chapter five: written documents - uvic...
TRANSCRIPT
Table of ContentsCHAPTER FIVE: WRITTEN DOCUMENTS................................................................................................................ 8
1. UNSIGNED DOCUMENTS.......................................................................................................................................9Parker v The South Eastern Railway Company....................................................................................................9
Plaintiff didn’t read conditions on ticket: are they binding?..............................................................................................9Lamont v Canadian Transfer Company...............................................................................................................9
P contracts to ship bags home, P has to request the receipt, receipt contains conditions................................................9Chapelton v Barry Urban District Council............................................................................................................9
P receives ticket w/ time limit, sign “respectfully requests” P get ticket, conditions on ticket..........................................9Olley v Marlborough Court Ltd..........................................................................................................................10
P contracts to rent hotel room, Limitation clause = sign in room, too late to bind?........................................................10J Spurling Ltd. v Bradshaw................................................................................................................................10
P stores D’s item and loses it, limitation clause accepted by D in previous dealings, this time it was received late........10McCutcheon v David MacBrayne Ltd (key case)................................................................................................11
P had agreed to limitation clause many times before, not this time. Signature not representation of agreeing if contract is too long/complex.........................................................................................................................................................11
Thornton v Shoe Lane Parking Ltd.....................................................................................................................11Conditions on ticket, but ticket is acquired by customer from automated booth...........................................................11
British Crane Hire Corp. Ltd. v Ipswich Plant Hire Ltd........................................................................................12Commercial Parties, Can a party rely on limitation clause if it had been signed in past but not this time (yes if standard form exists)......................................................................................................................................................................12
Tilden Rent-A-Car v Clendenning.......................................................................................................................12Party clearly did not read the contract thoroughy...........................................................................................................12
2. PAROL EVIDENCE RULE.......................................................................................................................................13Federal Commerce & Navigation Co. Ltd. v Trade Export S.A............................................................................13
Some weird boat contract where parties disagree on the meaning of terms..................................................................13Prenn v Simmonds.............................................................................................................................................13
Interpretation of contract not limited to linguistic meaning, objective test....................................................................13Farah v Barki.....................................................................................................................................................14
Allowing evidence in of fraud..........................................................................................................................................14Curtis v Chemical Cleaning and Dyeing Co., Ltd................................................................................................14
D misrepresents the extent of limitation clause, tries to rely on it..................................................................................14Canadian Indeminity Co. v Okanagan...............................................................................................................14
Note Case: Reiterates Curtis and includes innocent misrepresentation..........................................................................14Hawrish v Bank of Montreal (Key Case)............................................................................................................15
P contracts with D, D gives P collateral agreement, court explains collateral agreements admissibility.........................15Morgan v Griffith..............................................................................................................................................15
Collateral Agreement: tenant notices problem w/ property, agrees to resign lease if landlord takes care of it..............15Pym v Campbell.................................................................................................................................................16
Parties agree to K but attach condition precedent that K is not binding unless ____......................................................16Corbin on Contracts..........................................................................................................................................16
A summary of the need to include the “matrix of facts”.................................................................................................16Long v Smith......................................................................................................................................................16
Written agreement disclaims verbal, court bends things for equity................................................................................16City and Westminster Properties Ltd. v Mudd (feels iffy)..................................................................................16
Promise that serves to invoke party to sign is admissible evidence, similar to promissory estoppel...............................16
Tilden Rent-A-Car v Clendenning.......................................................................................................................17Party signs contract, asks if paying for insurance covers everything, clerk says yes, exclusion clause exists...................17
Gallen v Allstate................................................................................................................................................17Alford doesn’t like but has good list of parol evidence exceptions..................................................................................17
3. RECTIFICATION..................................................................................................................................................18U.S.A. v Motor Trucks, Limited..........................................................................................................................18
Mistake in drafting, party seeks rectification...................................................................................................................18Bercovici v Palmer.............................................................................................................................................19
Parties make deal, item is added that shouldn’t be, judge uses subsequent actions to determine intentions................19Sylvan Lake Golf and Tennis Club Ltd. v Performance Industries Ltd.................................................................19
Mistake in drafting, court lays out 4 requirements for receiving rectification.................................................................19Paget v Marshall...............................................................................................................................................20
If parties can’t agree on what the contract should be. If there is no clear intention, contract may be void ad idum......20
CHAPTER SIX: PROTECTION OF WEAKER PARTIES...............................................................................................20
2. MINORS...............................................................................................................................................................20Rex v Nash (NO RATIO COME BACK TO THIS)....................................................................................................20
Contracts with Children under the age of majority..........................................................................................................20Sales of Goods Act.............................................................................................................................................21
The act governing minors................................................................................................................................................21Nash v Inman....................................................................................................................................................21
Children buying things, is the thing a “necessary” (return to this as well).......................................................................213. FORFEITURES AND PENALTY CLAUSES.........................................................................................................................21
Shatilla v Feinstein............................................................................................................................................21$10,000 in liquidated damages for breach of non-compete: penalty or liquidated damages..........................................21
H.F. Clarke Ltd v Thermidaire Corp Ltd..............................................................................................................22Note Case: liquidated damages will be read as a penalty clause if blatantly punitive.....................................................22
Stockloser v Johnson.........................................................................................................................................22What Case is about..........................................................................................................................................................22
4. CLAUSES EXCLUDING LIABILITY.............................................................................................................................23George Mitchell Ltd v Finney Lock Seeds Ltd.....................................................................................................23
Gives history of exemption clauses: notes that the focus now will be on who can better bear the risk..........................23Photo Production Ltd. v Securicor Transport Ltd. ????......................................................................................23
Fundamental Breach? Allowing for freedom of contract when terms are explicit..........................................................23Hunter Engineering Co. Inc. Et al. v Syncrude et al............................................................................................23
Fundamental Breach put to bed by split SCC, focus is on unconscionability....................................................................23Fraser Jewellers (1982) Ltd. v Dominion Electric Protection..............................................................................23
Unconscionability............................................................................................................................................................23Davidson v Three Spruces Realty.......................................................................................................................24
Extreme abuse of freedom to contract constituting unconscionability...........................................................................24Delany v Cascade River Holidays Ltd.................................................................................................................24
Will liability clause be enforced(party died, death wasn’t mentioned in liability clause).................................................24Tercon Contractors Ltd. v British Columbia.......................................................................................................25
Settling the score on limitation clauses, 3 step test for limitation clauses.......................................................................25Tercon Note Cases.............................................................................................................................................25
Rules for Liability Clauses................................................................................................................................................255. UNCONSCIONABILITY AND UNDUE INFLUENCE.........................................................................................................27
Post et al. v Jones et al......................................................................................................................................27
Unequal Bargaining Power, P has no choice but to accept terrible deal..........................................................................27Marshal v Canada Permanent Trust co.............................................................................................................27
Unequal bargaining: Party A purchases land from old man grossly underpriced.............................................................27Mundinger v Mundinger...................................................................................................................................27
Unconscionability with a relationship where there is no typical mental weakness (abusive marriage)...........................27Lloyds Bank Limited v Bundy.............................................................................................................................28
Proving there is undue influence.....................................................................................................................................28Credit Lyonnais Bank Nederland NV v Burch.....................................................................................................28
What Case is about..........................................................................................................................................................28Royal Bank of Scotland p.l.c. v Etridge (No.2) and Other Appeals.....................................................................28
3rd parties to the contract and undue influence (Bank)...................................................................................................28Mccaulay v A. Schroeder Music Publishing.......................................................................................................30
What Case is about..........................................................................................................................................................30Pridmore v Calvert............................................................................................................................................30
What Case is about..........................................................................................................................................................30Horry v Tate......................................................................................................................................................30
What Case is about..........................................................................................................................................................30Woods v Hubley................................................................................................................................................31
3 criteria allowing unconscionable transactions to be voided.........................................................................................316. DURESS...........................................................................................................................................................31
Greater Fredericton Airport Authority v NAV Canada.......................................................................................31What Case is about..........................................................................................................................................................31
CHAPTER SEVEN: PUBLIC POLICY....................................................................................................................... 32
1. INTRODUCTION..................................................................................................................................................322. THE EFFECTS OF ILLEGALITY.................................................................................................................................32
Holman v Johnson.............................................................................................................................................32Vendor knows purchaser is using product to commit illegal act. = illegal contract? (nope)............................................32
3. CONTRACTS CONTRARY TO PUBLIC POLICY EXPRESSED IN THE COMMON LAW...............................................................32Egerton v Brownlow..........................................................................................................................................32
Note case regarding the traditional view of how judges can use public policy................................................................32In the Matter of Baby “B”..................................................................................................................................32
Public Policy (public moral views on relationship of mother and child) inform law.........................................................323.A) CONTRACTS IN RESTRAINT OF TRADE......................................................................................................................33
Shafron v KRG Insurance Brokers (Western ) Inc...............................................................................................33Non-Compete Restrictive Covenant-> Validity of this......................................................................................................33
3.B) CONTRACTS RELATED TO GAMING..........................................................................................................................33Boardwalk Regency Corp v Maalouf.................................................................................................................33
Public Morality and Gaming............................................................................................................................................333.C) CONTRACTS IN FURTHERANCE OF ILLEGAL PURPOSES..................................................................................................34
Alexander v Rayson...........................................................................................................................................34Contract is valid but purpose of document is to defraud 3rd party->void........................................................................34
3.D) CONTRACTS CONFERRING BENEFITS AS A RESULT OF CRIME........................................................................................34Brissette Estate v Westbury Life Insurance Co...................................................................................................34
Who gets life insurance if one spouse kills the other?.....................................................................................................34Oldfield v Transamerica Life Insurance Co. of Canada......................................................................................35
Insured party dies committing crime: can beneficiaries receive insurance money?........................................................354. CONTRACTS CONTRARY TO PUBLIC POLICY EXPRESSED IN STATUTE.............................................................................35
Kingshot v Brunskill...........................................................................................................................................35Contracts contravening statute, judge won’t do anything...............................................................................................35
Doherty v Southgate (Township) (KEY CASE)..................................................................................................36D trying to take advantage of their own statutory failure, trying to void contract..........................................................36
4.B) A COMMON INTENT TO PERFORM A CONTRACT ILLEGALLY..........................................................................................36Ashmore, Benson, Pease & Co. Ltd. v A.V. Dawson Ltd.....................................................................................36
Contract is performed illegally ->contract is voided........................................................................................................365. MITIGATING THE CONSEQUENCES OF ILLEGALITY......................................................................................................365.A WHEN THE CLAIM IS FOUNDED ON AN INDEPENDENT RIGHT.........................................................................................37
Mistry Amar Singh v Serwano Wofunira Kulubya..............................................................................................37Illegal Lease, does property right transfer? Or can illegal tenant be evicted...................................................................37
5.B RESTITUTION........................................................................................................................................................37Kiriri Cotton Co. Ltd. V Rachoddas Keshavji Dewani..........................................................................................37
Party is trying to recover money paid/property transferred under an illegal contract....................................................37Outson v Zurowski.............................................................................................................................................38
Exceptions to the rule there can be no recovery under an illegal contract......................................................................385.B SEVERANCE OF ILLEGAL PROVISIONS.........................................................................................................................39
William E. Thomson Associates Inc. v Carpenter...............................................................................................39Loan contract has illegal interest rate, can interest rate be severed?.............................................................................39
New Solutions Financial Corporation v Transport North American Express Inc.................................................39Doctrine of “notional severance” as opposed to blue-pencil...........................................................................................39
6. A MORE MODERN APPROACH?...........................................................................................................................40Still v The Minister of National Revenue............................................................................................................40
Party acts in good faith but unknowingly behaves illegally -> should courts be harsh.....................................................40
CHAPTER EIGHT: PERFORMANCE AND BREACH..................................................................................................40
1. REPUDIATORY BREACH........................................................................................................................................40Kingston v Preston............................................................................................................................................40
When can an action for breach be brought?...................................................................................................................40Note Cases........................................................................................................................................................41
Rules of CivPro-bringing breach action + how paying damages isn’t a good solution......................................................41Bettini v Gye......................................................................................................................................................41
How the Court determines if a stipulation is a condition precedent or an independent condition.................................41Pussard v Spiers and Pond.................................................................................................................................42
Will damage caused by unintentional breach goes to root of contract and dissolve obligations)...................................42Maple Flock Company, Ltd. v Universal Furniture Products (Wembley) Ltd......................................................42
Can a single breach justify rescinding entire contract?....................................................................................................422. WAIVER AND THE TRUE CONDITION PRECEDENT......................................................................................................43
Panoutsos v Raymond Hadley Corporation of New York...................................................................................43P1 allows P2 to breach in small way, can P1 claim breach and rescind contract?...........................................................43
Turney and Turney v Zhilka (Lead case)............................................................................................................43Waiving precedent conditions that are dependent on 3rd party for performance...........................................................43
3. THE POSITION OF THE PARTY IN BREACH................................................................................................................44Jacob Youngs, Inc. v Kent (Lead Case)...............................................................................................................44
Do the parties have to provide “perfect” performance? Court defines principle of substantial performance................44Hoenig v Isaacs.................................................................................................................................................45
What is this about............................................................................................................................................................45Sumpter v Hedges.............................................................................................................................................45
Can Party receive payment for partial performance if K requires full performance and then payment..........................45
CHAPTER NINE: MISTAKE.................................................................................................................................. 45
1. INTRODUCTION..................................................................................................................................................452. MISREPRESENTATIONS........................................................................................................................................46
Grotius article...................................................................................................................................................46When people can recover for errors regarding facts.......................................................................................................46
Heilbut, Symons & Co. v Buckleton....................................................................................................................46If party can’t show a warranty it is just an innocent misrepresentation: how to show warranty....................................46
Bentley (Dick) Productions Ltd. v Smith (Harold) (Motors) Ltd.f........................................................................47How to show something is a warranty............................................................................................................................47
Redgrave v Hurd...............................................................................................................................................47P1 makes false representation, P2 finds out and refuses to perform..............................................................................47
Newbigging v Adam..........................................................................................................................................48With innocent misrepresentation you don’t get full compensation, only get back obligations of contract, no “damages”........................................................................................................................................................................................ 48
Kupchak v Dayson Holdings..............................................................................................................................48Did a party affirm a contract induced by misrepresentation by minimizing damages?...................................................48
Redican v Nesbitt..............................................................................................................................................49Rescinding innocent misrepresentation, won’t happen after full execution of contract.................................................49
Leaf v International Galleries............................................................................................................................49In order to rescind contract you must bring action within reasonable time...................................................................49
O’Flaherty v McKinley.......................................................................................................................................49What is this about............................................................................................................................................................49
Murray v Sperry Rand Corporation...................................................................................................................50Manufacturers who have made representations about products are liable to customers regardless of privity..............50
4. MISTAKE ABOUT CONTRACTUAL TERMS.....................................................................................................................50Hobbs v Esquimalt & Nanaimo Railway Company(IC).......................................................................................50
What is this about............................................................................................................................................................50Raffles v Wichelhaus (IC)...................................................................................................................................50
What is this about............................................................................................................................................................50Seaiman Steel Ltd. v Commercial & Home Buildings.........................................................................................51
What is this about............................................................................................................................................................51Henkel v Pape(IC)..............................................................................................................................................51
What is this about............................................................................................................................................................51Smith v Hughes (IC)...........................................................................................................................................52
What is this about............................................................................................................................................................525. MISTAKE IN ASSUMPTIONS.......................................................................................................................................52
Bell v Lever Brother Ltd.....................................................................................................................................53Solle v Butcher...................................................................................................................................................53
What is this about............................................................................................................................................................53Magee v Pennine Insurance Co.........................................................................................................................53
What is this about............................................................................................................................................................53Miller Paving Limited v B Gottardo Construction Ltd.........................................................................................54
What this is about............................................................................................................................................................54Scout v Coulson.................................................................................................................................................54
What is this about............................................................................................................................................................54Sherwood v Walker...........................................................................................................................................54
Mistakes that are based on categorical error regarding reality.......................................................................................54McRae v Commonwealth Disposals Comm.......................................................................................................54
What is this about............................................................................................................................................................54Wood v Boynton................................................................................................................................................55
What is this about............................................................................................................................................................55
CHAPTER 10: FRUSTRATION.............................................................................................................................. 55
3. THE RULE OF ABSOLUTE PROMISES.......................................................................................................................55Paradine v Jane.................................................................................................................................................55
What is this about............................................................................................................................................................554. RELAXATION OF THE RULE OF ABSOLUTE PROMISES.................................................................................................55
Taylor v Caldwell...............................................................................................................................................55Supervening event occurs frustrating the contract, implied condition............................................................................55
Amalgamated Investment and Property Co. Ltd. v John Walker & Sons Ltd......................................................56P buys property, next day supervening event makes it worthless: rescission? Maybe….................................................56
Capital quality Homes Ltd. v Colwyn Construction Ltd......................................................................................56P purchases land but ability to develop becomes frustrated by legislation: judge says K is frustrated............................56
Victoria Wood Development Corp v Ondrey......................................................................................................57Goes back on Capitol, makes note of reasonable foreseeability, if supervening event is foreseeable contract for it......57
Howell Coupland...............................................................................................................................................57Contract is purchase of sale for specific items, if supervening event makes specific items unavailable K = frustrated. . .57
Canadian industrial Alcohol Company, Ltd. v Dunbar Molasses Company........................................................57P1 makes big K with P2 to supply X’s product, P1 does not K with X to ensure product -> not supervening, no frustration.......................................................................................................................................................................57
Parrish & Heimbecker Ltd. v Gooding Lumber Ltd.............................................................................................58When it is an implied condition that the item delivered is specific.................................................................................58
Krell v Henry......................................................................................................................................................58Classic Case establishing frustration, contract is fundamentally different.......................................................................58
Aluminum Co. of America v Essex Group Inc.....................................................................................................59Severe increase in financial burden on one party may (in America) frustrate contract...................................................59
Eastern Air Lines v Gulf Oil Corp........................................................................................................................59K will be frustrated due to impracticability if supervening event is foreseeable.............................................................59
Edwinton Commercial Corporation and Another v Tsavliris Russ......................................................................60Will delay due to supervening event frustrate contract/prevent payment (comes down to foreseeability)...................60
Tsakiroglou & Co. Ltd v Noblee Thorl G.m.b.H..................................................................................................60Whether breach of an implied “customary” term frustrates contract (ie common sea route closed to ships)...............60
Transatlantic Financing Corp v United States....................................................................................................61Similar to previous, but actual charter contract as opposed to purchase of sale;...........................................................61
Davis Contractors Ltd. v Fareham Urban District Council..................................................................................61Good summary of frustration: Foreseeability? Was risk allocated? Root of matter?......................................................61
CHAPTER TWO: REMEDIES................................................................................................................................ 62
1. THE INTERESTS PROTECTED.................................................................................................................................62Wetheim v Chicoutimi Pulp Company...............................................................................................................62
Quote..............................................................................................................................................................................62Bollenback v Continental Casualty Company....................................................................................................62
Modern Restitution: Can receive deducted partial consideration + definitions...............................................................62Anglia Television Ltd. v Reed.............................................................................................................................63
Reliance damages: Denning awarding wasted expenditure for breach of contract.........................................................63Pitcher v Shoebottom........................................................................................................................................63
Damages for material breach (p agrees to buy land, d breaches and sells to third party)...............................................63Hawkins v McGee..............................................................................................................................................63
Damages for breach of warranty for hairy hand..............................................................................................................632. PROBLEMS IN MEASURING DAMAGES....................................................................................................................641. COST OF SUBSTITUTE PERFORMANCE OR ECONOMIC VALUE?....................................................................................64
Carson v Willitts................................................................................................................................................64How should damages be rewarded if assessing amount is difficult.................................................................................64
Groves v John Wunder Co.................................................................................................................................64People’s ability to contract for worthless things. Damages = cost of performance, strong dissent.................................64
2.B LOST VOLUME......................................................................................................................................................64The Sales of Goods Act......................................................................................................................................64General Rule for Breach of Contract to Supply..................................................................................................65
If the plaintiff has proved a breach he is entitled to be placed, as far as money can do it, in as good of a situation as if the contract had been performed...................................................................................................................................65
Thompson (W.L.) Ltd. v Robinson (Gunmakers) Ltd. (1955)..............................................................................65Party refuses delivery of cars. Dealership sues for lost profit. 48(3) Discusses available market.....................................65
Charter v Sullivan..............................................................................................................................................65Loss profits is the amount lost because contract is breached. If would have sold all anyways then no loss....................65
3. REMOTENESS....................................................................................................................................................65Case British Columbia Saw Mills Co. v Nettleship..............................................................................................65
Not case: cases where a party’s negligence causes a remote damage are triky..............................................................65Hadley v Baxendale(THE RULE).........................................................................................................................66
when a breach/inadequate performance by B causes a damage to A that is unknown to B...........................................66Horn v The Midland Railway Company.............................................................................................................66
When giving notice of potential remote damages, notice must give rise to contractual obligation................................66Note Cases........................................................................................................................................................67
A person contemplates the performance and not the breach.........................................................................................67Koufos v C. Czarnikow Ltd. (The Heron II)..........................................................................................................67
Breach causing loss of profits: if its reasonably foreseeable breacher is liable................................................................67Transfield Shipping Inc. v Mercator Shipping Inc. (The Achilleas)......................................................................67
Are damages for reasonably foreseeable losses always imposed? Limited to liabilities parties reasonably expected to assume/pay for................................................................................................................................................................67
Cornwall Gravel co. Ltd. v Purolator Courier Ltd...............................................................................................68What is this about............................................................................................................................................................68
4. INTANGIBLE INJURIES..........................................................................................................................................68Addis v Gramophone Company.........................................................................................................................68
Can’t receive damages other than what is listed in contract if the breach is malicious...................................................68Kolan v solicitor.................................................................................................................................................69
Mental stress isn’t available............................................................................................................................................69Jarvis v Swan Tours Ltd.....................................................................................................................................69
Usually can’t recover for mental duress, but this contract was specifically about mental enjoyment............................69Fidler v Sun Life Assurance Co. of Canada.........................................................................................................69
GO TO IF THERE IS MENTAL DAMAGES: Affirms Hadley as THE rule................................................................................695. PUNITIVE DAMAGES...........................................................................................................................................70
Whiten v Pilot Insurance...................................................................................................................................70When punitive damages are justified because the person is terrible..............................................................................70
6. MITIGATION OF LOSS.........................................................................................................................................70Payzu Limited v Saunders..................................................................................................................................70
Duty of parties to mitigate economic loss: Can modify w/o consideration to mitigate loss then sue for breach............70Roth & Co. v Taysen, Townsend & Co................................................................................................................71
If one party repudiates and there is an open time frame for the contract the non-breaching party cannot just rely on breaching party to pay for losses.....................................................................................................................................71
White & Carter (Councils) Ltd v McGregor........................................................................................................71Dissent informs Laskin in next case: Repudiation does not end a contract.....................................................................71
Finelli et al. v Dee et al......................................................................................................................................72Is a cancellation a rescission or repudiation?..................................................................................................................72
Chapter Five: Written Documents
1. Unsigned Documents
Parker v The South Eastern Railway CompanyPlaintiff didn’t read conditions on ticket: are they binding?
Issue Ratio Notes
P stores bag in coat check
D loses bag Ticket P received
contains limitation clause
P didn’t see
A party is bound by conditions on a ticket if they are there are conditions and consent to the implied conditions because they are reasonable and are what one would reasonably expect. If they are unaware of conditions they do not consent
Reason people are content to not tickets is because they generally concern reasonable conditions. If they didn’t dealing would stop
Lamont v Canadian Transfer CompanyP contracts to ship bags home, P has to request the receipt, receipt contains conditions
Issue Ratio Notes
P uses company to ship bags home
Limitation clause on receipt
BUT agent of company offered free shipping (no receipt needed)
Are receipt conditions binding?
•If an employee is acting within his/her employment and offers a different form of contract then that contract can be accepted and the employer can be held liable to it.
•The conditions conveyed on the ticket must be handed over at the time of contracting and the ticket must be necessary to the contract.
There was already an unconditional contract in this case, (free of charge, no receipt)
Conditions need to be given to P or else they would not be able to reject the conditions
Chapelton v Barry Urban District CouncilP receives ticket w/ time limit, sign “respectfully requests” P get ticket, conditions on ticket
Issue Ratio Notes
P rents sun chair Sign requests P gets
ticket so attendants know how much time is left
Ticket has conditions Are they binding?
•The nature of the document must be one in which you expect to find conditions on it
•If conditions are not public knowledge they must be expressly conveyed, they cannot be communicated via a ticket that a sign “respectfully requests” you acquire
If the sign had said explicitly that there were conditions that would have been fine
Olley v Marlborough Court Ltd.P contracts to rent hotel room, Limitation clause = sign in room, too late to bind?
Issue Ratio Notes
Plaintiffs rent room Limitation clause is in
the room The P’s furs are stolen Is the limitation clause
binding since it was in the room?
Three ways to make a condition a part of a contract:
1. Make the other party sign a document with the conditions (allowing you to believe they are aware and consented)
2. Before or at the time of the contract give the other party a written document specifying the contracts terms and making it clear the contract is on those terms
3. A prominent public notice which is plain to see when one makes the contract or an express oral stipulation will also suffice at the time the contract is made
#1 doesn’t work in Canada if you know the person didn’t read/understand
If the parties had been made aware of a sign
J Spurling Ltd. v BradshawP stores D’s item and loses it, limitation clause accepted by D in previous dealings, this time it
was received lateIssue Ratio Notes
P’s were storing D’s orange juice, it got drank.
D received limitation clause days after execution of contract
D had contracted many times before with the P
Is limitation binding
•If an individual has received a similar ticket repeatedly in the past plays a factor in whether the terms and conditions of the ticket apply.
•Clauses not expected to be implied need to be explicitly known
Part of clause was unreasonable but the front of contract stated “At Owner’s Risk”
Defendant did not reject the limitation clause upon receiving it days late. Paid for several months
Denning in British Crane states only 2 previous dealings is not enough to support implied term
McCutcheon v David MacBrayne Ltd (key case)P had agreed to limitation clause many times before, not this time. Signature not representation
of agreeing if contract is too long/complexIssue Ratio Notes
P contracts to ferry car to mainland
D did not get P to sign standard agreement but had in the past
Agreement is very lengthy includes limitation clauses
Is the P estopped because he had signed agreement in past?
•Per Lord Devlin: previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and assent to them.
What is needed for a condition to be considered with a contract:
o Conditions in a contract must be brought into it by expression, incorporation or implication. They are not brought into a contract simply because one party has inserted them into similar transactions in the past and has not given the other party any reason to think that he will not want to insert them again.
If P had been able to read and understand the terms the previous dealings wouldn’t have mattered because they contracted without conditions this time.
Thornton v Shoe Lane Parking Ltd. Conditions on ticket, but ticket is acquired by customer from automated booth
Issue Ratio Notes
P parks car at D’s parking lot
P receives ticket (w/ limitation clause on
•With automated ticket machines: the customers must know the conditions which the ticket is subject to, or else the company must do what
General assumption is party is free to reject conditions when handed over by clerk. Can’t
back) from automated teller
Limitation clause is unusual, excludes limitation for personal injury (not just damage to held property)
P is physically injured
is reasonably sufficient to give customer notice of it.
•D must make unusual clauses (like limitation of personal liability) explicitly clear (front of ticket/bold font)
happen with machine General offer and acceptance,
only conditions explicit to customer upon acceptance are in contract
British Crane Hire Corp. Ltd. v Ipswich Plant Hire Ltd.Commercial Parties, Can a party rely on limitation clause if it had been signed in past but not
this time (yes if standard form exists)Issue Ratio Notes
Both P and D are companies that rent cranes
D rents crane from P Crane sinks into marsh
(neither party is negligent)
Limitation clause wasn’t signed, can it still apply?
•A term can be incorporated into an oral contract through implication if both parties know the other party would never contract without the inclusion of the condition.
o If both parties know that that condition is generally standard for those contract (ie if standard form contract exists in industry)
Judicial task is to decide what each party was reasonably entitle to conclude from the attitude of the other
Doesn’t apply if one party is consumer b/c of unequal bargaining power
Tilden Rent-A-Car v ClendenningParty clearly did not read the contract thoroughy
Issue Ratio Notes
The party wishing to rely on exclusion/limitation of liability clauses should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party, in absence of such reasonable
measures, it is not necessary for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum
2. Parol Evidence Rule o When a document containing contractual terms is signed, then in the absence of fraud, or, I will
add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.
o If there be a contract which has been reduced into writing, verbal evidence is not allowed to be given of what passed between the parties, either before the written instrument was made, or during the time that it was in a state of preparation, so as to add to, or subtract from, or in any manner to vary or qualify the written contract
Federal Commerce & Navigation Co. Ltd. v Trade Export S.A. Some weird boat contract where parties disagree on the meaning of terms
Issue Ratio Notes
Parties disagree on meanings of terms in contract
Particular type of contract (charter) has a general way it is usually interpretted
• Standard Forms will be given Standard interpretations, the intents of the parties will not be considered
Courts don’t care about subjective intentions of parties
Policy reasons: 1. Helps predictability, 2. Allows parties to allocate risk more precisely
Prenn v SimmondsInterpretation of contract not limited to linguistic meaning, objective test
Issue Ratio Notes
Company contracts w/ talented employee to keep his skills
Condition: big bonus if certain profits met
Condition not met because profits are left in subsidiaries of company
•The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in the light of the surrounding matrix of facts that was prevalent at the time
•AKA Negotiations and party's intentions should be excluded; what would reasonable person think of
Question is: “What would anyone engage in this contract”
How to determine matrix of facts: “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” (Investors Compensation Scheme, Ltd.
We’re the profits of subsidiaries implied?
contract’s meaning v West Bromwich Building Society)
Farah v BarkiAllowing evidence in of fraud
Issue Ratio Notes
P signed contract buying shares believing he would sell them to 3rd party
This was misrepresentation
P is stuck with useless shares
•Misrepresentation of a fact, prior to entering into a contract, is grounds to void the contract ab initio due to fraud.
•Actions “equivalent to fraud” are included but this is tricky-> someone might argue they meant what they said at the time and then a supervening event occurred
“Where there has been fraud or conduct equivalent to fraud on the part of the defendant, there may be a ground for putting the defendant to elect between having the transaction annulled altogether or submitting to the rectification of the deed in accordance with the plaintiff's intention. This rests on unilateral mistake in one party, fraud or conduct equivalent to fraud in the other party" Equivalent to fraud is huge loophole
Curtis v Chemical Cleaning and Dyeing Co., Ltd. D misrepresents the extent of limitation clause, tries to rely on it
Issue Ratio Notes
P signs receipt with exemption clause
Is told liability clause is limited to liability of a certain kind - D damages item in different way and tries to rely on liability clause
•Verbally describing the contract as relating to a particular fact when it in fact refers to something else is misrepresentation (Fraud)
•Oral evidence can be given regarding the establishment of a misrepresentation
Canadian Indeminity Co. v Okanagan Note Case: Reiterates Curtis and includes innocent misrepresentation
Issue Ratio Notes
Note Case •"A party who misrepresents, albeit innocently, the contents or effect of a clause inserted by him into a contract cannot rely on the clause in the face of his misrepresentation"
Note Case
Hawrish v Bank of Montreal (Key Case)P contracts with D, D gives P collateral agreement, court explains collateral agreements
admissibility Issue Ratio Notes
P signs agreement with D
P is given oral assurance he would be released from guarantee if certain conditions were met
They were D did not release P from
agreement
•Collateral agreements can be admissible by parol evidence if it is an independent agreement that could be made without writing, and is not inconsistent or contradictory to the main contract.
•The consideration of the collateral agreement must not just alter the consideration of the main contract. In the case that it just alters the consideration of the main contract the court would just incorporated into main contract.
•Parol evidence doesn’t keep out collateral or post-contractual evidence so long as they are supported by consideration
“In exchange for you signing contract A, we will release you from your obligations under contract A if X occurs” -> this is valid collateral agreement so long as it doesn’t contradict Contract A -> IE if contract A explicitly stated: “you will not be released from obligations under this contract under any conditions” the collateral agreement would be void because it contradicts a clause
Morgan v Griffith Collateral Agreement: tenant notices problem w/ property, agrees to resign lease if landlord
takes care of itIssue Ratio Notes
P is tenant, notices rabbit infestation
Agrees to resign lease on condition landlord takes care of rabbits
Landlord doesn’t, P brings action
Step 1: would collateral agreement fit into main agreement
Step 2: does the side agreement effect the consideration of the main agreement
I don’t know what “effect the consideration of the main agreement means”
This case isn’t very helpful
Pym v CampbellParties agree to K but attach condition precedent that K is not binding unless ____
Issue Ratio Notes
P & D agree to a contract, but agree
•Evidence to vary the terms of the agreement in writing is not
The condition precedent is a statement that there is no
orally that contract isn’t binding without approval of 3rd parties
admissible, but evidence to show that there is not an agreement at all is admissible.
•Verbal agreement that attached a condition precedent to the contract is admissible
contract unless certain conditions are met
Needs to be consensus ad idem
“if you want to do this put the documents in escrow”?
Corbin on ContractsA summary of the need to include the “matrix of facts”
Note Case
•"It is therefore invariably necessary, before a court can give any meaning to the words of a contract and can select a single meaning rather than other possible ones as the basis for the determination of rights and other legal effects, that extrinsic evidence be admitted to make the court aware of the "surrounding circumstances," including the persons, objects, and events to which the words can be applied and which caused the words to be used."
Long v SmithWritten agreement disclaims verbal, court bends things for equity
Issue Ratio Notes
P buys piano, is told by D if it isn’t worth the price he can return it
Printed contract of sale stated it was the entire contract
Verbal agreement conflicts with written
Don’t worry about this one, Alford thinks the court is fudging things.
There is a material misrepresentation (sort of)
City and Westminster Properties Ltd. v Mudd (feels iffy)Promise that serves to invoke party to sign is admissible evidence, similar to promissory
estoppel Issue Ratio Notes
Landlord knows tenant lives in his shop, in violation of lease
The two sign an new lease
Landlord says living in
1.A collateral agreement that looks like it evokes promissory estoppel will be valid consideration
2.The promise was made, it was meant to be acted upon, and it was in fact acted upon (they signed the
Note case: "Where, as here, the collateral agreement is consideration for the entering into the written agreement, the exclusionary clause cannot prevail against it" (Francis v. Trans Canada
shop will be fine Landlord brings action
for forfeiture of lease
contract). Now there is a detriment3.The promise induces the plaintiff to
sign->plaintiff agreeing to sign is valid consideration as otherwise they would not have
Trailer Sales Ltd ) Sask court of appeal -> clause excluding previous representations doesn’t apply
Tilden Rent-A-Car v ClendenningParty signs contract, asks if paying for insurance covers everything, clerk says yes, exclusion
clause existsIssue Ratio Notes
D bought added insurance for rented car
Clerk said insurance covered everything
D drove intoxicated and crashed
Exclusion clause existed for if the renter was intoxicated
•Evidence that that a party did not take reasonable measures to draw unusual contractual terms to the attention of the signing party is admissible to show that the signature could not have amounted to a representation that the party accepted all exclusion clauses.
•In absence of evidence that reasonable measures were taken to make the party aware, the party deny knowledge does not need to prove fraud, misrepresentation or non est factum
This is especially true in cases where the contract is signed in a hurry and situations where the contracts is standard and does not usually include such stringent limitation clauses
Gallen v AllstateAlford doesn’t like but has good list of parol evidence exceptions
Ratio
Admissible oral evidence:
i) To show that the contract was invalid because of fraud, misrepresentation, mistake, incapacity, lack of consideration, or lack of contracting intention;
ii) To dispel ambiguities, to establish a term implied by custom, or to demonstrate the factual matrix of the agreement;
iii) In support of a claim for rectification; iv) to establish a condition precedent to the agreement;v) to establish a collateral agreementvi) In support of an allegation that the document itself was not intended by the parties to
constitute the whole agreementvii)In support of a claim for an equitable remedy, such as specific performance or rescission, on
any ground that supports such a claim in equity, including misrepresentation of any kind,
innocent, negligent or fraudulent viii)In support of a claim in tort that the oral statement was in breach of a duty of care
3. Rectification The parties have made an error in the writing of the document and they need the courts to reqrite the document to make it consistent with the paris’ intentions
U.S.A. v Motor Trucks, LimitedMistake in drafting, party seeks rectification
Issue Ratio Notes
Parties execute a settling contract in which property “specified in schedule A goes to USA
No property is in that schedule
USA wants court to rectify mistake in drafting
•Parol Evidence is admissible in rectification case because it is seeking an equitable remedy -> court is only seeking to modify the contract so that it can rectify the contract’s drafting error
oThe error in drafting needs to be a bilateral mistake for rectification
Bercovici v PalmerParties make deal, item is added that shouldn’t be, judge uses subsequent actions to determine
intentionsIssue Ratio Notes
P is selling properties After weird
correspondence they agree
A property of P’s is
•In determining whether there was an error in the drafting of a contract that requires rectification, a judge may use the parties' actions subsequent to the execution of the
Subsequent actions show it was a mistake to include
mistakenly included but the address is incorrect
No one does anything for years
Should address be corrected or property removed?
contract, as evidence of what the intent the parties had in their mind when forming the contract.
Sylvan Lake Golf and Tennis Club Ltd. v Performance Industries Ltd.Mistake in drafting, court lays out 4 requirements for receiving rectification
Issue Ratio Notes
Parties contract to sell land
Contract lists 110 feet Contract should have
read 110 yards
Four hurdles plaintiff must clear in order to attain rectification:
1.Must establish existence and content of prior oral agreement
2.Must show the defendant knew or ought to have known of the mistake in reducing the oral terms to writing
•If allowing the mistake would be fraud, or equivalent to fraud, rectification ay be available
3.Must show the precise form in which the written instrument can be made to express the prior intention
4.The prior three hurdles must be proved "beyond a reasonable doubt"
•Can be supported by documentary evidence
•Can also be supported by the conduct of the parties, or "other proof"
Paget v MarshallIf parties can’t agree on what the contract should be. If there is no clear intention, contract may
be void ad idumIssue Ratio Notes
P is partitions home into a,b,c
D really wants b, P clearly states b is not for sale
B is included on accident D tries to rely on
mistake
• Even if there is no basis for rectification there may be a claim that the contract was void ad idum from lack of consensus
Court allows individuals to either figure out their intentions and rectify together or the contract can be voided
Chapter Six: Protection of Weaker Parties
2. Minors
Rex v Nash (NO RATIO COME BACK TO THIS)Contracts with Children under the age of majority
Issue Ratio Notes
Contracts of sale with infants are voidable
These “voidable” contracts fall under two headings: i) those which are valid and binding on the infant until disaffirmed; and ii) those which are not binding until ratified after majority
“No doubt in ordinary cases, an infant is called upon to repudiate within a reasonable time after attaining majority”
Sales of Goods ActThe act governing minors
R.S.O 1990, c.S.1
3(1) Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property, but where necessaries are sold and delivered to a minor or to a person who by reason of metnal incapacity or drunkenness is incompetent to contract, he or she shall pay a reasonable price therefor.(2) in this section, “necessaries” means goods suitable to the conditions in life of the minor or other person and to his or her actual requirements at the time
of the sale and delivery.
Nash v InmanChildren buying things, is the thing a “necessary” (return to this as well)Issue Ratio Notes
D (not age of majority but old) purchased tonnes of clothes
P is trying to recover Can P recover?
•An infant is liable for goods sold and delivered provided that they are necessaries of life
•The burden is on the supplier to prove the goods were necessaries of the infant at the time of purchase
3. Forfeitures and Penalty Clauses Penalty Clause= payment of money stipulated in order to dissuade the party from offending
Liquidated damages= a genuine covenanted pre-estimate of damage
Shatilla v Feinstein$10,000 in liquidated damages for breach of non-compete: penalty or liquidated damages
Issue Ratio Notes
D sold business to P and signed non-compete
D agreed breach of non-compete = $10,000 liquidated damages
P sues
•The court may decline to construe the words "liquidated damages" according to their ordinary meaning and may treat such a sum as a penalty if there is the potential for varying breaches some of which are trivial and some which are significant.
Questions to ask: is the breach on that could only occur once? Could it occur repeatedly? Could it occur repeatedly with varying effects?
If damages caused by breach could never reach the stated sum, then the sum is a penalty
H.F. Clarke Ltd v Thermidaire Corp Ltd.Note Case: liquidated damages will be read as a penalty clause if blatantly punitive
Issue Ratio Notes
• The Court will read "liquidated damages" as a penalty if the amount exacted is a grossly excessive and punitive response to the breach in question.
The exaction of gross trading profits as a penalty in this case because it is in my opinion, a grossly excessive and punitive response to the problem to which it is addressed.
Stockloser v JohnsonWhat Case is about
Issue Ratio Notes
P contracted to purchase item from D in installments
In case of P defaulting, with notice D could retake item and keep payments
P defaults, now wants payments back
When a buyer is attempting to recover money paid to a seller in restitution:
If there is NO forfeiture clause:•If money is paid and the buyer defaults the buyer cannot recover money so long as the sell keeps the contract open and available for performance•If the seller rescinds the contract or treats it as ended due to the buyer's default, then the buyer can recover the money
If there IS A forfeiture clause (Or money paid expressly as deposit):
•The buyer who is in default cannot recover the money at all•The buyer MAY have a remedy in equity IF:
1.The forfeiture clause is of a penal nature (the sum is out of all proportion to the damage); and,
2.It must be unconscionable for the seller to retain the money
4. Clauses Excluding Liability George Mitchell Ltd v Finney Lock Seeds LtdGives history of exemption clauses: notes that the focus now will be on who can better bear the
riskRatio
Court attitude towards exemption clauses changed in 1978: “the court will not allow a party to rely on an exemption or limitation clause in circumstances in which it would not be fair or reasonable to allow reliance on it: and, in considering whether it is fair and reasonable, the court will consider whether it was in a standard form, whether there was equality of bargaining power, the
nature of the breach, and so forth."
Photo Production Ltd. v Securicor Transport Ltd. ????Fundamental Breach? Allowing for freedom of contract when terms are explicit
Issue Ratio Notes
•If the terms of the contract are explicitly clear fundamental breach should not be applied.
•Reasonableness is a factor in determining whether
Hunter Engineering Co. Inc. Et al. v Syncrude et alFundamental Breach put to bed by split SCC, focus is on unconscionability
Issue Ratio Notes
Respondent purchased gear boxes that had limited liability of 24 months and clause stating no other warranty/conditions apply
Gearboxes failed after just over 24 months
Fundamental breach?
•If the court, after assessing the contract, determine that it excludes liability for the kind for the kind of breach that occurred, the party in breach will generally be saved from liability. Only where the contract is unconscionable, as might arise from situations of unequal bargaining power between the parties, should the courts interfere with agreements the parties concluded
Fraser Jewellers (1982) Ltd. v Dominion Electric ProtectionUnconscionability
Issue Ratio Notes
P had alarm system from D for 2 years
D fails to respond to robbery
P sues for damages Contract had exclusion
clause
• In assessing unconscionability it isn't about whether there is merely an inequality in bargaining power, but if there is an abuse of the bargaining power -> would enforcement of limitation clause constitute “unacceptable commercial practice?”
• Is the limitation clause one that makes sense economically for the defendant?
Limitation clause wasn’t obscure/unreasonable
Made sense to have limitation clause –> contract explicitly stated D was not insurer
Davidson v Three Spruces RealtyExtreme abuse of freedom to contract constituting unconscionability
Issue Ratio
P contracted to store items at D’s facility
Contract excludes D from limitation absolutely
D told P that they would not need insurance and everything was fine
There was a theft
Was the contract a standard form contract drawn up by the BaileeWere there any negotiations as to the terms of the contract or was it a
commercial form which may be described as a "sign here" contract?Was the attention of the plaintiffs drawn to the limitation clause?Was the exemption clause unusual in character?Were representation made which would lead an ordinary person to believe
that the limitation clause did not apply?Was the language of the contract when read in conjunction with the
limitation clause such to render the implied covenant made by the Bailee to use reasonable care to protect the plaintiffs' property meaningless?Having regard to all the facts including the representation made by the
Bailee and the circumstances leading up the execution of the contract would not the enforcement of the limitation clause be a tacit approval by the Courts of unacceptable commercial practices?
Delany v Cascade River Holidays Ltd.Will liability clause be enforced(party died, death wasn’t mentioned in liability clause)
Issue Ratio Notes
Man decides to join friend on rafting trip last minute
Doesn’t read liability Dies. Can limitation clause
protect D?
The court will look at the context of the contract and relationship within a parties to determine if a reasonable person would assume the general liability clause included certain specific considerations. Such as if liability from damage includes liability from personal injury or death in the context of a contract for a rafting trip
Dissent is key part for this case the dissent raised issues from the Tilden. Its clear the liability clause wasn’t understood so how can it be applied?
Tercon Contractors Ltd. v British ColumbiaSettling the score on limitation clauses, 3 step test for limitation clauses
Issue Ratio Notes
BC put out call for tenders
Accepted an ineligible bid
P sues for lost profits (would have gotten the bid)
•The doctrine of fundamental breach is laid to rest and the Court determined that freedom of contract would prevail unless the exclusion clause was unconscionable at the time the contract was made or there is some overriding public policy concern to defeat what would
otherwise be the contractual right of parties to draft their own agreements
3 Step Test for determining whether an exclusion clause applies
If 1. 1. As a matter of interpretation does the exclusion clause even apply to the circumstances established in evidence
Depends on Court's assessment of the intention of the parties as expressed in the contract (read in light of commercial context and purpose)
And 2. 2. Was the exclusion clause unconscionable at the time the contract was made, "as might arise from situation of unequal bargaining power between the parties" Has to do with contract formation, not breach (unconscionability in Hunter???)
Then 3. 3. Should the court nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy Burden lies on the party seeking to avoid the enforcement of the clause to show that
the public policy overrides the public's interest in the enforcement of contracts.
Tercon Note CasesRules for Liability Clauses
Note Case Notes
Exclusion Clauses will NOT be enforced if the plaintiff's attention was not adequately drawn to the limitation clause before entering into the contractual relationship, or at least before a breach of contract or a negligent act or an omission occurred.
o Adequately means they must be AWARE that there is a limitation clause… if they know that a limitation clause is included in the contract then they have been made aware enough
Regarding negligence being included in exclusion clauses:
o When can negligence be interpreted as being included in the exclusion clause?
"If negligence can reasonably be construed as being within the contemplation of the parties in formulating their agreement, then the clause will extend to liability for negligence"
o It is unlikely that a party would absolve the other of liability regarding negligent performance on the contract, so:
If an exclusion clause can reasonably contemplate any head of liability other than negligence, it is generally construed as not extending to negligence
Willful misconduct is separate and distinct from negligence, and does not fall under the scope of limitation clauses the limit liability relating to negligence
Inserting liability clauses into a contract specifically because one is operating on specific information and is trying to avoid specific liability is unconscionable conduct
Regarding whether a limitation clause should apply if the party didn't read the clause but signed:
o It is only where the circumstances are such that a reasonable person should have known that the party signing was not consenting to the terms in question that an obligation exists to ensure the party signing understands the exclusion clause
o The exclusion clause's relation to the nature of the contract is important… the exclusion clause cannot be contrary to the normal expectations of the signing party (sorta like tilden)
5. Unconscionability and Undue Influence Post et al. v Jones et al
Unequal Bargaining Power, P has no choice but to accept terrible dealIssue Ratio Notes
Ship runs into rocks Ask other ship for
help They agree but only if
they can purchase cargo at set (LOW) prices
• Where one party has absolute power, and the other has no choice but submission is a transaction which has no characteristic of a valid contract
Courts of admiralty enforce contracts for salvage, but they do not like it when a party takes advantage of the situation and of other's misfortune to drive a bargain
Marshal v Canada Permanent Trust co.Unequal bargaining: Party A purchases land from old man grossly underpriced
Issue Ratio Notes
Two requirements for unconscionability:
1. Gross inequality of bargaining power
2. A bad deal
Mundinger v MundingerUnconscionability with a relationship where there is no typical mental weakness (abusive
marriage)Issue Ratio Notes
In situation with a difference of bargaining power:
Burden is on the plaintiff to prove the deal was horrible due to a difference in bargaining power
Then: burden shifts to defendant to prove that the deal was fair
Lloyds Bank Limited v BundyProving there is undue influence
Issue Ratio NotesProving the required relationship
There are two ways undue influence can be established:
(1) The stronger person is guilty of fraud or wrongful act to gain advantage over the weaker.
(2) The stronger is not guilty, but because of their relationship of trust and confidence, gained an advantage.
a. Prove this was a relationship of trust
The other party can rebut the presumption by showing they acted with scrupulous care, honesty and in the best interest of the subordinate party.
This case was resolved to be undue influence of the second category: father implicitly trusted bank manager to act in his best interest. Bank manager knew this but yet did not tell him the son’s business was very likely to fail.
and confidence ORb. Show it fits into one
of the presumed categories. (listed beside).
c. NEED a transaction that is not readily explicable by the party’s relationship.
o Parent/childo Dr/patiento Trustee/beneficiaryo Solicitor/cliento Religious advisor/disciple
Facts: man mortgages farm to bank for Son’s business. New bank manager comes in, sees that son’s business is failing, goes to father and gets him to sign more interest in his property over even though bank manager knows business will likely fail and isn’t extending anymore credit in exchange for this extra interest.
Credit Lyonnais Bank Nederland NV v BurchWhat Case is about
Issue Ratio Notes
•
Royal Bank of Scotland p.l.c. v Etridge (No.2) and Other Appeals3rd parties to the contract and undue influence (Bank)
Issue Ratio NotesWhat if the undue influence comes from a third party to the K?
(i.e. pressure on a guarantor from the person who they are helping… this person is not a party to the guarantor K it is between the guarantor and the bank)
Normally, undue from a relationship of trust or confidence is proved when Ptf proves (1) trust and confidence of defendant (2) transaction not readily explicable by party’s relationship. Then the onus shifts to the def to prove (1) no trust or confidence (but can’t if it is one of the automatic categories) or (2) give an explanation for the transaction.
A bank is fixed with constructive knowledge of undue influence anytime a guarantee is given in a non-commercial relationship. If undue influence is then proven, the bank will not be able to enforce the contract UNLESS the bank…
(1) Made sure spouse knows the risk—explain carefully and thoroughly
(2) In a private meeting—decides in a private meeting.
(3) Urged spouse to get independent legal advice
What must a solicitor do when advising someone whether to enter a surety K for a spouse or similar relational person?
(1) Explain nature of documents and their consequences.
(2) Seriousness of the risk(3) Ensure spouse knows
that they have a choice, individual decision.
(4) Check whether the spouse wishes to proceed.
(5) Must say they think it is a bad idea if that’s what they think.
(6) The meeting should be face to face.
(7) Can act for both spouses as long as giving advice to each
(4) Exceptionally must insist on independent advice and receive letter from solicitor saying they have advised the spouse.
If the bank knows the spouse has not received good advice, they run the risk. Otherwise can usually rely on the solicitor saying the spouse was advised to make the surety K enforceable. Usually the first two points are done by a solicitor.
individual’s best interest.
Usually a spouse or other person seeking to avoid a guarantee in a non-commercial context will claim:
1) Non est factum2) Unconscionability3) Undue influence
Facts: wife signed her interest in the matrimonial home to bank for husband’s indebtedness. Claims she did it under undue influence of husband and that bank was aware of this. She also sues solicitor who advised her before entering these guarantee obligations. Canadian Interpretation:
o SCC adopted this case in Gold v Rosenburgo But in Van Der Ross the court held that failure to satisfy the O’brien requirements does not
automatically vitiate a surety K. o In BMO v Courtney the wife was held liable b/c she had knowledge and experience in financial
matters notwithstanding the failure to get independent legal advice. o Therefore, generally in Canada while the Bank will be stuck with constructive notice of undue
influence in non-commercial relationships, they can avoid liability when undue influence is actually proven IF they ensure the guarantor understands the risks and nature of the transaction and is advised in a reasonable way, but not necessarily by independent legal counsel (although that would obviously help).
Mccaulay v A. Schroeder Music PublishingWhat Case is about
Presumption of fairness in established commercial forms (with equal bargaining power); no presumption of fairness in ‘consumer’ standard forms, especially when inequalities in bargaining power π musician entered into standard form agreement, committed to hand over © for 5 years,
had no right to terminate agreement but ∆ did have right to terminateWas agreement unconscionable? Because ∆’s bargaining power was so strong, they could offer goods on a ‘take it or leave it’
basis; unlike presumption of fairness in commercial standard forms, the court must decide in private standard forms whether an unconscionable bargain took place
Pridmore v CalvertWhat Case is about
In Canada if you do engage in improvident settlement with an ignorant person, unless you get them to seek legal advice, onus to prove that K was reasonable and fair (generally by looking at $ given)
π signed release; injured in motor vehicle accident by ∆’s negligence
Within 48 hours insurance adjuster appropriated π’s signature Was π’s signature acquired in an unfair manner? People in π’s position often think release is a receipt to get $ without realizing impact of
signature Figure granted was low; no lawyer would advise π to accept settlement, no Dr opinion on
state
Horry v TateWhat Case is about
Facts: P injured in work accident; D’s insurer negotiated settlement K with unrepresented P.
Issue: Is the settlement K void on basis of undue influence?
Held: YES – confidence (and trust) existed btw P and insurers beyond the standard for business affairs (= fiduciary duty to Horry) could likely have been discharged by advising him to seek independent advice); insurers should have offered higher figure based on severity of injury; should have indicated their total estimate for claim and shown the reduction for contributory negligence; should have given P a copy of his medical records; should have made sure P understood the implications of settlement (no further action could be taken, recurrence rate for injury); should have advised P to think it over and see how he was returning to work before settling.
Notes: compelled to advise him to seek independent advice b/c of the unique conflict of interest position of insurer; cases where future aggravation of injury was probable
Woods v Hubley3 criteria allowing unconscionable transactions to be voided
Was there unconscionability involved in procuring π’s signature? 3 criteria allowing unconscionable transactions to be voided:
i) inequality of bargaining power based on ignorance, need or distressii) stronger party used power position to achieve advantageiii) agreement reached is substantially unfair to weaker party or divergence from accepted standards of commercial morality
Burden on ∆ to show that bargaining power wasn’t misused.
6. Duress
Greater Fredericton Airport Authority v NAV CanadaWhat Case is about
Facts: GFA wanted to extend runway but required new system to do it; NAV under K req’d to pay for new system BUT seek variation of K b/c they don’t want to pay.
Issue: Whether a K modification without good consideration is still valid? Whether a K modification with good consideration is nonetheless void on the basis of economic duress…
Held: GF never consented to or acquiesced to the variation (evidence is their letter that they would do it but “under protest”)
Ratio: K variation unsupported by fresh consideration, may be enforceable if not procured under economic duress [onus lies with D to prove modification was not procured under ED]
Notes: good law in NB re: whether or not a K modification with good consideration is nonetheless void on basis of ED; gives framework for ED; ED centers on “no other reasonable choice/practical alternatives”
Chapter Seven: Public Policy1. Introduction 2. The Effects of Illegality
Holman v JohnsonVendor knows purchaser is using product to commit illegal act. = illegal contract? (nope)
Issue Ratio Notes
P sold to D knowing D would be smuggling product into England illegally
P not involved in smuggled
Is contract illegal?
•Vendors whose items are used for illegal or immoral purposes are not guilty of any offence, once the contract is complete the vendors interest is totally at an end
•The court will not lend its aid to a man who founds his cause upon an immoral or illegal act
P had nothing to do with illegal act and neither did the contract of sale
3. Contracts Contrary to Public Policy Expressed in the Common Law Egerton v Brownlow
Note case regarding the traditional view of how judges can use public policyIssue Ratio Notes
Traditionally: Judges should only speak to law because they are in no better situation than others to speak of morality
Critique: Just because judges are no better off than other members doesn’t mean they shouldn’t address issues of public policy
In the Matter of Baby “B”Public Policy (public moral views on relationship of mother and child) inform law
Issue Ratio Notes
Surrogate mother wants to keep baby
•Surrogacy contracts are illegal in the U.S. due to moral considerations
Surrogacy contract is contrary to “objectives of U.S. laws”
Guarantees separation of a child from its mother
Looks to adoption regardless of suitability
Totally ignores the child Takes child from mother
regardless of wishes/maternal fitness
All of this is done using money
3.a) Contracts in Restraint of Trade Shafron v KRG Insurance Brokers (Western ) Inc.
Non-Compete Restrictive Covenant-> Validity of thisIssue Ratio Notes
P signs non-compete to not work in “metropolitan city of Vancouver”
That isn’t a place Is restrictive covenant
enforceable?
•The reasonableness of a restrictive covenant is determined by considering the extent of the activity sought to be prohibited and the extent of the temporal and spatial scope of prohibition
•If the covenant is ambiguous, in that what is prohibited is not clear as to activity, time, or geography (must be all 3) it is not possible to demonstrate that it is reasonable
There is a presumption that restrictive covenants are prima facie unenforceable, but a reasonable restrictive covenant will be upheld
Policy: public has interest in being able to freely trade
Business owner might not be able to sell business without non-compete
Purchaser-seller relationship is different than employee-
employer relationship though
3.b) Contracts Related to Gaming
Boardwalk Regency Corp v MaaloufPublic Morality and Gaming
Issue Ratio Notes
Respondent got into debt gambling in New Jersey, didn’t pay
Judgment was entered in New Jersey, R resists that judgment
• English courts refuse to give legal effect to transactions which they hold to be immoral
•In determining whether a contract relates to moral conduct see if the conduct is in the Criminal Code
If it is check in CC then: check to see if it is conduct that is an outright offence or conduct that could be amended to be regulated?
Provinces have ability to license gambling
It wouldn’t be immoral to lend money to a friend for him to play lotto
3.c) Contracts in Furtherance of illegal Purposes Alexander v Rayson
Contract is valid but purpose of document is to defraud 3rd party->voidIssue Ratio Notes
D signs lease from P P made lease into two
agreements splitting the rent so that he could defraud city
Contract is legal, but document is for defrauding
• If the document itself is meant to be used fraudulently it is equivalent to the document being about an illegal activity
P can’t bring action based on contract that was meant to defraud
3.d) Contracts Conferring Benefits as a Result of Crime Brissette Estate v Westbury Life Insurance Co.
Who gets life insurance if one spouse kills the other?Issue Ratio Notes
Couple has life insurance, both listed as “the insured”
Surviving spouse gets insurance proceeds
Husband murders wife Can wife’s estate get
insurance?
• It is public policy that a felon cannot benefit from his/her crime
•If an individual is rewarded a benefit because of a crime they/their estate will be granted the benefit if a contract directly makes them a beneficiary and they were not privy to that contract
Party must be beneficiary under insurance to receive benefit
Oldfield v Transamerica Life Insurance Co. of CanadaInsured party dies committing crime: can beneficiaries receive insurance money?
Issue Ratio Notes
Ex-Husband pays child support (is insurance so in case of death he can still pay child support
Ex-Husband dies as a drug mule
•Public Policy Rule:
A criminal should not be permitted to profit from crimeOperates independently from
contract law unless modified by statuteRule extends to those who
claim through the criminal's estateRule is inapplicable to
innocent beneficiaries
•For this case: Public policy does not apply to bar a claim by an innocent beneficiary named in an insurance policy merely because the insured dies while committing a crime
Problem is that it doesn’t disincentivize suicide
Though drafting could deal with that
4. Contracts Contrary to Public Policy Expressed in Statute First Issue: is the contract illegal?
Bigger issue: If it IS illegal, what is the result
Kingshot v BrunskillContracts contravening statute, judge won’t do anything
Issue Ratio Notes
P grows apples as hobby crop, sells to apple farmer, D
D slowly takes apples, eventually they get inspected and rejected
D refuses to pay and claims the contract is illegal for breaking a statute (which it does)
• The Court cannot read into the regulations exemptions which might appear to the Court to be justifiable in a given set of circumstances
Judge is a wuss Failure was a technical one,
Doherty v Southgate (Township) (KEY CASE)D trying to take advantage of their own statutory failure, trying to void contract
Issue Ratio Notes
D entered into contract with P; legislation requires certain conditions
D fails to rezone land as agreed, P sues
D claims contract void because the legislative requirements weren’t met
•If the statute does not contain a clause voiding contracts that contravene its provisions, the contract will be enforceable so long as there would be no changes to the content of the contract had the statute been followed.
•Policy:
•Legislature doesn’t waste its breath•If the contract can be voided due to any statutory breach it would allow the plaintiff to wait until they see if the contract is beneficial before deciding whether to void it or not. This removes the risk, which is a fundamental aspect of contracts;
Often applies to technical breaches
Plaintiff cannot recover by bringing action against statute
If contract is void enforcement of public law is happening in private law
4.b) A common Intent to Perform a Contract Illegally Ashmore, Benson, Pease & Co. Ltd. v A.V. Dawson Ltd.
Contract is performed illegally ->contract is voidedIssue Ratio Notes
P hired D to transport big equipment
Load was too heavy for truck, both parties knew-> performance was illegal
•Illegality in the performance of a contract may void it if both parties are aware even though the contract was not illegal ab initio
•In equal fault, better is the condition of the defendant "In pari delicto, potior est conditio defendantis"
5. Mitigating the Consequences of Illegality Because there are so many ways in which a contract may
be or be performed illegally there have been exceptions made to mitigate
These exceptions are criticized as overly technical, lacking in logic and consistency
5.a When the Claim is founded on an Independent Right
Mistry Amar Singh v Serwano Wofunira KulubyaIllegal Lease, does property right transfer? Or can illegal tenant be evicted
Issue Ratio Notes
P is evicting D Lease is contrary to law Can D be evicted?
• If a party has a right to the property prior to the illegal lease it will be respected and override the principle that the defendant is in the better condition.
•Property interest cannot transfer via a contract void ab initio
This might apply specifically to leasing property. If contract is illegal you can’t bring action to enforce right, but you can bring action for eviction because there is no longer an agreement that has transferred a right to the tenant
5.b Restitution General principle of restitution:
o Where benefits have been conferred by one party on the other to an agreement that is unenforceable by reason of a doctrine of common law or equity, restitutionary relief will
be available to the conferring party to enable recovery of the value of the benefit conferred
Complicated in cases with illegal transactionso "no court will lend its aid to a man who founds his
cause upon an immoral or illegal act" There are some exceptions
Exceptions:o Restitutionary relief is made out in circumstances
where the party conferring the benefit was unaware of the facts that render the transaction illegal
o Circumstances where the defendant has induced the plaintiff to enter the agreement by oppressive conduct such as fraud or undue influence
Kiriri Cotton Co. Ltd. V Rachoddas Keshavji DewaniParty is trying to recover money paid/property transferred under an illegal contract
Issue Ratio Notes
Resp. rented place from App.
Paid large premium This was illegal Can R. recover?
In cases where one party is trying to recover money paid or property transferred under an illegal contract:
If two parties enter into an illegal contract, and money is paid upon it by one to the other, money may be recovered back from the execution of the contract, but not afterwards, the court will not lend aid if the contract has been executed unless it appears that the parties were not in pari delicto (equal fault)
If the contract is fully executed (determining if the parties are not in pari delicto):
If there is something in the defendant's conduct which shows that, of the two of them, he is the one primarily responsible for the mistake, then it can be shown that the parties are not in pari delicto and the plaintiff can recover
Typically courts won’t allow an action regarding something done in contravention of an Act of Parliament -> but that is to do with enforcing an illegal contract not recovering
Outson v ZurowskiExceptions to the rule there can be no recovery under an illegal contract
Issue Ratio Notes
Pyramid scheme D recruited P P wanted out before
they started executing scheme
P wants to recover the $2000 buy-in
Two exceptions to the rule that there can be no recovery under an illegal contract:
i. The parties are not in pari delicto
ii. Where the plaintiff repents before the contract has been performed
•The contract is still executory•Must repent in time (unclear how much)
Policy: It would incentivize performance of illegal contracts if it was impossible to recover money once contract is agreed to.
Something about: if you bring a restitution action generally the person needs to still have your (particular) money
5.b Severance of Illegal ProvisionsWilliam E. Thomson Associates Inc. v Carpenter
Loan contract has illegal interest rate, can interest rate be severed? Issue Ratio Notes
P loaned money to D Loan contained illegal
interest rate D is resisting repaying
loan because of illegality Can D not repay? Or can
Courts sever illegal aspect in order to make D perform
• When looking to sever a clause from a contract for illegality consider these:
i. Will the object and policy of the section of the criminal code be subverted by a performance of the agreements
ii. Did one or both of the parties intend to break the law
iii. Were the parties in equal bargaining positions
iv. Would one party be unjustly enriched if the contract were not enforced
Be careful enforcing contracts that are illegal/against public policy in situations where the only thing left to do with the contract is for the complainant to pay
New Solutions Financial Corporation v Transport North American Express Inc.Doctrine of “notional severance” as opposed to blue-pencil
Issue Ratio Notes
Credit agreement with too high of interest (extra fees fell under interest)
but trial judge uses “notional severance” to change interest rate to make it legal.
Court of Appeal uses blue-pencil and severs illegal clause
• Notional severance is available, allowing judges to change the interest rate to a particular rate without severing the illegal clause from the contract entirely• Determination of appropriate remedial consequences will hinge on a careful consideration of the specific contractual context and the illegality involved
•The Blue-Pencil test is problematic because it alters the terms the parties agreed to
Problems with blue-pencil approach:- the only contract the parties can be said to agree to is the one they in fact did- was originally used in order to ensure deeds were valid -> intentions didn’t matter
6. A More Modern Approach? Still v The Minister of National Revenue
Party acts in good faith but unknowingly behaves illegally -> should courts be harshIssue Ratio Notes
P believed, in good faith, they could legally work (permanent resident letter of approval was confusing
actually is able to work months later, is fired one month after this
denied unemployment benefits -> only legally working one month
• In examining whether to give aid to a party who is involved in a prohibited contract the court should look to the policy considerations surrounding the legislation in question to see if this contract is contrary the goals of the legislation
•The court should also look to see if the punishment (what the party is being denied of) fits the crime (the statutory breach)
•Class note: USE DOHERTY
Chapter Eight: Performance and Breach1. Repudiatory Breach
Kingston v PrestonWhen can an action for breach be brought?
Ratio Notes
• The judge lists out three types of contracts and when an action can successfully be brought for breach :
1.Mutual and independent (both perform tasks that are unrelated)
•Either party may recover damages from the other for the injury he may have received by a breach of the contract
No defense for defendant to allege a breach of the covenants on part of the plaintiff
•Neither promise is conditioned upon the other•Sale for good contracts would never look like this
2.Conditions and dependent (both perform tasks, one depends on performance of other):•Performance of one depends on the prior performance of another•Until the prior condition is performed, the other party is not liable to an action on his agreement•Delivery of goods depending on performance of payment
3.Mutual conditions (both perform tasks that must take place at the same time):•If one party is ready and offered to perform his party, and the other neglected or refused to perform his, the ready party may bring an action against the other•Doesn't matter that neither is obliged to go first
In this case the sale of the business was dependent upon sufficient security which was not received
Note CasesRules of CivPro-bringing breach action + how paying damages isn’t a good solution
Notes
Rules of Civil Procedure (Ontario Superior Court of Justice 1990)
If someone is bringing an action for breach of contract it is assumed that they met all the conditions necessary in order to bring their action.
o If the other party wishes to say there was a condition that wasn't met the other party must bring it to the attention of the court
McDonald v Murray (1885) - Problematic aspect of paying for damages?
o Parties generally in contracting intend on getting what they bargained for when they part with what they are to give
o They do not intend on giving what they are they are to give in exchange for performance or payment for lack of performance.
o Payment for lack of performance is not generally a part of the contract and if it is it should be explicitly stated
Bettini v GyeHow the Court determines if a stipulation is a condition precedent or an independent conditionIssue Ratio Notes
P contracts with D to sing at his Opera
Contract stipulates P arrive a week before commencement without fail
P is ill and can’t show up
In determining whether a stipulation is a condition precedent or an independent condition the court asks:
If a particular stipulation goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for, then it is a condition precedent
If failure to perform it only partially affects what the defendant has stipulated for the defendant may be compensated in damages
Court looks at the non-compete aspect
And the fact lateness could only affect the first few performances, in which case D could get damages for breach
Pussard v Spiers and PondWill damage caused by unintentional breach goes to root of contract and dissolve obligations)Issue Ratio Notes
P contracts to sing in D’s opera (First showing, a lot riding on performance)
P gets sick D gets replacement and
releases P P wants back in
• In the case of an unintentional breach (such as illness), the defendant's may still be dissolved of contractual obligations to the plaintiff if the damage caused by the breach goes to the root of the agreement
The court will examine the facts to see if there were any implicit conditions available to the defendant that would have allowed them to uphold the
New Opera needed to be on time, and budget
Had to get understudy to replace, understudy would only agree if she got to do it permanently
contract. If not, the obligations are dissolved.
Maple Flock Company, Ltd. v Universal Furniture Products (Wembley) Ltd. Can a single breach justify rescinding entire contract?
Issue Ratio
P contracts with D to deliver product over period of time
One shipment breaches government standards
Can D rescind contract?
When a contract involves a series of payments or shipments, and a party defaults on a payment or shipment, the court will:
In the case of default on a payment (buyer's breach):
•Examine the conduct to see whether it amounts to a rescission, to an absolute refusal to perform the contract. Examine whether the conduct evinces an intention no longer to be bound by the contract
In the case of default on a delivery (seller's breach):
•The objective test of the relation in fact of the default to the whole purpose of the contract. The court will look at:
1.The ratio quantitatively which the breach bears to the contract as a whole2. The degree of probability or improbability that such a breach will be repeated (would repetition be reasonable to infer?)3. Are the consequences so severe that the breach went to the root of the matter?
2. Waiver and the True Condition Precedent Panoutsos v Raymond Hadley Corporation of New York
P1 allows P2 to breach in small way, can P1 claim breach and rescind contract?Issue Ratio Notes
P Ks to buy flour from D K insists on “confirmed
bankers credit” P doesn’t get this but D
goes ahead Prices change D wants
out and uses lack of confirmed credit to claim breach
Did D waive ability to rescind
In determining whether a party waived their ability to rely on a condition precedent to rescind the contract:
Did the defendants by their acts or conduct lead the plaintiff reasonably to suppose that they did not intend to treat the contract for the future as at an end, on the account of the failure to perform the condition precedent?
If so there is an estoppel on the right to assert the condition unless the sellers giver reasonable notice of that intention to the
Price of flour had likely gone up
buyer so as to enable him to comply with the condition which up to that time had been waived
Turney and Turney v Zhilka (Lead case)Waiving precedent conditions that are dependent on 3rd party for performance
Issue Ratio Notes
P contracts to buy land from D
D accidently gives P too much in contract
There is condition precedent that contract depends on Village council approving subdivision
D waives and sues for specific performance
A party cannot waive a precedent condition that depends on a third party for execution, as this is effectively rewriting the contract
A breach of contract cannot occur in a contract that relies on a third party for the fulfillment of a precedent condition, until that condition is satisfied
SCC states if parties want to be able to waive precedent conditions for their benefit they are free to draft that option into a contract
3. The Position of the Party in Breach Jacob Youngs, Inc. v Kent (Lead Case)
Do the parties have to provide “perfect” performance? Court defines principle of substantial performance
Issue Ratio Notes
P builds home from D K stipulates a specific
type of pipes be used A different though
equally suitable pipe is used
D wanted P to tear it all down and make it with the specified pipe
P said no and asked for payment
D wouldn’t pay
In a contract, unless expressly stated, it will be implied that payment will be required on substantial performance. Damages calculation:
In cases where there is substantial performance that varies, or is below, the standard contracted, the plaintiff can sue for the difference in value of the work performed and the work contracted
In weighing whether a condition precedent is to be interpreted as a dependent or independent condition
Policy: Perfect performance is not required because no one would contract if they would be required to redo all the work because it was not absolutely perfect.
the court weigh's the following factors:
weigh the purpose to be served the desire the party wants
fulfilled the excuse for deviation from the
letter the cruelty of enforced adherence If the condition is interpreted as
not requiring literal fulfillment, the condition will be interpreted as an independent condition, breach of which requires the party to pay damages.
If the use is not effected the court can make the difference in value the measure of damages as opposed to the cost of replacing the defect
Hoenig v IsaacsWhat is this about
Issue Ratio Notes
D Ks with P to furnish his home
P does, but some furnishing defectiveD says performance incomplete
In contracts that are payable in a lump sum, If the work is complete but defective the purchaser must pay the money, but is able to off-set the payment with a counter-claim based on the defective work.
Judge notes it is more equitable to pay ze maen hees maney than to deprive him wholly of contractual rights and force him to attempt to get quantum meruit
Sumpter v HedgesCan Party receive payment for partial performance if K requires full performance and then
paymentIssue Ratio Notes
P Ks to build two homes for D
P works for 2 weeks, is paid for materials and abandons K
D completes work
In a contract for payment in a lump sum, where a party refuses to perform a condition precedent required to get paid, they cannot recover for partial performance. Only if there is evidence that there was a fresh contract that would allow the
Question: is payment dependent on completion of work?
Is there evidence of fresh contract
Payment is dependent on full
Can P get paid for work completed
party to recover will the party be able to recover.
If the contract requires a condition precedent be performed, payment will not be required until the agreed condition is performed.
If the builder refuses to continue building the contract is repudiated
performance
Chapter Nine: Mistake1. Introduction Freedom of contract presumes the certain information preconditions must be met for a given
exchange to justify enforcement The idea of an exchange is that both parties will be better off
o If one party operates with poor information then it may be that the exchange is not in the best interest
No contract is perfect
Two broad categories of information imperfections: 1. Asymmetric information imperfections
Where one party is substantially less well informed about some aspecta. Fraudulent misrepresentation b. Negligent misrepresentationc. Innocent (non-negligent) misrepresentationd. Material non-disclosure - (not disclosing information that may affect
the contracting party's willingness to contract)e. A mistake by one party about the meaning of the contractual terms or
pre-existing facts
2. Symmetric imperfections Mutual mistakes about pre-existing facts Mutual mistakes about future courses of events
2. Misrepresentations Grotius article
When people can recover for errors regarding factsNotes
The law fails if the truth of the alleged facts fails, this is similar with contracts:
o If a contract is premised on a certain presumption of fact, and this fact isn't true, the contract is void
There is a lack of True Consent The party did not agree to the contract under the other facts (no
meeting of the minds) o If the promisor is negligent in determining the facts or expressing the facts to the promisee:
If the promisee suffers a loss because of the poor information or absence of necessary information the promisee can recover damages from the promisor for the loss
o If there is an error but it doesn't go to the heart of the matter then the contract remains valid:
But if the promisor has caused the error by fraud the promisee can recover damages suffered from the error
Heilbut, Symons & Co. v BuckletonIf party can’t show a warranty it is just an innocent misrepresentation: how to show warrantyIssue Ratio Notes
P buys stock believing he was told some information
Is there evidence there was a collateral agreement
A person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made.
A representation made at the time of sale is a warranty if it is shown on the evidence that the party intended it to be so (intention must be proved)
o “intention of the parties can only be deduced from the totality of the evidence, and no secondary principle of such a kind can be universally true”
Bentley (Dick) Productions Ltd. v Smith (Harold) (Motors) Ltd.fHow to show something is a warranty
Issue Ratio Notes
P looking for car D finds one and gives
certain representations regarding quality
These are false Is it a warranty?
If the representation was made in the course of dealing 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 that it was meant as a warranty, it was intended to be acted upon and in fact was acted upon
This claim of warranty can be rebutted if the maker of the representation can show that it 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.
Redgrave v HurdP1 makes false representation, P2 finds out and refuses to perform
Issue Ratio Notes
P is selling a share in law firm ownership and a house as bundle.
D buys but finds out law firm is worthless
P wants specific performance, D wants rescission.
Can they rescind?
A party is not to receive benefits from false statements, regardless of whether they knew the statement was false or not.
If a material representation is made to induce someone to enter into contract, it will be assumed that that representation was relied upon when they entered into the contract, it is then the burden of the opposing party to give evidence shows that they did not rely upon the representation
If the representation is false it will be grounds for rescission
Material false statement: a statement that’s untrue is a sufficient ground to rescind the contract
Newbigging v AdamWith innocent misrepresentation you don’t get full compensation, only get back obligations of
contract, no “damages” Issue Ratio Notes
D misrep adequacy of machinery
P enters into partnership on this
P wants out, wants buy in back, want indemnify
•In common law with innocent misrepresentation, you are to be returned to your prior state BUT with the limitation that he is to be replaced in his position so far as the rights and obligations which have been created by the contract into which has been induced to enter:
1.He may get an advantage in the shape of an actual benefit, as when he receives money2.He may also get an advantage if the party with whom he
If he lost money in venture he could not recover that but he can recover the stuff paid or done to enter in
contracts assumes some burden in consideration of the contract
•The contract is rescinded and the party is able to receive the benefits of this, but is not able to recover any money lost through the operation of the business?
Kupchak v Dayson HoldingsDid a party affirm a contract induced by misrepresentation by minimizing damages?
Issue Ratio Notes
P purchased shitty hotel from D
D was fraudulent, but already sold P’s land
Can’t go back D says P affirmed by
running the motel
Attempts to minimize damages suffered under the fraudulent contract (ie resale/fixing fraudulent issue) does not amount to an affirmation of the contract.
Redican v NesbittRescinding innocent misrepresentation, won’t happen after full execution of contract
Issue Ratio Notes
P rents house prior to seeing, gives D cheque to rent
P alleges D misrepresented
P wants rescission
Payment by cheque will constitute a full execution of the contract
If you get full consideration (or, if the contract is fully executed) you cannot receive rescission on the basis of innocent misrepresentation
Leaf v International Galleries In order to rescind contract you must bring action within reasonable time
Issue Ratio Notes
P buys painting D claims its by X P, 5 years later finds
out it is not by X P attempts to return it
Rescission of a contract for innocent misrepresentation must occur within a reasonable time limit (just as rejection of a contract for breach of a condition must)
"a condition is a term of the contract of a most material character, and, if a claim to reject for breach of condition is barred, it seems to me [this gives strong evidence] that a claim to rescission on the ground of
An innocent misrepresentation will not supply grounds for rescission if a rejection of the contract based on a breach of the misrepresented condition is barred.
innocent misrepresentation is also barred.”
O’Flaherty v McKinleyWhat is this about
Application of concurrence exception from Redican; woman wanted and asked for a 1950 model of a car, and was told by salesman that is what she was getting but actually she got a 1949; externally identical but internally substantially different machines (innocent misrep, salesman truly believed it was a 1950 he sold her); despite K being fully executed, exception applies because based on the innocent misrep, she received something entirely different that was she expected. Recission granted (P gets her money back and D gets the car back)
Murray v Sperry Rand CorporationManufacturers who have made representations about products are liable to customers
regardless of privityIssue Ratio Notes
Manufacturer made brochure which made certain representations, the goal of which was to induce the customer to purchase
The customer did and the thing was junk
Is the manufacturer liable, even without dealing with the customer directly?
An affirmation made with the intention of inducing contractual relations is a warranty
Since manufacturers would be liable for breached warranties if they had supplied the goods directly to the owners, they are equally liable in supplying the goods indirectly
4. Mistake About Contractual TermsHobbs v Esquimalt & Nanaimo Railway Company(IC)
What is this aboutFacts: K for sale of land, railway (D) wants to keep mineral rights and claims “land” for purposes of K does not include these rights; Hobbs (P) sues for specific performance of sale including mineral rights.
Issue: What is the ordinary meaning of “land”?
Held: for the P; K was for “land” and a reasonable person would have thought mineral rights were included (objective test). Private/subjective meaning (i.e. within D’s office) has no relevance to the court.
Ratio: Mistake by one party will not suffice to invalidate a K where literal meaning of K is clear.
Raffles v Wichelhaus (IC)What is this about
Facts: P agrees to sell D cotton from Bombay, D thought it was arriving by another ship with same name, leaving at a different time (one in October, the other in December), D refuses to pay (probably motivated by price fluctuations)
Issue: Did existence of 2 ships from Bombay called “Peerless” go to the root of the K, thus invalidating it?
Held: No K between the parties/not enforceable – at the moment it appears that 2 ships called “Peerless” were about to sail from Bombay = latent ambiguity, and parol evidence may be given for the purpose of showing that the D meant one “Peerless” and P meant another, resulting in no meeting of the minds
Reasons: Where there is a mistake about an important term of the contract and there is no way to prefer one party’s interpretation over the other, then there is no contract b/c the offer and acceptance don’t match (no meeting of the minds)
Seaiman Steel Ltd. v Commercial & Home BuildingsWhat is this about
Facts: D is selling used steel at auction; auctioneer says they’re offering “all the steel in the yard”; P is highest bidder; when comes to pick it up wants to include brand new steel that was sitting in the corner of the yard that had already been sold; D says no dice, that wasn’t included; P agrees to take lot without new building steel but indicates it may bring a legal action; D said sign waiver to indicate building steel wasn’t included; P refuses and then D refuses to deliver ANY of the steel (old or new)
Issue: (1) Was the building steel included in the offer for sale of “all the steel in the yard”
(2) Does the misunderstanding about what was for sale constitute no meeting of the minds?
Held: damages for P on basis that D breached by not delivering any steel; but only gets damages for steel D intended to sell: (1) NO – D never intended to include new building steel in offer; Everyone knew that all the steel in the yard didn’t mean literally ALL the steel in the yard. Just meant the steel that had been offered for sale separately in catalogue being sold as a single item for sale (building steel was separately piled, not tagged and not listed in catalogue); (2) NO - basic rule of K law that it is not a party's actual intention that determines contractual relationship, but rather the intention manifested by the words and actions of the parties; Court infers a mutual mistake = court must decide what a reasonable 3rd party would infer the K to be from the words and conduct of the parties who entered into
it…here R3P would infer auctioneer, despite his words, was an offer for sale that did NOT include the building steel
Henkel v Pape(IC)What is this about
Facts: P & D go back and forth about sale of guns, D suggests may be an order of 50 at some point; Telegram is sent stating “send…the Snider rifles”; P sends 50 but D only wanted 3; clerk who sent telegraph screwed up and put “THE” instead of “THREE” which D had written down.
Issue: Did D enter a K for purchase of fifty rifles or does the error of telegraph clerk prevent this?
Held: No K for 50 rifles: post-office authorities are only agents to transmit messages as they are delivered – here D delivered message as “THREE” not “THE”; D can’t be held liable b/c telegraph clerk made an error
Smith v Hughes (IC)What is this about
Facts: P sold oats to D; D thought he was buying “old” oats but they were actually “new” oats; P gave D a sample of oats before K of sale entered into; contract dispute over delivered product D insisted P take oats back;
Issue: If the word 'old' not used (decided it wasn’t), did the P (vendor) believe that D believed, or was under the impression, that he was contracting for the purchase of old oats?
Held: order for new trial, need more facts
Reasons: Applies the caveat emptor rule (“buyer beware”) as there was no warranty in K. D cannot rely on the P to take into account his mistaken belief unless mislead by a misrepresentation.
Cockburn J Issue: does passive acquiescence of seller in self-deception of a buyer entitle buyer to avoid the K? Held: NO - where a specific article is offered for sale, without express or implied warranty, and the buyer has the opportunity to inspect article and form own judgment about article, if he acts on his own inspection/judgment he does so at his own risk (buyer beware) so long as buyer gets article he K’d for and it corresponds with what it was sold as, he is bound by K [here had an opp to sample, K’d for good oats, and got good oats buyer came to conclusion they were old oats on his own, seller did not contribute to the self-deception of buyer]
Blackburn and Hannon JJ: question could have been interpreted in 2 ways: (1) Mistake in assumptions: did farmer form the opinion that the purchaser misjudged the sample as being old oats? (2) Mistake in contractual terms: did the farmer form the judgment that the purchaser believed that the term of the contract was old oats?
Note: This case bridges gap between mistake as to terms and mistake as to assumptions, same mistake can sometimes be characterized as both, depending on the facts.
5. Mistake in Assumptions 2 types of mistakes in assumptions: Ones that render the contract VOID (common law): once parties have agreed with sufficient
certainty in the same terms on the same subject matter K is good UNLESS there is failure of a fundamental condition or fraud or some equitable ground (this is Bell v Lever don’t really care about it
Ones that render the contract VOIDABLE (equity) – TEST:o Is there an assumption? Can’t rely on mistake in assumption if there is NO assumption
made: If parties are indifferent as to an issue/make no assumption about it (e.g. Wood –
neither party cared what the stone was – was not the basis for the K) won’t be an assumption where the mistake consists of a belief which is: (1)
entertained by the party without any reasonable ground; AND (2) deliberately induced by him in the mind of the other party (McRae – party was grossly negligent about whether the tank existed or not =/ assumption)
o Does one party expressly or impliedly assume the risk? If yes, they must bear the consequence when that risk transpires (Miller Paving)
o If NO, Solle Test (1) were the parties under a common misapprehension as to facts? (2) is the common misapprehension fundamental (is agreement predicated on
assumption? Is it impossible to perform K?); and (3) is the party seeking to set it aside not at fault themselves/are they blameless
includes being both equitably and legally blameless (Magee)
Bell v Lever Brother Ltd.
Solle v ButcherWhat is this about
Facts: K = lease of apartment; alleged mistake is shared assumption by both parties that apartment was not subject to rent control legislation. P rented from D for years at a rent higher than permissible by rent control legislation, P claims sums overpaid and landlord tried to get out of K based on mistake in assumptions, says would not have rented it for that long had he known.
Issue: Can the D avoid the K on the basis of mistake in assumption?
Held: For the D P can elect btw rescission or paying full rent – parties were under a mistake as to how the Rent Acts applied. Terms of the subject matter not in dispute; merely a mistake about the attribute/quality of the lease. Thus tenancy is not a nullity.
Magee v Pennine Insurance Co.What is this about
Facts: Magee got car insurance and signed a declaration that he was principal driver when in fact it was his 18 yr old son; there was an accident & Magee put in a claim, settlement offer was made by letter & accepted verbally but then insurance co became aware of truth about principal driver and said they were not liable & refused to pay; Magee brought action for settlement $ as contained in letter (agreement of compromise).
Issue: Can the settlement/agreement of compromise be set aside in equity?
Held: YES – it was a binding K of compromise b/c contained the words “in settlement of your claim”; the common mistake of both parties, even on a fundamental matter, does not make K void at law but rather voidable in equity; Here, K is liable to be set aside and should be set aside on basis that Magee had no valid claim under the insurance policy (it was induced by misrepresentation and insurance co was entitled to repudiate on these grounds) and so NOT equitable that he have a valid claim on the agreement to compromise b/c it was made on basis of fundamental mistake
Notes: broadens test in Solle have to be equitable blameless as well as legally blameless
Miller Paving Limited v B Gottardo Construction LtdWhat this is about
Facts: Miller Ks with Gottardo for materials to build a highway, in 2001 they sign an agreement in which Miller acknowledges that it has been paid in full for all materials; a month later Miller realizes it hasn’t been paid in full, renders another invoice but Gottardo refuses to pay, relying on the 2001 agreement
Issue: Can Miller rely on common mistake/misapprehension to set aside the 2001 agreement and get paid?
Held: NO – Court generally shits all over Great Peace saying to adopt it would be to lose the flexibility req’d to remedy unjust results that arise and can only be dealt with under the equitable doctrine of common mistake; BUT imports that consideration of whether the parties have provided for who bears the risk of the relevant mistake in deciding the matter; here, the K requires Miller to bear the consequence when the risk transpires b/c they assumed the risk that payment in full had not actually been made (implicitly by signing the settlement agreement).
Scout v CoulsonWhat is this about
Issue Ratio Notes
Sherwood v WalkerMistakes that are based on categorical error regarding reality
Issue Ratio Notes
When something is a fundamental mistake of fact on basis of category there is a counter-argument that reality (categories) are socially constructive
Need a doctrine to prevent people from asserting mutual mistake when people just don’t care, when they haven’t done due diligence
McRae v Commonwealth Disposals Comm.What is this about
Facts: Commonwealth K’d to sell McRae an oil tanker and it’s contents at a specific location; no tank was at the location indicated and the place didn’t even seem to exist; this type of sale at this time carried with it only a chance for the purchaser to make a profit (but not a certainty of incurring a loss)
Held: Commission can’t rely on any mistake to avoid the K because any mistake was induced by the serious fault of their own: a party cannot rely on mutual mistake where the mistake consists of a belief which is: (1) entertained by him without any reasonable ground; AND (2) deliberately induced by him in the mind of the other party [even if Commission had a real belief, they were grossly negligent – took no steps to verify]
Wood v BoyntonWhat is this about
Facts: Wood sold a rock to Boynton for $1; turns out it was a diamond worth around $1000; neither had any clue that rock was a diamond, their was some thought it may be a topaz; Wood brings action to rescind K
Issue: Is there anything in the sale that entitles Wood to a rescission of the sale?
Notes: Not enough for an assumption here it’s not the basis for the K; McRae is an application of this – no real assumption about it/she is indifferent (as is the dealer) about whether it is a topaz…both don’t care what the stone actually is
Chapter 10: Frustration3. The Rule of Absolute Promises
Paradine v JaneWhat is this about
Issue Ratio Notes
D fails to pay rent Argues he is ejected
by Prince Rupert’s army
If you make a contract you will be held to that contract despite a change in future conditions so long as those conditions are not an accident by inevitable necessity
You are free to contract out of
People are allowed to contract out of it.
potential future happenings
4. Relaxation of the Rule of Absolute Promises Taylor v Caldwell
Supervening event occurs frustrating the contract, implied conditionIssue Ratio Notes
D contracts to rent P’s hall for music concerts
Hall burns down Contract says nothing
about this
In contracts, particularly contracts of sale, a condition that a certain thing will continue to exist when the contract is executed will be implied if it is apparent that the contracting parties contracted on the basis of its continued existence. If the thing should cease to exist then the parties' will be excused from having to perform the contract so long as the loss of the thing wasn't caused by the fault of one of the parties
There are contracts the require one to perform: building, marriage, etc. There is an implied condition that death or debilitating injury would relinquish party with the duty to perform
Amalgamated Investment and Property Co. Ltd. v John Walker & Sons Ltd.P buys property, next day supervening event makes it worthless: rescission? Maybe…
Issue Ratio Notes
P Ks to buy warehouse from D for 1.7mil, with intention of developing
D knew about intention Day after signing
building became heritage building (worth only 200,000
P wants rescission
Frustration occurs whenever the law recognizes that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
There must also be such a change in the significance of the obligation (promised performance?) that if performed it would be a different thing from that
Policy:If a person is aware of a risk, and intentionally doesn’t include it in the contract, courts don’t want them to be able to get out of a contract on frustration: ruins risk allocation
In this case since contract didn’t stipulate intention to develop there had been no change in contractual obligations
Risk allocation: P knew they wanted to develop, could have contracted for the risk
contract for.
Capital quality Homes Ltd. v Colwyn Construction Ltd.P purchases land but ability to develop becomes frustrated by legislation: judge says K is frustrated
Issue Ratio Notes
P purchases property to develop
Before deeds are transferred legislation changes making development more difficult
Intention is knowns
Contracts involving lease of land can be frustrated
When the supervening event occurs the meaning of the contract must be taken to be not what the parties intended (as neither had thought or intention regarding it)
The event must be beyond the control of the parties and must result in a significant change in the original obligation assumed by them
Victoria Wood Development Corp v OndreyGoes back on Capitol, makes note of reasonable foreseeability, if supervening event is
foreseeable contract for itIssue Ratio Notes
P purchases land to develop
Legislation makes that impossible after contract is executed
P wants rescission
There appears to be tension between giving weight to the intention of the parties and respecting one's ability to contract regarding potential risks
This judge strictly looks at the obligations within the contract and whether they were affected by the legislation-> judge is balancing implied conditions (foreseeable risk) and freedom to contract
Def Counsel argued that development companies have knowledge of the risk, if they know it its foreseeable and it should have been allocated
Howell Coupland Contract is purchase of sale for specific items, if supervening event makes specific items
unavailable K = frustrated Issue Ratio Notes
P buys potatoes from D K is for potatoes from
D’s farm
If the contract is an exchange for a specific item, with specific characteristics, and if it becomes
Look to see if the contract deals with items with specific items, or general items (exchanging 200
D’s farm has infestation, no potatoes
Does D have to go buy potatoes in order to fulfil contract
impossible for that particular item with those particular characteristics cannot be exchanged, through no fault of the party who cannot perform, then that party will be excused from performance (excused from having to purchase those items at market in order to perform)
pounds of red apples from Victoria, as opposed to exchanging 200 pounds of apples)
This was not an absolute contract of deliveryNot: "I will deliver 200 tonnes of
potatoes to you, and you will pay me X"It was: I will buy x amount, of x
potatoes, grown at x location,
Canadian industrial Alcohol Company, Ltd. v Dunbar Molasses CompanyP1 makes big K with P2 to supply X’s product, P1 does not K with X to ensure product -> not
supervening, no frustrationIssue Ratio Notes
P Ks purchase of sale for molasses from D
D is middleman for refinery
D only delivers as much as the refinery has
Was there implied condition D only had to deliver as much as was available
The duty to perform is not extinguished strictly because the ability to perform becomes difficult, and the difficulty was not adequately accounted for through the contract
If you contract negligently and fail to ensure, through contract, that you will be able to perform, you will still have to perform or pay damages
It doesn’t make sense that D wouldn’t sign contract with refinery to cover themselves-> one would assume they would, otherwise P should just contract with refinery
Policy: If plaintiff has to recover they have to sue they have to recover from intermediary, but they have no assets….
Parrish & Heimbecker Ltd. v Gooding Lumber Ltd.When it is an implied condition that the item delivered is specific
Ratio Issue/Notes
If) both parties are aware of the source(s) of the item which one party is contracting to deliver; and,If) the source is not able to fill the contracted quantity from the
source(s); and,If) it is unreasonable to expect the delivering party to be capable
of finding another sourceThen) it is an implied condition of the contract that the corn is
expected to come from that source; and,If) the source is unable to supply the contracted amount; and,If) the inability is of no fault of the delivering party, Then) the delivering party will either be excused from the duty to
perform, or the contract may be kept open by the other party until performance is available.
Farmer wants distributors to use specific company
P Ks with D for the shipment of cornD couldn’t because of lack of supplyWas the corn specifc?Doesn’t make sense in this case to say it
isn’t because the P set the pricing structure, and structured the cost for the shipment of that specific corn.
Krell v HenryClassic Case establishing frustration, contract is fundamentally different
Issue Ratio Notes
P rents room from D to watch coronation of king
King gets sick P wants out Is coronation implied
condition?
Upon ascertaining the substance of a contract, if that substance requires the assumption of the existence of a particular state of things then this will limit the operation of the general words, and if the contract becomes impossible of performance by reason of the non-existence of the state of things assumed by both contracting parties as the foundation of the contract, then there will be no breach of contract
1. Having regard to all the circumstances, what was the foundation of the contract?
2. Was the performance of the contract prevented?3. Was the event which prevented the performance
of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract?
If all answers are yes both parties are discharged from further performance
Judge is creating artificial divide - > this crumbles with the formulation of commercial impracticability
Aluminum Co. of America v Essex Group Inc.Severe increase in financial burden on one party may (in America) frustrate contract
Issue Ratio Notes
P is in long term K with D
OPEC embargo (increases price of oil) and environmental legislation make P’s operational costs high
If K is enforced P will lose 75,000,000
Does this frustrate?
Argument available through comparison to what is done in the American courts:
o Impracticability does not require impossibility of performance only unreasonable difficulty, expense, injury or loss to a party. There is an assumption in the American
courts that people enter into contracts for profit. (though this does not respect freedom to contract)
Impracticability will frustrate the contract
In the case of mistake, frustration, or impracticability the general remedy will be voiding the contract either ab initio, or by rescission, the court should not modify the contract unless it is necessary to avoid injustice.
Eastern Air Lines v Gulf Oil Corp.K will be frustrated due to impracticability if supervening event is foreseeable
Issue Ratio Notes
P Ks with D for plane fuel
OPEC drives up cost-> D insists P pay more
P refuses D claims K is not binding
for commercial impracticability
When considering if a contract is rendered impracticable due to a supervening event, if that supervening event was reasonably foreseeable by the party claiming impracticability, then that party's claim will fail. The party should have taken foreseeable factors into account when allocating risk in the contract.
Policy: Courts don’t want price increases rendering contracts non-binding so they use foreseeability
Edwinton Commercial Corporation and Another v Tsavliris Russ Will delay due to supervening event frustrate contract/prevent payment (comes down to
foreseeability)Issue Ratio Notes
D Ks to use P’s bought for salvage
Charter was for 20 days Port claims negligence
on D and holds boat for 180 days
P wants to be paid for this time
1. Can the contract still be performed? (Is the delay the kind of supervening event that would frustrate? No rule, depends on
circumstances.2. Did one party assume a
particular/general risk Particular risk-> if they
assumed a similar risk General risk-> if it is a risk
that is assumed by an industry in general
3. Is consideration of justice an independent factor? No, but the result
(frustration or no frustration) should be a just result. If it isn’t go and check the facts again.
Does delay make a K frustrated? -> only if it makes performance impossible or goes to root.
Judge’s application of frustration, factors to look at:
o Terms of contracto Matrix/contexto Parties’knowledge/expectationso Nature of evento Parties reasonable thoughts to
possibility of future performance
Tsakiroglou & Co. Ltd v Noblee Thorl G.m.b.HWhether breach of an implied “customary” term frustrates contract (ie common sea route
closed to ships)Issue Ratio Notes
P1 orders nuts from P2 Supervening event
closes normal shipping way (Suez Canal)
No specification of shipping route in contract
Is closing of canal frustrating?
•"Where a contract, expressly or by necessary implication, provides that performance, or a particular part of the performance, is to be carried out in a customary manner, the performance must be carried out in a manner which is customary at the time when the performance is called for" Reardon Smith Line Ltd. v. Black Sea and Baltic General Insurance Co. Ltd.•When determining if a contract is frustrated due to the breach of an implied "customary" term, assess the nature of the contract and whether both parties would have considered this term fundamental to the contract
In this case, there was no specification of how it got shipped just that it did. The closing did not frustrate it was just an inconvenience as performance was still possible
Transatlantic Financing Corp v United StatesSimilar to previous, but actual charter contract as opposed to purchase of sale;
Issue Ratio Notes
USA charters shipping company
Suez canal crisis happens
Shipping company incurs extra costs due to longer route-> seeks more money (quantum meruit)
3 things court will look at:1.Supervening event2.Unallocated risk3.Occurrence of supervening
event has rendered performance commercially impracticable
Result in this case:
If a party can legitimately be presumed to have accepted some degree of abnormal risk (based on circumstances at the time of contracting) and if impracticability is argued for on the basis of added expense alone: then impracticability will not be available to the party unless there is a great variation between expected cost and cost of performing. (in this case the difference in
cost was $44,000 beyond the contract price of a $306,000.. may be different if difference is large)
Davis Contractors Ltd. v Fareham Urban District CouncilGood summary of frustration: Foreseeability? Was risk allocated? Root of matter?
Issue Ratio Notes
P contracts with D to build homes
Attempts to include letter saying prices subject to good work available
No good work is Delay P wants more money Letter isn’t incorporated
but court discusses frustration
Contains all the standard frustration rules:1. "Frustration occurs whenever the law
recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract… it was not this that I promised to do"
2. Frustration requires that "there must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be different thing from that contracted for
3. Frustration requires that the parties could not have reasonably foreseen the event or risk to be allocated
Change in price alone cannot justify frustration or it would destabilize contracting
Frustration application in this case:o Was delay caused by
unforeseen supervening event?
Letter meant it was foreseen
o Was the risk not allocated?
Chapter Two: Remedies1. The Interests Protected
Wetheim v Chicoutimi Pulp CompanyQuote
Lord Atkinson:
"And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed… That is a ruling principle. It is a just principle"
Bollenback v Continental Casualty Company Modern Restitution: Can receive deducted partial consideration + definitions
Issue Ratio Notes
P has health insurance with D for several years
Attempts to make a claim
D claims his policy laps due to nonpayment (an error) several years back
P tries to get rescission instead of performance
In a claim of restitution and rescission in a contract for ongoing services, the plaintiff is entitled to recover to the extent that it returns the plaintiff to the moment at which the defendant stopped performing
o P recovers up til the moment D stopped covering him
Purpose of rescission and restitution:- to return parties as near as possible to their positions before the formation of the contract so that the parties can find the desired performance elsewhere-I gave you something … I want it back
Purpose of an action for damages:- to put the injured party as near as possible to the position where he could have been if the contract had actually been performed
Anglia Television Ltd. v ReedReliance damages: Denning awarding wasted expenditure for breach of contract
Issue Ratio Notes
P contracted Reliance Damages: A Plaintiff can claim damages for wasted expenses incurred prior to the formation of the contract if it can be reasonably held that those expenses were in the contemplation of the parties as likely to be wasted if the contract was broken and the contract was in fact broken by reason of the defendant's breach of contract
Plaintiff must have attempted to mitigate loss
Issue here is that reliance damages can put the plaintiff in a better position than at the start of the contract
Pitcher v ShoebottomDamages for material breach (p agrees to buy land, d breaches and sells to third party)
Issue Ratio Notes
P agrees to buy D’s land Starts making payments D breaches and sells to
3rd party
Damages for material breach = the profit/value the plaintiff would have – the cost required to close the deal/get profits)When no time of closing is specified a
reasonable time is implied
Hawkins v McGeeDamages for breach of warranty for hairy hand
Issue Ratio Notes
P brings claim for damages
D promised a %100 good hand
D claims no one would believe that claim was a warranty
D had made promises because he wanted to experiment with skin grafting (promise to induce
The measure of damages for a breach of warranty is the value of the thing, if it had corresponded with the warranty and its actual value, together with such incidental losses as the parties knew, or ought to have known, would probably result from a failure to comply with its terms.Damages for breach of warranty =
(the value of the promised thing – the things actual value) + Incidental losses due to breachCosts required to get the promised
thing are not included (necessary expenditures... like the pain the plaintiff had to go through)
Hairy Hand
2. Problems in Measuring Damages 1. Cost of Substitute Performance or Economic Value?
Carson v WillittsHow should damages be rewarded if assessing amount is difficult
Issue Ratio Notes
D Ks to bore 3 oil wells for P
D only drills one then breaches
What are the damages?
If an absence of evidence makes it impossible to assess damages then only nominal damages can be recovered
If damages are proved but the nature of the damages makes it difficult to assess an amount, this is no ground to refuse substantial damages
Oil wells could have been worth a lot or nothing
Groves v John Wunder CoPeople’s ability to contract for worthless things. Damages = cost of performance, strong dissentIssue Ratio Notes
P owned tract of land with a tonne of gravel
Tied to Jacob Young, if only partial performance is given the court tries
Dissent argues that to reward more than economic compensation
on it D payed money for
gravel and promised to take the gravel and leave the land level
D took best gravel, then breached leaving land not graded
to give the party what they contracted for: the court awards damages in the amount of the difference of the value of the thing constructed and what should have been constructed -> the figure for this type of contract is the hypothetical peak of accomplishment
would be giving the plaintiff more money than the land is worth -> In order to receive this the land should be for some personal or unique purpose, not for ordinary economic purposes like sale
2.b Lost Volume
The Sales of Goods ActSection 48:
1. If Buyer to accept and pay for goods Seller can bring action for damages resulting from non-acceptance2. Damages= estimated losses directly and naturally occurring from breach3. If there is a market for the goods then (Contracted Price) - (Market Price) = Damages
Section 49:1. If Seller refuses to sell or deliver goods Buyer can bring action for damages resulting from non-delivery2. Damages = estimated losses directly and naturally occurring from breach3. If there is a market to purchase the goods then (Market Price) - (Contracted Price) = Damages
General Rule for Breach of Contract to SupplyIf the plaintiff has proved a breach he is entitled to be placed, as far as money can do it, in as
good of a situation as if the contract had been performed
Thompson (W.L.) Ltd. v Robinson (Gunmakers) Ltd. (1955)Party refuses delivery of cars. Dealership sues for lost profit. 48(3) Discusses available market.Issue Ratio Notes
D bought cars from P D refused to accept
delivery P returned cars and then
sued for loss of profit
An available market for goods requires that there be sufficient demand for the goods to readily absorb them
If the application of the available market rule leads to an injustice according to the general principles (person breached has right to be put in place he/she would have been in) then it doesn't need to be applied
Judge interpretation of “available market”: the situation in the area is such that the particular goods could freely be sold, and that there was a demand sufficient to absorb readily all the goods that were thrust on it
Had P kept car they would have sold it anyways and P would have been entitled to storage and some interest from D
Charter v Sullivan Loss profits is the amount lost because contract is breached. If would have sold all anyways then
no lossIssue Ratio Notes
D refuses to accept delivery of a car
There is evidence P could sell, and did, all models of this car
Is there lost profit?
Plaintiff must show that the sum representing the profit he would have made if the defendant had performed his contract has in fact been lost
Available market doesn't mean that there is someone to purchase that particular item (car), there must be enough of a market to take all of those type of item (cars). If there isn't enough to take all of those cars the plaintiff’s lost sale will be lost profit.
3. Remoteness Case British Columbia Saw Mills Co. v Nettleship
Not case: cases where a party’s negligence causes a remote damage are trikyIssue
Discusses case from the early 1600so Man is to be married to heiresso Horse needs a shoe on the way. o Blacksmith worked so unskillfully the horse was lame and the man was lateo Heiress married another
Blacksmith was found liable for the loss of the marriage
Comment by F.E. Smith: even if the blacksmith knew about the wedding he couldn't be expected to apprehend that the bride would marry another due to lateness
Hadley v Baxendale(THE RULE)when a breach/inadequate performance by B causes a damage to A that is unknown to B
Issue Ratio Notes
P contracts with D to ship broken gear shaft (required to operate business)
Delivery by D was delayed an unreasonable time
P sues for lost profit
Rule for damages in cases where breach of contract causes a remote damage:Where two parties have made a
contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as:
First Prong - May fairly and reasonably be considered either
D was not made aware that profits were dependent on a timely delivery
arising naturally from such breach of contract itself; or,
Second Prong - Such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable breach of it
If the special circumstances were communicated then the potential damages would have been considered.
Horn v The Midland Railway CompanyWhen giving notice of potential remote damages, notice must give rise to contractual obligation
Issue Ratio Notes
P Ks to supply should to firm in London
Ships shoes with D P drops of shoes with
note stating P was under contract to have them delivered on the 3rd
D delivered on the forth
In calculating exceptional damages for a remote loss:
In order that the notice of special circumstances may have any effect, it must be given under such circumstances, as that an actual contract arises that obliges the defendant to bear the exceptional loss
The giving of the notice has to actually give rise to contractual obligation
The court has never enforced exceptional damages on the grounds of having notice alone
Note Cases
Hydraulic Engineering Co. Ltd. v McHaffie (1878)
A person contemplates the performance and not the breacho Plaintiff doesn't enter into a second contract to pay damageso But, is liable for injuries that he is aware his default might cause
Court will not imply the note as an implied condition
Rivers v George White & Sons Co. (1919)
Shippers have no discretion to decline the second contract as they have already accepted the first (Modification without consideration)
Kinghorne v The Montreal Telegraph (1859)
It makes no sense that a shipper should be liable for all potential loss that might arise from a late delivery
Koufos v C. Czarnikow Ltd. (The Heron II)Breach causing loss of profits: if its reasonably foreseeable breacher is liable
Issue Ratio Notes
Ship captain breaches Gets passenger and
cargo to port late Price for cargo has
gone down, would have been more if on time
If a loss is reasonably foreseeable to result from a breach the contract-breacher will be liable for the damages
Look at circumstances and intentions of parties
Is the breacher likely to know that the breach will cause a loss of profits?
Transfield Shipping Inc. v Mercator Shipping Inc. (The Achilleas)Are damages for reasonably foreseeable losses always imposed? Limited to liabilities parties
reasonably expected to assume/pay forIssue Ratio Notes
D charters boat from P for over a year
D is supposed to return at set date
P has lucrative charter with new client set up
D is late and P must change rates, loses a lot
P sues for lost profit
In cases involving remote damages the court will interpret the contract to determine the liabilities which the parties may reasonably be expected to have assumed and paid for.
Is the loss the kind of loss that risk would be considered to be assumed for when entering into the contract, if not then not liable
It is wrong to hold a party liable for risk that people entering into a contract in that market would not consider
1st determine type/kind of losso Implied contractual duty?o Express contractual duty? Does this fall outside risk
considerations that generally exist in market?
Interpret contract as a whole against its commercial background to determine if the type of loss could have been assumed by one of the parties
Cornwall Gravel co. Ltd. v Purolator Courier Ltd. What is this about
Issue Ratio Notes
Business gives Purolator courier tender
Courier knew what a tender was and knew what it meant
Purolator failed to deliver tender on time
The party breaching does not need to be able to predict the exact manner of breach :
Remote damages to non-breaching party have to be within the contemplation of the parties; OR,
Once expressly communicated the damages are VERY reasonably foreseen
and cost business the bid
The damages must be expressly communicated
4. Intangible Injuries Addis v Gramophone Company
Can’t receive damages other than what is listed in contract if the breach is maliciousIssue Ratio Notes
P was supposed to have 6 months notice
P was replaced after 1 month
P was rewarded a large amount
In cases of breach of contract there may be circumstances of malice, fraud, defamation, or violence which would justify recovering damages under tort law. Parties will be prevented from bringing these actions under contract law because the defenses available to the defendant in tort law are not available in contract law.
Damages will be limited to what is lost under the contract
Court doesn’t want actions that can be torts being brought in through contracts
Kolan v solicitorMental stress isn’t available
Issue Ratio Notes
Jarvis v Swan Tours Ltd.Usually can’t recover for mental duress, but this contract was specifically about mental
enjoymentIssue Ratio Notes
P contracts with D for holiday
Holiday was terrible
In contracts that regard the protection or benefit of the contracting party’s peace of mind damages will be available for mental distress
You can receive damages for physical damages that result from breach, why not mental?
Fidler v Sun Life Assurance Co. of CanadaGO TO IF THERE IS MENTAL DAMAGES: Affirms Hadley as THE rule
Issue Ratio Notes
D denies P long-term disability benefits to which she is entitled
Mental distress issue
o If one is contracting for peace of mind then the mental damages that result from the breach of the contract will fall under prong 2 of Hadley. The burden is on the
plaintiff to prove his/her loss. Court must be satisfied that
1. An object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties
2. The degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation
SCC Case that affirms that the test in Hadley v Baxendale is the appropriate test for determining damages.
Hadley rule: An independent cause of action
will only need to be proved where damages are of a different sort entirely: where they are beign sought on the basis of aggravating circumstances that extend beyond what the parties excpected when they concluded the contract
5. Punitive Damages Whiten v Pilot Insurance
When punitive damages are justified because the person is terribleIssue Ratio Notes
Malicious behaviour by insurance company
P has good claim, but is denied and bullied into taking less
D then takes P to court in order to further bully them financially
Sharp business practices
Flowchart for Punitive damages:1. Is there horrifying behaviour?2. Does this behaviour constitute an “actionable
wrong” This is broader than tort damages (though can
include tortious actions), but will likely refer to the breach of a quasi-fiduciary duty particular to the contract (i.e. acting in good faith to pay out valid insurance claims)
3. “If and only if” the damages awarded as compensation are too insignificant to serve as a punishment, then punitive damages may be
Proportionate to the vulnerability of the plaintiff… should know that contracts involve aggressive self-interested parties
Punitive damages should not be proportionate to plaintiff’s loss because they must be able to “sting” the offending party. A large company will not necessarily be
awarded4. Amount is that which a reasonable jury
properly instructive could have concluded that an award in that amount, and no less, was rationally required to punish the defendant’s misconduct
deterred by a proportionate fineInsurer has a quasi-fiduciary duty -
>taking advantage by not paying
6. Mitigation of Loss Payzu Limited v Saunders
Duty of parties to mitigate economic loss: Can modify w/o consideration to mitigate loss then sue for breach
Issue Ratio Notes
P contracted with D to buy item
D started to demand cash P refused (P saved money
by using cheque) D refused P’s refusal was
unreasonable since they could have paid cash
Mitigating Loss:o First look to at the facts to see whether it would be
reasonable for the party to accept the offer and enter into business with breaching party again; THEN:
o Do an economic analysis: Accepting the offer does not mean the party loses
their ability to sue on the original contract "[the Plaintiff] can recover no more than he
would have suffered if he had acted reasonably, because any further damages do not reasonably follow from the defendant's breach"
Whether someone acted reasonably to mitigate their loss is a question of fact
Reasonable person would have taken offer and then sued for damages
Roth & Co. v Taysen, Townsend & Co. If one party repudiates and there is an open time frame for the contract the non-breaching
party cannot just rely on breaching party to pay for lossesIssue Ratio Notes
P contract with D to ship them corn, between July or august.
D repudiates almost immediately but P doesn’t find new buyer until last possible day under original contract
Huge Loss, sues Should have sold
immediately
Party who treats repudiation as a breach is bound to do what is reasonable to prevent he damages from being inflamed or increased
Calculating damages:o If time of performance isn't
fixed, then date of breacho If time of performance IS fixed,
then date of fulfilmentThe determination of whether one is
reasonable is the objective standard
If party repudiates before the day of delivery other party can
Bring action immediately; or, Right to have damages assessed
at the time he brings his actionBUT MUST DO THE REASONABLE
THING
of the reasonable man, not an individual's personal judgment of what is reasonable
White & Carter (Councils) Ltd v McGregorDissent informs Laskin in next case: Repudiation does not end a contract
Issue Ratio Notes
An agent of D entered into contract with P
Agent was not supposed to, D sent letter to cancel contract
P refused to accept and displayed ads
P sues for full amount of contract
If there is a legitimate interest, other than immediate financial interest, to perform the contract then the party is entitled to recover damages.
->If you can’t show you have legitimate interest in waiting or performing then you have no duty to mitigate because it is not a useless expense?
Dissent: if party who repudiates will not perform then the other can sue for damages?
Finelli et al. v Dee et al.Is a cancellation a rescission or repudiation?
Issue Ratio Notes
o P Ks with D to pave D’s home
o Price is set, no time set for performance
o D wants to cancel P agrees
o P performs anyways and sues for work done
Repudiation is not something is "accepted" when it is clear the other party is rescinding, the contract is just repudiated
The innocent party:
- Is free from performance- Is free to sue for damages (measured
on the date of breach)