1

Law 410 Contracts

O’Byrne

2

1. THE ELEMENTS OF A CONTRACT Elements of a contract: o 1. Both parties must reach agreement

o Offer o Acceptance

o 2. Both parties must provide consideration o 3. Both parties must have an intention to contract

Definitions: o Offer - expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as

accepted by the person to whom it is addressed. o Acceptance - final and unqualified expression of assent to the terms of an offer o Consideration - something of value in the eye of the law and involves the idea of an exchange o Intention to Contract - the parties made the agreement in contemplation of it having legal consequences o Nominal consideration - consideration in name only because it really doesn't benefit A and no detriment to B to pay 1 cent.

However, the common law treats nominal consideration as GOOD consideration. This prevents judges meddling with freedom of parties to contract.

o Also introduces prevents contractual uncertainty, as parties to a contract wouldn’t be sure what a fair price was if judges were allowed to assess the adequacy of consideration.

o Duress - subjecting someone to improper stress that makes the contract no longer a voluntary agreement

Criteria – When do agreements amount to enforceable contracts? 2. THE ENFORCEMENT OF PROMISES (i) Formality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Reasons for formality (i.e. writing)* o Evidentiary function - provides an objective and permanent record of the parties agreement, avoids reliance on fallible

human memories and eliminates the need to weigh possibly conflicting evidence as to what was said o Cautionary function - Writing introduces a note of deliberation and provides the parties with a period of reflection,

preventing unconsidered action. o Channelling function - serves as a mark of an enforceable promise, though the written promise may still be void or

unenforceable for lack of consideration, lack of capacity or because of fraud, duress or other vitiating factors. * [Note: The CL does not insist on formality as a prerequisite to legal liability.] (ii) Seriously Intended Promises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 Perhaps not all promises should be legally binding, but promises should create legal obligations if they are seriously intended and made for a good reason. Cause - there must be a valid purpose, a reason for, an end to be pursued in the contract. (iii) Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

o In contrast to a theory based upon the seriously intended nature of the promise, legal obligation under reliance theory results from its effect on the promisee.

o However, as the promisor has no control over the actions of the promisee, the promisee could act to bootstrap their way into an enforceable contract

(iv) Exchange and Bargains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Consideration - something representing value (such as an act, a forbearance, or a return promise; no judicial assessment of adequacy of value) bargained for and received by a promisor from a promisee; that which motivates a person to do something.

o Either some detriment to the promisee or a benefit to the promisor.

3 Unilateral v. Bilateral Contracts

Unilateral v. Bilateral Contracts Unilateral Contract - one party makes an express engagement or undertakes a performance, without receiving in return any express engagement or promise of performance from the other.

• Neither party is bound until the promisee accepts the offer by performing the proposed act. It consists of (1) a promise for an act, (2) the acceptance (consisting of the performance of the act requested)

o Acceptance is not satisfied by a promise to perform an act • All offers (even an offer of a bilateral contract) is essentially a unilateral contract, in that the person receiving the

contract has no obligation to accept. Bilateral Contract - A contract that requires the contracting parties to fulfill reciprocal obligations. Contract is formed by the exchange of promises in which the promise of one party is consideration supporting the promise of the other.

o cf unilateral contract which forms by the exchange of a promise for an act Promise under Seal

o If a promise is under seal, there is no need for there to be consideration moving from either party towards the other. o The person making the promise under seal is acknowledging that that promise is binding even absent consideration from

the other side.

Examples: Seller to Buyer: I promise to deliver 100 widgets for $100, 6 months from now Buyer to Seller: I promise to pay $100 for 100 widgets in 6 months

o If the seller decides at some point BEFORE the 6 months is up and says they can't deliver, it is immediately actionable, and

doesn't need to wait 6 months until the contract was supposed to be performed. Exchange and Bargains

Dalhousie College v. Boutilier Estate 1934, Supreme Court of Canada. . . . . . . 176 o Gratuitous promises (i.e. a promise not supported by consideration) are not enforceable

o Promise must be supported by consideration o Nudum Pactum (latin, means “bare agreement”) - an agreement that is not enforceable as a contract, because it is not

"clothed" with consideration Ratio o Third party consideration is NO consideration at all

o Consideration MUST flow from the promisee o [Reliance on a gratuitous promise does not convert it into a binding promise] If the universities want the gratuitous promises to be binding, they just need the promisor to put the promise under seal or else do something specific in consideration of the promise. Gift o A gift is irrevocable if there is:

o 1. Intention to give the gift o 2. Acceptance (usually presumed) o 3. A sufficient act of delivery

May be additional requirements

Wood v. Lucy Lady Duff-Gordon ……………………………………………………pg. 182 [Note: American decision; therefore persuasive, not binding]

o Ratio: Nothing explicitly promised by Wood but Court implied promise to expend best efforts as consideration on the basis of business efficacy

o Want to ensure that commercial contracts are enforced

4

o Wood needed to expend best efforts

Past Consideration Eastwood v. Kenyon (1840) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

o The moral obligation to fulfil a promise cannot be construed as consideration for that promise

o The law requires the promisee to give something of value in exchange for the promise. o Infant’s contracts are voidable, in that they are not bound by them

o Exception: Infants can contract for necessaries o HOWEVER: Upon attaining the age of majority an infant renews the promise to pay, that makes the contract binding

o Though this is still a past-consideration problem, as past consideration is no consideration at all

Lampleigh v. Brathwait (1615) ………………………………………………………..185

o Implicit in a request to do something is the agreement to pay if: o The act was done at the request of the promisor

o Payment, if promised in advance, must be legally recoverable When not legally recoverable?

• For an illegal contract, i.e. for a hitman Quantum meruit – “as much as he deserves”. It means he will be paid a reasonable amount

Thomas v. Thomas (1842). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

o John Thomas makes the provision his wife should be able to live in his house for her life or until she remarries. o Consideration is something of value in the eyes of the law that moves from the promisee to the promisor. o Taking the burdens with the gift

o (eg. I give you my car; you say you'll get your own insurance. This isn't consideration. It isn't something done at my request and doesn't flow to me)

o Widow’s payment of one pound and keeps the house in good repair is consideration o The court finds this isn't a burden of the gift. o The pound is extra and that keeping the house in good repair wasn't an obligation either; will therefore count as

consideration. o Firm offer: “I promise to sell you 100 widgets for $100 and to keep this offer open until Friday”

o This offer of a bilateral contract is a gratuitous promise to keep the offer open and can only be accepted by the exchange of a promise to pay

o This promise may therefore be revoked without legal consequences o Option contract: Offeree pays money (deposit) to keep the offer open until a certain date

o For example, pay $1000 to keep the offer open o If you don't go ahead with the offer, you don't get your money back, because it was money paid to purchase keeping

that option open.

Question Gloria Greer purchases a C.G.E. Hairdryer from a local department store, and upon opening the box finds a card headed Manufacturer's "guarantee", instructing the purchaser to complete, sign and return the card in order to be covered by the 12-month guarantee. Ten months later the hair dryer breaks due to a manufacturers defect. Can Gloria sue on the guarantee? What is she providing as consideration in exchange for the warranty?

o Could argue that entering into the contract with the retailer (she pays, they give her the hairdryer), provides support for consideration for the side contract with the manufacturer (collateral contract)

Is filling in the card consideration? o It could be, but it could also be a condition of getting the warranty o Could be consideration if you are providing valuable consumer information.

Forbearance

5

Forbearance to sue – This may be construed as consideration. Example: Plaintiff injured; defendant and plaintiff discuss settling out of court. The contract is that the defendant will pay the plaintiff, who in return promises to forbear to sue (or to discontinue action if a suit has already been started). B. (D C ) v. Arkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Action 1 Agreement: Mom pays Zellers, in exchange, Zellers forbears to sue (settled out of court) Action 2 Mom sues Zellers to get her money back, because their lawsuit was known to be invalid Forbearance – When is forbearance “good” consideration? 1. Give up a good claim. 2. Give up a doubtful claim (might win, might not) 3. Give up a claims not known to be invalid

a. Needs to show that it is a reasonable claim, made in good faith on reasonable grounds b. No deliberate concealment of invalidity of the claim c. Show that you seriously intended to pursue the claim

Forbearance – When is forbearance NOT “good” consideration? 1. When what is sacrificed is a claim that is known to be invalid

a. In this case, the plaintiff needs to demonstrate claim was invalid b. The onus is on Zellers to prove (on the balance of probabilities) that the claim was not known to be invalid and

they can fill the 3 requirements listed above

Pre-Existing Legal Duty

Promisor - Promisee (pre-existing legal duty) Example: Harvey's father promises to pay him $5000 if he promises to stop selling drugs. Not selling drugs is not good consideration because he has a pre-existing legal duty to not sell drugs. (1) Public Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Ward v. Byham o Promising to fulfill a public duty is NOT good consideration o Father agreed to pay mother his illegitimate child a pound a week o The mother already has a pre-existing legal duty to take care of the child

(ii) Duty Owed to a Third Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 o Promisee must purchase promise from the promisor

o Consideration must flow from the promisee o Consideration need not flow to the promisor from the promisee

o Example: A student agrees to tutor another student. "I will tutor you if you teach my child piano lessons" o Here consideration flows to a third party.

The performance of a duty owed to a third party duty can be GOOD CONSIDERATION if performance occurs at the request of the promisor Shadwell v. Shadwell (1860) Nephew got engaged, and subsequently his uncle promised to pay nephew 150 pounds per year Then the uncle doesn't want to pay The argument is that because the nephew had a pre-existing legal duty to marry, going through with the marriage shouldn't be considered good consideration. BUT: Promising to fulfill a pre-existing legal duty to a third party IS GOOD CONSIDERATION.

(2) Duty Owed to the Promisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

o Can fulfillment of pre-existing legal duty to the promisor be good consideration? No.

6

Gilbert Steel Ltd. v. University Const. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

o Facts o Defendant orally agreed to increase the price he was paying for steel purchased from the Plaintiff o Plaintiff billed out at the higher price, defendant only paid original price o Plaintiff suing for the deficiency

o Issue o Was consideration present to support the variation to the contract?

No evidence that the old contract was rescinded, so this was a variation o Application

o The only term that is changing is price o This sounds more like a variation in the existing contract and variation must have consideration

o Decision o The promise to give “a good price” on steel in the future was not good consideration o Initially, the buyer had 60 days to pay at price x, now they pay at x+1

The effect of this is to gives the university increased credit • However, this is really just an incident of the increased price, it isn't bargained for and

therefore isn't consideration Consideration must be present to support variation in a contract Stilk and Myrick 1809

o The Captain doesn't pay his sailors, arguing they had a pre-existing duty to do the work o Court says that this is an emergency situation and desertion is a risk for the sailors, and sailors were obligated without

the need for extra pay o Court has to choose between exploitation (of the sailors) and extortion (of the captain) o Solution - let the court decide on a case-by-case basis.

Williams v. Roffey Bros. & Nicholls (Contractors) Ltd.. . . . . . . . . . . . . . . . . . 202

o Williams can’t finish based on original contract o New contract - Roffey agrees to make the extra payments

o THEN, Roffey stops paying, Williams stops work, and they end up in court. o According to the Gilbert Steel case, promise to pay more was gratuitous. o What does Roffey gain from the new contract with Williams?

o Roffey won't breach his contract with the flats' owner o Won't need to locate replacement sub-trade o Improved payment scheme o Greater efficiency in delivery (finishing one flat at a time instead of a bunch)

o HOWEVER: These are practical benefits, but not consideration

Duress Test for duress: (p. 716) Duress is coercion of the will so as to vitiate consent In determining whether there was a coercion of will (such that there was no true consent), consider whether the person alleged to have been coerced:

o Did or did not protest o Did or did not have an alternative course open to him such as an adequate legal remedy o Had independent legal advice o After entering the contract, took steps to avoid it.

Ratio (formula for pre-existing legal duty) o Assume A has entered into a contract with B to do work for, or to supply goods or services to B, in return for payment by B

o At some stage before A has completely performed the obligations under the contract, B has reason to doubt whether A will or will be able to, complete his side of the bargain

7

o Thereupon, B promises A an additional payment in return for A's promise to perform his contractual obligations on time

o As a result of giving his promise B obtains in practice a benefit, or obviates a disadvantage o Provided B's promise is not given as a result of economic duress or fraud on the part of A o THEN the benefit to B is capable of being consideration to B's promise so that the promise will be legally binding. Robichaud v. Caisse Popular

o Robichaud borrows money from Royal Bank and Caisse Popular (CP) o CP gets a $4000 judgment

o CP is a judgement creditor and Robichaud is a judgement debtor o Robichaud goes to Atvo for debt consolidation o CP agrees to take a $1000 in full satisfaction of the debt o What is the benefit to CP?

o Practical benefits: Defendant gets something (may get nothing if defendant goes bankrupt) Don't have to "chase him around", seize his assets, etc

• Saves time and trouble o The court (bottom p. 211) found that the consideration was the immediate receipt of payment and saving time effort

and expense and that CP entered into the agreement of its own accord and knowing all the consequences of its actions

Formation of the Agreement: Offer and Acceptance

Offer and Invitation to Treat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ….17

Offer: an expression of the willingness to contract on specified terms, made with the intention that it is to become binding upon acceptance by the person to whom it is addressed. Invitation to treat: an expression of willingness to do business that is designed to elicit an offer from the other side. [Note: Merely quoting your lowest price is NOT an offer to sell at that price.] Canadian Dyers Association Ltd. v. Burton . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Oct 21, 1919 Defendant responds o “In reply, I would say that the last price I gave you is the lowest I am prepared to accept. If it were anyone else, I would ask

more…” o The court on page 19, "…surely unless language is used to conceal thought, this is an offer." o From a legal perspective, conduct subsequent to the offer is irrelevant (though it would be difficult for a judge to really

ignore)

Test: How to determine whether something is a legal offer: o Objectively determine intention by asking:

o “What did the person purported to have made the offer intend?” Consider language used Consider method of correspondence

o Note: When an offer is rejected, the offer is “off the table”; offer is dead. Harvey v. Facey…………………………………………………………………. (page 18) o Potential purchaser sent a telegram asking 2 questions:

o Will you sell? o Name price?

o Reply: Lowest cash price accepted = 900 pounds o Assuming this to be an offer, the purchaser wired acceptance o However, the court decided that answering the second question did not imply an affirmative answer to the first question

o This precedent wasn't followed in the Canadian Dyers case

Pharmaceutical Society of Great Britain v. Boots Cash Chemists o Display of goods is an invitation to treat. o Otherwise you could never put an item you've taken of the shelf back without being in breach of contract. o Offer = customer taking an item to the till to pay for it.

8

o Acceptance = cashier accepting payment for the item. Carlill v. Carbolic Smoke Ball Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Ad was offer of unilateral contract Goldthorpe v. Logan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 o Facts

o Plaintiff submitted to electrolysis advertised by defendant, and it didn't work o Trial

o Trial judge found the plaintiff had not established a claim in tort or contract

o Step 1: Was there a Contract? o The contract analysis however, (O'byrne believes judge was reading Carlill and delivered a “Carlill-like”

judgement.) o Look at the ad: Offer or invitation to treat?

Test is: intention as determined by considering all the circumstances. You have an offer if you can walk up and say "yes, I accept"

o Court says the ad IS an offer, not an invitation to treat (page 31) o O'Byrne doesn't see the intent to be bound in the ad "you couldn't just walk up to the defendant and say 'yes'"…

You would still need to determine the price, information about the treatment, risks • This implies defendant would to some kind of pre-procedure consultation, and therefore the ad is

merely an invitation to treat o Where is the acceptance?

Submitting to and/or paying for the treatment o What was the consideration?

Paid and/or detriment of submitting to treatment

o Step 2: Was there a breach of term? o Yes, hair grew back

o Step 3: Damages?

o O'Byrne says court gets this wrong too o In the end the judge gives her, her money back, because she got nothing for her money

Total failure of consideration Also awards $100 - value of a smooth face Measure of damages - should be put into the position you should have been in had the contract been

fulfilled o Problem in awarding $13 and $100?

She is being doubly compensated Had the procedure worked, she would have had a smooth face (valued at $100), but would have had to

pay $13 for the treatment So, had the treatment worked she would have been "up" $87.

o Step 4: Alternative analysis (per O'Byrne's) o Ad: invitation to treat o Offer: Customer agrees to treatment, guarantee of results o Acceptance: performing treatment o Consideration: mutual exchange of promises, $

Chaplin v. Hicks

o Facts: o Beauty contest announced: send in your picture, prizes awarded to top 12 o 6000 people entered, Chaplin was one of the final 50 contestants o She didn't get the letter notifying her and wasn't able to participate

o Analysis: o Ad = offer of a unilateral contract o Acceptance, by sending in her entry o Breach?

Yes o What is the implied term that is being breached?

9

That you would have ample time to present yourself for the interview. o Damages?

Tricky, we don't know if she would have been one of the top 12 or not. o What has she lost?

She lost out on the opportunity to win. Court says 12 winners, 50 contestants, awarded her 1/4 the value of one of the prizes.

Tenders Call the person calling for tenders the "owner" Type 1 Tenders: o Call for tenders, owner commits to sell to the best bidder

o Offer: Call for tender o Acceptance: Submission of the best COMPLIANT tender

Harvela Investments Ltd. v. Royal Trust Co. Of Canada (C.I.) Ltd. . . . . . . . . . . 33 o When there is a call for offers with a commitment to sell to the best offer, that constitutes an offer and the owner is bound to sell

to the best bidder o Sir Leonard did not accept in accordance with the terms

o Didn't submit a FIXED bid o His referential bid was non-compliant

o There is a promise by the owner to sell to the best bid o The bidder provides consideration by submitting a bid.

Type 2 Tenders: o Call for tenders with no commitment to sell to the best bid

o Old law: Pre-Ron Engineering o A call for tenders with no commitment to sell to the best bid = an invitation to treat o The tenderer submits a bid = the offer o The owner can then choose the offer he wants o No contract between the parties until the owner accepts that offer o Therefore the tender (offer) is a gratuitous promise that may be revoked at any time before acceptance

o Dickenson v. Dodds

R. v. Ron Engineering & Construction (Eastern) Ltd. . . . . . . . . . . . . . . . . . . . . . 35 Contract A – Contract B analysis o Call for tenders:

o Offer of unilateral contract (contract A) o Submission of a tender:

o = Acceptance of contract A o = Offer (in this case, irrevocable for 60 days) to enter into contract B

o An owner will have only one contract B, but many contract “A”s o O'Byrne disagrees and says contract A is really bilateral contract

o Both parties have ongoing obligations o (See p. 41, SCC admits this)

o What is the consideration for tenderer's promise not to revoke? o The court says it is in the qualified obligation to take the best bid

o O'Byrne (and Percy) say that the consideration REALLY is the obligation to abide by the rules they've set in selecting bid o i.e. Can't accept a non-compliant bid

Law of Mistake……………………………………………………………………. (p.598) o A tender may be so lacking that it doesn't even constitute a tender in law

o Therefore no acceptance of contract A o eg. Instead of submitting a tender, whoops, I submit a poem

o Snapping up - You cannot accept an offer you know hasn't been made o eg. Tender is missing a page

o Ron Engineering claims that there is no contract A because their tender was meaningless based on mistake

10 o However, the court says Ron submitted what it intended to submit, the error was separate. Didn't just write down wrong number,

wrote the number they intended to submit, their error was in calculation not submission. o The error must be so obvious that the owner must have been taken to know about the mistake at time of submission.

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. . . . . . . . . . . . . . . . 39 o Privilege clause - states lowest OR ANY tender will not necessarily be accepted

o Allows the owners to accept whichever tender they prefer o Contract A imposes obligations on the tenderer

o What are the owners obligations? • To accept compliant bid.

o Rules required an unqualified tender o Sorochan didn't submit an unqualified tender o Therefore, his bid wasn’t compliant

o Implied term in Contract A that owner can only choose a compliant bid. o (Terms may be implied in a contract)

• This implied term is based on custom or usage • As the legal incidents of a particular class or kind of contract • Implied term is based on:

Presumed intention of the parties, where the implied term must be necessary to give business efficacy to a contract, OR

As otherwise meets the 'officious bystander' test as a term which the parties would say if question that they had obviously assumed

o Owners claim they thought bid was compliant - doesn't matter, still in breach of contract. Communication of Offer / Acceptance c. Communication of Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

o An offer has to be communicated in order to be accepted

d. Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 o Acceptance is a final and unqualified assent to the terms of the contract

Livingstone v. Evans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

o A counter offer kills the offer. o But if you are just making an inquiry as opposed to a rejection, it will not kill the offer.

o In this case, it was an inquiry, but rejection of offer is implied and a counter-offer was made o However, then rejects the counter offer and renews the offer in statement 1

o Therefore there is a contract and the defendant is bound by contract o Note: When you make a counter offer, you run the risk that the original offer will not be renewed

Butler Machine Tool Co. v. Ex-Cell-O Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Overview:

o Battle of the forms o Buyer sends to vendor an order to buy widgets

o Subject to buyer’s terms and conditions o Vendor sends confirmation

o Subject to the seller's terms and conditions o There is no acceptance here because it isn't an unqualified assent (the vendor isn’t agreeing to the buyer’s offer) so no

completed contract o This is considered a counter-offer

o However, once there has been performance, the courts are likely going to find there is a contract based on conduct. o To the extent that the seller goes on to deliver and the purchaser accepts the delivery, the acceptance of the product is

unqualified assent to the contract

Facts: o (No date)

o Inquiry by buyers o May 23

o Response by sellers quotes the price for a tool at 75 thousand pounds, delivery in 10 months • Quote contains trumping clause

11

• Quote contains a price variation clause o May 27

o Buyers reply by placing an order o Stipulates that the order subject to terms and conditions (which are DIFFERENT from the sellers)

• No price variation clause o Tear-off order form inviting sellers to accept this offer as per these terms and conditions by tearing off and returning

a slip from the order form o June 5

o Sellers return the completed slip with a letter stating that the buyers order was being entered in accordance with seller's quotation of May 23.

Alternative approaches to this problem: o Traditional Method (Lord Denning)

o May 23 – quote is the offer to sell o May 27 – order represents a counter offer

• Not an unqualified assent based on the introduction of new terms o June 5th - letter is an acceptance of the May 27 counter-offer o Purchaser should win

• Price variation clause doesn’t apply

o “Last shot” approach (Performance rule) The person who puts forward the last terms and conditions that the other side does not object to.

o “First shot” approach

Offers to sell with terms and conditions accepted by buyer, but with different terms and conditions Initial contract stands unless the purchaser draws the variant clause to the vender’s attention

o Shots fired on both sides

If 2 contracts with different terms, try to put both documents together in harmonious document If it can't be done, then resolve to the most reasonable solution possible (in the eyes of the judge)

o Here the trial court goes with the first shot approach: seller wins o The price variation clause was so emphatic that it survived everything that came after.

[O'Byrne agrees with this decision]

o Lord Denning reverses this decision He finds the document on June 5th is the decisive document Also: the letter sent back to the buyer from the seller says “we agree to the sale based on the quotation of May 23”

o However Denning says that a "quotation" only refers to price, not document as whole

Court will look at which party is being the most reasonable.

Tywood Industries Ltd. v. St Anne-Nackawic Pulp & Paper Co Ltd. . . . . . . . . . 61 [Note: O'Byrne likes this decision better (who is acting more reasonably wins).]

o Issue:

Plaintiff (Tywood) sues for contract price Defendant (St. Anne) insists on arbitration clause

o Facts: Sept, 19 1977: defendant sends out invitations to tender

• No mention of arbitration clause Sept 26, 1977: Plaintiff response with a quote

• No mention of arbitration • Has a trumping clause

Nov. 7: Plaintiff sends a revised proposal • No mention of arbitration • Has a trumping clause

Jan 3. and July 3, 1978: defendant sends in purchase orders • Defendant inserts an arbitration clause • Defendant asks plaintiff to sign form and return it

12

o This does not happen o Decision:

Plaintiff wins because defendant didn't bring new term to plaintiff's attention and didn't complain with the form was not signed and returned

OLR Commission Report On Sale Of Goods: The Battle Of The Forms . . . . .. . 62

ProCD v. Matthew Zeidenberg and Silken Mountain Web Services Inc . . . . . . . 65 (Note: This is the judgment of a U.S. court)

o Structure of analysis: o Contract #1 - between Z and retailer o Contract #2 - between Z and manufacturer

o Facts

o ProCD is offering a contract that the user accepts by using product (click "I agree") The details of this license are not known to the purchaser until he buys the product and opens it

o If Z doesn't like licence, he can return product o Conclusion

o Licence is in effect and Z is in breach. o Don't need to know all the specific terms of an offer in order to be bound to the contract

The licence binds the purchaser because: • It stated on the box there was a licence inside • The license comes up before you can use the product • You can return product if you disagree with agreement

Dawson v. Helicopter Exploration Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 o Issue:

Is the March 5th agreement a bilateral contract or a unilateral contract? o Springer says is a unilateral contract o BUT court says not unilateral because Dawson's requested act is dependent upon Springer to get the chopper.

A unilateral contract is one where the offeree is not contingent upon the offeror. o Primary obligation (here to pay the 10%) to perform is contingent on fulfillment of conditions (find chopper, bring in Dawson,

stake claim). o Court classifies this as a contract subject to a condition subsequent.

Means that we have a contract between the parties and the parties have subsidiary obligations. In a contract subject to a condition subsequent, if those conditions aren't met, no one is in breach of contract, but the

contract comes to an end. o However, do we require reasonable (good faith) efforts?

Yes, reasonable/good faith effort to perform is an implied term, based on business efficacy. An officious bystander would say that the parties mean to participate in the agreement and would put in good faith

efforts to fulfill the conditions. o Court finds Springer is in breach of contract because he didn't act in good faith to fulfill the condition subsequent o What happens when you're on the receiving end of the breach?

The June 7th letter is an anticipatory breach of the contract. This is because it prevents Dawson's performance and it brings the contract to an end.

o This issue is then put to an election of the innocent party. That party may: Insist on performance, Or Sue for breach of contract

Springer's alternative position is that even if there was a contract, Dawson has abandoned it because he didn't reply to Springer. However, you can't take silence as abandonment, especially when the innocent party didn't know all the facts.

Felthouse v. Bindley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 o Acceptance must be communicated. You cannot accept a contract by silence. o Rationale for requiring communication of acceptance:

o Protect the offeror • So that they know they are in a contract

o Protect the offeree

13

• If common law required offeree to reject offers (silence means acceptance) you would spend all day rejecting offers.

o What if horse had been reserved from the sale but the uncle had then changed his mind? o Here offerer has waived protection "if I hear no more.." etc

o The offeree doesn't require protection if he wants the deal to go through and does because he has reserved the horse.

Exception to rule that acceptance must be communicated. o 1. Course of dealings

o Retailer sends requests and supplier always accepts just by sending goods o In this case if the supplier wishes to reject, it wouldn't be unreasonable to have the supplier communicate rejection.

o 2. Acceptance may be inferred where the offeree takes the benefit of an offered performance which he has had a reasonable opportunity to reject

o The circumstances must show that the offeror expects to be paid.

Consider - “The Jam Case” Whetherby, 1832 o Defendant received unsolicited jar of jam from seller and ate it.

o Seller now wants to be paid for the jam o The court said he had to pay.

o Seller had expectation of payment o The offeree took the benefit and there was a reasonable opportunity to reject the offer, but didn't

o P. 77 (note 2) - The problem with unsolicited goods has been dealt with by legislation in a number of jurisdictions, which provide that payment for unsolicited goods is not required, even if the recipient uses them.

o Dawson - has there been acceptance here? o Parties are bound in the interim if it is a bilateral contrat. Courts find contracts to be bilateral whenever they can to

enhance business efficacy. For conditional contracts you must o Accceptance must be communicated to offerer to be effective. This protects the offereor and the offeree. But there are

exceptions to this rule, for example o The "course of dealings" example o If the offeror waives the protection of communication of acceptance,

Saint John Tug Boat Co. v. Irving Refinery Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 79

o Silence is not acceptance, UNLESS the silence is reasonably understood to be acceptance. o Offer: Tugs available. Invoices confirm the terms and conditions of the offer. o Acceptance: Acquiescence in receipt of those services

o The test of whether conduct, unaccompanied by any verbal or written undertaking, can constitute an acceptance of an offer so as to bind the acceptor to the fulfilment of the contract is objective and not subjective.

o We consider contact when “reasonably construed”, and not as it was perceived by the parties to the contract. (p. 82) o In this case the respondents took the benefit of the service and their silence was misleading

• It was their duty to bring their rejection to the notice of the tugboat company.

Eliason v. Henshaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 o When the offeror specified that the offer can only be accepted in a specific way, the contract must be accepted that way, or

there is no contract. o However, the offeror can waive that non-compliance and allow acceptance.

o To the extent that the offeree provides a superior form of acceptance (horse instead of wagon, faster) it MIGHT be accepted (p 85, note 1.)

o Problem, if you are changing the form of acceptance, you risk being wrong in your assumption, therefore negating your acceptance.

e. Communication of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 (i) Instantaneous Methods of Communication . . . . . . . . . . . . . . . 89 The postal rule - a mailed acceptance takes effect when it is posted. Even if the offeror never receives the acceptance, the postal rule says the acceptance is effective.

Brinkibon Ltd. v. Stahag Stahl Und Stahlwarenhandelsgesellschaft mbH. . . . . . . . . 89 What rule should apply in the context of a telex (a telex is similar to a fax)?

o Two legal theories available:

1. Postal Rule - acceptance effective when letter is put in mailbox

14

2. Instantaneous rule - this is the general rule. Says that acceptance is effective when communicated or heard by the offeror

o Facts: o Acceptance by telex from buyers (London) to sellers (Vienna)

o Alternative applications: o Postal rule - contract made in London when the telex was sent o Instantaneous Rule - acceptance when heard in Vienna.

o Decision: o The court finds telex is most similar to an instantaneous form of communication

• Acceptance (contract formation) occurred in Vienna o Page 91 - once the message has been received on the offeror's telex machine, it is not unreasonable to treat it as delivered to

the principal offeror, because it is his responsibility to arrange for prompt handling of messages within his own office. o But agrees that the general rule will not cover all the many variations that may occur with telex messages

Electronic Contracting o In Canada, many jurisdictions (including Alberta) have legislation regulating e-contract (Electronic Transactions Act) o Offer may be expressed electronically

o An offer expressed via email is valid o Similarly, it is possible to accept an offer electronically. o However, legislation doesn't tell us WHEN the acceptance takes effect

Rudder v. Microsoft Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 o Click wrap (Web wrap) agreement:

o Licence appears on users screen when attempting to download product, can't download unless you click agreement • This method of contracting is upheld

o Plaintiff argues: o He didn't read the clause

• Court said he had every opportunity to read it. o Only a portion of agreement presented on screen at any one time

• Court says, that is just like flipping pages in a book, agreement still good o Plaintiff clicked "I agree"; court finds plaintiff wants to avoid some parts of agreement while using others. Found that the

contract was valid.

(ii) Mailed Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Household Fire and Carriage Accident Insurance Co. v. Grant . . . . . . 98

o Facts o Letter of allotment was never received

o Issue: o Is there a contract given this letter was never received?

o Application o Court says, think of post office as the agent of the parties. o Therefore communication to the post office by the acceptor = communication with the offeror o The offeror can always protect themselves by the terms of the offer.

• Include something like "postal rule" doesn't apply, or acceptance must be received. Therefore courts say if we must apportion risk, lets apportion it to the offeror who can control terms of the offeror.

o Here conduct of offeror implied that the offeree could reply by post and therefore acceptance speaks as soon as posted

Holwell Securities v. Hughes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

o If terms of offer specify acceptance must be received, the postal rule will not apply. o Here acceptor had to give "notice in writing". Notice is derived from the Latin word "knowing", so can only have "notice" if

you know about it. o Courts say option was therefore not properly exercised

o Argument that there had been notice in writing to option holder was ineffective:

o Letter given to defendant's lawyers and the lawyer read it over the phone to the defendant o This is NOT notice in writing, because it is being read aloud, not received in writing.

15 f. Termination of Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 General rule is that an offer can be withdrawn at any time before the offer is accepted Can you terminate an offer by acting inconsistent with the offer?

(i) Revocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Byrne v. Van Tienhoven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

o Notice of withdrawal must be received before an offer is revoked o The postal rule does not apply.

o Odd because there is a contract without consensus ad idem

Exceptions to idea that revocation MUST be communicated and postal rule doesn't apply: o Disentitling conduct by the offeree - eg. Mail revocation, but offeree has moved without telling offeror o Terms of the offer - eg. Carbolic smoke ball company, what if they wanted to revoke their offer. Probably wouldn't need to

go door to door telling everyone they revoke. o It is enough to take reasonable steps to inform public. They could publish similar sized ad in same newspaper revoking offer.

Dickinson v. Dodds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 o Communication of revocation need not come from the offeror

o Dickinson knew through his agent that Dodds was dealing with someone else o Ratio: Court says that even though plaintiff heard of revocation from third party, it was good enough

o BUT communication must come from a reliable third party source.

Errington v. Errington and Woods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 o Widow argues for unilateral contract, there is no contract until performance is complete

o House not paid off, so performance not complete; therefore she should be able to revoke. o HOWEVER: cannot revoke offer of unilateral contract once performance has begun. o Father's offer of a unilateral contract contained another offer.

o Once performance has begun, revocation won’t occur o Commencing performance is acceptance, and the consideration is doing the thing requested.

(ii) Lapse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

o If not explicitly stated, the offer will lapse after a reasonable time (reasonable depends on the circumstances, such as what is the subject matter of the contract)

o Is it perishable? o Is it a fluctuating commodity?

• Probably a shorter offer o What was the method of offer?

• Offers by fax, phone etc. likely to be open for a shorter period of time than if delivered by mail o What are the dealings between the parties?

• How they conduct themselves generally

Barrick v. Clark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 (SCC decision) o No clause stating when offer expires, so will expire after a "reasonable time" o What will constitute a reasonable time depends upon the nature and character and the normal or usual course of business in

negotiations leading to a sale, as well as the circumstances of the offer including the conduct of the parties in the course of negotiations (Kellock J.)

o Based on this test: look for factors that would lengthen/shorten the offer. o First determine when the offer takes effect or “speaks”.

• It speaks when the offer is communicated. That could be either when the wife receives it or when Clark actually gets it. According to the judge it speaks as soon as the wife opens it and that is when "reasonable time" starts to run.

o Mrs. Clark has asked for more time, does that lengthen it? • NO, the offeree can't make the offer longer just by asking for it. It isn't for the offeree to dictate to the

offeror. o What about Barrick accepting the third party offer?

• Does this end his offer to Clark? No, because for this to be revocation, it would have to be communicated to Clark, either by Barrick or by a reliable third party.

o Clark: Lengthen time offer is open based on the following factors:

16

o Land o Slow or few sharp price fluctuations. o Not perishable

o Method of communication - used letters o Accepting on Dec 10th would only leave two weeks for closing o Definitely not rejecting the offer, based on his conduct

o Barrick: Shorten time offer is open based on the following factors:

o Some interest in property o Letter indicated some urgency, "immediate closing"

Manchester Diocesan Council of Education v. Commercial and General Investments Ltd. . . . . . . . . 118

o Tender case from England in 1970 (doesn’t use the Canadian, Contract A, Contract B method) o Plaintiff called for tenders on building they want to sell

o Old law here, call for tenders is an invitation to treat. o Offer communicated around Aug. 27.

o Offer is to be accepted by a letter sent by post to the address specified in the tender o Plaintiff sends acceptance letter on Sept 15th. o However:

o The acceptance is still subject to conditions (not unqualified acceptance) o The acceptance didn't go to the address specified in the tender

o On Nov. 18th sale approved by secretary of state, defendants aren't informed until Dec. o On Jan 7th, have final and formal acceptance o 1. Is Sept 15th letter good acceptance? o 2. Setting aside condition 4 this is good acceptance?

o Even though it doesn't specifically meet the terms of condition 4, it is still good acceptance. o Because condition 4 is made by the offeree to protect the offeree, the offeree can waive that provision provided the

offeror is not adversely affected and they aren't in this case. o Also not written inflexibly that this would be the ONLY mode of acceptance that would be valid o Defendant says no final and unqualified acceptance until confirmed by secretary of state (sale conditional on ministerial

approval) o Court says power of sale is conditional, but the power to contract is not. o Bound by contract, subsidiary obligation would be to attempt to get the approval of minister. The primary obligation (to sell

the building) is contingent upon approval of the minister. As they are immediately bound, the acceptance is good. The primary obligation is just contingent.

o Court says there is a contract as of Sept 15. o Court also says, in the alternative (if they are wrong and there is no acceptance until Jan

o Offer lapses after a reasonable time • Withdrawn implicitly by the offeror • OR, because it has been implicitly rejected by the offeree

o Under the first theory, would just look at the conduct of the offeror to determine when the offer is withdrawn o Court likes the second theory:

o Look at the conduct of the offeree to determine whether they are rejecting or not. Then subsequent conduct of offeree is relevant

o Here the offeree is clearly not rejecting. So even if there is no contract on Sept 15, there is no rejection because of the subsequent communication by the offeree. Therefore the offer is still open when accepted in Jan.

o In the Barrick and Clark case, appear to be taking the first theory. If second theory had been applied, clearly no rejection of offer (letter by wife) so Clark may have won.

MIDTERM EXAM

Certainty of Terms Introduction An agreement isn't binding if it lacks certainty:

(1) A term is vaguely expressed (wording unclear) (2) Term is missing (wording isn't there at all) (3) Term to be agreed in the future (wording is postponed)

17

(4) Parties contemplate a further, formal document (do they mean to have a contract now?)

Principles of Uncertainty (two competing) (i) Courts will not make an agreement for the parties.

i. In that sense, an agreement to agree is unenforceable. (ii) Courts will render certain which is capable of being rendered certain

Continuum Totally Uncertain <-------------------------------- Perfectly Clear The litigation usually occurs for contracts somewhere in the middle

Vagueness R v. CAE Industries Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

o CAE industries and Government of Canada negotiate about CAE taking over and running an aircraft maintenance base no longer required by Air Canada

o Is the contract (page 128) sufficiently certain to constitute a contract? o Was there an intent to contract?

o When two parties are in negotiations, the presumption is that there is an intention to create legal relations o Up to government to rebut this assumption o We judge whether there was an intent to contract based on an objective test (p. 129) o Here, the gov't was unable to rebut the presumption that there was an intention to contract o Assuming the parties intended to enter into a contract, have they succeeded in doing so?

o Was the contract too vague, uncertain or incomplete? o Parties have begun performance of contract, momentum in favour of a contract being formed o P.130 - If the real intentions of the parties can be determined from the language within the four corners of the instrument, the

court must give effect to such intentions by supplying anything necessarily to be inferred and rejecting whatever is repugnant to such real intentions so ascertained

o Gov't refers to "assurances" as to work to be given to CAE, later referred to as a commitment. o Also reference to "guaranteeing" - this language is contractual

o Court says "it is my view that by the language used the parties intended that at least 40000 direct labour man-hours of set-aside work would be provided.

o Government contracted to give a certain amount of work to CAE and to use its best efforts to give more. o The court clarifies the vagueness and enforces it as a contract

Incomplete Terms f.o.b.- free on board. The seller brings the goods to the point of transportation, then the buyer takes over. The seller has no obligation to pay for freight and insurance c.i.f. - the buyer is given a price which includes cost, insurance and freight Agreements lacking an essential term; was that term needed to give the contract effect? In all three cases the parties left a term of their agreement unspecified

May & Butcher Ltd. v. R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

o Parties have an agreement for plaintiff to buy tentage from April 21 - Dec 21 o Dispute arises about price on Dec 23 o In the contract, everything is "to be agreed", but there is an arbitration clause if they cannot agree o Government says there are so many missing terms that the contract is unenforceable o If we have contract here, how do we determine:

o Price - left the price to be determined in the future, intended that a reasonable price would be paid (plaintiff's view) o P. 135 - "It has been argued that as the fixing of the price has broken down, a reasonable price must be assumed" -

parties are supposed to agree on price, but here they cannot agree. o However, the only way you can default to “reasonableness” on price when the contract is silent on price

o This contract was not silent on price and the mechanism for determining price has failed. o If you choose a third party valuation and the third party cannot or does not make such valuation, the agreement is avoided. o Court says third party valuation is like the parties agreeing to valuate themselves, they can't valuate - contract is avoided o What about the arbitration clause?

o Usually would have a contract, then when a dispute arises about that contract, you use arbitration to resolve the dispute

18

o HOWEVER, here, you DO NOT have a contract and you CANNOT use the arbitration clause to CREATE the contract. o In summary, the dispute was about price, price was a vital part of the contract, mechanism for determining price failed, no

contract.

o Example: O'Byrne agrees to sell car to Klar at market value, price to be determined by the Dean o Formula for price - "market value" o Mechanism for setting price – Dean o If mechanism fails, that is the Dean refuses to set the price, then could resort to the formula and another person

could set price. o Run into problems in contracts where the mechanism fails and there is no formula

• Then have no contract

o Important: have a formula and mechanism for determining price if it is not set by the contract.

Example (p. 148): o The rent is simply "to be agreed". Usually such a clause cannot be enforced…

o Where the rent is to be established by a stated formula but no machinery is provided for applying the formula to produce the rental rate, the courts may supply the machinery (mechanism)

o The formula is set out but is defective and the machinery is provided for applying the formula to produce the rental rate

• In those cases the machinery may be used to cure the defect in the formula

Agreements to agree are not enforceable. The mechanism here has broken down [“price shall be agreed upon from time to time; disputes arising out of this agreement will be submitted to arbitration”]. Pursuant to the S.G.A., a reasonableness standard has been ousted, and the contract fails for uncertainty. Hillas & Co v. Arcos Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 This is the "highwater mark" for fixing agreements. Shows how far courts will go to supply missing terms if agreement is capable of being rendered certain. If this isn't possible then there is simply an agreement to agree.

o Facts:

o Does the option contract fail for lack of certainty? (option clause page 136) o Court of Appeal followed May v. Butcher and said contract was uncertain. o House of Lords says they can make sense of the option clause

o The motivation for this may be that the option clause was given as consideration for the original purchase contract. o At the time of contract, both parties believed they had entered into a binding option contract

o Problems with the option clause: o Delivery dates were not fixed.

• But the court says the delivery dates would be decided by negotiation between the parties • As a last resort, the dates could be decided by the courts

o Price was not set. • But courts say refer to a price list and this becomes a formula to determine price.

o "Whatever the conditions are" (p. 138) o Does this statement modify the word contract (means we're just saying "whatever the contract says", OR o Does it mean the conditions in the marketplace, that is what the Russians and English are experiencing o If it modifies "contract" then it is only an agreement to agree.

o Court says conditions refers to whatever the conditions are in the trade o Quality of the goods - just says standard, doesn't say what quality.

• Court says in other parts of the contract it says "fair quality", and then the court applies that quality here. • If the parties fail to agree on acceptable quality, the courts will decide for them.

o Shipping dates and ports of delivery • Courts say this isn't a problem, they go to the larger agreement to determine and if that doesn't work then

the Sale of Goods Act implies a reasonable standard and the court will enforce reasonable shipping dates and reasonable ports.

o House of Lords says content of option clause is determined with reference to other sections of the agreement or is derived from a reasonableness standard. It is the duty of the court to construe documents fairly and broadly. This agreement is complete and is not dependent on any future agreement for its validity. Court says that May v. Butcher does not apply here.

Foley v. Classique Coaches Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

19

o Plaintiff (Foley) has a contract for the sale of land with the purchaser (Classique Coaches). o The main contract is for the purchase of land

o The purchasers are also to make all their purchases of petrol from the plaintiff (for the life of the vendor and his wife).

o The price for the petrol was "as to be agreed from time to time" and there was an arbitration clause in place o Parties functioned for 3 years before the defendant said the agreement fails for uncertainty and began buying gas elsewhere o The court says there is a contract that the gas to be supplied will be of reasonable quality and a reasonable price and if there is

a problem then we can use the arbitration clause because since we already know the terms of the contract and the contract exists then we can use the arbitration clause.

o Per Tereitel, parties here did intend to be bound immediately, in spite of a provision requiring further agreement o One of the mechanisms here had broken down: "…a price agreed by the parties from time to time"; however, May

was distinguished because the unusual arbitration clause here referred not to this agreement [as in May] but to the subject matter or construction.

It could therefore be used to fix price. As well, here both parties believed that they had a binding agreement and had acted on it for a number of

years; it formed part of a larger bargain. Court appears to be saying presence of the arbitration clause on these facts means that "it is to be implied in

this contract a term that the petrol shall be supplied at a reasonable price and shall be of reasonable quality".

o Important that the parties had functioned under the agreement for 3 years and that the supplementary clause was consideration for the purchase of the land also that the supplementary contract was believed by both parties to be valid.

Also court didn't believe the defendants were being honest. o Where one party has received a benefit, the court will endeavour to find a contract. o You don't want to litigate certainty, because you don't really know what the court will decide.

Sudbrook Trading v. Eggleton (page 144 note 7) o Rental arrangement. Lessee had option to purchase property by giving notice. There was a basement price set. The price

could not go below this price. There was a mechanism for setting the price: each party would appoint a valuer. The lesee wanted to exercise the option, lessor did not want to appoint a valuer.

o The michanism therefore failed, the court said that it depends on if the intent of the contract was for a reasonable price or was the intent to have the price set by the mechanism or no other way.

o Court says that it is just that the parties wanted a reasonable price, so they could overlook the failed mechanism and set the price.

o Mechanism failed because lessor refused to appoint a valuer o Issue is whether price mechanism is an essential term [to distinuish from May]

o If it isn't and a reasonableness standard is consistent with the parties' intent, the court can set the price o Per Treitel, the valuer's clause amounts to an agreement to sell at a reasonable price to be determined by the valuers

The stipulation that each party should nominate one of the valuers was merely "subsidiary and inessential".

This case says that we can apply the reasonableness mechanism for setting a price, a. When the mechanism has failed b. When the price setting mechanism is inessential c. When reasonableness mechanism is consistent with the intention of the parties

[See handout.] Agreement to Negotiate Agreements to agree are generally not enforceable in that they do not create clear reciprocal obligations between the parties. On the other hand if there is ALREADY an agreement in place with a subsidiary agreement, then there is more chance an agreement to agree to the subsidiary agreement will be enforceable

d. Agreements to Negotiate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Empress Towers Ltd. v. Bank Of Nova Scotia . . . . . . . . . . . . . . . . . . . . . . . . . . 147

o Lease with a renewal clause: "… which shall be the market rental prevailing at the commencement of that renewal term as mutually agreed between the Landlord and the Tenant".

o June 23 - bank proposed lease rate

20

o July 26 - bank follows up with Empress o Aug 23 - near the deadline, Empress says you can stay with a month-to-month lease as long as the bank pays 15,000. (This

was because there was a bank robbery and the bank needed to recover some $) o Can the landlord act in this way? o Was renewal clause unenforceable for uncertainty?

o 3 possibilities with renewal clause (p. 148) 1. Where rent is "to be agreed"

• Normally not enforceable Where rent is to be established by a formula (eg. Market value), but no machinery for application of the

formula is provided • Courts will often supply the machinery (eg. Determine market value).

Where formula is set out (but defective) and machinery is provided for application of the formula • Courts may use machinery to cure the defect in the formula

o Here formula is “market value” as mutually agreed. o "Mutually agreed" means the landlord cannot be compelled to renew at a rent which it has not accepted as the

market rental o However, Landlord has obligation to negotiate in good faith.

o If the landlord has not acted in good faith, then there has been a breach, but what are the damages? The tenant is entitled to be but in the position they would have had the contract been performed

o Look at what they would have secured as a lease, versus the replacement cost of having to find another location

Mannpar Enterprises Ltd. v. Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

o Mannpar had a contractual agreement with the crown to remove sand and gravel with a renewal clause o Complicated because the land is on an Indian reserve and the crown has obligations to the band o Mannpar also interprets that there is a duty to negotiate a renewal clause, this duty to negotiate is consistent with the parties’

intent, and there is some kind of objective benchmark that we can use to determine whether a party is in breach or not o However, here there is no objective benchmark to determine whether there is an implied clause to negotiate in good faith o Where renewal clause is too broadly worded, it fails because there is no objective measure

o All we have is an agreement to agree - which is void

Wellington City Council v. Body Corporate 51702 (Wellington) . . . . . . . . . . . 154 [Note: This is in the casebook to suggest maybe the Empress decision is on the ropes, but O'Byrne thinks it may not apply in Canada]

o Wellington City has been ordered to pay damages for 50,000 o "Council officers will negotiate in good faith sales of Council's leasehold interests to existing lessees at not less than the

current market value of those interest" o At trial, judge said this clause was an offer of a process contract.

o Will negotiate a larger contract, and in the mean time have an interim contract and an obligation to operate in good faith.

o Is this an agreement to agree or is it enforceable?? o Coal Cliff holds that: "agreements to agree are not enforceable".

o Is obligation to negotiate in good faith just an agreement to agree? o In this case the court says an agreement to negotiate in good faith is not as high a level as acting "reasonably". o Court says “good faith” doesn’t provide us with any objective criteria.

¶ 21 "best endeavours" means to leave no stone unturned "… in good faith" is repugnant to the adversarial position of the parties when involved in negotiations.

o Agreement to negotiate in good faith (as part of a process 'contract') is not enforceable because it lacks, here a specific procedure by which courts can reasonably determine what the parties are required to do and whether they have done it.

o O'Byrne says this case is just like and possibly even stronger than Empress and really could have gone the other way. Could either say Empress is losing its value as precedent OR that this NZ court misunderstands the meaning of "good faith"

o Page 713 - "the standard is breached when a party acts in a bad faith manner in the performance of its rights and obligations under the contract. "good faith" conduct is the guide to the manner in which the parties should pursue their mutual contractual objectives. Such conduct is breached when a party acts in "bad faith" - a conduct that in contrary to community standards of honesty, reasonableness or fairness."

Gateway Mall v. Zellers

o As opposed to previous "negotiate in good faith" cases, this is a "perform in good faith" case. o Zellers was an anchor tenant

21

o Arton was the competing mall and starts to negotiate with Zellers to come over to Arton o Zellers doesn't want to break lease with Gateway, but has the right to assign the lease unilaterally o Arton takes Zeller's lease over, but every time Gateway would bring a potential lease to Arton, but Arton would find

something wrong with the business and would continue to leave the space empty o The court said Arton was in breach of an implied term of good faith.

Anticipation of Formalization

e. Anticipation of Formalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 RULE: The effect of a stipulation that an agreement is to be embodied in a formal written document depends on its purpose. Is the agreement incomplete and not binding until terms of formal document are agreed and document is executed OR such a document is intended only as a solemn record of an already complete and binding agreement? Possibility #1: agreement not intended to be legally binding until terms of the formal document are agreed to and duly executed. Possibility #2: document is intended only as a solemn record of an already complete and binding agreement Bawitko Investments Ltd. v. Kernels Popcorn Ltd.. . . . . . . . . . . . . . . . . . . . . . . 162

o Facts o Appellant – f/or; Respondent – f/ee. Met to discuss franchise doc and changes were made. Doc sent not in

accordance w/ oral discussions, f/ee refused to sign. App has terminated dealing. Trial – app had oral agreement to grant respondent franchise, there is a deal right now, the fact that parties could not ultimately sign the agreement did not change the outcome.

o Issue o Do they have deal?

o Decision o Parties agreed at meeting that formal agreement was required, no complete agreement at oral negotiations; no

agreement on terms to be embodied in written agreement. o Analysis:

o Subsequent conduct shows some indication that parties thought they were bound, however, when it came to sign f/ee refused and unless and until something signed no deal.

o Provisions: o 164 - the respondent acknowledges, however, that the parties agreed at the April 18th meeting… o 165 – when they agree on all the essential provisions to be incorporated in a formal doc o Driven by parties’ intentions, courts make decision based on facts.

o "subject to contract" or words to that effect means that even though the oral agreement would otherwise be enforceable, then you really don't have a contract until it is formalized.

Pre-existing Debt, Waiver and Promissory Estoppel Accord and Satisfaction a. Accord and Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

o The idea of “less for more” o The debtor agrees to pay a lesser sum in full satisfaction of the debt to the creditor o The creditor is promising to take a lesser sum, in exchange for that promise the debtor is going to pay

Foakes v. Beer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

o Facts o Foakes owes money to Beer and failed to pay o Beer sues and and wins

Beer becomes the judgement creditor Foakes becomes the judgement debtor

o An examination in aid of enforcement is done o Judgement creditor can garnish debtors wages o Can send in sherrif to take property from debtors except for certain exceptions

Can seize the assets to the extent that they are exigible.

22

o Foakes asks for time to pay and they enter into agreement. o Beer agrees not to take any further proceedings (not send in sherrif) in exchange for an immediate down-payment

and a series of instalments from Foakes. o After the payments, Beer comes after Foakes for the interest

Interest was part of the initial judgement, but wasn’t requested it in the subsequent payment agreement o Even though she made an error, the mistake doesn't save her, she signed what she signed o Beer's second argument is that there's no consideration for the agreement. o What about the down-payment?

Well, he already owes the money, it can't be consideration o The doctrine in Pinnel's case is "that payment of a lesser sum on the day in satisfaction of a greater cannot be any

satisfaction for the whole, because it appears to the Judges, that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum"

o On the other hand what DID Beer get out of the arrangement? Partial payment Avoiding further court proceedings and sending in the sheriff and sell Foake's items at auction (practical

benefits) o The common law rule was to protect creditors from ruthless debtors

Take this money or you'll get nothing" So unless you have the agreement under seal, you don't have an agreement

You need ACCORD AND SATISFACTION - the purchase of a release of an obligation by means of any valuable consideration that ISNT the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration that makes the agreement operative.

Robichaud c. Caissse Populaire

o Facts: o Robichaud borrows money from Royal Bank and Caisse Popular (CP) o CP gets a $4000 judgment

CP is a judgement creditor Robichaud is a judgement debtor

o Robichaud goes to Avco for debt consolodation o CP agrees to take a $1000 in full satisfaction of the debt. o Robichaud mortgages his house to Avco in security of his loan from Avco

Gets lawyers to draw up agreement o Robichaud pays Caisse Populaire, but then CP reneges and demands full payment

CP alleges there was NO consideration for the acceptance of lesser payment. o Analysis

o Were there any benefits to CP that might be construed as consideration? Pratical benefits

• However, these are not legal consideration, this decision has pushed the law forward, took the Roffey argument

• The defendant gets something, whereas they would get nothing if defendant goes bankrupt • Don't have to "chase him around", seize his assets, etc.

o Save time and trouble (saving of time effort and expense) o Decision

o The court (bottom page 211) found that there was consideration here. The consideration was the immediate receipt of payment and saving time effort and expense and that CP

entered into the agreement of its own accord and knowing all the consequences of its actions Re Selectmove Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

o Does the Roffey / Robichaud argument hold? o Selectmove has to make certain deductions (i.e. taxes) from employees pay prior to paying them o Businesses in distress sometimes make those deductions, but don't pay the government what is owed according to those

deductions o Selectmove enters agreement with the government

o Is the promise to take payment at a later date gratuitous, or is it given for consideration? o Court doesn't apply Roffey; bound by the precedent of Foakes v. Beer

o Court says overruling Foakes v. Beer is a job for parliament, not the courts. o As a result of this decision, in England, the practical benefits argument in a “less for more” situation does not work.

23

Foot v. Rawlings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

o [Note: O'Byrne says this decision is wrong] o Facts:

o Debtor owes creditor o Creditor agrees to accept lower interest rate, in exchange for post-dated cheques o Debtor is close to last payment, when creditor asks for full amount (higher interest rate) because commitment to

accept less isn't supported at common law. o Law

o You could agree to pay less on the debt, but also give a peppercorn (uncertain value) and that would be good. o Application

o Court invents the consideration o According to the court, payment in the form of cheques constitutes fresh consideration... o Because the cheques are of uncertain value, and it is not for the court to determine the sufficiency of the

consideration, they are considered fresh consideration (this is the part of the judgment that O'Byrne finds strange) o This case has been criticized for finding the cheque is of uncertain value.

o Court does find accord and satisfaction

Summary: “Less for more” at CL must be: 1. Under seal

a. Accord (The agreement to take “less for more”.) 2. Made for fresh consideration in return for the agreement

a. Satisfaction. There must be something additional given the lesser sum is not sufficient. Eg. Foakes) 3. Cases

a. Robichaud (“practical benefits”) b. Foakes (no satisfaction) c. Selectmove (not prepared to reverse the common law) d. Foot (satisfaction)

Executed contract - a contract that is completed, fully performed Executory contract - a contract that has not been completed or performed

b. Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

Judicature Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

o The purpose of this provision is to mitigate the harshness of Foakes v. Beer o Allows the creditor and debtor to negotiate a statutory "less for more"/part performance accord (agreement) o s.13 - Part performance will extinguish an obligation when expressly accepted by a creditor in satisfaction of the whole or

when rendered pursuant to an agreement o What if I am in a “less for more” agreement (such as an instalment payment plan) and just before the last payment, the

creditor wants to go back to the full amount? o Not protected by s. 13 here because the word "rendered" implies the agreement is already complete, not in the

process of BEING rendered. o So this section doesn't apply to executory contract

o This WOULD have applied to Foakes v. Beer, because that contract was completed when Foakes went after the full amount. o [Note: New Brunswick doesn't have a judicature act, Robichaud case is from NB. This explains why court is sympathetic to

the debtor because no statute protection for them] o In conflict wth Selectmove and with Foakes v. Beer.

Waiver and Promissory Estoppel c. Waiver and Promissory Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

o Largely a Denning doctrine o Way by which a promise that is not supported by consideration can be held to be binding o Must prove many ingredients to have promissory estoppel o Includes:

o Agreements to accept less for more o Variations to a contract

24 Definition of estoppel by representation, per Jorden v. Money: if one party makes a representation as to a present or past fact which the other party relies on to her detriment, the representor cannot afterwards repudiate the representation and allege the true facts.

Definition of promissory estoppel per Lord Denning: there are cases in which a promise was made which was intended to create legal relations, and which to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted. In such cases the courts have said that the promise must be honoured.

Central London Property Trust Ltd. v. High Trees House Ltd. . . . . . . . . . . . . . 216

o High Trees leases from Central London property and sublets to tenants o In Sept 1939, rent is £ 2500 o Jan 1940, Central wrote to the defendant and reduced rent to $1250 (due to War and bombing in London and reduced rental

rates) o By 1945, all the flats are leased o Central London has financial problems, has a third party creditor, receiver appointed o Receiver sees that High Trees was paying less rent and want to go after the rest of the rent o Here estoppel by representation doesn't help because it relies on representation going to the future. Future statements need to

be purchased by consideration o Was a representation of future payment, not a present or past fact

o Action for arrears for 2 quarters Hughes case

o Facts o Lease between landlord and tenant o Tenant had an obligation to repair o Landlord would give notice and tenant would have to repair within 6 months or lease would end. o Landlord gives repair notice. During the 6 months the landlord and tenant were in negotiations for tenant to buy

property o Negotiations fell through, and six months expires landlord moves to end lease because repairs not done

o Decision o House of Lords found that by implication time shouldn't run (6 months) during negotiations o Lord Denning said Hughes is the kind of principle that applies in High Trees

Elements of Promissory Estoppel (PE) per Fridman 1. Promisor intends to create legal relations

o Need an existing legal relationship between the parties 1. That is, the parties must be in a contract, and as a result of that contract there is some discussion 2. Otherwise doctrine of consideration would go out the window

2. Clear promise or representation of intention

o [Note: per John Burrows, is a course of negotiations necessary as well in addition to a clear promise?] o Per CSS in Engineered Homes (1983), a promise can be inferred from circumstances (as in Hughes, promise that

time wouldn't run during negotiations).

3. Promisor knows the promisee will act on the promise.

4. Promisee DOES act on the promise o Reliance is required o [Must the reliance be detrimental? TBA] o Cases:

1. WJ Alan 2. Societe Italo-Belge

5. Shield or Sword?

o Traditionally, PE cannot create a cause of action (ie. It cannot create a new right). In High Trees, it is used as a defence against the landlord's claim

o Used as a defence not to found a cause of action o Cases:

1. Petridis 2. Robichaud

25

3. Combe 4. M (N)

6. PE is an equitable doctrine

o Means that we will look at the quality of person alleging promissory estoppel per the rules of equity o Cases:

1. D and C Builders

7. Is PE permanent or suspensory? o If estoppel is in place can the person who made it take it back? o High Trees o WJ Alan o Saskatchewan River and WJ Alan wrt notice requirement

In the case of High Trees: what are the representations by landlord of conditions during which full rent wouldn't be required?

o War time o Not fully rented

By early 1945 the apartments are fully let and Denning said the estoppel has come to an end and the rent would revert back to full rent. Therefore the arrears the landlord is suing for are valid and the landlord's case should succeed. Promissory estoppel is difficult to prove, it would be easier to get a promise under seal or else give some form of consideration.

Page 219 - would the plaintiff have recovered the full rent if they'd sued in 1943

o No because war was on and apartments not fully rented, would have been estopped Estoppel can come to an end when the conditions to which the representations applied came to an end or can also end upon reasonable notice.

o Because the promise was not purchased for consideration, it can be withdrawn with reasonable notice. However, Hughes case would be permanent estoppel because it is irretrievable

o Cannot go back in time and give the 6 months by giving reasonable notice

How did the defendants act on the promise in High Trees? o They ordered their financial matters on the basis of this estoppel

Would the application of High Trees led to a different result in Foakes v. Beer o Yes, all the principles of promissory estoppel would have fit Foakes v. Beer

Sometimes the view is that waiver is different than estoppel, sometimes considered the same thing.

o Percy says there is really no difference between waiver and estoppel o Eg. In Hughes: Landlord has waived right to 6-month ejection, OR has been estopped from asserting the right. o Waiver is the voluntary giving up of a right, estoppel is that you cannot assert that right

PE is an equitable doctrine, if you are seeking to rely on it, it is very important that you conducted yourself appropriately. (i) The Nature of the Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

John Burrows Ltd. v. Subsurface Surveys Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 220

o Facts o Defendant purchased business from Burrows o Contract of purchase provided for monthly payments to be made to Burrows

Acceleration clause: if a payment was missed, after 10 days the whole amount would be due o Defendant was more than 10 days late, at least18 times o The next time a payment was late, Burrows invoked the acceleration clause

o Issue o Subsurface asserts that Burrows is estopped from asserting the acceleration clause on the basis they had not invoked

it on any of the prior occasions The representation is that because of past acceptance of late payment, in the future late payment would be

accepted and the acceleration clause would not be triggered o Decision

26

o Court says, no there is no representation here Burrows gave a friendly indulgence that does not have any legal consequence. It would have been better to give subsurface notice that next time they were late they would invoke and

they should act accordingly to avoid litigation. o Additional considerations

o Do you need negotiations leading up to a representation? Or a just a representation? O'Byrne says you don't need negotiations, the courts have also said the same thing

o When considering an estoppel issue, ask: o "What is the representation; if none, is this merely a friendly indulgence" (therefore not grounds for estoppel).

(ii) The Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 The Equities: Promissory estoppel is an equitable doctrine: this means that if you want to rely on it you have to have conducted yourself appropriately. (“Those who seek equity must do equity.”)

D. & C. Builders Ltd. v. Rees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 o Facts

• Creditor ("the little company") is suing on a debt that the D's owe • Debt rises out of work done on the D's house

o D did not pay o D raised an issue “quality of the work” only when pressed for payment

• She told them that she would give them $X in satisfaction of the debt: take it or leave it o Sum offered was better than nothing o Creditor had “no choice” but to accept

o Issues • The debtor paid by cheque

o Couldn't this be “fresh consideration” for the creditor taking “less for more”? No: this usually only is good consideration to the extent that the cheque is bargained for Remember that Denning says that a cheque is not of uncertain value so it is nominal consideration and

it is not good consideration o Law

• Does High Trees (above) apply? o Application

• The creditor sues for ALL the monies owed • The debtor says that they had a binding deal to clear the debt

o IN order to make the promise to pay less binding we have to look at promissory estoppel o The D claims that P is estopped from going back on the promise to take less

o Decision

• Denning finds a problem in this case because he says that there wasn't “true accord” (recall: Accord and Satisfaction, see above)

• No “true accord” due to "undue pressure"- a new Denning doctrine o Undue Pressure: Created by Denning because he could not apply doctrines of duress or undue coercion

Denning says: once there is undue pressure, so there was NO ACCORD • Because there was undue pressure here, the promissory estoppel failed and the creditor is successful

o The defendants were not able to claim an equitable remedy because they had not conducted themselves equitably

Denning on Promissory Estoppel: When a creditor and a debtor enter on a course of negotiation, which leads the debtor to suppose that on payment of the lesser sum, the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays the lesser sum and the creditor accepts it as satisfaction, then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so. (p. 224)

O’Byrne’s response to “undue pressure” doctrine: This is a weak doctrine and is not a good contribution to the law. It is weak because in most situations like this the creditor will feel pressure to take less. If the pressure were not present, why else would a creditor agree to take less? (iii) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

27 Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co . . . . . . . . 225

o Facts o SRB (insured) purchases a life insurance policy from Maritime (insurer) on behalf of Mr. F o Over the years the premiums are paid irregularly o “Lapse clause” in the insurance policy (roughly):

o “If any premium remains unpaid at the end of the grace period, then your insurance lapses and you don't get your money if the life insured dies. SRB paid irregularly, it lapsed, reapplied, covered again”

o July 24, 1984, SRB mails their premium payment cheque (although this is not for the full amount owed) o Cheque never received by Maritime

o Grace period for payment expires Aug 26, 1984 o Maritime send notices in November 28, 1984 to inform SRB:

o "Premium is unpaid, we want immediate payment" o In December, you are lapsed unless Mr. F has another medical

o April 2nd, SRB finally checks their mail o June (3 months later) SRB FINALLY sends another chq

o Maritime refuses the cheque at this time o July 9 Mr. F dies

o Issue o D says there is no policy as it has lapsed for non-payment o Because Mr. F is dead, P wants to be paid on the insurance policy; claims policy has NOT lapsed due to PE

o “… the demand for payment in NOV letter was a clear and unequivocal expression of Maritime's intention to continue coverage upon payment of the July premium and, as such, constituted waiver of time requirements for payment under the policy”

o SRB is sues Maritime after Mr. F dies for Maritime’s refusal to pay out life insurance policy o Insurer claims lapse of policy; no payment owed o Insured says waiver/PE

o Law and Application o “Waiver occurs where one party to a contract or to proceedings takes steps which amount to foregoing reliance on some

known right or defect in the performance of the other party.” o What would a “reasonable amount of time” in which to demonstrate reliance on a waiver be?

o This is not clear in the case, it is something that the judge will decide, but 3 months is too long. o Policy lapses on expiration of payment grace period, but November letter is a waiver correspondence (i.e. you are not

lapsed) o SCC says waiver and PE are pretty much the same. o What is the representation the P's are relying on?

o November letter, P is not up to date in their premiums but insurer has waived their rights to enforce the lapse clause because of the November letter.

o While the letter IS a representation, it was not RELIED ON because SRB didn't even check their mail within the reasonable time...how can the P say I relied on the November letter?

o Maritime wins on this o Lets say waiver WAS relied on:

o Waivers can be retracted on reasonable notice. o It took SRB 3 months to send in chq after Maritime notice given

o 3 months is too long, too much time has passed, the waiver is retracted because they did not respond in time to the waiver withdrawal notice

o Maritime would win here too. Note: According to the Judicature Act, the court has equitable power to relieve all forfeitures (no longer in force), and could declare the life insurance policy good if they wanted. International Knitwear Architects Inc. v. Kabob Investments Ltd. . . . . . . . . . . 230

o Facts o Tenant leases space

Lease period: May 1987 to April 1992 o 1989 tenant runs into financial difficulties

Negotiates a new rental agreement with a reduced rent o Tenant pays reduced rent until 1991 o 1991 tenant defaults on rent under new rental agreement

28

o Issue o Landlord sues for rent AND arrears (amount owed under original rent agreement) o With notice, the landlord can make them pay more in future, but can they get the arrears?

o Law & Application o Arrears cannot be claimed until the default begins in Dec 1991 o Going forward you must pay the original amount o Court says arrears cannot be collected UNTIL the date at which the P fell into default

Landlord not entitled to arrears on higher rent in effect up until December 1991 • Once in place, estoppel is irrevocable • You can give notice that estoppel has come to an end, and will be effective sometime in the future

o It is an implied term in PE that if you drop the ball on the new agreement, landlord can come back for everything This is not discussed in this case, therefore value as a precedent is weak

o O'Byrne says that there is authority that because they were in breach they may be able to get it all, even though generally would only get from after reasonable notice

o O’Byrne thinks this is distinguishable from High trees, because in this case the tenant was NOT compliant with the new deal (iv) Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232

W. J. Alan & Co. v. El Nasr Export & Import Co. . . . . . . . . . . . . . . . . . . . . . . 232

o Facts o Buyers (El Nasr) o Sellers (WJ) o Contract specifies payment in Kenyan shillings o Letter of credit was made out in British pounds

N.B. - Letter of credit: a method by which buyers pay for goods through bank financing Letters of credit are irrevocable (bank MUST pay out the seller)

o The pound had lost value, making it preferable to be paid in Kenyan shillings. Can the sellers now require payment in Kenyan shillings, as stipulated in the contract?

o Law & Application o Variation

This occurs when a contract is in place and is being carried out with a change in an essential term • Variation: offer (to vary) + acceptance (of variation) + consideration

o Conduct of setting up payment in sterling is the offer by the buyer Seller accepts by withdrawing the money from the letter of credit

o Variation per Treitel (p. 96) o Where parties agree to vary their contract in a way that can benefit either party then the contract generates its own

consideration o Where parties agree to vary the contract in a way that confers a legal benefit on only one party, separate

consideration is required Example: consideration in a debtor's promise to make the part payment before the day when the debt comes

due o [N.B. In this case, changing the currency COULD benefit either party]

o Issue: o Is the seller estopped from going back on his promise?

Seller made a representation that they British Pounds would be accepted as payment instead of Kenyan shillings

o Decision o Court says they can't go back on the acceptance of payment in pounds (PE)

Not even on reasonable notice Estoppel here is “permanent” because it was a “once and for all” acceptance of variation of currency

o Therefore the vendor is estopped from insisting on payment in Kenyan shillings o Sometimes promissory estoppel is permanent, sometimes PE is merely suspensory (i.e. may be revoked with

reasonable notice) o The reliance doesn't have to be detrimental, though sometimes courts say you need it, some times you don't o Could argue that the actual representation is that they well take payment in pounds to the extent that it is equivalent

to the amount in the contract This point was never really considered in the case

o Note: Look back at Gilbert Steele

29

Court said that variation was not supported by consideration Argument at end of case was that purchasers were estopped from insisting on the higher price Court here insists on detriment

• Usually, the “more detriment the better” • Sometimes, simply conducting your affairs accordingly (in reliance) is good enough

Société Italo-Belge Pour Le Commerce Et L’Indastrie S.A. v. Palm and Vegetable Oils (Malaysia) Sun Bhd; The Post Chaser . . . . . . . . . . . . . 236

o Facts

o Parties Kievit (oil supplier) Seller/Plaintiff (Societe) Buyers/Defendant (Palm) Conti (sub-buyer, doesn't protest) Lewis (sub-buyer, does protest)

o Societe has a contractual obligation to deliver oil to Palm in a timely manner The seller (Societe) failed to deliver in a timely manner Palm (buyer) does not object

• Passes the shipping documents along the sub-buyer o Lewis (sub-buyer) rejects delivery (on the basis of untimely delivery) so now Palm (buyer) rejects delivery o Societe (seller) sues for loss of profit

o Issue o Are the buyers estopped from asserting the right to timely delivery after initially representing they would not assert

that right? o Law & Application

o Representation - unequivocal representation that they did not intend to enforce their strict legal rights to reject the seller’s tender of documents

o Reliance? 2 Views

• It would be inequitable for the person making the representation to resign (Hughes) • Denning says that it could be enough for the person accepting the representation to conduct their

actions based on the representation, no detriment needed o Decision

o Court says there is no inequity because the reliance on the representation was for such a short period of time (2 days) o The representation COULD therefore be taken back

o Obiter o This case shows that not any old reliance will do o The fundamental principle is that the party making the representation will not be allowed to enforce his rights where

it would be inequitable to do so with regard to the dealings which have taken place between the parties To establish such inequity, it is not necessary to show detriment; indeed, the party making the

representation may have benefited from the representation and yet it may be inequitable, at least without reasonable notice, for the party making the representation to enforce his legal rights.

o Emphasis is on equity in this case, as opposed to detriment o Ask: would it be equitable to allow the party making the representation to go back on it?

(v) Sword or Shield? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

o PE may not be used to establish a NEW cause of action, only to DEFEND an existing cause of action. o Example:

Plaintiff has a contract to repair defendant's car and deliver the repaired car on date x. Plaintiff subsequently finds it is impossible to deliver car on date x Plaintiff then contacts defendant to asks if delivery can occur at later date; defendant agrees There is a falling out between the parties Defendant does not want to pay alleging Plaintiff did not fulfill original contract Plantiff sues for breach of contract Defendant says: "Plaintiff didn't deliver on time" Plaintiff says the defendant is estopped from claiming breach based on late delivery Plaintiff uses promissory estoppel as a defence against the defendant

Petridis v. Shabinsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

30

o Facts o Dec 31, 1980 - Option to renew existing lease must be exercised by this date o Jan 28, 1981 – Tenant exercises lease renewal o June 2, 1981 - Landlord tenant gets a notice to vacate o June 30, 1981 – Lease expires

o Issue o Plaintiff seeks declaration that the lease is renewed

Defendant says lease is expired Plaintiff says PE prevents lease expiry

o Law & Application o Court says cannot apply promissory estoppel here because there is no pre-existing legal relationship relating to the

EXTENSION of the lease Relationship of landlord tenant present, but not relevant for the present dispute The germane relationship is option-er and option-ee

• That relationship ended at the end of the option perioed, on Dec 31, 1980 o Note: O'Byrne is not convinced about this argument

o The landlords represented that the option relationship would go forward o Landlord agreed to “discuss things afterward”, and this had the function of extending the option-er/option-ee

relationship beyond when it would normally have ended on Dec 31. o Court says this is a case of waiver o O'Byrne disagrees because she feels waiver and promissory estoppel are essentially the same

o Once you waive a right, you are estopped from asserting it. o In waiver, consideration is not required because with reasonable notice the representor can once again assert their

right. o Court says they will renew the lease because it would be inequitable not to

Robichaud c. Caisse Populaire De Pokemouche Ltée . . . . . . . . . . . . . . . . . . . 242

o Facts o Robichaud owes money to judgment creditors with registered judgements against him

When you have a judgment entered against you, people don't want to lend you money o Robichaud negotiates with AVCO, to lend him money o In turn, AVCO negotiates with Robichaud’s creditors to pay them a lessor amount on the debt owed o Caisse refuses to withdraw their judgment as entered against Robichaud o Robichaud brings an application to make Caisse fulfill their promise to withdraw their judgment against him

o Issue o If we are saying the Caisse is estopped from going back to their original claim and that is the basis for this action,

Robichaud is effectively using PE as a sword (i.e. as a cause of action) o Law & Application

o Court says the only way Robichaud can get this judgment is to go to court himself, because Caisse doesn't need to go to court to enforce their judgment, giving Robichaud no chance to use promissory estoppel as a defence

o O'Byrne says this isn't quite right either o Robichaud could resist the collection by going to court and say "you can't take my car" o Defendants would say, we can you owe us money o THEN Robichaud could use estoppel as a defence

o However, Robichaud also wants to get Caisse’s judgment against him off the judgment rolls, and what he tries to do here is the only way to do it (i.e. using estoppel as a cause of action)

o GENERALLY, PE cannot be used as a cause of action o More on Robichaud:

o What could Robichaud do instead of using PE as a sword (cause of action) to get the judgment removed from the rolls?

o Caisse can try to enforce their judgment against Robichaud without going to court by sending a sheriff to seize assets o HOWEVER: when the sheriff comes to take his assets, Robichaud can say the collection procedures are improper o Bank will argue they have a judgment o Robichaud will argue they are estopped

o Summary o Three things wrong with this case:

Wrong on consideration Wrong on promissory estoppel O'Byrne could probably come up with one more

31 How to determine whether PE is SUSPENSORY or PERMANENT?

o 2 situations where PE may arise: o Continuing obligation: Consider the case of High Trees, which involved a 99-year lease. Going forward with

reasonable notice, the landlord SHOULD be able to revoke his representation at some point in the future. However, once the person has paid the lesser rent in the past, the landlord cannot attempt to collect arrears

(i.e. the original rent) once that door is closed. o “Once and for all”, single obligation: Consider the case of Hughes, in which the tenant had to make certain repairs

by a given date. The date passed while the tenant was negotiating with his landlord to buy the property. According to the strict terms of the lease, the tenant should be ejected. However, the landlord is estopped (during negotiations, the 6 month time limit for completion of repairs is held in abeyance)

If the landlord gives notice he can't eject right away, but he CAN start the 6-month clock running, and the tenant has the opportunity to make the repairs during that time.

o Possible 3rd situation: o What about the situation where the debtor is in the process of making payments on a debt but hasn't fully paid it off,

can creditor give reasonable notice to go back to the original amount? This area of law is still unclear (as soon as there is a default, all bets are off, the creditor is not estopped

from getting it all) Combe v. Combe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

o Facts o During divorce negotiations, husband agrees to pay the wife 100 £ tax-free per year. o Parties come to this agreement in Feb o A few months later, husband has not made good and wife sues for payment o Husband says there was no consideration to support his agreement to pay 100 £; therefore, not enforceable

o Issue o Was there consideration sufficient to support this arrangement (sufficient to make it an enforceable contract)?

o Law & Application o Denning agrees with that no consideration given by the wife to support this arrangement

[Note: O'Byrne says consideration would be the wife’s forbearance from applying for maintenance (i.e. going to court to try and get more)]

o Denning says PE cannot just be applied to a promise without more o PE must be based in a legal relationship where one party waives their rights to do something and the other party acts

based on this waiver An ordinary promise still needs to have consideration.

o Because PE is an equitable remedy, you can't just sit on your rights. Equity aides the vigilant o The defence of laches - you cannot sit on your rights

o Decision o PE cannot found a cause of action and it won't work here

M.(N.) v. A. (A.T.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254

o Facts o Ms A agrees to come live with Mr. M. in contemplation of marriage o Mr M agrees to pay off Ms A’s mortgage in England o Mr M doesn’t pay off her mortgage

But DOES loan her $100000 on a promissory note o Mr M then evicts Ms A from his home

o Issue o Is this a case for PE?

o Application o The fact that there is no pre-existing legal relationship presents a barrier to the application of PE

Plaintiff's council says this requirement is inappropriate and urges court to go against precedent o Consider Walton

Landlord discusses signing a lease with tenant • In contemplation of this lease, the tenant requests that landlord demolish a building and construct

a new building, which will then be the subject of a lease between the parties The landlord demolishes the buildings

32

The tenant refused to sign the lease The court finds there was no lease, but the tenant is estopped from denying a lease would have come into

existence • Specific performance is ordered (i.e. tenant required to sign the lease

o No pre-existing legal relationship, but court found PE on the basis that a non-contractual promise can be enforced by PE, as long as it is done in anticipation that of a legal relationship

o See Paragraph 14 for the requirements of equitable estoppel o However, in this case the court is not willing to relax the requirements of PE as in Walton

Intention to Create Legal Relations Introduction 6. INTENTION TO CREATE LEGAL RELATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

o In the business world (commercial sphere) there is an assumption that parties intend to create legal relations

o Party who says there WAS NO intention has the burden of proving it o In the domestic sphere the presumption is that there is no intention to create legal relations

o Party who says there WAS intention has the burden of proving it

Family Arrangements b. Family Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Balfour v. Balfour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

o First instance of a court assigning the burden of proof to the party seeking to establish a contract between domestic parties to demonstrate there WAS an intention to create legal relations

o Facts o Husband returns to Ceylon, wife stays in England o Husband and wife enter oral agreement that the husband would pay £ 30/month to the wife

o Issues o Was there consideration?

The wife promised not to pledge the husband's credit (which she was entitled to do) o Was there an intention to create “legal relations”?

Court says it is on the wife to prove there was an intention to create legal relations o Law & Application

o Decides there was no intention to create legal relations because defendant did not intend a contract o Judge says this case is like two people agreeing to go for a walk in the park

[However could argue against this because leaving the wife unsupported is more serious than not going for a walk in the park.]

o Commentary o Critical legal theory

Judges can have incorrect assumptions that can affect their judgement o Feminist legal theory

The world is divided into different spheres: public and private • Private/private: hearth and home, altruism, loyalty

o Don't want interference by the law • Private/public: the marketplace • Public/public: the governmental sphere

The feminist critique is that the only place (at that time in history) a woman would be able to contract would be in the private/private sphere, but this is where the court doesn't want to go

Isolating women from the legal sphere and deny them relief. o O’Byrne’s perspective

o O'Byrne says the court could have found an implied term in the contract that if something catastrophic happens, the husband’s ongoing commitment to pay must be re-calibrated or the agreement is no longer binding

o O'Byrne wants to impeach this onus, unless the other parties have not excluded an intention to not enter legal relations then should be assumed that there is legal relations

o There should be no difference between the burden of proof for the domestic and commercial sphere c. Commercial Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

33

Rose and Frank Co v. J.R. Crompton and Bros. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . 263

o This agreement was made in the commercial sphere, where there is a presumption of intention to create “legal relations” o Party saying that there was no intention to create legal relations has the burden of proving lack of intention o If you can disprove the intention, the contract is not binding o In this case, the contract said "this arrangement is not entered into as a formal or legal agreement..." o This type of clause works to show that the parties do not intend that their agreement shall give rise to legal relations

Toronto Dominion Bank v. Leigh Instruments Ltd. (Trustee Of) . . . . . . . . . . . . . . . . . . 266

o Facts o Parent company (Plessy) has subsidiary (Leigh)

Parent effectively controls the subsidiary because the parent holds enough shares to elect the board of directors.

o Parent company provided a “letter of comfort” to the bank with respect to the finances of the subsidiary o The bank provided a line of credit to the subsidiary company o Letter of comfort said "it is our policy that our wholly owned subsidiaries be managed in such a way as to be always

in a position to meet their financial obligations including repayment of all amounts due under the above facility" o Contrast this with a “letter of guarantee”, which means that if the subsidiary defaults, the parent pays o A letter of comfort is just a statement of policy

o Law & Application o The test is: "what would the parties entering into the document have reasonably understood the words to mean?" o Both were sophisticated commercial entities, both were familiar with letters of comfort o The bank knew that the letter of comfort was not security in the traditional sense. o Court will not allow bank to bootstrap clause 3 into a guarantee o Bank argues that when Plessy knew Leigh wouldn't be able to make payments, they should have notified the bank

and that the parent company should have to pay from the time they should have put the bank on notice forward. (The court rejects this)

o Decision o Parent not liable for debts of the subsidiary

7. FORMALITY: PROMISES UNDER SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Royal Bank v. Kiska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

o A promise under seal is enforceable regardless of whether there is consideration o The seal obviates the need for consideration

o Here, the bank is attempting to enforce a guarantee o Parties: debtor (brother of Kiska), creditor (bank) o The bank has secured a guarantee from Kiska

o The primary debtor is Kiska o What consideration is there to support Kiska's guarantee?

o At the time he signed the guarantee, the bank was in a position to sue his brother for default So the consideration was temporary forbearance to sue his brother

o Dissent didn't feel this was good consideration o Goes on to consider whether the document was under seal

o Still good analysis of what a document under seal is, despite being the dissent decision o The document that was signed didn't have a wafer (seal) on it o The form was a standard form and had the word SEAL in bracket next to the signature. o However, if this were acceptable then the cautionary function is gone o That word indicated where to put the seal; it wasn't intended to act as the seal itself.

o Therefore, document was NOT under seal.

Requirement of Writing Introduction 8. FORMALITY: THE REQUIREMENT OF WRITING . . . . . . . . . . . . . . . . . . . . . . . . 271 Why do certain kinds of contracts have to be reduced to writing or evidenced by writing?

34

1. Legislative o Statute of frauds o Sale of Goods Act o Guarantees Acknowledgements Act

2. Rationales for the writing agreement o Evidential function - record of agreement o Cautionary function - warns the person signing o Channelling function - test of enforceability

What kinds of contracts have to be reduced to writing or evidenced by writing?

o s. 4 of the Statute of Frauds. Note especially: 1. Contracts for the sale of lands (or any interest concerning them) 2. Contracts that won’t be completed or performed within a year

Rule in Adams v. Union Cinema: contract only has to be in writing if its performance - of necessity - must last longer than one year

• Possibly because witnesses’ memories were thought to fade during the course of a year Example: Yashin entered into 3 year, oral, no cut contract with the Oilers in March. While playing in the

Stanley cup, he breaks his leg and is cut. Can he sue? • No, he cannot sue. His contract cannot be performed in a year, therefore it had to have been in

writing to be enforceable, so under the statute of frauds it is unenforceable Example: X, a junior lawyer, enters into an oral contract with the ABC law firm for an indefinite term.

• Both parties anticipate that the contract will last for a number of years • After 3 months x is fired • This is not caught by the Statute of Frauds because the contract term is indefinite

• This contract is arguably enforceable Rule in Hanau v. Ehrlich:

• If a contract makes no mention of time, or time is uncertain or indefinite, the agreement does not come within the statute of frauds and does not have to be in writing to be enforceable

• Is a lifetime oral contract of employment enforceable? • Arguably enforceable because a “lifetime” is uncertain or indefinite

• Not important how long you're in the contract, more important how the contract COULD be performed

o Guarantees Acknowledgement Act (provincial legislation)

1. s. 3 - no guarantee has any effect unless the person entering into the obligation does all of the following things: Appears before a notary public Acknowledges to the notary an intention to execute the guarantee, and In the presence of the notary signs a statement in the prescribed form

2. s. 4(1) - the notary public, after being satisfied by examination of the person entering into the obligation that he is aware of the contents of the guarantee and understands it, shall issue a certificate under his hand and seal of office in the prescribed form

o Sale of Goods Act

1. Section 6(1) - a contract for the sale of any goods of the value of $50 or upwards is not enforceable by action UNLESS:

Unless the buyer accepts part of the goods so sold and actually receives that part, or gives something in earnest to bind the contract or in part payment, or

Unless some note or memorandum in writing of the contract is made and signed by the party to be charged or his agent in that behalf

What counts as "some memorandum or note... In writing... Signed by the party to be charged therewith"? General comments

Contents of the Note or Memorandum (p. 277)

o The note or memorandum must contain all the essential terms: 1. McKenzie v. Walsh (1921)

Must contain all the essential terms of the contract and thus show that the parties have agreed to those terms conceded by both sides. The essential terms are: the parties, the property and the price (a.k.a. the 3 “p’s”).

It must adduce the existence of the contract and not fail for uncertainty

35

But per Tweddell other essential terms might exist, (as here) the requirement that payment of the purchase price was to be in stages.

The document need not be intended as a memo of the contract It is sufficient if the memo comes into existence anytime before the action is commenced It can be constituted by several pieces of paper It must be signed by the party against whom the contract is sought to be enforced

What is the effect of non-compliance with the Statute of Frauds?

o At common law: 1. Failure to comply with the SoF does NOT make the contract void, but does make it unenforceable (per Treitel) 2. This means you have a procedural problem wrt enforcement of the contract but the contract DOES exist 3. Hence, the contract can be used as a defense (as a shield, but not as a sword) as in Barber, and may also be used as

consideration for a new contract. o At equity:

1. Per Fridman: Courts of Equity decided early after the passage of the Statue of Frauds that defendants would not be allowed to plead and rely upon the Statute if to permit them to do so would be to allow the Statue 'to be used as an engine of fraud.' (See below…)

Any help if there is a failure to comply with the Statute of Frauds? Deglman v. Guaranty Trust Co.

o Facts o Nephew works for his aunt, and aunt agrees she would leave land in will, but she doesn't do this

o Law & Application o Statute of Frauds says this is an unenforceable agreement because the sale of land requires a memorandum in

writing o Part performance - if the plaintiff has engaged in sufficient part performance, then a contract has arisen, even

without memorandum o The work the nephew did was just driving her around and running errands o He argues conduct was consistent with agreement to give him land, but could also be consistent with:

Conduct based on the HOPE he would be in her will Simple kindness Reciprocity for living on her land

o Decision o Court says there is no demonstrated connection between his acts and the agreement to give him the land. o Nephew doesn't get the land, but is given contractual quantum meruit (hourly pay equivalent to the work that was

done) In simple terms, this means he was paid a reasonable sum for his labour.

o Dissent says should be restitutional quantum meruit o Requirements for restitutional quantum meruit

Unjust enrichment (of the aunts estate) • A corresponding deprivation (of the nephew) • Absence of juristic reason for that enrichment

Pettkus v. Becker

o Common law husband and wife lived together, wife paid for consumables so husband could afford to buy a bunch of land o They split up, husband claims exclusive title to the land (title has only his name on it) o Court imposes a constructive trust on the property

1. Half to be held in trust for ex-wife

Thompson v. Guaranty Trust Co o Gus does a bunch of work for Dick in reliance on Dick’s promise to give everything to Gus on his death

o Court agrees there is an oral contract between Gus and Dick o However, it is a transfer of land, so according to the Statute of Frauds it must be in writing, not just oral agreement

Will was stolen before it could be read o DO we have sufficient part performance such that the contract can be enforced?

o Trial - yes, not just part performance, complete performance o CA - says trial judge erred in upholding the oral agreement o House of Lords cites Brownscome decision

16-year old works for someone with heart problems

36

Owner says stay and work and I'll give you the land on my death Said the acts were unequivocally related to the agreement which the appellant alleged had been made, and

inconsistent with the ordinary relationship of employee or tenant o Decision

o Gus succeeds. "…the appellant has proved acts which are unequivocally referable to the very lands and that therefore he has adduced the evidence of part performance which takes the case out of the provisions of s. 4 of the Statute of Frauds.

o Therefore, can try the part performance argument if the requirements of the Statute of Frauds have not been satisfied and there is a risk your contract might be deemed unenforceable

o Equity's desire to ensure Statute of Frauds is not used as an engine of fraud is the foundation for the doctrine of part performance

o Note: Part performance is generally invoked wrt contracts concerning land See the more general pronouncement in Association of Hairdressers v. Glasgow (1957),

• Coyne J. A. refers with approval to equitable principles which hold that the Statute of Frauds does not apply where there has been performance or part performance of the oral contract by, or where otherwise the result would be fraud against, or injustice to the other party...

What counts as part performance? Some controversy here: do acts have to be referable to no other agreement than the alleged one? Maddison v. Alderson:

o Two tests (p. 283) o Per Lord Selvourne:

o "… the acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as alleged."

o Per Fridman: o Need evidence that is unequivocally referable to "some such" agreement, as opposed to the actual contract

Eg. Repair of grainaries could either be consistent with an agreement to purchase OR with long term lease o Later on in judgment "all acts done must be referred to the actual contract, which is the measure and test of their legal and

equitable character and consequences" o This is a stricter view of what must be proven

o SCC in Thompson says that its decision in Brownscombe stands for the proposition that the performance has to be plainly referable to an agreement as to the very land

o This is an application of the looser test

Steadman v. Steadman (1976) o Liberalization of the requirements for the application of the doctrine of part performance o Agreement that wife would convey her interest in the house to husband o Part performance by husband:

o Payment of the £100 to his wife o Having his solicitors draft and send transfer documents to wife

o Per CB: The mere payment of money was traditionally held NOT to be a sufficient or even relevant act of part performance o Per Fridman: It is enough that the part performance looks like performance in reliance on a contract consistent with the

contract alleged o Part performance does NOT have to point to the EXACT contract, or even to a contract of the general nature alleged

o The focus instead is on whether it would be inequitable to allow the wife to rely on the Statue of Frauds as a defense o In other words, the important thing is what would be fair in equity

Theoretical foundations of the doctrine of part performance (per Lensen, 1984)

o Orthodox account: "alternative evidence" o Acts of part performance are seen as evidence “sufficiently cogent” of the contract to permit equity to enforce it o A “stricter” test of part performance o The acts of part performance take the place of evidence of contract

o Modern account: "raising equities” o Acts of part performance raise equities in the plaintiff's favour which render it unjust not to enforce the contract, (per

Steadman) o Leads to a “looser” test of part performance o It looks at the doctrine of part performance not at proving the contract is the parties conduct sufficient to really raise

equity in their favour in that it would be unfair if they didn't get the contract

37 Part performance in Canadian case law: Deglman SCC SCC applies a strict Maddison test, but later decisions of the SCC have undermined the narrower test. Court asks for acts that are referable - and referable ONLY - to the contract alleged. Thompson SCC SCC applies Maddison, on the broader test: unequivocally referable to some such agreement as that alleged

Per Fridman: No clear, undisputed authority has settled whether the proper attitude for courts to adopt is that the acts relied upon must point to the specific contract alleged, or some contract of that type or need only establish some sort of contract between the parties, (thereby permitting the admission of parol evidence to supply the missing information as to the contract and its terms).

Privity of Contract 9. PRIVITY OF CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

o A contract as a general rule cannot confer rights or impose obligations on any person that is not a party to it o Example 1:

A contracts with B to buy a house • A breaks contract • B doesn't want to sue.

C cannot sue on behalf of A • C would be an "officious intermeddler”…

o Example 2: A in contract to buy house from B in order to convey it to C

• C is a "third party beneficiary" What if A refuses to convey to C?

• C cannot sue because they are not a party to the contract and have not provided consideration • C can't sue even though the contract was made for C's benefit.

b. The History of the Doctrine of Privity and Third Party Beneficiaries . . . . . . 297 Provender v. Wood (1630) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298

o Husband’s father and father-in-law entered a contract to pay the new couple on the occasion of their marraige o Father-in-law didn't live up to his end of the contract

o Husband sues father-in-law o Plaintiff (groom) is allowed to sue successfully on a contract made for his benefit o This is no longer good law (see below)

Tweddle v. Atkinson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 o Reverses Provender v. Wood o Facts

o Involves a contract between parents to pay new couple Contract stipulates that in the event of default, the groom can sue

o Father in law defaults, groom sues o Decision

o Court says the groom cannot sue because there is no consideration flowing from the groom, and consideration must move FROM any party entitled to sue.

o [O'Byrne wonders if the judge in this case has confused the proposition that "the consideration must flow from the promisee" and misapplied it to say "consideration must move from the party entitled to sue"…]

o Court says if you are going to sue on a contract you should be amenable to being sued o McAmis text: the purpose of the doctrine of consideration is to ensure that the promise sued upon has been

purchased o Enforcability requires that there is consideration present to support the contract for the contract to be enforceable

(i.e. WHEN is the contract enforceable); the doctrine of consideration says nothing about WHO should be able to enforce an enforceable contract

In fact, it is almost a perverse result the way the doctrine of privity has evolved, because it makes a validly purchased promise unenforceable by a third party.

Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . 299

38 Facts

o Dunlop (tire manufacturer) appellant, contracts with Dew (wholesaler) to sell tires (CONTRACT 1) o Dunlop contracts to sell tires to Dew via “re-sale price maintenance agreement” (CONTRACT 1)

o This is an attempt by the manufacturer to protect the price of its product down the retail chain o Dunlop extracts a promise from Dew that Dew can sell it's tires below list ONLY to customers who agree not to sell

below list to their customers o [Note: These agreements are now illegal]

o Selfridge is a retailer who sells tires purchased from Dew to the ultimate consumers (customers) (CONTRACT 2) o Dew contracts with Selfridge to supply tires o Selfridge contracts to maintain price or pay damages to Dunlop

o Selfridge breaches contract with Dew by selling to ultimate consumer below list price o In securing its contract with Selfridge, Dew discharged its obligations in contract with Dunlop o Dunlop now sues Selfridge

Issue o Selfridge breached contract 2, and a party (Dunlop) not privy to contract 2 attempts to sue them for the breach

o There is no privity of contract between Southridge and Dunlop, on its face (per Tweddle) how can Dunlop sue? Application & Law

o There is no doubt that Selfridge is contemplated by the first contract, but as a third party beneficiary o What did Selfridge get from DUNLOP in exchange for its promise to maintain prices? o Court says that while Selfridge may have gotten a better price from Dew based on Dew’s discount, Dew got from Dunlop in

exchange for Dew's acceptance of the resale price maintenance agreement o This is not good consideration, because once Dew buys tires from Dunlop, they own them outright o While Dew is obliged to pass along savings to Selfridge by contract 1, Dew is still the one passing savings because

at the time Selfridge acquires the tires, Dunlop doesn't own them. o Dew owns the tires, in dealing with the tires in a certain way may breach contract 1, but has nothing to do with

Selfridge because Dunlop has provided no consideration to Selfridge. o What about agency law?

o An agent can enter into a contract with a third party on behalf of a principle The contract is actually between the principle and the third party.

o Could we argue that Dew was an agent of Dunlop, so there is still the proper relationship between Dunlop and Selfridge

o Even if we say Dew is acting as an agent of Dunlop, we still would require consideration flowing from Dunlop to Selfridge in exchange for Selfridge's promise to resale price maintenance (p.300)

o Also no intention evident that Dew is an agent of Dunlop o What Dunlop COULD have done:

o Draft a clause in contract 1 that says "Dew will pass on a 5 cent savings to their buyers as an agent of Dunlop" o Now this clause in contract 1 provides consideration from Dunlop for contract 2 and sets up Dew as an agent of

Dunlop in those contracts Now Dunlop could sue away…

Example:

o O'Byrne says she will pay Sean $5000 if I get an A in torts. o This agreement is not enforceable because the party to the contract is not providing consideration and the person providing

consideration is not a party to the contract.

c. Ways in Which a Third Party May Acquire the Benefit . . . . . . . . . . . . . . . . . 302 [NOT exceptions to privity, just situations where privity isn't a problem or not present]

o Collateral Contract o Consumer in contract with retailer, product doesn't work, now consumer sues manufacturer o Warranty on the item, but WHAT is the consumer providing as consideration to the manufacturer?? o Definition (p. 399) - there may be a contract the consideration of which is making some other contract

That is "if you enter into a contract with the retailer, I'll give you a warranty" The consideration for the warranty is entering into the contract with the retailer

o Tort

o If the product breaks, could the consumer sue for negligence? o Lots of business torts

39

o Lord Denning o Argue that the common law principle is causing an injustice and needs to be re-thought (p. 302)

o Statute o Life insurance:

The insured and insurer are in a contract • Insured pays premiums to insurer in exchange for the insurer's promise to pay out the insurance

when the insured dies • Typically it is a spouse who is to be paid out • Spouse is the beneficiary

Spouse SHOULD have a problem in enforcing this contract as spouse a third party that has provided no consideration to the original contract

• BUT: Insurance Act gives spouse standing to sue to enforce contract

o Assignment o A in contract with B o B is obligated to pay A, but A can assign that obligation to C

Then C could sue on the contract o This occurs by the law of assignment

o Agency

o Principal can have an agent, and the agent enters into contract with "3rd party" and the contract is really between the principal and the third party, the agent drops out of the picture

o Trust relationship

o A trust is an equitable obligation Trustee promises settlor (person who creates the trust) to do something for the benefit of a beneficiary The beneficiary can sue on the trust, despite appearing to be a third party

o Employment relationship (London Drugs)

o Employees not party to a contract can shelter under it

Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305

Beswick v. Beswick (H.L.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 o Facts

o Peter Beswick had a coal business and his nephew wanted to buy the business o Peter agrees to sell to nephew for a certain amount o Nephew promised to pay Uncle’s widow an allowance (regular sum of money) after Peter’s death

Purchase price of business was discounted to reflect this future obligation o Nephew refuses to pay widow after Peter died

o Law & Application o According to common law, this problem of privity as a third party beneficiary (no consideration from widow for

nephew's promise to pay) should arise BUT she is also the executrix of the estate

o She sues in BOTH her personal capacity (third party) as well as in her formal capacity as the executrix o Nephew says when she sues as the estate, the estate is only entitled to nominal (very small) damages, because him

not paying the aunt doesn't deprive the estate of anything The estate is entitled to be put in the position it would have been in had the contract been enforced.

o BUT: the widow could get the equitable remedy of specific performance o When seeking an equitable remedy the court will look at behaviour of the parties

In this case, it would be grossly unjust if the only remedy available were nominal damages

(iii) Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 (iv) Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

New Zealand Shipping Co Ltd. v. A.M. Satterthwaite & Co Ltd. . . . . . . . . . . . . . 315

o Facts

40

o Shipper (consignor, maker of drill) Federal Steam (carrier) Satterthwaite (consignee, owner of drill at time of damages)

o NZ shipping (the stevedore: loads, unloads ships) - drops the drill o Shipping across the ocean is done through a bill of lading that binds all three parties to its terms o NZ was hired by the carrier to provide Stevedoring services o The stevedores dropped the drill o If they can shelter under the bill of lading contract, then they would only have to pay small damages instead of

everything o As the contract is written it appears that Federal Steam is trying to act as agent for NZ

Federal steam WAS trying to act as agent for the NZ stevedore company NZ shipping is actually the parent company of Federal steam (BUT THIS IS IRRELEVANT, don't let if

confuse you) NZ often acted as agents for Federal Steam

o We aren't interested in agency In our case, we are concerned with whether Federal Steam acts as agent in our case

o Bill of Lading o A consignment is a process of sending goods to another party with the aid of a common carrier o The terms are contained on a bill of lading o Two ways to send goods: Bill of lading (take part of ship), or charter party (hire entire ship) o Bill acts as a receipt to the shipper from the carrier acknowledging that "yes we have your goods", also acts as

evidence of the terms of carriage, also document of title to the goods o NZ not a party to the Bill of lading, didn't sign it, trying to shelter under it o Stevedores (NZ) damage the drill and are sued in tort

o Issue o Can Stevedores rely on clause in bill of lading?

o Law & Application o Agency argument could work if:

Bill of lading makes it clear they the stevedore is intended to be protected Bill of lading makes it clear that the carrier is also contracting as agent for the stevedore The carrier has authority from the stevedore to do that (or perhaps later ratification would suffice_ That any difficulties about consideration moving from the stevedore was overcome (HERE's where we

have a problem) o What consideration has NZ provided for the Shipper's promise that they are excluded from liability?

Court says: through the bill of lading we have an offer of a unilateral contract to the “stevedores of the world” from the shipper

• "If you unload my cargo, I'll give you this exemption" Stevedores accept unilateral contract through performance and are therefore entitled to the exemption BUT when stevedores accept this "unilateral contract", they are already under contract with federal steam,

so how can fulfilling a pre-existing legal duty be consideration? • NO Problem, fulfilling a duty to a third party CAN be consideration • So the consideration for the unilateral contract from the shipper is performing the contract with

Federal Steam

(v) Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 London Drugs Ltd. v. Kuehne & Nagel International Ltd. . . . . . . . . . . . . . . . . . . 320 Facts London Drugs (owner) in contract with K+N Ltd to store transformer Contract said that should the transformer be damaged, K+N's liability is limited to $40 (transformer is worth much more than that) Transformer IS damaged, and London Drugs sues in both contract and tort There IS a breach of contract and negligence, however because of the liability limiting clause, they could only get $40 in damages So LD sues the employees who damaged the transformer DIRECTLY for negligence While it appears the intention WAS to shelter the employees (by contract), they are third party beneficiaries b/c they were not party to the contract London Drugs can't sue employees in contract (not in a contract), so sue in tort for negligence The way they moved the transformer was negligent Council for employees pleads that the court should relax the rules of privity to allow them to shelter under the contract Suing the employees doesn't reflect the business reality

41 It is obvious that the corporation (K&N) would need to hire employees to move it, the "corporation" can't move it, b/c corporations aren't physical entities Court says they are not prepared to jettison the doctrine of privity, but will make incremental changes to it in order to have justice London drugs knew K & N would need employees London drugs chose not to get independent insurance Employees couldn't sue under the contract, they are just using it as a defence They let the employees piggy back on the liability limiting clause The court isn't worried that people were not getting insurance because they were counting on sueing third parties like the employees. So changing the rule of privity wouldn't adversely affect parties like London drugs The Test Employees may obtain such a benefit if the following requirements are satisfied: The limitation of liability clause must, either expressly or impliedly, extend its benefit to the employees (or employee) seeking to rely on ti; and The employees (or employee) seeing the benefit of the limitation of liability clause 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 plaintiff (customer) when the loss occurred The exception is limited, can use the clause as a shield, not a sword (cause of action) The employees have committed a tort (negligent, breach duty of care)

Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. . . . . . . . . . . . . . . . . 330 Shows that the doctrine of privity is alive and well, and that London Drugs is just a crafted exception Crown gets engineering advice from Lea (contract 1) Crown enters into contract with Edgeworth to build a section of highway (contract 2) Edgeworth loses money on the project because of errors in the data from Lea

Edgeworth wants to sue Lea: can't sue in contract. Sue in tort? o There was a breach of a duty of care

Did the crown assume the sole risk previously held by Lea by virtue of its contract with Lea? So really, all the words of Lea are the words of the crown. Court says contract 2 doesn't provide any limitation of liability for Lea (third party), London Drugs doesn't apply.

o Lea could've had a clause in contract 1 to exclude them from liability o Crown had a clause exempting them from liability in contract 2, but doesn't purport to protect Lea.

Court says no intention in contract 2 to shelter Lea Court says there was a lot of ways Lea could have protected itself.

o Liability limiting clause in contract 1, o Could have insisted they be mentioned and be protected by contract 2 o Could have gotten insurance (O'Byrne says they probably did)

Court says, why should we stretch contract 2 when Lea could have protected itself.

(vi) Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 Fraser River Pile & Dredge v. Can-Dive Services Ltd. . . . . . . . . . . . . . . . . . . . . . 332 Facts Can dive in contract to charter barge from Fraser. Can Dive sunk the barge. Fraser has insured the barge via a contract with the insurer Fraser makes an insurance claim and is paid. The insurer then would normally have the right of subrogation which means that they would stand in the shoes of Fraser and could sue Can Dive Clause in insurance policy provided for a waiver of subrogation clause (insurer gives up right to sue, maybe Fraser wants to protect its customers) Presumably this makes the policy more expensive for Fraser. SO while insurance company waives it subrogation right, Fraser waives that waiver. Can Dive says Fraser and Insurance company cannot change that contract because Can Dive is contemplated in the contract and benefits from it? Is can dive is a third party beneficiary? Can Dive says they are contemplated in the contract, you can't change it. Fraser and Insurance company says it's their contract, they can do what they want. Can Dive is a third party

42 The law of privity has nothing to prevent Fraser and the insurer from doing this. Can Dive is complaining about something that it isn't party to. The general rule of privity is that a contract cannot confer rights or impose obligations on a third party.

Court makes an exception to the law of privity New Exception is dependent on the intention of the contracting party

2 parties: The Parties to the contract must intend to extend the benefit to a 3rd party seeking to rely on the contractual provision? Question: was there an intention to benefit a party seeking to rely on the contractual provision? Yes - and when they did, they became a party to the contract - limited to the subrogation clause The two parties cannot change this clause without getting input from Can Dive SEE page 365 - tells when this right is crystallized Third party beneficiary must be performing the activity contemplated in the contract Question, was the 3rd party doing the act that was contemplated in this contract?

d. Privity and Contract Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 Summary: Tweedle and Dunlop cases set up the rule of privity The following cases are the courts trying to sidestep the third party beneficiary barr The courts don't seem too enamoured with the third party beneficiary rule and seem willing to make exceptions Contingent Agreements a. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

b. Offer, Option, or Contract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 Wiebe v. Bobsien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 Wiebe v. Bobsien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

1. Objectives: To see the extent to which the Treitel analysis of contingent agreements is followed by Canadian courts To analyze what the parties' obligations are, if any, after the making of a conditional agreement, but prior to the satisfaction of the condition or the expiry of the deadline set for its satisfaction To determine what a "true" condition precedent is; and To consider how subsequent courts have handled the Turney case.

2. Warning:

Gwyilymm Davies: The development of law in Canada with respect to conditional contracts for the sale of land has followed a strange course and has produced strange results and in so doing appears to have departed both from previously decided authority and from good sense... The conclusion which has been reached is that the law respecting conditional contracts for the sale of land suffers from loose use of terminology and imprecise conceptualization on the one hand and undue reliance upon formulae and abstract conceptualization on the other.

3. What is a contingent agreement?

A contingent agreement is also called a conditional agreement Per Treitel, an agreement is conditional if its operation depends on an event which is not certain to occur.

4. Some distinctions

Condition as an event v. Condition as a term Example per Treitel: A "condition" as an event: A agrees to work for B at a weekly rate payable at the end of the week. Both parties are immediately bound, but performance by A is a condition of B's liability (promissory condition) A "condition" as an event: A agrees to work for B for $50 if it is sunny tomorrow. The obligations of both parties are contingent on the happening of the specified event. A "condition" as a term Consider the phrase a "condition of sale." this refers to a promise which is a term of the contract See casebook page 461 (classification of terms)

43

We are not talking about situations where the paqutin is about promissory conditions. WE ARE TALKING ABOUT an agreement itself that is contingent on something else happening

B. Promissory condition vs. Contingent condition

A promissory condition is a condition which one promises to fulfil. Failure to do so is a breach of contract. (see A1a above) A contingent condition is a condition which may or may not happen and no one promises that it will. If the condition does not occur, this is not a breach. (carbolic smoke ball, contingent condition is getting sick)

C. Condition precedent vs. Condition subsequent

Per Treitel: A condition is precedent if it provides that the contract is not to be binding UNTIL an event occurs. Two kinds: Door # 1 - condition precedent to creation (formation) of contract (obligation)

This is illusory because there are no obligations until the condition is fulfilled Eg. I'll buy your house if I like it (unless I say "i like your house" there is no deal, no contract between us)

Door #2 - condition precedent to duty to perform primary contractual obligations Eg. I'll buy house if I can get financing. Primary obligation to buy/sell house Subsidiary obligation to make reasonable efforts to secure financing Eg. Wiebe v. Bobsien

A condition is subsequent if it provides that a previously binding contract is to determine on the occurrence of an event. A contacts to pay an allowance to B until B graduates from law school. Dawson Helicopter - the promise to pay 10% When you are in a contract subject to condition subsequent contract there IS a contract and the parties do have obligations which the parties could sue on (eg. Dawson page 74) In Dawson the contract contemplates its own demise if everyone acting in good faith were unable to bring about a condition subsequent

Per SKO: be careful. Don't assume that presence of an unfulfilled condition precedent means the absence of a binding agreement. You still have a contract.

Degrees of obligation: conditions precedent Per Treitel: an agreement which is subject to a contingent condition precedent is not fully binding until the specified event occurs; nor does either party undertake that it will occur. That said, an agreement subject to such a condition may impose some degree of obligation on the parties or on one of them. What are the possibilities?

1. Before the event occurs, each party is free to withdraw. (door #1)

Example: agreement for sale of a patent is executed but the parties also agree that it should "not be the agreement" unless a third party approved of the invention. No agreement UNTIL approval. See Murray, cited in Weibe.

Put another way, we have a condition precedent going to the creation of the obligation as opposed to one the fulfilment of which triggers the duty to perform.

Eg. Murray

2. Before the event occurs, main agreement is not binding but, so long as the event can still occur, one or both of the parties CANNOT withdraw. (door #2) Example: A sells land from B subject to financing. A cannot withdraw before the time fixed for

completion; he was bound to wait to see whether B could arrange the loan. See Smith v. Butcher Subsidiary obligation: “wait & see” if the condition will be fulfilled.

See: Smith v. Butler, 1990 1 Q.B. 694

3. Before the event, the main agreement is not binding but that in the meantime, the parties must not prevent occurrence of the event. (door #2)

44

Example: Football player is transferred. He is to be paid part of his fee immediately and the balance upon scoring 20 goals. He is cut before he has the chance to score the goals. Held: that the team was in breach as it had not given him a reasonable opportunity to score the goals. See Bournemouth, discussed in Treitel.

The parties are obligated to TRY to fulfill = implied promissory obligation.

4. Before the event occurs, the main agreement is not binding but one of the parties undertakes to use reasonable efforts to bring about the event without undertaking that those efforts will succeed. (door #2) Example: Hargreaves Transport Ltd. v. Lynch, [1969]. Land is sold subject to the condition that the

purchaser should obtain planning permission - - he is bound to make reasonable efforts to get the permission but isn't liable for failing. • The principal obligation (to buy and sell) will not take effect if planning permission is not

obtained. But not that there is an implied subsidiary promissory obligation to make reasonable efforts.

• Eg. Land is sold subject to the condition that the purchaser should obtain planning permission – he is bound to make reasonable efforts to get the permission but isn’t liable for failing. (only promising to TRY)

E. Conditions precedent to obligation vs. Conditions precedent to performance Weibe v. Bobsien

**quotes Corbplus Juis Secundum: A condition precedent may relate to the binding effect of an agreement or to the duty to perform an existing contract. The existence of such a condition depends upon the intent of the parties as gathered from the words they have employed, and it will be interpreted according to the general rules of construction.

Option: one party provides consideration for other’s agreement to enter into primary contract at a future specified time, at the “option” of the first. Distinction b/w option and conditional offer = presence/absence of consideration Wiebe v. Bobsien, 1985 B.C.S.C. Distinction b/w conditional offer and contract w a Condition P Use of option Facts: Bobsien (v/er) owned subject property; Plaintiff made offer to purchase. Both signed an interim agreement, sale was subject to Plaintiff selling home (“Condition Precedent”) before due date. Defendant changes mind, cancels contract, but Plaintiff sells home before due date. Plaintiff: purchaser saying door #2 Defendant: vendor saying door #1 (this is merely option agreement) Issue: Is the interim agreement a Door #1 or a Door #2 CP? (Is the interim agreement a form of option that could be cancelled by the defendant prior to 18th August 1984 OR is it a binding agreement for sale and purchase of the Crescent Beach property?) Decision: plaintiff wins – binding contract. Analysis: V/er trying to back out of deal prior to due date If parties in contract, v/er in breach; if no contract, v/er can do what he wants As p/er you can 1) accept breach and sue for damages, or 2) specific performance Here, ∏ insisting on specific performance Effect of CP characterized in two ways: 1) prevents creation of contract, or 2) suspends performance of some/all obligations set out in contract until condition met Defendant argument: option v. deposit situation deposits: land deals often have deposits that go w it, deposit is not consideration for agreement, it is piece that binds you to deal, ordinarily it is forfeit if deal does not go through

45

this is not an option agmnt, b/c option agmnt gives p/er right to buy something BUT they don’t have to (must have consideration for that, to give to o/or), binds owner to deal w me if I trigger option. At best, this is a failed option contract, b/c only thing we can identify as supporting the option contract is the deposit. However, this deposit is refundable in certain circumstances, so cannot be consideration. The deposit would have to belong to the o/or in all events, here only belongs to them in certain events. Argument that this is failed option clause would succeed. Plaintiff argument: Murray: agreement b/w parties stated that plaintiff's company’s offer to purchase was “subject” to the approval of the company president on or before a certain date. (illusory) P. 346: generally in contract, when reference is made to conditions, what is meant are conditions which become operative after formation of the contract and qualify the duty of immediate performance of a promise or promises thereunder, not conditions which qualify the existence of a contract or promise (generally, CP are door #2) P. 347: in my opinion, if the parties have reached an agreement on all essential matters, then the clause “subject to the approval of the court” does not mean there is no agreement at all (no door #1). There is an agreement (door #2) …. Court finds this to be Door #2, “subject to” clauses in real estate transactions are typically door #2.

The subject to clause is a CP to performance, not to creation of contract. Therefore, door #2. V/er is in breach of contract. If you want a deal b/w the parties: Door #2 CP OR CS (Dawson). Effect of door #2 CP is equal to effect of CS b/c CS is = we have contract, however, if event occurs or doesn’t occur, contract comes to end. Therefore b/c there is a contract we can have sub obligations that are enforceable. They can be expressed or implied. Dawson must make reasonable efforts. Wiebe v. Bobsien (1986) B.C.C.A. – dissent only. Decision: decision affirmed. Ratio: Analysis: Each CP case must be considered on its own facts Eg. Murray case, in other cases a contract is completed, neither party can withdraw, but performance is held in suspense until the parties know whether… Third type: partly subjective and partly objective. This type of case dealt w by implying a term that p/er will take all reasonable steps to have the planning department… I think this case falls in the category of incurable uncertainty. What does this CP mean? (officious bystander test OR entitled to insist that the sale can only take place at a price he considers reasonable and is willing to accept Prefers second alternative (which is door #1) Courts governed by facts of each case and where it should end up. If motivated, they will apply terms. If inchoate, they will not imply where it is subjective and vague. **the foregoing pages must be read in light of Turney

c. Absence of Consideration and Uncertain Terms . . . . . . . . . . . . . . . . . . . . . . . . 353 Reciprocal Subsidiary Obligations Once again: A condition is precedent if it provides that the contract is not to be binding UNTIL an event occurs. Two kinds:

Door # 1 - condition precedent to creation (formation) of contract (obligation) • This is illusory because there are no obligations until the condition is fulfilled • Eg. I'll buy your house if I like it (unless I say "i like your house" there is no deal, no contract between us)

Door #2 - condition precedent to duty to perform primary contractual obligations • Eg. I'll buy house if I can get financing.

• Primary obligation to buy/sell house

46

• Subsidiary obligation to make reasonable efforts to secure financing • Eg. Wiebe v. Bobsien

d. Reciprocal Subsidiary Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

Dynamic Transport Ltd. v. O.K. Detailing Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Condition precedent in contract, agreement of purchase and sale subject to subdivision approval. Court said it was a door #2 condition precedent The duty to perform will arise when and if the condition is performed, but the parties are bound pending the performance. No recitation in the contract as to who should get the subdivision approval SCC says they will imply terms as they have to and that it was the intention of the parties that one of them would prepare the application to get subdivision approval The obligation is on the vendor and the vendor is to take reasonable steps to seek approval. So there IS a breach of contract by the vendor. You can see there is an obligation for the vendor to make good faith efforts to seek approval Similar to Dawson Helicoptor except that was a condition subsequent, while Dynamic is a condition precedent. What is the measure of damages if someone fails to fulfill a subsidiary obligation? Say the vendor makes feeble efforts to get subdivision approval Has the plaintiff lost the deal or a chance at the deal? Absent exceptional circumstances, who knows what will happen when you make you subdivision application, so have lost a chance. Remember, plaintiffs are entitled to be put in the position they would have been if there were no breach, since we don't know exactly what would have happened if the contract had been performed, the plaintiff has lost a chance (like the beauty pagent case: 1 in 4 chance of winning prize money, awarded 25% of the prize money)

Another Example: Hagbloom v. Henderson Hagbloom was a mason sued by a disgruntled customer, the customer won. Hagbloom's lawyer (henderson) had done a bad job representing him in the civil suit, so hagbloom sues for general damages for mental distress Court would have awarded $15000 for mental damages, but there was a 25% chance that even a competent lawyer would have lost the case, so Hagbloom was awarded 75% of $150000 Eastwalsh Homes Ltd. v. Anatol Developments Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 o Subsidiary obligation on the vendor to secure subdivision approval o Breach because vendor failed to use best efforts o Plaintiff has to show on the balance of probabilities what their damages are. Really, what they lost was the chance to acquire

the property o At trial, judge said the plaintiff had a 50% chance of having the subdivision registered and awarded quantum on that basis o The court of appeal reverses, because even if the approval of the subdivision had occured, the contract couldn't have been

completed before the contract's deadline, so the CA awarded nominal damages. Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362

Unilateral Waiver

Turney v. Zhilka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 o [O’Byrne says this case makes no sense] o Contract was subject to 2 conditions: annexation and subdivision approval. Purchaser wants to develop the land annexed to

the town. Purchaser wanted these conditions in the contract to protect himself, doesn't want to proceed unless he has these 2 CPs met

o These approvals were not going to happen. Purchaser says: “I won't get approvals now, but maybe I will get them later. These conditions cannot be fulfilled and I am waiving them.” (Purchaser is saying it is as though they have been fulfilled.)

o For whose benefit were the subdivision and annexation conditions present? They are for the protection of the purchaser.

47

o Trial judge said the conditions were introduced for the sole benefit of the purchaser and so the purchaser has the option to waive them.

o The vendor is arguing that NO, those conditions MUST be fulfilled. Could be using this as an excuse to get out of the contract.

o In the SCC says "there is no right here to be waived" o Says there is no contract, finds this to be door #1 o "the obligation under the contract, on both sides, depend upon a future uncertain event, the happening of which depends

entirely on the will of a third party - the Village Council. This is a true condition precedent - an external condition upon which the existence of the obligation depends. Until the event occurs there is no right to performance on either side" DOOR #1

o Somehow the court has taken these conditions and classified them as Door #1, so until those conditions are in place, there is no contract at all, let alone

o This is a bad decision and cases following, the courts just contort how they deal with this precedent to do justice in the cases before them.

o Courts will say things like the case before me is a Turney case, it is a door #1, but this can have subsidiary obligations... But this is completely nonsensical because if door number 1, then no enforceable contract... What is imposing the subsidiary obligations.

o Or they give a feeble reason to distinguish Turney

Solution to the Turney problem? o The solution is preventative, must draft agreement so Turney will not apply o Turney says a true condition precedent cannot be waived, so if we include a waiver clause in the contract, Turney cannot

apply because by definition the condition cannot be a true condition precedent. (this is formulaic, but works.) o Could also draft the contract to contain a condition subsequent that - if unfulfilled - would declare the contract null and

void. (This would function as a “door number 2” CP, but keeps you out of the realm of danger of Turney)

1. What kinds of Conditions precedent are there? Per Davies, "some thoughts on the Drafting of Conditions in Contracts for the Sale of Land" It is fairly apparent from the cases that when a condition is characterised as being precedent there are three possible meanings. It may be precedent in the sense that until the condition is fulfilled there is no contractual obligation at all between the parties (door #1), or in the sense that while there are certain contractual obligations between the parties, neither can be called upon to perform his primary obligations between the parties, neither can be called upon to perform his primary obligations under the contract unless and until the condition is satisfied (door #2), or finally, in the sense that fulfillment of the condition is a necessary prerequisite to the enforceability of the primary obligation against on e of the parties (not talking about this right now)

2. What are the consequences in circumstances where a condition precedent prevents the formation of a contract?

Courts have, for example, allowed the vendor to revoke any time up until fulfilment of the condition. Example: Murray cited in CB at 327. Here , the interim agreement stated that the plaintiff company's offer to purchase was "subject to " approval of the company president on or before a certain date. Prior to the date specified, the defendant "revoked" her acceptance. Per the court: "I conclude that the 'interim agreement' was one which imposed no obligation on the plaintiff purchaser unless and until its president... Gave his approval... And that it stood as a bare offer on the part of the defendant vendor, unsupported by consideration, and accordingly such as she might revoke at any time before that approval was given"

3. In what category noted above does a true condition precedent fall?

The problem posed by Turney per Davies, "conditional contracts for the sale of land in Canada" Judson J. Said that the obligations of both parties were dependent upon fulfilment of the condition. What did he mean? Did he mean that the purported binding agreement was of no binding effect what so ever until the condition was fulfilled or did he mean only that neither party could call on the other perform (by paying the purchase price or making the transfer as the case may be) until the condition had been fulfilled? The difference being that in the latter case parties are clearly bound by the contract in the sense that the vendor cannot sell to another until the time prescribed for fulfilling the condition, or a reasonable time for so doing, has elapsed; while both the purchaser and the vendor may have obligations with respect to achieving the fulfilment of the condition. In the former case the position is much less clear... The answer to the question posed is not to be found in turney itself.

48

4. Does a true condition precedent count as a condition that prevents formation of the contract?

A strict reading of Turney would suggest that in the context of a true condition precedent there are no subsidiary obligations resting on the parties because, in Judson's words, it is the fulfilment of the condition which creates the obligation. This analysis is also consistent with Judson's comments on waiver. Fridman notes, however, that cases following Tumey have stated that a true condition precedent may impose duties on one party or on both, citing Dynamic Transport, per Dickson J. (see our CB at 335: the existence of a condition precedent does not preclude the possibility of some provisions of a contract being operative before the condition is fulfilled...)

Decisions in the past few years have drawn attention to the fact that, where a contract is subject to a true condition precedent, even though failure of the condition to be fulfilled might result in there being no binding contract between the parties, some liability may emerge from the lack of compliance with the condition. The basis of such liability is the doctrine of implied terms.. By virtue of such an implication a party may come under a duty to act in good faith, to co-operate with the other party to obtain the assent or approval of a third party whose approval is a prerequisite of the contract, or to use his best efforts to achieve compliance with, or fulfilment of the condition precedent.

With reference to Steiner. v. EHD Investments ltd and Haupt v. Westcott Fridman, at 446 mkes the following observation:

However, in Steiner... And Houpt... The claim that was successful was for specific performance of the contract that was subject to the unfulfilled condtition precedent. Although the condition precedent was a true condition precedent, in the Turney sense, and could not be waived unilaterally, in both these cases the court held that the vendor could not frustrate the entire agreement by his failure to apply for the requisite subdivision; hence, he could not resist a claim for specific performance.

5. And what about Waiver?

Per Davies at 304 Dickson J's judgement , affirming the proposition that a condition depending for its fulfilment upon the actions of a third party is a true condition precedent which cannot be unilaterally waived, was the majority judgement. Should one presume therefore that the question has been laid to rest? It is submitted that it would be dangerous to so presume. Barnett v. Harrison is merely one line of cases in which the see said the same thing. Turney did not settle the question. Many lower courts, in a number of cases, have still taken a contrary approach thus requiring the Supreme Court on appeal to reiterate its stand again. This state of affairs is unlikely to change, especially in view of Laskin CJs' strong dissent. It has been submitted that the Supreme Court’s approach is unsound, both on the basis of authority and as a matter of common sense. This in itself is going to produce lower court decisions that aren’t consonant with the Supreme Court approach. Furthermore, Dickson J's purported distinction of Beauchamp v. Beauchamp is far from convincing and renders it very likely that the Supreme Court will yet be called upon to resolve questions arising in this area.

6. How to get around the Turney pronouncements regarding waiver?

For help on this, see Davies "some thoughts on the drafting of conditions in contracts for the sale of land" At 427, Davies suggests that drafting be done so that the condition cannot be classified as a true condition precedent. One way of accomplishing this is to insert a waiver clause" The purchaser may at any time, up to and including the ____ day of ____, 20___, waive the protection of the above clause in whole or in part by giving notice to that effect to the vendor in writing at ____ (address)

At 428, another possibility is to frame the condition so that the appropriate party can declare the contract null and void. This agreement may be declared null and void at the option of the purchaser (vendor) if the purchaser (vendor) is unable to obtain by the ___ of ___, 20__, financing upon the following terms and the deposit shall be returned to the purchaser without deduction.

Representations and Terms Misrepresentation and Rescission

49

As far as I am concerned, this is a Rembrant

Pre-contractual Misrepresentation

Condition_

Warranty_

Innominate term_

Term (NOT looking at these right now)

Recission_

No damages, just recission

_

InnocentRescission (remedy in contract), a n d / o r

_

Reliance Damages in tort_

NegligentRescission (remedy in contract), a n d / o r

_

Reliance Damages in tort_

Fraudulent (deceit)

Misrepresentation and Rescission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 The Rembrant example:

o If it is a term of a contract that the painting is a Rembrant, and it turns out it isn't, then breach of contract o If the statement is NOT in the contract, it can still have legal consequences. o Contract law has decided that if there is a pre-contractual misrepresentation, (whether innocent, negligent or fraudulent)

the plaintiff will get the remedy of rescission o Recission puts you in the position you would have been if the contract had not been in place, restored to

position PRIOR to the contract being formed o Term recission used incorrectly in law all the time.

o Page 378: two correct definitions o Used to denote the setting aside of a contract because of some defect affecting its formation, sch as

misrepresentation, duress or undue influence o Used to describe the discharge of an existing contract by subsequent agreement of the parties

o INCORRECTLY used to refer to the situation in which an innocent party is discharged from having to carry out his or her obligations under the contract because of the other party's serious breach of contract or failure to perform.

o Here the contract is not "wiped out"; the innocent party is entitled to be compensated by the previous existence of the contract to put him or her in the position he would have been in had the contract been performed

Definition of a misrepresentation per Fridman: "a misstatement of some fact which is material to the making or inducement of a contract" General rule per Treitel: no relief for a misrepresentation unless it is a statement of existing fact

o Mere puffs do not count as misrepresentation o Statements of opinion or belief do not count as misrepresentations o Rembrandt example o But see CB 382

o Could be liable for fraud if you are misrepresenting your opinion (eg. Know it's not a Rembrandt but say you're not sure)

o Representations as to the future do not count as misrepresentations

Edington v. Fitzmaurice o Induced plaintiff to lend money by saying they would use it to expand their business, but really just wanted it, and used

it to pay down existing debt o Court says, a man's state of mind is a fact. So lying about your state of mind is a misstatement of fact, not a

representation to the future Certain kinds of representations in negotiations will have a legal consequence Ingredients of an actionable misrepresentation (per Treitel) The representation must be: o 1. Unambiguous o 2. Material

50

• What is the test for materiality? "it must be one which would affect the judgment of a reasonable person in deciding whether or on

what terms to enter into the contract without making such inquiries as he would otherwise make" o 3. Relied on by the representee**

o **How is the reliance criterion different from the materiality criterion?

o The material test is what a reasonable person would do; this one is subjective and specific to the mind of the plaintiff.

Meaning of "rescission"

o An action to set the contract aside due to some defect affecting the formation of the contract o Voluntary setting aside of the contract by both parties o Incorrectly, it refers to situation where one party is discharged from having to carry out his or her obligations under the

contract because the other party has committed a serious breach o Repudiation - where one party in a contract indicates to the other that they will not perform their duties. This is incorrectly

referred to as "rescission"

Difference between a claim for damages an action to rescind a contract Damages: object is to substitute money damages fro the performance that SHOULD have been rendered under the contract Rescission: seeking non-enforcement of the contract. Restoring parties to their pre-contractual position.

Deceit

To succeed in an action for deceit, the plaintiff must prove: 1. A false representation or statement was made by defendant 2. Defendant’s knowledge (of falsity) 3. Intention to deceive

*per Derry v. Peek (1889) def. Must have made the statement knowing that it was false, or with reckless disregard of the truth or falsity of the representations. Mere negligence was not sufficient

4. Material inducement causing damage Negligent Misstatement [Note: For the most recent SCC approach to negligent misstatement, see: Hercules Managements v. Ernst and Young (1997)]

o STEP ONE: is there a sufficiently close relationship between the plaintiff and the defendant so that in the reasonable

contemplation of the defendant, carelessness by the defendant may cause damage to the plaintiff? o (ie: is there a sufficient relationship of proximity?) o If YES, proceed to STEP TWO o According to the SCC, a prima facie duty of care will arise on the part of a defendant in a negligent

misrepresentation action when it can be said: (a) That the defendant ought reasonably to have foreseen that the plaintiff would rely on his

representation, and (b) That reliance by the plaintiff, in the circumstances, would be reasonable

o STEP TWO: Are there any policy considerations that ought to negate or limit the scope of the duty

o [Note: This is all you need to know about negligent misstatement for this class] Testing the truth of a representation

Question #1: If a representee has the opportunity to find out the truth concerning a representation, and fails to use this opportunity, does this failure bar an action for rescission based on misrepresentation?

o The representee MAY be entitled to relief even though he or she had - - but did not take - - the opportunity to test the representation for accuracy

This rule is most frequently applied in fraud cases This rule was applied in Redgrave, where the representation was found to be innocent This rule has also been applied where the misrepresentation is negligent

o Example: Smith v. Eric S. Bush (1990)

Plaintiffs were going to purchase a house, and went to the bank for a mortgage The bank entered into a contract with a valuer to check out the property to assure the property was worth

what they were paying

51

The purchaser also relied on the survey Turns out the valuation was negligent Purchaser sues the valuer for negligent misstatement

o Valuer says, if you'd conducted your own survey you could have found out the truth Court said that given that the transaction wasn't very big, it wasn't reasonable to expect the purchasers to

get their own survey o Note: The outcome might have been different if more money were at stake o The principle derived from the Smith case is this: failure to make use of an opportunity to discover the truth MAY

defeat a claim based on negligent misrepresentation where, but only where, it is reasonable to expect the representee to make use of the opportunity to verify/discover the truth.

Question #2: What about Redgrave v. Hurd? Redgrave v. Hurd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 o Redgrave is a lawyer winding up his practice and wants to sell to Hurd

o Hurd backs out of the deal o Redgrave sues for specific performance, wants Hurd to complete the deal o Hurd had entered into the contract with Redgrave in reliance of a promise that the practice was worth a certain value

o Hurd finds out the practice is actually worthless and backs out of the deal o Hurd also counterclaims for the misrepresentation and seeks recission and damages

o At trial: Redgrave wins: o Court acknowledges misrepresentation o However, Hurd didn't examine the documents supporting the value of the practice

Had he taken the time to go through them, he would've discovered the truth By neglecting that opportunity to examine the documents to determine the true value of the practice, Hurd

cannot argue reliance o At Court of Appeal:

o Hurd's statement of claim (for deceit/fraudulent misrepresentation) didn't parallel the requirements for deceit (false representation, knowledge, intent to deceive, material inducement causing damage)

o Didn't plead knowledge or allegations in sufficient detail to found his cause of action o Court proceeded on the pleadings, properly submitted, found that it was an innocent misrepresentation, so remedy is

rescission (Hurd gets deposit back, Redgrave gets back house/practice). o Hurds moving costs, etc. not covered because he couldn't establish a tort

o The CA DID find reliance, overturning trial judge o In law it is difficult for Redgrave to get rid of his misrepresentation by attacking Hurd in this way

In fraud the ability of the plaintiff to discover the truth for themselves is not a defence o Also there WERE no books of account in the stack of papers o On the facts there was really nothing for the defendant to go through, in order to discover the truth

o Should Hurd have been able to get "loss of profit", that is the loss of the profit it was alleged he would have gotten from the practice?

o NO o Note: Court says that it is an inference of law that if something is MATERIAL, then it is RELIED on

o THIS IS NOT TRUE in 2008 o These two generally go together, but it is not an inference in law

See: Treitel:

1. Redgrave stands for the proposition that the opportunity to discover the truth is no bar to relief for an action for rescission a. Recall that here, the representation was innocent

2. Smith stands for the proposition that where it is reasonable to expect the representee to make use of an opportunity to discover the truth, and the representee fails to do so, his or her claim should fail

a. Recall that here, the action was in negligence 3. Ergo, the Smith proposition should also apply when the representation is innocent and it is reasonable to expect the representee

to make use of an opportunity to discover the truth. 4. To this extent, says Treitel, the rule in Redgrave no longer applies

52

a. Ie: if it is reasonable to expect the representee to make use of the opportunity to discover the truth and the representee does not, the action by the representee should fail.

Question #3: What proposition of law does Redgrave stand for?

o Per Treitel, Redgrave stands for proposition that where both parties are innocent, failure to make use of the opportunity to discover is not a bar to relief.

o One could also rationalize Redgrave on this basis: though the representee (the young solicitor) had an opportunity to discover the truth (that the practice was over-valued), it was not reasonable to expect the representee to make use of this opportunity.

What will rescission provide in the context of a negligent misrepresentation?

o Returns you to the status quo ante o Can also get an indemnity (i.e. get back money that the plaintiff has had to spend pursuant to the contract)

o Eg. I lease a chicken farm based on the representation that the premises are sanitary o Lease gives the tenant the obligation to do repairs o Plaintiff spends $10,000 in repairs, all chickens die because the premises weren’t sanitary o Lease will be rescinded, whatever tenant paid as rent will get back

o What about the money that was spent on repairs? o YES, that is the indemnity o The tenant will get this back because it was part of the contractual obligation o If you had just done repairs to IMPROVE the business (not part of contract), couldn't be compensated by indemnity

Duty to disclose Smith v. Land and House Property Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382

o Plaintiffs sell a hotel to the purchaser o at the time of the contract, the plaintiff said the hotel is being leased to a "desirable" tenant, Fleck o However, Fleck actually hadn't been paying his rent

o Is the statement that Fleck is a desirable tenant: unambiguous, material, and relied on. o Plaintiff is saying the statement was just an opinion

o Court says that the facts are not equally known to both sides o When the plaintiff gives an opinion on something he knows more about than the defendant, then it isn't merely an

opinion He is implying that he knows facts that justify his opinion.

o So court says it was unambiguous, material and relied on and as a result of the misrepresentation the defendant will be allowed to get out of the deal.

Bank of British Columbia v. Wren Developments Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 384

o Wren = Corporate defendant o Smith (bad guy, director), Allan (dupe director)

o Both in contract with bank for guarantee on Wren's debt o Wren had deposited collateral security for the debt, so the guarantors felt safe because they were a ways down the chain of

collection o The bank pledged shares it owns in other companies as collateral o The bank starts to release some of the security (shares) to Smith, no real sense of why they did that, and did so without the

knowledge of Allan or Wren o First loan was in October; in June Wren was in financial trouble o Allan was asked to resign as guarantor, all along Allan thought the Shares will still in place as collateral, not informed o Court found that the guarantee contract was unenforceable against Allan because he was misled that there had been no

change to the collateral security. o If he had known the truth, he wouldn't have signed it

o Misrepresentation by the bank - the failure to disclose amounted to a misrepresentation o The misrepresentation was that there hasn't been a change in status. Saying nothing ad content - that nothing had

changed, the security was the same as it always was. o Because of this the plaintiff was entitled to rescission

The creditor must disclose information that the other party would not expect to exist This is an exception to the general rule that there is no duty to disclose

53 Other exceptions to silence not being a misrepresentation

o A "half-truth" is a misrepresentation in law o Active concealment of the truth is a misrepresentation o If you fail to correct something that has subsequently become untrue, that is a misrepresentation o When you are in a good faith relationship - example insurance or contracts with guarantees, silence will = misrepresentation

Marilyn Manson in Calgary

o MM's promoters in negotiations with Calgary Arena Ltd o Enter into contract for Marilyn to perform a concert at a certain date and they agree to a certain date o Parent's groups complain, Arena cancels the show claiming there was silence as a misrepresentation o MM's people sued Calgary Arena for breach of contract, and loss of profit (put in position had contract been performed) o MM applied for summary judgement and it was granted. o Court agreed there was no misrepresentation and the plaintiff recovered net profit

Bars to actions for rescission based on innocent and negligent misrepresentation:

o Laches o Equity aides the vigilant, not those who slumber on their rights o If you want an equitable remedy, you have to move swiftly to seek the courts assistance

o Affirmation o If the innocent party decides to go ahead with the deal even after finding out about the actionable misrepresentation,

you waive your right to rescission Restitution is impossible, impractical or unjust Kupchak v. Dayson Holdings Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387

o Facts o Appellants purchase shares in a corporation (Palm Motel) o Motel is supposed to make money every month

This money was supposed to pay back the purchase price o The purchase price to the vendors was going to be accomplished in a variety of ways:

Money up front in exchange for the shares Conveyance of 2 properties to the vendors Some of the purchase price was to be financed by vendor mortgages

o Deal made in March, two months later, they learned that the earnings of the hotel were not what was represented by the vendor

The motel was not generating income, and appellant/purchaser stopped paying the mortgage o Both parties’ contacted lawyers o Meanwhile the respondent changed the properties

(i.e they sold half interest in one of the properties and built an apartment building) o Issue

o Appellant wants rescission of the contract o Problem = the properties have been changed, and cannot not be given back in the same condition they were in before

the contract o Law

o It is a bar to rescission when the parties cannot be returned to their pre-contractual state o However, you cannot engage in conduct unbecoming a lawyer and council your clients to change the property so the

plaintiff can't get it back (conspiracy to injure). o Decision:

o Trial: NO rescission The vendors couldn't restore the purchaser to their pre-contractual condition

o Appeal: The appellate court said that someone that is guilty of fraud cannot raise this as a bar to rescission The courts will do what is just and practical under the circumstances Rescission is an equitable remedy that the court awards in its discretion.

o Note: In equity you cannot get damages; not an equitable remedy However, it is possible to get money (NOT DAMAGES) in equity.

o So in this case court says they will award compensation (not damages) for that part of the property they cannot restore.

54

The motel goes back to the vendors, the purchase money/unchanged property/and money for the value of the changed property prior to the changes the vendors made.

o Dissent By continuing to run the hotel and remaining on the companies register as shareholders, the plaintiffs

affirm the contract (this is a barrier to rescission) O'Byrne says: You can respond to this argument by saying there is a need to run the hotel to mitigate

damages; when you are on the receiving end of your breach you have an obligation in law to mitigate your losses and to minimize them

• If you don't mitigate, you are actually causing your own loss going forward. • Also: To whom would they transfer the shares to get off the register?

O'Byrne says the best mitigation is prompt litigation.

Third party rights are prejudiced If an innocent third party has acquired rights, the court will not order rescission if it will affect those rights Mentioned in Kupchak and in Redican Execution of the contract in the case of land Redican v. Nesbitt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394

o Facts o Landlord is in a lease with Redican (plaintiff) o Nesbitt (defendant) is the purchaser of the leasehold from Redican

Note: This is an assignment not a sublet, so Nesbitt is still on the lease. o The vendor (Redican)'s agent (Wing), represents to the defendant that the house was lit by electricity o Two days later Nesbitt inspects the property and sees there have been many misrepresentations and stop payment on

their cheque o Issue:

o Given that the contract has been executed, can the defendant get rescission? o Law:

o Generally no, but there are two exceptions: 1. Error in substantia - the subject matter of the sale is different from what was promised

• It must be substantially different, (i.e. not having electricity is not an error in substantia) 2. Fraud - fraud unravels all

o Therefore execution of the contract in the case of land is a bar to rescission for innocent and negligent (unless SUBSTANTIAL) but not fraudulent misrepresentation

o Merger - when a greater and lesser estate meet in one person, the lesser is annihilated and is said to have merged Eg. When someone has an easement, then buys the land, the easement is "merged" with ownership, so the

lesser estate of the easement is absorbed into the estate o Execution as a bar may be softening, not as strong a bar as it used to be

o Decision o Court ordered a new trail because fraud was not put to the jury o If the Defendant had an intention to deceive or were reckless about whether what they said was true or false, then

this if fraud Execution of a contract for the sale of goods? See the rule in Leaf International

o Issue: o Was the statement "this is a painting by Constable" a “pre-contractual misrepresentation” or “contractual term”

A term provides stronger protection for the buyer than just a pre-contractual representation o Facts:

o 5 years after purchasing painting, plaintiff finds out it is NOT a Constable o Analysis

o Could be either a CONDITION or a WARRANTY The difference between these classifications of terms is:

• Condition - tremendously important part of the contract, breach of which denies the innocent party of essentially the entire benefit for which the contract was created (this is a constable, would be considered a condition).

55

• Warranty - not as important a part as a condition and breaching this will not deprive the innocent party of substantially the whole benefit.

o Plaintiff's lawyer only sued for rescission, didn't plead breach of condition or warranty o Court is worried about lapse because 5 years have passed

o This is not laches because he didn't find about it until 5 years later (wasn’t sitting on his rights) o After 5 years the purchaser is deemed to have accepted the goods, he has had the opportunity to examine it, etc.

Acceptance will essentially mean we can no longer reject the goods. o If you have a breach of condition, but reasonable time has lapsed then you lose your right to rescission.

o Denning said that if for "terms" (stronger protection for purchaser), after this time you cannot reject the goods, it doesn't make sense that you should be able to reject the goods (get rescission) for an innocent/negligent pre-contractual misrepresentation.

o If you could prove a breach of warranty - you may not reject the goods (as stated above) however you could get damages to put you in the position you would have been had the contract been performed (value of represented painting)

o Not as good as rescission, but pretty good o The idea that execution is a bar to rescission is weakening o Law of mistake:

o If there is a mistake going to the substance of the contract can avoid the contract Denning says that a mistake about QUALITY is insufficient and doesn't go to the substance of the contract O'Byrne disagrees and says that this mistake DOES go to the substance because the mistake doesn't go to

the quality, but actually goes to the identity of the goods Plaintiff could have won based on mistake (error in substantia)

Sale of Goods act RSA 2000, c. S-2

o s. 13(4) When... The buyer has accepted the goods or part of them... The breach of any condition to be fulfilled by the seller shall only be treated as a breach of warranty and not as a ground for rejecting the goods... Unless there is a term of the contract expressed or implied to that effect…

o s. 35 The buyer shall be deemed to have accepted the goods (c) When after the lapse of a reasonable time he re retains the

goods without intimating to the seller that he has rejected them… Bars to actions for rescission based on fraudulent misrepresentation (Note: Irrelevant whether the contract is executed or not)

o Laches o Affirmation of Contract o Restitution is impossible, impractical or unjust o Third party rights are prejudiced

Representations and Terms

Statement

Pre-contractual MisrepresentationInnocent•Negligent•Fraudulent (deceit)•

Term (NOT looking at these right now)

Condition Warranty Innominate term

Representations and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 Heilbut, Symons & Co. v. Buckleton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 • Facts

o Rubber merchants selling shares in their company through an agent

56

o Buckleton decides to buy shares through agent • Purchaser relies on agent’s representation that shares were for a rubber company

o Sues for fraud and innocent misrepresentation • Issue

o Plaintiff wants rescission, but problems (i.e. potential bars to rescission) • Shares were worth something at time of purchase, but worth nothing • Execution of the contract (less strong a bar now)

o Plaintiff also wants to argue breach of warranty • Analysis

o A pre-contractual misrepresentation is a statement of fact that turns out to be wrong, while a term is a promise. o Do we have a term? There is the main contract for the shares, but Court suggests there is also a collateral contract

that says (this is a rubber company/Buckleton's consideration for this contract is entering into the main contract). • Court says you can't just take anything and turn it into a term • An affirmation at the time of contract is a warranty provided it is so intended.

What is intention? (page 401) 1. Remember court doesn't want to allow misrepresentation to masquerade as a term 2. Court says it is intended as a term if it is a promise

1. In this case "there is nothing which can be taken as evidence of an intention of either party that there should be a contractual liability in respect of the accuracy of the statement. It is a representation as to a specific thing and nothing more."

o SO, plaintiff can't show the statement was a term (no relief on right side), and bars to rescission (executed) on the left. However, a contract being executed, now a days is not such a huge bar to rescission

o A second bar is that restitution is impossible, impractical or unjust. His shares are now worthless o O'Byrne says you could also argue that there was no reliance on the representation that it was a rubber company

because he probably didn't care what they were ACTUALLY selling. Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. . . . . . . . . . . . . . . . . . . . 402 • Facts

o Smith (vendor) enters into a contract with Bentley (purchaser), who wants to purchase a Bentley o The dealer/vendor says the car has a new engine, this turns out to be untrue o Eventually Bentley brings an action for breach of warranty

• Issue o Is the statement "the car has a new engine" a warranty or a misrepresentation? o The plaintiff wants warranty because he wants damages, not rescission

• Analysis o Lord Denning "an affirmation at the time of sale is a warranty, provided it appears on evidence to be so intended",

but "intention" is judged objectively • Test for intention: "if the representation in the course of dealings was intended to induce the other party to

act on it and it is acted on, then that is prima facie ground for inferring that the representation was intended as a warranty. "

o cf. Oscar Chess, in that case the inference of warranty was rebutted • A private seller (not a dealer!) sold something represented to be a 1948 Morris • Private seller made representation because he had received a log book when he bought the car that said it

WAS a 1948 Morris, so the seller thought it was • Here we have a misrepresentation of fact, but not a promise that it is a fact

o In Bentley we have a professional vendor and here the vendor is stating a fact that should have been within his knowledge

• Smith stated a fact that should have been in his own knowledge. This fact was intended as a promise so it was a warranty

• Smith promised that the car had a new engine and under 20000 miles o O'Byrne says the tipping factor here was that Oscar was a professional vendor while the Bentley dealer was a

professional

You can think of a statement as either a promise (i.e. “here's my promise that this statement is right”) or as a statement of fact o Use the test in Bentley

• In Bentley the defendant made a statement which is really entirely within his sphere of knowledge

57

• If the vendor states something that he has no special knowledge of, then more likely to be considered a statement, not a promise

If there is a statement that hasn't been laid down in the contract, but you want it to be considered part of the contract, you can try the Helibut (collateral contract) or Bentley (oral component of main contract) approach. In the Bentley case how could you argue that it is a mere pre-contractual misrepresentation?

o Because it isn't in the contract itself Leaf v. International Galleries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404

Statutory Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 Ontario Law Reform Commission, Report On Amendment Of The Law Of Contract 408 Fair Trading Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 Concurrent Liability in Contract and Tort . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416 A particular misrepresentation could be BOTH negligent AND a breach of contract In the Rafuse case:

o A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification where concurrent liability in tort and contract exists, the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence.

• You can sue in both or either tort and contract, subject to any liability conditions of the contract Sodd Corp. v. N. Tessis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417

o Facts o Tessis is a trustee in bankruptcy, for the benefit of the creditors o Tessis is advertising for stock in tender o The plaintiff submitted a tender based on the Tessis's method of valuation of the goods o Tessis's method overvalued the goods o Possible approaches:

• This is a pre-contractual misrepresentation • The negligent advice was a breach of contract • Negligent advice was a tort at large

Hedley Byrne scenario

o Analysis o Applied Hedley Byrne to find the Defendant liable in the tort of negligent misrepresentation

There was a special relationship, and therefore a duty of care and the duty was negligently discharged o Can you say the plaintiff was guilty of contributory negligence for blindly following the advice of the trustee?

Court says no, not negligent to rely on a licensed trustee when the plaintiffs ability to inspect the goods was limited

o Exclusion of Liability clause: no warranty implied as to the quality/condition etc. Exemption clause exempts all liability Limitation clause limits liability in some way

o O'Byrne says that a properly motivated court can get around any limitation clause Here the court says the representation about how to value the inventory was contained in an ORAL

COLLATERAL contract, which only contains one term (how to value the goods) and therefore the limitation clause of the main contract doesn't apply to the collateral contract

o One way therefore to get around a limitation clause is to say the term is in a collateral contract o Another thing you can do is look at the clause and see if it really does exclude an action here

Here: limitations were on liability for quality and condition, etc. • Suing on method of valuation, can say it doesn't include suing for negligent misrepresentation

going to how to value

58

• Also court can say that the promise survives a limitation clause like this because it was intended to

o Exemption clauses will say "there is no action for pre-contractual misrepresentations", that is to say there is nothing outside this contract

o In contract, there is STRICT liability (no need to show negligence, liable even if you've shown due diligence) An action that breaches a contract and is also negligent gives rise to two causes of action, in contract and

tort • Left hand side: pre-contractual misrepresentation • Right hand side: contractual promise that this is how to value inventory, this was breached, so

breach of contract • Also tort of negligent misrepresentation

o Court treated the promise by the trustee in bankruptcy as a collateral contract, not covered by the exclusion of liability clause because that was in the main contract

o Note: You can sue in both contract and tort, but you cannot get double recovery BG Checo International Ltd v. British Columbia Hydro & Power Authority . . . . . . . . 421

o Facts o Checo was a corporation that constructed power lines o BC Hydro called for tenders o Checo submitted a tender o Before submitting their tender Checo inspected the right of way, noticed it was being cleared, assumed it would be

fully cleared o Checo’s tender was accepted, and they entered into a written contract with Hydro o Terms of the contract

Tenderer had the responsibility to check the conditions of the work Clearing of the right-of-way and foundation installation have been carried out by others and will not form

part of this contract o Issue

o Checo sued for negligent misrepresentation - represented that the right of way would be cleared by someone else o Hydro knew that the clearing wasn't being done properly and that this would impact Checo’s completion of the work

This evidence motivated Checo to change it's claim to include fraud o Analysis

o Trial judge found fraud o Reversed on appeal (found negligent misrepresentation instead) o Does the contract preclude Checo from suing for fraud or negligent misrepresentation in tort?

No, unless there is something in the contract that specifically precludes it o Court says contract will be read to give reasonable meaning to every clause

On the one hand says "the site is cleared"; on the other hand, it puts responsibility on Checo to ensure the site is cleared

To make it work together can say that the scope of the general term does not extend to the scope of the specific term

• General: Checo's responsibility to check site for readiness • Specific: the right of way is cleared

o So hydro needed to clear the right of way and this term was not negated by the more general term that Checo had to satisfy itself the site was ready. This term was breached

o Damages: if the contract had been performed, Hydro would have cleared the right of way Checo would not have had to do the extra work and also might have avoided certain overhead O'Byrne says Checo should also get loss of profit because had they not been clearing the road they could

have been using those resources to make profit elsewhere.

o Tort - Does contract preclude/limit Checo from suing in tort? 3 situations where claims in contract and tort can proceed at the same time:

o Three situations that may arise when contract and tort are applied to the same wrong: Contract stipulates a more stringent obligation than the general law of tort would impose

• Right to sue in tort is not extinguished, just is less advantageous Contract stipulates a lower duty than that which would be presumed by tort

• Generally the duty imposed by the law of tort can be nullified only by clear terms Duty in contract and the common law duty in tort are co-extensive

• For example: “Common calling” (such as lawyer or barber) generally available to the public and exercise of the service demands skill

59

• Implied term (or express term) that the services will be performed reasonably competently (same duty in contract and tort)

• The plaintiff in this case (like the other 2) may chose to sue concurrently or alternatively in tort. • Checo is of the third category.

Statement

Pre-contractual Misrepresentation

Has conseqqwnceses in contract and tort• Term

Condition•

Warranty •

Innominate•

Also has case in tort as

breach of contract, could

also be negligent

•

f. The Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430

Contracts can take 3 forms

o Entirely oral o Entirely in writing o Partially written and partially oral

o The parol evidence rule forbids outside evidence regarding the terms of the contracts when the language of the written

contract is clear and the document is to be the sole course of content. (i) The Scope and Rationale of the Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430 • To uphold the sanctity of the written agreement Exceptions to the rule

1. If there has been a problem with formation (such as fraud) then you can bring outside evidence of that 2. If the contract is intended to be partly written and partly oral 3. If terms are contained in an oral collateral contract 4. If the language in the contract is ambiguous evidence outside the contract can be used to clarify the ambiguity. It

interprets, it doesn't add to or take away.

Statutory Modification of the Parol Evidence Rule . . . . . . . . . . . . . . . . . . 457 Trade Practice Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457 Classification of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461

o When someone breaches an important term (a condition): o You can treat the contract as at and end and sue for damages

Often mislabelled "rescission" o OR can insist on performance and sue for damages

If it is a breach of warranty, your cannot treat the contract as at an end and your only remedy is to sue for damages

The contract continues with both sides needing to fulfill obligations Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. . . . . . . . . . . . . 462

• This case introduces a third kind of term: • Innominate

o An innominate term cannot be classified on its face as either a CONDITION or a WARRANTY • Facts:

o Defendant contracted to charter a ship for 24 months o Contract contained general terms:

60

• Seaworthiness • Proper maintenance • Etc.

o Problem: The ship had engine problems and wasn't seaworthy • Law:

o Repudiation: • Wrongful if without reason (the person is saying our contact is over, directly or indirectly) • Appropriate if the other party has breached a condition

• Issue: o Was repudiation of the contract wrongful or not?

• Analysis: o Depends on whether the “seaworthiness” term was a CONDITION or a WARRANTY

• The plaintiff (Kawasaki) claims breach of CONDITION, in which case the repudiation is appropriate • However, if it is a WARRANTY, then the repudiation is wrongful and Kawasaki is in breach of contract

o CONDITION: Breach of condition is one that deprives the party not in default of substantially the whole benefit that it was intended to receive from the contract, (unless the contract says something to the contrary about the classification of the term)

o WARRANTY - no breach of any warranty can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract, unless otherwise stated by the contract

o Innominate term - cannot be categorized as either a condition or a warranty • Some breaches will and other will not give rise to an event that will deprive the party not in default of

substantially the whole benefit that was intended. o Look first at the contract to try and classify the term

• If you cannot, then look at the event and whether it does deprive o The “seaworthiness” term - Could be due to a small maintenance problem fixed in an hour, or other due to another

more serious cause. Court suggests that in this case, the seaworthiness cannot be classified as a condition or warranty in advance. Therefore look at the event. The court said that in this case there is 17 months left on the charter and the breach of seaworthiness did not substantially deprive Kawasaki of the benefit of the contract. Treat it as "warranty-like"…

o Court found that the defendant didn't have the right to rescind and therefore was in breach Frustration o Per fridman at 637 o The key to both the understanding and the application of the doctrine of frustration in modern times is the idea of a

radical change in the contractual obligation, arising from unforeseen circumstances in respect of which no piror agreement has been reached, those circumstances having come about without default by either party.

o Some supervening event prevents one of the parties from fulfilling the contract Taylor v. Caldwaell (1863) • Plaintiff was going to rent a hall for concerts. Before performances the hall was destroyed by fire. • Plaintiff had spent on advertising etc. And sued for those expenses • Court not found liable to Taylor for those expenses • Court found an implied term that if performance of the contract becomes impossible through no fault of the

contractor there is no breach (frustration) o For Frustration to apply, the event must

Be dramatic and unforseen No party assumed risk for the occurrence Have arisen without fault Make performance of the contract impossible

• In Hong Kong Fir, not frustrated because the ship could be repaired AND because there was fault (understaffed engine room)

Krawchuk v Ulrychova . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468 • Facts

o Plaintiff purchases a horse from defendant meant for a child to ride o Plaintiff insisted the contract contain a term respecting the horse’s good health and soundness o Turns out the horse is a cribber

61

• A correctible problem • Court finds this is a CONDITION, not a WARRANTY so no right to reject and the plaintiff gets only some damages Wickman Machine Tool Sales Ltd. v. L Schuler A.G. . . . . . . . . . . . . . . . . . . . . . . 474 • Facts

o Schuler has a contract with Wickman, Schuler claims breach (missed a few visits), and asserts right to repudiate o Clause 7: it shall be a condition of this agreement that Wickman will make a visit every week to potential

purchasers o Clause 11: Specifies duration of the agreement and how it can be terminated (if there is a material breach of

obligation and have failed to remedy it in 60 days). • Issue

o Wickman’s argument: All breaches including s. 7 are governed by section 11 • There is only a breach if I can’t remedy this breach • Schuler says s. 7 is one way to end the contract and s. 11 is another way, s. 11 can’t cover every breach

because it does not cover all situations 1. ex. Anticipatory breaches, etc, s. 11 only covers certain kinds of breaches, not all.

• Analysis o Court says this contract is a mess. Court says s. 7 breaches should be governed by s. 11 if possible. s. 11 applies to

all breaches that can be remedied. • What does remedied mean?

1. Cure the breach so things are put right for the future, or nullify the breach (if you miss a visit you cant go back in time and do the visit)

2. Can this breach be cured or not? 1. Not all breaches can be cured, but in this case missing some visits can be remedied by

correcting the system 2. Therefore Schuler cannot repudiate and Wickman just has to have a system in place to

make sure this doesn’t happen again o Schuler uses word the word condition, court says there are different meanings of the word condition.

• The more unreasonable this line of analysis is (term being a condition), the more unlikely court will believe it.

• Court told Schuler he should have defined condition in s. 7 (as a condition that leads to repudiation). • Rescission is an equitable remedy. Repudiation is a common law remedy. For exam, ask yourself Is this statement a pre contractual mis rep or a term? Follow these steps on an exam: 1st determine if its a mis rep, 2nd is it a term, 3rd is there an exclusion clause. First ask is this a pre contractual mis rep? Test if its a mis rep: it must be unambiguous, material and relied on. Mis rep can be innocent, neg, or fraudulent. Start first on exam by asking if its a fraud, if no then is it neg, if no is it innocent (what are some of the bars to these neg, fraudulent or innocent). Then discuss damages for each, fraud, innocent and neg. Next, can the statement be a term? Test of what a term is. If yes, what kind of term is it then. Next, are there any exclusion clauses that negate or limit liability.

Classification of Terms

1. Per the Alberta C.A. In Triple 5, the traditionally accepted test for distinguishing a condition from a warranty, pre-Hon Kong Fir, is as follows:

The question was said to be whether, in the later words of Lord Ellen borough in Davidson v. Gwynne in 1810, the term and its non-performance went to the "whole root and consideration" of the contract. This expression "the root of the contract," was generally accepted as the basis of the distinction between conditions an other, lesser terms, in particular warranties.

2. Breach of condition would allow the innocent party to repudiate and/or seek damages. Breach of warranty would allow the innocent party only to seek damages.

3. Under the pre Hong Kong scheme, breach of term defined to be a condition triggers the right to repudiate, even if the event caused by the breach is minor

4. Hong Kong Fir seeks to mitigate the potential harshness and formulaic quality of the old scheme by introducing a third possibility, namely the innominate term. Assuming the term involved is an innominate term, the innocent party will be discharged from further performance under the contract if the answer to the following test is positive:

62

Does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings.

5. Per Hong Kong Fir, "It is the happening of the event and not the fact that the event was the result of breach by one party of his contractual obligations that relieved the other party from further performance of his obligations."

6. If the 'depriving' event occurs due to breach by one party, that party is in breach of contract. 7. If the event occurs due to no one's fault, the contract may be frustrated.

8. According to Alta. C.A in Triple 5, Hong Kong Fir does not replace the warranty/condition distinction but is additional to it. 9. Per C.A. In T5, approach the issue of classification in this way:

Step One : apply the traditional condition/warranty test as articulated by Bowen L.J. In Bentsen: There is no way of deciding that question except by looking at the contract in light of the surrounding circumstances and then making up one's mind whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warrant sounding only in damages, or as a condition precedent by the failure to perform which the other party is relieved of his liability [to perform]

Step Two: test for intent per the test in Reardon: In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and that is in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating

Step Three: if intent thus far not determined: Then the basis for seeking out that intent should be, as put forward by Hong Kong Fir, an assessment of the gravity of the event to which the breach gave rise.

10. Keep in mind when applying the intent tests that: a. Even where the breach of a term has produced a minor event, it can be treated as a breach of a condition. See

Schuler quoting Bettini: "Parties may think some matter, apparently of very little importance, essential; and if they sufficiently express an intention to make the literal fulfillment of such a thing a condition precedent, it will be one."

*Making it a condition of the contract that the potatoes be delivered with little blue bows b. Common sense has a role to play. Per court in Schuler, using the word condition in the contract may be enough to

establish this intention but not conclusively. "The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."

STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES a. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493

• Standard form contract = ex. You rent a car you sign a standard form contract, and most standard form contracts contain many exclusion clauses (dont have to though). Many companies make you initial by the exclusion clauses.

• Standard form contract reduce transaction costs, instead of bargaining for everything we do and hammer out a contract, this would take hours. Standard form contracts = take it or leave it contract, these are not subject to negotiation, if you dont like it go to another car rental agency. b. Some General Principles of Contractual Interpretation . . . . . . . . . . . . . . . . . 497

• Contra proferetem= court will interpret the clause against its maker (the drafter). This gives the consumer a leg-up.

• D wants to rely on the clause i: D must show: That the clause is part of the contract. 3 ways a clause is part of a contract. D just has to prove 1 of these.

By notice By signature By course of dealing

Clause must cover what happened. Clause only talks about injury, but P is killed. Incorporate by course of dealings - Very rare. A clause will apply if there has been a long consistent course of dealings on terms incorporating that exemption clause. Ex. You have been dealing with a company for a long time and the normal step to include the exclusion clause has not been taken, it could still be considered to be there c. Control of Standard Form Contracts and Exclusion Clauses . . . . . . . . . . . . . 502 (i) Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502

63

(ii) Development and Use of the Standard Form . . . . . . . . . . . . . . . . . . . . . . . 503 Trebilcock The Common Law of Restraint of Trade . . . . . . . . . . . . . . . . . . . . . . . 505 (iii) The Use of Exclusion Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508 (iv) Judicial Treatment of Standard Form Contracts and Exclusion Clauses 509 a Thornton v. Shoe Lane Parking Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 (1971, UK) Is the clause part of the contract by virtue of notice:

• Thorton is a great trumpeter, he parked at Shoelane parking, and was injured in the parkade. Shoelane says we were at fault by we have an exclusion clause, not responsible for injury to customer while their car is in the parkade. Are these terms part of the contract?

• There was a clause posted at the booth when you come into the parkade, it says all customers park at owners risk. On the ticket it says there is a board somewhere where the conditions are. When is the contract formed, any clause after that moment is too late.

• When ticket is handed to you = offer, when customer takes the ticket without objection = acceptance. The law expects you to read the clauses on the ticket before you enter. But in this case we have an automatic machine, once you pay its gone, you are committed. Putting out the machine = offer, customer puts money in the machine = acceptance. This means when the ticket comes out with new terms on the back this is too late because acceptance occurs before that. The terms of the offer are what is posted at or around the machine, you cant add terms later. Trumpeter wins, exclusion clause comes way after formation of contract.

• 2nd way trumpeter wins: lets say ticket pumped out of machine = offer, are you bound? Have to take extra steps to draw it to their attention, there has to be reasonable notice, more must be done to bring it to P's attention like a big red hand pointing at. Clause is not part of the contract because there was not reasonable notice given of its existence. Incorporation-Signed Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 526

• Traditional view is that one party's signature to a document containing terms established at that party's assent to those terms, in the absence of fraud or mis-representation, the following decision has significantly altered that position. TildenRent-a-car Co. v. Clendenning . . . . . . . . . . . . . . . . . . . . . . . . . . 527 (ont CA)

• Asked if he wanted extra insurance and he said he did • On a previous occasion he was told that there would be no deductible • He signed the lengthy contract, which he didn't read and the clerk knew he didn't read it • Mr. Clendenning was in an accident, he drove into a pole while under the influence (convicted DUI), but was able to

convince the trial judge in this matter that he was capable of controlling the car, not intoxicated. • BUT exclusion clause provides no protection if he even had one sip of alcohol • Clendenning said when he signed the contract he thought he would be covered as long as he wasn't intoxicated. • Court says the fine print of this clause is at complete odds with the over-all purpose for which the contract is entered into by

the hirer • Court says if you sign something it is wholly immaterial whether you have read it or not. But this rule seems harsh. • Waddams page 529: One who signs a written document cannot complain if the other party reasonably relies on the signature

as a manifestation of assent to the contents, or ascribes to words he uses their reasonable meaning. But the other side of the same coin is that only a reasonable expectation will be protected. If the party seeking to enforce the document knew or had reason to know of the other's mistake the document should not be enforced.

• Clerk knew he hadn't read it so there could be no reasonable belief that he had assented to particularly unusual and onerous terms. The more onerous the clause the more you need to bring the person's attention to it.

• It was not open to Tilden Rent-a-car to rely on those clauses and it was not incumbent on Mr. Clendenning to establish fraud, misrepresentation or non est factum, having paid the premium, he was not liable for any damage to the vehicle while being driven by him. o non est factum means "this is not my deed" - when the document signed is radically different than the document you

thought you were signing , a very narrow defence • This contract was entered into via a misrepresentation by way of omission.

Delaney v. Cascade River Holidays Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 531 (BC CA)

• O'Byrne disagrees with the majority decision • Trial judge (finder of fact) found that Delany's life jacket lacked proper buoyancy to keep him afloat. He drowned on white

water rafting trip. • He signed a standard liability release (O'Byrne would call it "ALARMING" liability clause") • Delaney had already signed contract to raft when he was asked to sign exclusion of liability clause • Three arguments Delany makes

o Clause came too late - past consideration

64

o Delany gives release of liability, what does Cascade give? Nothing, because previous contract already signed

o Page 536 - majority says the immediate consideration was that he was permitted to enter the van and carry on with the venture. BUT O'Byrne says he was already in a contract for this. This is past consideration

o Insufficient notice o Dissent says process of signing release was done quickly and wording of release was misleading.

"Standard" gives false sense of security. o Clause doesn't mention fatality, O'Byrne says this is more than a "loss" which contract said. o Dissent said the clause was so unusual and onerous that they needed to draw attention to it, they didn't so

signature is meaningless o Majority - says traditional rule applies, he signed so he's bound

3. Clause doesn't cover what happened Problem at court of appeal - CA said no proof that he would have survived if he had a better life jacket, couldn't prove that any negligence by the rafting company caused the death. (O'Byrne said this is odd because of trial judges finding and don't over turn fact unless there was an overriding error) Leave to appeal to SCC was granted, but action was discontinued. Likely they settled with insurance company to drop their claim. Statutory Notice Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 Construe exclusion of liability clauses against the maker Fundamental Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543 When there is a fundamental breach of the contract the party cannot rely on an exclusion clause to shelter itself (reduce or eliminate liability) Page 541 - as a general proposition, very clear words must be employed in order for one party to protect itself from liability for negligence. Karsales (Harrow) Ltd. v. Wallis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543

• Facts o Wallis inspects a Buick, he needed financing to purchase it, which he acquires from the lender o He agrees to purchase it based on last viewing (car in good condition), what is delivered to him is a wrecked car. o Wallis refuses to pay for it, finance company says we don’t have any responsibility for the condition of the car.

• They had an exclusion clause, we delivered the car, we're not responsible for any damages for the car • Law

o When there is a fundamental breach that goes to the root of the contract the party cannot rely on the exclusion condition

o By operation of law you cannot rely on the exclusion cause, even if i agree to the exclusion clause, the clause will not carry any weight

• Denning's approach is WRONG, says the HL in Suisse Atlantique and Photoproductions. It is a question of construction whether the clause can be invoked to limit liability in the circumstances

Photo Production Ltd. v. SecuricorTransport Ltd. . . . . . . . . . . . . . . . . . . . . . 545 • In contract to provide security to photo production. Guard sets fire, causing over $600000 in damage • Sues Securicor, but Securicor has an exclusion of liability clause which says no liability unless due to negligence of

employee • Aside from that clause Securicor is in breach of contract. Liability in tort? Vicarious liability? • Doctrine of fundamental breach doesn't apply the way Denning said it did. • Court says clause is clear, company only liable when employee acts negligently in the course of their employment. In this

case not in the course of employment and Securicor is not liable. • Fundamental breach is more serious than simply a breach of condition, they are not equivalent

Hunter Engineering Co. Inc. v. Syncrude Canada Ltd. . . . . . . . . . . . . . . . . . 552 • Sold defective gearboxes. But has clause that is a warranty for one year. The defect wasn't known until after a year • Syncrude says this clause doesn't apply and wasn't intended to apply to a fundamental breach • Court split in half

65 Dickson - rejects fundamental breach doctrine. If the cause is too harsh, let's deal with it through unconscionability, it ifs present then the clause would not apply. Norberg v. Wynrib (1992) gives 2-part test to unconscionability

1. Proof of inequality between the parties 2. Proof of an improvident bargain or proof of exploitation. If the transaction is sufficiently divergent from

community standards of commercial morality, Wilson - adopts Diplock’s definition of fundamental breach with an added requirement of "reasonableness"

• In Gordon Capital SCC says the differences between these tests don't really matter because they produce the same result. • O'Byrne says for the most part courts will apply exclusion clause unless it is unreasonable, unconscionable or contrary to

public policy (Civic Life, lower Ont court).

Unconscionability and Unreasonableness . . . . . . . . . . . . . . . . . . . . . 568

HandOut 1. Remember, per Flannigan at 514 , that a contract may be breached in different ways:

The breach may be ordinary or it may be fundamental... Judges have attached special consequences to a breach that is fundamental. One consequence is uncontroversial. Where a breach is fundamental, the innocent party becomes entitled to elect to terminate his or her further obligations under the contract. The second special consequence is, or was highly controversial. The supposed consequence was that a party who committed a fundamental breach could not rely on an exculpatory clause in the contract to reduce or eliminate liability."

2. This initial legal consequences of a fundamental breach, referred to above, is set out in Karsales A. Per Denning in Karsales, where a breach is fundamental or "goes to the very root of teh contract, "an exculpatory

clause is ineffective. For Denning this is the case (as Flannigan notes) even if the clause is "worded in such a way as to apply clearly to the circumstances which arose"

3. Denning's approach is wrong, says the HL in Suisse Atlantique and Photoproductions. It is a question of construction whether the clause can be invoked to limit liability in the circumstances. Says the court:

The question whether, and to what extent, an exclusion clause is to be applied to a fundamental breach, or a breach of a fundamental term, or indeed to any breach of contract, is a matter of construction of the contract.

4. What is a fundamental breach or breach of a fundamental term? A. Parker in Karsales

I do not think that what is a fundamental term has ever been closely defined. It must be something, I think, narrower than a condition ofthe contract, for it would be limitingl the exceptions [exemptions] to much to say that they applied only to breaches of warranty. It is, I think, something which underlies the whole contract so that, if it is not complied with, the performance becomes something totally different from that which the contract contemplates.

B. Per Diplock in Photoproductions, fundamental breach refers to: Where the event resulting from the failure by one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit that it was the intention of the parties that he should obtain from the contract.

C. Where there is a breach of condition or fundamental breach, the innocent party can elect to terminate the contract and seek damages for unperformed primary obligations or continue with the contract and seek damages for breach

D. Per Diplock, parties are free, through an exclusion clause to modify the secondary obligations which would otherwise arise upon a "fundamental breach". Secondary obligations include the obligations to pay damages for non-performance of future obligations if the innocent party is able to elect termination of the contract and does so.

5. What does the SCC say about all this? A. In Hunter, Dickson CJC (La Forest J. Concurring) rejects Denning's rule of law approach to exemption clauses. If

the clause is unduly harsh, according to this judgement, it can be dealt with under the doctrine of unconsciounability What is the doctrine of unconscionability? Refers to an unfair contract formed when one party takes advantage of the weakness of the other *The test for unconsiounability has been subsequently clarified. According to the SCC in Norberg v. Wynrib at 23, unconscionability follows a two step test:

A. Proof of inequality between the parties; and B. Proof of an improvident bargain or proof of exploitation. If the transaction is sufficiently divergent from community

standards of commercial morality, this is a "strong indication of exploitation" per the court. At this point, the court will presume unconsionability. It then falls to the stronger to show that the contract was, in fact, fair *the doctrine is discussed in Davidson: "I am of the opinion that the terms of a cotnract may be declared to be void as being unreasonable where it can be said that in all the circumstances it is unreasonable and unconscionable to bind the parties to their formal bargain." see list at 575

66

B. Wilson J. (Dube J. Concurring) endorsed lord Diplock's definition of fundamental breach. She adopts Photo Production with a "reasonableness" requirement add-on. Fundamental breach would be, per Flannigan at 545, "the trigger and context for the judicial assessment of the reasonableness of an otherwise operative exculpatory clause".

Davidson v. Three Spruces Realty Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568 • Three spruces provides security boxes. Plaintiffs discover their valuables removed from security vault and replaced with

bricks. • Didn't have people sign in and out, had client's names on the outside of their boxes • Exclusion clause

o Appears on back of page 9, could argue not part of contract (onerous and unexpected) o However if part of contract, may not cover what happened

• Either ambiguous (apply contra proferentum) or wording says security boxes, NOT security vault o If it is part of contract, covers what happened, may be unconscionable or unfair.

• 7 things suggested for ascertaining whether freedom of contract has been abuse so as to make it unconscionable for the bailee to exempt itself from liability (page 572) Having regard to all the facts including the representations made by the bailee and the

circumstances leading up to the execution of the contract, would not the enforcement of the limitation clause be a tacit approval by the courts of unacceptable commercial practices?

Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co . . . . . . . 576 (ont CA) • Contract for security. Exclusion clause was very clear and reasonable. • Contract was signed by plaintiff. • Plaintiff said he hadn't read the agreement, the exclusion wasn't pointed out to him. He didn't have insurance, looks like he's

trying to download that obligation onto his security company • Plaintiff's business was robbed, plaintiff claimed Dominion was in breach (was too slow to respond) • Court says insufficient evidence of causation. That is not enough evidence that robbers would have been caught with more

timely response • Also says the exclusion clause is complete answer to complaint. • Contract was on one page, the clause in question was highlighted and in bold. The fact that the plaintiff chose not to read the

contract can place him in no better position than a person who has. Solway v. Davis Moving & Storage Inc. (c.o.b. Kennedy Moving Systems) . 580 (Ont CA)

• Unconscionability is a low grade unconscionability • Contract with defendant to move their household goods, the trailer containing their goods was stolen. • Defendant relied on bill of lading limitation clause, which limited liability to $7089 • Defendant had perhaps given false assurances that the goods would be secured and this may have been why the plaintiffs

acceded to the clause. • Court equates unconscionable (Dickson) with unreasonable (Wilson) in Hunter engineering.

o O'Byrne doesn't understand this, is surprised by result.