CONTRACTS OUTLINE - NEWCOMBEDecember 2014

Section 1: Importance of Remedies – 2 Section 2: Offer and Acceptance – 4

1. Bargain theory. Offer and Acceptance - 42. Tendering Process – 53. Acceptance and Unilateral contract – 74. Battle of the forms – 85. Acceptance – 10 6. Mailed acceptance – 127. Termination of offer – 14

Section 3: Certainty of Terms – 16 Section 4: Enforcement of Promises – 18

1. Exchange and Bargains – 182. Past consideration – 183. Consideration – 194. Pre-existing legal duty – 21

Section 5: Promissory Estoppel and Waiver – 25 1. Background on estoppel – 252. Nature of the representation – 253. The Equities - 264. Notice Retracting a Waiver of Legal Rights – 265. Promisee’s reliance – 266. Sword of shield - 27

Section 6: Intention, Seals and Writing – 30 Section 7: Privity of Contracts – 33

1. Privity of Contract – 332. Avoidance of the Contractual box – 343. Employee Liability – 354. Legislation - 36

Section 8: Contingent Agreements – 37 1. Type of condition – 372. Waiver of condition – 393. Damages - 40

Section 9: Representation and Terms – 421. The Issue – 422. Misrepresentation and Rescission – 423. Warranties – 454. Distinguishing between innocent misrepresentations and warranties – 465. Concurrent Liability in Contract and Tort: Negligent Misrepresentation – 476. Parol Evidence Rule – 487. Classification of Terms – 52

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SECTION 1 – REMEDIES

What is a remedy?A remedy is the means employed by the court to enforce a right or redress an injury—what does the court order be done? For example, a court may make a declaration, order money to be paid, or grant an injunction to stop certain conduct.

Categories of remedies1. The principle remedy for breach of contract in common law is damages. Damages are an award of money by the court that the contract breaker must pay.2. Other remedies were developed in the Courts of Chancery or Equity—equitable remedies such as specific performance: a court order that a contract be performed.

The general principles of damagesThe choice of remedy turns upon what interests we are trying to protect and what goals we are trying to promote through the law of contract.The general policy: Courts are seeking some fair measure of protection for the plaintiff's interests without unduly burdening the defendant.Policy: Balancing reasonable expectations of plaintiff without unfairly surprising defendant

Categories of remedies - restitution, reliance and expectationInterest Purpose Measure Justice

Restitution Prevent unjust enrichment to Δ

Benefit to Δ Corrective

Reliance Prevent harm to π Loss to π Restorative

Expectation Secure benefit to π Expected benefitπ Distributive

The expectation measure of damages is the normal measure of contract damages. Triangle: defendant Pi: plaintiffRestitution: unjust gain should be taking awayReliance: places them in the same situation as before the promise was made.Expectation: no harm is required for it to take place. As to put the plaintiff in the position she would have been in if the promise had been fulfilled.

Why award expectation damages? Fuller and Purdue “The Reliance Interest in Contract Damages”1. More effective sanction2. Easier to calculate the expected benefit than to measure the reliance occasioned by the contract; often reliance is difficult to quantify3. Policy in favour of promoting and facilitating reliance on business arrangements4. Promotes market ordering – future entitlements are the stuff of many market transactions and thus they have a present value

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Royalty Rocker

1. Restitutionary Damages(i) Purpose = prevent unjust enrichment (ii) Measure = benefit to the defendant (Larry) - difference between sale price based on the statement

that the chair was an antique and market value of the replica(iii) Amount = $30 (Larry received $80 for a chair that was worth $50)

2. Reliance Damages(i) Purpose– prevent harm to the plaintiff(ii) Measure – loss to the plaintiff. Put Mary back in the position she was in before the transaction took place. The purpose here is to restore the status quo.(iii) Amount

Assets/income Expenditures$50 chair $80 chair

$20 stripper$100

(iv) Reliance damages = $50.

Expectation Measurement(i) Purpose: Secure benefit to the plaintiff(ii) Measure: expected benefit to the plaintiff (Mary). Put Mary in the position she would have been if the contract had been performed without a breach. (iii) To calculate: “Where Would the Plaintiff Have Been Had the Contract Been Concluded” and then compare with "Where the Plaintiff is Now". The difference is the expectation measure of damages.

Assume Mary started with $1000 in her bank account. Where would she have been if K had been performed?

Income/Assets Expenditures$500 (sale of chair) $80 (purchase of chair)

$20 (stripper) $100 (restoration)

$200Net profit : $300She would have $1300 in her bank account.

Where is Mary now assuming breach of contract?Income/Assets Expenditures$50 (the chair) $80 (purchase of chair)

$20 (stripper)Totals $50 $100

Mary would have $900 in her bank account (she spent $100) and a chair worth $50.

To put Mary in the position she would have been in had the chair been a Royalty Rocker, we have to pay her $50 (her reliance interest) plus the net profit of $300 she would have earned.

Expectation damages are $350:- $300 in profit- $20 for stripper (wasted – she would have recovered)- $30 overpayment (wasted - she would have recovered))

$900 in bank + $350 damages = $1250 in bank, plus she has a chair worth $50.

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She now has assets worth $1300, the same amount she would have had had she sold the chair for $500.

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SECTION 2 – OFFER AND ACCEPTANCE

Stages in the Common Law Contract Making Process“Puff”/ “mere puff”Invitation to treat/advertisement/quotationOfferCommunication of offerRejection of offerCounter-offerCommunication of counter-offerReceipt of counter-offerAcceptance of counter-offerCommunication of acceptance

1. Bargain Theory: Offer and Acceptance

Issue: Determination of when communications will give rise to legal obligations.Policy Framework: Balance the need to enforce promises (reasonable expectations) and the avoidance of surprising parties with unanticipated liabilities (unfair surprise).Legal Framework: The balancing takes place (in part) through the rules encompassed by the bargain theory of contract – namely, those relating to offer, acceptance and consideration.Test: In resolving questions surrounding offer, acceptance and consideration, courts will adopt an objective (reasonable person) standard.

The Bargain Theory of Contractbased on a “mirror image” approach.

One party, the “offeror”, sets out the terms of doing business. The “offeree” may either accept or reject the offer. If the offer is accepted, a contract is

created. If the offeree does not accept some or all of the proposed terms, the offer has been

rejected. The offeree may make a counter-offer and becomes the offeror. This exchange of offers

allows the parties to bargain over the terms of a contract.

Offers must be distinguished from “invitations to treat” or “invitations to offer”, which form part of the preliminary negotiations.

OfferThe task is to ascertain what communications (offers) will be elevated to the status of legal offers bearing in mind that the consequences may be very serious – the recipient of the communication (offeree) thereby enjoys the power to bind the offeror to a contract (an offer creates the power of acceptance in the offeree) and thus to claim expectation damages.

a. There must be a manifestation of an intent to be bound; generally a mere advertisement, enticement or invitation to treat (i.e. negotiate) is insufficient Pharmaceutical Society v. Boots : Display is like an advertisement, when the customer brings goods to cashier it’s an offer, acceptance is cashier taking money.b. The offer must be sufficiently specific and comprehensive that the terms of the agreement can be identified (the problem of uncertainty).

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c. An offer ceases to exist if it is rejected, and in any event expires after a reasonable time, the length of which is determined by the contextd. An offer can be revoked anytime before being accepted. However, unless the offer has expired (passage of a reasonable period of time), effective revocation may require notice of revocatione. An offer is binding once it is accepted (unequivocally) and thereafter cannot be revoked.

Acceptance Acceptance by word/return promise produces a bilateral contract; acceptance by performance results in a unilateral contract.

a. Must be clear manifestation of an intent to be bound. b. Must sufficiently correspond to the offer; otherwise, it will be viewed as a counter-offer c. Generally must be communicated to the offeror and must be done before the offer has expired or been revoked

Canadian Dyers Association v. Burton p. 18The question is one of intention; and whether a proposal is to be construed as an invitation to deal or as an offer which can be turned into a binding agreement by acceptance depends upon the language used and the circumstances of the particular case.

Pharmaceutical Society v. Boots p. 20The Defendant argued that the contract was initiated when the customer brought the drugs to pay for them (offer) and the pharmacy would accept the offer when they took the cash. Display of the price was found to be an invitation to treat.

2. The tendering process

Contracts for the procurement of goods and services, in particular, construction services are often obtained through a tender process in which the buyer/owner seeks bids/tenders for the provision of goods and services.

The call for tenders setting out the terms upon which the buyer/owner is interested in contracting. The call for tenders usually includes the terms and conditions of the actual construction or services contract that will be concluded. The tenderers submit their tenders in accordance with the call for tenders.

R. v. Ron Engineering p. 33

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Tendering process is analyzed as a two-contract approach: Contract A : The contract governing the tendering process. The call for tenders is an

offer and the submission of the bid is acceptance. If a bid is accepted, the bidder must enter into Contract B. The terms of Contract A depend on the call for tenders.

Contract A will often provide that the bids are irrevocable and that if a bid is accepted, the bidder must enter into Contract B (the contract for the provision of goods or services) with the owner. There will often be a “privilege clause” as part of the conditions, which provides that the owner is not required to accept the lowest priced tender.

The owner can generally only accept bids that are compliant with the bid conditions and has an obligation to treat all bidder fairly.

Bidders/tenders will normally have to provide a deposit and/or performance bond to guarantee that if their tender is selected that they will enter Contract B. The deposit/performance bond is forfeit if the selected bidder fails to enter Contract B.

Contract B : The contract for the provision of goods or services with the owner. The terms and conditions of Contract B (and often the actual text of Contract B) are included in the call for tenders.

MJB Enterprises p. 36 SCC clarifies the Contract A and Contract B analysis. Contract A does not arise in all circumstances. Whether it does depend on the call for

tenders/request issued by the owner. o An owner might just say we are interested in receiving expressions of interest for

the project. The court may simply categorize the expressions of interests as invitations to treat – essentially the owner might be negotiating with multiple parties.

No implied term in Contract A that the owner had to accept the lowest bid. Court interprets the privilege clause (which reserves to the owner certain rights including

whether to accept or not to accept tenders or whether to accept the lowest tender) as not including the right to accept non-compliant tenders.

o In this case, the bid that the owner had accepted was non-compliant because the tenderer had not provided a lump sum price reflecting the risk of the how much of each type of fill would be required for the project. The owner breached Contract A by accepting a non-compliant bid.

Result: MJB awarded lost profits (expectation damages) as a result of not obtaining Contract B.

Double N Earthmovers v. Edmonton (SCC, 2007) – NOT IN MATERIALS Contract A has two implied terms:

to treat all bidders fairly and equally; and to accept only a compliant bid.

SALE OF GOODS ACT

72  In the case of a sale by auction the following rules apply:

(a) if goods are put up for sale by auction in lots, each lot is, unless there is evidence to the contrary, deemed to be the subject of a separate contract of sale;

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(b) a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner, and until that announcement is made a bid may be retracted;

(c) if a sale by auction is not notified to be subject to a right to bid on behalf of the seller, it is not lawful for the seller to bid or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person, and any sale contravening this rule may be treated as fraudulent by the buyer;

(d) a sale by auction may be notified to be subject to a reserved or upset price, and a right to bid may also be reserved expressly by or on behalf of the seller, and if a right to bid is expressly reserved, but not otherwise, the seller or any one person on the seller's behalf may bid at the auction.

3. Acceptance and Unilateral Contracts

The common law distinguishes between bilateral and unilateral contracts.(a) Acceptance by word/return promise produces a bilateral contract

In most cases, the offer is accepted by a reciprocal promise – either oral or written. The result is a bilateral contract.

I offer to sell you my boat my boat for $1000. You accept my offer. In this case, we have reciprocal promises. I have promised to sell you my boat and you have promised to pay $1000. We have an offer, acceptance and consideration, the consideration being the mutual promises to buy and sell.

We have a typical bargain where the parties contemplate a commercial exchange. (b) Acceptance by performance/action results in a unilateral contract.

The result is a unilateral contract. In this case, acceptance of the offer occurs by performance of an action – not by a reciprocal promise.

The classic illustration is the offer of a reward. My dog Echo is lost. I make an open offer to the world to reward the finder. If you find Echo and return her to me I will pay you $1000.

In this case, the contract is not accepted until performance, i.e. until you find Echo and return her to me. Once you return Echo to me, you have satisfied the condition of the offer and are entitled to the reward.

We have an offer (an open offer to the world), acceptance through performance of the condition, and the consideration is that I have promised to pay $1000 and you have performed everything necessary to be entitled to the $1000.

An important difference between unilateral and bilateral contracts (a) I offer to pay you $500 if you find my dog (this is a unilateral contract; the offer

is accepted upon performance).(b) I offer to pay you $500 for finding my dog. You promise to find my dog (this is a

bilateral contract; exchange of promises)In (a), the unilateral contract, there is no binding obligation to find the dog. In (b), the bilateral contract, there is a binding obligation to find the dog. If you fail to find the dog, I can sue you for breach of contract.

Carlill v. Carbolic Smoke Ball Company p. 25Reward for use of smoke ball. Case solidified the principle of the unilateral contract in common law and that there is no requirement to provide notification of acceptance. By asking for

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performance, the offeror has dispensed with the usual requirement that there must be notification of acceptance. As the company had put the offer out to the world, the plaintiff was able to accept and enter into the unilateral contract by meeting the conditions set out in the advertisement. Despite the arguments of Carbolic, a formal acceptance was implicitly unnecessary due to the phrasing of the ad.

Goldthorpe v. Logan p. 30Electrolysis treatment claimed results guaranteed. Court found that it wasn’t puff. Found intention of oferer by looking at the surrounding circumstances. She was a vendor seeking a purchaser. Offer made to the public. Any member was free to lend oneself to the terms and conditions and accept the offer.

Blair v Western Mutual Benefit Association p. 45Miss Blair was unsuccessful in claiming retirement pay that she argued had been offered in a resolution made by the Association’s board of directors. BULL J.A. found that in order for any contract to be upheld there must be a distinct offer made on behalf of the contractor and communicated. One's action must have consideration of offer for it to constitute acceptance. McFARLANE J.A. added that it must be showed that she considered it an offer and accepted it in order to support claims of contractual obligation.Decided that the resolutions were not meant to be offers.

Williams v Carwardine p. 48Carwardine’s brother killed. Williams was at the scene of the crime. Defendant offers reward for information. Plaintiff is attacked by the murderer who knows she witnessed the crime, and plaintiff then, fearing for her life, provides information leading to murderer’s conviction. Williams tries to claim reward posted by Carwardine. Carwardine contests the claim, saying that in offering the information Williams was not acting with the underlying motivation of fulfilling the contract’s condition. The court determined that Williams is eligible for the reward. Although Williams’ motivation was not to fulfill the contract, she did have an awareness of the offer and, through performance, accepted its terms.

R v Clarke p. 49Clarke provided information leading to the arrest of two murder suspects. Later, he tried to claim the offered reward, but Clarke stated that he had no intention of claiming the reward when he decided to give information because he had no knowledge of it. The court held that he had not accepted the unilateral contract because he had forgotten and given no consideration to the reward and, thus, could not consent. In providing the information, he did not act in reliance upon the reward.

4. Battle of the Forms

A common occurrence is that seller and buyer use their own standard form contracts, each asserting that their terms govern, terms which of course are drawn to benefit them. When a dispute arises, each party asserts that their form trumps.

Approaches:1. First shot rule (Reflected in the Trial Decision): First set of terms governs if they say they cannot be modified, unless there is a clear disagreement to the acceptance of those terms.

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2. Last shot rule/performance doctrine (CA – Lawton): Last form wins. Common law approach, where each communication is viewed as an offer and counteroffer. In the case, seller’s form will be the last one, with delivery of the goods or services being construed as acceptance of that form. 3. Third approach (CA Denning): Reconcile the terms, if contradictory, they cancel each other out and the court replaces/implies reasonable terms. On this view, the parties’ agreement is constituted by the terms that are common to their respective forms, together with implied reasonable terms.

Common law adopts the last shot rule.Denning’s approach or reconciliation and implication of reasonable terms (also reflected in the Uniform Commercial Code 2-207) has not been adopted in the UK or Canada.Note, in many sales cases the last shot will be the seller’s form accompanying the goods, which the buyer will sign to accept the goods. Thus, although in Butler the buyer prevailed, the last shot rule generally favor sellers. Note that buyers/receivers can overcomes this by stamping the seller’s form with a notice saying that the goods are accepted on the buyer’s terms.

Livingstone v Evans p. 52Evans offered to sell land for $1800. Livingstone counteroffered. Evans refused the counteroffer by saying “cannot reduce price”. Livingstone sent $1800, but Evans didn’t want to sell anymore so Livingstone sued for breach of contract. The court found that a counteroffer does constitute a rejection of the original offer, but Evans’ response that he “cannot reduce price” renewed the original offer.

Butler Machine Tool Co . p. 54 23 May: Seller’s offer to sell on stated terms and conditions to prevail over terms in Buyer’s

order (includes price variation clause) OFFER27 May: Buyer placed order on its own terms, with tear-off acknowledgment of terms

REJECTION OF OFFER/COUNTEROFFER5 June: Seller completes acknowledgment and sends letter stating that order was being

entered into on basis of quote in 23 May letter. ACCEPTANCE, letter referred to quote as to price and identity.

TRIAL: First shot. Seller’s offer with respect to price subject to material terms cannot be modified.CA: Last shot. Last form governs. Buyer prevails and is not subject to price variation clause

Tywood Industries Ltd v St. Anne-Nackawic Pulp & Paper Co. Ltd. P. 56Sept 19: St. Anne sent “A Request for Quotations” to Tywood that included 13 Terms and Conditions on the back with no clause regarding arbitration. Sept 26: Tywood responded with a quotation that had 12 Terms and Conditions on the reverse, with no clause regarding arbitration but with a clause stating forbidding modification of the terms. Jan 6 and July 3: St. Anne sent a purchase order with 19 new Terms and Conditions on the reverse, including a clause stating controversies would be settled with arbitration. The issue was which conditions should be followed. The court found that because the plaintiff did not sign the purchase order and the defendant didn’t complain about lack of signature, neither party considered any terms found on the reverse of the documents (they just cared about the price and specifications on the face of the documents) so they did not have to submit to arbitration. (Reasonable Terms)

ProCD v Matthew Zeidenberg and Silken Mountain Web Services Inc p. 59

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Matthew Zeidenberg purchased ProCD’s SelectPhone product, containing information compiled from over 3,000 phonebooks. He subsequently started Silken Mountain Web Services and began selling this information at a lower price online, contrary to the “shrinkwrap” (enclosed) license of product.Issue: Must buyers of computer software obey the terms of shrinkwrap licenses? Does the fact that they are included inside the product and not on external packaging change their legitimacy?Held: Unless the terms themselves violate the law of contracts, the terms are enforceable. “One of the terms to which Zeidenberg agreed by purchasing the software is that the transaction is subject to a license.” In many areas of contract, money is exchanged before the terms are settled. Also for practical, policy reasons: boxes are only so big and the early development of online software downloading.

US Uniform Commercial Code§ 2-207. Additional Terms in Acceptance or Confirmation.(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:(a) the offer expressly limits acceptance to the terms of the offer;(b) they materially alter it; or(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

5. Acceptance

Courts tend to treat offers as calling for bilateral rather than unilateral actionProblem: The doctrinal common law rule is that an offer can be revoked before acceptance. If an offer is construed as unilateral, then the offeree might be getting ready to perform or in the middle of performance when the offer is revoked. Since a unilateral offer is not accepted until the performance is complete, the effect of the traditional rule is that the offer could be revoked where the offeree is relying on the offer. In order to protect the offeree’s reliance, courts tend to categorize offers as calling for bilateral rather than unilateral action.

Dawson v Helicopter Exploration Co p. 65Dawson is a prospector with mineral claims that are due to lapse soon. Contact a mining company. Series of correspondence. Dawson has disclosed enough information for helicopter to locate the mining and they went there to get the minerals and tried to exclude Dawson.Policy consideration: unjust enrichment, substantial reliance in this case, business ethic, promotes good faith.

RAND J. The substantial contention of the respondent is that any offercontained in the correspondence and in particular the letter of March 5 called for an acceptance not by promise but by the performance of an act, the

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location of the claims by Dawson for the respondent. It is based upon the well known conception which in its simplest form is illustrated by the case of a reward offered for some act to be done.… The offer was unconditional but contemplated a performance subject to the condition that a pilot could be obtained by the respondent.… this interpretation of the correspondence follows the tendency of courts to treat offers as calling for bilateral rather than unilateral action when the language can be fairly so construed, in order that the transaction shall have such “business efficacy as both parties much have intended that at all events it should have”

Silence is not acceptanceFelthouse v Bindley p. 70The offeror essentially said if I do not hear from you we have a binding contract on my terms.Decision: Justice Willes determined there was no contract since there was no acceptance and ruled it a nonsuit. Acceptance cannot be communicated by silence

But acceptance can be implied based on the parties’ conduct and the circumstancesFelthouse v Bindley p. 70Smith v. Hughes which I adopt as a proper test under the present circumstances:If, whatever a man’s real intention may be he so conducts himself that a reasonable man would believe that he was consenting to the terms proposed by the other party and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms…**Contracts are looked at from an objective perspective.

Saint John Tug Boat Co v Irving Refinery Ltd p. 73Tug Boat contracts with Irving to provide a tugboat for a certain period of time. The contract is extended by Irving twice. After the last extension, Tug Boat continues to provide theboat for several months, from which Irving benefits. Irving does not pay Tug Boat’s monthly invoices during this time. Despite inquiries from Tug Boat as to payment and Irving’s knowledge of the continued service, Irving never opts out of the use of the tugboat.Did Irving’s acquiescence constitute consent to continue the service under the same terms? Judge rules that Irving must pay Tug Boat. Binding acceptance can be reasonably inferred because Irving acquiesced to continued service knowing that Tug Boat expected to be paid.Kinda applied Smith v Hughes.… The question to be determined on this appeal is whether or not the respondent’s course of conduct during the months in question constituted a continuing acceptance of these offers so as to give rise to a binding contract to pay for the “stand-by” services of the tug at the rate specified in the invoices furnished by the appellant.… It must be appreciated that mere failure to disown responsibility to pay compensation for services rendered is not of itself always enough to bind the person who has had the benefit of those services. The circumstances must be such as to give rise to an inference that the alleged acceptor has consented to the work being done on the terms upon which it was offered before a binding contract will be implied.

Acceptance must be in accordance with terms of offerEliason v Henshaw p. 77

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Acceptance was to be at specified place. Acceptance sent to Georgetown. Acceptance was not in accordance with the terms of the offer. Offeror may dictate terms of acceptance which must be followed in order for a contract to exist

BUSINESS PRACTICES AND CONSUMER PROTECTION ACT

12  (1) A consumer has no legal obligation in respect of unsolicited goods or services unless and until the consumer expressly acknowledges to the supplier in writing his or her intention to accept the goods or services.(2) Unless the consumer has given the acknowledgment referred to in subsection (1), the supplier does not have a cause of action for any loss, use, misuse, possession, damage or misappropriation in respect of the goods or services or the value obtained by the use of the goods or services.(3) Subsections (1) and (2) do not apply to goods supplied to a consumer on a continuing basis under a contract between the consumer and supplier.(4) If it is alleged that the supplier supplied unsolicited goods or services, the burden of proof that the goods or services were not unsolicited is on the supplier.

13  (1) This section does not apply to

(a) a material change in services referred to in section 25 (4) [continuing services contract — cancellation], and(b) a change to the price of goods or services or a renewal of an existing supply of goods or services if the goods or services are not otherwise changed.

(2) If a consumer is being supplied with goods or services on a continuing basis and there is a material change in the goods or services, or in the supply of the goods or services, the goods or services are deemed to be unsolicited goods or services from the time of the material change unless the supplier is able to establish that the consumer consented to the material change.(3) Subject to subsection (4), a supplier may rely on a consumer's consent to the material change if that consent is made by any method that permits the supplier to produce evidence to establish the consumer's consent.(4) A supplier does not establish a consumer's consent by providing notice to the consumer to the effect that the supplier will supply the materially changed goods or services to the consumer unless the consumer instructs the supplier not to supply the goods or services.

11  (1) In this Division, "unsolicited goods or services" means goods or services that are supplied to a consumer who did not request them, other than

(a) goods or services supplied to a consumer who knew or ought to have known they were intended for delivery to another person,(b) goods or services for which the supplier does not require payment, or(c) a prescribed supply of goods or services.

(2) For the purposes of the definition of "unsolicited goods or services", a request for goods or services must not be inferred only from the passage of time or from the consumer's

(a) payment for the goods or services,(b) use of the goods or services,(c) request to purchase another similar good or service, or(d) inaction.

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6. Mailed Acceptance – CorrespondenceThe postal acceptance rule is an exception to the general rule that the acceptance must be communicated (and received) by the offeror before there is a contract.The rule: An offer is accepted when the offeree puts its notice of acceptance in the mail—i.e. prior to actual receipt of notice by offeror Application: Applies where use of post is the contemplated method of communication.

Household Fire & Carriage Accident Insurance Co. v Grant p. 79Does a letter of acceptance being posted, even if it does not arrive, constitute acceptance of the offer? The post office is the agent between the two parties. When the acceptance letter is given to the post office the contract becomes binding. The offerer can place restrictions on how the offer is accepted in their offer to the offeree, Grant did not do this. It would slow down business transactions if they had to wait on an acknowledgement of the acceptance of the offer.

Holwell Securities Ltd. V. Hughes p. 84Hughes issues an option to sell property to Holwell. In their offer they stipulate that acceptance must be made “by notice in writing to the (defendant).” The letter was posted, however it was not received. Court dismisses the appeal. The postal acceptance rule does not apply in this case because notification of acceptance was stipulated in the offer. Doesn’t apply when the express terms of the offer specify that the acceptance must reach the offeror.

Brinkibon LTD (appellants) v. Stahag Stahl UND Stahlwarenhandelsgesellscaft mbH p. 87In order to do so the buyers (respondents) must show that the contract was made within England (contract with Austrian company). Telex (an old-school form of text messaging) constitutes a form of instantaneous communication. General rule of contracts is that a contract is formed when acceptance is communicated by offeree to offeror. Contract is formed where the acceptance is received.If acceptance made by post: done when put in the hands of post office in England.If acceptance done by phone: done when heard by the offeror in Vienna.

Rudder v Microsoft Corp p. 91Clause in the MSN contract specifying the forum where dispute would be argued: Washington.The forum selection clause is enforceable. The entire agreement was readily readable by using the scrolling function, and subscribers also had to click “I agree” twice. Furthermore, there were no terms in the Agreement that were harder to read than others, so no special notice of the forum selection clause was required. Finally, while plaintiffs wanted all clauses in the Agreement but the forum selection clause to be enforced, the judge reasoned that to give legal effect to only some clauses would not be in the interest of commercial certainty.

E-commerce (British Columbia, Electronic Transactions Act)- enabling statute; does not create substantive rules for e-commerce contracts- offer and acceptance can be in electronic form- weight of opinion is that instantaneous communication rule applies to email- acceptance when and where received by the offeror (section 18(2))

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18 (1) Unless the originator and addressee agree otherwise, information or a record in electronic form is sent when it enters an information system outside the control of the originator or, if the originator and the addressee are in the same information system, if the information or record becomes capable of being retrieved and processed by the addressee.(2) If information or a record is capable of being retrieved and processed by an addressee, the information or record in electronic form is deemed, unless the contrary is proven, to be received by the addressee

(a) when it enters an information system designated or used by the addressee for the purpose of receiving information or records in electronic form of the type sent, or(b) if the addressee has not designated or does not use an information system for the purpose of receiving information or records in electronic form of the type sent, on the addressee becoming aware of the information or record in the addressee's information system.

(3) Unless the originator and the addressee agree otherwise, information or a record in electronic form is deemed to be sent from the originator's place of business and is deemed to be received at the addressee's place of business.(4) For the purposes of subsection (3), if the originator or the addressee has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction to which the information or record in electronic form relates or, if there is no underlying transaction, the principal place of business of the originator or the addressee.(5) For the purposes of subsection (3), if the originator or the addressee does not have a place of business, the references to "place of business" in subsection (3) are to be read as references to "habitual residence".

7. Termination of Offer

Offeror can revoke prior to acceptance even in the case of a firm offer open until a specified date.Dickinson v Dodds p. 96Facts: Dodds makes a written offer to Dickinson to sell property, to be open until Friday. Dickinson decides to accept and learns that Dodds is offering to others. Issue: Was Dodds required to communicate retraction of offer?

Dickinson knew that the offer had been retracted. There was no continuing offer. Assuming that the retraction must be communicated, plaintiff knew that in this case.

In this case, offeree had indirect notice that the offer had been revoked. Dickinson knew that Dodds had changed his mind before Dickinson accepted. There was

never the existence of the same mind (Note: Dickinson said he had decided on Thursday morning – there was an uncommunicated meeting of the minds).

Promise is a “nudum pactum” – a naked promise. Meaning: there was no consideration. Dickinson had not paid for the promise – it was simply an offer that could be revoked.

Note: One of the areas where the common law diverges from business practices. In US and Civil Law, a firm offer is generally binding.

How does one make an offer firm: transform it into an option contract. Pay $1 to keep the offer open? Or use a seal.

Barrick v Clark p. 102:

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Nov 15 - Barrick offered to sell some property to Clark. Clark’s wife received the offer while Clark was away. Court found that the contract was invalid because a “reasonable” amount of time had elapsed. What constitutes a “reasonable time” depends upon the nature and character of the business, as well as the conduct of the parties negotiating the contract. Further, the letter indicated by its own terms (through language such as “immediately” and “as soon as possible”) that the acceptance was to be made promptly, and December 10th was too far outside of this reasonable period of time for acceptance.

Postal acceptance rules does not apply to revocation of offersByrne v Van Tienhoven p. 99Defendant posts offer on Oct 1 and posts revocation on Oct. 8. Plaintiff telegraphs acceptance on Oct. 11 and confirms by post on Oct. 15. Plaintiff receives defendant’s revocation on Oct. 20

An offer is open to be accepted anytime before it is revoked. Revocation must be communicated. Posting of acceptance is sufficient communication to accept offer Posting is insufficient communication of revocation

This is because an acceptance can be anticipated but a revocation cannot. Both legal principles and practical convenience require that a person who has accepted an offer not known to him to have been revoked, shall be in a position safely to act upon the footing that the offer and acceptance constitute a binding contract.

Revocation before performance complete: how to protect reliance? Problem: Doctrinal common law rule is that offer can be revoked before acceptance.

(a) Court can imply a promise not to revoke the bargain: the two contract approach

Errington v Errington and Woods p. 100Facts: Father pays downpayment and daughter to pay mortgage. The house will be hers when the mortgage is paid off.

Contract #1: pay mortgage and house will be yoursContract #2: so long as you pay the mortgage you may remain in possession (an implied promise not to revoke Contract #1)

The court rules that the offer could not be revoked once the performance (paying the installments) began; however, the contract would cease to be binding if they left the performance incomplete or unperformed

(b) Offer cannot be revoked once performance has commenced (Held by some courts, not all of them)

Ayerswood Development Corp. v. Hydro One Networks - Not in Materials Ontario Hydro not permitted to revoke offer for payments under energy efficiency program once performance commenced. Relies on Baughman v. Rampart Resources (BCCA, 1995), where Madam Justice Southin, relying on UK authority, states:

Whilst I think the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform.  Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer.

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SECTION 3 – CERTAINTY OF TERMS

Court will not enforce an agreement that has gaps or is missing an essential term: not all commercial agreements are binding contracts

Overlapping categories of uncertainty(a) vagueness/ambiguity – “I will buy your eggs if good”(b) contract is incomplete; lacking an essential term

- the “3Ps”: parties (who?), property (what?) and price (how much?)(c) agreement to agree – common law courts traditionally have refused to enforce agreement

to negotiate/agreement to agree

Vagueness: R. v. Cae Industries Ltd p. 112Courts will generally make every effort to find a meaning in the words actually used by the parties in deciding whether and enforceable contract exists; government required employ its best efforts to secure additional work for companyNo necessary terms of the contract were left unsettled; a potential need for future contracts does not delegitimize this one

Trilogy of cases on Incomplete Terms:May v. Butcher p. 117Court refuses to enforce because prices, quantity and delivery not agreed: price and payment “shall be agreed upon”. Arbitration clause is of no assistance because of indeterminacy.

Hilas v. Arcos p. 120 Court should construe documents fairly and broadly to give them effect, but the Court may not make an agreement for the parties. Court enforces agreement despite uncertainties. “The law in determining what is reasonable, is not concerned with ideal truth, but with something much less ambitious, though more practical.”Present agreement (contract de praesenti): an agreement to enter into an agreement Agreement to agree is not enforceableIf a contract for a future contract contains enough information to render it enforceable as is, the contract is binding. If the price is not reasonably fixed, the contract is merely an (unenforceable) agreement to negotiate.

Foley v. Classique Coaches p. 124Court enforces provision that the price of petrol is “to be agreed by the parties in writing from time to time” .Scrutton states that there was a binding contract. He struggles to fit together the precedents of May & Butcher Ltd. v R and Hillas & Co., Ltd. v Arcos, Ltd. (1932). Holding that each of these cases was decided on the facts, he notes that the two parties acted for three years as if there was a contract, so Classique Coaches cannot simply decide not to adhere to it all of a sudden.An agreement to make an agreement does not constitute a contract. Past performance will indicate that an agreement (or contract) is binding. (reliance interests)**Policy problem if we didn’t enforce that kind of agreement: less flexible, problem of reliance, unjust enrichment

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Agreement to negotiateAn agreement to negotiate in an endeavour to arrive at terms pursuant to which a transaction will be performed is distinct from an agreement to perform a transaction on unspecified terms or terms to be agreed upon. An agreement to negotiate does not ALWAYS constitute a contract (few adherents amongst the judiciary find negotiations contractual- P129).General approach of common law courts has been not to enforce agreements to negotiate:

too uncertain remedy? inconsistent with right to pursue self-interest

Empress Towers v. Bank of Nova Scotia p. 130BNS was a tenant of Empress Towers and their lease was due for renewal. Lease renewal clause included provision that if tenant and landlord couldn’t mutually agree on a price within two months, then the lease could be terminated by either party. Empress replied on the last day of the 2 month extension period.Majority finds that it is an implied term that the landlord will negotiate in good faith with an objective of reaching an agreement on the market rental rate and that agreement on a market rental rate will not be unreasonably withheld.

Manpar Enterprises v. Canada p. 132Right to renew subject to renegotiation of the royalty rate. No duty to negotiate in good faith here, because it must be expressed or implied in the contract“…unless there is a benchmark or standard by which to measure such a duty, the negotiation concept is unworkable”.

A duty to negotiate in good faith?Common law courts have generally showed a antipathy to the idea of there being a duty to negotiate in good faith.

Walford v. Miles“The concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations.”

Martel Building v. CanadaNo tort duty of care in context of commercial contractual negotiations.

Wellington City Council v. Body Corporate 51702 - “What stance a negotiating party may take within the bounds of subjective honesty is much more difficult to determine than if the bounds were those of objective reasonableness”- “The law regards the task of reconciling self interest with the subjective connotation of having to act in good faith as an exercise of such inherent difficulty and uncertainty as not to be justiciable. The ostensible consensus is therefore illusory.”

Potential meaning/scope of a duty to negotiate in good faith? withholding information; bargaining with no intention to reach agreement; reneging on a promise given in negotiations; refusal to make reasonable efforts in negotiations; breaking off negotiations without notice to pursue a better offer

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SECTION 4 – ENFORCEMENT OF PROMISES

1. Exchanges and BargainsCommon law views contracts as bargains: promises must be supported by consideration – something of value. There must be offer, acceptance and consideration

(a) Charitable subscriptionsCommon law is very reluctant to enforce gift promises.Statutory changes in some jurisdiction – ex: Statute of Frauds RSPEI

Dalhousie College v. Boutilier Estate p. 160 Subscription to Dalhousie for $5,000. No consideration.Some older cases had suggested various rationales for upholding promise:- consideration arising from similar promises of other subscribers- subscription for a specific purpose was an implied undertaking by charity to spend money for the intended purposeHere:

- no negotiation with other subscribers- no request to carry out specific works - a general subscription statement- reliance does not make the promise irrevocable

Reliance is not consideration!

Branford General Hospital Foundation v. Marquis Estate p. 165- Pledge by Marquis is not contractually binding. - No consideration by hospital. - Naming of unit was simply a way of showing gratitude. This suggestion was made by the hospital and not by Mrs. Marquis. Evidence showed that the mention of her name on the plaque was irrelevant to her in her decision to donate the money. There was also no mention of the naming promise in the pledge document itself. Finally, her modest personality made it very clear that she never sought the naming of the unit as a condition for making her pledge

(b) Mutual promises are consideration

Wood v. Lucy p. 169Facts: Exclusive distributorship: common commercial arrangement. Wood has the exclusive right - subject to Lucy’s approval - to place her endorsements on designs of others and to sell Lucy’s own designs. Profits are shared 50-50. Term: one year and then year to year subject to revocation on 90 days notice. Lucy places endorsements and kept all profits. Wood sues for 50%. Lucy’s Argument? No consideration. He made no promise.Courts Response? Implies a promise - and thus consideration - by Wood to use reasonable efforts to market the designs. The case illustrates the lengths to which the court will go to squeeze the parties’ relationship into the classical bargain template in order to enforce a promise that merits enforcement.

2. Past considerationPast consideration is not good consideration. The doctrinal explanation: no consideration – there was only a past gift – a benefit voluntarily conferred by the plaintiff. One may be morally obliged to keep one’s promise but not legally obliged.

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Eastwood v Kenyon p. 170Sutcliffe has an infant daughter named Sarah. He dies. The plaintiff is the executor of John Sutcliffe’s will – manages estate. The plaintiff borrows L140 to look after Sarah’s estate. When Sarah came of age she promised to repay him the 140 pounds.**Is her promise binding? No. No consideration. Past consideration is not sufficient. Sarah marries. Upon marriage, the couple becomes one and the sole legal identity is that of the husband. Hence her legal obligation became that of her husband.**However, since her promise is not binding on her, then it is not binding on him.But as well, the husband also promises to pay and later refuses.**Is his promise binding? No. No consideration for his promise.

Policy rationale:- lack of deliberation- lack of reliance- no unjust enrichment: benefit was not asked for, gratuitously provided- distinguish moral and legal obligations- concern regarding fraud on creditors

Reflects values of individualism and positivism - the notion that law does not exist to enforce moral obligations and that people should be free, so far as is possible, from obligations imposed by the courts. Contract, on this view, should be confined to commercial exchanges and should not be an instrument for adjusting the moral obligations among people.

Application in commercial contextRoscorla v. Thomas (1842. Eng.)T1: K for sale of horse for £30.T2: Promise that horse was not over five years, was sound and free of vice.T3: Breach of promise. Horse was “very vicious, restive, ungovernable, and ferocious”.No consideration for promise that horse was free of vice.

Exception: Doctrine does not apply if the past act/performance was done at the request of the promisor

T1: Request for service (offer) T2: Performance (acceptance = unilateral contract)T3: Promise to pay (quantification of legal obligation)T4: Reneges on promise

Lampleigh v. Brathwait p. 172A voluntary act does not result in an obligation to pay a reward. However, if the party that gave the promise of the reward (B) requested the other party (L) to perform the act, then the reward will be tied to the request and the resulting benefit (to B) as a binding obligation.

3. Consideration

Canadian common law enforces promises three waysContract: offer, acceptance, consideration, certainty as to terms, intention to create legal relations, sometimes requirements for writing (i.e. land contracts)- Promise must be made for “consideration” in order to be enforced.- Consideration is the “price” paid for the promise: can be anything of value (in the eyes of the law) money, services, transfer of property, giving up a right, forbearance on a claim;

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- Consideration cannot be “illusory”: I promise to accept your $1000 if you promise to give it to me. This is a non-enforceable gift promise—there is no consideration.Deed: a sealed document - a non-bargain promise that is enforceable because of the form in which it is made. (because of the formalities on which it is made. Can make a promissory note this way, it will be enforceable) Requirements: in writing, signed, sealed and delivered.Estoppel: person held to their promise in a limited number of circumstances because of the reasonable reliance of the promisee:A rule of law that when person A, by act or words, gives person B reason to believe a certain set of facts upon which person B takes action, person A cannot later, to his (or her) benefit, deny those facts or say that his (or her) earlier act was improper.

The role of legal formalities in contract law “Consideration and Form”, Professor Fuller described three functions served by legal formalities:Evidentiary Function: the need for evidence of the existence of a contract.Cautionary Function: ensure that parties deliberate before they contractChannelling Function: ensure there is a simple, external test of enforceability.

Enforcement of promises – policy frameworkReasonable Expectations -------------------------------------------------------- Unfair SurpriseEvidence - Deliberation - Unjust Enrichment - Reliance - Facilitate private ordering/utility of exchange

Incomplete gift caseThomas v Thomas p. 173PATTESON J. . . . Motive is not the same thing with consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff. . . . Now that which is suggested as the consideration here, a pious respect for the wishes of the testator, does not in any way move from the plaintiff; it moves from the testator; therefore, legally speaking, it forms no part of the consideration. Then it is said that, if that be so, there is no consideration at all, it is a mere voluntary gift: but when we look at the agreement we find that this is not a mere proviso that the donee shall take the gift with the burthens; but it is an express agreement to pay what seems to be a fresh apportionment of a ground rent, and which is made payable not to a superior landlord but to the executors. So that this rent is clearly not something incident to the assignment of the house; for in that case, instead of being payable to the executors, it would have been payable to the landlord.

Compromises/Settlements(a) Forbearance on right to sue/to make a legal claim is good consideration(b) Very common practice: settlement of civil litigation(c) Is the compromise on an “invalid” claim good consideration?

B.(D.C.) v. Arkin p. 175Claim against mother for shoplifting by her son. There was no valid claim against D.C.B because parents are not liable for their children. Forbearance to sue can be good consideration but only where a valid claim exists. A claim must be made in good faith and with a good chance of success, and the court did not like the conduct of Zeller’s counsel. Settlement needs to be consensual, and there is an issue of unjust enrichment here.

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(1) reasonable claim (even if the validity/success of the claim is doubtful); (2) bona fide belief in claim and serious intention to pursue; and (3) no concealment of material facts

4. Pre-Existing Legal DutyPublic Duty: Traditional view was that if the promisee performs a public duty there is no consideration.Duty Owed to a Third Party: The performance of a duty owed to a third party has traditionally been viewed as good consideration

Pau On v. Lau Yiu Long p. 180A promise to perform, or performance of a pre-existing duty to third party can be valid consideration. Past performance can be consideration if three conditions are met: (a) the act of the promisee must be done at the promisor’s request, (b) the parties must have understood that the act was to be remunerated by a payment or the conferment or some other benefit (c) The payment, or the conferment of benefit must have been legally enforceable had it been made in advance

Contract modification – Going Transactions Adjustments (GTAs)Traditional rule is that contract modification without “fresh” consideration is unenforceable (because past consideration is not good consideration)Problem: Parties to contract modify contractual obligations on ongoing basis.Doctrinal Issue: Contract modification is not enforceable unless there is “new” consideration. A promise to do what you are already contractually obliged to do is not good consideration (Stilk v. Myrick).

Policy to enforce modification?: party autonomy, reliance, reasonable expectations, business efficacy.Policy not to enforce?: exploitation, ransom and duress

Stilk v. Myrick p. 182Promise to share wages not enforceable – no consideration because sailors already obliged under contract to bring ship to destined port. Performance of a pre existing duty is not good consideration for modification of contract.

Gilbert Steel v. University Construction p. 184Promise to pay more for steel not enforceable.T1: Contract: Def (UC – Tenenbaum) agrees to buy steel from Gilbert. Price settled. (4

September 1968)T2: Steel mill notifies Gilbert of a price increase and notes that there may be further

increases. T3: New written K with increased prices. New price did not reflect entire increase.

Contract for one year. Construction and delivery begins. (22 October 1969)T4: Steel mill: further price increase. (1 March 1970)T5: Discussion between Gilbert Steel and University Construction. Oral agreement to pay

more. Judge found this as a fact. Gilbert Steel provides a written contract to UC but not executed. (1 March 1970)

T6: Steel supplied. 43 deliveries invoiced at new price (12 March 1970 until completion)T7: Invoices for steel at new price as per oral contractT8: Invoices paid but only rounded amounts so that it was not clear whether increased price

was being paid.T9: Def refuses to pay increase.

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Issue: Contract Modification enforceable? Held: No.Court rejects Gilbert Steel’s arguments:1. Not a contract modification. Previous contract terminated and new contract with new price.

Court: Plaintiff pleaded that contract was amended.2. Fresh consideration provided by promise of good price in future contracts.

Court: Too vague, uncertain.3. Fresh consideration provided by additional credit provided due to increase in price.

Court rejects.4. Promissory estoppel: Equitable doctrine that holds a party to its promise where the other party has acted in reliance on the promise.

Court: Estoppel cannot be used to create a contractual obligation.

Williams v Roffey Bros & Nicholls (Contractors) Ltd p. 188Defendant contracted work to the Plaintiff for carpentry. The agreed upon fee was too low and the Plaintiff experienced financial difficulty while carrying out the obligations. The Defendant was liable for incomplete work, and agreed to pay Plaintiff extra per flat completed.The benefit of timely completion is good consideration even if a pre-existing duty is performed, so there was consideration in the new agmt. The Plaintiff received monetary compensation from the Defendant in exchange for increased productivity.. The oral agreement did not constitute economic duress as seen in Stilk v Myrick.

Greater Fredericton Airport Authority Inc v Nav Canada p. 192The promise was unenforceable, not because it lacked consideration but because it was made under economic duress. Stilk v. Myrick considered inappropriate for this case because: a) S v M unsatisfactory for enforcement of post-contractual modifications (overly rigid) b) May be good reasons to enforce some gratuitous promises (e.g. promisee relied on them to their detriment) c) doctrine of consideration and concept of bargain and exchange should not be 'frozen in time' for risk of irrelevance.Post contractual modifications not supported by consideration can be enforced as long as they are not procured under economic duress.

How to avoid problem in the first place?Price adjustment mechanism in the contract; clauses that provide for renegotiation of contractual obligations based on objective standards backed up by dispute resolution by an independent third party.

Techniques to make a contract modification enforceable(i) Seal(ii) Court finds there is new consideration for the contract modification:

(a) Consideration may be nominal: the peppercorn theory of consideration—the court enforces bargains made by the parties and does not enquire into the adequacy of consideration. Note: Judges wishing to enforce contract modification have been very adept at

finding “new consideration”.Mr Justice Robertson in GFAA v. NAV Canada says that courts should not use the “hunt and peck theory” to find consideration where none exists.

(b) Consideration can be the bona fide compromise of a disputed claims: forbearance on right to sue is good consideration (B. (D.C.) v. Arkin).Note: Traditional rule remains that forbearance on breaching on existing contract is not good consideration for a contract modification. This is simply another way

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of saying that performance of an existing contractual obligation is not good consideration.

(c) A promise to a third party to perform an existing contractual obligation owed to another is good consideration. For example, A has promised B not to sell shares before a certain date. A makes the same promise to C in exchange for a price guarantee. There is good consideration for the price guarantee (Pao On v. Lau Yiu Long).

(d) A payment to pay more for an existing contractual obligation, where promisor obtains “in practice a benefit, or obviates a disbenefit”. (Williams v. Roffey). Court take a less rigid approach—“the courts should be more ready to finds its existence so as to reflect the intention of the parties to the contract”.Note: concerns regarding unfairess/being held to ransom can be addressed directly: courts have developed the doctrine of economic duress, which can be used to guard against opportunistic conduct.

(iii) Terminate K1 and enter into K2. Parties can agree to terminate an existing contract and enter into an entirely new contract: but “mere” change in price may be categorized as a variation/modification (Gilbert Steel v. University Construction).

(iv) Doctrinal change: “…there are valid policy reasons for refining the consideration doctrine to the extent that the law will recognize that a variation to an existing contract, unsupported by consideration, is enforceable if not procured under economic duress” (GFAA v. NAV Canada).

(v) Estoppel?: doctrinal position in Canada is that estoppel cannot be used as a sword only a shield - cannot be used as a cause of action to enforce a promise to pay more (Gilbert Steel v. University Construction).

Vienna Convention on International Sale of Goods29 (1) A contract may be modified or terminated by the mere agreement of the parties.(2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.

Debt Settlement/Compromise Agreements – Agreements to Accept LessFoakes v Beer p. 198Follows precedent in Pinnel’s Case that held that payment of a lesser sum for a greater sum is not good consideration. If you want to be released form a debt, then the law requires “particular solemnities to give a gratuitous contract the force of a binding obligation”

- Cannot pay $5 now as consideration for a debt of $10- But you can enter in an “accord and satisfaction”: you can make a debt release

agreement (an accord) as long as there is satisfaction (i.e. nominal consideration—the peppercorn)

- So I can give you $5 and my worthless worn out shoes- “A man may give in satisfaction of a debt of £100, a horse of the value of five

pounds, but not five pounds” (Baron Alberson in Sibree v. Tripp, 1846)- And say I can give you two post-dated cheques for $5—a negotiable instrument is

something different from money

Re SelectMove Ltd p. 201Even if there is a benefit for less payment to the creditor, it is not sufficient consideration.

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Foot v. Rawlings p. 203Debt settlement agreement. Debtor provides post-dated cheques.

“I have reached the conclusion that the giving of the several series of postdated cheques constituted good consideration for the agreement by the respondent to forbear from taking action on the promissory notes so long as the appellant continued to deliver the cheques and the same were paid by the bank on presentation.”

Undertaking of terms in which one party substitutes something of value to give to the other party in exchange for the other party’s forebearance can be consideration

Legislative ReformAgreement to accept partial payment is now enforceable if expressly accepted by creditor in satisfactionLaw and Equity Act, R.S.B.C. 1996, c. 253, s. 43:Part performance of an obligation either before or after breach of it, when expressly accepted by the creditor in satisfaction or rendered under an agreement for that purpose, though without any new consideration, must be held to extinguish the obligation.

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SECTION 5 – PROMISSORY ESTOPPEL AND WAIVERS

1. Background on estoppelCommon law estoppel: A party is barred from denying or alleging a certain fact or state of facts because of the party’s previous conduct, allegation or denial. Representation as to existing fact.Promissory estoppel/equitable estoppel/estoppel by representation: question of estoppel as to future conduct (i.e. a promise is made about future conduct): “I will not take that action”. Representation as to future conduct.

Equitable courts: a party is not allowed in equity to go back on such as promise Note: Promises about conduct in the future are the essence of contractual obligations

Hughes v. Metropolitan Railway Company p. 207Was there a promise that negotiations would suspend the 6 month repair deadline? IF parties have entered into definite and distinct terms involving certain legal rights (e.g. penalties, eviction), AND one party is thereby reliant that the rights from those negotiations will not be enforced (or will be suspended), THEN the person who would otherwise have enforced those rights will not be allowed to enforce them if it makes contract inequitable.Landlord cannot rely on strict legal rights under lease because parties had been negotiating.

“… if parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.”

Central London Property Trust Ltd v. High Trees House Ltd. p. 209Agreement to reduce rent during the WWII. Classic contract modification to accept less.

“There has been a series of decisions over the last fifty years which, although they are said to be cases of estoppel are not really such. They 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 on.”“The courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making it to act inconsistently with it. It is in that sense, and that sense only, that such a promise gives rise to an estoppel.”

Agreements to pay more are often view as offensive use of promissory estoppels, so agreements to pay less are different. The judge also reasoned that a promise intended to be binding and acted upon is binding so far as its terms properly apply.

2. The Nature of the Representation

John Burrows Ltd. v. Subsurface Surveys p. 211Facts: Delay in making payment on promissory note by buyer. Vendor accepted late payment 11 times. Falling out between parties. Next payment is late and vendor claims to be entitled to

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accelerate payments. Is Vendor estopped from accelerating payments and seizing security without giving notice that in the future it is going to rely on its strict legal right?Held: It is insufficient for there to be mere acts of indulgence. There must be evidence that the promisor intended that the legal relations between the parties would be altered. Here there was a friendly indulgence, but no specific promise or representation, other than the practice/conduct in allowing past late payments.Note: Owen Sound Pub. Library Bd. v. Mial Developments Ltd. (1979, Ont. C.A.) suggests that intention can be inferred from reasonable reliance by the promisee.

3. The Equities

D. & C. Builders Ltd. v. Rees p.214 Case of the debt settlement of a debt for a building job. The plaintiff was nearly bankrupt and accepts settlement. Held: Settlement not binding. Under common law (Foakes), smaller payment is not good consideration for larger debt, equity “has stretched out a merciful hand to help the debtor.” However, there is a qualification to this – the debt settlement/the accord – must be a true one. Must be voluntary. Here not voluntary. “The debtor’s wife held the creditor to ransom”. Application of equitable principles: “He who comes into equity must come with clean hands”.Nascent doctrine of economic duress (undue pressure/intimidation)

4. Notice Retracting a Waiver of Legal Rights 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.

Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance p. 217Issue: Did insurance company waive right to compel timely payment under the policy?Waiver requires (i) unequivocal and conscious relinquishment of rights; and (ii) full knowledge of rights. Note: Waiver is a unilateral act. Insurance company waived rights in November 1984. Insured did not rely on this waiver and insurance company was entitled to provide notice of policy lapse (which it did in February 1985). Insured failed to reinstate policy.Where a party relies on waiver, waiver can only be retracted if there is reasonable notice:

“Waiver can be retracted if reasonable notice is given to the party in whose favour it operates…. the “reasonable notice” requirement has the effect of protecting reliance by the person in whose favour waiver operates.”

If no reliance, no reasonable notice is necessary.Issue of time extensions for contract completion. Always make and reassert that time remains of the essence.

International Knitwear Architects Inc. v. Kabob Investment Ltd. p. 222Landlord was required to give reasonable notice to revive obligations under lease. Reasonable notice fixed at just over a month.

5. The Promisee’s Reliance

W.J. Allan v. El Nasr Payment made in English sterling not Kenyan currency. Two ways of thinking, same result.

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Megaw: Currency varied in contract by parties’ conduct. Seller accepted the sterling credit and cannot no revert to the original contractual provisions.Denning: Waiver is a manifestation of the broader principle of promissory estoppel.

“Nevertheless, the one who waives his strict rights cannot afterwards insist on them. His strict rights are at any rate suspended so long as the waiver lasts. He may on occasion be able to revert to his strict legal rights for the future by giving reasonable notice in that behalf, or otherwise making it plain by his conduct that he will therafter insist on them. . . But there are cases where no withdrawal is possible. It may be too late to withdraw; or it cannot be done without injustice to the other party. In that event he is bound by his waiver. He will not be allowed to revert to his strict legal rights. He can only enforce them subject to the waiver he has made.”

Société Italo-Belge v. Palm and Vegetable Oils (Malaysia) p.227 Seller delivers documents late. Buyer accepts them. Buyer held to have made a representation that they were prepared to accept documents. What type of reliance is required by seller?

. . . whether it is sufficient for this purpose that the representee should simply have conducted his affairs on the basis of the representation, or whether by so doing he must have suffered some form of prejudice which renders it inequitable for the representor to go back on his representation.…it does not follow that in every case in which the representee has acted, or failed to act, in reliance on the representation, it will be inequitable for the representor to enforce his rights for the nature of the action, or inaction, may be insufficient to give rise to the equity…In particular, having regard to the very short time which elapsed between the date of the representation and the date of presentation of the documents on the one hand and the date of rejection on the other hand, I cannot see that, in the absence of any evidence that the sellers’ position had been prejudiced by reason of their action in reliance on the representation, it is possible to infer that they suffered any such prejudice . In these circumstances, a necessary element for the application of the doctrine of equitable estoppel is lacking

Equitable estoppel requires reliance and detriment.

6. Sword or Shield?

Combe v. Combe p. 231 Divorce. Husband agrees to pay spousal maintenance of L100 annually (no consideration). No payment. Almost 7 years later, wife sues for arrears. Promise not enforceable: Promissory estoppel cannot be used to create new causes of action where none existed before. It only prevents a party from insisting on strict legal rights, when it would be unjust, having regard to the dealings between the parties. It may be part of a cause of action, but not a cause of action in itself. The doctrine of consideration is too firmly fixed to be overthrown by a side wide…. it still remains a cardinal necessity of the formation of contract, although not of its modification or discharge.

Petridis v. Shabinsky p. 233 Plaintiff ran a restaurant in shopping centre owned by defendant. Plaintiff had option to renew tenancy under lease but required to give notice in writing 6 months prior to expiry of lease. Under negotiation (after 6 months but before expiry) but parties were unable to agree on rent. Defendant sent letter to plaintiff ordering he

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make vacant the space. The extension of time, given to the plaintiff beyond the 6 month requirement, was not a variation of the contract but a waiver of a right under that contract. Waiver of strict rights under the lease with respect to renewal option.

Robichaud c. Caisse Populaire de Pokemouche Ltée p. 236Robichaud seeking to enforce Caisse’s promise to remove from court registry a judgment against him. Robichaud had agreed paid $1,000 of the $3,787.80 judgment. The plaintiff sued to compel the Caisse to accept the $1,000 as agreed and to remove the judgmentCourts allow Robichaud’s action. While often defendant will use promissory estoppel, the plaintiff can use it as well. But it is still used as a shield, not a sword.

Waltons Stores (Interstate) Ltd. v. Maher p. 237Negotiations for lease of Maher’s land, with Maher to erect a building on the land for use by new Waltons store under a lon- term lease. Time is of the essence in order for construction to occur on time.7 November: Maher sends draft lease and says that lease has to be concluded with next day or two to allow completion of building in time.7 November: Walton’s solicitor responds: approval should be forthcoming and that they would let them know if any amendments were not agreed to.11 November: Maher sends copies of executed lease to Walton for execution.10 December: Walton knows that demolition of current building on Maher’s land is ongoing.19 January: Walton reneges.Waltons’ … “inaction…constituted clear encouragement or inducement to the respondents to continue to act on the basis of the assumption which they had made. It was unconscionable for it, knowing that the respondents were exposing themselves to detriment by acting on the basis of a false assumption, to adopt a course of inaction which encouraged them in the course they had adopted.”Waltons “… is estopped in all the circumstances from retreating from its implied promise to complete the contract…”** In certain case promissory estoppel can be used as a sword… Note: There was no existing legal relationship (lease had not been signed) but the promisee (Maher) had reasonable assumption or expectation of a legal relationship

US Position: Section 90, Second Restatement on Contracts:A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third party and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for the breach may be limited as justice requires.

N.M. v. A.T.A. p. 246NM promises to pay outstanding balance on ATA’s mortgage if she would come to Vancouver and live with him with a view to marriage. ATA gives up her job in England and comes to Vancouver. NM refuses to honour promises and eventually loans ATA $100,000 on a promissory note. A week later NM evicts ATA from his home and he sues her on the promissory note. Held: Although NM made promise and ATA relied on it to her detriment, not enforceable.Trial: Promissory estoppel cannot be used to found a claim where there is no existing legal relationship between the parties.CA agrees: there must be an expectation as to a legal relationship between the promisor and promisee. The promise was not intended or expected to be binding and she took the risk of NM not following through.

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Incoherence of Shield/Sword DistinctionThe traditional doctrine is that promissory estoppel may only be used as a shield. It cannot be used as a sword – to found a cause of action.

- a promise to accept less is binding (High Trees)- a promise to pay more is not binding (Gilbert Steel)

Is there a real difference?

Assume: Contract to sell 10 tons of grapes for $20,000. Bad weather - production down - market price up.

Variation #1: Agreement to take lessBuyer agrees/promises to accept 8 tons at $20,000 in full satisfaction of contractSubsequently sues when only 8 tons are delivered , arguing that under the contract buyer is entitled to 10 tons.

Variation #2: Agreement to pay moreBuyer agrees to pay $25,000 for 10 tons.Seller delivers and buyer pays only $20,000 relying on written contract

Note: In each case effective price per ton is $2500. Does it make sense to enforce one promise but not the other when they are functionally equivalent?

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SECTION 6 – INTENTION, SEALS AND WRITING

Intention to Create Legal RelationsNot all agreement are contracts—the parties must have intended to create legal relations Requirement acts as an additional “screening mechanism” to distinguish between social/non-legal agreements and contracts. The rule is applied using factual presumptions

There is a presumption that commercial agreements are intended to create legal relations

There is a presumption that social, domestic, family agreements are not intended to create legal relations.

Balfour v. Balfour p. 250 Husband promises wife monthly allowance.

Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements between spouses. Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts (not consideration) . The terms may be repudiated, varied or renewed as performance proceeds or as disagreements develop, and the principles of the common law as to exoneration and discharge and accord and satisfaction are such as find no place in the domestic code.

Jones v. Padavatton - NOT IN MATERIALDaughter decides to pursue legal studies on promise of support from mother (house to live in). Dispute and mother wants to evict her daughter. Clear there was an family arrangement, issue is whether: (i) intended to be legally binding; and (ii) sufficiently certain to be enforceable.Test is objective. In familial relationships there is a presumption of fact against intention to create legal relationship. But agrees with trial judge that the facts unique:(daughter had a comfortable, well-established career; mother had interest in daughter becoming barrister and moving to Trinidad - grandmother would see her grandson; mother made a clear offer; mother’s lawyer wrote to confirm arrangement; reliance for five years)Enforceable – but an implied term of support for a reasonable period—after five years had not completed what she should have in three years.**In certain cases, where it looks more like a business arrangement (ex: parents have a basement suite), then it is possible to enforce.

Rose and Frank Company v. J.R. Crompton & Brothers p. 253Commercial parties can agree that a business arrangement will not give rise to legal relations.

TD Bank v. Leigh Instruments p. 255Comfort letter dos not impose guarantee/indemnity obligations on parent company of a wholly owned subsidiary. They can have commercial value even if they do not impose legal obligations.

Sealed documentsSealed documents are enforceable because they are sealed: seal is a formality that serves functional purposes--evidentiary, cautionary and requiring deliberation. A sealed document has traditionally been conceptualized as a symbolic transfer of property – it is an executed gift –

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rather than a contract. Rather than give you $500 in cash, I could give you a promissory note in which I covenant under seal to give you $500 – this is in law a transfer of $500 to you.

A seal does not “import” or provide consideration. A sealed document is a non-bargain promise. (seals stand in for consideration, completely different basis for enforcement of promises). Variety of names: deed (usually for land), covenant, formal contract (as opposed to a common law informal contract or parol contracts), specialties

A promise can be made enforceable if done by way of a deed – a promise that is: in writing; signed by the promisor; sealed; delivered

I ______ promise to pay _________ $500 on 1 January 2018.

Signed, sealed and delivered.

Signature, Date

Royal Bank v. Kiska p. 259In this case, no wafer seal attached, but the words “sealed” had been printed. Formality serves a purposes and some semblance of it should be preserved. Signatory must affix or adopt the seal as his or her own.In other cases, courts have stated that the modern test of whether a document is sealed depends on intention – did the parties intend that the document be sealed. Was the application of the seal a conscious and deliberate act?

The requirement of writingStatute of Frauds (1677) imposed writing requirements on various kinds of contracts. Very complex and convoluted technical distinctions made as courts tried to do justice between parties where the contract was not in writing. Survives in amended form in some jurisdictions, but not in BC or Ontario.However, BC makes writing a requirement for land contracts not including leases of 3 years or less. The BC Law and Equity Act requires a written guarantee and indemnity promises.

LAW AND EQUITY ACTEnforceability of contracts59  (1) In this section, "disposition" does not include

(a) the creation, assignment or renunciation of an interest under a trust, or(b) a testamentary disposition.

(2) This section does not apply to(a) a contract to grant a lease of land for a term of 3 years or less,(b) a grant of a lease of land for a term of 3 years or less, or(c) a guarantee or indemnity arising by operation of law or imposed by statute.

(3) A contract respecting land or a disposition of land is not enforceable unless(a) there is, in a writing signed by the party to be charged or by that party's agent, both an indication that it has been made and a reasonable indication of the subject matter,

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(b) the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with that alleged has been made, or(c) the person alleging the contract or disposition has, in reasonable reliance on it, so changed the person's position that an inequitable result, having regard to both parties' interests, can be avoided only by enforcing the contract or disposition.

(4) For the purposes of subsection (3) (b), an act of a party alleging a contract or disposition includes a payment or acceptance by that party or on that party's behalf of a deposit or part payment of a purchase price.(5) If a court decides that an alleged gift or contract cannot be enforced, it may order either or both of

(a) restitution of a benefit received, and(b) compensation for money spent in reliance on the gift or contract.

(6) A guarantee or indemnity is not enforceable unless(a) it is evidenced by writing signed by, or by the agent of, the guarantor or indemnitor, or(b) the alleged guarantor or indemnitor has done an act indicating that a guarantee or indemnity consistent with that alleged has been made.

(7) A writing can be sufficient for the purpose of this section even though a term is left out or is wrongly stated.

ELECTRONIC TRANSACTIONS ACTRequirement for a record to be in writing5  A requirement under law that a record be in writing is satisfied if the record is(a) in electronic form, and(b) accessible in a manner usable for subsequent reference.

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SECTION 7 – PRIVITY OF CONTRACTS

1. Privity of contract: Contract can neither confer rights not impose obligations on 3P. 3P cannot enforce K. Even where purpose of the contract is to convey a benefit to a third party. Exceptions by legislation: Insurance Act

Tweddle v. Atkinson p. 288Fathers (Tweddle and Guy) promise to pay children $ upon marriage. No payment by either father. Plaintiff sues the estate of his father in law.Action cannot be maintained. No consideration flowing from plaintiff. But note: Neither father had performed contract. Son could not be sued for failure of his father’s promise so he cannot sue his wife’s father

Beswick v. Beswick p. 295 and 296Denning’s failed attempt to overrule TweddlePeter Beswick enters into contract to sell his coal business to his nephew, who agrees to pay him an allowance for the rest of his life. Nephew also agrees to pay Mrs. Beswick an allowance of $5 for rest of her life after Peter’s death. Peter passes away and his nephew only pays Peter’s widow once. Mrs Beswick sues as administratrix of the estate and in her personal capacity. CA Denning General rule is that a third person cannot sue or be sued on a contract to which she/he is not party—but this only a rule of procedure.

“Where a contract is made for the benefit of a third person who has a legitimate interest to enforce it, it can be enforced by the third person in the name of the contracting party or jointly with him or, if he refuses to join, by adding him as a defendant. In that sense, and it is a very real sense, the third person has a right arising by way of contract. He has an interest which will be protected by law….”

NOT OK, House of Lords goes against it.House of Lords: Proceeds on the basis of privity of contract : contract confers no right on 3P and 3P cannot sue. Accordingly, widow cannot sue in her personal capacity, but she has the right to sue as administratrix of the estate. Accept that estate can claim specific performance.

RationalesDoctrinal rationale: not a party; no consideration; 3P could prevent modification, since 3P rights could be seen as having crystallizedEconomic: encouragement of market based concepts, support nascent capitalism; self-reliance; minimize liability

Vertical and horizontal privityVertical privity relates to a buyer within the distributive chain who did not buy directly from the defendant.

Manufacturer Problem – The chain may be broken |K - bankruptcyDistributor - exemption clauses |K - limitation periodsRetailer - seller/distributor closed/cannot be located

|KConsumer

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Horizontal privity relates to a person who is not a buyer within the distributive chain, but who consumes, uses or is affected by the product.

Seller |K

Buyer — User

2. Avoidance of the contractual boxTrust, assignment and agency: categorize the 3P as beneficiary (trust) or assignee (assignment).Alternatively and more commonly, view B as also contracting as an agent for 3P, so that 3P is in a direct contractual relationship with A. Result: 3P is no longer a 3P, if categorized as a trust beneficiary, assignee or principal.

Trust Assignment AgencyA contract B Trustee (T) Assignor (Aor) Agent (A) X (3P) Beneficiary (B) Assignee (Aee) Principal (P)

TrustTrust is a legal relationship in which a person (the settlor) transfers property to another (the trustee). The property is held for the benefit of a third party (the beneficiary). The result is the creation of two interests: the trustee’s legal interest and the beneficiary’s beneficial interest. Thus, it is said that the trustee holds the trust property “in trust” for the beneficiary. B, the trustee, is bound to hold the trust property for the benefit of C, the beneficiary. C can enforce the terms of the trust directly against B and third parties with whom B has contracted.

AgencyAgency is the legal relationship between two persons, a principal and an agent, whereby, the principal grants the agent the authority to act on the principal’s behalf.In a simple agency scenario, while negotiations (offer and acceptance) occur between A and C, consideration will flow from P to C, and the terms of the resulting contract will only be binding on P and C. A contract can be made between P and C even if, at the time of formation, A did not have the express authority to act on behalf of P, provided that P subsequently ratifies the agreement made by A.

AssignmentAn assignment is a transfer of a right from one person to another, usually by way of sale. A has a contract with B. B assigns her contractual rights to C. C can enforce the contract against A. (Buys the debt at a discount)

Law and Equity ActAssignment of debts and choses in action36  (1) An absolute assignment, in writing signed by the assignor, not purporting to be by way of

charge only, of a debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, is and is deemed to have been effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this Act had not been enacted, to pass and transfer the legal right to the debt or chose in action from the date of the notice, and all legal and other remedies for the debt or chose in action, and the power to give a good discharge for the debt or chose in action, without the concurrence of the assignor.

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Exclusion clausesAn exclusion or limitation clause is a term in a contract that limits liability. These occur everywhere. For example, parking tickets: the liability of parking lot owner in contract or tort is limited to nothing or $25 or $50 dollars.

3. Employee LiabilityDoctrine of respondeat superior, the employer is liable for torts of employee (vicarious liability).Assume that Canadian Tire/Customer contract contains an exclusion clause: Canadian Tire not liable for damage that exceeds $100. Applies to both K and Tort action. Result is that my action against Canadian Tire is restricted to $100.But there is no limitation on right to sue employee. Employee has no common law right of indemnification from employer.

Greenwood v. Beattie – NOT IN MATERIALS Mall owner to insure. Insurer to have no rights of subrogation—insurer cannot sue tenant, Canadian Tire. Employees cause fire—negligent.Insurer – contract of insurance – Greenwood – lease – Canadian Tire

(landlord) (tenant)|

Beattie (welders - employees)SCC--employees are third party beneficiaries, exceptions do not apply. Situation is not within agency requirement as established in New Zealand Shipping:

1. The negotiating parties must have intended that the third party benefit from the contract. No evidence that clause was intended to apply to employees

2. The contracting party must also be contracting as agent of the third party. No evidence that Canadian Tire was in fact contracting for employees.

3. The party that acted as an agent for the third party must have had the authority to do so. No authority or ratification.

4. There must be consideration moving from the third party to the non-agent party. No consideration from employees to G. It was a lease – not a contract to fix Greenwood’s car. No performance that could act as consideration.

Assessment of Greewood v Beattie: formalistic, failure to consider consequences of judgment / unfair surprise / distributive justice: who works in malls? / disrupts risk allocation / inefficient, means that employees need to insure also, double insurance

London Drugs v. Kuehne & Nagel p. 310Storage of transformer. LD to insure. Employees negligently damage transformer. SCC relaxes doctrine of privity in context where employee is third party beneficiary to exclusion clauses between employer and customer, provided:

(a) Limitation of liability must expressly or impliedly extends benefit to employee(b) The employee is acting in the course of their employment and providing the very

services provided in the contract when the loss occurs.How is Greenwood distinguished? Lease of space: employees not necessary to the performance of the agreement.

Edgeworth Construction Ltd. v. N.D. Lea & Associates p. 320Edgeworth is a road construction contractor. Builds road and loses $, allegedly on the basis of errors in the specifications and construction drawings. Cannot sue government because there is a

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limitation clause by government. Claims negligent misrepresentation against firm and individual engineers.Issue: Can the firm/engineers take advantage of the limitation clause? Engineering firm argues that contract negated the tort duty of care that it would otherwise have owed in terms of negligent misrepresentation.Court rejects: Look at intention of the parties. Clause was not intended to protect engineers—it was intended for the benefit of the province alone. London Drugs does not apply. Engineers could have taken steps to protect themselves

What problems continue?(i) Employer may have no insurance/no limitation clause. Employee only obtains 3P

benefits if employer has protected itself.(ii) Even if insurance/limitation clause, employer might not ensure that it extends to

employees. (iii) Employer may not decide to insure employees.Employee options: ensure insurance coverage extends to employees / ensure employee benefits from waiver of subrogation / employee self-insures / employee obtains indemnity from employer

Fraser River Pile & Dredge Ltd. v. Can-Dive Services p. 322Barge charterer seeks to rely on waiver of insurer’s right of subrogation in insurance contract between insurance company and barge owner. Barge sunk due to negligence of charterer.

Insurance Company ----------- K---------------- Fraser Pile (Barge Owner)|

Can-Dive (Barge Charterer)- London Drugs is not limited to employment situation. The principles exception can apply in other circumstances.- Parties intended 3P to benefit from K. Insurance K referred to charterers. In no uncertain terms, the waiver of subrogation clause indicates that the insurers are precluded from proceeding with an action against third-party beneficiaries coming within the class of “charterer(s)”, and the relevant inquiry is whether to give effect to these intentions by enforcing the contractual term, notwithstanding the doctrine of privity of contract. - Activities performed by the 3rd party are the very activities contemplated as falling within the scope of K–chartering of boat.- Fraser Review and insurer, having contracted in favour of Can-Dive, they cannot revoke unilaterally Can-Dive’s rights.- Sound policy reasons to allow Can-Dive to benefit from the clause.

4. LegislationNew Brunswick, Law Reform Act, RSNB 2011, c. 184.4(1) Unless the contract provides otherwise, a person who is not a party to a contract but who is identified by or under the contract as being intended to receive some performance or forbearance under it may enforce that performance or forbearance by a claim for damages or otherwise.4(3.1) For the purposes of subsection (1), a person who is identified by or under a contract as being intended to receive some performance or forbearance under it includes

(a)a person who is intended to receive the performance or forbearance only in certain circumstances, if those circumstances occur, and(b)a person who is not named in the contract but is a member of a class of persons intended to receive the performance or forbearance.

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SECTION 8 – CONTINGENT AGREEMENTS

1. Types of Conditions

Condition as Contractual TermA term of the contract that is foundational. If it is breached, the contracting party is entitled to repudiate (terminate) the contract and sue for damages.Distinguished from a warranty – a term that gives rise to a right of damages.Example: I agree to sell you my 1966 Italian Lambretta. It turns out the scooter in question is a later Spanish reproduction called a Serveta. You are not required to complete the contract. A condition of the contract was that I was selling an Italian Lambretta not a Spanish Serveta.

Condition Precedent(a) Condition precedent to the formation of a contractA “condition” that must be satisfied before a contract arises. It is not really a contractual condition at all, but an offer/acceptance that is subject to a condition. (contingent condition)Example: I will sell you my Lambretta if you will sell me your Vespa OR agreement for the purchase of the Lambretta, subject to you deciding you like the colour.These are like agreement to agrees; too much uncertainty and ambiguity; depends on a subjective state of mind

(b) Condition precedent to the performance of obligations imposed by a contract(i) a term of an existing contract, as opposed to a term of an offer to contract; (ii) which describes an event or state of affairs the occurrence of which has not been

promised by either party, and (iii) whose fulfilment is a prerequisite of the obligation of both to complete the contract

A true condition precedent:A contract has been concluded but the contractual obligations are suspended until the condition occurs and this condition is outside of the discretion of the parties.Example: A contract in which I agree to sell you my Lambretta and you agree to buy it if Dean Fortin is re-elected as mayor of Victoria.

Note: If I sell my Lambretta to someone else before the election, I breach my contractual obligation to you and you can sue me.

But you would only be able to obtain damages if it turns out that Dean Fortin wins the election.

A condition precedent that requires one party to do something: A contract for a sale of my Lambretta subject to the oil being changed and the engine being tuned within two weeks.

Court will imply terms that owner/seller is required to exercise reasonable/good faith efforts to have these things done.

Court will not rewrite a contract for parties but will imply terms under the business efficacy and officious bystander tests: i.e. act in good faith; use reasonable efforts; not to act arbitrarily or without providing reasonable grounds for decision

Courts will often do this in order to constrain opportunism and to ensure that one party cannot take the advantage of the deal while also avoiding the downsides

Obligations to do something in order to satisfy a condition are sometimes described as subsidiary conditions.

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Wiebe v Bobsien p. 334Contract to sell property subject to buyer selling his own property before August 18 th. If Seller had an offer from a third party, Buyer had 72h to remove the condition precedent from the contract. Issue: Is the interim agreement a form of option that can be cancelled by Seller prior to August 18? OR is it a binding agreement for sale and purchase of Seller’s property?Determined to be a condition precedent.Condition precedent can have two effects 1) prevents the creation of contract; or 2) merely suspends performance of some or all of the obligation set out in the contract until the condition is met. Depends on the intention of the parties as gathered from the words they have employed.Condition will prevent creation of contract if illusory, if involves fancy or taste.In Real estate contract, condition precedent usually result in a binding agreement where the obligation to complete the contract is in suspense. Unless never an intention for parties to bind themselves

Wiebe v Bobsien p. 340Dissent from first judgment as to the application to the facts.Indicated that there are three classes of conditions precedent: (1) conditions that are so imprecise and subjective that the contract process still must be regarded as an offer (ex. “subject to the approval of the president”); (2) conditions that are clear, precise, and objective (ex. “subject to John Smith being elected as Mayor in the municipal election on 15 October of this year”); and (3) conditions that are partly subjective and partly objective (ex. “subject to planning department approval of the attached plan of subdivision”).This case falls into the first class. It leaves unresolved the question of whether the plaintiff must sell at any price he can get, or if he can hold off until he gets the price he wants. Therefore, a contract was not formed in this case until the plaintiff either removed the condition or sold his house. Since the standing offer was withdrawn before the contract was formed, the defendant is under no obligation to sell his house to the plaintiff.This problem could be dealt with by stating the price and essential terms upon which the purchaser must sell his own house in the conditional agreement.

Dynamic Transport Ltd v O.K. Detailing Ltd p. 345In a purchase and sale situation, the “person who proposes to carry out a subdivision of land” is the intending vendor. It is he who must divide his parcel of land for the purpose of sale . The vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale. I cannot accept the proposition that failure to fix responsibility for obtaining planning approval renders a contract unenforceable. The common intention to transfer a parcel of land in the knowledge that a subdivision is required in order to effect such transfer must be taken to include agreement that the vendor will make a proper application for subdivision and use his best efforts to obtain such subdivision. This is the only way in which business efficacy can be given to their agreement. In the circumstances of this case, the only reasonable inference to be drawn is that an implied obligation rested on the vendor to apply for subdivision.There is a contract, and some things must be done before others. Subdivision is a condition that must be done before the tranfer of the land.

Condition SubsequentA condition that discharges parties from contractual obligations or their agreement.Example: You agree to buy my Lambretta. If the electrical system malfunctions within two months you can return the Lambretta to me for a full refund.

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2. Waiver of ConditionOften conditions are included to benefit one of the parties (often the purchaser), i.e. the real estate deal is subject to the purchaser obtaining financing, a satisfactory building inspection etc. Issue is whether the condition can be waived by one of the parties?

Turney v. Zhilka p. 352Property sale subject to following condition: “Providing the property can be annexed to the Village of Streetsville and a plan is approved by the Village Council for subdivision.”

All that waiver means in these circumstances is that one party to a contract may forgo a promised advantage or may dispense with part of the promised performance of the other party which is simply and solely for the benefit of the first party and is severable from the rest of the contract.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. The parties have not promised that it will occur. The purchaser now seeks to make the vendor liable on his promise to convey in spite of the nonperformance of the condition and this to suit his own convenience only. This is not a case of renunciation or relinquishment of a right but rather an attempt by one party, without the consent of the other, to write a new contract. Waiver has often been referred to as a troublesome and uncertain term in the law but it does at least presuppose the existence of a right to be relinquished.

There is a tortured jurisprudence distinguishing: (1) a non-waivable true condition precedent (reliance on a third party) from (2) an ordinary condition precedent, which may be waived. Depends the interpretation of the contract

Barnett v Harrisson p. 354The rule expressed in Turney v. Zhilka should not be disturbed for the following reasons:- There is a distinction made between (i) the manifest right of A to waive default by B in the performance of a severable condition intended for the benefit of A, and (ii) the attempt by A to waive his own default or the default of C, upon whom depends the performance which gives rise to the obligation, i.e., the true condition precedent to be valid.- When parties aided by legal advisors make a contract subject to explicit conditions precedent and provide therein specifically that in the event of non-compliance with one or more of the conditions, the contract shall be void, the Court can’t simply introduce an implied provision conceding to the purchaser the right to waive compliance (can’t rewriting the agreement).- If the purchaser is to be put in the position of being able to rely on the conditions precedent or to waive them, depending on which course is to his greater benefit, the result may be that the purchaser has been given an option to purchase, for which he has paid nothing- Wheter the condition precedent is for the benefit of one or two parties: not relevant question anymore.- Don’t have to ask if the conditions precedent is severable from the balance of the agreement.

Law and Equity Act, R.S.B.C. 1996, c. 25354. If the performance of a contract is suspended until the fulfillment of a condition precedent, a party to the contract may waive the fulfillment of the condition precedent, even if the fulfillment of the condition precedent is dependent on the will or actions of a person who is not a party to the contract if(a) the condition precedent benefits only that party to the contract;

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(b) the contract is capable of being performed without fulfillment of the condition precedent; and(c) where a time is stipulated for fulfillment of the condition precedent, the waiver is made before the time stipulated, and where a time is not stipulated for fulfillment of the condition precedent, the waiver is made within a reasonable time.

3. DamagesCourts can grant damages for loss of a chance where there is uncertainty as to the contingent event occurring.

Eastwalsh Homes Ltd. v. Anatal Developmens Ltd p. 348Anatal agrees to sell to Eastwalsh lots to build homes on. Agreed condition was that Anatal would use best efforts to have the plan of subdivision registered by closing date of the sale. If this condition not satisfied then agreement terminated. Plan not registered in time and Eastwalsh sues for specific performance or damages for breach.Judge finds Anatal did not use reasonable efforts to achieve registration, therefore Anatal in breach. Judge reasoned that had Anatal discharged its duties there would be a 50% chance of the subdivision being registered by date. Lots had increased in value from contract formation to repudiation, Anatal ruled liable for 50% of the difference.Appeal judge upholds Anatal in breach but cannot substantiate trial judges 50% chance of registration. Plaintiff proves breach and that loss of chance constitutes “some reasonable probability” of “an advantage of some real substantial monetary value”. Court found that even with reasonable efforts no probable chance of registration before time elapsed on contract therefore damages only nominal.

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SECTION 9 – REPRESENTATION AND TERMS

1. The IssueWhat is the legal significance of various statements made during the formation of the contract?

Categories of Statements, Remedies and InterestsClassification Remedy Interest Protected

Mere Puff None Caveat emptorInnocent

MisrepresentationRescission

If contract performed or executed right to rescind is limited

Restitution(prevent unjust enrichment)

Negligent Misrepresentation

(tort)

Reliance damages Reliance

Fraudulent Misrepresentation

(tort)

Rescission and reliance damages Reliance

Warranty(contract term)

Expectation damages Reasonable expectation

Condition(contract term)

Repudiation and expectation damages Reasonable expectation

Intermediate or Innominate or term

(Hong Kong Fir)

Damages or repudiation depending on whether the result of the breach

goes to the root of the contract

Reasonable expectation

Mere Puff: A legally meaningless statement of the sort often made by a seller to encourage someone to make a purchase. For example: “This car is a real beautyRepresentation: A statement of fact that may give rise to liability if it turns out to be untrue, i.e. if it is a misrepresentation.Warranty: A representation that is elevated to a term of the contract. If a warranty is untrue it amounts to a breach of contract. Condition: A term that goes to the root of the contract

Analytical approachesDoctrinal: the legal testPolicy approach: protect reliance and reasonable expectations of one party while avoiding unfair surprise. Economic approach: Who should bear the risk that the representation is wrong? Who could have avoided the risk at least cost?Remedial approach: Categorization is remedy driven. Justice is done between the parties by selecting the appropriate remedy.

2. Misrepresentation and RescissionRescission is an equitable remedy that a court exercises to set aside a contract because of a defect in its formation. Comes from equity (court have significant degree of discretion to grant or not).

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Rescission should be distinguished from the termination of a contract by agreement of the parties or in accordance with the terms of the contract / the right of a party to repudiate a contract where the other party breaches. Court rescind, parties terminate and repudiate.

Innocent misrepresentationAn erroneous, false statement, but speaker did not know that the statement was false, may even have thought that it was true.

Conflicting considerations regarding what we ought to do about such statements: Caveat emptor (if a fact is important, then ought to be made express term of the contract) VS Unjust Enrichment

Remedies: some relief – but limited to rescission. The innocent party can apply to court and have the contract rescinded. The consequence is that there are no damages, but benefits that were transferred will be returned - if deposit or purchase price and rescission then returned to purchaser. Neither reliance nor expectation damages. Moreover, courts placed limitations on when rescission is available: no relief if contract executed or restitutio in integrum not possible.

Note: Typical consumer sales contract – no “right to return”. One performance complete (money for good) you are stuck with it, unless there is something seriously wrong with it (a breach of condition)

Doctrinal Requirement for Innocent Misrepresentation must be a representation of fact that turn out to be false must be material – i.e. an important matter must induce the making of contract/be relied upon (but this will be presumed); and innocent party did not know correct facts

Redgrave v Hurd p. 361Plaintiff vendor selling his law business and house. Informs defendant purchaser that annual income from business amounted to £300-400/per year. Purchaser does not inspect all of the papers relating to the law business. Purchaser enters into written agreement to purchase house (£1,600) and pays deposit of £100. Takes possession of house - and before balance paid - discovers that practice is only £200. Buyer refuses to complete sale of house and vendor sues. Trial: No recovery. Caveat Emptor. Could have discovered.Appeal: Misrepresentation gives right to rescission. Recovery of deposit but no damages.…. for when a person makes a material representation to another to induce him to enter into a contract, and the other enters into that contract, it is not sufficient to say that the party to whom the representation is made does not prove that he entered into the contract, relying upon the representation. If it is a material representation calculated to induce him to enter into the contract, it is an inference of law that he was induced by the representation to enter into i t, and in order to take away his title to be relieved from the contract on the ground that the representation was untrue, it must be shewn either that he had knowledge of the facts contrary to the representation, or that he stated in terms, or shewed clearly by his conduct, that he did not rely on the representation.

Smith v Land and House Property Corp p. 365The vendors offered for sale a hotel, stating that it was currently leased to “a most desirable tenant”. The defendants purchasers agreed to buy the hotel. Shortly thereafter Fleck went into bankruptcy. Defendants refuse to complete arguing that misdescription of Fleck’s virtues

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amounted to a misrepresentation. Court finds there was a misrepresentation. Statement was not a mere opinion.

But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion

Note: One important factor is disparity of knowledge and who was in the best position to know whether the statement was true. Distinguished from a situation where both parties know the facts and one party is simply expressing an opinion.

Bank of British Columbia v Wren Developments Ltd p. 366Bank claims against Allan on a guarantee for a company debt. Some of the security held by the bank had been released by the bank without the knowledge of the guarantor. Allan asked to sign second guarantee to replace first one, without knowledge that the collateral had been impaired,Court: Guarantee signed in the mistaken belief that the collateral was still held by the bank.

Upon the evidence I find that the defendant Allan, when he signed the second guarantee, was misled by the words, acts and conduct of the plaintiff into believing that there had been no change in the collateral securities held by the plaintiff, and otherwise he would not have signed it. In short, there was a unilateral mistake on the part of the defendant Allan which was induced by the misrepresentation of the plaintiff in failing to disclose material facts to him. In those circumstances, the defendant Allan is not liable to the plaintiff upon the second personal guarantee…

Note: This case is difficult to reconcile with general rules that there is no duty to disclose. Better viewed as based on doctrine of mistake?

Kupchak v Dayson Holdings Ltd p. 369Kupchak purchases shares in motel company from Dayson Holdding in return for two properties held by Kuchap and mortgage. Kupchak finds out two months later that there were false misrepresentations made about the motel’s earnings and stops making payment on the mortgages. In the meantime, Dayson, sold an undivided hald interest in one of the properties.Kuchak’s seek rescission. Court of Appeal. Grants rescission and awards compensation for the one property that cannot be returned.

In the result, under the authorities the respondents’ dealing with the Haro St. property, which they acquired by fraud, ought not to bar rescission of the transaction unless it be impractical, or so unjust to the respondents that it ought not to be imposed upon a guilty party. In determining whether rescission is practical, equity’s power to remove inequities resulting from rescission and deficiencies in restitution by compensation, account, or indemnity must be kept in mindRescission is an equitable remedy, and in my opinion equity has the same power, operating on the conscience of the parties, to order one to pay compensation to the other in order to effect substantial restitution under a decree for rescission, as it has to order one party to pay money on account, or by way of indemnity.

Is rescission barred by conduct or delay (laches – slackness)? No. No undue delay and retaining the shares and operation of the motel should not be treated as an affirmation of the contract.

Limitations to Rescissiona. In real estate contracts, execution of contract constitutes a bar to rescission. Must be sought before performance or execution of K. i.e. while it remains executory.

Redican v Nesbitt (1924): Vendor’s agent makes innocent misrepresentation that property has electricity. Purchaser only able to inspect 2 days after purchase $ paid, documents executed and keys handed over. Held: K executed and no rescission. (Note 6, page 376)

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However: Ennis v Klassen (1990): Innocent misrepresentation with respect to BMW model. Purchase $ paid, delivery and car registered.

“Rescission ceases to be available where the contract has been accepted, which inmost instances will mean after the passage of a reasonable period of time for the purchaser to determine whether representations are true.”

b. Promisee must be able to give back what she got from the promisor (restitutio in integrum) but note reference to Spence v. Crawford in Kupchak v. Dayson:

“The court must fix its eyes on the goal of doing “what is practically just.” How that goal may be reached must depend on the circumstances of the case, but the court will be more drastic in exercising its discretionary powers in a case of fraud than in a case of innocent misrepresentation. . . . There is no doubt good reason for the distinction. A case of innocent misrepresentation may be regarded rather as one of misfortune than as one of moral obliquity. There is no deceit or intention to defraud. The court will be less ready to pull a transaction to pieces where the defendant is innocent, whereas in the case of fraud the court will exercise its jurisdiction to the full in order, if possible, to prevent the defendant from enjoying the benefit of his fraud at the expense of the innocent plaintiff.

Non-disclosure as misrepresentationTraditional doctrine is that a party negotiating a contract is not subject to a duty to disclose material facts. Silence/non-disclosure is generally not misrepresentation.Exceptions: Half-truths; Active concealment; Changing circumstances affect the truth of an earlier statement; Contracts uberrima fides (utmost good faith); Contracts arising out of fiduciary relationships

Note 3, page 369: In earlier chapters, we explored the possibility that parties negotiating an agreement might be subjected to a duty to bargain in good faith. … Under American law, a duty to disclose information in the course of bargaining has been recognized in circumstances where nondisclosure “amounts to a failure to act in good faith”.

C.A Ontario, obiter, suggested that a similar duty to disclose ought to be recognized in Canadian common law: 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), Weiler J.A. suggested that the following five factors are indicative of when such a duty should be imposed:(1) A past course of dealing between the parties in which reliance for advice, etc., has been an accepted feature;(2) The explicit assumption by one party of advisory responsibilities;(3) The relevant positions of the parties particularly in their access to information and in their understanding of possible demands of the deal;(4) The manner in which the parties were brought together, and the expectations that could create in the relying parties; and(5) [W]hether “trust and confidence knowingly [has] been reposed by one party or the other.”

3. WarrantiesA term of a contract that parties intend to be binding (a contractual promise), the breach of which gives rise to damages (expectation damages).

Collateral contract/warranty: In sale situations, often the written contract might only specify the thing that is being sold (for example a horse, a car). What about the representations that were

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made during the sale? Rather than one contract (sale of a racing horse), the courts sometimes adopted a two-contract approach

K1= contract for sale of horseK2= if you enter K1, I promise it is a racing horse. Unilateral contract, the performance of which is entering into K1.

It is collateral to the main contract (which was put in writing). Note that if the collateral warranty is made after the main contract is concluded it is a contractual modification and under the traditional rule is unsupported by consideration.

Heilbut, Symons & Co v Buckleton p. 377Test for warranty: "An affirmation at the time of the sale is a warranty provided it appears on the evidence to be so intended". In this case, no collateral contact. Rare, must be strictly proven. No test except intentions of the parties, relies solely on the facts.

“He must shew a warranty, i.e., a contract collateral to the main contract to take shares, whereby the defendants in consideration of the plaintiff taking the shares promised that the company itself was a rubber company.”“Any laxity on these points would enable parties to escape from the full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject-matter.”“The intention of the parties can only be deduced from the totality of the evidence”

Dick Bentley Production Ltd v Harold Smith (Motors) Ltd p. 382Prima facie, warranty if: representation; made in the course of dealings; for the purpose of inducing other party to act (important issue); induces entry into K (reliance); reliance is reasonableDifficulty, because essentially the same as for misrepresentation. “… whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. What conduct, then? What words and behaviour, lead to the inference of a warranty?Looking at the cases once more, as we have done so often, it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that the representation was intended to be acted on and was in fact acted on. But the maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.”

Leaf v International Galleries p. 384Sale of “Constable” painting. Five years later, L tried to sell the painting and found out it was not by Constable. L took it back to the seller and asked for his money back (i.e. rescission of the contract). Too late – no rescission. Should have claimed for damages (because here, could have claimed that it was a condition).

“So, assuming that a contract for the sale of goods may be rescinded in a proper case for innocent misrepresentation, nevertheless, once the buyer has accepted, or is deemed to have accepted, the goods, the claim is barred.”

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Note: Sale of Goods Act once the good has been accepted and after the period of reasonable inspection, a condition may only be treated as a warranty:

15(4) If … the buyer has accepted the goods or part of them, or if the contract is for specific goods the property in which has passed to the buyer, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect.

Sale of Goods ActThere are a number of implied conditions in every sale of goods contract:- there is an implied condition that the goods must correspond with the description (Section 17)- there is an implied condition that the goods are reasonably fit for that purpose (Section 18(a))- there is an implied condition that the goods are of merchantable quality (Section 18(b))- there is an implied condition that the goods will be durable for a reasonable period of time (Section 18(c))

See also Business Practices and Consumer Protection Act

4. Distinguishing between innocent misrepresentations and warrantiesThe doctrinal test for distinguishing between innocent misrepresentations and warranties requires an objective assessment of the promissory intent of the parties: did the parties intend the statement to be a binding promise? While the determination is necessarily fact specific, a number of factors influence the assessment.Timing of Statement: The earlier the statement was made in the negotiations, the less likely that it was a warranty, or indeed even a misrepresentation. A certain amount of puffery in the initial stages is expected and early statements may be displaced or merged in the later negotiations.Importance of statement: How important was the statement to the person to whom it was made – to what extent did it induce formation of the contract?Was the speaker aware of the importance of the statement (foreseeability of reliance) : Was the importance of the statement clear to the maker of the statement or will that person be unfairly surprised by finding that it has contractual consequences?Relative knowledge and skills of the parties: Does the person making the statement have a special skill or knowledge of the facts upon which the other relies? Conversely, how knowledgeable is the person to whom the statement is made (which in turn goes to the reasonableness of her expectations that the statement is true)?Content of Statement:a. How specific or vague is the statement? b. Opinion or Fact: Was the statement merely and obviously an expression of opinion, or was it offered as a statement of fact? Obvious statements of opinion will not usually be held to be warranties, though this may turn on knowledge and skill of speaker. Context: What was the degree of formality surrounding the statement? Was it an offhand or casual opinion or did it play a central role in the negotiations?Have the parties taken the trouble to reduce the contract to writing? If yes, then the parties had an opportunity to incorporate the statement as a term of the contract. Courts are reluctant to add oral terms to written documents especially where the term significantly adds to or deviates from the obligations of the parties. Disclaimers: Did speaker say or do anything to disclaim responsibility for it or to prevent the other party from relying upon it? Was there an exclusion clause?

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Price/consideration: Does the price charged tell us anything about how the parties allocated responsibility for the truth of the statement (e.g. buying a “gemstone” for $5.00 is different from buying the same stone for $5000).

5. Concurrent Liability in Contract and Tort: Negligent Misrepresentation

Tort of negligent misrepresentationHedley Byrne & Co. v. Heller & Partners – NOT IN MATERIALSThe elements of the tort of negligent misrepresentation are:

- duty: special relationship between speaker and receiver - speaker provides “information, opinion or advice”- representation false- provided negligently – did not meet standard of case- reasonable reliance- damage

Why a traditional reluctance to recognize tort?Harm caused by negligent misrepresentations often arises in a commercial context: e.g. statements by lawyers, accountants, bankers etc.:

- commercial is the arena of contract- in commercial context risks should be allocated by contract: individual self reliance- floodgates concerns regarding economic loss- words are different from acts: potential plaintiffs unlimited- words exist forever- economic not physical loss

Older cases – contractual relationship ousts tortJ. Nunes Diamonds Ltd. v. Dom. Elec. Protection Co. – NOT IN MATERIALS

“the basis of tort liability considered in Hedley Byrne is inapplicable to any case where the relationship between the parties is governed by a contract, unless the negligence relied on can properly be considered as ‘an independent tort’ unconnected with the performance of that contract. . .”

Newer cases - concurrencySodd Corp. v. N. Tessis p. 398Accountant, trustee in bankruptcy, makes representation about value of stock in warehouse. Plaintiff submits tender for goods.

In our view, the defendant as a professional accountant and trustee in bankruptcy was in a special relationship creating a duty of care to the plaintiff and was negligent in his representation concerning the retail value of the stock-in-trade.… the defendant’s negligent misstatement also constituted a collateral warranty inducing the plaintiff to submit its tender. The defendant’s stipulation amounted, in our view, to a binding promise, depriving him of the terms of the exemption.It is clear from the cases that the defendant’s representation, whether characterized as a negligent misstatement or as a collateral warranty, falls outside the exemption clause. . .

BG Checo International Ltd. v. British Columbia Hydro and Power Authority p. 401 Checo sued seeking damages for negligent misrepresentation or breach of contract. Judge found Checo had been fraudulently induced to enter the contract. SCC affirms that where a wrong

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supports an action in contract and in tort, the party may sue in either or both, subject to any limit the parties themselves have placed on that right by their contract.

… the law should move towards the elimination of unjustified differences between the remedial rules applicable to the two actions, thereby reducing the significance of the existence of the two different forms of action and allowing a person who has suffered a wrong full access to all relevant legal remedies.

What is the effect of a contractual clause that limits tort liability?A contract may limit the scope of the tort duty or waive the right to sue in tort—thereby limiting or negating tort liability. Contractual limitations must be done in clear terms and are subject to other contract law doctrines (mistake, fraud, unconscionability).

Three situations generally arise (In Checo)(i) The contract stipulates a more stringent obligation than tort law would impose

… The first class of case arises where the contract stipulates a more stringent obligation than the general law of tort would impose. In that case, the parties are hardly likely to sue in tort, since they could not recover in tort for the higher contractual duty. The right to sue in tort is not extinguished, however, and may remain important, as where suit in contract is barred by expiry of a limitation period.

(ii) The contract stipulates a less stringent obligation than tort law would impose… The most common means by which such an intention is indicated is the inclusion of a clause of exemption or exclusion of liability in the contract.… the only limit on the right to choose one’s action is the principle of primacy of private ordering—the right of individuals to arrange their affairs and assume risks in a different way than would be done by the law of tort. It is only to the extent that this private ordering contradicts the tort duty that the tort duty is diminished.… it is always open to parties to limit or waive the duties which the common law would impose on them for negligence. This principle is of great importance in preserving a sphere of individual liberty and commercial flexibility.

(iii) The duty in contract and the common law duty in tort are co-extensiveThe common calling cases, which have long permitted concurrent actions in contract and tort, generally fall into this class.

If there are concurrent claims in tort and contract, what damages may be recovered?For tort, reliance. For contract, expectation damages. In practice, a reliance based calculation for loss of opportunity is often functionally equivalent of loss of profits.

6. Parol Evidence Rule

Issue: Determining the Terms of a ContractConflict between written contract and other extrinsic evidence (oral, written, electronic etc.). Prototypical situation is where there is an oral representation that either conflicts with the written contract or is excluded by an “entire agreement” clause:

Entire Agreement - This Agreement including the Schedules hereto constitutes the entire agreement of the parties and supersedes all prior agreements, negotiations, representations and proposals, whether written or oral. There are no conditions, covenants, representations or warranties, express or implied, statutory or otherwise relating to the subject matter hereof except as herein expressly provided.

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Signature Rule in L’Estrange (Eng. CA, 1934): Signed contract is binding. Common law traditionally accords high degree of deference to the written contract.

Parol Evidence RuleExtrinsic evidence is inadmissible to alter the contract.

“if the language of the written contract is clear and unambiguous, then no extrinsic parol evidence may be admitted to alter, vary, or interpret in any way the words used in the writing” (Fridman, The Law of Contract).

Although the rule is nominally procedural, it operates substantively—in the face of a written agreement, the prior representation or statement has no contractual effect.

Hawrish v. Bank of Montreal p. 418Hawrish guarantees debts of company and bank sues on guarantee. Hawrish defends and says the bank manager promised that he would be released when bank obtained joint guarantee from directors. Bank obtained other guarantee but Hawrish not released. Signed guarantee contradicts oral assurances (there is no provision for release when other guarantee obtained).Held: Guarantee binding / Oral evidence not admissible - Parol evidence of a distinct collateral agreement that does not contradict main instrument is admissible (i.e. can be admitted if it adds to or supplements the written agreement).- Collateral agreement allowing for the discharge of the guarantee cannot stand as it contradicts the terms of the guarantee.

Bauer v. Bank of Montreal p. 421Bauer guaranteed loan. Alleges that bank manager promised to return security for loan (assignment of the company debts) to Bauer if he paid. Bank did not register security and cannot return it to Bauer.Held: Guarantee binding / Oral evidence not admissibleEvidence of oral representation is inadmissible under the parol evidence rule and any collateral agreement founded upon it may not stand in the face of the written guarantee (because contradict the term of the written agreement)

RationalesAdministrative/adjudicative ease; Prevent fraud/perjury; Enhance certainty/predictability; Efficacy of commercial documents; Prevent unfair surprise; Control agents/employees

Exceptions to the admissibility of the evidence- The written agreement is not the whole contract.- Interpretation: Extrinsic evidence can be introduced to clear up an ambiguity in the contract.- Invalidity: Extrinsic evidence can be introduced to show that the contract is invalid because of lack of intention, consideration or capacity- Misrepresentation: Extrinsic evidence can be introduced to show there was a misrepresentation that was innocent, negligent or fraudulent.- Mistake: Extrinsic evidence can be introduced to show that there was some mistake as to the nature or effect of the agreement.- Rectification: Extrinsic evidence can be introduced to correct an error/mistake in putting the agreement in writing.- Condition precedent: Extrinsic evidence can be introduced to show that there was a condition precedent to the agreement taking effect.- Collateral Contract/Warranty/Agreement: Extrinsic evidence can be introduced to show that there was a separate agreement along with the written agreement.

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- Unconscionability: Extrinsic evidence can be introduced to show that the transaction was brought about through unconscionable means.- Modifications and discharge: Extrinsic evidence can be introduced to show that the contract has been modified or terminated.- Equitable remedy: Extrinsic evidence can be introduced in support of a claim for an equitable remedy.

What is left of the rule? When is evidence inadmissible?- To provide evidence of subjective intentions of the parties- According to Hawrish v. Bank of Montreal to introduce evidence of a collateral agreement that contradicts the written agreement.

Reformulation of the ruleGallen v. Allstate Grain p. 428 Plaintiff farmer buys buckwheat seeds from Allstate. Allstate’s Manager assures farmer that there will be no problem with weeds - buckwheat would choke the weeds out. Contract has an exclusion clause: Allstate gives no warranty as to the productiveness or any other matter pertaining to the seed sold to the producer and will not in any way be responsible for the crop. The farmer sued on the basis of the oral representation as a warranty. Allstate counters with parol evidence rule—representation contradicts contract.

Anderson:“Not responsible for the crop” must be interpreted in light of the express promise. Where there is an exemption/exclusion clause, the clause will be construed narrowly so that its words do not defeat an express promise or warranty.

Lambert:There was a warranty and it was not contradictory to the terms of the contract. Oral representation that adds, subtracts or varies written contract is okay, not the same as contradicting.Oral Representation: The buckwheat would “grow up and cover the field like an umbrella”.

Buckwheat will choke out weeks.Written Clause: Goes to productiveness of crop (yield). The statement that Allstate will

“not in any way be responsible for the crop” means that Allstate is not responsible for the yield. This simply adds to the contract.

Parol evidence rule recast as a presumption: “Once it has been decided that the oral representation was a warranty, then, in my opinion,

(a) evidence accepted on the basis that there would be a subsequent ruling on admissibility, becomes admissible;(b) the oral warranty and the document must be interpreted together, and, if possible, harmoniously, to attach the correct contractual effect to each;[Courts often will engage in strict interpretation “reading down” the exclusion clause](c) if no contradiction becomes apparent in following that process, then the principle in Hawrish, Bauer and Carman has no application; and(d)  if there is a contradiction, then the principle in Hawrish, Bauer and Carman is that there is a strong presumption in favour of the written document, but the rule is not absolute, and if on the evidence it is clear that the oral warranty was intended to prevail, it will prevail.”

Dissent: Seaton – Oral and written statements cannot stand together / Clause is clear and is neither unreasonable or unconscionable / Plaintiffs were businessmen and had time to review written terms / Written contract should be respected – certainty is an important value

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Strength of PresumptionVaries depending upon the circumstances. ------------------ Presumption in favor written K strengthening ----------Adds a term Varies Contradict

Specific Representation on Key Issue and Inconsistency with Standard Form ContractJ. Evans & Son (Portsmouth) Ltd v Merzario (Andrea) Ltd p. 423P contracted D to have cargo shipped from Italy to England. D promised orally that the container would be transported below deck, then neglected to do so. Written K had clauses indicating that D was responsible for deciding how goods would be handled and limiting liability for lost or damaged goods.Extrinsic evidence allowed: Look at totality of evidence to determine what is included in contract. Oral promises that induce party into contract can override written clauses in certain casesDenning: The oral promise induced plaintiff into contract. Defendant breached oral agreement, so can’t rely on contract to limit liability.Roskill: This contract was partly oral, partly written and partly by conduct, so parol evidence rule doesn’t apply.  Look at whole situation.

Zippy Print . v. Pawliuk para. 45 – NOT IN MATERIALS “A general exclusion clause will not override a specific representation on a point of substance which was intended to induce the making of the agreement unless the intended effect of the exclusion clause can be shown to have been brought home to the party to whom the representation was made by being specifically drawn to the attention of that party, or by being specifically acknowledged by that party, or in some other way”.

Factors influencing application of the rule(a) General: Intent, reliance, reasonable expectations, unfair surprise(b) Nature of change/conflict: how serious is the conflict/contradiction. (c) Nature of Document

- Intended to be whole agreement—entire agreement clause?- clarity of wording- read by parties (knowledge)?

(d) Bargaining Relationship- power- standard form contract- past relations/experience- evidence of sharp practice- legal advice obtained

(e) Nature of Representation - quality and credibility of evidence- clarity and specificity- significance

Business Practices and Consumer Protection Act187 In a proceeding in respect of a consumer transaction, a provision in a contract or a rule of law respecting parole or extrinsic evidence does not operate to exclude or limit the admissibility of evidence relating to the understanding of the parties as to the consumer transaction or as to a particular provision of the contract.NOTE: "consumer transaction" means a supply of goods or services or real property by a supplier to a consumer for purposes that are primarily personal, family or household.

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7. Classification of terms

How to classify a term such as “seaworthy” or “rust-free”, where the defect in question will exist along a spectrum from trivial to complete destruction/write-off?

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd p. 442A contract to hire a ship, a “charter-party” or “charter”, between the owners of the ship and charterers for 24 months. When the ship was delivered to the charterers the engine room was understaffed and the staff incompetent. In total there were some 20 weeks of repairs in the first six to seven months of time charter. Freight rates dropped about 70 between June and August 1957. Charterers purported to repudiate the contract on June 6 and September 11. On Sept. 15, vessel was seaworthy in every respect, with 17 months left to run on the charter.Was the term of the charter that the owner would provide a seaworthy vessel a condition or a warranty?

Held: Breach of contract (vessel was not seaworthy) but charterer not entitled to repudiate.Charterers not entitled to repudiate for unseaworthiness by itself nor delay entailed by the owners’ breaches: The delay in question was not so great as to frustrate the commercial purposes of the contract. It was a term of contract that during repair periods over 24 hrs no hire payment was due. In addition, the charterer had the option of adding the time lost for repairs to the charter time.

Diplock says that common law recognizes two different kinds of contractual undertakings: those collateral to the main purpose of the parties as expressed in the contract

(warranties); those which were mutually dependent, so that the non-performance by one party of such

an undertaking excused the other party from performance (conditions—i.e. a condition precedent to the obligation to perform)

It is now recognized that it is really the resulting event, flowing from the breach (or frustrating event) that relieves the other party from performance. In the circumstances of a frustrated contract, both parties are relieved of their obligations. And the issue of whether a particular event relieves a party from performance cannot be determined by treating all contractual undertakings as either conditions or warranties.

With respect to repudiation, the test is whether the:occurrence of the event deprive[s] the party who has further undertakings still to perform of substantially the whole benefit of the contract which it was the intention of the parties as expressed in the contract that [the charterer] should obtain as the consideration for performing those undertakings.

Innominate/Intermediate TermsContractual term the breach of which may give rise to a right to repudiate, or only to damages, depending on the severity of the consequences of the breach (post-factum analysis)Parties may expressly make any term a condition, but they should make it clear that by calling a term a condition any breach of that term (however small) will entitle the other party to repudiate the contract.

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Wickman Machine Tool Sales Ltd v L. Schuler A.G. p. 449Majority finds that word “condition” is not used in technical sense as providing a right to repudiate, rather it is a term of a contract, the breach of which is governed by the termination provision (Clause 11): can terminate if notice given of material breach, which is not remedied in 60 days. Condition has multiple meaning, imprecise term, therefore need to be careful in the drafting of the contract.

Convention on the International Sale of GoodsUnder Article 49, the buyer may declare the contract avoided if the seller’s failure to perform obligations amounts to a fundamental breach of contract. A breach is fundamental:

if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. (Article 25)

Principles of International Commercial Contracts7.3.1 (1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance. (2) In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether 

(a) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result; (b) strict compliance with the obligation which has not been performed is of essence under the contract; (c) the non-performance is intentional or reckless; (d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party's future performance; (e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated.

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