Contracts Outline-2012!03!29 Updated

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Illegality and Public Policy

1. Introduction2. Contracts Contrary to Public Policy at Common Law

Restraint of TradeKRG Insurance Brokers Inc v. Shafron SCC 2009

Facts • Shafron joined KRG after selling them his business and was subject to restrictive covenant that prevented him from competing with KRG in “Metropolitan City of Vancouver” for three years from termination

• When he left a number of customers moved their business with Shafron to his new employer• KRG sued to enforce the restrictive covenant prohibiting competition• Shafron challenged that “Metropolitan City of Vancouver” was not “a recognized location.”

Holding Restraints of Trade and Restrictive Covenants An ambiguous clause cannot be a reasonable clause, and will not be enforceable. Notional severance has no place in restrictive covenants of employment contacts Blue line severance will rarely be useful for restrictive covenant

Ratio/ Rule

In cases where there is a restraint of trade or restrictive covenant, and as long as they are 1) reasonable to both parties and 2) in the public interest, then the courts will enforce them.

The clause must be reasonable to three factors:1.) Must have reasonable geographical scope2.) Must have reasonable time limit3.) Must be reasonable in the activities it seeks to restrict

Reasonableness is determined by the language of the covenant and the surrounding circumstances, the nature and character of the business employment on a case by case basis

Comments Employers should not be invited to draft overly broad restrictive covenants with the prospect that the court will sever the unreasonable parts or read down the covenant – this would change the risks assumed by the parties

Although the SCC said there may be cases where a “blue pencil” can be used to strike out a problematic portion of a clause (i.e. ‘Metropolitan), this will be done sparingly and only when a removal is trivial and not part of the main purpose of the restrictive covenant.

3. Effects of IllegalityStill V. Minister of National Revenue CA 1998

Facts Worked without a work permit in good faith

Holding Effects of Illegality CA allowed her to obtain UI benefits because acted in good faith; dealt with on a case to case basis and

looks at true intention of parties – did person intend to harm or violate purpose of the Act? Language in document was unambiguous No other Canadian would take the job (most Canadians would be unwilling to take this job)

Ratio/ Rule

An illegal contract may be unenforceable, but the Judge has discretion to enforce some or all of the contract where circumstances and fairness dictate

- Reflects new modern approach to determining if a contract is void for illegality that is flexible and takes into consideration surrounding circumstances

Comments Although a statute may prohibit an activity there is discretion in judgment; certainty must give way to flexibility.

Courts construe a more flexible view of illegality to uphold public policy. She was paying EI while working so no depletion of the fund If there was proof that she knew she was not supposed to be working than enforcement of S.18(1) of

Immigration Regulations would be enforced

Chapter 7 Representations and Terms; Classifications and Consequences

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1. IntroductionRepresentations & Terms: Classification and Consequences Representations are things that someone says to induce the other party to enter into a K “Misrepresentation” = a representation made to someone to induce them into entering into a K that

has later proven to be false.

Four kinds of misrepresentation (type of remedy you are seeking determines the type of misrepresentation)

1. Mere Puff: Has no remedy – i.e. Buying a certain car does not mean you will attract girls for sure2. Innocent: Rescission, puts party back into pre contract position(Redgrave; Smith) (Where you do

not mean to tell a lie; do it recklessly)3. Negligent: Damages, puts part in position is contract was not breached (Bank of B.C.) (It is a

kind of Tort)4. Fraudulent: Unravels everything, same position as if contract was not breached. Whatever best

suits the victimized party (Test – Kupchuck; Redican)Collateral Warranty- A pre-K clause. ---Breach of warranty, but you would have to continue to perform the K.

Also have Consumers Protection – Relief is through the Consumer Protection Act Who is Protected an individual acting for personal, family or household purposes and not a

person who is acting for business persons What is not included under the CPA S(2) of Act

Type of Misrepresentation Remedy Available(1) Innocent – made w/o the fault of the party. Party must show there was no reliance on statement made. (Redgrave)

Rescission (only if K not executed for sale of land/securities) (Redican v. Nesbitt)

Or if there’s a complete failure of consideration or if it’s a K for sale of goods or if acceptance has deemed to have occurred.

- If K for sale of goods, before acceptance deemed to have occurred (after lapse of reasonable time to allow purchaser to discover misrepresentation and absence of legal remedy – unfair result)

(2) Negligent – (1) a duty of care; arises out of contractual relationship; was it reasonably foreseeable? (2) breach of that duty of care (3) damages suffered by innocent party (4) negligent misrepresentation is cause of damage

Damages in tort (B.G. Checo)

(3) Fraudulent – an intent to deceive/make misrepresentation; knowledge misrepresentation is false

Action in Equity: Rescission (whether or not K was executed)

Action in Law – For Deceit in Tort: DamagesCollateral Warranty – a pre-K clause Breach of warranty, but you would have to

continue to perform the K.

Defences “Just giving my opinion on things” No longer an opinion if one person has or should have much more information than another

3 types of statements:

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1. “Sales talk” or “mere puff”- representations made in advertising. NOT a term of the K2. Pre-contractual statements/representation – can lead to limited legal consequences3. A statement which can be construed as a term of the K – attaches more serious liabilities if

broken Advertisers are not allowed to tell an outright lieA false representation can lead to 2 possible situations:

1. Rescission – return to pre-K position, if you have been “sleeping on you rights” (delay in bringing rescission action, then action is void)

2. Damages for breach of K – general common law remedy. Compensation for what you should have received if K not breached. Post-K position.

Ways in which rescission can’t apply:1. completed K (applies to land, questionable whether it applies to goods and services)2. where there are latches (undue delay in bringing action)3. when it is impossible to put parties back to pre-contractual position (absent fraud)

Exception: fraud or complete failure of considerationWarranty is a representation that has become a term of the K; very difficult to establish a warranty; best thing to do is to write it into the K.

2. Misrepresentation and Rescission

Redgrave v. Hurd Innocent misrepresentation case Facts Value of law firm misrepresented by vendor () to buyer ()

Issues Is this misrepresentation? This is a material misrepresentation - found that it was an innocent misrepresentation

Holding Order for rescission & return of deposit D did not get moving expenses Had not proven deceit

Ratio/ Rule

The negligence of the party seeking relief is no defence for the party who has made the misrepresentation. The party making the allegation of negligence has the onus of proving negligence. A party should not profit from their own misrepresentation. Today: we would argue Negligent Misrepresentation – Tort was not available until 1950’s – here

maybe old man would be forced to pay but stay in the practiceComments 1. The person who made the misrepresentation can escape liability if they show:

that the other party had clear knowledge of the truth and didn’t rely on the statement OR the other party did not rely on the statement (objectively)2. Doesn’t matter that the party had the opportunity to test the veracity of representation – it only matters that they relied on it

**burden of reliance is on representor (person making statement)**

Smith v. Land and House Property Corp. Desirable tenant case. Opinion vs.Fact

Facts P sold hotel to D. P told D that hotel was leased to “most desirable tenant”. After purchase tenant went bankrupt. D refused to complete transaction, claimed P in position to know of tenants desirability

Issues Was this statement a misrepresentation?

Holding P misrepresented desirability of tenant to D Shows difference between an opinion and a misrepresentation

Ratio/ Rule

Statement of belief isn’t innocent representation, but statement made where material facts are not equally well-known by both parties = misrepresentation

If facts are not equally known by both sides a statement of opinion by one knowing facts is usually a statement of material fact, for that party implies he knows the facts to justify that opinion

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General Rule – no liability for statement of opinion only for statement of factException - but where facts not equally known to both sides can imply in statement of opinion that party knows facts that justify opinion.

Comments If both parties have the same knowledge, it is a statement of factWhen one party has more information/knowledge, it is a statement of opinionWhen knowledge of parties is not equal as to the facts, then statement of opinion may be implied as statement of fact

Bank of British Columbia v. Wren Developments Ltd. (p.360); “ I didn’t say anything, it ain’t a misrepresentation ” case

Facts Bank had Allan (D) sign new guarantee after Smith (D) requested release of shares. Allan thought bank still held shares.

Bank sued Allan (D) for outstanding sum b/c nobody else had $Failure to disclose a material fact. Words/conduct – material misrepresentation of fact (no change in security)

Issues Can conduct count as misrepresentation?

Holding Allan (D) is not liable to P on second personal guarantee. Action dismissed

Reasons Silence does not constitute misrepresentation and a Bank will always be held to a higher standard when dealing with the public as they have a fiduciary duty to their clients

If a true representation is followed by a change in material circumstances prior to an agreement which renders the statement false, the representor has a duty to draw the change to the representee’s attention

Ratio/ Rule

Do not need to have express statement of misrepresentation - it can be derived from conductCourt looks at words, action, conduct - bank’s actions implied no change in status of security - based on this misrepresentation of fact Allen signed the guarantyGeneral Rule: Silence generally does NOT constitute a misrepresentation (no general duty to disclose)Exceptions:

(1) May be duty to draw change in circumstances to representee’s attention(2) “half-truths”(3) active concealment of the truth(1) (maybe) disclosure in course of bargaining

Comments Silence can be misrepresentation only for a bankBank has a duty to check for Mr. Allan before they made him sign. Bank has a fiduciary duty toward their customers

Kupchak v. Dayson Holdings Ltd. (1965) B.C. C.A.

Facts (A) purchased shares in a motel in return for 2 properties & a mortgage given to (R). R sold ½ interest in one of the properties, tore down existing bldg & built an apartment – this is after they had notice that they were being blamed for misrepresentation

A discovered that R misrepresented past earnings of motel. A stopped making pmtsHolding Order for rescission, however because of circumstances, recession cannot take place, so the court referred

to it as compensation Ratio/ Rule

In cases of fraud, rescission is available and monetary compensation is available to restore parties to their pre-contractual position

There are at least three bars to rescission: 1) affirmation of a contract (appear to accept contract through conduct – e.g. running hotel for 4 years), 2) latches or delay (sleeping on your rights), 3) third party interest (where there is a third party interest, rescission may not be available

Fraud = give parties whatever they want Fraud unravels everything

Comments HYRSKY v. SMITH Monetary compensation is not available for rescissionCannot award damages for an equitable remedy – damages is a common law remedy and this is the problem

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in this case

Redican v. Nesbitt 1924 SCC

Facts D purchased leasehold property from P. 2 days after keys & lease delivered to D, D inspected & discovered misrepresentation on several crucial particulars. D stopped payment on cheque & P sued for amount of K

Issues Does an un-cashed cheque represent an executed K?

Holding D cannot claim rescission because K was fully executed.

Ratio/ Rule

Once K is executed for land (conveyance), rescission for innocent misrepresentation is not an available remedy for the defendants Once you have an executed K you CANNOT claim rescission

Exception to the rule: where there is a patent defect concealed (major defect e.g. crack in foundation) Burden falls on D to prove that there was misrepresentation to prove rescission

Comments “Red Flag” - general rule of law: an executed (completed) K for the sale of land cannot be rescinded for innocent misrepresentation except under very strict conditions (or huge error or fraud)

How to establish fraud: 1. Agent knew representation was false, or2. Made representation without belief in truth3. Made representation recklessly or carelessly of whether it was true or falseClass Note: When you buy a house there are two contracts: 1. Agreement to Purchase and Sale2. ConveyanceYou have had all the time during Contract 1 to look at the house – might get damages if there was misrepresentation but will not be able to return the land – this could result in chaos in terms of the real estate market

Esso Petroleum Co. v. Mardon

Holding Court held that an individual here relied on the oil company’s statements

Comments Opinion was based on information not known by the owner

3.Representations and TermsRecession: an equitable remedy, so therefore cannot get damages. A contract may be rescinded in a proper case of innocent misrepresentation (i.e. K has yet to be executed) – an executed/completed contract cannot be rescinded for innocent misrepresentationWarranty: a representation that has become a term of the K, to establish a warranty though it is difficult, best thing to do is write in contractDamages is a common law remedyFraud: unravels everything, can get recession & can also get money for any losses incurred as a consequence of the deceit

WARRANTY CONDITIONDefinition: A promise that does not go to the root of the K

by the breach, but the breach of which does NOT give rise to termination.

Deprives the party of what he contracts for OR a term identified in the K as a condition.

Effect of breach:

You can only sue for damages Right to terminate or sue for damages.

Helbut, Symonds & Co. v. Buckleton 1913 HL“ collateral warranty ” case

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Facts says, “We are bringing out a rubber company.” After that statement, invests in co. and finds out no rubber

Issues Are there damages available for misrepresentation

Holding There was no misrepresentation or warranty made no intention that there should be contractual liability with respect to the accuracy of the statement

Reasons Existence of a warranty must be intended by the parties to be a contractual term. There are no damages available for innocent misrepresentation (See Smith Above) An oral collateral contract is the same as an oral warranty – these are pre contractual contracts to

induce you into the main contractRatio/ Rule

COLLATERAL WARRANTY – a pre-K promise that is supported by consideration that induces the representee to enter into the bigger K.e.g. affirmation at the time of sale is a warranty – if evidence proves intent to make warranty

must prove warranty strictly: terms and intent mere making of statement not evidence of intent; look at all evidence read as term of the K – a promise

Comments Oral collateral warranties are smaller Ks that induce one to enter into a main K. Must prove that there was intention to create a collateral K it is very rare that a collateral K is found.

Policy rationale behind this case: trying to make contracts more certainTEST for what statements become a collateral K (WARRANTY)

(i) Need to prove there was a promise/misrepresentation.(ii) Pre-K warranties must exist from promissory intent. Promissory intent is the intent to warrant the

subject matter of KTo find promissory intent, look at language, conduct, circumstances.

A: argues statement is a warranty. No evidence of intent to make statement term of K/warranty. No evidence of fraud. Just an innocent misrepresentation. Damages NOT available. Need to find a way of making the statement part of the main K (can then sue for breach and damages). Legal fiction instrument called Collateral Contract used to do this. gives collateral K - warranty that company is a rubber company, in return for shares purchased by .

**approach problems strategically; look at what parties want on exam problems**

**one side would argue Heilbut warranty test (subjective) VS. other side would argue Bentley warranty test (objective

Dick Bentley v. Harold Smith (p.402); “ adding to the warranty test ” case RPP determines warranty instead

Facts Pre-K statement: Car only has 20,000kms when really has more

Issues Are there damages available for misrepresentation?

Holding There was ample foundation for the inference of warranty & that the warranty was broken D’s statement was a warranty of K & P was entitled to damages

Reasons : Adding to the Test for Warranty ( Denning ) (i) Intent for warranty determined by intelligent bystander (“reasonable prudent person”)(ii) intent that statement was made to induce reliance and party acted on promise (e.g. representation made in

course of dealings intended to induce reliance; look at words & conduct from the standpoint of intelligent bystander/reasonable person)

(iii) actually induces reliance – party enters KRatio/ Rule

Requirements for a warranty: If a representation is made for purpose of inducing the other party to enter a contract, and it actually induces the person to enter the contract, that is prima facie ground for inferring that the representation was intended as a warranty Whether a warranty was intended depends on the conduct on the parties, on their words & behavior,

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rather than their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice.

Comments To try to get around a warranty, in the written K, can put a clause in the K such as, “There are no oral representations, warranties, etc. made in this contract.” However, can still get around this – it’s usually in boilerplate, which isn’t always binding.

HELBUT- When you have one person selling to another – CPA does not apply – only when between company and individual it appliesInference: prima facie intended as a warranty Rebutted by proof – innocence of fault (unreasonable to bind parties)Use of collateral K analysis not required with this test.To distinguish between a warranty and an innocent misrepresentation, innocent misrepresentation is made with no fault at all.Policy: Courts want to ensure a narrow interpretation of what pre-K statements can be elevated to the status of warranty in order to prevent innocent misrepresentations from being classified as warranties.A: (Salmon) – statement intended to be and understood as legally binding promise. Dealer has no reasonable foundation for statement – could have checked its accuracy.

Leaf & International Galleries [1950] CA “ I only got a reasonable period of time to sue? ” case; (*sale of goods example)

Facts Pre-K statement: Painting is a Constable

Issues Painting not constable - can get rescission?Holding P is not entitled to rescission – court determined that the term was a condition of sale & not a warranty

Reasons Denning says a reasonable amount of time exists after purchase during which time you may verify or reject the goods If you do not reject within this reasonable amount of time, you are deemed to have accepted the goods and have lost a claim to rescission.A reasonable grace period exists after the purchase of a product excluding real estate during which time rescission is still an option. Once that period has passed, the only option is to sue for damages under a breach of warranty.

Ratio/ Rule

A court will not relieve a party of a bargain if the mistake is related to the quality of goods rather than to their identity.

Once a buyer has accepted or is deemed to have accepted the goods in performance of the K, he cannot thereafter reject but is relegated to his claim for damages. On a K for the sale of goods, an innocent material misrepresentation may in a proper case be a ground

for rescission even after the K has been executedComments If you are the P, you would argue breach of warranty & you would get damages which would be the

difference of what it’s worth & what you paid ( should have brought action for damages for breach of warranty or condition, as time had elapsed for an action in rescission Rescission rules in leaf)Note: Sales of Good Act – once a buyer has accepted, or is deemed to have accepted (passage of a reasonable time) then the claim is barred). If barred under SOGA for delay, it will be delayed under rescission (weaker remedy)

Innocent misrepresentation - can only rescind unexecuted K or where goods not deemed to have been accepted.Breach of condition (collateral condition or term of K): right to reject anytime before acceptance deemed to have occurred. Once acceptance occurs or is deemed to have occurred rejection is barred Remedy: damages (Sale of Goods Act)Breach of warranty: only a suit for damages

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A: Painting could have been rejected within a reasonable period after performance. Rejection barred after 5 years. Rescission for innocent misrepresentation also barred once acceptance occurs.

4. Concurrent Liability in Contract and Tort- Concurrent liability – can choose either cause of action or sue alternatively in both, BUT

K can negate/limit tort duty.- Parties free to assign risk

Statutory Reform- Consumer Protection Act- consumer must give notice to the company within one yearSection 14-only applies to companies and individuals not between private individuals

To establish a duty to exercise reasonable care:A special relationship must exist:1. Person is in business of giving advice2. Where person has special skill or knowledge and knows the other is relying on him for his advice; can be anyone in position to have someone rely on them3. A special relationship often arises in context of pre-existing relationship

Where there is a special relationship, you can be held liable if you fail to exercise a reasonable duty of care in rendering an opinion. (Hercules Management v. Ernst & Young):

1. Is there a sufficient relationship of proximity such that in contemplation of wrongdoer carelessness on part may likely cause damages to plaintiff?

2. Are there any policy considerations to negate #1?

Degree of proximity can be established in 2 ways:1. Defendant ought to reasonably foresee that the plaintiff will rely on representation; and2. It would be reasonable for the plaintiff to rely on the representation.

What court will look at for reasonable reliance when not so clear: Defendant had direct or indirect financial interest to the representation that was made Defendant is a professional or someone who possesses skill, judgment or knowledge Advice or information was given in the course of the defendant’s business Advice or information was given deliberately & not on a social occasion (this may not hold

today) Advice or information was given in response to a specific inquiry or request

Advantages of Concurrent Liability: Can have more options available to you (most advantageous route) Where concurrent liability in tort & K exists, the plaintiff has the right to assert the cause of action

that appears to be the most advantageous to him in respect of any particular legal consequence (Central Trust v. Rafuse)

Hedley Byrne & Co. v. Heller- important for tort law

Facts Easipower went to ad agency (Hedley) for loan. Ad agency sought creditworthiness & Bank (Heller) gave favourable opinion w/out checking. Easipower went into liquidation & Hedley sued

Ratio/ Rule

Launched “tort” or negligent misrepresentation Must be some sort of special relationship between parties, and person giving the information, must be

people in the business of giving advice (e.g. doctor, lawyer, banker)

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For a pre-contractual misrepresentation that induced one party to enter into a K, you can sue in either tort or for breach of K

Comments If there is no K between the parties then use tort- damages not rescission

Sodd Corp. v. Tessis 1977 ONT

Facts D (a chartered accountant & licensed trustee in bankruptcy) overvalued goods of company by 100%.

Issues Holding Pre-contractual negligent misrepresentation induced P to submit its tender, therefore D is liable. D is

professional accountant & trustee in bankruptcy which created a special relationship & corresponding duty of care to P. D’s stipulation amounted to an overriding of the exemptory clause

Reasons there can be concurrent liability in K and Tort. The existence of one claim does not eliminate the other but can’t get damages for both

Ratio/ Rule

Advice-giving professional has 3 options:1. Remain silent2. Give opinion but with a qualification3. Answer without qualification – if this option, then he has accepted a special relationship with the

inquirer Pre contractual misrepresentation may give rise to liability in tort if a representation is made

negligently, which induces the other party to enter into the contract (looks like oral collateral warranty)

Precontractual misrepresentation can give rise to liability in tortComments Reasonable person would have known, or ought to have known that his representations would be relied upon

Use the reasonable person test to see what a reasonable person would have believedNegligent misrepresentation or collateral warranty falls outside the limits of the exemption clause

BG Checo International Ltd. v. British Columbia Hydro & Power Authority (p.421); “ suing in K & tort ” case

Facts Pre-K statement (in tender) said right of way cleared by others. Right of way not cleared, so BG had to do it and costs

Issues Can BG Checo proceed in K and in tort for the extra costs?

Holding D is liable for breach of K. Specific clauses in the K override general ones The tort duty was not limited or excluded by any express provision. P can also claim for negligent

misrepresentationobligations are co-extensive (e.g. obligation to perform according to terms of K and obligation not to make negligent misrepresentation) and the party can choose the most beneficial action.

Reasons The same pre-K statement can concurrently be classified as a negligent misrepresentation and as a collateral warranty. However, a CANNOT be successful in both a K’s and torts claim and thus win double the award. The strict liability for breach of promise is a much stricter standard than tort obligation, which is the negligence standard. (e.g. no advantage to suing in tort unless limitation period bars K action)Suing in K vs. tort (1) measure of damages different in K/tort (2) statute of limitations may be different

Ratio/ Rule

Overrules Hedley: unless the parties indicate otherwise (e.g. limited liability clause) you can sue in tort AND contract

Exceptions to concurrent liability: Where the contract is void for fraud, mistake, or unconscionability, A clause limiting liability may not apply in cases where the tort (personal wrong) is independent or falls

outside the scope of the K (e.g. personal wrong has nothing to do with the contract)Comments If a K stipulates a more stringent obligation than tort law would impose, then you would only sue in K

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(would be easier to argue liability.) If a K limits the right to sue in tort, then you have to sue in K. If the duties in tort & K are similar, & tort has not been excluded, then can sue in either tort or K – and you would use both.Tort duty must yield to the parties superior rights to arrange their duties in a different wayThere are 3 classes of cases:1) K stipulates a more stringent obligation than the general law of tort would impose2) K stipulates a lower duty than the law of tort in similar circumstances- can be sued if want more damages or toehr procedural advantages offered by tort3) duty in K and tort are co-extensive- no issue of private ordering as opposed to publicly imposed liability- actions in K and tort may be concurrently pursued unless the parties by a valid contractual provision indicate that they intended otherwise- excludes fraud, mistake or unconscionability

Express-implied distinctionWhether or not parties will be held to have intended to oust tort remedies in favor of contracts will depend on the context:

a) Whether K is commercial or non-commercialb) Parties were of equal bargaining powerc) Whether the court is of the view that to find such an intention will lead to an unjust result in the court

action

Parties may sue in either K or tort or both where K shows that parties intended to limit or extinguish in tort- time limit for suing in K is 6 years and for tort- runs from the time you discover the breach

Contract Analysis:Court looks at construction of K and sees that clause saying right of way cleared by others is the over riding clause and the clause that tenderer has responsibility to seek clarification is subservient to this clause. Next step is simply to prove the quantum of damageTort Analysis:Common Law duty of care is to not make negligent misrepresentations - parties can K out of this common law duty of care by use of an exculpatory clauseBreach of the duty of care was negligently misrepresenting the land would be cleared by others, when it was not. Damage included the increased costs of clearing the land.

Policy Reasons for Concurrent Action:i. Freedom to contract out of common law tort liability and duty of careii. Limitation period is different in contract and in tortiii. Damages available in contract and tort are different so party can decide which damages will best

benefit the

A: Parties agreed to exclude certain kinds of liabilities (e.g. limit tort liability). Must determine contractual rights and obligations and whether there is a breach of a term. Use rules of construction (p.424). Construe terms of K in context of intent as evident in K as whole. Try to reconcile inconsistencies: one term as qualifying another term. E.g. specific terms qualify general terms.**Even though you have a K which covers this particular statement, that doesn’t mean you avoid tort liability**

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B.G. Checo: Tort Action misrepresentation: “right way free…. Debris” tort action:1) duty of care – arises out of contractual relationship – reasonably foreseeable statement would

be relied on; reliance reasonable – duty use reasonable care2) breach of duty of care – negligently making a misrepresentation of fact3) damages suffered by innocent party 4) causation

general duty of care imposed by law can be limited contractually be parties e.g. clear clauses excluding liability for negligence

**nothing in this case that limited tort duty

The Parol Evidence Rule Traditional Rule: Anything that is not in the written agreement is extrinsic to the agreement (any

oral conversation that adds, subtracts, or contradicts something in a written contract is parole evidence and

There will always be a written K with this “rule”. Everything that has been decided on is in the K, and it has been signed by the parties. Old version of rule: Anything that is not in the agreement is “extrinsic” to the agreement. If anything adds, subtracts or modifies the written agreement, it is parole evidence and it cannot be added to the K.

This rule is a presumption that a document that looks like a K is to be treated as a whole K. This is a rebuttable presumption. It is open to either party to allege that there was in addition to the written agreement an oral express stipulation not intended by the parties to be excluded, but intended to continue in force with the express written agreement.

PAROL EVIDENCE RULE—Hand outGeneral Rule:No extrinsic evidence is admissible for the purpose of altering, varying or interpreting in any way the written terms of the agreement. Many commentators believe that this is not so much a rule as a presumption which can be rebutted.

EXCEPTIONS:1. Statutory exceptions: Ontario Business Practices Act sec 4- and the Trade Practice Act2. Collateral Contracts which are not inconsistent with the written agreement3. Rectification- limited equitable jurisdiction where there is a common mistake in the nature of a typo error4. Evidence is allowed to show that there is not a legally binding contract: K is subject to a condition precedent, lack of consideration, mistake, misrepresentation (innocent, neg, fraudulent)5. PE is admissible to establish an equitable defence – non est factum6. PE is admissible with respect to implied terms7. PE is admissible to show that a written K has been subsequently varied or rescinded after the fact.8. PE is admissible to clarify ambiguous statements9. PE of custom or practice in trade is admissible10. PE is admissible to show a hybrid K11. PE is admissible to show a sham K12. Where PE is specific and the written term in question in general, the harmonious interpretation approach may be used (Gallen v Butterfly)

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Note: Where you have an oral collateral K you will have an issue of PE- it’s admissible if it isn’t in contradiction of the main KAdd/subtracts from the K- generally admissible 8 Important Factors (GALLEN v. BUTTERLEY)1. You can’t make 2 Ks that contradict each other2. The rule is not absolute, parole evidence rule is really just a rule of evidence and not a law3. Canadian case law has recognized that it isn’t absolute.4. If the contract is induced by a oral misrepresentation that is inconsistent with the written contract, the written contract cannot stand (Bauer)5. This parole evidence rule is a strong presumption (i.e. in favour of the written document). This is rebuttable 6. strongest when oral representation is alleged to be contrary to written agreement, less strong when oral representation only adds something or varies the contract7. The presumption is strongest in individually negotiated contracts & less strong in standard form Ks8. Where there is a specific oral representation versus a general exemption clause, then the presumption is less strong (favours oral evidence)

Zell v. American Seating Co. 1943 CCA

Facts $1000/month, commission to be determined at a later date – to fall between 3 – 8%. Written K replaced commission with a bonus amount to be determined & given at employer’s discretion

Issues Holding Parties deliberately intended the written K to be a misleading statement of their real agreement

Ratio/ Rule

Once the parties agree that a written promise is not to bind them or the written contract is a sham, then the written agreement lacks legal efficacy & then parole or other extrinsic evidence will be admissible

Today, courts derive the mutual assent (intention) of the parties from their actions based on a reasonable person Parole evidence rule does not stand up when the intention of the parties and expression is SO different

from the provisions of the contract Standard of interpretation of a written K is usually the meaning of a reasonably intelligent person

would take it to mean knowing past history and the making of the KComments The following factors affect the strength or weight to be attached to the parole evidence rule:

Form & content of the writing Whether writing has been signed Status of the parties Circumstances surrounding the preparation of the document Subsequent conduct of the parties Whether the K is a standard form Nature & effect of the parole testimonyThe presence of a merger clause in the writingCourts try to get around PER because sometimes it promotes fraudModern approach against parol evidence is that there is a distrust of juries, fear that they will be prejudiced by conflicting testimony- business certainty and effectiveness- if you have so many exceptions then the rule doesn’t really work, objectivity??

Hawrish v Bank of Montreal 1969 SCC Parol evidence rule applied

Facts P (lawyer) signed guarantee on bank’s usual form; P had oral assurance that guarantee was to cover only existing indebtedness & would be released once they obtained a guarantee from directors. Signed SFK even though terms were inconsistent with the oral agreement

Issues

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Holding Parole evidence expressly contradicts the written agreement. No clear evidence of an intention to create binding oral agreement – court found in favour of the bank

Ratio/ Rule

Outside evidence is only admissible where the provision of a written K is ambiguous A collateral (oral) agreement cannot be established where it is inconsistent with or contradicts the

written agreement (this is the parole evidence rule applied)Comments Any agreement collateral or supplementary to the written agreement may be established by parole evidence

provided it is one which an independent agreement could be made without writing & is not inconsistent with or contradictory of the written agreementWitness credibility is key

Bauer v. Bank of Montreal 1980 SCC

Facts B guaranteed loan made by bank to his company; bank did not register security properly and was not a creditor when company went under. Normally failure to register would have protected B as guarantor, except for clause in agreement which stated that “said bank… may abstain from taking… perfecting securities.”

Holding Parol evidence would expressly contradict the terms of the guarantee that gave the bank the right to abstain from registration & perfection of security. Hence, it would be inadmissible under parol evidence rule & any collateral agreement founded upon it could not stand – bank was able to collect

Ratio/ Rule

There must be sufficient evidence of an oral misrepresentation which induced the party to enter a K for the parole evidence rule to be set aside.

If the K is induced by an oral misrepresentation that is inconsistent with the written K, the written K cannot stand

Comments Collateral agreement that contradicts with main agreement is not enforceable. (Note, interesting decision, much criticised.) Same decision as Hawrish Curtis v. Chemical Cleaning – Where there is misrep’n that is either innocent or fraudulent, they cannot

rely on written K in contradiction of the misrep’n. Roberts v. Montex – rep’ns in a brochure (merger clause = integration clause). Can get around parole evidence rule if there is unequal bargaining power.

J.Evans &son v Merzario ltd

Facts During shipping machine was stored on deck, fell off and lost into ocean

Issues Reasons When a person gives a promise or an assurance to another intending that he should act on it by entering

into a K and he does act on it by entering in to the K then it is bindingRatio/ Rule

A breach of an oral warranty (misrepresentation)that induces a party to enter into written contract, OR there was a hybrid K- both an oral and a written contract (that when looked at as a whole form the entire agreement) the breach of either oral or written components will give rise to damages

Comments Counter case: Hawrish and Bauer

Lister v. Dunlop

Facts Lister was advised by lawyer not to sign a written contract that contradicted an oral contract but signed anyway

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Holding Merger clause upheld

Reasons Parole evidence rule applied (probably because Lister had legal advice)

Ratio/ Rule

Created a window for people to get around parole evidence rule by saying there clients did not have legal advice

Comments There is no parol evidence of person against a company

MERGER CLAUSE- the final combination in the written K of all the oral negotiations and agreements- the written K is the final K

Roberts v Condo

Facts Lister was advised by lawyer not to sign a written contract that contradicted an oral contract but signed anyway

Reasons Parole evidence rule applied (probably because Lister had legal advice) Where there is no legal advice and a K is signed in a rush then it is unconscionable to ignore the PE and the

merger clause will not be enforced (from BMO v Murphy)Ratio/ Rule

Created a window for people to get around parole evidence rule by saying there clients did not have legal advice

Curtis v Chemical Cleaning and Dyeing co 1951

Reasons Oral K and didn’t rely on merger clause

Chant v Infinitum Growth Fund Inc 1979

Holding Upheld that merger clause

Gallen v. Allstate Grain Co. 1984 BCCA

Facts Farmers buy buckwheat from company, having been reassured orally it would smother weeds; it didn’t and the weeds took over; they sued for breach of warranty.

Issues Reasons The oral warranty & the written agreement do not contradict each other

No contradiction don’t need to use parol evidence rule. Farmers lost Specific term overrides a general term

Ratio/ Rule

If there is a contradiction between written terms & oral representation, there is a strong presumption in favour of the written document but if there is clear evidence that the oral warranty was to prevail, it will prevail Don’t apply the PER when there is a SFK and a oral collateral K- specific oral representation

and clause in K is general then specific prevails over generalComments Harmonize with written agreement

Lambert- says that PER is not absolute- presumption that can be rebuttedAnderson- hybrid KSeaton (DISSENT)- tried to get around the PER- if clause not unreasonable the oral warranty need not be enforced Where there is an oral collateral warranty, things will make a difference if warranty to be followed: SFK, unequal bargaining power, consistent, unfair, fraud, not intended (ways to get around PER), witness credibility

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Consumer Protection Act sec 18.10- oral evidence is admissible despite the K provisions- done by legislationIn the trial of an issue under this section, oral evidence respecting an unfair practice is admissible despite the existence of a written agreement and despite the fact that the evidence pertains to a representation in respect if a term, condition or undertaking that is or is not provided for in the agreement.

Classification of TermsTerm Remedy for breach

Condition right to terminate contract and sue for damagesbreach of condition allows innocent party to stop performing

Warranty can only sue for damages- breach of warranty gives you damages but K remains so you still have to perform

Intermediate term Depends on the test (Hong Kong Fir)

Hong Kong Fir Shipping Co. Ltd V. Kawasaki –

gives test for condition or warranty here is intermediate term **

If a term does not fall into the classification of warranty of condition, it is an intermediate term, and court looks at the effect of the breach.**

Facts Ship to be “seaworthy” - ship not - HK wants to repudiate K based on breach of condition - argued only a breach of warranty, so parties must still perform.

Issues Is the seaworthy clause an a condition or warranty? ? if the term cannot be classified as either a Warranty or Condition, then it is an intermediate/innominate term.

Holding This was a warranty, Ds were not substantially deprived of the K test not met. Therefore non-breaching party cannot repudiate/terminate K.

Reasons 1. Hong Kong Fir test is only used where terms cannot be identified as conditions or warranties by traditional tests of construing the K.

2. Test:a.Construe the K to see if there’s a condition or warranty;b. Take into consideration the nature of the industry (e.g. ships tend to get laid up in drydock); c.If terms cannot be identified as conditions or warranties, look at the consequences, nature & effect of the

breach. If the breach deprives the innocent party of substantially the whole benefit of the K then the innocent party

may repudiate (stop performing/get out of the contract)- condition . Otherwise, remedy is damages (warranty).

Ratio/ Rule

Hong Kong Fir test: The party that breaches the contract cannot use their breach as a means of rescission (still must

perform). If the breach deprives the innocent party of the whole benefit (or a substantial part) they may

repudiate. Otherwise remedy is damagesComments Hallmarks of case:

Must be an ongoing K. Is it a condition or a warranty? If innominate/intermediate (ambiguous) term, look at consequences of breach (TEST).If substantial deprivation of benefit, then can repudiate.

Krawchuk v Ulrychova 1996- Canadian case follows Hong Kong Fir

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Facts Canadian case follow HongKong Fir Guy (π) buys horse, insists on guarantee of health; vet sends letter saying it’s in good health; later it’s found

horse has cribbing habit; vet at trial acknowledges that he should have mentioned it in letter but didn’t. Horse now wears “cribbing collar” and no longer sucks; no further health problems found.

Issues Can non-breaching party repudiate K?

Ratio/ Rule

Test is defined for determining condition or warranty – traditional test of examining surrounding circs to determine intent of parties for condition or warranty is starting point; surrounding circs include business setting; if term can’t be determined from those circumstances, basis for seeking intent is the gravity of event to which breach gave rise; no condition in this case; remedy is damages not rescission.

The Mihalis Angelos- England- HK test furthered

Facts Concentrate on the practical effect- construe the terms of the K rather than examining the seriousness of the breach- more traditional approachOntario v Vernon 2002

Facts There was an auction and the agreement was to deposit the funds into a joint bank account and the person did not deposit all of the funds as agreed

Comments Other party did not perform what should have been performed so no likelihood of repetition of K

Wickman Machine Tool Sales v. l.schuler A.G- doesn’t apply HK Fir test

Facts Term in K “It is a condition that sales rep. will visit once a week”. Sales rep. missed a few visits and Schuler wants out of K.

Issues Is a term a condition if expressed as a “condition” in K? Cannot give rise to right to terminate K.

Reasons Subsequent action is often a clue as to the intentions at the time of creation of the K. Must write condition into K – “breach of which will give rise to repudiation”. Must make intention clear or

will not be able to repudiate.Ratio/ Rule

Three meanings of condition:1) common meaning2) term of art3) ordinary meaning

Use of the word “condition” is not conclusive if that construction leads to an unreasonable result.The test is reasonableness. Simply using the term condition does not allow a party to be released - must always construe meaning from context of K and intention/conduct of the parties to determine intent with respect to right to repudiate.

Comments Denning had to harmonize between the 2 terms – specific & generalRule in British courts was reviewed: can’t look at subsequent actions to interpret parties’ intentions were at the time of the K (British rule; in Canada, you can look at subsequent actions)DISSENT- the word condition means it was meant to be a condition

Discharge by Performance or Breach

1. question of extent of default- until the entire promise is fulfilled then there is no obligation to pay- now it’s become the doctrine of substantial performance2. question of defaulting party who can’t enforce now has other options for remedy

Cutter v. Powell Strict rule – has to perform the entire K

Facts Employment K for seaman who died at sea without performing all of his obligations. Family tried to claim for his wages

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Issues Is family entitled to wages? NO

Ratio/ Rule

When someone signs an entire K, they must completely perform everything in K before they get paid. Strict rule! Has led to the mitigation of this drastic outcome.

Comments Modifications to mitigate strict rule: See if that clause can somehow be severed from the K so that can receive pay.

Doctrine of substantial performance – if substantially performed, are entitled to be paid for it

Markland &Associates V. Lohnes Test for Substantial Performance

Facts M renovated L’s property/L made some payments by refused to pay the balance of the contract price because of defects in workmanship/M sues for price of contract

Issues Has there been substantial performance?Holding M entitled to some money based on partial performance minus cost of defects

Ratio/ Rule

Elaborates on doctrine of substantial performance Where the contract has been substantially performed but with defects, the judge will award the

completed price, minus the amount to fix the defectsR: TEST for Substantial PerformanceIs the work substantially done, even if defects exist?If so, then test met & must pay [K price - cost of repairs]

Court defines a breach going to root of a K as: What is the nature of the breach?(i) abandoned and left unfinished(ii) of no benefit (iii) not what contracted for; entirely different from that contracted for (goes to root of K)

If NO substantial performance no obligation to pay lump sum. If substantial performance but with defects that can be remedied Damages available - cost of making good defects and omissions.

Fairbanks Soap Co. v. Sheppard 1953 SCC Doctrine of Substantial Performance

Facts D made soap machine for P. P paid $1000, D refused to do any more work until full payment made. P sued to recover money paid. D countersued for full contracted price

Issues Can manufacturer get part payment? Is there substantial performance?

Holding Crt held for P. There was no substantial completion of K since D abandoned it. D could not receive any money

Reasons Where there is a need for specialized skills and knowledge you cannot apply the substantial performance doctrine

Ratio/ Rule

Where a contract is entire, or a lump sum contract, there will be no payment unless it has been substantially performed

Doctrine of Substantial Performance: question of fact If substantial performance – even if defects in performance, then non-breaching party not released

from obligation to pay (but can sue for damages or pay K price less cost of repairs); manufacturer will be paid K price less the repair costs of buyer

If NO substantial performance, non-breaching party released from obligation to pay; party released as deprived of what bargained for

Comments Breaching party: can seek recovery on QUANTUM MERUIT basis permitted to prevent unjust enrichment of the non-breaching party. Usually arises if K has been abandoned.--can imply new K if:a) non-breaching party received a benefit from the work

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b) non-breaching party has option to take benefit and elects to take benefit (Sumpter v. Hodges)

Sumpter v. hedges (I’m abandoning this job I want restitution case)

Facts Construction K - abandoned by Sumpter (begins to build & walks away - non-breaching party completes the work). seeks quantum meruit recovery

Issues Is Sumpter entitled to a Quantum Meriut?

Holding Reinforce notion of entire K and in real estate the owner is not liable to pay for the building but takes advantage of the work and may be liable if it’s a chattel otherwise sue for restitution- QM- damages for work performed

Reasons There was no evidence of a 2nd K for completion and paymentThere can be no Quantum Meriut after abandoning project, since a half built cottage did not leave the party any choice but to refinish it. Not enough for to take benefit of work – must have option to take or not take benefit.

Ratio/ Rule

When you make a contract for a lump sum and you don’t substantially finish, you are not entitled to any money

Quantum Meriut can only be awarded in cases of abandonment, where the party has a true choice in whether or not to receive the benefit from the substantial performance and does receive a benefit from the performance - imply new K when makes choice for benefit Similar to Deglman – established law of restitution. Where someone has made some investment into a

property & gets nothing out of it, you don’t allow the other party to benefit from it. “Unjust enrichment”

Comments Contractor today would get something back under the law of restitution (quantum meruit) an equitable remedy

Law does not want people to gain windfalls at other people’s expense

Howe v Smith 1884 ca Deposit v Down Payment deposit

Facts Agreement for conveyance of estate for 12,500l - 500l deposit and in part payment of purchase. Vendor claiming it was a deposit to give incentive to complete payment. Purchaser argues it is only down payment.

Issues Is the 500l a deposit or a down payment?

Holding P is not entitled to recover – has lost right to both specific performance & right to sue for damages for its non-performance

Reasons A deposit may be construed as a forfeiture rather than a part payment, depending on the conduct of the parties, surrounding circumstances, language used, and size of the contract on a case by case basis

Ratio/ Rule

Implied term that deposit will be forfeited b/c binding faith into negotiationsCannot recover deposit – cannot be set-off against damages. If there is a deposit, it will be forfeited

however if there is a down payment, it must be returned. If purchaser defaults and no right to sue for specific performance or damages

Comments Hallmarks: Deposit is binding (almost like consideration) & the amount is a very small fraction of the entire sum –

generally a certain percentage of the broker’s fee Courts do not generally like penalty clauses unless they are very fair – a penalty clause comes after the

breach A deposit is never implied – it is always express

Stevenson v. Colonial homes 1961 onca Down payment

Facts Purchaser goes into office and receive a standard form contract

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Contract has both down payment and deposit written on the contract Purchaser signs under down payment side Purchaser decides he wants out of contrac

Issues Is the money a deposit or a down payment?

Holding Found for Purchaser

Reasons If something is a deposit, it is forfeited if the K is cancelled; if it is partial payment it must be returned; Courts will not imply that it is a deposit unless there is some language in the K or other evidence that the

parties intended it to be one.Ratio/ Rule

To determine if there was a down payment or a deposit must look at the intention of the parties, the language used and the surrounding circumstances

Standard form contracts are interpreted against the party who has brought it (contra proferentum). If there are ambiguities, they are interpreted against the party bringing the contract

Contra proferentem: Onus is on the party who proffered the standard form K to make the other party aware of the specific terms– look at language, circumstances surrounding it. (Standard form = “boilerplate”)

Need specific language – clear and unambiguous (“deposit”) – giving notice to purchaser - if payment intended to be forfeited upon purchaser’s default. “Down Payment” - refundable upon purchaser’s breach but subject to vendor’s claim for damages.

SUMMARY dealing with what the non-breaching party has a right to do if there is a breach dealing with a breach in all the cases whether or not there is an option or right to terminate the K can sue for damages need to figure out what the correct measure of damages is

1. conditions – either terminate or choose to continue and sue for damages2. intermediate/inominate terms (term that is not as such classifiable) –

with grave consequences elect to continue and sue for damages or terminate

less serious consequences – do not have the right to terminate; only option is to sue for damages

3. warranty – no right to terminate; can only sue for damages regardless of type, you can sue for damages issue is whether the non-breaching party can rightfully terminate the K if NO, and they still do it, they have performed a breach

Chapter 8- standard form contracts and exclusion clauses

General principles of Contractual interpretation- only the final document really shows consensus subsequent conduct of the parties is not admissible as an aid to the interpretation of the K-K is not made in a vacuum and must consider evidence as background circumstances

Scott v Wawanesa Mutual Insurance Co 1989 SCC

Facts Had a fire insurance policy- expanded definition of insured, son set fire to the house

Issues Whether the insurance applies only to the insured responsible for the conduct or act or omission or whether it applies not only to the insured but also to an innocent insured?

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Holding Appeal dismissed because can’t be held responsible for the actions of a delinquent

Ratio/ Rule

If there is a SFK and there is no ambiguity then it will be construed in favour of the one who wrote it (clear)If there is ambiguity then it will be construed against the party who wrote it (unclear)

Comments Insurance standard contracts, the terms will always be interpreted in favour of the insured

Use of Exclusion Clauses1. has the clause been effectively included as a term of the K?2. What does the clause mean?3. Is there some reason why we will simply refuse to apply the clause to a particular set of facts?

Incorporation Unsigned Documents

Thornton V.Shoe Lane Parking Ltd. 1971 QB- exemption from personal liability

Facts Parking garage, car dropped on plaintiff Conditions written on ticket and posted around garage waiving liability for person injury Posted conditions weren’t visible until after formation of contract

Issues Is the parking company excluded from liability?

Holding D cannot rely on exclusion clause; condition did not form part of K

Ratio/ Rule

Any unusual or onerous exclusion clause is ineffective unless brought to the parties attention before the time the contract is concluded

Customers will be bound by the terms on a ticket if:1) they knew there was writing on the ticket and had the writing contain conditions2) knew writing on ticket and received reasonable notice that the writing contained conditions

The exclusion clause needs to bring the conditions to the attention of the party before the K is concludedThe person relying on the exclusion clause must take sufficient steps to bring the terms to the attention of the other party- bolding, boxing termsIf the clause unusual it must be brought to the attention of the party in a particular way-highlighting

Comments Condition deals w/ personal injury – different than personal items in car or the car itself. If there’s going to be an exemption for personal injury, it must be brought to the customer’s attention ahead of time b/c not normal practice (“red finger pointing to the clause”)

Barnes v. Union Steamlines

Facts Northern BC. Ship went to an inaccessible area in BC to bring people to Vancouver. Ticket purchased once person is on ship – had limited liability clause. Person was injured

Ratio/ Rule

Public policy- the only one providing service so have to find in the company’s favur

Comments This was the only company providing this service in the area; if found liable, they may not service the area any longer – dilemma for the court. SCC convened twice to hear the case. Not sure what the holding is.

MUCUTCHEON (same) TILDEN (same) FRASER (different)

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Interphoto Library Ltd. v. Stiletto Visual Programmes Ltd. 1989 QB

Facts π sent ∆ 47 transparencies at ∆’s request; note in bag said transparencies were to be returned w/i 14 days, and noted return date; said that if they were held longer there would be a charge of £5 per day; another condition said above conditions are understood to have been accepted unless package is immediately returned. ∆ didn’t return them for several weeks. π invoiced them for £3,783.50

Issues Holding P did nothing to draw D’s attention to condition 2 - it did not become part of K

Clause for fees was unreasonable- so made payment terms reasonable and then had to payReasons In a good faith in contract where the terms and conditions are particularly harsh, they must be brought to

the attention of the opposite party and the condition must be fair (not only buyer beware, but seller be fairRatio/ Rule

Where a clause is unusually onerous, the party must take sufficient steps to bring it to the attention of the other party- bolding/boxing

Unfairness itself may cause a Court to strike down the clauseComments Judge may determine what is fair and order damages based on market value

Sometimes penalty clauses are treated as exclusionary clausesIn this case, the penalty clause was found to be exorbitantLook at the nature of the transaction, character of the parties

McCutcheon v. David MacBrayne 1964- previous dealings constitute notice

Facts π asked his brother to send his car to the mainland for him; brother sent it via the ∆; after paying received a receipt; the ship sank b/c of negligent navigation and the car was lost. Receipt had conditions including exclusion of liability. Never signed risk note

Issues Holding McCutcheon should be fully compensated for his car

Reasons Previous dealings are only relevant if they show knowledge of terms (actual, not constructive) and assent to those terms. If person knew and assented 99 times, assent can be drawn into 100th dealing but knowledge is key.

One judge decides on basis that the Ts & Cs were not given until after the K was made; other says that b/c it was not signed, and guy had no awareness of terms despite previous dealings (b/c he had never read them), the π is not bound by exclusion clause.

Later in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Assn, 1996 H.L. said that the test of knowledge should be objective.

Ratio/ Rule

Must prove actual knowledge that party was aware of the terms and conditions if one wishes to hold a party liable for the terms and conditions (west thinks this is wrong)

If a service provider is trying to bring the best possible service to customer and the alternative is no service, or a much higher price of service, the courts are more likely to consider limiting liability fair

Exempting conditions will be upheld if show consistent past course of dealings- deemed to know the terms and conditions of the exempting clause. (but in past dealings, there must be actual (not constructive)notice.

Comments This case changed to a modified objective test- what a reasonable person would know about the terms and limited liabilityJudge should have used objective test not subjective test

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British Crane Hire Corp. v. Ipswich Plant Hire Ltd. P491 1974 CA

Facts Oral agreement by D to hire P’s crane. No mention of conditions. Crane was then delivered & soon after P “in accordance with its business practice” send D a printed from to be signed setting out conditions of hire. Before D signed, the crane sank in marshy ground. By printed condition, D was required inter alia to indemnify P against expenses incurred in connection w/ the use of crane.

Issues Should D be bound by an agreement that he had made but that wasn’t signed? YES.

Ratio/ Rule

Objective (reasonable) person would know that these agreements contained exemption clauses. Also, there had been previous courses of dealings w/ P, & D knew that there were exemption clauses. D was deemed to know. NOT a subjective test

Comments Where party are equal & know the norms of the industry, implied terms can be inferred

Hardwick Game Farm v Suffolk Agricultural Poultry –follow for CDN cases

Ratio/ Rule

Exempting clauses will be upheld if have consistent past course of dealings

Signed DocumentsTilden rent a car v. Clendenning 1978 CA you gotta let me know about this term

Facts D rented car from P. D agreed to pay additional $2/day for “full non-deductible” insurance, with stringent no alcohol clause D did not read contract, had one drink and crashed car P sued for damage to vehicle

Issues Can clause be relied on to exclude liability? NO Clendenning is not liable for damage

Reasons The turning point of this case was the company itself did not expect the party to read the contract and the employees were told not to inform the customer unless they specifically asked

Ratio/ Rule

If a Company uses extremely stringent terms in a contract, that they do not bring to the attention of the other party, and the terms are not intended to be relied upon, they cannot rely on the signature of the other party

Signature does not mean acquiescence of unusual or onerous terms- not a true representation of the assent of the signor to the exemption clause

Comments Contractor inserting clauses inconsistent w/ overall purpose of K must use reasonable measures to bring to attention & not simply hand over to be signed

BARNES (similar) /FRASER (different) DISSENT- not unusual terms and even if signature inconclusive then would uphold clause

Recreation Activity

Karroll v. Silver Star Mountain Resorts Ltd 1988 BCLR

Facts Very experience skier was injured in downhill competition and broke leg by hitting another skier and claimed that ski club and resort were negligent;

Issues Is the exclusive clause enforceable? No

Holding The K was enforceable because the terms and conditions were short and easy to read and she was given enough time to read

Reasons Same test used to look into clause, reasonable test taken; look at way it was incorporated, content (how unusual it was) and the knowledge of the person about the nature of the venture; straightforward. analysis;

Courts look at the length and format of the K- if it’s short and easy to read they will uphold the clause otherwise if long and onerous then they may not

Courts will consider the time available for reading and understanding of the K

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Ratio/ Rule

General K Law:1) when signs a K knowing that it affects his legal rights then bound by it- except in fraud, misrepresentation- even when don’t understand the K2) must show reasonable attempt to bring signing parties attention to the terms contained on the form if he wishes to rely on the releaseExceptions to not knowing:1) circumstances that made it not her act (non est factum)2) induced by fraud or misrepresentation3) knew of had reason to know of other’s mistake as to terms- then terms should not be enforced

Not bound by clause unless you can show:1) in the circumstances a reasonable person would have known that she did not intend to agree to the release she signed2) in these circumstances the defendant failed to take reasonable steps to bring the content of the release to her attention

Comments The same test is used in examining exclusion clauses for recreational activities. The court will look at how it was incorporated, its content (how unusual it was) and the knowledge of the person about the nature of the venture.The party must bring it to the attention of the party and if the signing is insufficient, or if the π is unfamiliar with the area, it may not be valid. (Greeven); The experience of the skier and familiarity with the surroundings will be considered. (Schuster, Greeven)A drunken person may not be able to sign a liablility of waiver (Crocker).

Delaney v. Cascade River Holidays Dissent is now the law.

Facts Delaney – late addition to rafting trip. While boarding bus, passengers signed std liability release. All except Delaney received brochure detailing liability exemption prior to trip. Paid fee for trip, and was asked to sign

release after. Wife sued for compensationHolding D was negligent in not providing life jackets of proper buoyancy, but P failed to show that D’s negligence

caused Delaney’s death b/c it could not be shown that he would have survived if he had worn a jacket of more buoyant specs

Reasons DISSENT IS NOW LAW!!! People who go on adventures are deemed to know there is risk and there will be a wavier of liability Dissent: Past consideration, paid for trip, waiver came after the fact (past consideration is no consideration) Insufficient notice: provision too onerous to be singed in a rush, obligation of river company to bring it to

Delaney’s attention (no presumption of advance knowledge of disclaimer); use of word “standard” induced a sense of security in passengers; release didn’t mention personal injury or death

Ratio/ Rule

Dissent: Past consideration, paid for trip, waiver came after the fact (past consideration is no consideration)

Comments “Red flag” in Delaney – difference b/w this case & Tilden is that there is a personal risk, the person knows it & probably knows that they will have to sign a waiver. The company has done its part in bringing the exemption clause to the attention of the customer.

Crocker V. Sundance Northwest Resorts Ltd., 1988 SCC P 501 Note 2

Facts party at a ski hill somebody takes a rubber tube down moguls after drinking signed waiver while intoxicated

Holding company liable because they were aware of the intoxication (hosted party)

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Ratio/ Rule

no ratio provided in class, but it looks like a waiver is not valid if signed while intoxicated

Strict ConstructionNegligence exemption- must be very clearly worded to be exempted from negligence- general words of exclusion not apply to negligenceThe Courts have rejected any categorical distinction between two types of clauses because depending on the circumstances, one could be fair and the other unfair

5 things to impose a duty in law on the other – can’t have just one must have a combination of the following:Dependence, influence, vulnerability, trust and confidence- extent for evidence a relationship suggesting an entitlement not to be self-reliant

L’Estrange v. F. Graucob

Facts P bought cigarette machine from D & signed agreement w/out reading. A clause stated “any express or implied condition, statement or warranty, statutory or otherwise not stated herein is hereby excluded”. Machine was defective. P sued

Ratio/ Rule

When a document containing contractual terms is signed, then, in the absence of fraud & misinterpretation the party signing it is bound & it is wholly immaterial whether he has read the document or not ENGLISH CASE

FUNDAMENTAL BREACH “Construe a K” – read the K as a whole. Look at all the terms & conditions & harmonize them with

each other. Primary K = the actual performing of the K (ex., security guard providing security) Secondary K = obligations that arise when a breach occurs (look to the consequences – i.e., degree of

loss & see what the remedy is – ex., damages)

UNCONSCIONABILITY Considerations for unconscionable Contract (Davison v. Three spruces)1. Was K standard form drawn up by bailee?2. Were there any negotiations as to terms or was it a “sign here” K?3. Was bailor’s (P) attention drawn to limitation clause?4. Was the clause unusual in character?5. Were representations made that would lead ordinary person to believe clause would not apply?6. Does language of K read with clause render implied duty on bailee to take reasonable care meaningless?7. Considering all facts & representations by bailee, would the upholding of the limitation clause be an implied approval by courts of unacceptable business practices? “acceptable” business practices varies from industry to industry

Karsales(Harrow) Ltd. V. Wallis 1956 CA- Don’t use on EXAM!! Rejected in Canada

Facts Car sold by lease-to-own - thought he had leased the car he had inspected - but the one he got didn’t work - stops payments - company sues.

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Fundamental Breach Fundamental Breach AgainstKarsales (no longer the law) SuisseHelbutt Photo Productions (modified/overrules)

Hunter Engineering (modified)

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Issues What is the effect of this breach?

Holding Appeal allowed (ruling for purchaser) Implied term in course of business that the car would be delivered in substantially the same condition

Ratio/ Rule

When you have a fundamental breach, the court will strike down the exception clause by rule of law If a breach goes to the root of the contract, then an exclusion clause can’t be relied on Three later cases rule to the contrary

Comments See top for counter cases

Suisse Atlantique v. RotterdamsceP507 Note 1

Ratio/ Rule

When you have an exemption clause you should construe the contract on its own terms No automatic striking down of exemption clauses (the ROL does not apply

Habutt Plasticine v. Wayne Tank

Facts Wayne tank company put tanks and duraplastic pipes in plasticine company (exemption clause relieving Wayne Tank of liability)

For grand opening wanted to show plasticine in pipes, turned on machine and went home for the night Duraplastic pipes cracked from heat, spilled on to floor of factory and place burnt down

Ratio Denning said this is a fundamental breach that goes to root of contract, and court will not uphold the exemption clause because of a rule of law

Denning attempt to resurrect Doctrine of Fundamental Breach

Photo Production Ltd V. Securicor Transport Ltd

Facts App. is security company, which was to provide security services to resp. One of app’s security guards started a fire in the factory, unclear why, but was not established that he intended to destroy factory. Exemption clause in K said that under no circs should the app. be responsible for loss suffered by the customer through theft, fire etc., except for negligence; no negligence in this case.

Issues Is there a fundamental breach? Can they rely on the exemption clause

Holding Words of clause are clear – A can rely on clause; liability is excluded Court distinguishes between primary and secondary obligations Primary obligations: to perform contract Secondary obligations: pay if performance is not carried out

Reasons Matter of construction not a rule of law Proper allocation of risk As long as the company did their due diligence in the hiring process then they can exempt themselves from

liability Factory should be insured by owner not security

Ratio/ Rule

An exclusion clause is to be applied to fundamental breach by construing the contract (determine intention of the parties at time of signing) and not a rule of law Where parties are of equal bargaining power, and the risks are normally allocated by insurance,

parties should be free to determine for themselves the terms and conditions of their contract Whether or not an exclusion clause should be enforced or applied is a matter of construction not a rule

of law Where the parties are of equal bargaining power, the risk elected by insurance, the parties should be

free to determine for themselves based on private K Laws

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Comments Parties are free to contract out of secondary obligations when primary obligations are breached;

Exclusion clause will apply when language is clear and unambiguous.

Confirms Suisse Atlantique that the question of what and whether an exclusion clause is to be applied to a fundamental breach is determined by looking at the construction of the whole K. Whether or not an exclusion clause is to be applied to a fundamental breach is a matter of construction &

not a rule of law (the K must be construed as it was on the day it was signed)This case modifies/overrules the concept of fundamental breach

Hunter Engineering co. Inc. V. Syncrude Canada LTD

Facts Hunter and Allis-Chalmers have K’s with Syncrude. Kwith A-C expressly excludes any statute warranties. Hunter exclusion: statutory warranty not explicitly/unambiguously ousted. Gearboxes not reasonably fit for purpose – breach of statutory warranty. A.C. exclusion: statutory warranty explicitly/unambiguously excluded by K variation.

Issues Should exclusion clause stand in light of the breach (e.g. even a fundamental breach)?

Holding Exclusionary clause applied b/c it expressly excluded Sale of Goods Act

Reasons At time K made – did parties intend to exclude liability for breach of implied warranty.

Ratio/ Rule

Two approaches to exemption clauses (unconscionable v. unfair and unreasonable) Dickson: look at intentions of party at the time of signing, and see if there is anything unconscionable, if

not it will be upheld Wilson: look at exclusion clause after a breach, see if it is unfair and unreasonable and leave discretion to

the courtsBoth: Exemption clause should be strictly construed against the party seeking to invoke it. And clear and unambiguous language is required to oust an implied statutory warranty

Comments Canadian version of Photo Production v. Securicor7 Criteria for if it would be unconscionable for the bailee to exempt itself from liability? (from Davidson v Three Spruces Realty Ltd)

1. Was K standard form drawn up by bailee?2. Were there any negotiations as to terms or was it a “sign here” K?3. Was bailor’s (P) attention drawn to limitation clause?4. Was the clause unusual in character?5. Were representations made that would lead ordinary person to believe clause would not apply?6. Does language of K read with clause render implied duty on bailee to take reasonable care meaningless?7. Considering all facts & representations by bailee, would the upholding of the limitation clause be an implied approval by courts of unacceptable business practices? “acceptable” business practices varies from industry to industry

Post-hunter Fraser River Jewellers v. Dominion Electric Protection

Facts P contracts w/ D (security company), includes limiting liability clause. Store gets robbed, alarm company delayed in calling police.

Issues Holding D (security company) entitled to rely on clause

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Reasons It is not a question of unequal bargaining power but of is there an abuse of power?

Ratio/ Rule

In determining if a clause is unconscionable it’s not enough to say the parties are unequal, there must be an abuse of bargaining power

Mere inequality of bargaining power does not entitle a party to repudiate an agreement. In the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread. If it doesn’t offend public policy then the clause will be upheld- goes to the risk allocation for the parties

Comments PHOTO PRODUCTIONS (same) The set of rules in Davidson – not all of these need to be present. Crt would deem that a “reasonable”

person would know. There does not appear to be a duty on an employee to point out an exemption clause to a customer – exception is in Tilden when a customer asked, employees were to tell them that the insurance didn’t cover them if they have been drinking.

Solway v. Davis Moving ON court of Appeal 2002 Same with Hunter. Dissent is right now.

Facts had valuable goods; chose moving company carefully to ensure goods were secure (an informed decision).

Issues Is the exclusive provision enforceable?

Holding Ruling for the plaintiffs Invoked “relieve power of S.C.C. to grant relief against onerous provisions Dissent argued for moving company based on statutory law limiting liability by weight

Reasons Court applied Wilson’s test Can apply test of unreasonable and unconscionable at time of breach (Wilson), or at time of signing

(Dickson) The carrier did not know the true value of goods. They treat all goods equally, if you have valuable unusual

goods, you need to pay more for insurance.Ratio/ Rule

Same with HunterShould treat every goods alike with the same level of care- the moving company can’t know the true value of the goods so the owners must take out extra insurance

Comments The majority was wrong, the dissent was right in this case.

Plas-tex Canada Ltd. V. Dow Chemical of Canada

Facts The D knew there is problem in the resin they sold to P. and they knew P would use the resin in specific way, they also knew the public will be at risk by using their products. (close to fraud)

Issues is the exclusive clause enforceable? No

Reasons The D argue it is not unequal bargaining power. And also argue the Exclusion Clause. Court found unequal bargaining power since the knowledge was not known by P. There was unequal bargaining power because there was fraud involved and because Dow had specialized

knowledge of chemicals and the other company didn’t- one company knew more than the otherRatio/ Rule

If you have a company with very specialize knowledge which is crucial to the company, the other company cannot know the knowledge, there is unequal bargaining power.

When you dealing with bargaining powder, you need to look at not just the size of the company, you need to consider the extreme/ inaccessible knowledge

Comments To find if unconscionable:1) If defendant knew of possible risk associated with product2) failed to disclose assumptions within its knowledge which prevented the other party from properly measuring risk and consequences

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3) deliberately withheld information and induced the other party to enter a K thinking they had done due diligence Then that conduct will be found unconscionable and the clause will not be enforced

Tercon 2010 the recent rule

Ratio/ Rule

The final words about Exclusion Clause1. as a matter of interpretation, have to construe the K, look the intention

of the parties.2. If E clause unconscionable, look at the time the K made, if the E was

not fair or unreasonable (also in case Davidson)3. If there is public policy allowing the court to strike down the clause.

There is something against the public policy . (Wilson approach)Comments In the most part, the E clause will be enforceable unless it is unconsicionable, unfair or unreasonable, against

the public policy or against the parties’ intention.Tercon kills the fundamental breach doctrine.Merger, time limit , Exclusion Clause, either of them will be in the exam.

CHAPTER 8: SUMMARY

When looking at exclusionary clauses, ask:

1. Was reasonable notice of exclusion clause provided? if K signed: was there fraud/ misrepresentation? was clause so unusually onerous that specific notice should have been given (Tilden)

2. If proper notice, is clause clear & unambiguous ? (use strict construction approach)Note: standard is reasonable notice, not actual notice.

reflecting intent of parties at time of K (Photo-Production, Hunter: Wilson, Dickson)

3. If clause clear and unambiguous is it fair & reasonable in context of breach (Wilson - Hunter)?

4. Look at nature of breach, equality of bargaining power, commercial sophistication of parties; sharp dealings; abuse of freedom of K.

in exceptional circumstances court can use residual power to strike down clause

5. Is clause unconscionable (Dickson- in Hunter, following Photo Production) inequality of bargaining power; commercial vs. consumer K’s; abuse of freedom of K; assent

to terms gained through exerting pressure? For consumers, they always have a doctrine of unconscionability because of unequal

bargaining power Effect of unconscionable clause is to strike down clause Note: generally doctrine of unconscionability Remedy is rescission Not a workable remedy in context exclusionary clauses

**different context for unconscionability; we will be studying a different type later on.

Chapter 9 MISTAKE

Introduction Argument of last resort because it is very hard to prove. Therefore use law of mistake strategically effect of mistake on executed K: void ab initio (in law); voidable (in equity): Remedy: rescission

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Ask: misrepresentation?; collateral warranty? if neither –ask if the law of mistake applies

1. Mistake as to term of K K is void ab initio (never a K parties return to pre-K position and 3rd party interests are

NOT protected) – no consensus ad idem (objective std. e.g. manifestation of mutual intent; to determine if there was consensus ad idem.

2. Mistaken Assumptioni. As to quality or motive K stands

ii. As to subject matter if complete difference in subject matter between thing bargained for and thing obtained, K is void ab initio (or contract may be voidable in equity)

Mistake – Types K is formed –but subject matter of contract totally different Issue – who bears risk of mistake? Was K formed – a consensus ad idem

Common Mistakeboth parties have made the same mistake

Mutual Mistakeboth parties mistaken but differently Unilateral Mistake

one party is mistaken and other party knows of mistake (e.g., patent error in a bid)- there is no general duty for one contracting party to disabuse the other of a mistake the latter has made about a material fact relating to entering the K- caveat emptor

Mistake as to TermsStainan Steel Ltd v Commercial and Home Builders Ltd- mutual mistake

Facts Thought there was building steel in the lot but there wasn;t, so refused to sign waiver and b/c refused to sign, refused to deliver

Issues Look at what terms were used, as seen by reasonable person

Reasons What could a reasonable person infer from the conduct and circumstances There is no consensus. There is mutual mistake. The court have to decide if the contract concluded. Court:

P add a term after the K was concluded.Ratio/ Rule

There was a mutual mistake, but it did not negate the K in that particular situation. Mutual mistake does not always negate K

Smith v Hughes 1871

Facts Wanted to buy old oats to feed race horses- agreed on delivery and price but thought the oats were old oats but wasn’t

Issues Look at what terms were used, as seen by reasonable person.

Reasons - There is a distinction between the believing they were old and take it to contracted they were old. (believing the oats were old and buying one believed to be warranted old)

- Whether the other party believed (it is hard to find) or they contracted

There is no legal obligation on the vendor to inform him he was under a mistake- no fraud or deceit Must show not only that plaintiff believed he was buying old oats but that defendant contracting with

plaintiff to sell old oats

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Ratio/ Rule

The objective Test (Blackburn J.)Distinction between taking oats thinking they were old and taking oats that contracted the oats were old- term of K rather than belief

Snapping up a mistaken offer

- A promisor is not bound to fulfil a promise in a sense in which the promise knew at the time that the promisor did not intend it.

- You know the other party is making a mistake. (bank money case, if you keep the money, it was unjust)

- You cannot snap up an offer if you know there is a mistake.- In order to prevent a kind of fraud from being perpetrated on the mistaken party, the latter’s

subjective intentions are allowed to trump a consensus ad idem

Belle River Community Arena Inc. V. W.J.C Kaufmann co. 1978

Holding - An offeree cannot accept an offer which he knows has been made by mistake and which affects a fundamental term of the K. overrule the Ron engineering

Reasons - Try to see if the mistake is patent or latent (cannot figure in the face of the bid documents)—Ron engineering

R. v. Ron Engineering 1981 SCC

Facts Ron Engineering bid lower than wanted to - attempted to withdraw offer and recover $150,000 deposit. Contract B never formed; only Contract A

Issues Whether deposit must be forfeited?

Holding - the error in this case was a LATENT error. Mistaken assumption that calculation was correct tenderor intended to submit the bid, it did so contract A was formed

- (could argue the mistake is obvious) - Difference between the error in the face of the record or the error is not in the face of the record.

Reasons Contract A happens even if there is a mistake because the mistake is not found until after the bid is opened Contract B won’t come into existence because there has been no agreement between the parties Sometimes it is cheaper to forfeit the deposit than pay damages for not performing the K

Ratio/ Rule

PATENT ERRORS (obvious on the face of the bid) VS. LATENT ERRORS (NOT obvious on the face of the bid, must look at document outside of tender document itself)

Comments There is criticism that there is not a huge difference between Kauffman and Ron but the SCC changed the rules. This created a dilemma because if you don’t go through KB then you are breaching KA and the employers may be able to snap up tenders made in a mistake

Calgary v. Northern Construction c. P558

Facts Calgary city insisit that the Northern to go forward the building contract

Issues Holding The Court said you cannot force the contract B with a mistake. However the damages need to be paid by

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Northern Construction, The difference is between their bid and the next lowest bid.Ratio/ Rule

The court will not force a mistake contractor into a contract B.

Comments If there is a large amount between two bid, you could argue SNAPING UP an offer

Raffles v Wichelhaus

Facts Two ships were leaving at October and December- thought contracted for the one shipment but really it was for the other one

Reasons There were no terms agreed to so there was no contract

Mistake on assumptionBell v. Lever brothers ltd Leading case: agreement made on the mistake assumption Common law rule of mistake to the assumption.

Facts K to terminate an employment K (consid. for mod.). Found out employment K already void due to insider trading. Mistaken assumption by both parties was the existence of valid employment K.

Issues - whether or not the company can get their money back? (the compensation money) was there sufficient mistake to void the K at law? The house of lord try to figure Whether or not there should have been some burden to that people to pay the money back?

- Mistake as to quality (no relief) or subject matter (relief)?Holding Duration of an employment K speaks to quality of empl. K. Employer trying to shorten length of K. -

mistake as to quality. Subject matter doesn’t change - still employed. Difference between “broken”/”unbroken” K of employment – only mistaken assumption as to quality

Ratio/ Rule Mistake as to the quality of the thing contract for will not affect the enforce of the K, unless the new see of the fact will make the contract essentially different in kind of the original contract.

Comments The court does not like to void K based on mistake assumption.- Three kinds of mistakes : Identity - existence of the subject matter- quality of the K

McRAE V. Commonwealth Disposals Commission

Facts - No tanker case- The P sues in K on huge damages. he is asking for the damages. alternatively, he ask for recession. In

that time, he could not sue for negligent misrepresentation. Issues Damages – based on reliance interest. made expenditures in reliance on breached promise: sunken tanker

on reef Holding - Court: you cannot rely on your own mistake. The Commission cannot rely on their own mistake to

make the K void. The court believes there is mistake made, but the K still enforceable. - The Commission paid $ for damages. But P did not get Damages of P’s vessel and ship.

Reasons - What the arguments of the Commission: 1. They argue non existence of subject matter, they argue the contract was void. There is no

contract. (the court try to re construct the contract).2. It is not about non existence of subject matter. It is about whether or not you can sell the

documentsRatio/ Whether there is mistake or non existence of the subject matter depending on the facts of the K.

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Rule It would be argued negligent misrep now. (the damages should be see case Hadley)

Couturier v. hastie A k avoided by mutual mistake. P566

Facts Sells corn and would bill in 2 months when delivered but had to sell to someone else on the way otherwise the corn would spoil and tried to bill original person anyways

Ratio/ Rule

- Mistake to the existence of the subject matter - There was no contract, void. (the K not existence)

Solle v. Butcher (we follow this case in Canada, even though Bell case was leading case)

Facts The tenant was the manager and set the rental price but misunderstood the rent control statute- was only supposed to charge $170 but charged $250 and rented one apartment for himself

Issues - Was this mistake sufficient to set aside the K?

Holding - The Tenant leave or keep paying the $250.

Reasons - The Tenant would argue that the contract was not essentially different under Bell v. Lever Brothers. If that is not essentially different, the contract was enforceable.

- Lord Denning called equity. - Void –common law version—K was not exist- Voidable---equity ------K was exist but could be void.

Ratio/ Rule

Where the mistake was caused by fundamental misrepresentation, one of the other party induced the mistake, the party who create the mistake cannot take advantage of his own mistake. Equity will intervene in unfairness to prevent from taking advantage. That is the equity means.

Comments Two kinds of mistake1) mistake which renders void- void ab initio2) K not void but voidable if equity demands it

Great Peace Shipping v. Tsavliris Salvage Test for common mistake (leading case for a while in Canada until the case miller paving)

Facts Ship was damaged at sea and there was further risk to ship and crew

Issues Holding - The 5 day cancellation fee was already in the contract term. So they should pay.

- no mistake at common law, so no mistake under Bell v. Lever. Therefore K is NOT void.Reasons - The Salvage argues the mistake was so fundamental, there was no contract. They would not pay. The

court try to know who should burden the risk of cancellation. Ratio/ Rule

- 5 elements must be present if common mistake is to avoid a K1) There must be a common assumption as to the existence of the state of affairs2) there must be no warranty by either party that the state of affairs exists3) the non-existence of the state of affairs may not be attrituble to the fault of either party4) the non-existence of state of affairs must render performance of the K impossible5) the state of affairs may be the existence of the Consideration to be provided or circumstances susbsist if performance of the contractual adventure is to be possible

Comments - The Criteria was too high to meet in this test. (not very able to set the K aside)

In Canada now:

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Follow Bell then Solle1) See if K meets the Bell and Lever test- substantially different test, if not then K formed2) even if K enforceable under Level is there some unfairness which would allow intervention by equity so that the K would be set aside.

Miller Paving ( good case to follow in Canada)

Facts the Plaintiff contracted with the Defendant for supplying aggregate materials. They signed an agreement about the payment ,which stated that the plaintiff had been paid in full for all the materials they had supplied. Then P found mistake and send further invoice. D refused to pay.

Issues Is there common mistake to set aside the agreement? Can this K be set aside?

Holding - The judge said miller has to bear the consequence since this is miller’s mistake. (court: Gottardo alter its position in some way)

- Miller created the mistake. No one mislead Miller. (follow solle, but in solle, the guy who relied on the mistake made mistake)

Reasons - P Arguments:1. The supply contract2. The doctrine of unjust enrichmentCourt:1. Apply common law approach in Bell, the subject matter of the contract has not became something essentially different from what it should be.(the subject matter is release all further claims. )

Apply Great peace shipping, it would be required to show that the non-existence of the presumed state of affairs was not its fault. But it cannot do so.

2. Apple equitable doctrine of common mistake in Solle, Miller must show that it was not at fault. But the mistake in this case was due to Miller’s own fault.

Ratio/ Rule

K can be set aside if not harmful to 3rd party who was relying on the KMust show that the subject matter of K became something essentially different from what it was believed to be and you can’t claim unjust enrichment because it was our own fault that you didn’t bill properly

Comments - Not following Great shipping, follow solle. Set aside bell level brothers, allow equity step in.- 1st. Look at if contract enforce or not, under common law. ‘ Fundamentally different with the subject

matter”- 2nd , then look at “Solle”, equity step in.

Mistaken Identity

- Mistake identity, contact may be set aside. If innocent 3rd party get involved- Lindsay- Rogue-Cundy Mail order innocent 3rd party lost- Phillips- Rogue-Brooks Face to face innocent 3rd party won.- Lewis – Rogue- Averary Face to face Innocent 3rd party won.

Hire-purchase Act 1964, legislation, they put this in the legislation. In general, they are going to protect 3rd party.

Lindsay

Reasons - British court decide to look at contract. If Lindsay actually intended to contract with Rogue, the contract was concluded, if it is, the Rogue could get good title, and then transfer to Cundy. Then Cundy would win.

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- But if there is no contract, then the title is still in Lindsay, so Lindsay win.

Phillips v. Brooks

Reasons - Since it is face to face, court concluded the Phillips intended the contract valid. So the Rogue has good title, then the innocent 3rd party won.

Lewis v. Averary

Reasons - Court said there was contract since they negotiated face to face. Lewis intended the K valid. Lord Denning, the person who was mistake, who was first gave up the thing, who should bear the burden of mistake. (they are more mistake than the innocent 3rd party)

Shougun-stolen identity

Facts - A rogue had acquired the driver’s license of Mr.Patel. And the rogue went to the car dealership posing as Mr. Patel, and agreed to buy a car subject to obtaining financing. After take the possession of the car, the rogue sell the car to the Defendant Hudson.

Issues - The issue is whether or not the hire-purchase agreement was concluded?

Holding - Trial Court found that there is no Contract between Shogun and Rogue. Then no title transfer to Hudson. 3 of 5 judges found for Shogun. House of lord:

- The court want to deal this case by contract law. But in fact, court should look at policy prospective. Reasons shogun sued for the car, they argues that they made mistake about the id of the person, so there is no

contract was ever concluded.- Shogun argues the case Lindsay, the k was not face-to –face.- Hudson argues the hire-Purchase ACT 1964, which would protect 3rd party.

Ratio/ Rule

- Where there is some form of personal contact (face-to-face) b/w individuals who are conducting negotiations, there is a strong presumption that each intends to K with each other with whom they are dealing.

- Where the dealings are exclusively in writing, there is no scope or need for such a presumption- Face 2 Face: K ; Documents only : NO K- Person who starts the chain of events should protect the 3rd party and bear the burden of mistake

Comments - In Canada- The policy from Lewis make sense. (when innocent 3rd party purchase for value?) Denning: the

person who start the chain of mistake should bear the risk. The law should protect the innocent 3rd party. No Hire-purchase Act in Canada.

Mistake in Documents Signed- It is not my deed. Non est factum. - General:

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- Except in the case of a non-negotiable instrument, carelessness on the part of the signatory is immaterial and cannot preclude a plea of NEF even against innocent 3rd parties

-- Prudential Trust Co. v. Cugnet 1956 SCC

Facts Rogue induce Cugnet to sign the contract, which is fundamentally different from which he was told, he did not read it. Then Rogue then sold it to prudential trust Co.

Reasons - English law: their negligent is immaterial, they signed the K, even they did not read.- They follow the british law. Cugnet lost.

Carlisle

Ratio/ Rule

Document was fundamentally different – didn’t know what was signing Even if the person is negligent and signs something that hasn’t read doesn’t matter and can set aside the K in law

Saunders v Angela Building Society 1971

Facts Negligence is a question of fact for the jury to decide if careless or not, not a form of estoppels by negligence

Issues Reasons Difference in character or class then sufficient

Difference in contents only then NOT sufficientRatio/ Rule

- Page 592- Why estoppel by negligence is the wrong phrase:1) The phrase is inaccurate in itself- Spencer Bower and Turner on Estoppel by Representation- Estoppel in the normal sense of the word doesn’t arise from negligence- arises from misrepresenation made by words or conduct 2) Phrase tends to bring in technicalities of estoppel and representation must be intended to be acted upon may cause difficulties3) Carlisle and Cumberland Banking v Bragg- The innocent 3rd party who paid/lent money on faith of neg signed document should not have to prove the signor owed a duty to him or that the signor’s neg was the proximate cause of the money paid/lent4) Estoppel must be pleaded and proved by party relying on it. In NEF that means the burden could be on the wrong party. The person who signed the doc had knowledge or lack of knowledge and intention of signing the doc and should have to have the burden of proving that his signature was not brought about by negligence on his part.

Marvco Color Research v Harris Canada follow this case.

Facts The GF’s parents gave mortgage to BF. BF comes to parent with a law student, stated that that the documents has error in date, induce the GF’s parent sign the new contract.(they did not read it). Then BF sell the mortgage to innocent 3rd party.

Issues Holding SCC

- About cugnet, they overturned cugnet. then held that negligent and carelessness are factor they need to look at.

- Because they are relying on the SCC’s case, so SCC waived the cost for the loosing party. Arguments Arguments:

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- Parent could argue Non est factum. They are relying on SCC case which relying on a british case which was overruled.

- They did not read it. - They have no idea about they have signing mortgage. They are trying to help their daughter.- They did nothing wrong.

Non est factum could be defense, but negligent should be consider.Ratio/ Rule

People who are negligent will have to suffer the lossNEF- can’t be negligent and have set aside- may be certain circumstances and not negligent in doing soMust be radically and fundamentally different then NEF may apply

Comments If you signed a document and you are not negligent, if the document was fundamentally different with what you thought it was, then non est factum could apply. But it is hard to prove.

Rectification- Beyond of RD—Criminal- Standard of proof (between BRD and BOP) (higher than mere balance of probability)

Evidential term A very high standard to prove contract In the exam, you should know that this is higher than mere balance of probability.but lower than Beyond of RD.

- Balence of probability- civil- Rectification is hard to reach remedies. (now, it is more difficult to achieve)

Bercovici v. palmer

Facts - The P is widow, her husband dies, then she sold the store to the Defendant. When they go to P’s lawyer’s office, the lawyer was not there, someone else help to prepare the documents. Lot 6 33 was written in the contracts./Lot 6,33 A was written in the deed.

- 33 include Rob roy. But 33 A just include the storesIssues Holding - Court found for Widow. Deleted 33A from the contact.

Reasons - Court did not rectificate the contract. The D never pay the tax, never has the key. The documents said it is 2, not 3 properties. There is a fire, the P did the insurance, the D never checks it. Overwhelming evidence show that they never intend to include robroy.

- Defendant appeal this case, since they relied on that the trial judge erred in looking at subsequent conducts of the parties.

Ratio/ Rule

Court of appeal upheld the Trial court. And said if the court doing rectification, they would see the evidence comes subsequent after the contract. They could look at before (parol evidence rule), they could look at subsequent evidence as well.

Must have clear, irrefutable, convincing evidence before rectification will occurComments - Court said Common intention needed for the doctrine of Rectification.

- Canada, court can look at subsequent conduct.

Sylvan Lake SCC last words for rectification 2002

Facts - Join venture between Bell and O’ connor. - Two rows in their agreement. But O’connor let his lawyer prepare the contracts, change it to 100

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yards and just include one row in the contract. 4 years after the contract concluded, Bell found the error. Bell bring action for rectification or damages (he also claim punitive damages).

Issues Holding Trial judge found fraud here

Reasons - The O’connor’s only argument is that Bell did not read it, so Bell cannot rely on his own mistake.- Court said: Rectification not subject to due diligence.- SCC review the law of rectification.

1. The court could use rectification even with a unilateral mistake2. U can have parol evidence for rectification.3. Certain thing need to prove

Ratio/ Rule

- P608 4 rules need to met - 1. Existence and content of the inconsistent prior oral agreement- 2. Show that the written documents does not correspond with the prior oral agreement/ fraud or the

equivalent of fraud- 3. Must show “the precise form” in which the written instrument can be made to express the prior

intention.- 4. Beyond reasonable doubt - conduct equivalent to fraud- high standard of proof-

Comments - For rectification of a K: there can be a mutual mistake, or unilateral mistake provided certain demanding preconditions are met at the time of the execution of the written document and then defendant knew or ought to have known of the error and plaintiff didn’t and you can use Parol evidence

Coderre v Coderre 1975

Facts - Divorce parties. Made an agreement, wife said husband agree she will own half of the matrimonial home. Wife said to the lawyer about put this to the separate contract. But lawyer forgot that. Then Husband sold the house. Wife brings action for rectification.

Issues Holding Wife lost, but she can sue the lawyer. The lawyer is the party who made mistake

Reasons - Court: there is omission of the important clause. The wife’s lawyer testifies that he forgot put the term in the agreement. And wife’s daughter testified that.

- Court: 1. unilateral mistake. No evidence to prove that common intention.- 2. Not enough evidence sufficient to achieve the standard of proof.

Ratio/ Rule

- Must meet high burden of proof for rectification

Comments - 1. The hard thing is to prove the husband is fraud or equivalent to fraud. (he said he cannot recall what he said about the wife own half of the home )

- 2. They omitted the entire the clause. (not just the mistake like “yard” to “feet”)

Augdome Corp. V. Gray 1974 3rd party involved, no rectification

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Ratio/ Rule

- General rule: if 3rd party’s right would be affected by Rectification, the court will not allow Rectification.

FrustrationFrustration – future facts Mistake – existing facts

an executory K; when parties enter into K certain state of affairs exists, and then there is a change in affairs; b/c of change of state of affairs, it is basically so changed that it can no longer be performed; “the K has been frustrated, and it is impossible to perform”

looking at past or present facts that affect the subject matter of the K; e.g. at the time the parties enter the K there is a mistake as to the subject matter

Paradine V. Jane No Frustration----No longer valid

Facts π leased land to ∆ and ∆ failed to pay; ∆ argued that during the lease an enemy of the King invaded the land with an army and drove him out.

Issues Is the contract frustrated ? NO

Ratio/ Rule

The unforeseeable circumstance does not end the ∆’s responsibility. Frustration was risk to bear. Judgment for the π. (An example of a hardcore application of sanctity of contract.)

- absolute K, K by operation of law, Court will decide if parties can stop performing eventhough the fulfillment of the K was am impossibility for one party- goes to the whole object or intent of the K

- West: even if it is impossible to fulfill the K, a party must still meet their obligations, is no longer valid.

Taylor v. Caldwell K frustrated---Still good law Exception to absolute K.

Facts - πs had rented the Surrey Gardens and Halls to hold a series of concerts; unfortunately the day before the first concert, the hall burned down, due to no fault of either party. K contained no stipulation for what to do in this circumstance.

Issues is the contract frustrated? YES

Holding Yes. The K was frustrated. There is implied condition which is the continue exist of the hall.- Both parties are released from the K- Assuming there was no money exchanged then neither party has to perform. (if there was then the

deposit would be returned)- Courts will follow the risk allocation in the K

Reasons 4 examples of impossible K:1) death or illness of party undertaken personal employment2) destruction of the subject matter of K3) subject matter not destroyed but whole object/purpose is defeated 4) discharged if performance becomes illegal

Ratio/ Rule

- When parties contract on the basis of the continued existence of a thing, continuing to exist, and the thing no longer exists due to no fault of either party, the parties are freed from their obligations.

- Confirmed general principle of Parradine but says there is implied term of continued existence.Leading Cases:

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1) Herne Bay Steam Boat- not frustrated-could be fulfilled- purpose was to review the fleet not to see the King- therefore the K was enforceable2) Krell v Henry- rented rooms to see parade- not have to pay for room- there was an implication that this was wrongly decided

Can Govt. merchant Marine v. Can. Trading.co No frustratioon

Facts K to ship lumber from Vancouver to Australia – ships not ready in time due to dispute between gov’t & shipbuilders, Appellants claim contract frustrated.

Issues is the contract frustrated? NO

Holding K not frustrated – no evidence to indicate that delay was not foreseeable

Ratio/ Rule

- As a general rule, courts will place the risk of unforeseen events on the Promisor- Where an event is foreseeable a contract will not be frustrated (the doctrine of frustration is not

applicable)1) Forseeable event- 2) onus on promisor to complete K promise

2 types of frustration cases:1) The coronation cases- K could be carried out but circumstances which formed its basis had wholly changed 2) Cases in which a change in law or advent of war a fundamental change in the K that nay K performed would essentially differ from what the parties had in contemplation

Clause Neon No frustration

Facts - P entered into K with D to make, erect & maintain neon sign. Power restrictions during war, so D couldn’t illuminate sign at night. D claims frustration of K

Issues - Do lighting restrictions cause K to be frustrated?

Holding Contract is not frustrated (valid contract. D still gets benefit from sign

Reasons - Apply the test to the case - Examine the effect of new law upon performance. What is substance of K – look at terms and

inferences drawn from surrounding circumstances. Was possibility of event known to both parties (supervening legislation)? Effect of legislation - did it make subject matter of K radically different /destroy identity of subject matter?

Ratio/ Rule

- Supervening ( makes performance illegal ) Legislation Test 1. Was the introduction of supervening legislation unforeseen/unforeseeable?2. Effect of legislation: did it make the subject matter fundamentally different

than originally contracted for?3. Is it the fault of either party?

-Comments - There was still some benefit to the sign- less benefit but some benefit from daylight sign

so the whole foundation of K not taken away- When the K is still possible but in altered form but not fundamentally different the

doctrine of frustration does not apply

Davis Contractor ltd No frustration

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Facts - P contracted to build houses within 8 month period. Post-war labour shortage caused delay. Work took 22 mos. P claimed frustration & that they were entitled to damages . P sued on basis of quantum meruit (one can’t be obliged to pay, or receive, more than the values of the goods or services rendered.)

Issues When can Frustration be raised? Was the K frustrated? [NO]

Holding K not frustrated – contractor should have provided for risk of delay

Reasons - In this case, judge said K was still for houses - just in 22 months not 8, so subject matter of K not radically different. Cause of delay (labor, materials shortages) could have been contemplated by parties. Risk could have been allocated by means of term of K. Risk not allocated to . Risk lies with – promisor (contractors).

Ratio/ Rule

- Test to Prove FRUSTRATION 1. There must be no default by either party (contractual obligation incapable

of being performed)2. Performance becomes impossible because of circumstances which

changed, making subject matter radically different from what was originally contracted for.

- Look at terms and construction of K in light of circumstances at time K made and the subsequent events that allegedly frustrated the K.

CAPITAL QUALITY HOMES LTD ---------------- K frustrated

Facts π and ∆ entered into K for sale of large lot which π intended to subdivide; π was to get conveyance of building lot upon deposit, and then on balance get 26 deeds for each piece of land representing one building lot; Before closing, leg. was changed requiring the parties to get approval for subdivision plan. Parties never came to agreement about who’d get permission; π paid remainder of balance. ∆ never got conveyances for separate homes; π wants money back

Issues - Does the intervening legislation frustrate the K? [YES]Holding - legislation was not foreseeable and nothing either party did caused the occurrence of the event.Reasons - Arguments

- Purchaser : : repudiates agreement: seeks return of deposit (K frustrated). Unless you could give 26 deeds, he would not buy.

- Vendor: argues purchaser, as equitable owner of lands, bears risk of change in legislation; deposit forfeited. (cannot get 26 deeds within the time, it would need long time)

Ratio/ Rule

- K for sale of land can be frustrated. (UK)The court held said the new Law destroyed the foundation of the K.

- K1 agreement made for purchase and sale- K2 conveyance- Any sum paid before frustration will have to be returned- expenses can be deducted from the deposit

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(sec 3-2)- reorganize K once frustratedComments - The specific legislation may not be forseen. 1. If apply law with forseeability, the legislation was not

forseen. 2. The K was fundamental different.

- Finally, the Purchaser want to get deposit back. –Frustrated K act S. 3 . if there is spend, the vendor could charge, and deduct the money from the deposit.

- See Frustrated Contract Act Section 3: vendor could deduct the money from the deposit if there is expense. (different with U.S, prof Heath said there is no recover of reliance damages)

Victoria Wood Development----------- K not frustrated

Facts - πs had K to buy land in Oakville near QEW, which they intended to subdivide and sell. Amendments to 1973 Planning Act meant that they now had to get permission to subdivide. π claimed that K was frustrated, relying on Capital Homes. In this case vendor only had to provide one deed, not separate deeds as in Capital Homes.

Issues Does the intervening legislation frustrate the K? [NO]

Holding - Court: event could be forseeable. Nothing in the K suggested that he want to subdivide the land in small portion.

Reasons - Purchaser: argue based on the Captial case. K was frustrated.

Ratio/ Rule

- Test to Prove FRUSTRATION - There must be no default by either party (contractual obligation incapable of being performed)- Performance becomes impossible because of circumstances which changed, making subject matter

radically different from what was originally contracted for.

KBK No. 138 Ventures Ltd. v. Canada Safeway Ltd K was Frustrated

Facts ∆ advertised land as “prime development” opportunity specific floor space ratios; π entered into K to buy land, but in the interim the city rezoned it as 0.3 FSR. π wants back their deposit of $150,000 but ∆ refused; in interim ∆ has sold land to someone else for 5.5 million, reflecting decreased value b/c of zoning. TJ found frustration

Issues Holding - effect of the supervening legislation has the effect of changing the subject matter of the K. The K

was frustrated based on the unforeseen facts and the radically change the contract. - Court: (the K was frustrated, the clause in the K was not help the vendor)

Arguments - Purchaser Arguments: K frustrated

- Vendor: Victoria Woods applies – purchaser bears risk of zoning changes .In the K, there is an allocation of risk, the purchaser bear the risk even there is zoning changes. Vendor argue there is no warrantee or condition in the K.

Ratio/ Rule

Apply Frustrated Test- Was the change in zoning the fault of either party? [NO] - Was the change foreseen or foreseeable? [NO] not forseeable, fundamentally change the K.

Victoria Woods : Purchaser bears risk of zoning changes.VS.KBK: contract frustrated because of specific intent in contract:

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Kesmat Investment Inc Impracticability of performance / test for impracticability NO Frustration use this case for relief in commercial impracticability not impossibility

Facts D obtained easement from P to enable it to build sewer line across P’s property. In exchange, D undertook to obtain a rezoning & subdivision of D’s lands & to pay P $50k if it was unsuccessful in doing so. In order to get rezoning app’n, D would’ve had to conduct an envir’l study. It did not do so & failed to obtain the rezoning. P sued to recover the $50k.

Issues - Does intervening event of environment study frustrate the K? [NO]

Holding - environmental study makes performance more onerous, but not so much as to be impractical. Does NOT meet the test of impracticability

Reasons - 1. the event (environment study) was not unforeseen. 2. Just because the k was more onerous, induce hardship (davis), it does not mean that the K could be frustrated.

Ratio/ Rule

Test for IMPRACTICABILITY1) must be unforeseen/unforeseeable2) no fault of either party3) cost must be onerous/ unreasonable so as to render performance impractical.

Where there is commercially impossibility, the court may frustrated the K.

EXCEPTION TO THE RULE:

If fulfillment of the K becomes impractical due to extreme expense, too inconvenient, too expensive, too harsh, then may not need to perform the K

Also, if a key employee may be able to direct K frustrated- case-case basisComments - Commercially Impossible (U.S. recognize this area more than Canada )

Yellowknife condominium corp No 7- note #1 after Kesmat- followed KesmatFacts K to paint buildings but took more paint than thought- impossible to do K – would cost more than what he

was paid- K was frustrated because of commercial impracticability.

Edwinton Commercial Corp and Sea Angel 2007. No frustration

Facts - the D chartered a small storage tanker called Sea Angel from the P. And the charter was to last up to twenty days. Finally, the delay was 108 days.

- The D claimed that the contracts Frustrated.- The P claimed all the hire. Delay 108 or 105 days.

Issues

Holding found for the salvage company. The event is foreseeable, but it is not necessary frustrate the K. in the nature of the partcuilar business situation, the charter always delay, and the risk was beared to the person who chart the ship.

Reasons - In the doctrine of frustration, a risk might be foreseen or foreseeable: As to kind and extent, both the type and the extent or length of the interference or delay must be

foreseeable; as to degree, the degree of foreseeability has to be very high. “While an unforeseen event will not necessarily lead to the frustration of a contract, a foreseen

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event will generally exclude the operation of the doctrine. Where there is a Charter- the Charterer will bear the risk of delay- it is the practice and nature of the industryThe consequences of the delay can be insured against- SCOPIC

Ratio/ Rule

- No frustration in this case. The K was not radically different. The foundation was not fundamentally changed. The K was basically carried out, just the date of return was changed.

- 1. The K was not frustrated, since the event was not unforeseen. 2. in this case the judge can take into account the notion of justness or fairness when make a decision.

- The notes after this case say that you shouldn’t agree with this case

Self-Induced Frustration

Maritimes National Fish V Ocean Trawlers - privy council case ----No frustration

Facts The legislation require the P to choose 3 from 5 trawlers. Did not include the one rented from the D.

Issues - Does new legislation cause the K to be frustrated? [NO frustrated since self-induced]Reasons - Example of self-induced frustration - company could have had St. Cuthbert licensed but choose not

to - fault of one party - no frustration. - Frustration of K here was caused by the appellants action. The appellant elected not to give a license

to that particular trawler. cannot rely on own default to excuse liability.

Ratio/ Rule

Self-induced the frustration does not frustrated the K.- Frustration cannot be self-induced or the fault of the party claiming frustration.

Force Majeure Clauses-attempt to allocate risk, Generally speaking, this clause can provide a variety of options:1. Performance can be suspended for a specific period of time2. K may be varied3. There is an option to terminate the K without having to pay damages for non-performance

ATLANTIC PAPER STOCK LTD V. ST. ANNE-NACKAWIC 1976 SCC

Facts : K for sale of Paper Waste over 10 years. Act of God clause for “non-availability of markets” in context. After 14 months b/k. What is the unforeseen even that the is trying to rely on “unavailability in markets

Issues Do Act of God clauses allow for frustration? [NO - Liability of the is not excused]

Reasons Non-availability of markets came about by poor business plan so no frustration as one party at faultNon-availability of markets- not no markets- just not profitable- St. Anne liable The gov’t had invested a lot of money into this company so it didn’t want it to go under when it had to pay out for their K breach

Ratio/ Rule

Court interprets last part of clause in context with entire force majeure (Act of God) clause (ejusdem generis) context becomes - supernatural event - beyond control of either party. Force majeure clause is a way to allocate risk, but need to engage in a strict construction of the clause.SCC will give narrow construction to clauses for companies trying to exempt themselves from liability

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Chapter 11 The protection of Weaker Parties- Duress DURESS- used to be physical duress, where threatened them moved to economic duress-

pawn shop, bailiff- pay more to get stuff back- take undue advantage of the situatio- Undue Influence- Unconscionability- Incapacity

Duress

Pao On v. lau Yiu Long (Ontario follows this case)Facts - Promise by the P to perform their existing contract with a company in which the D were principal

shareholdersIssues

Holding

Reasons - D argued that their guarantee was procured by economic duress. They should not have to pay out. The house of lord set out the criteria for the duress.

- The plaintiff must prove that his will was coerced and that the pressure exerted was over and above regular commercial pressure

Ratio/ Rule

4 criteria for economic duress1.) Did the party protest?(must be yes) 2.) Was there an alternative course of action open to him under duress?(must be no)3.) Was the party independently legally advised? (must be no)4.) After entering the contract did the party take steps to avoid it?(must be yes)

Comments - The Pao On test was Hard to fulfill

Exam: go through the new framework from Nav. Mention Pao On.

Greater Fredericton Airport v Nav Canada 2008 New test for Duress but only apply to Post-K variation contract.

Facts Gov’t contracts with Nav Canada to relocate instrument landing system to a runway being extendedUNDER PROTEST letter signed by the airport authority to which they promised to pay costs of the equipment; Nav acquires/installs the new equipment and relocated

Issues - Whether or not there is economic duress? YES

Holding the K could be set aside if duress was found.- Procedural History- The arbitrator found for Nav. The trial judge found for GFA.

Reasons - Duress is in the time made the contract. (unequal bargaining power, it falls another area) . In this case, the judge is talking about post-K situation, he looks the illegemately pressure. The judge said it doesn’t has to be illegitimate to find duress.

- duress is coercion of the party, this may be too harsh criteria, sometime the pressure can be legitimate, all it might be is the threat to breach the K.

Ratio/ Rule

new test for duress. Finding of the duress is subject to the Precedent.

1. The promise made by the victim By the pressure of the other party’s breach of the K

2. The coerce party has no other alternatives but comply the dominate party

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said. Once meet these 2 thresholds.. need to know whether the coerced party needs to consent to the variation. (Whether or not the victim agreed with the agreement? If there is no cons, it looks like under duress)

3. Is there real consent. 1) whether the promise was supported by consideration 2), whether the coerced party took reasonable steps to repudiate this contract. 3).(if not) whether the coerced party made the promise under protest or without prejudice(last 2 are important)

Comments One of the prong is to have legal advice, what is the commentary of the Judge about this?- Most of the big company has legal advice. But if you have no other alternatives, the legal advice is

no sense. Commentary of the notion of good faith

- Judge said it doesn’t matter, it doesn’t has to be bad faith. Not looking at the person who exert the pressure. We are looking at the impact on the victim.

Undue Influence - Special Relationship- Parent-Children/ Solicitor- Client/Doctor- Patient / Priest- Penitent - General raise a presumption of UI. (if there is a gift or something in question) need the party who

claim no undue influence to rebut the presumption. (rebut: claim the party has independent legal advice)

- The special relationship was not exhausted. - Voidable NOT void at CL- Undue influence can be established in 2 ways:1) Prove actual undue influence2) Special relationship between the parties

- In General, husband- wife was not falls within the UI. It is fact-pattern; need to see the special circumstance.

- Duguid v Duguid, it held UI will never found between husband-wife situation.

Geffen v. Goodman estate 1991 SCC No Undue Influence found.

Facts - 1. Anne 1968 will – life estate to Tzina---all grandchildren will get on Tzina’s death- 2. Anne 1975 will- gave Tzina the house - 3. Trust – from lawyer, Zina can live in the house and upon his death, the house will go to all

grandchildren. (the brothers claim that they did not want to responsible for zina’s situation if zina sell the house)

- 4. Tzina’s will – she left will to her two children. Issues - Can the children claim undue influence? NO

Holding - No undue influence. Deceased visited lawyer so court concluded deceased under free will

Reasons - 1. Is there special relationship between brothers and sisters (siblings)? Yes, specially that zina is

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mental illness. - 2. Presumption of undue influence? Yes. if there is this P, can the brothers rebut the presumption?

Yes. Not much contact between them. And she has independently legal advice. She keep seeing the lawyer. Hence, there is rebuttal of the presumption.

Ratio/ Rule

where you have special relationship, it gave reason to presumption of undue influence, the onus to the party who get the benefit to rebut the presumption.

Comments SCC: Does the women need to show A manifest disadvantage? No. the notion of it is going to commercial transaction. See Morgan.

- Other Rule: Presumption of undue influence: 1. Look at motivation and objective sought to be achieved by exerting influence 2. Examine nature of transaction Proof

- 1. Relationship- potential for dominating/ persuasive influence Doctor/ patient, Solicitor/client- 2. If commercial transaction- party unduly disadvantanged or other party unduly advantaged-shows

inequality (Wilson) creates presumption of Undue influence- Brothers and sisters have a special relationship- sibling relationship- Notion of manifest injustice is limited to commercial transactions

Royal bank of Scotland plc v Etridge 2001 No UIFacts - Eight cases where the wives claim that the husband unduly influenced them into signing a security

for a bank loanIssues - would this spouses was undue influenced by their partner?

- Whether a husband and wife relationship could be set up where you would have undue influence?NOHolding - Husbands and wives are not in a presumed special relationship, but a special relationship can be

shown in a marriage in two ways.

Ratio/ Rule

There is no presumption of undue influence between a husband and wife, unless there are other compelling circumstances (above and beyond normal wife pressures)

Banks are “put on inquiry”: A bank is required to explain a risk in every case where the relationship is non commercial (e.g. marriage,children,disabled)

Comments - West: The bank has to be satisfied that the co-signer need to have independent legal advice. - Husband and Wife relations: They are both get the benefit, and they both bear the risk. They are not

in a relationship of undue influence. However, the bank on notice that if the woman is not the benefiter she need to go to get independent legal advice (some other lawyer).

Bertolo v. Bmo p688 Note 3

Facts - Special relationship- presumption of UI. - The mortgage was set aside. There was UI. - Persuaded parents to mortgage house for daughter- onus on daughter to rebut presumption

Unconscionability- K on its face unfair. - Two conditions to find K unconscionability

1. An improvedent bargain

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2. An inequality in the positions of the parties.(unequal bargaining power)

Morrison v. Coast Finance CO. (the consum er Act does not apply.)

Facts - The appellant is 79 yr old woman who has been persuaded by 2 men to borrow $4200, they ask her to go to a finance company (Coast Finance) and refinance her home, take the $4200 she receives from Coast and lends to 2 men

- She had no independent advice, no legal helpIssues Is the K unconscionable? YES

Holding - No duress, no special relationship. But there is unconscionability.

Reasons She starts an action asking to set aside mortgage contract on the basis that it was obtained unconscionability, claiming her and the bank are on unequal bargaining terms, Trial judge dismisses lady’s action, appeals

The trial judge found for the finance company: there is no special relationship. The mortgage is not unconscionable.

Court of Appeal: need to look at the whole transaction. Outcome: Old lady get the home back. They are transfer the document of the loan to the finance company. Then the two men was in loan of the finance company

Ratio/ Rule

- Unconscionable contracts have two parts: 1) unequal bargaining power; 2) an unfair contract (generally both must be present)

- D can rebut presumption of unconscionability if he can prove that the transaction was fair, just & reasonable (can do so by getting independent advice)

MARSHALL V CAN PERMANENT TRUST COFacts - Plaintiff offers to buy land for $7000, defendant Walsh accepts. Walsh is in rest home at that time.

- D later is seeking rescission, claiming K was unconscionable.Issues - Is the agreement for sale of land unconscionable? YES

Holding - D is entitled to rescission- no costs. The K was unconscionable b/c inequality of power and K was unfair bargain. Nowadays, may use incapacity.

Ratio/ Rule

Test for Unconscionability (outdated)- There are 2 things that needed to be proven for unconscionability: 1) there must be inequality

(weaker & stronger party) 2) the contract was unfair or improvidentThe defendant will get rescission if

1) Walsh is incapable of protecting his interests (doesn’t matter if Marshall knew of Walsh’s incapacity)2) Improvident transaction for Walsh (onus on plaintiff to show fair price for land)

Lloyds Bank v. Bundy Lord Denning Doctrine of Unequal Bargaining PowerFacts Father signed mortgage for son since Son’s company is in difficulty. Bank was seeking to evict the father

later.Issues - Whether the K was unconscionable? YES

- Is there any way Mr. Bundy can get away of the K? YES if he could prove unconscionable bargain/undue influence; no independent legal advice

Holding Court found for Father

Ratio/ - P 708 The general principles for unequal bargaining power: by virtue of it, the English law

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Rule gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desire, or by his own ignorance or infirmity, coupled with undue influences or pressure brought to bear on him by or for the benefit of the other.

Comments - Criticize: it is a bad precedent, the principle is too broad. - Other judge decided the case on fiduciary duty. They stated that the bank breach its fiduciary

duty. - Other comment: there is presumption of UI between client and bank, the bank need to

rebuttal the presumption. - In Uk, they narrowed this case to just bank fiduciary duty. - In Canada, it is still an open question. (palm tree justice how to use precedent)- Things are not always saved by independent legal advice- Inequality plus an improvident bargain will lead to an equitable proposition- Categories of Duress:1) Duress of Goods- one has goods the other needs them badly2) Unconscionable transaction-needs quick cash to sells precious item3) Undue Influence

a) Stronger party guilty of fraud or wrongful actb) Stronger party not guilt but used the relationship to gain advantage

4) Undue pressure- unfair advantage but no one has option other than to submit- Salvage agreements- not on equal terms

Harry v. kreutziger Cdn verson of Bundy case

Facts Aboriginal person sold boat and license to someone who let him believe that he could get another license, but in fact not. The boat was worth far more than the price b/c the license.

Issues - Was the K unconscionable ? YES

Holding - First J. followed lord Denning, found there is unconscionable and unequal bargaining power, and set aside the contract.

Reasons Need 2 things:1) unequal bargaining power2) unconscionable KFor a presumption of fraud- the stronger party must show that the bargain was fair and reasonable

Ratio/ Rule

- Another test fro unconscionablility: it is very loose test. Look at whether the transaction, seen as a whole, is sufficiently divergent from

community standards of commercial morality that is should be rescinded.

Comments - We have three test now based on Unconsiconability or Unequal bargaining power- 1. Unequal bargaining power- Lord Denning from the case Bundy- 2. Fiduciary duty (the other two judges from case Bundy)- 3. Community standard of commercial morality test (this case Harry v krreutziger) - In exam, you could argue either way you think it is helpful for your client. - Consumer Protection Act will pick up some of the slack. But now be able to use this in this

case, because of the man was treated as business people, not just a consumer. Incapacity

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Handout: Capacity to ContractGeneral Rule:All k entered into by an infant (under 18 years of age) must be for his or her benefit or the k is void.

Except:1. minor will be bound

if the k is for the “necessity” (i.e. food, clothing and shelter) if the k is an employment k benefiting the youth (i.e. hockey player k)

2. K made by a minor will be binding if he or she ratifies the K on reaching majority3. certain types of long-term Ks are presumed to be ratified unless the minor expressly disclaims the Ks

during minority or shortly on reaching the age of majority. Such Ks include: leases of land, share Ks, partnership agreements, marriage settlements

Ks made w/ people who are mentally incapacitated in some way are likely to fall into the unconscionable K category.

Clearly someone who is mentally disabled, impaired by drugs or alcohol, or enfeebled by illness is in an unequal bargaining position. For a case which discusses mental incapacity in the context of capacity to K, see Hart v. O’Connor. This case reverses the long-standing authority of Archer v. Cutler which has been followed in Canada & holds that:

“The validity of a K entered into by a lunatic who is ostensibly sane is to be judged by the same standards as a K by a person of sound mind, & is not voidable by the lunatic or his representatives by reason of “unfairness” unless such unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the K even if he had been sane.”

Archer v Culter

Ratio/ Rule

“The validity of a K entered into by a lunatic who is ostensibly sane is to be judged by the same standards as a K by a person of sound mind, & is not voidable by the lunatic or his representatives by reason of “unfairness” unless such unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the K even if he had been sane.”

Hart v. O’connor Overruled Archer

Facts - P purchased land from D. P did not know at the time that D did not have sufficient mental capacity to enable him to enter into K.

- K is valid b/c the person did not know that the other person is incapacitated even though there is a contractual imbalance

Reasons - The term of the K was drafted by the person who claimed incapacity. - Seller argues the Archer case, Even you don’t know the person is incapacity, the K still could still be set

aside Look at the Contract, If there no victimization or exploitation , the K would be enforced.

K may be unfair in 1 of 2 ways (may overlap): - 1) Unfair manner in which it was brought into existence (undue influence) “procedural unfairness” (where

1 party takes advantage of or exploits the other)- 2) Unfair by reason of fact that terms of K are more favorable to 1 party than to the other

“contractual unfairness” (contractual imbalance)Ratio/ Rule

Where a bargain is sealed in good faith but the person doesn’t know the other person lacked capacity & there’s nothing exploitative (equitable fraud) about the arrangement, the K will stand.

If the person knew that other person was mentally incapacitated- determine whether or not the K is unfair by analyzing if there is at least one of the two: - 1). procedural unfairness or - 2). contractual imbalance

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REMEDIESRemedies are basically the damages

Aggravated damages = award that aims at compensation but takes full account of intangible injuries, s/a distress & humiliation, that may have been caused by D’s insulting behaviour. Compensation for P.

Punitive damages = punitive in nature & may only be employed in circumstances where the conduct giving the cause for complaint is of such nature that it merits punishment. Punishment for D. Actionable wrong

Handout for Remedies1. Damages a) monetary damages which would put the party in the position he or she would have been in had the K been performedb) punitive damagesc) damages for emotional distress

2. Specific enforcement- specific performance, declarations, injunctions3. Restitution- puts the innocent party back into the pre-contractual position (rescission)

Contracts are breached by:a) non-performance of K at the time K is due- ordinary breach or fundamental breachb) repudiation of K in advance of the time for performancec) misperformance- negligent design of a building by the architect- building collapses

After a breach, damages flow from K as a right

General purposes of damages is the compensation of innocent parties. Unless special circumstances exist, damages are based on loss to the innocent party and not on gain to the defendant.

The three principles of damages are:1. Expectation Interest- Damages are awarded to put innocent party into the position that party would have bene in had the K been performed2. Reliance Interest- A plaintiff who is unable to prove the value of a promised performance can instead claim the expenses which have been wasted or thrown away in reliance on the broken promise3. Restitution Interest- Plaintiff seeks to recover benefits received by the defaulting party on a quantum meruit basis.

Chaplin v. HicksFacts Woman sued for loss of chance to be an actress.

Issues Could the woman get damages for the loss of chance?

Holding - The average chance of each competitor was ¼. Certainty in assessing damages for a breach of contract is not a necessity. In this case, that assessment was best left with the jury who awarded £100.

Reasons - 1. Is there breach of contract? Yes, they need to gave reasonable notice.- 2. The company argues that you cannot assess the value of chance. It is impossible to assess the

chance. There are too many contingencies. - 3, The P argued that the value may be assessed by some way. 1/4

Ratio/ Rule

Where you have damages that can’t be assessed with certainty does not relieve a wrong doer with the necessity from having to pay damages

Even there is uncertainty, if there is a breach of K, and if there is some value, the court will find the value and award the value.

Punitive damages – very rare in CanadaWhat is the best way for measure of damages

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1. Cost of completion- the cost of buying substitute performance from another including undoing any defective performance

2. Difference in value- the market value of the performance the contract breakers undertook minus that actually given

Groves v. John wunderco West: wrongly decided Facts - π and ∆ entered into K for $105,000 for ∆ to clear π’s land of gravel. D deliberately breached K; P’s

land, even if cleared was only worth $12,000.Issues - What should be the amount of the damages?

Holding - Ds are liable to P for reasonable cost of doing what they promised & wilfully declined to do (full costs awarded $60K)

Reasons - P arguing : D breach the K on purpose. Bad faith (P could argue specific performance or damages) he chose to claim damages, he just want the cash under that background.

- Defendant arguing - 1. P could sue for specific performance if he could really want to level the land.- 2. The damages is compensation/ is not damages. The P never lost something. - 3. There is no personal or unique value to the owner here.

Ratio/ Rule

- The measure of damages in these situations is going to be the cost of rectification or the cost of performing the K instead of the mkt value of the contractual object (in this case land)

The nature of the property and the owners attachment to the unique land will have to be consideredComments - Peevy House v Garland Coal mining (opposite with this case)

Peevy House v. Garland Coal Mining 1962Facts - A stripmining lease purported to demand that D surrender the land with the reclamation required. If

the mining company had restored the land, the value of the farm would have increased by $300, while the cost of restoration would have been approximately $29,000.

- On appeal, P’s damages were limited to $300. The court decide to look at the value of the land, not the cost of completion.

Issues What is the amount of the damages?

Holding - Only entitled to the value of the increase of land ($300)

Reasons - There is unique and personal value of the land to the P.

Comments - West: difference is the nature of the land. Both are may wrongly decided. According to West, the result need to switch.

Nu-west Homes LTD v. Thunderbird very common type of remedy caseDifferent in value vs Cost to complete

Facts - P contracted to build D a home. Serious deficiencies were found due to P’s work – hump in basement floor, electric wiring, plumbing, shoddy framing, fireplaces of wrong size, etc. D K’d with someone else to fix & finish building. D brought in experts, who determined that cost of repairs were $16k. TJ only awarded $4k.

Issues What is the amount to the damages?

Holding Measure of damages cost to complete. D acted on the advice of experts & did so reasonably – entitled to damages of $16K

Reasons - Contractor could argue : is the conduct of the owner, namely the measurement reasonable under that circumstance?

- Judge hold the owner acted on the advice of expert/ there are some other deficiencies. The repair is

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necessary and reasonable for other defects. The judge try to balance what is reasonable in this circumstance.

Ratio/ Rule

- where the cost of rectification is great in comparison to the nature of the defect, the court will not force a slavish following of the presice specifications of the contract.

Comments - General rule: P can recover damages to put him/her in a position contracted for (i.e., the cost of rectification).- Crt looks at what was done & looks at what was reasonable under the circumstances

Loss of enjoyment or other intangible injury/interestsJarvis v. Swans Tours

Facts - P purchased holiday that didn’t live up to his expectations. Sued for loss of enjoyment & entertainment and mental distress TJ awarded half of the cost of vacation. P appealed.

Issues Is P could get damages for mental distress? YES

Holding - Damages should be £125 compensate for loss of entertainment & enjoyment. Seems to be double the cost of the original trip, but crt doesn’t say how they arrived at that figure

Ratio/ Rule

- Lord Denning: you can get damages for mental distress in contract. - It opens the door who could sue for mental distress/ disappointments.

Court brings in the notion that damages for mental distress can be recovered in K. Must prove that there was really mental distress (expectation that something will give you pleasure, & no

pleasure should give you tangible compensation) Where there is a promise within the control of the Promisor you may have grounds for mental distress

Comments - Brings into K law the ability to recover damages for loss of enjoyment & mental distressNewell – if can establish special circumstances (old age), then easier to claim damages for mental distress

Vorvis v. Insurance Corp. of BC 1989 SCC West: it is behind the time. Not cover.

Facts - P was fired without notice /without compensation- P sue for aggravate damages and punitive damages

Holding No aggravate damages.

Reasons - One judge said you can get damages, unless this is foreseeable. (the conduct . the harassment of the boss)

- Another judge: No intentional tort , no aggravate damages. Ratio/ Rule

- Aggravated & punitive damages will be rarely awarded. (unless there’s something beyond the norm, damages are limited to the amount of notice pay)

- Conduct not sufficiently offensive to constitute actionable wrong – does not justify imposition of punitive damages.

Comments - Intangible injury comes very often in wrongful dismissal case.

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