Contracts [Vincent] 94-95 Chisick

8/19/2019 Contracts [Vincent] 94-95 Chisick

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CONTRACTSProfessor Linda Vincent

1994-95Outline by Casey Chisick

I. INTRODUCTION TO CONTRACT LAWI. INTRODUCTION TO CONTRACT LAW

(i) Origins of contracts(i) Origins of contractsContract law grew out of torts concerning damage to economic interests and !articularly debt" #he

thrust of contract law at its ince!tion in the 1$th century was remedying harm to e%!ectation" &uturity inthis sense was a new concern to the law" #he basic remedy was for the !romisee to ha'e hise%!ectation met - i"e" to be !ut in the !osition in which he would ha'e been had the contract beencarried out" (hereas tort law is concerned with e%!ense and reliance contract law accommodated theadditional consideration of !rofit"

(ii) What is a contract?(ii) What is a contract? ) contract in its sim!lest form consists of an offer and an acce!tance of the offer" #here is an

element of futurity which creates e%!ectation" )nother necessary element is consideration - that iswhat*s in it for each !arty+ Consideration can be either a tangible benefit to the offeror or a labour or

incon'enience undertaken by the offeree" ) !romise without consideration is of no interest to the law, itis referred to as a nudum pactum a bare !romise".

)//0P/2#)//0P/2#3 Contracts are assumed !romises, that is one makes them oneself" #hisis not an im!osed obligation but a 'oluntary obligation to the other !arty"

(iii) Freedom of contractiii) Freedom of contract enerally !eo!le are free to contract howe'er and with whome'er they choose"%ce!tions3

6 contract to commit a crime6 contract made under duress6 contracts made contrary to com!etition laws6 one or more !arties inca!able of contracting, e"g" infants minors mentally handica!!ed6 human rights 'iolations6 if state of knowledge is distorted

2n some cases the courts will inter'ene to ensure that the desired end of the contract is attained" )nim!ortant consideration is intention3 that is one does not ha'e a 'oluntary obligation if he didn*t intend toassume the obligation" #here must be a meeting of minds. between the !arties"

II. OFFER AND ACCEPTANCEII. OFFER AND ACCEPTANCE

(i) Offer and Invitation to Treat(i) Offer and Invitation to Treat

Offer may be found in the intention of the offeror as demonstrated by his language and actions3

Canadian Dyers Association v. BurtonCanadian Dyers Association v. BurtonC7) asked 8urton a former director of C7) what his lowest selling !rice would be for a house

adacent to the C7) factory" :e res!onded in language that suggested more than a mere ;uotation

of !rice is the lowest I am prepared to accept """if it were to any other !arty 2 would askmore". )dditionally he com!lied with a re;uest to ha'e a deed !re!ared and also recei'ed and helda =5>> de!osit" Court held that this ty!e of language and action suggested a willingness to be boundand that 8urton*s initial res!onse was therefore an offer not merely an in'itation to treat"

Harvey '" Facey Harvey '" Facey Language suggested mere ;uotation of !rice"


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The Supply ProblemThe Supply Problem: Courts will generally see !rice ;uotations andad'ertisements as in'itations to treat not offers because it is !ossible that a customer could res!ond tosuch an offer. with an acce!ting. order to !urchase more than the su!!lier has" )ccordingly it isinferred that no reasonable !erson could ha'e a willingness to be bound in such a situation" #hus theoffer must originate with the customer"

Other e%am!les3 de!artment store catalogues :ome /ho!!ing Aetwork"Aegati'e e%am!les3 s!ecific ad'ertisements


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e%ce!t that the act doesn*t com!lete the transaction - there still remains more to be done"

Coll!erl "o#!r"!Coll!erl "o#!r"!: two contracts3 a !rimary contract and a collateral


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ain contract3 to award ob to lowest bidder Collateral contract3 offer H call for tenders, acce!tance H submission of tender"

/!ecific !redominates o'er general, !ri'ilege clause


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2f a cor!oration is analogous to a !erson then a board resolution is analogous to a !ri'atethought, neither becomes anything official until communicated to its intended obect"

2f offeree is aware of offer his moti'ation for acce!tance is irrele'ant3

Wi!!iams v. Car%ardineC offered award for information leading to the con'iction of his brother*s murderer" ( had been

with the brother on the night of the murder but had not re'ealed anything when ;uestioned by the!olice" Later moti'ated by religious reasons and not by the reward offer of which she was awareshe ga'e information which led to con'iction" Aow she wishes to claim the reward" Court allows herto reco'er the reward as she !erformed the necessary act and formed a unilateral contract"

Fitc '" Snedaker #he moti'e inducing consent may be immaterial but the consent is 'ital".

Offeree must be aware of offer at the time of acce!tance in order to acce!t3

$. v. C!areClarke knew about a reward offer but subse;uently forgot" :e ga'e e'idence at the trial and

!ro'ided 'aluable information

7enning "E" holds that by signing the acce!tance of *s counter-offer 8 acce!ted the termsand conditions therein which did not include an escalator clause" Eesol'ed by reference to thedocuments alone3 contract resulted from the acce!tance of the counter-offer"

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&2rst /hot. #heory3 #he !arties to a negotiation ha'e the obligation to draw material changes to eachother*s attention" 2f this does not occur then the contract is made !ursuant to the terms of the originaloffer3

Ty%ood Industries td. v. "t. Anne/0aca%ic u!& , a&er td./ issued a call for tenders the re'erse side of which contained terms and conditions which did

not contain an arbitration clause" # res!onded with an offer containing different terms and conditionsincluding a !re'ail clause. antici!atorily reecting any changes to the terms and conditions" ) re'ised!ro!osal by # followed" Ee'erse of /*s subse;uent order form included a clause referring all dis!utesto arbitration" # ne'er returned the tear-off !ortion of the form but did deli'er the goods" 7is!utearose and / wishes to a'oid court and go to arbitration !ursuant to the later clause"

/ince the documents alone cannot resol'e the situation the intentions of the !arties areconsidered


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contractors" Aow the main contract is made with a condition !recedent to !erformance3 that the bidbe acce!ted before the sub-contractors can !erform their assumed duties" #he general contractor isbound to use the sub-contractors named in the tender if it is acce!ted and the sub-contractors arebound to !erform"

.ave0s 1lum"ing + Heating '" -ot Bros$ #onstructionCommunication of acce!tance of tender to sub-contractor is not necessary"

2m!ortance of communication of acce!tance, silence is not generally an ade;uate indicator3

Fe!thouse v. Bind!ey & agreed to !urchase his ne!hew*s horse but there was a misunderstanding about !rice" &

wrote to the ne!hew offering to s!lit the difference and if 2 hear no more 2 consider the horse mine.3foisting a contract


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+!iason v. *ensha% offered to !urchase flour from : and s!ecified that acce!tance should be by return of the

same wagon and to a s!ecific !lace" : res!onded by mail in a!!ro%imately the same time frame asthe wagon mode but sent acce!tance to a different location" refused to acce!t the flour when itwas sent saying that the offer had not been !ro!erly acce!ted" Court held that although the offer hadbeen acce!ted within a reasonable time


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was notified of this action

Streeting '" #anada 'Minister of &mployment + Immigration5/ sent letter of resignation by courier and followed this with a letter of re'ocation but a

letter acce!ting her resignation was mailed !rior to actual recei!t of the re'ocation and since the!ostal rule does not a!!ly to termination / was found to ha'e resigned"

Conflicting uris!rudence3

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Werkeim '" *rndt Ee'ocation of a mailed acce!tance is worthless e'en if it reaches the offeree first"

#ountess of .unmore '" *le6ander Ee'ocation of a mailed acce!tance is 'alid if it is recei'ed before the acce!tance"

Per Vincent3 since the !ostal rule seems so stu!id why a!!ly it to cases like these wherenobody is harmed by its absence+

Once a !erson is aware e'en indirectly that the subect matter of an offer is no longer a'ailable he is nolonger ca!able of acce!ting that offer as there is no consensus ad idem3

Dicinson v. Dodds7d" offered to sell land to 7n" and indicated that the offer would be o!en for acce!tance until a

s!ecified time" 2n the interim 7d" sold the land to a third !arty and 7n became aware of this throughhis agent but still attem!ted to acce!t the offer" Court found that the offer was effecti'ely re'okedonce 7n" knew that the !ro!erty was sold" #his also a!!lies to cases where the offeree is madeaware of the offeror*s !erforming actions inconsistent with the continuation of the offer" 2n all casesthe knowledge must be gained through reliable sources"

) collateral contract may be im!lied to !ro'ide that !erformance of an act intended to satisfy theacce!tance re;uirement for a unilateral contract cannot be interfered with once it has begun3

+rrington v. +rrington and Woods&ather had made down !ayment on house for grown children and stated that once they had !aid

off the mortgage the house would be theirs" #he children made regular mortgage !ayments" (henfather died his widow attem!ted to re'oke the offer and reclaim the house" Court


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2r'ine asked son to mail acce!tance and immediately became seriously ill and diedshortly thereafter" /on forgot to mail the acce!tance and only did so after 2r'ine*s death" Courtheld that there was no contract as the death of the offeree automatically terminates the offer"Condition !recedent to formation3 offeree must be ali'e to acce!t the offer"

.eat of (fferor, Generally 2f the terms of and offer can be fulfilled by the estate of the deceased and the offeree

does not know of the offeror*s death then the offer is still o!en for acce!tance" 2f the offerormust be ali'e to com!ly with the terms


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III. CERTAINT) OF TER*S

(i) 3agueness

2n many cases in'ol'ing 'agueness court will attem!t to find a contract in s!ite of the uncertainty whereit can reasonably be inferred from the matri% of the situation that a contract was intended3

$. v. CA+ Industries td.C) agreed to !urchase an aircraft maintenance bas no longer re;uired by )ir Canada" 2n

return the federal go'ernment made in a letter signed by three ministers se'eral assurances.regarding the amount of work it would !ro'ide to the com!any" (hen the workload diminished C)sued for breach of contract and E" res!onded by saying that the terminology of the letter was too'ague to be a contract


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*i!!as and Co. td. v. Arcos td. +-.L.,On a!!eal court finds that there was an enforceable contract as the terms may be inter!reted

according to standard industry !ractices" /ince the !arties* intentions were clearly to make a contractthe court must endea'our to find one not to ;uash it for uncertainty" 2f terms left for future agreementbecome !roblematic the court can then inter!ret them reasonably" #he o!tion. amounts to an offerwhich is binding since it is a contractual term, all the offeree has to do is acce!t it and it can*t bere'oked" #he offeror is bound to negotiate for 19K1 to settle the uncertain terms3 condition !recedentto !erformance"

(iii) Agreements to Agree

2nfle%ible a!!roach3 (hen an essential term has been left to be agreed. for whate'er reason there isonly an agreement to agree and the court ought not to find a contract" #his is taken to a!!ly only tocases where the intention is e%!licitly left to be agreed.3

-ay and Butcher td. v. $. )rrangement made for the occasional !urchase of sur!lus goods with !rice and dates of

!ayment and deli'ery to be agreed in the future, any dis!utes that arose were to be settled byarbitration" (hen !arties couldn*t agree on a !rice E" claimed not to be bound by the contract"Court found that too many essential terms were left unsettled and also that the arbitration clause was

no more certain than negotiation between the two !arties as a mechanism for dis!ute settlement"Aeither is the Sale of Goods *ct instructi'e here as there is no s!ecific method of agreement on!rice"

#his is not a !o!ular decision and has therefore been taken to a!!ly only to situations where theto be agreed. intention is s!ecifically stated" 2t is !articularly odd since the !arties had dealt witheach other in a similar manner on se'eral !re'ious occasions"

ore fle%ibility3 /ubse;uent conduct of !arties is instructi'e in determining whether a contract has beenmade when an essential term is left to future agreement3

Fo!ey v. C!assi7ue Coaches td.Contract is for sale of land by & with collateral agreement that C will buy all its !etrol from & at a

!rice to be agreed from time to time" )fter three years of com!liance with this term C seeks tore!udiate this agreement" Court finds that the !arties* conduct o'er the three year !eriod suggeststhat both felt that a contract had been made, there was also consideration !aid

distinguishes this case from May and Butcer "

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"a!e of #oods Act 6 1>


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.idymi #orp$ '" *tlantic Lines + /avigationEent was to be determined according to shi!*s !erformance" #his machinery breaks

down but court a!!lies Sud"rook in finding that the intention was to reach a reasonable !rice"

Money '"-en4Lu4%ee Ltd$ intended to sell shares to V at a !rice to be agreed by the !arties* accountants who

couldn*t agree" Pri'y Council a!!lied Sud"rook 3 a reasonable !rice was held to ha'e beenintended" 2m!lied a term3 that an um!ire should be a!!ointed if the 'aluers fail to agree andfailing that the court should decide"

Municipal Savings + Loan '" (swenda InvestmentsSud"rook distinguished as the only machinery s!ecified was the !rice offered by a "ona

fide !urchaser for 'alue" O had right of first refusal > to be !aid on a s!ecified date" 7 sued for the amountof the first instalment and 8 argued that due to the uncertainty there was no contract" C")" found

that lea'ing the mode of !ayment to future agreement was not fatally uncertain as the actual !ricewas settled"Per Vincent3 this case is more the e%ce!tion than the rule"Murpy '" McSorley

O!!osite to .e Laval 3 court cannot construe intentions regarding terms of !ayment socontract is found to be 'oid"

Scammell '" (uston2n sale of a 'an


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2n land transactions where the mode of !ayment is left to be agreed in the future the ty!e of mortgage isim!ortant3

6 *or!//e b"2: Vendor finances !urchaser so the only limit is the negotiating skills of the !arties"#herefore if the terms of lending are left to future agreement the contract is o'erly 'ague"

6 Thir$3pr!y mor!//e: #he contract is contingent on a condition !recedent to !erformance, in theinterim there is a contract between the !arties" ood faith agreement3 !urchaser is to make his bestefforts to secure financing and the 'endor is to refrain from dealing with other !arties"

Land transactions where the date of !ossession is absent3

Harvey '" 1ratt 2n a leasing arrangement if the !ossession date is left to future agreement the contract

is 'oid for uncertainty as the right of !ossession not an ownershi! interest is the actual subectof the contract" #he lease is com!letely time-bound, if it s!ecifies no !ossession date there isno way for the court to know when the lessee becomes a lessee" enerally leases must ha'estart and termination dates


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Hire6 Holdings Ltd$ '" #rysler #anada Ltd$#he obligation not to withhold agreement unreasonably as in &mpress )owers is

doubted as it might force the lessor to acce!t a tenancy at a rate it did not acce!t as the courtmight decide that the withholding of agreement was unreasonable"

Aote3 #he theory in &mpress )owers is by no means uni'ersally acce!ted" 2t in'ol'es tremendousuncertainty and has been reected by the :ouse of Lords although it has not been s!ecifically o'erruledin Canada"

(v) Antici&ation of Forma!i5ation

(hen a !arty*s conduct a!!ears to indicate wai'er of the re;uirement of formaliation thedocumentation of an oral agreement becomes a mere e%!ression of a desired manner of !roceeding withan already-made contract3

-eyer v. DaviesParties negotiated regarding the sale of 7*s law !ractice and when attem!ted to com!ly with

7*s re;uest to !ut the agreement in writing and submit a de!osit 7 told him don*t worry about it"""2*mtoo darn busy". Court finds that this amounts to wai'er of the formaliation re;uirement" 'en if theformaliation began as an essential term the wai'er caused it to become a mere e%!ression of

desire" 7*s conduct was such to indicate that he thought a contract had been made e'en if thiswasn*t his actual belief"

-on Hatzfeldt4Wilden"urg '" *le6ander #wo !ossibilities regarding status of formaliation re;uirement hinging on intentions of

the !arties3


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8no%!ton $ea!ty v. Wyder M claims commission for ha'ing located tenants for (*s building but ( claims that the terms of

their agreement were not fulfilled as the agreement was to be subect to e%ecution of the leasedocuments. which ne'er occurred as a result of difficulties encountered subse;uent to (*sintroducing the !ros!ecti'e tenant to M" Court agrees with ( finding that formaliation in the form ofcom!letion of lease documents was an essential term which went unfulfilled and that M is entitled tono commission notwithstanding that ( beha'ed for se'eral weeks as if bound by the agreementnegotiated by M"

Bowen '" #anadian )ire #orp$&ormulaic a!!roach is ado!ted" Parties had been negotiating for some time for 8 to

become CO of C# and terms were agreed to subect to board a!!ro'al which was e'entuallygranted and formal documentation which ne'er occurred" Court found that although C# hadbeha'ed as if there was a contract the com!le%ity of the transaction dictated that formaliationwas essential and 8 an e%!erienced businessman should ha'e known this"

Bawitko Investments Ltd$ '" 8ernels 1opcorn Ltd$&ranchise agreement was in the form of a com!le% 5>-!age contract some terms of

which 8 wanted changed" M agreed to this orally but the transaction was ne'er formalied"Court held that since the original contract was incom!lete it could not constitute an enforceable

contract if the formaliation re;uirement remained" ore im!ortantly the com!le%ity of thetransaction dictated that formaliation was re;uired"

Law '" 2onesCalled into ;uestion the meaning of the !hrase subect to contract. commonly used in

8ritish land transactions which was generally thought to im!ly a rigid formaliation re;uirement"Aow !arties* intentions are considered but there needs to be significant e'idence of intention too'ercome the e%tremely strong !resum!tion that formaliation is re;uired in such circumstances"

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I4. INTENTION TO CREATE LE5AL RELATIONS

(ii) Fami!y $e!ations

#here is a rebuttable !resum!tion against intention to create legal relations in family situations and to acertain e%tent in social situations" 2n these cases the onus of !roof is to show that there was in factsuch an intention"

#he natural lo'e and affection that e%ists between s!ouses


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%ices '" Hog"en other !ro!oses to mo'e entire family to )ustralia and !romises to gi'e the house she

buys there to her son and his family if they mo'e with her but ne'er does so" Contract is foundas the son successfully rebuts the !resum!tion against intention by !laying u! his reliance andher subse;uent beha'iour"

Mooney '" Grout lea'es her family to mo'e in and care for her ailing sister but doesn*t get all that her

sister !romises her u!on her death" Court holds that there was no contract that *s actions wereno more than any caring sister would do and therefore dis not constitute consideration for thealleged contract" (ould ha'e been different if the caregi'er had been a stranger"

#orea '" #orea7aughter goes to care for ailing father and court finds that she did much more than any

ordinary lo'ing daughter would do" )lso there was a letter drawn u! by the deceased*s lawyere%!ressing gratitude and sti!ulating that the daughter should recei'e an allowance" (hileformaliation is rarely !resent it is usually hel!ful"

(sorio '" #ardona8etting !ool wins =>>>>> but the actual !lacer of the bet refuses to share" Court finds

intention, he had always beha'ed like he intended to honour the unwritten agreement betweenthe members of the !ool"

9ecevic '" %ussian (rtodo6 #rist te Saviour #atedral Priest interru!ted memorial ser'ice and refused to !erform funeral for !olitical reasons"

Court finds no contract as this situation is a s!iritual one and also because there was no!ayment discussed


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(hen an offer to settle im!ending litigation is made it is generally headed (ithout Preudice." #hismeans that the document is not admissible in court as an admission of the offeror*s guilt andFor liability":owe'er if the offer is acce!ted and the offeror subse;uently has a change of heart the agreement isstill enforceable inasmuch as it constituetes a binding contract, the without !reudice. sti!ulation has nobearing on the offeror*s intention to be bound by his offer to settle"

Bettison '" Insurance #orporation of Britis #olum"iaLawyers meet in ele'ator and one okingly offers. the other a siable settlement in a

!ending case but it is construed as a legitimate offer by the offeree." )lthough this was in badtaste says the court it was clearly not indicati'e of any real contractual intent"

Moir '" 1orter retiring, recei'ed letter setting out benefits he will recei'e but sti!ulating that this was

at the discretion of the board and not legally binding" Court held that the !resum!tion ofintentionality was rebutted by the e%!ressly-stated !ro'ision"

&dwards '" Skyways )greement made with union that if there are layoffs for redundancy e6 gratia !ayments

will be made" Court finds that these !ayments notwithstanding that they were de!icted as meregifts were in fact legally binding because they were meant as a term of the contract"

1arke '" .aily /ews0nlike in &dwards the redundancy had been declared before the !romise of e6 gratia

!ayments was made" Aow the !ayments were to be !ure gifts and the com!any was nottherefore bound by its !romise to !ay"

&sso 1etroleum '" #omm$ of #ustoms and &6cisePromotion in which sso ga'e away dinnerware with gas !urchases was a contractual

obligation not a gift"

Often !arent com!anies will offer Letters of Comfort so banks will lend money to smaller subsidiaries"#he letters in effect offer some degree of assurance that the subsidiary will be able to re!ay the debt ifonly because of its in'ol'ement with the !arent" 2ssues of intention arise but the letters are generallyconsidered not to be binding"

8leinwort Benson '" Malaysia Mining Letter of Comfort is held not to be contractual as there is no intention to be bound"

)ssurance of in'ol'ement with the subsidiary is a mere statement of e%isting fact not acontractual !romise"

Ban3ue Brussels Lam"ert S* '" *ustralian /ational Industries Ltd$O!!osite of 8leinwort Bensonwhat is the !ur!ose of a Letter of Comfort if not to gi'e

legitimate and actual assurance+

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Mountford '" Scott N1 is good consideration for a land transaction - nominal consideration is good" Per

Vincent3 anything of 'alue will be acce!table as consideration e%ce!t when the inade;uacy ofthe consideration is a clue to something else e"g" duress"

%e Hogg &stateLand was gi'en in will to ne!hew, direct heirs of testator wanted com!ensation and

argued that the ne!hew had already gotten the land in a contract made before the testator*sdeath and that he therefore owed money to the estate" Prior to the testator*s death he agreedto forego each !ayment as it came due" Court found that this was in fact his intention and thatthe agreement re!resented a gift which looked like a contract" #he consideration was a mereformality and so the !romise to !ay was not enforceable"

Irving '" Irving (ife was lea'ing her husband but concerned about his health !romised him three

years of !ossession of the marital home to which he was not entitled" Court found noconsideration, the !romise was made only out of the wife*s desire to esca!e her guilt aboutlea'ing which was not consideration but a moti'e which had no legal weight"

#opy #ats '" %osney E offered che;ue in !ayment of a debt owed to C by a com!any now defunct of whichhe was a co-owner" :e asked C to defer cashing the che;ue for a few days because he waso'erdrawn" (hen C did cash the che;ue a few days later it bounced" E argued that becausethe debt was owed by a se!arate entity his !romise to !ay was unenforceable" Court foundconsideration in C*s forbearance to cash the che;ue and in a somewhat ambiguously-wordedstatement in the co'er letter accom!anying the che;ue !romising a future business relationshi!"Court went to great lengths to find consideration"

/ome s!ecial. ty!es of consideration"""6 Aot doing something - e"g" smoking cigarettes" Aote that ;uitting mariuana would not be good

consideration as there is already a !re-e%isting legal duty not to smoke mariuana"6 /ending in warranty cards when re;uested to do so - although this has no real 'alue it is good and

'aluable consideration in the eyes of the law"

(iv) For'earance

&orbearance to sue may be 'aluable consideration !ro'ided that the forbearing !arty belie'es


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!oint of law and P2C didn*t really ha'e to !ay as much as it did the agreement to forbear fromsuing was u!held"

%oyal Bank '" 8iska7efendant guaranteed his brother*s bank loan and while the bank did not e%!ressly

agree to forbear it did not actually claim the brother*s securities until four months later" Courtfound that this was sufficient forbearance"

(v) re/eisting ega! Duty

obligation for su!!ort by the fathers" /till an agreement wherein the father offered to !ay aweekly allowance to the mother in return for her ensuring that the child is well looked after andha!!y. and gi'en the choice of which !arent to li'e with was held to be backed by considerationbecause of the re;uirements o'er and abo'e basic care"

7enning L"D" in a !artial dissent !referred not to find any additional re;uirements butinstead to hold that the !romise to !erform an e%isting duty is good consideration because of thebenefit it confers u!on the !romisee"

(') Duty O%ed to a Third arty

Sadwell '" Sadwell Ae!hew becomes engaged which lea'es him with a contractual obligation to marry his

fiancee" 0ncle !romises him N15> !er year if he marries and !ays him this sum until he dieswhen his estate refuses to continue !aying" Court finds good consideration"Scotson '" 1egg

)!!lies Sadwell in a commercial conte%t" / had a contract to sell coal to ? and todeli'er it to whome'er ? said" 8efore the coal arri'ed ? sold it to P and instructed / to deli'er it

to P" P made a subse;uent !romise to / to unload coal at a certain rate in return for deli'eryand although P unloaded it too slowly / still had to deli'er it" Court found that the !re-e%istingduty owed by / to ? was good consideration"

&ulfilling a !re-e%isting obligation to a third !arty is still good consideration as it gi'es the !romisee adirect action against the !romisor3

au On v. au iu ong 7 trades shares in a !ri'ate com!any to P*s com!any


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guarantee arguing that P*s !romise not to sell was made as !art of an already-e%isting contract with&C and was therefore not good consideration" Court disagrees holding that by making the additionalagreement P e%!osed itself to a direct action which 7 would not ha'e had if the second agreementhad not been made" #his benefit to 7 is therefore good consideration"

7*s alternati'e argument was that the second agreement was made in res!onse to !astconsideration >>" #he new agreement entailed e%actly thesame obligations as before for " Court found this unenforceable both because there was nonew consideration and because of economic duress"

Maier '" & + B &6ploration Ltd$/tock o!tion !lan offered in lieu of bonus scheme with no change to em!loyee*s

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obligations" Court u!holds the agreement, em!loyee*s continuing in the ob is sufficientconsideration"

Hidrogas Ltd$ '" Great 1lains .evelopment #o$ contracted to su!!ly gas to : at a certain !rice with an o!tion for termination with $>

days* notice" arket was rising and : feared termination so 'oluntarily offered to !ay more forthe same ser'ice with an understanding that a new contract would be negotiated at a certaindate" Court found that *s consideration was offering the gas to : at market !rice before offeringit to others"

/ort (cean Sipping '" Hyundai #onstruction #o$: agreed to build a shi!, A to !ay in instalments" )fter the first instalment : re;uested

a 1>Q increase to accommodate the de'alued 0"/" dollar" #his was economic duress but Aaffirmed the contract by continuing to !ay the increased !rice after esca!ing the duress


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Practical consideration and the bird in the hand. argument3 Consideration may be found in the !racticalbenefits deri'ed from continuing in a contractual relationshi! with the same !erson rather than ha'ing tofind someone else to do the work andFor to sue for breach of contractforbearance from laying downthe sho'el. and miscellantous other !ractical benefits inherent in business3

Wi!!iams v. $offey Bros. , 0icho!!s (Contractors) td.( is sub-contractor and E is contractor" ( working slowly and causing E to fear !enalties for

late com!letion" E offers an incenti'e bonus for com!letion of the agreed-u!on work but refused to!ay after a while" Court finds consideration3 getting the work done in time to a'oid !enalty > and subse;uently agrees to take only =9> in returnthat*s !robably unenforceablewhat did ( get in return for this !romise other than less than she wasalready owed+

)ccordHPromise /atisfactionHConsideration

1rima facie e6ception, )greements under seal"(ter potential e6amples, Payment by negotiable !a!er early !ayment !ayment in a different

urisdiction or currency other different terms of !aymentbut only if this is re;uested or e%!resslyacce!ted by the !romisor, can*t foist these benefits. for satifaction"

enerally !ayment of a lesser sum than is owed on or after the day on which it is due cannot be goodconsideration for acce!ting the lesser sum3

Foaes v. Beer & was the udgment debtor of 8 and 8 signed an agreement in which she agreed to allow & to

!ay in instalments o'er a !eriod of years after the debt was due in full without interest and not totake any further action on the udgment" Once the entire debt had been satisfied she claimed

interest to which she was entitled under the original udgment but which she had a!!eared to wai'eunder the subse;uent agreement" 7es!ite the accord the agreement is held to be unenforceablebecause there is no satisfaction" #here was already a !re-e%isting obligation to !ay and 8 got nothingnew in return for agreeing to acce!t less than what was owed"

Eelies on the doctrine in 1innel0s #ase J@3 Paying less than is owed on the day it is owedcannot be good consideration for acce!ting the lesser sum"

%e Selectmove&acts similar to Foakes '" Beer " 7efendant attem!ted to argue as in Williams '" %offey

Bros$ the bird in the hand. argumenti"e" !ractical benefits were good consideration for theagreement to acce!t less" Case decided on other grounds but court reected the argument in

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obiter"

%o"icaud '" #aisse 1opulaire de 1okemouceC was E*s udgment creditor and agreed to remo'e the udgment of =KI> in return for

one !ayment of =1>>>" C*s board refused to ratify the agreement did not cash the che;ue andsued E fot the whole amount" Court found for E saying that C got consideration in the form ofthe good ol* bird in the hand."

#his is only a %u%pe#%ory /reeme#!i"e" if the lesser amount is not !aid the originaldebt again comes into force"

Gencon #onstruction '" M + ? #onstructionCom!osition with creditors.i"e" when all creditors of ? unanimously agree to acce!t a

lesser sumis treated as good consideration" 2t*s not really about consideration thoughthecourt ust doesn*t want to be used as an instrument of fraud !otentially allowing one creditor tobolt from the agreement and sue for all the money"

Budget %ent4*4#ar Ltd$ '" Goodman(here a debt is !ur!orted to be satisfied by a lesser amount !aid by a third !arty this is

treated as good consideration, to hold otherwise would allow the contract between the creditorand the third !arty to be broken with im!unity"

) !romise to satisfy a debt in a different manner than originally contem!lated


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1illip '" Maasey4Ferguson Finance #o$7 financed P*s !urchase of a combine" P got into arrears and e'entually remitted a

che;ue for more than the arrears but less than the total amount owing and marked the che;uePayment in &ull." Che;ue was cashed and 7 was silent until a year later when they demanded!ayment of the balance" P argued accord and satisfaction and court agreed, 7 was bound bytheir conduct because P*s intention was !erfectly clear the che;ue was for more than wasimmediately owed and 7*s silence was held to symbolie agreement"

Woodlot Services Ltd$ '" Flemming P did work for 7 and submitted a bill for =I$>>" 7 offered =$5>> as !ayment in full" P

refused offer but 7 still sent che;ue for =$5>> marked Payment in full as !er tele!honecon'ersation. and accom!anied by a co'er letter saying 2 ho!e you find this satisfactory". Onad'ice of counsel P cashed the che;ue and immediately sued for the balance" Court sees 7*sconduct as indicating that e'erything was tentati'eP ne'er agreed or intended to be boundand cashed che;ue only on legal ad'ice"

Court also reected any notion that 7 might ha'e had a legitimate ;uarrel with the ;ualityof the work such as to ustify !ayment of a lesser sum" #here must be an :OA/# dis!ute asto the 'alue of the good or ser'ice"

Eemember3

6 #here must be agreement before satisfaction is e'en considered"6 )ccord and satisfaction is only sus!ensory, if the !romisee defaults on the new agreement the oldagreement comes back into force"

(ii) egis!ation

Mercantile Law *mendment *ct of anitoba s" $

7+8, Part !erformance of an obligation either before or after a breach thereof e%tinguishes the obligation


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(vi) Waiver and romissory +sto&&e!

E%!oppel= generally3 2f a !erson states a fact with the intention that !eo!le will belie'e it and act on itthe court will not subse;uently hear him say otherwise" :e is to blame for any actions taken in relianceon that statement" 8ut can this a!!ly to statements of promise as well as to statements of fact+

#raditional formulation for !romissory esto!!el3 (hen a !romise


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O was to !ay for work on an addition within a certain time after the granting of anarchitect*s certificate but didn*t do so" subse;uently wanted to get out of the deal but had!romised to seal the agreement notwithstanding that O hadn*t !aid in time" Court esto!!ed from going back on its word"

Eeasonable inter!retation will be attem!ted to inter!ret what was intended by a !arty*sacti'ity or inacti'ity" :ere the !romise could logically be inter!reted as an agreement to!ost!one O*s obligation"

%osen"lood &state '" Law Society of !pper #anadaClient sued lawyer*s estate which was assisted by 7 the insurer" Later 7 realied that it

didn*t ha'e to !ay for this !articular ty!e of claim but court allows the esto!!el argument3 bytaking the case the insurer im!licitly !romised to !ay"

Maracle '" )ravellers Indemnity #o$P was inured in a car accident and 7 offered to !ay but P didn*t file a statement of claim

until the statutory limitation !eriod had ema!sed" Court held that the !romise to !ay did notamount automatically to a !romise not to rely on the statute" #he admission of liability was onlymeant to facilitate settlement not to foreclose their rights"

Marciscuk '" .ominion Industrial Supplies

/imilar facts to Maracle e%ce!t dealing with fire damage"

(') The +7uities

#here is no esto!!el where there is no true accord so economic duress in the making of a !romise!recludes the !romisor from being esto!!ed3

D , C Bui!ders td. v. $ees%ecuted contract with money still owing to P" 7 is aware of P*s !recarious financial situation

and e%tracts a !romise to take less money than is owed by saying that if they don*t acce!t NK>> insatisfaction of the N4I> owed they will get nothing" Lord 7enning "E" finds that the !romise wasmade under economic duress so the !romise cannot be esto!!ed" ) threat to break an enforceableagreement is not acce!table as a !recursor to a !romise worthy of esto!!el"

(c) The 0otice

'en a !romise ca!able of being esto!!ed can be re'oked after a certain time but there must be noticethat the !romise will ela!se" (hether the notice must be s!ecific as to when the !romise will ela!se ormerely an intimation that the !romise will ela!se after a reasonable time is still unclear3

"asatche%an $iver Bunga!o%s td. v. -aritime ife Assurance Co./ sent a che;ue which ne'er arri'ed" )fter the grace !eriod had ela!sed made an offer of

late !ayment which / ignored thinking it had already !aid" /ubse;uent corres!ondence ne'er reallycame to /*s attention until se'eral months later and it e'entually reissued the che;ue e%actly oneyear later s!ecifically because one of the insured was by now uninsurable due to ill health" Courtfound that there was indeed re!resentation by of a !romise to sus!end its rights but that there wasnotice that the !romise was about to terminate


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W.1. A!an , Co. v. +! 0asr +&ort , Im&ort Co.7 agreed to !urchase coffee from P with !ayment by a letter of credit" )lthough no s!ecific

reference was made in the contract to the currency in which the letter was to be o!ened it waso!ened in sterling and P did not com!lain because there was !arity at the time between sterling andthe Menyan currency" (hen sterling was de'alued P continued to o!erate letter of credit but laterbilled 7 for the dis!arity between the contract !rice in Menyan currency and the amount !aid insterling" aority held that the contract was 'ariedconsideration was the !ayment in a differentcurrency" Lord 7enning in a minority decision held that esto!!el should a!!ly, the buyers relied onthe sellers*eresentation that they wld acce!t !ayment in sterling and although they didn*t rely on thisto their detriment there was nonetheless reasonable reliance"

)lthough a re!resentee need not act on a re!resentation to his detriment for e;uitable esto!!el to bea!!lied not in e'ery case where the re!resentee acts on the re!resentation will it be ine;uitable for there!resentor to enforce his rights" 2f the re!resentee*s reliance is insufficient to gi'e rise to the e;uityifhe was in no way !reudiced by reason of the reliancee;uitable esto!!el will not be the result3

The ost Chaser


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can be used !re-em!ti'ely as a shield against the e%!ected claim of the other side"

sto!!el is to create no new causes of action" 2t doesn*t create a contract, it can only be used within ane%isting contract where legal relations e%ist and where the !romise was intended to alter the relationsand be acted u!on and was in fact acted u!on" #he contract must ha'e been enforceable in the first!lacethat is su!!orted by consideration" sto!!el is not consideration3

Com'e v. Com'e2n a di'orce settlement husband had agreed to !ay his wife a yearly annuity as !ermanent

maintenance notwithstanding that his income was less than hers" :e ne'er made any !ayment andafter se'en years the wife sued for the arrears" #rial udge held that although there was noconsideration for the husband*s !romise it was still enforceable under esto!!el as in #entral London1roperty '" Hig )rees House" On a!!eal 7enning held that the Hig )rees !rinci!le o!erates not tocreate new cause of action but only to !re'ent a !arty from insisting on his strict legal rights when itwould be unust for him to do so" #here must ha'e been an enforceable contract to begin with andtherefore there must ha'e been consideration" #hus since the husband*s !romise was not backed byconsideration it is not enforceable" #he wife*s forbearance to sue was not good consideration as itwas not by the husband*s re;uest"

ssential3 /#OPPL 2/ AO# COA/27E)#2OAB sto!!el enforces non-contractual !romises"

aor breakthrough in esto!!el in )ustralian :igh Court" Promissory esto!!el allowed to be used tocreate a new right where no contract e%ists" Aotwithstanding the lack of a contract esto!!el may now beused to hold a re!resentor to a non-contractual !romise where the usual re;uirements for esto!!el aresatisfied and where it would be unconscionable to allow the re!resentor to esca!e his statements" #heremedy will reflect what ustice demands3

Wa!tons "tores v. -aher Pursuant to an agreement subect to contract. which in )ustralia means that no contract e%ists

7 begins to de'elo! !ro!erty to P*s s!ecifications" 7 knew this was ha!!ening and madere!resentations of a!!ro'al


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unenforceable" Court enforced the contract as in'estors had re!eatedly reaffirmed theircontracts with L until all of L*s work was com!leted3 esto!!el by con'ention."

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4I. PRI4IT) OF CONTRACT

(i) Introduction

2t has been a settled !oint of law that when ) contracts with 8 for the benefit of C C has no right to suefor that benefit" #here is no !ri'ity, C is not a !arty to the contract"

&ormerly it may ha'e been !ermissible for a third !arty to sue on a contract of which he was abeneficiary3

rovender v. Wood ( made a contract with P*s father under which each would !ay a sum of money to P u!on his

marriage to (*s daughter but ( subse;uently refused to !ay" P succeeded in his action for breach3(here the benefit of a !romis accrues one may bring his action".

O'erturning 1rovender , now it is established that third !arty beneficiaries prima facie may not sue forthe !romised benefit3

T%edd!e v. Atinson#*s father made a written contract with


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insurance, i"e" beneficiaries are in essence third !arties but they are still entitled by statute to sue aninsurance com!any if it refuses to !ay out"

A mo$el o& %!!u!ory privi!y: S%2!"he'# Consumer roducts Warranties Act 8. 4er!i"l Privi!y3 anufacturers* liability for statutory warranties

:ow can the manufacturer be held to its !romises considering that the contract for the sale of goodsis between the retailer and the customer+

Possible collateral contract with the manufacturer


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!arty*s conduct bears this out not whether there is an e%!licit agency agreement@ the third !arty. isactually a !arty and the agent is a stranger to the contract" #his may be im!licit in the wording of theagreement3

-cCanne!! v. -a'ee -caren -otors td.8oth !arties were /tudebaker dealers" #he contract with /tudebaker sti!ulated inter alia that if

a dealer sold a car to a customer li'ing in another dealer*s territory he must !ay to the other dealerhalf of the !rofits" Court held that this clause constituted a contract between each new dealer and all/tudebaker dealers !resent and future made on tthe new dealer*s behalf by the /tudebakerCom!any" 7ealer ) agrees with 7ealer 8 to carry out the terms of the clause, in this senseconsideration flows form dealer to dealer not to /tudebaker which is a stranger to this as!ect of thelarger contract"

)e Satanita2n a yacht race the contract with the race organiers included a clause sti!ulating that

yacht owners would be liable for damage to others* crafts resulting from breach of the rules"Court inter!reted this as the owners contracting with each other with the organiers acting as theagent of each owner in his contracting with all the others"

&our re;uirements for an agency argument !er Lord Eeid in Scruttons '" Midland Silicones31" Contract clearly states that third !arty is to be included"

J" Contract clearly states that !arty is contracting as agent for the third !arty"K" )gent is acting with the third !arty*s authority"4" Consideration flows from the third !arty"

(hen a !arty to a contract acts simultaneously as an agent for a third !arty it may be !ossible toincor!orate the third !arty using a unilateral contract analysis3 the agreement made with the agentconstitutes an offer by ) to C ca!able of acce!tance by C*s conduct which is also the consideration" 2fthis offer is acce!ted then C is included under all e%cul!atory clauses and other !ro'isions ust like anyother direct !arty3

0e% 9ea!and "hi&&ing Co. td. v. A.-. "atterth%aite , Co. td./hi!!er agrees with carrier to shi! a drill to /, agreement in the form of a bill of lading which

includes a limitation of actions clause with res!ect to actions regarding damage to the shi!!ed goodsresulting from the carrier*s actions" #he clause !ur!orted to !rotect the carrier and its ser'ants andagents" A was the ste'edore hired by the carrier and caused damage to the drill during unloading"Court held that the clause did a!!ly to A using Lord Eeid*s four re;uirements and satisfying theconsideration re;uirement using the unilateral contract analysis wherein the ste'edore*s conductre!resented both the acce!tance and the consideration3 /hi!!er offered to e%tend the e%em!tions tothe ste'edore and the ste'edore acce!eted the offer by doing the work" #his was donenotwithstanding that the ste'edore had a !re-e%isting legal duty to the carrier to !erform the work in;uestion, held that this could still be good consideration" Per Vincent3 #he contract could alsoha'e been bilateral with the ste'edore promising to unload the shi! in return for the !romise ofe%em!tion" #his would !re'ent the owner from re'oking the offer once !erformance had begun butbefore the act of acce!tance was com!lete"

Court adusts the law to reflect commercial reality business efficacy3 e%em!tion clauses result inless re;uired insurance which results in lower freight rates for the shi!!er


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m!loyment is a genuine e%ce!tion to the doctrine of !ri'ity" 'en if the agency re;uirements are notsatisfied em!loyees are able to take ad'antage of limitation or e%em!tion clauses !rotecting theirem!loyers" #his in'ol'es rela%ing the doctrine as a matter of !ublic !olicy and commercial reality, it issim!ly unrealistic to hold em!loyees liable se!arately from their em!loyers for damage caused duringthe course of their em!loyment if the em!loyers intended that immunity clauses should a!!ly to theem!loyees3

ondon Drugs td. v. 8uehne , 0age! Internationa! td.(arehousing agreement included a clause limiting liability for damage caused to =4> unless

more insurance is !urchased by the owner" L7 does not do so and suffers =K4>>> damage to itstransformer when it is handled negligently by workers" (hen the clause stands u! with res!ect to aclaim against MTA L7 tries to sue the workers directly saying that the contract is with the com!anynot with the em!loyees" Court finds that the commercial reality is that em!loyers intend for theseclauses to a!!ly to their em!loyees"

Court considers Greenwood Sopping 1laza '" Beattie and 1ettit in which the defendantsem!loyees of Canadian #ire were welders who burned down the store as a result of their negligence"/ince Canadian #ire was not res!onsible /P sued the welders" 2t was argued here that theinclusion of the em!loyees in the contract should be im!lied since this was the intention of theem!loyer" #his line would only succeed if necessary for business efficacy"""

O&&2C2O0/ 8G/#)A7E #/#3 #he !resence of the term goes without saying. so it*s

not e%!ressly included but without it the entire contract would be unworkable"#he test failed in Greenwood because the em!loyees were welders and were not absolutelyre;uired for the success of the leasing contract" #his was the basis for distinguishing Greenwood inLondon .rugswithout the warehouse workers the contract could not ha'e succeeded because whoelse would ha'e !erformed the duties that were the subect of the contract+ #his is the commercialreality, since so much of the subect of commercial contracts is carried out by em!loyees of thecontracting !arties they must be deemed to be included in any liability e%em!tions e%tended to theirem!loyers" #he :imalaya clause therefore need not a!!ly only to inde!endent contractors"

Limits to London .rugs immunity31" 7amage caused in te course of employment "J" (hile doing the thing that is the subect of the contract"K" Clause must im!licitly or e%!licitly include the em!loyees"

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4II. REPRESENTATIONS AND TER*S:CLASSIFICATIONS AND CONSE>UENCES

(i) Introduction

) contract includes its !erm% and nothing else, e%tra-contractual statements may be mere !uffs. whichha'e no legal weight or repre%e#!!io#% which carry limited legal conse;uences"

(ii) -isre&resentation and $escission

(a) Introduction

2f a misre!resentation made by a !arty to a contract led the other !arty to enter into that contract theresult may be re%"i%%io#the contract may be erased altogether so that neither !arty has anyobligations" ) rescinded contract is treated as if it ne'er e%isted" :owe'er rescission is a discretionaryremedy and may be barred by se'eral !otential restrictions" Aote also that a material misre!resentationmakes a contract not 'oid but voi$bleit can be rescinded > !er year when !re'ious financial statements a!!eared to show annualearnings of only about NJ>>" P claimed that the shortfall was made u! by additiona business !roof of which was to be found in a stack of !a!ers which 7 did not e%amine" )s it turned out the !racticewas nearly worthless" Court granted rescission as P*s statement was material and calculated toinduce 7 to contract" 7*s negligence in not e%amining the !a!ers was irrele'ant, P cannot be allowedto benefit from his misre!resentation e'en if it is innocently made


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(hen !arties are mo'ing from an e%isting contract to a new one failure to disclose material facts


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%ecution bar3 2n the case of an innocent misre!resentation if the contract has already been e%ecutedthere can be no rescission" )dditionally the us tertii bar is contem!lated, the court will not di'est aninnocent third !arty !urchaser for 'alue of his interest3

$edican v. 0es'itt Leasing agreement in which E*s agent made a misre!resentation to A who was not in a !osition

to ins!ect the !ro!erty !ersonally about whether or not the !ro!erty was electrically lit" )t trial uryfound that this was an innocent misre!resentation" )s the contract has been e%ecutedche;ue wasremitted e'en if it wasn*t cashed immediatelythe e%ecution bar a!!lies so no rescission" Dudgeorders new trial though saying that the ury if !ro!erly directed might !lausibly find fraud in theagent*s re!resentation" 2us tertii consideredCity of #oronto consented to the re!lacement of theirold tenant with this s!ecific tenantbut not a!!lied s!ecifically"

(iii) $e&resentations and Terms

2n order to claim damages for breach of contract a misstatement must be shown to be a term and not amere re!resentation" #here is no definiti'e test for this, the court must look to the !arties* intentions andlook for animus contraendi " 2n some cases a re!resentation may be seen as gi'ing rise to a warrantyby way of collateral contract but this is rare3

*e!i'ut: "ymons , Co. v. Buc!eton7 !urchased shares in a com!any which were underwritten by P a re!utable rubber merchant"

7*s understanding was that the com!any was a rubber com!any, this notion stemmed from P*sre!utation and from a 'ague con'ersation with an agent of P" #he shares fell in 'alue and it came tolight that the com!any was not really a rubber com!any" #rial udge found no fraud in there!resentation so there was no tort claim" )s for any breach of contract it was held on a!!eal thatthe re!resentation was neither a term nor a warranty" 7 argued that there was a contract collateral tothe main contract of sale in which P guaranteed that it was a rubber com!any but there was no suche'idence found and courts tend to 'iew collateral contracts under these circumstances with sus!icionif this was intended as a term then why wasn*t it included in the original contract+

Potential indicators of intention3 animus contraendi 36 )ssum!tion of res!onsibility.2 !romise. etc"6 Parties* knowledge"6 (as statement made 'oluntarily or was it a res!onse to a ;uestion+6 Custom con'ention"6 Past dealings"6 /ubse;uent conduct"6 #imingthe closer to the actual contract the more likely the statement is to be a term"6 &ormalitywriting is an e%cellent indicator"

.erry '" 1eek &raudulent statements or false statements made recklessly will gi'e rise to damages for

misre!resentation"

) re!resentation made in the course of dealings and for the 'ery !ur!ose of inducing the other !arty toenter into the contract will be seen prima facie as a term" #he onus is then on the re!resentor to rebutthis !resum!tion" 2f the statement is a term and turns out to be false the contract is breached anddamages will flow e'en if the re!resentor honestly belie'ed it was true3

Dic Bent!ey roductions v. *aro!d "mith (-otors) td.P agreed to buy a car from 7 after being told that it had been fitted with a new engine J>>>>

miles ago" )lthough 7 may ha'e belie'ed this he was in a !osition to find out the truth which wasconsiderably less attracti'e" Car turns out to be a maor disa!!ointment" 7 argues that his statementof the car*s history was ust a re!resentation not a term" Court disagreesit was made 'oluntarilyaround the time of the contract and with a!!arent knowledge" 2t doesn*t ultimately matter whetherthe re!resentor belie'ed the statement was true, if it is a term and turns out to be false damages forbreach of contract will flow"

7enning "E" treated it as a collateral contract" /almon L"D" says that it could also ha'e been!art of the main contract"

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(scar #ess '" Williams7 sold used car to dealer thinking it was a 194I model when it was actually a 19K9

model" #his was held not to be a term because the 'endor had not bought the car new and wasnot an e%!ert so was actually in a worse !osition relati'e to the facts than was the dealer whowas an e%!ert and could ha'e 'erified the statement"

:ow can a manufacturer be held to its statements about the ;uality of its !roduct when the item isactually !urchased from a non-associated dealer+ )rgue collateral contractas if the manufacturer issaying 2f you buy the !roduct we will make this additional !romise regarding its ;uality".

2f the !arties to a contract share a common o!erati'e mistake about the subect matter of the contractthe contract is 'oid and so bars to rescission don*t matter" :owe'er this mistake must be about theactual identity of the subect matter not merely about its ;uality" )lso if the buyer has acce!ted or isdeemed to ha'e acce!ted the goods in satisfaction of the contract no claim for rescission may beallowed3

eaf v. Internationa! #a!!eriesP bought a !ainting from 7 and both belie'ed it was a Constable" &i'e years later P disco'ered

that it was not in fact a Constable and brought action for rescission but the action was blocked by thee%ecution bar" :e also attem!ted an argument of common mistake which would render the contract'oid rather than merely 'oidable


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(iv) C!assification of Terms

) term may be either a "o#$i!io# or a 'rr#!y" #he remedy will de!end on this distinction, breach of acondition is more serious than breach of a warranty" 2f a condition is breached the non-breaching !artymay re!udiate the contracthe may sto! !erforming his obligations altogether" :owe'er this is not trueof breach of a warranty and wrongful re!udiation suits may result" #he remedy for the breach ofawarranty is an award of damages"

Ee!udiation differs from rescission in that the contract is not erased altogether" #he further obligationsowing are eliminated but the contract still e%ists insofar as what has already been done"

The !r$i!io#l ppro"h is to construe the contract based on a determination of the !arties* intentionsto label the terms as either conditions or warranties by e%amining them from the !oint of 'iew of thereasonable !erson."

The #e' ppro"h3 0nless a term is ob'iously a warranty or a condition it is an i##omi#!e term" 2twill be identified after it is breached and will be so identified with reference to the gra'ity of the breach"#he test is whether the breach ser'es to de!ri'e the non-breaching !arty of substantially the wholebenefit which the contract intended for him to recei'e" 2f so then the non-breaching !arty may re!udiatetrhe contract, if not he must be content with damages3

*ong 8ong Fir "hi&&ing Co. td. v. 8a%asai 8isen 8aisha td.M contracted for the use of :*s shi! with the !ro'isions that it be seaworthy and maintained in

that condition by a com!etent crew" #he shi! is not seaworthy and the crew is not u! to !ar and theshi! breaks down and is una'ailable for J> weeks" M re!udiates the contract notwithstanding that theshi! is still a'ailable for 1 months and is ultimately made seaworthy


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Field '" 9ienContract for sale of a business sti!ulated that on the closing of the transaction the firm*s

recei'ables would e%ceed its accounts !ayable by =1>9I$5" 2t fell short of this figure by=14>>>" /"C"C" em!loyed a method similar to the Hong 8ong Fir analysisan e%amination ofthe seriousness of the breachand held that on balance the detriment suffered by the !urchaser as a result of the breach was not sufficient to ustify re!udiation of the agreement" 7amageswere an ade;uate remedy"

Wickman Macine )ool Sales Ltd$ '" L$ Sculer *$G$#his is an e%am!le of the traditional a!!roach. in action" P was to distribute 7*s !roduct

in ngland and the contract sti!ulated that he or a re!resentati'e was to 'isit each sales outletweekly to sell the !roduct" ) few 'isits are missed and 7 attem!ts to re!udiate contract" )general termination clause re;uires 1J months* notice before cancellation unless there has beena material breach that has gone unremedied for $> days but 7 argues that the breached termwas a condition so the contract can rightfully be re!udiated" :"L" finds that the breach is notunremediable and says that in the larger conte%t of the contract it is unreasonable to su!!osethat this relati'ely insignificant breach can lead to re!udiation of the entire contract" #herefore itfinds that the term is a warranty and denies 7 the right to re!udiate"

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4III. UNILATERAL WAI4ER OF A CONTIN5ENC)

Co#!i#/e#! "o#!r"!: #here is no doubt that a contract has been formed but it is subect to a"o#!i#/e#"yin essence a condition !recedent to !erformance" %am!les include a sale of a housesubect to the !urchaser*s being granted a mortgage or the !urchase of land subect to the granting ofoning a!!ro'al by a certain date" 2n these cases it is understood that if the contingency isn*t met thedeal is off" 0sually the contingency is for the benefit andFor !rotection of one !arty or the other"

(hat if the !arty whom the contingency is intended to benefit wants to wai'e the contingency and!roceed with the deal notwithstanding that the condition hasn*t been met+

Beaucamp '" Beaucamp>>"Court3 /ince the condition e%ists only for the benefit of one !arty it may be wai'ed unilaterally bythat !arty"

)urney '" 9ilka


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I?. E?CLUSION CLAUSES

Often contracts contain clauses that !ur!ort to e%em!t one !arty or the other from liability arising fromany number of !otential circumstances" #hese are certainly legal, howe'er the court is concerned withsuch clauses when they arise in standard form agreements" /!ecifically the concern is whether or notthe other !arty knew what the clause contained when entering into the contract"

(i) 2nsigned Documents

2f the reasonable !erson would not e%!ect a !articular clause to be included in the contract sufficientnotice must be gi'en to that !arty before the clause can be relied on3

arer v. "outh +astern $ai!%ay Co.P de!osited a bag in the cloakroom of the railway station and recei'ed a ticket in return for

!ayment" On the back of the ticket were !rinted a number of clauses including a clause stating thatthe com!any would not be liable for any !ackages e%ceeding the 'alue of N1>" Court reectsargument that PUs silent acce!tance of the ticket constitutes acce!tance of 7Us offer" 2nstead a three-!art test is set out3

1" 7id P see that there was writing on the ticket+

Thornton v. "hoe ane aring td.P !arked his car in 7Us lot" #here was a sign outside reading all cars !arked at owners* risk. and

an automatic ticket machine which issued a ticket and acti'ated a green traffic light" /mall !rint onthe left hand corner of the ticket !ur!orted to incor!orate by reference a number of conditions !rintedon signs inside the garage and inside the office" )mong these was a clause e%cluding 7 from liabilityfor any !ersonal inury caused while the customerUs car is !arked in the lot" Lord 7enning finds thatthe !resence of the ticket machine is the offer and the acti'ation of it is the acce!tance so thecontract couldnUt be 'aried afterwards" &or incor!oration by reference to ha'e worked it must ha'ebeen con'enient to obtain the terms but it was not"

(lley '" Marl"oroug #ourt Ltd$P checked into hotel and !aid at the front desk" On the back of the door of his room was

!osted a list of conditions including a clause e%em!ting the hotel from liability for items stolenfrom rooms" :is wife*s fur coat was stolen" Court found that the notice had come too late as thecontract had been com!leted at the front desk before P had seen the conditions" #here was noconsideration to su!!ort an alteration or new agreement"

2f a clause in a contract is !articularly onerous or unusual it is the duty of the !arty seeking to rely u!on itto show that the other !artyUs attention was e%!licitly drawn to the clause and its contents3

Interfoto icture i'rary td. v. "ti!etto 3isua! rogrammes td.7 re;uested !hotogra!hs from P who sent them in a !ackage with a deli'ery note" #he note

contained a number of conditions including one setting out a late return fee of N5 !lus ta% !er !icture!er day" 7 returned them a month late" (hile the deli'ery note was contained in the !ackage andso 7 knew or ought to ha'e known that the document was contractually-intended the late fee clausewas so unusually onerous and unfair that P was re;uired to gi'e s!ecial notice of its !resence to 7" 2tcould ha'e been agreed to but only if e%!ressly so" 8ingham L"D" thinks fairness not notice ought tobe the issue"

/o here*s where we*re at3 ) clause which the reasonable !erson would not e%!ect to be !resent must bebrought to the !arty*s attention" #his is !articularly so if the clause is es!ecially onerous or unusual" /tillnote that it is o"ective notice that is the issue not subecti'e knowledgeso if one has done all thatneed reasonably be done and the other !arty still doesn*t get it he will nonetheless be deemed to know"

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2t*s a reasonable standard not actual knowledge"

) limitation of liability clause is subect to the same notice re;uirements as an e%em!tion clause":owe'er if its limitations only a!!ly to the subect matter of the contract and not to e%ce!tionalcircumstances


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Aew rule3 ) mere signature is not enough, e'idence of notice must be shown by the !arty relying on theclause" #he burden of !roof seems to ha'e shifted3

Ti!den $ent/A/Car Co. v. C!endenning 7 signed a rental contract and !aid an e%tra fee for e%tended co'erage which su!!osedly limited

his liability for damage to nil" :owe'er conditions !rinted faintly on the back included that the 'ehiclewould not be dri'en in 'iolation of any law or by any !erson who is into%icated or has consumed anyamount of li;uor" :e crashed the car and !leaded guilty to a drunk dri'ing charge so P claimed thatthe e%em!tion didn*t a!!ly" Court held that he couldn*t ha'e been taken to ha'e agreed to theconditions on the back as they were technically ;uite onerous and wholly inconsistent with thosea!!arent on the front" Ao notice was gi'en of the inconsistencyin fact clerks were instructed not tomention it and if asked to make a mild misre!resentation

condition" (hen it was deli'ered though it was in de!lorable condition and would not go" Mattem!ted to rely on an e%em!tion clause stating that Ao condition or warranty that the 'ehicle isroadworthy or to its age condition or fitness for any !ur!ose is gi'en by the owner or im!lied herein".7enning held that this clause could not a!!ly as an essential term of the contract !articularly in lightof the initial ins!ection was that the car was in good condition" &ailure to deli'er in that conditionconstitutes a fundamental breach which can*t be e%cused by an e%em!tion clause"

Suisse *tlanti3ue$$$ '" /$-$ %otterdamsce$$$2nstead of 7enning*s formulation as a rule of law


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intend to e%clude liability for a horrible breach.

Har"utt0s D1lasticineE Ltd$ '" Wayne )ank + 1ump #o$8ack to a rule of law thanks to Lord 7enning" 2f breach is so horrible that it goes to the

root of the contract then it is a fundamental breach that cannot be counteracted by the o!erationof any e%em!tion clause"

#he :ouse of Lords lays the issue to rest3 8ack to the construction !rinci!le" #he !arties in a contractmay ha'e intended to e%clude liability e'en for a horrible breach. and if this is so the courts should notscuttle the !arties* intentions" )ll that matters is whether the clause co'ers the situation at hand3

hoto roduction td. v. "ecuricor Trans&ort td. 7 had been hired to !ro'ide night security for P*s factory and one night an em!loyee of 7

deliberately set a fire inside the factory burning it down" #here was an e%em!tion clause !ur!ortingto e%em!t 7 from liability for any inurious act"""by any em!loyee of the com!any unless Rforeseeableand a'oidableS by the e%ercise of due diligence on the !art of the com!any". 2n reecting fundamentalbreach Lord (ilberforce says that the !arties are commercial entities and should be !ermitted toinclude whate'er terms they want in their contracts


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?. *ISTA@E

(i) Introduction

#hree ty!es of mistake36 #ommon mistakeParties ha'e reached an agreement but share the same mistaken !erce!tion"6 Mutual mistake8oth !arties are mistaken but do not share the same mistake" 2s there anyagreement at all+6 !nilateral mistakeOnly one !arty is mistaken but the other !arty knows about it

#he. statement on mistake3 #he crucial distinction is whether the !laintiff belie'es that the defendantshares his mistaken !erce!tion and the defendant is aware of all this or if the !laintiff has reached hisconclusion without considering the defendant*s !robable state of mind" 2n the former case the mistake isabout a term and there is no consensus, in the latter case the mistake is merely an assum!tion andcaveat emptor " Gou*ll see what 2 mean in a minute3

"mith v. *ughes: contracted to !urchase oats from / but refused deli'ery of the new oats / sent claiming he

had e%!ected old oats" / had gi'en : a sam!le of the oats which he ins!ected and on the basis ofwhich he ordered" / claims he had no idea that : wanted old oats and only has new oats" #he trial

udge inter alia asked the ury whether the !laintiff thought that the defendant thought that he was

contracting for old oats". On the basis of this ambiguous wording the C")" ordered a new trial" (hy+#wo !ossible inter!retations of the ;uestion each with 'ery different meaning and im!lications3


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about ;uality will generally fall into the latter category as the offeree is still getting what he !aid for, thereis no ;uestion about the actual subect matter only about its ;uality" #here was still an o!erati'econsensus ad idem3

Be!! v. ever Brothers td.L wished to terminate 8*s contract and the !arties agreed to a com!ensation scheme but it later

came to light that due to 8*s !re'ious misconduct the contract could actually ha'e been terminated atany time without any com!ensation at all" Court finds that the mistake does not 'oid the contract asL is still getting what they !aid for" 2t doesn*t matter that L could ha'e gotten it some other way or thatthey would not ha'e entered into the contract had they known the true facts" #he !oint is at the timethe contract was made both !arties thought it was 'alid so there was definitely consensus ad idem"

Prof" Vincent says that the only time a mistake about ;uality will 'oid the contract is when it is so badthat it goes to the root of the contractbut she doesn*t know of any case where this has ha!!enedB

)ctually the fact is that mistake seldom o!erates because the courts are reluctant to kill contractses!ecially when a third !arty becomes in'ol'ed because he will be left out in the cold title doesn*t!ass in a 'oid contract only in a 'oidable one"

)nd s!eaking of 'oidable contracts here comes Lord 7enning"""

;uity will !ermit a contract to be 'oidable not 'oidso the new conce!t of rescission on terms. is

introduced wherein the court im!oses certain obligations on the !arties based on the terms of thecontract that bears the error" #hus the !arties ha'e the o!tion to affirm the contract or 'oid it bybreaching the court-im!osed terms3

"o!!e v. Butcher 8oth !arties thought that the a!artment which 8 rented to / was not co'ered by a rent-control

statute when in fact it was" #hus 8 charged a rate higher than the statute would allow and when /disco'ered that the statute did a!!ly he sued for the difference in rates" 8 counter-claimed forrescission based on the mistake" Lord 7enning looks to e;uity and comes u! with the conce!t ofe;uitable mistake3

1" #he mistake is common to both !arties"J" 2t is a fundamental mistake not a tri'ial matter"K" #he !arty seeking to set aside the contract is not himself res!onsible for the mistake"

2n such a case at the court*s discretion the contract can be set aside" )lternati'ely the result can berescission on termsinstead of immediately declaring the contract 'oid the court can make it'oidable and gi'e the !arties the o!tion to affirm it notwithstanding the mistake or follow other court-im!osed terms to kee! the contract going" 2f howe'er the terms are breached then the contract willbe 'oid"

) common mistake of e%istence will not 'oid a contract" #he court will im!ly e%istence as a condition!recedent which is a term of the contract !lacing the risk on the 'endor who ought to ha'e betterinformation about the e%istence of the subect matter" #hus if the article was not in e%istence at the timeof formation a breach of contract occurred3

-c$ae v. Common%ea!th Dis&osa!s Commission7 had no reasonable grounds to belie'e that the subect matter of the contract e%isted but

contracted on that basis anyway" #his was a common mistake but it was recklessly induced by 7who cannot therefore rely on it to a'oid the contract" #he contract is 'alid and the fact that thesubect matter is not and may ne'er ha'e been in e%istence constitutes a breach of contract the

e%istence of the subect matter is an im!lied condition !recedent and a term"Aote the following distinction36 Common mistake of ;uality


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Magee '" 1ennine Insurance #o$ Ltd$2nsurance !olicy stated that was the only dri'er of the car" :is son crashed the car

and the insurance com!any !aid out before finding that it didn*t ha'e to do so" Lord 7enningthinks that this fundamental mistake makes the contract 'oidable but the other udges think it*s'oid"

8ut there*s a !roblem3 #he Magee case is a com!romise agreement which the common law tends toallow notwithstanding any mistake because they are good for the system" 8ut in Magee the courtsim!ly sets aside the agreement"

)t some !oint a mistake in a com!romise agreement may be so serious that the agreement must be setaside" One such case is when the consensus is reached based u!on a contractual assum!tion which islater found not to be true !ro'ided that the assum!tion was fundamental to the 'alidity of the contract3

Toronto/Dominion Ban v. Fortin (0o. ;)Vendor sold !ro!erty to !urchaser but the deal fell through and the !arties agreed to a =1>>>>

com!romise agreement" Later it came to light that the 'endor had no authority to sell the !ro!erty inthe first !lace and when the !urchaser disco'ered this he demanded his money back as there wasno need to reach a com!romise with res!ect to a deal that could ne'er ha'e ha!!ened in any case"Court agreed"

Contrast this with Bell '" Lever Bros$ in which the com!romise agreement was based on anoriginal contract that was 'alid, in the !resent case the original contract was in'alidnemo dat 3uodnon a"et "

(') As to accuracy of ca!cu!ations 1F4 !er !ound rather than the discussed 1> KF4 !er !iece" #herefore P

must ha'e known there was a mistake in the offer before sna!!ing it u!knowledge can beeither real or constructi'e and if either is !resent the contract is 'oid a" initio"

Imperial Glass '" #onsolidated Supplies2 ;uoted a !rice based on dimensions miscalculated as 1>Q of the actual sie and C

acce!ted before 2 disco'ered the error" Court3 istake was not in the offer but in the moti'e formaking the offer and so the mistake was not in terms but in the assum!tion that the calculationwas accurate" 7ecision has been strongly criticied"

McMaster !niversity '" Wilcar #onstruction&ront !age of tender which included !art of the !rice was missing and P tried to sna!

u! the offer e'en though it knew of the mistake" 2n cases of unilateral mistake and sna!!ingu!. a subecti'e test will be a!!lied3 (hat did you think you were doing+. ) !romisor is notbound to fulfil a !romise which the !romisee knew was not intended to be made"Belle %iver #ommunity *rena '" W$2$#$ 8aufmann

M realied they had made a calculation error after tenders had been o!ened but beforetheir tender had been acce!ted and !ointed it out to 8" Can*t acce!t an offer which you know tobe mistaken"

2n the new analysis of the tendering !rocess a calculation error will !robably not affect Contract )" 2f thisis the case and Contract 8 is ne'er reached then mistake will sim!ly not a!!ly3$. v. $on +ngineering

Eecall the collateral contract analysis3 Contract ) is the submission of the tender in res!onse tothe offer !osed by the call for tenders" Contract 8 is the main contract wherein the ob is awardedaccording to stated criteria" 2n this case Contract 8 ne'er came into e%istence and the issue wasonly whether the tender was re'ocable and whether the de!osit could be retrie'ed by Eon" #hetender was found to be irre'ocable"

7oes the calculation error render the offer inca!able of acce!tance and thus a'oid Contract )allowing Eon to retrie'e its !erformance bond+ Aothe calculation error would only be rele'ant ifthe offer was to be acce!ted !ursuant to Contract 8" )t the initial le'el mistake would only be

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o!erati'e if it was on the face of the tenderi"e" if the tender was ob'iously defecti'e


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#here can be no contract when one !arty knows that the other !arty is under a unilateral mistake as totermsthere is no consensus ad idem" #his is !articularly so when the mistake was induced by that!arty3

#!asner v. $oya! eage $ea! +state "ervices td.Original offer to !urchase included the warranty that the house had ne'er been insulated with

0&&2" P knew this wasn*t so but also knew that the house was currently free of 0&&2 so he redraftedthe agreement to include that less stringent term and didn*t draw it to 7*s attention" :owe'er des!iteinstructions not to do so P*s agent drew it to 7*s attention after the contract had been com!leted and7 refused to com!lete" Court3 #here was no contract" Ob'iously P knew about 7*s mistake as toterms and was under the obligation to correct it

contract still e%ists but the 'endor has breached it


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DURESS Coercion of the will such as to 'itiate consent e"g" commercial !ressure im!lied threats economic!ressure etc"

au On v. au iu ong 70E// #/# Ee;uirements3

1" 7id !rotest situationJ" :ad no other alternati'es a'ailableK" #ried to a'oid contract once entered4" (as not inde!endently ad'ised


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commercial morality that it should be rescinded+6 Look at rele'ant Canadian cases to find out what community standards are