.

penaltya. how does the amount stipulated relate to the reasonably

anticipated damages for breach? (ex. would some of the breaches be very trivial ones, and some be more serious? – if only one sum declared for liquidated damages, it must suggest that one party is not genuinely trying assess what its losses would be)

b. would it be very difficult to determine what losses are? – if too difficult, makes sense to only fix one sum for liquidated damages

c. is the amount set out of all proportion to any loss that would have been anticipated?

H.F. Clarke v. Thermidaire Corp

(SCC 1974)

Held: provision called for “gross trading profit”; by definition, this is going to be higher than actual losses that Thermidaire would procure, so it is clearly punitive.

Common Law IllegalityCourts usually will not enforce Ks for illegal purposes.1) basic rule = courts will not assist P

whose K is illegal2) in this case, held K not illegal since P

simply sold tea and D did something illegal with it the K itself was not illegal

Holman v. Johnson(1775)

P sold tea to D, knowing it was intended to be smuggled into England. D failed to pay.

3) Ks in restraint of trade = Ks that limit the ability of individuals to participate in normal economic affairsa. worry is that the former employee/vendor takes “good

will” of sold business with them – i.e. take the clientsb. the exception to Ks in restraint of trade is that if they are

reasonable within scope, courts will enforce them4) difference between employer/employee and

vendor/purchaser is inequality of power, and the restraint having much bigger impact on the employee – courts will take much tougher view as what is reasonable in an employer/employee situation

Shafron v. KRG Insurance Brokers

(SCC 2009)

Held: “Metropolitan area of Vancouver” is too vague, and therefore unreasonable court will not enforce.

5) general rule = court will not allow criminal to profit from his/her own crime (irrespective of the ultimate payee of the proceeds)

6) in this case, what really was happening was that the children of deceased W was trying to get insurance proceeds but court said insurance made proceeds payable to H, and since H cannot profit from his crime, children cannot get it

Brissette Estate v. Westbury(SCC 1992)

Couple took out insurance policy which both were name as “insured.” Policy said on death of one, insurance paid to survivor. H murdered W. W’s estate claims proceeds.

7) the general rule does not cover completely independent innocent beneficiaries

8) W completely innocent, and she was the beneficiary, and thus Brissette does not

Oldfield v. Transamerica Life Insurance

(SCC 2002)

H and W divorced. H required to maintain life insurance payable to his W. H died while in committing a crime.

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apply to this W wants to get insurance proceeds.Insurance company says because the insurance became payable due to illegally, K unenforceable.

Statutory IllegalitySometimes the statue itself provides what happens when K is in violation of a provision. Problem is what if statute does not say what happens.1) when K is contrary to public policy expressed in statute, it is

illegal and no compensation grantedKingshot v. Brunskill

(1953)2) no longer a blanket invalidation of all Ks in

contravention of statute3) new test for breach of statutory illegality =

not only is it against regulation, but is it contrary to public policy?

4) factors to taken into account in this casea. Southgate trying to take advantage of

their own wrong to escape K obligations

b. no evidence that outcome would have been any different

c. nothing in statue saying what happens if K breaches statute

d. Doherty had acted in good faith

Doherty v. Southgate

(2006)

Held: K is still enforceable despite being contrary to statute.

K between township and developer for sale of land. Municipal Act provided that certain procedures had to be met by a municipality prior to selling land – including giving public notice. Township failed to give notice. Then, Township failed to re-zone land (i.e. breached K). P sues for breach. Township claims K void because they contravened Act and it was therefore illegal.

Mitigating the Consequences of IllegalityCC set a limit of 60% interest, although most loan-sharking transactions can set up to 200-300%.Severance: if K has provision that makes K illegal, take blue pencil, and strike a line through specific words/phrases, and if this edit process can remove the illegality from the K, then the rest of the K can be enforced without the illegal provision.

- where parties were sophisticated business people, court resorted to severance test (to preserve for the lender at least some of their return)

- but there are lots of cases of real loan-sharking type situations where court held whole thing unenforceable

1) blue pencil requires consideration whether illegal K can be rendered legal by striking out illegal parts in agreement

2) notional severance – if cannot use blue pencil, can read the whole K down to accepted level of interest

3) but cannot apply notional severance where the ambiguity is in reasonableness (ex. Shafron and what “Metro Van” is) – use blue pencil

New Solutions Financial Corp v.

Transport NA(SCC 2004)

4) must look at policy reasons why illegal K should not be enforced

5) court considereda. she was paying EI the whole time, so her

getting EI benefits not affecting the solvency of the EI program

b. statute did provide penalty for people knowingly working illegally – she did not

Still v. MNR(1998)

Held: P is legal immigrant acting in good faith, and no further policy reason not

P granted permanent resident status subject to approval. P took this to mean she could work. Began work, later granted permanent status. P laid off and applied for

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know, so she would get no penalty; but not getting EI is in effect penalty

c. purpose of provisions was to prevent illegal immigrant workers – she is legal

d. she is not really at fault; it is the gov. document’s fault that the document is so ambiguous and unclear

to enforce K. unemployment benefits, but was denied on ground that K for service was illegal before permanent residency granted.

MistakesMistake is a residual category – meaning the cases do not fit under the normal heads of breach of K term, unconscionability, undue influence, duress, misrepresentation, or collateral K.

Mistakes About Contractual Terms1) what would a reasonable person think

the term would mean?a. if courts can determine, then the

meaning will be enforcedb. if cannot determine, no K

Hobbs v. E & N Railway

(SCC 1899)Held: K with minerals.

P paid D $120 for land. P thought buying with minerals, D thought without. D said in the office, “land” meant no minerals.

2) if term is clearly ambiguous, parol evidence may be used for purpose of showing what parties believed/intended – but if cannot determine what parties meant or what reasonable person would think no K

Raffles v. Wichelhaus

(1864)“Peerless” case.

3) court says there was K looking at all the circumstances – it was clear that the “steel” was the scrap, and not the structured steel

4) only if one comes to the point where cannot determine objective what the terms were, would the court say no K

Staiman Steel v. Commercial

(1976)

Mistake in AssumptionsNote: SCC has made very few decisions on K mistake, and Ron Engineering, although earlier than Great Peace Shipping, it is more in accordance with Great Peace Shipping than Solle.1) if mistake in fundamental assumption in K K is void2) but if mistake in quality of the thing K’ed for still is a K3) only time you could say that K was affected by one of these

underlying mistakes in assumption, is where mistake is so crucial that it changes the entire character of the deal

4) this rule is also quite harsh – requires a very high level of mistake before courts will help and courts do not really help, they just destroy the K

Bell v. Lever Bros(1932)

Held: end result would be Bell fired anyways, so court does not set K aside.

5) equitable mistake – if parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided thata. the misapprehension was fundamental

andb. the party seeking to set it aside was not

himself at fault6) problem #1: if Solle is accepted, we must

treat Bell as solely ruling on common law, and not equity

Solle v. Butcher(1950)

P rented apartment from D for $250/yr for 7 yrs. Both parties believed apartment not governed by rent control and this was good rent. In fact, max rent was $140. P now claims lease at $140.

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7) problem #2: how huge does the mistake have to be? what is “fundamental?” uncertain

8) note that Solle gives courts more flexibility9) Bell and Solle cannot stand together, thus Solle is overruled10) for mistake in assumption to succeed, must have

a. common mistake in assumption – mistake in assumption as to state of affairs on both sides

b. may be about existence of, or vital attribute of, the consideration to be provided, or circumstances that render performance of K to be possible

c. no warranty made as to existence of the assumptiond. non-existence of the state of affairs is not fault of either

partye. non-existence of the state of affairs must render the

performance of K impossiblef. once all the above satisfied, look to K to ensure that K has

not already allocated risk of the thing that happened11) note that Great Peace Shipping has not been

followed by Canadian lower courts, they prefer Solle

Great Peace Shipping v. Tsavliris

Salvage(2002)

Held: mistake in assumption claim fails because does not make performance impossible, and K already said what would happen if cancellation occurred

12) K A: court characterized this as a unilateral K, and said call for tenders is offer, submission of bid is performance and consideration K A is formed prior to information about the one party’s mistake K A is validly formed

13) Great Peace said there cannot be anything in the K that already deals with mistake there is a provision here, and K A clearly says deposit is forfeited

14) Estey J. decides on public policy: “the integrity of the bidding system must be protected where under the law of contracts it is possible so to do” i.e. if this tender was so defective that you could not call it a tender, it would not have been capable of acceptance and K A would never have formed

R. v. Ron Engineering(SCC 1981)

Held: K A stands but probably not K B if bid selected; court is really saying that K A is validly formed, and mistake does not do anything to the K because K A itself contains provisions as to what happens – like Great Peace Shipping.

Rectification of DocumentsA claim that both parties made mistake, that their agreement was wrongly written – i.e. mistake is the written document; does not reflect what parties agreed to court will rectify document (i.e. re-written to reflect correct agreement)1) in order to get rectification it is

necessary to show:a. parties in complete agreement on the

terms of the K butb. by an error wrote them down wrongc. court must be left with no fair and

reasonable doubt that the deed signed does not embody the final intention of the parties

2) type of evidence that can be looked at:a. documentary evidenceb. conduct of parties during negotiationsc. conduct of parties subsequent to signing

Bercovici v. Palmer(1966)

Held: rectification possible, judgment for P; D never took possession of cottage, never paid insurance – etc. so never really did anything to show they thought they had

P sold 2 businesses to D, an extra area (Lot 6 in Block 33A) was disputed to be included in the selling of the 2 businesses. D sought to change the wording from Block 33A to 33 (since no such thing as 33A), while P sought to delete reference to Lot 6 altogether.

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possession of it.Frustration = mistake as to what will happen in the future.

1) general rule = no matter what happens, promises must be kept

Paradine v. Jane(1647)

2) if K performance depends on the continued existence of a person or thing, and that person or thing ceases to exist, performance may be excused for impossibility of performance, as long as it is not the fault of either party that the thing/person has vanished

3) but if a party gives an express or implied warranty that that thing will continue to exist, that party is liable for breach if it ceases to exist

Taylor v. Caldwell(1863)

D K’ed to permit P the use of the Musical Hall. K stated that the Hall must be fit for a concert but there no express stipulation regarding disasters. Hall was destroyed by fire before the first concert. Neither party was at fault.

4) deals with what happens when benefits have conferred and K frustrated

5) if part of K carried out, you can get some value for the benefit you conferred on other party

Frustrated Contracts Act

RemediesBroadly speaking, there are 3 kinds:

1) expectation damage (what would have happened have the K been properly carried out?) – the normal reward also usually the highest rewarda. “the party complaining should, so far as it can be done by money, be

placed in the same position as he would have been if the contract had been performed” (Wertheim v. Chicoutimi Pulp)

2) reliance damages (what have you lost in reliance on the K?) – more usually rewarded in tort and easier to prove

3) restitution (restores benefit transferred) – requirementsa. loss to innocent partyb. K breaker received a benefit

1) reliance damages is usually the fallback when you cannot prove expectation damagesa. Lord Denning says P can have the option of claiming

reliance losses rather than expectancy damages2) P not limited only to expenditures incurred after formation of

K in a claim for wasted expenditure from a breach of Ka. problem: Lord Denning also let them recover for cost

occurred before entered into Kb. later cases made it clear that there is limit on expectancy

damagesi. cannot claim reliance losses if they would

exceed expectation damagesii. maximum claimable amount in reliance is governed

by what they would have expected had K been fulfilled

iii. D not liable for P’s failure to make good bargain

Anglia Television v. Reed

(1971)

Held: reliance damages allowed because expectation too difficult to prove.

Note: Esso Petroleum is another ex. of where reliance losses awarded because in K law you can sue for the fact that reliance was reasonably made.

3) court said should have awarded expectancy damages and not reliance

Hawkins v. McGee

Surgery to repair scar tissue on hand

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damages (i.e. value of hand had doctor delivered on promise, and not how much worse the hand became)

(1929) resulting from burns P sustained. D gave P a 100% guarantee to repair the scar. Surgery unsuccessful.

Specific Performance1) very rare, and normally not rewarded unless damages not enough2) if 3rd party legitimately involved in transaction, no specific performance will be

rewarded (Falcke v. Gray) (equity requirement)3) will not enforce positive contract for servitude (Warner Bros v. Nelson)4) must come with clean hands (equity requirement)5) must come promptly (equity requirement)6) if requires supervision in detail, will not award SP7) no SP if it would cause severe hardship to performer (Warner Bros)

Remoteness1) an injured party may recover

a. damages reasonably considered to arise naturally from a breach of K, or

b. anything that is special, or unusual, that is communicated to the other party (rationale = if known, other party can shift risks properly)

2) in this case, common carrier had no way to refuse shaft, and could not know that mill was inoperable it was the Mill’s responsibility to tell D of the inability

Hadley v. Baxendale

(1854)

Held: damage too remote, not recoverable.

Shaft in P’s mill broke. P hired D to transport the broken mill shaft to an engineer in Greenwich to make duplicate. P told D that shaft must be sent immediately. D promised to deliver next day. D did not know that the mill would be inoperable. D did not transport shaft as promised, causing mill to remain shut down for additional 5 days.

3) in order to make breaching party liable, it is not necessary that he actually asked himself what loss is liable from a breach; it is based on whether a reasonable man would see himself liable for lost profits in the circumstances at time of K formation

4) court splits profits into 2 categoriesa. normal profitsb. especially lucrative K profits

Victoria Laundry v. Newman(1949)

Held: profits of normal business not too remote because Ds are engineers who know what boilers are for, and for that P in laundry and dyeing businesses; but profit from lucrative K from gov. are too remote.

5) background: when ship deviates from route, it is an extreme breach of K – because there are always risks to shipping, and deviation substantially changes the risk courts always treat deviation as a fundamental breach in K, for which damages are payable

6) it is not enough that P’s loss is directly caused by breach in K, the question is if a

The Heron II(1969)

Held: damages for loss awarded – because it is reasonably foreseeable that if shipping delayed, prices

Koufos chartered a ship (Heron II) from Czarnikow to bring 3,000 tons sugar to Basra. Was 9 days late. Sugar price dropped from £32 10s to £31 2s 9d. Koufos claimed difference in the loss of profit.

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reasonable man in the position of D should realize that such loss was a serious possibility from the breach of K (summarizes both branches of the test)

would change. Czarkinow knew there was a sugar market, but not that Koufos intended to sell it straight away.

7) court (traditionalists) said too remote because the extreme fluctuations happened so quickly – that it is not reasonable to foresee

8) court (non-traditionalists) adjusted the foreseeability rules a bit, but also held too remote as part of reasonable foreseeability test is the general understanding of the industry – that what you get is the difference in value over the days of which the ship is late – that is part of the factual matrix of the K

Transfield Shipping

Held: no compensation for the unusual extreme fluctuation of rates – too remote.

Chartered ship 8 days late, unusual extreme fluctuation in rates of charters at this time; second charter does not want to cancel K entirely, but wants to rewrite it at the lower rate; owners claimed the amount they would have got had the ship been returned on time.

Intangible Injuries and Punitive DamagesAggravated damages = damages for mental distress, upset, emotional distress etc. normally, cannot claim damages for emotional distress.Punitive damages = to punish K breaker; rarely awarded – imposed only if there is high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour (Pilot Insurance).1) in certain Ks (entertainment, enjoyment) damages for

mental distress can be recovered in K – if a positive emotional benefit was the purpose of the K, that is when you can claim damages for loss of that benefit in mental distress

Jarvis v. Swan Tours(1973)

2) aggravated damages can be claimed whena. an important object of the K (not the

only object of the K) is to secure some kind of psychological benefit

b. degree of mental suffering caused by breach has to be sufficient to warrant compensation

Fidler v. Sun Life

(SCC 2006)

Held: Fidler could get aggravated damages.

Commercial K to provide disability insurance to Fidler; Sun Life broke K with Fidler (failed to provide insurance over many years).

3) if given, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant

4) punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation

5) threshold question in awarding punitive damages for breach of K is to find that there has been an “actionable wrong independent of the loss claim under the K”

6) in this case, insurers are held to have duty of good faith to their insured (this duty of good faith is the independent wrong)a. Pilot Insurance broke their provision of K to pay benefitb. Pilot Insurance also breached their independent duty of

good faith to the insured by persecuting them

Whiten v. Pilot Insurance

(SCC 2002)

Arson claim by insurance company, but no evidence of this; only slight evidence was that the family was in financial difficulties.

Held: Ps rewarded claim under fire insurance policy + legal costs + punitive damage of $1 million.

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Mitigation1) there is a duty on the P to mitigate

their losses, and they are not allowed the charge D for losses that they could have avoided acting reasonablya. court said if it is a reasonably thing to

take the offer, P should have taken the offer – and this was not a breach of K that would render dealings between P and D impossible

Payzu v. Saunders(1919 KB)

Held: P only recovered for value of credit they should have received, but not for losses based on the higher price they paid.

D agreed to sell silk to P from January-April. Silk was delivered. Cheque from P to D delayed. D said they wouldn’t sell to P anymore unless they pay in cash for each order (instead of charging credit – this is a breach of K). P found somebody else to supply for a much higher cost.

2) when someone breaks K in anticipatory breach, you can accept the termination, sue for breach, OR can continue to insist on performance and hold the K open for other party’s performance

White & Carter v. McGregor

(1961)

D’s sales manager entered into K with P to display ads on litter bins. Later that day D wrote to P to cancel before anything done. P refused cancellation, displayed.

3) when party commits anticipatory breach of K, other party can elect to terminate K, sue and mitigate, OR can refuse to terminate and insist on performance and not mitigate, BUT ONLY IF they have a reasonable claim for SP

Asamera Oil Ltd. v. Sea Oil

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