Contracts Final Outline – Spring 2016 – Emma WatermanParol Evidence Rule

A substantive rule that states that the signed agreement governs and extrinsic evidence is inadmissible to alter the K (if the language of the written K is clear and unambiguous). There is a strong presumption in favour of a written K.

Signature rule (L’Estrange): a signed K is binding, even if you are ignorant to the content.

Issue: determining the terms of a K Conflict between the written K and extrinsic evidence Prototypical situation: oral representation that conflicts with the written K or is excluded by an “entire agreement” clause

Rationales: administrative ease, prevent fraud, enhance predictability, efficacy of commercial documents, prevent unfair surprise, control employees Counter: Rogers employee might tell you something that isn’t in the K and you believe them, but we have Consumer Protection legislation for these instances

Hawrish v BMO (1969) SCCParol evidence of a distinct collateral agreement that does not contradict the main instrument is admissible (can be admitted if it adds to/supplements the written K)Collateral agreement allowing for the discharge of the guarantee cannot stand; it contradicts the terms of the guarantee

Policy: if we don’t uphold signed agreements, general disaster will result

Bauer v BMO (1980) SCCEvidence of oral representation is inadmissible under the parol evidence rule and any collateral agreement founded upon it may not stand in the place of the written guarantee.

Exceptions – evidence is admissible where: Written agreement is not the whole K Interpretation : to clear up an ambiguity Invalidity : to show the K is invalid due to lack of intention/consideration/capacity Misrepresentation : to show there was I, N, or F misrepresentation Mistake : to show there was a mistake re: the nature/effect of the agreement Rectification : to correct an error/mistake in putting the agreement in writing Condition precedent : to show that there was a CP to the K taking effect Collateral K/warrant/agreement : to show that there was a separate agreement along with the written K Unconscionability : to show that the transaction was brought about through unconscionable means Modification and discharge : to show that the K has been modified or terminated Equitable remedy : to support a claim for an equitable remedy

So, can basically always get your evidence if you argue your case properly, EXCEPT: Can’t admit evidence of purely subjective intention Can’t introduce evidence of a collateral agreement that contradicts the written agreement (Hawrish)

Gallen v Allstate Grain (1984) BCCABuckwheat case about whether there’s overlap of warrantyLays out the exceptions^PE rule is 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;(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.”

Strength of presumption

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Contracts Final Outline – Spring 2016 – Emma WatermanVaries depending upon the circumstances-----Presumption in favour of written K strengthening---->

Adds a term Varies Contradicts

J Evans & Son v Merzario (1976) Eng CAPromise to store goods below deck. Goods stored on deck and fall off. D relies on exclusion clause.Finds that it's a question of construction; doesn't think that any of the exemption clauses can be applied, because one has to treat the promise that no container would be shipped on deck as overriding any question of exempting conditions - otherwise, the promise would be illusory

Sattava Capital Corp v Creston Moly Corp (2014) SCC – the most recent wordParol evidence rule:

Precludes admission of evidence outside the words of the written K that would add to, subtract from, vary, or contradict a K that has been wholly reducted to writing

To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Eli-Lilly) The purpose of the rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a

party’s ability to use fabricated or unreliable evidence to attack a written K (United Brotherhood of Carpenters) It does not apply to preclude evidence of the surrounding circumstances

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Contracts Final Outline – Spring 2016 – Emma WatermanInterpretation of Contracts

1. The process of contractual interpretation is aimed at ascertaining the true intentions of the parties at the time the contract is signed

Consolidated-Bathurst: if there is ambiguity in the wording, the court must take the more reasonable interpretation, the one that would produce a fair result

But, when there is no ambiguity in the wording of the document, the C-B notion does not apply. (Eli-Lilly)

2. The courts apply an objective approach to the determination of the parties’ intention at the time of contract (the principal function of K law is to protect reasonable expectations) (Waddams, The Law of Contracts)

3. The factual matrix, commercial context, and surrounding circumstances are almost always relevant. Contracts aren’t made in a vacuum. (Reardon Smith Line Ltd v Yngvar Hansen-Tangen)

4. Where there is no ambiguity in the written agreement there is no need for extrinsic evidence. (KPMG Inc v Canadian Imperial Bank of Commerce)

5. The general rule is that evidence of prior negotiations is inadmissible for the purpose of construing the final agreement. But… may be admitted where it is relevant either to show the aim and genesis of the transaction (McCamus, The Law of Contracts)

6. Interpretation must give effect to all parts of the agreement. No provision of an agreement should be interpreted to be redundant. (BG Checo)The presumption is that a term in a contract is not meaningless. Nevertheless, courts recognize that agreements drafted by lawyers often contain language that is duplicative.

7. Subsequent conduct: English courts have said it’s not legitimate to examine SC, while Canadian courts have taken a more

flexible view Re CNR and CP (1978) BCCA: where there are two reasonable interpretations of a provision then evidence of SC

“may be admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable interpretations is the correct one”

8. Related agreements may be taken into account where the agreements are components of one larger transaction

9. Words are to be given their natural or ordinary meaning. Evidence may be admitted to prove that the word has a special or technical meaning.

10. Construction contra proferentem: provisions of Ks that suffer from ambiguity are to be construed against the interest of the person who drafted or proffered the ambiguous provision.

Sattava Capital Corp v Creston Moly Corp (2014) SCC – the most recent wordReview of a commercial arbitration award – court restored the arbitrator’s decision; not for the courts to interfere because there was no error of lawK interpretation has evolved to a “practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding””

(Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada (2006) SCCThe meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreementWhile the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreementThe nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract.Discussion of parol evidence rule – see page 1

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Contracts Final Outline – Spring 2016 – Emma WatermanSale of Goods Act 2014Condition may be treated as warranty (s. 15)

s. 15(4): if performance of a K has happened “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”

Implied conditions as to quality or fitness (s. 18(a)) In the consumer context, certain things cannot be contracted out of In business dealings, generally can contract out of anything

*Note: rules in contract apply unless the parties have not agreed otherwise (default rules) Gap filling rules that promote economic efficiency However, all of this is still subject to contract control/illegality

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Contracts Final Outline – Spring 2016 – Emma WatermanSigned Contracts

CAN: Generally, a party who signs a written contract is bound by its terms regardless of whether they were aware of its content (L’Estrange). This “signature rule” applies even if the activity was inherently risky (Delaney). For policy reasons, courts want to allow a liberal market to function without too much interference.

Commercial: This rule is strongest in commercial settings. For policy reasons, commercial parties are presumed to be able to understand terms of a contract and give enough thought before signing a document. Thus, in a commercial setting such as this, a contract will generally be enforced. It is up to the party seeking relief of a contract to prove their signature did not amount to assent to the terms of the contract. But, they have a strong presumption of signed contracts being enforceable to overcome.

Consumer: However, in consumer transactions, whether a signature reflects a party’s consent to the terms of the contract is put to more scrutiny by the court (Tilden).

Step 1:Generally, a party who signs a written K is bound by the terms regardless of whether they read them or were aware of them (L’Estrange).

Doesn’t matter if the activities were risky (as long as there was no unconscionability, fraud, misrepresentation, etc) – the signature rule prevails

o Exception: any waiver seeking to cover negligent conduct must contain something more than the word negligence, since the reasonable individual may not understand what it means (Ochoa v Canadian Mountain Holidays)

A signature is more questionable in a consumer transaction than in a commercial setting (Tilden)

Step 2: Does Tilden apply?Tilden applies if a reasonable party knew that the signing party did not intend to agree to the K termsOR if the contracting party failed to take reasonable steps to bring the terms to the signer’s attention

If there are unacceptable conditions inconsistent with the consumer’s reasonable expectations, the K may not be binding. Consider the following:

A. Is the clause consistent with the rest of the K? Karroll: a ski hill releasing indemnity is consistent with the purpose of the K given the risky activity

B. Was the K too long or was there small print? In Karroll the agreement was short & clear, so Tilden didn’t apply

C. Was there enough time/opportunity to read and understand the K? There was in Karroll

D. Was it apparent that the party didn’t read it?E. Was there a particularly onerous clause?

Like the clause in TildenF. Did the party know it was a legal document affecting their rights? Was it a formal situation?

In Karroll the skier did – she has signed these before, etcG. Is negligence involved?

Explicit terms must be employed in order for one party to exclude liability from negligence (Ochoa).

Step 3:If the party seeking to rely on the terms can’t prove the above factors, it’s possible that the onerous clause is not enforceable.If the party did establish the above factors, the clause is enforceable (unless there’s duress, illegality, mistake, etc)

Policy:Liberal market, risk allocation, knowledge imbalance

Cases:

Tilden v Clendenning (1978) ON CAFacts: C signed a standard form car rental K and paid extra for additional coverage. K contained a limitation clause: no coverage is the vehicle is used contrary to any law, rule, or regulation of any public authority or if the driver drank or consumed any liquor. Held: K not binding.

The condition is unreasonable. If you go 1km/h over the speed limit or drink half a beer = no coverage. Inconsistent with the consumer’s reasonable expectations that collision damage would apply so long as not impaired.

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Contracts Final Outline – Spring 2016 – Emma Waterman Party can’t rely on stringent and onerous provisions in a standard form K unless reasonable measures have been taken to

draw such terms to the attention of the other party.Note: courts generally haven’t applied Tilden broadly – continue to uphold standard form Ks and signed waivers of liability even when those waivers have not been read.

Karroll v Silver Star (1988) BCSCFacts: Karroll signs waiver form, participates in a ski race, and is injured.Issue: Is she bound by the release?

Ski Hill says: signature rule (L’Estrange) Karroll says: did not receive reasonable notice of terms in the form (Tilden)

Analysis:Tilden is not a general principle that reasonable steps need to be taken to bring an exclusion of liability to the attention of the customer; is a limited principle only applicable in special circumstances: where the person knew or had reason to know of the other’s mistake as to its terms

Ex) circumstance that is hasty, informal, where the clause is inconsistent with the rest of the K, absence of opportunity to read, length and amount of small print

The reasonable person would not have known that Karroll was not assenting She knew it was a legal document affecting her rights, the release was consistent with the purpose of the K, it was a

hazardous activity, the form was short & easy to read, and she had signed such a release before. Silver Star had taken reasonable steps by capitalizing the heading and providing sufficient time to read it.

Significance: continued applicability of the signature rule, particularly in recreational waiver casesNote: Vernon Ski Club relied on agency exception to privity rule as a defense. Wouldn't do this today - would do London Drugs type analysis.

“In the usual commercial situation, there is no need for the party presenting the document to bring exclusions of liability or onerous terms to the attention of the signing party, nor need he advise him to read the document. In such situations, it is safe to assume that the party signing the contract intends to be bound by its terms.”

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Contracts Final Outline – Spring 2016 – Emma WatermanFundamental Breach

CAN: Previous jurisprudence held that an exclusion clause could not be construed to excuse liability for a fundamental breach (a breach that goes to the root of a contract). The SCC in Tercon held that this doctrine of fundamental breach, which is attributed to Lord Denning in the Karsales case, has been “laid to rest”.

The DofFB was a rule of law that controls the control of contractual power in the context of exclusion clauses (particularly those in standard form Ks) - about whether a contracting party is permitted to rely on an exclusion clause where its conduct results in a fundamental breach of K. Don’t mention it on the exam, unless you’re using it to discuss the historical development of the law (eg how the death of this doctrine affects consumer protection).

One of the problems with it was its malleability – it was a rule of interpretation, meaning there was no absolute rule of law that said you couldn’t rely on an exclusion clause just because you’ve been guilty of a breach of K – had to be interpreted

Repudiatory breach: breach of K (can be a fundamental breach) that entitles the innocent party to repudiate – can treat the K as at an end. NOT what we are talking about here.

Modern Approach: Tercon Analysis1. First step (assuming that we have a valid K and a valid exclusion clause):

o As a matter of interpretation, does the exclusion clause apply? “This will depend on the Court’s assessment of the intention of the parties as expressed in the contract. If the

exclusion clause does not apply, there is obviously no need to proceed further with this analysis" Normal interpretation rules apply (page 2) and the court can read down the K

2. Second step:o If the exclusion clause applies, was the exclusion clause unconscionable at the time the K was made?

"This second issue has to do with contract formation, not breach" Generally for unconscionability there is inequality of bargaining power and inequality of bargain

3. Third step:o If the exclusion clause is valid and applicable, Court can then look to whether it "should nevertheless refuse to enforce

the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts"

Examples of public policy reasons: criminality, fraud, abusive conduct (Plastex = creating a public health menace, confirmed in Tercon)

Intentionally doing something in bad faith knowing you can hide behind an exclusion clause will be a valid public policy reason to override the EC

Karsales (Harrow) Ltd v Wallis (1956) Eng CA – no longer validFacts: D purchaser refused to accept delivery of a used car. It was delivered severely damaged but had been fine when he’d inspected it before. The financing company sues the purchaser and relies upon the exclusion clause. Lord D: “It is now settled that exempting clauses of this kind… do not avail the party… when he is guilty of a breach which goes to the root of the contract… If he has been guilty of a breach of those obligations in a respect which goes to the very root of the contract, he cannot rely on the exempting clauses.”

Tercon Contractors Ltd v British Columbia (2010) SCCFacts: BC tenders for highway work and selects an ineligible contractor. P is mad because they were lowest $ eligible – brought an action. There was an exclusion clause that said no one who submits a bid could bring a claim for not being chosen. BC did breach contract A – the terms of the tendering process. Held: Exclusion clauses are enforceable unless they are unconscionable or there are policy reasons not to enforce. Here the exclusion clause was NOT enforced; province’s breach was fundamental.

Owner owes bidders a duty of fairness in assessing their bids Owners don’t have to chose least $ eligible bid if clear and properly worded exclusion clause is in K

Majority: There was misconduct, there’s a special commercial context of tendering, no other effective remedy, province could have drafted a clearer exclusion clause, interpretation… and contra proferentemMinority: Prof Newcombe agrees with the minority – language is clear and unambiguous. Not unconscionable, not contrary to public policy, floodgates argument, leave it to the market, other relief available…

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Contracts Final Outline – Spring 2016 – Emma WatermanMistakeCAN: Mistake is the doctrine of last resort. It is very rare to find a case where a party was successfully relieved of their contractual obligations due to mistake (although most contract law disputes do involve some form of “mistake”). Mistake as a doctrine of contract law is a nebulous, residual category of relief involving cases of serious ambiguity in the terms of the contract or the parties’ contractual assumptions.Note: if you think it’s a mistake issue, make sure it isn’t really a contract formation or misrepresentation issue. 1. Apply normal K formation rules:

o Is there a contract? Was there sufficient certainty about the subject of the K, the price, and the parties?o Mistake as to Terms (“internal mistakes” – what was agreed?)o CAN: A mistake as to the terms of the agreement may render to contract void ab initio. If the parties are mistaken about

the terms of the agreement, they may be contracting for different things, thus no contract is formed. o Did both parties made the same mistake? This is common mistake. If it is about a fundamental matter of the K,

then no K is formed. (Williams v Gledd)o Was there a misunderstanding where the parties are at cross-purposes? One person thinks they are selling X, while

the other person thinks they are buying Y? This is mutual mistake. The result will depend on the normal rules of K formation, representation, and warranties.

o If P (buyer) is mistaken abut a fact, then D will argue caveat emptoro Must interpret the K: what would a reasonable 3P interpret the circumstances to mean? (Staiman Steel –

“all the steel in the yard”). P might argue the K is too ambiguous for the reasonable person to infer common intention. If this is the case, then the K is void, even if there was O, A, & C (because Ks require certainty of terms in order to form). (Raffles)

o Is one party mistaken about an important issue concerning the contract and the other party knows or ought to know of the mistake? This is unilateral mistake. The normal rules of K formation/representation apply. There is no obligation for one party to correct the mistaken party provided there’s no fraud or deceit and mistake is not induced by the contracting party (Smith v Hughes) but consumer protection legislation might be applied.

o D will likely argue that caveat emptor should apply. But, if the term was fundamental to the K, then no K is formed.

o D will also point out that generally, a unilateral mistake will not make the “other party” liable o From Smith v Hughes: “In order to relieve the defendant it was necessary that the jury should find not

merely that the plaintiff believed the defendant to believe that he was buying old oats, but that he believed the defendant to believe that he, the plaintiff, was contracting to sell old oats.”

2. Is this a snapping up of the offer type of situation where the offeror might be seen to be taking advantage of the offeree by not disabusing the offeree of a mistake? (Hartog). Note: This is really an issue of contract formation, so don’t look to common law mistake at all – go straight to equitable.

CAN: This applies to cases where despite that fact that objectively, the offer is clear, the parties knew or should have known that there was a mistake. The policy reason for addressing cases like this is that the offeror might be seen as taking advantage of the offeree but not clearing up a mistake (Smith v Hughes). Or, it could be that the offeree knows that the offeror has made a mistake in their offer (Hartog). This analysis challenges the objective formation principle because courts look to what the parties intended rather than what was said. o Where one knows there is an obvious mistake of terms, there is an obligation to correct it. If it is not corrected,

then the K is void.

3. Caveat emptor generally applies in business-to-business sales: risk of mistakes as to fact rest with the party making the mistake

4. If a problem arises with respect to K, typically a question of the terms of the K :o Was there a representation or warranty? o What are the terms? o Did the K allocate the risk or exclude liability for the risk?

5. Apply the common law mistake analysis: Is the mistake about a fundamental underlying assumption? If so, the K is void

o Mistaken Assumptions: o CAN: A mistaken assumption is a mistake that goes to the basis for entering into the K. The cases in this area

highlight the tension between the values of certainty and predictability on the one hand, and unfair surprise,

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Contracts Final Outline – Spring 2016 – Emma Watermanregret, and unjust enrichment on the other. The essential issue to consider is risk allocation. Did the parties allocate the risk of mistake? Who should bear that risk? A secondary issue is fairness. Will one party be unjustly treated if the K is enforced?

Consider the three types of operative mistaken assumptions: Was the mistaken assumption about the identity of the contracting parties? If so, K is void. Was the subject matter of the K assumed be in existence by both parties but actually isn’t – res

extincta? Or do you already own the item you are contracting to buy – res sua? If so, K is void. o Distinction between whether a K is subject to a true condition precedent (common

assumption that the goods exist) and a situation where the vendor promises the goods are in existence, even though they are not.

o No K in the first case; is a K in the second case and risk is on the vendor (McRae) Was the mistake made by both parties and is about the existence of some quality which makes

the thing essentially different from the thing it actually is? This mistake regarding substance must be a fundamental underlying assumption. If so, K is void.

o In Bell v Lever Brothers (1932) this rule was formulated very narrowly. There was found to be no mistake re: the substance of the severance agreement or a mistake that rendered the agreement to be totally different, so it was held to be valid.

Policy: of paramount importance that contracts should be observed If the K allocated the risk of the relevant mistaken, then the mistaken party bears the risk Note: even if the mistake is fundamental, if it’s due to your own mistake or negligence/the other party relied on your

unreasonable assumptions, you cannot rely on the doctrine of mistake. (McRae)

6. Apply the equitable mistake analysis CAN: Lord Denning created equitable mistake in Solle v Butcher (1950). The English Court of Appeal overturned this case in

Great Peace in 2003, saying that it is impossible distinguish between “fundamental” and “essentially different”, therefore it cannot be reconciled with Bell v Lever Brothers. However, Miller Paving, a 2007 Ontario Court of Appeal case, held that Great Peace has not been adopted in Canada. The Court held that there are good reasons to retain the remedial flexibility provided by the doctrine of equitable mistake; this has been affirmed in subsequent Canadian decisions.

Test: Equity will relieve a party from the consequences of a mistake where the K was entered into: On the basis of a unilateral mistake OR

o One party lets the other remain under a delusion and conclude a K on the mistaken terms instead of pointing out the mistake

On the basis of a common mistakeo If both parties were under a common misapprehension, “the misapprehension was fundamental and that the

party seeking to set it aside was not himself at fault”

Andrew’s email about Equitable Mistake: All that is required is (1) a fundamental misapprehension about an important aspect of the contract; (2) a equitable case

(fairness, clean hands etc.) to justify setting aside the contract, notwithstanding the strong policy reasons for generally upholding contracts.

Any type of mistake (common, mutual or unilateral) can give rise to relief under equitable mistake. Clearly there is a stronger case where you have a unilateral situation and one person is taking advantage of another’s mistake and know it. But the equitable jurisdiction is very broad.

In contrast, common law mistake depends on a common mistake (both parties made making the same mistake about an essential aspect). It is a much narrower doctrine.

And despite the English CA disapproval of equitable mistake in the Great Peace, Canadian courts have approved of the doctrine and the remedial flexibility it provides.

Finally, remember that generally mistake is your last ditch argument. You only make it your first argument if not other doctrine is applicable.

“In equity, to admit of correction, mistake need not relate to the essential substance of the contract and provided that there is mistake as to the promise or as to some material term of the contract, if the court finds that there has been honest, even though inadvertent, mistake, it will afford relief in any case where it considers that it would be unfair, unjust, or unconscionable not to correct it.” (First Citizens Mortgage)

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Contracts Final Outline – Spring 2016 – Emma WatermanCases Involving Mistaken Identity

Unilateral mistake of fact: usually A Ks with B and sells “stolen” property to B. B then sells it to C (the bona fide purchaser). A remains unpaid, B absconds, and C has the property.

CAN: In cases involving mistaken identity, the common law (and Sale of Goods legislation in the common law provinces) follows the rule nemo dat quod non habet: no one can transfer to another something that he or she does not have. However, this principle conflicts with the policy of protecting innocent purchasers who buy in good faith without notice of the defect in title. The ultimate issue is risk allocation: which of the two innocent parties should bear the loss? The economic analysis generally favours the bona fide purchaser since the seller is in the best position to avoid loss at the least cost by requiring full payment before allowing the purchaser (or the rogue) to have possession of the property. Nevertheless, the common law has traditionally favoured the property owner (nemo dat).

Strong presumption that parties intent to K with the person with whom they were in personal contact (Shogun)

CAN: The common law’s non-solution to this problem needs reform because there are often two innocent parties and the court doesn’t have very clear guidance on how to proceed, so, they end up sympathizing with the property owner or the more sympathetic party.

Whether the property owner retains title to the property depends on the characterization of the K between A and B: No offer was made to the rogue – it was made to the person he was impersonating. So, K is void.

o A retains title to the property. (Cundy v Lindsay) Fundamental mistake regarding identity of the contracting party (rogue). So, K is void. A retains title to the property. Rogue made a fraudulent misrepresentation. So, there is a K but it is voidable. Title could pass from A to B but A has an

equitable right to rescind the K and regain title. (Lewis v Averay) Contract was voidable but was not avoided before the sale to C and the title is transferred. C takes title. (Lewis v Averay)

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Contracts Final Outline – Spring 2016 – Emma WatermanDocuments Mistakenly Signed: Non est factum

CAN: Generally, if a contract is signed, the signature is deemed to be evidence of assent to the terms of the contract. This is known as the Signature Rule (L’Estrange). However, there can be an exception from that rule if the document is mistakenly signed. In order to prove their signature did not amount to assent, a claimant will need to show that the agreement was essentially, “fundamentally” different from what they thought they were signing (Saunders). If they can prove this, the contract is void. It is not their deed (non est factum). Non est factum is available where a person is “permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document” (Saunders).

Signature rule (L’Estrange): a signed K is binding, even if you are ignorant to the content.Non est factum (it is not my deed): originally available where the person had not actually signed due to fraud/forgery or where a blind/illiterate person did not know what they were signing

General Principles1. A person of full age and understanding who can read and write is bound by their signature on a legal document2. Plea of non est factum is available to a person who, for permanent or temporary reasons, is not capable of reading and

sufficiently understanding the document signed. o If successful, the effect is that there’s no K

3. Plea is not available where:o The signature of the document was brought about by negligence of the signer in failing to take precautions, which

the person ought to have taken. Note: negligence in this context simply means carelessness. o The actual document was not fundamentally different from the document as the signer believed it to be.

In Saunders (old widow gets defrauded by her nephew), P knew she was signing a deed of transfer. The document was not found to be fundamentally different in nature just because the identity of the person she was transferring to was different than she thought.

4. Onus is on the mistaken person to proven that he/she took all reasonable precautions in the circumstances. It is generally insufficient to say “I relied on a trusted friend/advisor”.

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Contracts Final Outline – Spring 2016 – Emma WatermanRectification

CAN: If there was a mistake in recording an agreement into written format, a party may seek rectification. As stated in Morley, “rectification is used to restore what the parties’ agreement actually was, were it not for the error in the written agreement”. The policy considerations are fairly straightforward. The court is trying to prevent unjust enrichment while also seeking to promote certainty in the marketplace by ensuring that the agreement accurately reflects the intent of both parties. This is not a burden on freedom of contract, but rather an enforcement of the true contract, intended by both parties.

Test (from Performance Industries):1. P must prove the existence and content of the prior oral agreement2. There must be “convincing proof” of the oral agreement (beyond a balance of probabilities but less than BARD)

o This is because the court is worried that allowing rectification would promote lack of due diligence; presumption of caveat emptor is very strong in the case of written documents setting out K terms

3. P must provide the precise wording for the rectificationo Sometimes this is easy, like changing “feet” to “yards” in Performance Industries

4. P must show that D knew or ought to have known of the mistake in the written document o Essentially, must prove that to refuse rectification would be inequitable and unconscionableo Policy: if the court doesn’t rectify, they are encouraging fraud

Note:P does not have to prove that they did enough due diligence (Performance Industries – golf course)Courts are very hesitant to order rectification if there is even a hint of fraud (Morely – Metro Vancouver; ended up being dealt with under illegality)

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Contracts Final Outline – Spring 2016 – Emma WatermanFrustration

CAN: Frustration relates to assumptions about future events. Frustration involves cases where an event occurring subsequent to contract formation makes performance legally problematic, either because it is impossible to perform or because the commercial purpose of the venture has been destroyed. The effect of frustration is to relieve the parties of their future performance obligations. The fundamental question in cases of frustration is whether, due to changed circumstances, the risk of unfair hardship to one party outweighs the general policy of enforcement as expressed through caveat emptor.

Test: The modern requirements for frustration were set out in KBK Ventures – Safeway zoning case. In order to be entitled to frustration, P must establish:

1. Basic underlying assumption : The element of the K or the circumstance that is disrupted by the frustrating event must be fundamental/foundational.

o Ex) Continued existence of goods or of subject matter of K (Taylor v Caldwell – music hall burned down)o Ex) Continuation of certain conditions or the happening of an event (Krell v Henry – coronation)

2. Substantial hardship : o There must be a major impact on the economics of the transaction. o It must be more than a mere increase in expense that makes the K less profitable. o The change has to be permanent. o It must deprive one of the parties of the substantial intended benefit of the transaction. o National Carriers: change must be so significant that it would be “unjust to hold [the party] to the literal sense of

its stipulation in the new circumstances”3. Unanticipated risk : The frustrating event must be unanticipated.

o It must occur after formationo It must be unforeseen

Can’t be a risk that the parties addressed and that the parties should have been expected to address. 4. No allocation of risk by contract : Ask, is the risk of the unforeseen event expressly or implicitly allocated in the K?5. No fault : The event is beyond the control of the parties and is not caused by one of them. Frustration cannot be self-

induced.

Policy: The mere fact that K becomes more expensive or difficult to carry out is not in itself a sufficient reason to provide reliefThe unexpected event must be so far beyond the range of risks that the contract allocates that it constitutes a fundamental change in the bargainIs one party better suited to carry it? Did they already allocate or intend to allocate the risk?

Remedial Consequences:If K is frustrated (not void, but frustrated), everything up to the day of the frustrating event is ok. Parties are relieved of their future K obligations. Restitution or reliance damages are possible.

Historically, the common law test was that the loss lies where it falls (Appleby v Myers) Critique: leaves the rights and losses to pure chance

Fibrosa: HL engaged in some law reform by finding that restitution applies Critique: recovery on restitutionary grounds is limited to monetary payments; it does not apply to expenses incurred in

reliance on the KResponse to this has been Frustrated Contracts Acts: courts have fairly wide discretion to apportion pre-frustration losses

In BC, reliance losses are independently compensable and may be apportioned even where there is no pre-payment. The losses are apportioned equally – if I pay you a $1000 deposit, I’ll get $500 back.

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Contracts Final Outline – Spring 2016 – Emma WatermanEconomic Duress: Control of Contractual Power

CAN: Duress traditionally focused on the voluntariness of the consent, with the threshold being the “overborne will” (Pao On). Duress was also historically viewed to be duress to the person through threats to the individual, to their family, etc. It has evolved over time to include duress to goods or property as well as economic duress. This latter category continues to bedevil this area of law because it is difficult to distinguish between legitimate and illegitimate economic pressure. The fairness of the bargain is doctrinally irrelevant; the issue is one of consent. However, almost all cases of duress involve bargains that the coerced party claims are unfair. The general, accepted modern test of economic duress was developed in Universe Tankships (1982) JCPC (ships couldn’t leave the port unless they paid into the union employment fund).

Test: 1. Is there pressure amounting to compulsion of the will of the victim?

The real issue is not lack of will to submit “but the victim’s intentional submission arising from the realization that there is no other practical choice open to him

Consider: Did the coerced party protest? Were there other courses of action available [KEY]? Was there ILA? Did the coerced party take steps to avoid the K?

2. Is the pressure exerted legitimate in light of the nature of the pressure [KEY] and the nature of the demand? [Two part test] It’s easy if the threats are criminal or tortious, but what if they are just unsavory? It’s generally not illegitimate to threaten to breach a K The criterion of illegitimate pressure has been criticized as incoherent and unruly. It’s also difficult to apply in the context of

contractual modification (NAV Canada)3. The victim will be denied relief if a court finds that he/she expressly or implicitly approved the K after the pressure ceased to exist.

Result:With the modern approach, contracts will be made void if it is found that one party participated under duress and therefore never consented.

Economic Duress and Contract ModificationsThe criterion of illegitimate pressure in the context of K modification is problematic to apply because the nature of the pressure is always a threated breach of K and the nature of the demand is always the contract variation, typically with the demand to pay more. This means that under the Universe Tankships test, the pressure typically exerted in K modifications is legitimate, which is an issue. The test to use for economic duress in the context of contract modification is from NAV Canada (2008) NB CA.

Test: 1. Was the contract variation extracted as a result of “pressure”, whether characterized as a “demand” or a “threat”?

Typically, the promisee will expressly or impliedly threaten to breach the underlying K, usually by withholding future performance

2. Did the coerced party have no practical alternative but to agree to the coercer’s demand to vary the terms of the underlying contract?3. Assuming the answers to the first two questions are “yes”, did the coerced party consent to the variation?

Consider:o Was the promise supported by consideration?o Did the coerced party make the promise “under protest” or “without prejudice”; ando If not, did the coerced party take reasonable steps to disaffirm the promise as soon as it was practicable?

D can’t use that there was good faith or that the coerced party received ILA as a defence

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Contracts Final Outline – Spring 2016 – Emma WatermanUndue Influence: Control of Contractual Power

CAN: Undue influence is the unconscientious use of power over another to induce them into a transaction (Morris). It is an equitable principle used to set aside certain transactions due to influence of the mind. There are two categories of undue influence: actual and presumed. To establish the former, a claimant must prove on a balance of probabilities that the defendant exerted undue influence on them. The second kind of undue influence is presumed in certain circumstances. De jure undue influence is presumed where the court has already established a relationship of trust and confidence. If the relationship has not been established, a claimant must argue their relationship is analogous to a special relationship of trust and confidence/of dependency to establish de facto undue influence. It is likely that in Canadian courts manifest disadvantage must be demonstrated as well (Geffen). If any kind of undue influence is established, the burden shifts to the defendant to show that their transaction resulted from the claimant’s “full, free and informed thought” (Geffen).

De jure categories (affirmed in Geffen; non-exhaustive): fiduciary relationships, trustee/beneficiary, solicitor/client, doctor/patient, priest/worshipperDe facto relationships could involve spousal relationships, but still have to show the additional element of trust and influence

Must show that there was a relationship of trust and confidence. But, is there a requirement to show manifest disadvantage as an element of undue influence (meaning proof that the P was unduly disadvantaged or that the D unduly benefited from the K)?

In Canadian courts, probably yes But, doctrinally, the focus of undue influence is not on the fairness of the transaction substantively but on the

unconscientious use of influence by one person over the other (Geffen minority).

Remedy:If undue influence is found, the K is voidable at the discretion of the claimant

GeffenFacts: Tzina created a trust, some family members argued that her brothers exercised undue influence over her in doing so. Held: Dismissed – very little contact between brothers and Tzina, she wasn’t relying on them as her primary advisors, their prime motivation was to advance her welfare, she received ILA, etc

EtridgeFacts: Wife being sued by the bank for the security (the house) of a line of credit her ex-husband had her sign a spousal guarantee for to save his now-failed business. Held: The transaction may be set aside where the bank has actual or constructive notice of the risk of undue influence. The bank must know of the husband-wife relationship and then should:

Meet with the spouse privately Explain the extent of liability Warn of the risk Urge the person to obtain ILA

If the bank does this, it will be harder for the spouse to claim the spousal guarantee was obtained due to undue influence.

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Contracts Final Outline – Spring 2016 – Emma WatermanUnconscionability: Control of Contractual Power

CAN: Unconscionability can be established either in common law or under statute. At common law, a two-part test was set out in Morrison. It requires establishing that there was an inequality in bargaining power and a substantial unfairness. Kreutziger later added to this test. Justice Lambert states that the main question is “whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded”. Thus, he frames the Morrison test as a requisite part in determining whether the contract as a whole breaches community standards. It is in this light that unconscionability should be assessed.

Test: Two-step Morrison test. Burden is on the claimant. 1. For inequality in bargaining power (procedural unconscionability):

Think about contextual factors – economic resources, knowledge, need, disability that falls short of legal incapacity, power imbalance

Familial relationships often fall under this; cases involving elderly people Can’t just be inequality – one person needs to have taken advantage of the other

2. For substantial unfairness (substantive unconscionability); Mere inequality of bargaining power is insufficient. The claimant must also prove that the bargain was substantially unfair.

No percentage amount tied to this. Upon proving these circumstances, a presumption of fraud arises which the stronger party must repel by proving that the bargain was fair, just, and reasonable (Morrison)

MorrisonFacts: Bank lends widow money to mortgage her home, she will then lend to men who will use it to repay debts owed to the bank)

Lloyd’s BankFacts: Bank gave old man way too big of a loan to give to his son’s failing business. Held (Denning): Typically, a customer won’t be able to get out of signing a bank guarantee/charge. But there are exceptions, with the common denominator being the inequality in bargaining power. Relief will be granted where there are unfair terms/inadequate consideration; impaired bargaining power; or influence/pressure brought to bear.

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Contracts Final Outline – Spring 2016 – Emma WatermanIllegality and Public PolicyWhen will the court decline to enforce a transaction or not give it effect because it is in some sense “illegal”? When does public policy trump private ordering? Either entering into the K itself or the performance under the K may be illegal.

Common Law Illegality Statutory IllegalityHolman v Johnson -> foundational case“No court will lend its aid to a man who found his cause upon an immoral or illegal act”

Facts: Vendor knew the seller would import the tea into England which was illegalHeld: K upheld because it was written in France

Can arise where a K: Is expressly or impliedly prohibited by statute; Is entered into with the object of committing an act

prohibited by statute; Requires performance contrary to statute; and Confers benefits in violation of a statute

What is the court going to do re: enforcement?Two types of common law illegality:1) Contrary to public policy (more general)2) Contrary to common law (like a K to commit a tort)

Easy: criminal law (drug Ks) or cases where the statute specifically says “no K shall be entered into”Hard: admin infractions, trivial illegality, where the statute doesn’t address what effect non-compliance has on the K

K contrary to PP/CL can be held to be unenforceableTypes of Ks contrary to public policy/CL

Example Ks

Ks injurious to the state K with public enemies; to fetter the legislature

Ks injurious to the administration of justice

Agreement not to testify

Ks involving immorality Victorian: to hire a carriage for prositution

Ks affecting marriage Can’t marry a CatholicKs to benefit from a crimeKs to commit a tort/CL wrong

Modern approach:Still v Minister of National Revenue (1988) FCA“Where a contract is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party where, in all the circumstances of the case, including regard to the objects and purposes of the statutory prohibitions it would be contrary to public policy, reflected in the relief claimed, to do so.” -> Court’s discretion

Courts will consider consequences of invalidating the K, social policy reasons for the prohibition, and determination of who the prohibition was enacted for

CL took a particularly stringent view on Ks regarding trade – in everyone’s interest to have freedom of commerce

Restrictive covenants are prima facie unenforceable – restrictions have to be reasonable

Stricter scrutiny of employment Ks due to disparity of bargaining power

Still v Minister of National RevenueFacts: Still was an immigrant, housekeeper for six months, got permanent residency, then was laid off. Applied for EI but was denied b/c her employment was illegal.Held: Wasn’t illegal, she contributed to the EI regime, acted in good faith.No overriding public policy reasons to justify denial of benefits.

Sometimes to avoid illegality courts have used the technique of severance, as noted in Shafron

Notional severance: to read down the provision so that it is not illegal

Blue pencil severance: to scratch out individual words in order to avoid the illegality

Classical approach:Rogers v Leonard (1973) Ont HCJSale and purchase of a cottage. Agreement signed on a Sunday contrary to the Lord’s Day Act. Vendor knew of the Act but was willing to ignore it as she was dealing with friends. When the vendor refused to complete (and presumably was no longer a friend), the purchasers sued.

-> Court held that the contract was illegal and void as it was contrary to statute.

Surrogacy Ks have been found to be contrary to public policy. In Canada we have the Assisted Human Reproduction Act – example of the legislature specifically addressing this issue.

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Contracts Final Outline – Spring 2016 – Emma WatermanSeverance

CAN: Severance can be considered as a remedy to contracts that have illegal clauses that are not as a whole illegal. If a contract has an illegal provision, a court may decide to sever the illegal provision to save the otherwise valid contract. First the court will ask whether severance is possible in these circumstances. Then they will determine if there are public policy reasons that prevent severance. Lastly, they will look at what kind of severance needs to be applied. Courts are much more likely to use blue pencil severance and strike out a provision rather than use notional severance and simply read down or edit the provision.

1. Is it possible?- Can’t sever a clause if it affects the substance of the agreement- If the K’s core is altered then severance is impossible and the entire K is void ab initio

2. Does public policy prevent severance? - Consider:

- Will severance undermine the policy of the statute that bans the action making this K illegal? - Did the parties make the K for an illegal purpose with evil intentions?- Was the party who received a benefit unjustly enriched at the expense of the other?

3. What kind?

1. Blue pencil: strike out the illegal part of a K

Used where illegal term is clearly severable, trivial and not fundamental

2. Notional: reading down a provision to make it legal- To apply, term needs to be illegal by a “bright line” provision of CCC

- Not usable to restrictive covenants

Cases

Common law

KRG Insurance v Shafron

F: Plf wanted to enforce restrictive covenant (3 years, insurance brokerage, “metropolitan city of vancouver”) Held: uncertain, ambiguous.

Statutory

Still v Minister of National Revenue

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Contracts Final Outline – Spring 2016 – Emma WatermanGood Faith

Arguments for

- already recognized but not in the same name

- will bring Canada in line with expectations of contracting parties

- and in line with other jurisdictions

Arguments against

- uncertainty: good faith is nebulous

- common law has evolved to address bad faith. This piecemeal solution works well

Bhasin

- Good faith underlies contract law in some circumstances

- highly context specific

- Duty of Honest Performance for all K law (can’t contract out)

- requires honesty between parties

Established areas of good faith

- Where parties need to cooperate to achieve the object of their contract (Dynamic Transport)

- (eg “party must take reasonable steps to attain a loan”

- Where there is discretion in the contract (McKinlay Motors)

- discretion must be reasonable, hones, and in light of the purpose of the contract

- When one party tries to evade contractual duties, courts can imply good faith (MDS Health Group)

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Contracts Final Outline – Spring 2016 – Emma WatermanConsumer ProtectionCAN: Consumer protection policies address certain forms of market failure and disparities between manufacturers/sellers and consumers in knowledge, bargaining power and resources.

PolicyEconomic rationales for government intervention in consumer marketplaces:

Concern about monopolies Externalities – regulation of product safety hazards & pollution Information failures – asymmetries in info between the consumer and the retailer

o Solutions: legislation that prohibits fraud & deceptive practices, mandatory disclosure requirements, and gov’t provision of info

Transaction costs – pursuing complaints costs time and money Public goods – consumer education will be “under-produced” by the market Note: these rationales are based on a classical economics assumption that the consumer with full info can act rationally to

make the best choice available, but behavioral economics research shows that this isn’t the caseNon-economic rationales:

Paternalistic concerns – may need to protect people from themselves Redistributive concerns – interest rate regulation, rent control, statutory warranties, etc

Sale of Goods ActDoes not cover services or real property. Focuses on substantive rights. S17-19: Provides implied conditions with respect to description (s17), quality and fitness (s18), and samples (s19)S20: A business cannot contract out of these implied warranties and conditions in respect to the sale of new goods to consumers for personal use.

o This is a very important substantive provision. It means that all consumers in BC have a statutory warranty with respect to personal consumer purchases.

If a company did write in an exclusion clause that violated the Sale of Goods Act:o The court could use notional/blue pencil severance to rectify it. The clause would be found void on the basis of statutory

illegality. N/BP S is not at all about interpretation but about the application of mandatory rules.

Business Practices and Consumer Protection Act (BPCPA)Act covers consumer transactions for goods, services, and real property between consumers (whether they are in BC are not) and suppliers (whether they are in BC or not). Focuses on procedural rights. Consumer transaction: a supply of goods or services or real property for primarily personal reasons (from an S to a C) OR a solicitation, offer, advertisement or promotion by a supplier There doesn’t need to be privity of K for the Act to applyNote: can be very tricky to determine whether something is a good or a service but it’s a very important distinction under these two acts (i.e. downloading music is a service, buying a CD is a good)

S3: A waiver or release of a person's rights, benefits or protections under this Act is void (unless the Act allows for it)S5: A supplier can’t engage in deceptive acts; burden of proof on them to prove they didn’t do it (reversed).S9: A supplier must not act unconscionably; burden of proof on themS10: K not binding if the supplier acts unconscionablyS171: Person can seek damages

The Act addresses direct sales, funeral services, future performance, distance sales, time-shares, gift cards, debt collection, travel agents, home inspectors, etc

Rushak v Henneken (1991) BCCAFacts: Car salesman knew a car would likely have rust, warned her, but told the seller it was one of the best of its kind in the city. He gave an honest opinion but didn’t tell her that he knew his opinion might be wrong. She bought it, didn’t really drive it, tried to sell it a year later, found out it would cost $10K to repair rust damage. Analysis: Judge found the salesman had committed a deceptive practice under the BCPCA by his use of laudatory language. Intention doesn’t really matter. So, what used to be “puffery” on the part of the salesman can now give rise to legal consequences under the statute if he knows about a potential defect. Salespeople must refrain from making potentially misleading statements. Held: If a seller has evidence suggesting a possible defect, he/she cannot give their honest opinion without qualification because that would be misleading and could lead to an error in judgment on the part of the plaintiff.

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Contracts Final Outline – Spring 2016 – Emma WatermanBPCPA Business Practices and Consumer Protection Act

• “Consumer”: Applies to individuals residing in BC or not; participating in a transaction, not a guarantor (s1) • “Consumer transaction”: Applies to purchases that are mainly personal or a solicitation/ advert (s1) • Applies to goods, services, advertisements, soliciting (s1) • A person cannot waive their rights given under this act (s3) • Deceptive practice: oral, written, visual, descriptive or other representation by a supplier that has the capability, tendency

or effect of deceiving or misleading the consumer (s4)

• Burden: if deception is alleged, the supplier has the burden to show the deception did not occur

• Deception • Remedy: transaction not binding on consumer• s3: non-exhaustive examples of deceptive acts and practises• 3(a)Representations by a supplier that goods or services have• - sponsorship, approval, characteristics, ingredients, quantities, components uses or benefits they don’t • - are of a standard they do not have • - have a history that they don’t (or that they are new if they are used)• - are available for purchase for reasons differing from fact• - Will be supplied within a stated period if the supplier knows (or ought to) they will not

• 3(b)Representations by a supplier that• - they have sponsorship, approval, affiliation or a connection they don’t• - a service or replacement part is needed when it is not• - that the reason they are soliciting or communicating with the consumer is for a different purpose• - uses exaggeration, innuendo or ambiguity about a fact or fails to state a fact if this is misleading• - the consumer will get a benefit from getting more customers for the supplier (eg. referral scheme)

• Unconscionability• - Can occur before, during or after the consumer transaction (s8) • - a court must consider all of the surrounding circumstances which the supplier knew or ought to have known when they

are assessing unconscionability • - Court must consider (8)3

- whether the supplier subjected the consumer to undue pressure - if the supplier to advantage of the consumer’s inability to reasonably protect their own interest because of their

physical or mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or language of the transaction

- whether the price grossly exceeded that of similar items that were equally attainable - when transaction occurred, seller knew was no reasonable probability of full payment by buyer - terms and conditions of the sale were so harsh or adverse as to be inequitable Remedy: if unconscionability:

transaction is not binding on the consumer

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Contracts Final Outline – Spring 2016 – Emma Waterman

Commercial Practice and Contract Drafting

Contract DraftingContracts should be written simply, but legalese shouldn't be avoided when it's appropriate (like in complex commercial transactions)Precision and clarity are always priorities - not being artfulKeep sentences short, use the active voice, avoid unnecessary words (each word should have a specific part to play), consistency is key

Various preliminary considerations in K drafting: Legal Content Risk Management Drafting Conventions - lease v asset purchase v provision of services, etc Purpose of K - does it need to be bulletproof, or maybe it just needs to be done fast? Strategy - who will draft it? Ethics - did the client ask for an unenforceable term or something illegal to pressure the other party?

5C's of K drafting:

1. Clear: Plain language, short sentences 2. Concise: No redundancies, no repetition 3. Comprehensive: Everything important is expressed, legal requirements are met 4. Consistent: Defined terms are used properly, formatting is internally consistent 5. Connected: Logical order, each topic is dealt with in one place

Basic Preliminary Pitfalls:

Use of precedents – understand every clause, especially if you’re using a precedent Will/Shall/Agrees to – courts interpret these differently Passive Clauses – stay way from the passive voice! Defined Terms Cross References

Building Blocks:

Form Legally required form: execution statements, do you need signatures, do you need notarization or witnesses?

Always check if there are statutory requirements for your K Customary form: title, cover page, date, recitals (preamble, circumstances, purpose, lead-in), headings/numbering,

are consideration clauses necessary? Aesthetic form: font, spacing, margins, breaks, etc

Definitions Better just to have them all at the start Make sure you consider definitions in the legislation – don’t want to use a different meaning

Operative Provisions Representations and Warranties: used to manage risk and ascertain facts

R: statements of facts W: parties assurance as to the fact coupled with implicit indemnification

Covenants: ongoing promise to take or not to take certain actions Conditions Precedent: performed before the agreement Remedial Provisions: what happens if there is a problem

Set out the trigger (what starts the remedy) and what the remedy is Limitations of Liability

Need: party receiving benefits, party agreeing to limitation, and what is being limited Enforceable unless they are unconscionable or there is an overriding policy reason (Tercon)

Boilerplate: miscellaneous clauses at the end of most Ks Might include choice of law, counterparts, headings, assignment, further assurances, etc Common provisions include: time is of the essence, arbitration/mediation, notices, entire agreement, enurement They often don’t have much in common except that they don’t fit anywhere else in the agreement

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Contracts Final Outline – Spring 2016 – Emma Waterman

Anatomy of a Commercial Lease and the Lawyer’s FunctionIt is the lawyer's job in K formation processes to make the client understand and care about many things that the client may prefer to ignore - must always be on the lookout for potential problems or things that have not been consideredThe party with the most to lose or with the most leverage will typically draft the K - it's a position of power"In contract drafting, plagiarism is a virtue" - look to precedents to streamline the process and to rely on time-tested languageGuest lawyer reviewed a lease agreement

Advising on the Purchase of a BusinessFive steps of a transaction:

1. Transaction structuring Talks to clients about objectives, real estate timelines, legal fees, accounting fees, etc What kind of relationship do the buyer and seller have?

2. Investigation about the business - due diligence What are the assets being purchased and what does the business look like? Will get an authorization from the seller of the business to then do investigations with various government authorities: CRA searches, Employment Standards Branch, WorkSafeBC, Workers Compensation Board, Corporate Search of FM Foods

Ltd, PPR Search of FM Foods Ltd, Litigation - provincial and supreme, Municipal Search - fire chief, zoning Tries to start this process as early as possible but the results of the search can take over a month to get back – tricky and is

important – can save your client tons of money3. Drafting and negotiation of the document (purchase contract)

Most lawyers use precedent docs Purchase price allocation is typically tax driven In most cases, a certain portion of the purchase price will go towards “good will” Be descriptive Cover:

o Rpresentations and warranties (assets are free and clear, machinery in good working order)o Covenants (purchaser will maintain good relationships with suppliers, customers, lenders, etc)o Employees (fire them all and then hire them all back)o Conditions precedent (often expire at closing, allows for an “out”)o Restrictive covenants (like a non-compete but don’t be too broad)

4. Closing procedures5. Post-closing (loose ends)

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