1 Law 410 CONTRACTS BUCKWOLD
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Law 410 CONTRACTS
BUCKWOLD
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FORMATION: Is there a contract?
In order to have a contract, you must have:
o Capacity to contract: Note that minors can enforce a contract against adults, but adults cannot enforce
against minors.
o Consensus ad idem – ie “meeting of the minds”: Parties must be in agreement to the same terms.
Offer & acceptance
Certainty as to terms
o Consideration: Parties must have exchanged value not necessarily money, but what they deem to be
value.
2 types of contract:
o Bilateral: promissory offer by X + acceptance by Y entailing a reciprocal promise
E.g. X offers to sell car to Y for $5000 (offer). Y agrees to by the car (acceptance) = Contract!
Which includes:
Express terms (e.g. price, model, payment, etc.)
Implied terms (implied on basis of presumed intention)
o Unilateral: promissory offer by X + acceptance by Y through performance of requested act(s)
E.g. X offers to give Y a sandwich if Y dusts X‟s house (offer). Y dusts (acceptance) = Contract!
Which includes:
Express terms
Implied terms (see above)
TERMS OF CONTRACT
Note: As a general rule, terms of a contract are those expressly established by the offer plus terms that may be
implied. (See MJB Enterprises for more on implied terms)
Does lack of subjective knowledge of the terms of an offer preclude recognition and enforcement of an unknown
term?
No. If the terms are readily accessible, then signing the contract (or clicking “I accept”) constitutes agreeing to
them.
Rudder v. Microsoft Corp
Class action lawsuit against Microsoft; Microsoft said that they can only be sued in Washington due to a clause in
the member agreement
Contract was online clicking of „I agree‟
Rudder argued that anything that must be scrolled down to see is akin to fine print in a contract and needed to
have emphasis
Issue: Was this term enforcable?
Decision: Yes!
Ratio: Clicking in an electronic contract „I accept‟ constitutes consensus even if the contract was not read,
provided that the terms are readily accessible
Reasons: The term was readily available and plainly written, not hidden away. Scrolling is like turning pages.
Anyone clicking „I accept‟ should know that they are agreeing to the terms
Policy: Commercial certainty
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What approach to identification of terms may be taken where inconsistent form documents exchanged between
parties are interpreted on a ‘holistic’ basis?
A party cannot rely on a term that was not drawn to the attention of the other party
See Tywood Industries below (pg. 7).
OFFER
Is the statement an offer or invitation to treat?
o If it is an invitation to treat, there is no contract unless it is followed by offer + acceptance
o If it is an offer, then the acceptance of it is a contract
Is the statement an offer to be bound upon performance of an act?
Potentially. If a reasonable person would read the statement as a contract, then the court is likely to consider it a
unilateral contract. The consideration of the plaintiff is established by the performance of the act.
Canadian Dyers Association Ltd. v. Burton
CD alleges that Burton formed a contract with them to sell land; they want performance
Bartering on price, CD sends B a cheque for $500 with request for preparation of deed
Deed prepped by B‟s lawyer, who indicated willingness to close in several days (nov. 1); on nov. 5, B‟s lawyer
contacted CD claiming that there was no contract
Issue: Was there an offer to contract & was it accepted?
Date of contract is oct. 21, when B replied saying that a price was the lowest he was prepared to accept – so is
this a contract or an invitation to treat?
Traditional principle a price quote is an invitation to treat, not a contract
Decision: Court decided that in this case, there was a contract, and the general rule does not apply
Reasons: Depends on intention depends on the language used and the circumstances of the particular case. In
context of previous communications, and the fact that B cashed the cheque from CD, it was an offer
Ratio: Rules of offer & acceptance are not always followed. The court often considers other factors and
circumstances. It must be determined objectively.
This is a bilateral contract exchange of promises, but no immediate performance on either side (exchange of
promises is consideration)
Carlill v. Carbolic Smoke Ball Co.
C purchased a smoke ball from a drugstore; ball was made by CSB
In ads, CSB promised 100 pounds if anyone got the flu while properly using the ball also stated that they put
1000 pounds aside for the purpose
C got the flu
Issue: Does this ad constitute an offer to contract?
CSB argued not a contract b/c ad was too vague, and you cannot contract with the whole world – it was a “mere
puff”, not intended to be contractually binding
Decision: Court deemed it to be a contract.
Reasons: Court looked at it from the point of view of someone viewing the advertisement, and determined that it
would look like a contract. The fact that 1000 pounds were in the bank supported this. By using the ball
(performance), C consented to this contract. In this case, verbal acceptance is not required because it was
dispensed with by the offerer.
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It was important that C bought and used the smoke ball because she believed the ad to be true, and that was the
effect that CSB was going for
Ratio: Intention may be established objectively, by how a reasonable person would read the potential offer.
Consideration is also established by C‟s performance of the act (buying and using the smoke ball).
When is an offer effectively communicated? Is an offer capable of acceptance when it is known to the offeree but
has not been communicated as an offer?
No. A party cannot be bound by an offer unless there is intent to contract. There must be communication showing
an intention to be bound
Blair v. Western Mutual Benefit Assn.
Corporate secretary had been working for a long time, someone suggested at a board meeting that when she
retired, she should receive 2 years worth of pay as retirement pay. She was not told directly, but she transcribed
the minutes, which were signed by the president of the company
Issue: was this an offer?
Decision: no
Reasons: she was not directly given an offer by the company, so it was not deemed to be contractual. She had no
reasonable grounds to think that they were going to follow through. Also, she did not retire on reliance on the
offer, so it was not a response to the offer.
Ratio: a party cannot be bound by an offer without intention to contract, and merely having the knowledge of an
offer is not enough. There must be communication showing intention to be bound.
Note: it may have been different if she had resigned as a result of the contract, because then it could be argued
that she regarded it as a contract and she accepted it.
When does an offer terminate?
An offer terminates if it is withdrawn, or if it lapses (either at a time stipulated in the offer, or in a „reasonable
time‟)
Must withdrawal of an offer be communicated? If so, how?
Yes; the offeree must know about the withdrawal
Is a withdrawal communicated by mail effective on posting?
No. A revocation must be communicated to the offeree to be effective
Byrne v. Van Tienhoven
Issue: When is the revocation of an offer effective?
Revocation was mailed before offer was received, but revocation was received after acceptance was sent
Decision: A revocation that is not communicated is not a revocation at all! No revocation by law here.
Reasons: Offeree relies on the assumption that his acceptance is effective, so he must be made aware if the offer
is revoked. In this case, he sold the tin plates to someone else.
Ratio: Postal acceptance rule does not apply for revocation.
Note: Relative risk/consideration of offeree is taken into account.
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Can an offer be accepted once the offeree knows that the offeror no longer intends to contract if withdrawal has
not been directly communicated?
No; there is no consensus.
Dickinson v. Dodds
Dodds makes an offer to Dickinson to sell land open for acceptance until Friday morning
Dickinson discovers that Dodds has sold land Thursday night, so he sends acceptance
Issue: Could the offer be terminated?
Decision: Yes.
Reasons: Offeree knew that the offerer no longer considered the offer open for acceptance (b/c of his action)
Ratio: Cannot accept an offer if you know that the contractor has already contracted with someone else no
consensus. If an offer is made open for acceptance until a certain time, it can still be withdrawn before that time,
anytime before it is accepted.
If an offer stipulates a time for acceptance, can it be withdrawn before the time has arrived?
Yes.
Can a promise to perform (offer) on the fulfillment of an act (acceptance) be withdrawn after the act has been
undertaken but before it is completed?
No. As long as there is performance of the requested act, the offer in a unilateral contract cannot be withdrawn
Errington v. Errington and Woods
Man purchased a house in his own name for his son and daughter-in-law. They were told that the down payment
was a gift, and if they paid the mortgage payments, the house would be theirs. The father dies, and the state
wanted possession of the house
Issue: Was there a contract?
Decision: Yes, but they only got the house after the payments were finished.
Ratio: The offer in a unilateral contract cannot be withdrawn as long as there is performance of the requested act
When does an offer lapse if it has not been withdrawn?
An offer is open either for the time stated in the offer or a „reasonable time‟ (taking into account normal business
practice, individual circumstance, demand for subject matter, etc.) unless it is withdrawn
Barrick v. Clark
Issues: Can the period of an offer be extended by request? Was the offer still open for acceptance when P
accepted?
Decision: Offer had lapsed before acceptance. The period of an offer cannot be extended by request unless seller
offerer agrees
Reasons: D stated „as soon as possible‟ in the offer, and wanted $2000 paid by Jan.1. By the time that P replied, it
would have been impossible to close by that date. There was lots of demand for the land
Ratio: An offer is open for either the time stated in the offer or a reasonable time, as long as there is no
withdrawal of the offer. “Reasonable time” takes into account normal business practice, individual circumstance,
subject matter, demand for subject matter, etc.
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ACCEPTANCE
Unilateral Contracts
Does the performance of a requested act (or restraint from a requested act) constitute acceptance in a unilateral
contract?
Yes.
See Carlill v. Carbolic above (pg. 2).
Is intention to accept required in a unilateral contract where the requested act is performed? Is motive relevant?
Intention to accept is required in a unilateral contract, but the offer does not need to be the main motive for action
Williams v. Cawardine
Offer of a reward to anyone providing information leading to the arrest of the murderer of C‟s brother, advertised
by handbill
Issue: Does doing the requested act in itself constitute acceptance in this case?
Decision: Yes.
Reasons: she knew about the offer. Although she may not have been doing it solely for the money, it was a
consideration in her mind. She knew about the offer and performed
Ratio: to accept an offer, one must only know about the offer and perform. The offer need not be the main motive
for the action
R. v. Clarke
Offer of reward from Crown for information leading to the arrest and conviction of several individuals
C provided information
In this case, he provided the information to clear his name in regards to the murder
The courts determined that since he was not considering the offer at all at the time, it was as if he didn‟t know
about it cannot accept if you don‟t know
Relies on Clarke‟s evidence which states that he wasn‟t thinking of the reward at all
Ratio: there must also be an intention to accept. Normally, we would assume that doing the act is an intentional
acceptance, but here Clarke rebutted that with his own testimony
Does a response to an offer that includes terms different from those of the offer constitute an acceptance?
What is the effect of a counter-offer?
A response to an offer that has different terms is a counter-offer, not an acceptance
A counter-offer terminates the original offer, unless it is renewed
Livingstone v. Evans
Evans contacted Livingstone for sale of land for $1800
L replies “send lowest price. Will pay $1600”
E “cannot reduce price”
L accepts
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Issue: is L‟s first reply a counter-offer that rejected (and therefore terminated) the original offer, or was it an
inquiry about changing the terms?
Decision: it was a counter offer.
Issue 2: Is “cannot reduce price” a renewal of the original offer?
Decision: Yes.
Ratio: A counter offer terminates the original offer, unless it is renewed.
Where documents containing inconsistent term were exchanged, how is the issue of consensus addressed? Should
documents and circumstances be considered holistically to determine the parties’ reasonable expectations, or
should the rules of offer and acceptance prevail?
Offer and acceptance rules: Use the terms of whoever got the last blow in (submitted the last form with different
terms that was in turn accepted).
Modern Evaluation (holistic): Look at the whole process, all of the forms and determine where a consensus was
reached on all material points.
Butler Machine Tool Co. v. Ex-Cell-O Corp.
Seller sends quote w/terms and conditions
Buyer sends order w/tear off slip that order is accepted by seller on the buyer‟s terms and conditions
Seller returns the slip
Seller then ups the price upon delivery buyer sued
Issue: Under whose terms was the contract made?
Decision: The buyer‟s terms prevailed
Reasons: The seller returned a slip stating its acceptance of the buyer‟s terms directly
Principle: Traditionally, the offer sets the terms. If an acceptance sets new terms, it is, in fact, a counter-offer
(Offer and acceptance approach)
Ratio: Terms and conditions of both parties are to be construed together. If the terms do not agree, they may have
to be scrapped and replaced by a reasonable implication (Lord Denning‟s holistic approach)
Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd.
Request for quote from buyer – back of form had terms and conditions with no reference to arbitration
Seller sends quote – back has their terms and conditions with no mention of arbitration – clause of not being
bound by any other terms on PO.
Seller sent revised quote w/same terms
Buyer sends PO with terms and conditions stating that accepting the order is subject to its conditions (acceptance
copy not returned by seller) “any controversy to be settled by arbitration”
Issue: Which terms prevail, and specifically, do the last terms prevail?
Decision: No.
Reasons: Basically Lord Denning approach – they could not reasonably conclude that both parties agreed to those
terms. The terms were printed on the back.
Ratio: A party cannot rely on a term that was not drawn to the attention of the other party, or you can reasonably
conclude that the other party assented to it
Can silence or inaction constitute acceptance giving rise to a contract?
Yep. If a reasonable person would assume that acceptance was imposed, using an objective standard test, it could
constitute a contract.
In these cases, it may be necessary for a party to disavow acceptance.
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Saint John Tug Boat Co. v. Irving Refinery Ltd.
SJ was keeping tugs standing by for IRL for a premium. IRL continued to renew the contract
IRL switched presidents, SJ continued the service under the assumption that without hearing otherwise, the
contract would be renewed
IRL denied acceptance of continuing to pay the standby fee, and they refused to pay the invoice charges
Issue: Did silence constitute acceptance of the continued offer?
Decision: Yes.
Reasons:
o While normally silence would not mean acceptance, in this case it was deemed that SJ would reasonably
believe that IRL wanted to renew.
o IRL also continued to accept and reap the benefits of the service with the knowledge that the service was
rendered for their benefit
Ratio: If a reasonable person would assume that acceptance was imposed, using an objective standard test, it
could constitute a contract. In these cases, it may be necessary for a party to disavow acceptance.
The existence of a previous relationship, invoicing, etc are important here
If an offer stipulates a mode of acceptance, can it be accepted by other means?
Yes, but if acceptance is not in accordance with the terms of the offer, it must be in accordance with the objective
of those terms.
Eliason v. Henshaw
Buyer offered to purchase flour, requested that acceptance be sent by carriage to Harper‟s Ferry.
Seller accepted, but sent acceptance by mail to office in Georgetown
Issue: Was the letter to Georgetown a valid acceptance?
Decision: No.
Reasons: The buyers specified that acceptance be sent by carriage so that they would know when to expect it, and
therefore when to buy from someone else. B/c the acceptance was sent to another place, they did not receive it in
time, and they bought from someone else.
Ratio: Acceptance must be in accordance with terms of the offer, or the objective of the terms
When is acceptance communicated by mail effective?
Postal Acceptance Rule: Acceptance is complete as soon as the letter is posted when the circumstances are such
that it must have been within reasonable contemplation of the parties that post might be used as a means of
communicating acceptance.
The postal rule does not apply when contract specifies that acceptance must reach the offeror or if its application
would produce large amount of inconvenience and absurdity. Look to see intention of the parties. If there is no
evidence of intention, fall back on the postal acceptance rule.
Holwell Securities v. Hughes
Letter of acceptance to purchase land was sent, but was lost in the mail.
Issue: Did plaintiffs exercise option to purchase by sending the letter if it was not received?
Decision: No.
Reasons: 2 ways to come about it:
o First, the option clause stated “give notice”, which means that the party must actually know.
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o Second, court deemed that the postal rule does not apply when contract specifies that acceptance must
reach the offeror or if its application would produce large amount of inconvenience and absurdity. Look
to see intention of the parties. If there is no evidence of intention, fall back on the postal acceptance rule.
Ratio: Postal rule does not apply under the above mentioned circumstances stated in the reasons
Postal Rule: Acceptance is complete as soon as the letter is posted when the circumstances are such that it must
have been within reasonable contemplation of the parties that post might be used as a means of communicating
acceptance. This was a good rule for the times b/c they had done everything they could do (no instant
communication)
When an acceptance communicated electronically (i.e. instantaneous means of communication) effective? If
acceptance is effective on receipt, what constitutes receipt?
Instantaneous communication rule: Contract is made where and when it is accepted/received where the
acceptee resides
The responsibility of ensuring that acceptance is received is dependant on which end the court deems had greater
knowledge about and control over potential communication failure
Brinkibon Ltd. v. Stahag Stahl Und Staahlwarehandelsgesellschaft mbH
Parties were in two different countries, buyers in England & sellers in Vienna
A telex containing a counter offer was sent from Vienna to England acceptance by telex back to Vienna
English courts can only hear litigation if contract was made in England
Issue: Where was the contract of sale made?
Instantaneous communication rule: Contract is made where it is accepted/received where the acceptee
resides
Telex (fax) is not exactly instantaneous
Decision: Contract was made in Vienna
Reasons:
o Intended place of acceptance should be determined by intention of the parties, accepted business practice,
and where the risk should lie
o Who should be responsible for ensuring that the acceptance was received? Here, court determined that
when someone sends a telex message, the sender has the greater control and knowledge about potential
communication failure, so has the responsibility of ensuring it was received
Ratio: Acceptance must be received for the contract to be made instantaneous communication rule (but does
not cover everything!)
TENDERING CONTRACTS
Does a contract arise on submission of a tender in response to an invitation for tenders?
Yes!
What are the obligations of the tenderer?
After a tender is submitted, the tenderer cannot revoke the bid without being in breach of a contract
R. v. Ron Engineering & Construction (Eastern) Ltd.
RE submitted a tender and bid deposit to government of Ontario
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RE forgot to include over $700 000 worth of costs in their bid
They called gov‟t and requested that the bid be revised due to the mistake – not revoked, only revised. This was
done before the tender was accepted
Issue: Was there a contractual obligation created by the submission of the tender?
Decision: Yes
Reasons:
o SCC determined that the tender process itself is a contract (“Contract A”) with terms set by company
calling for bids, and by submitting a bid, RE agreed to the unilateral contract call=offer,
tender=acceptance. In contract B, tender=offer, acceptance by owner.
o RE was bound by contract A, so could not revoke the offer without being in breach and losing their bid
deposit.
Policy?: If RE could revoke a tender, it may undermine the whole tender process
What are the obligations of the person inviting tenders?
There is an implied term that the person inviting tenders can only accept compliant bids, regardless of any
privilege clause
M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd.
DC called for tenders, MJB was the second lowest bid
Lowest bid did not comply fully with specifications (qualified filler price with a note), but was still accepted
Tender docs included a privilege clause stating that the owner need not accept the lowest, or any, bid
Issue: Does the privilege clause allow the owner to accept a non-compliant bid?
Decision: No
Reasons:
o In the situation, people would generally assume that only compliant bids would be accepted. If non-
compliant bids are accepted, then there is no point to outlining terms in the call for tenders.
o Bids are expensive, and no one would make one. Thus, the term was deemed to be intended by both
parties.
o Although the clause said that they do not have to accept any bid, if they do accept a bid, it must be
compliant.
Damages are the expectation principle (where the would defendant be if contract had not been breached). Court
deemed on a balance of probabilities that MJB would have gotten the contract if the non-compliant bid was not
accepted, so they got profits equaling what they would have made from the contract.
Ratio: There is an implied obligation to accept only compliant bids. The court can imply terms in a contract.
CERTAINTY IN CONTRACT FORMATION
Formation of a contract requires both parties to agree to be bound by set terms. Thus, there can be no consensus if
terms defining parties‟ obligations are not clear.
o Are the language used and circumstances of the case such that it is possible to conclude that the parties
reached a consensus? I.e. they must have reached agreement on all material points of their
transaction/relationship.
Does a contract arise where material terms of the agreement are vague? What principles of interpretation should
be applied?
If the material terms are too vague, a contract cannot exist
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However, if it is clear that both parties intended for the agreement to be a contract, the court will try to interpret
the words used so as to make it a contract
R. v. CAE Industries Ltd.
Gov‟t tried to get a private sector operator to run an air base – negotiated with CAE. Letter from gov‟t to CAE to
induce CAE to agree to purchase and operate the aircraft maintenance base. CAE is concerned that they won‟t
make enough money, so the letter from gov‟t was assuring them that they would have a certain level of business.
CAE didn‟t have enough business to turn a profit, and CAE sued gov‟t for breach of contract. Gov‟t argued that
the terms were too vague.
Issues: Was there intention to form a legally binding commitment? Were the terms too vague to constitute a
contract?
Determine intention objectively – what did CAE reasonably believe?
Focus on part (c) of letter- what does “best effort” or “set aside” mean?
Decision: There was intention, and the terms were not too vague
Reasons:
o Court read the phrase in context with the rest of the letter. It was determined that “set aside” meant that
gov‟t would ensure that 40 000 – 50 000 hours/year w/out going out to tender.
o “Best effort” meant that, subject to qualifications, meant that the gov‟t would „leave no stone unturned‟.
Ratio: If it is clear that the parties intend to enter into a contract then the court should try to give meaning to the
words used so as to make it a contract
Note: For the remedy, CAE has to prove how many man hours of employment they would have had if gov‟t had
given their „best effort‟
Can a contract exist where a material aspect of the parties’ agreement is to be determined in the future?
Traditionally, no (May & Butcher), b/c it is too uncertain. Now, if the court deems that the agreement is
„sufficiently certain, a contract may exist (see below).
May & Butcher Ltd. v. R.
After WWI, gov‟t has army surplus and enters into agreement w/MB to sell all of the tentage to them as it
becomes available. The precise amount of tentage was unknown at the time
So, in the contract, the amount of tentage, the price (b/c they don‟t know the condition of the tentage), and
delivery was TBD later on. So, they agreed to agree in the future
Issue: Is an agreement to agree on a material issue a contract?
Decision: No – cannot agree to agree on a vital term of a contract
Reasons:
o An agreement to agree is not a contract b/c you don‟t know what the obligations will be not enough
certainty.
o Court would not imply a term that it was a „reasonable price‟ b/c there was no agreement stating that. If
they had said nothing about price, they could have implied a term, but the agreement said that they would
agree to agree on it later.
o Although there was a provision for arbitration in the case of disagreement, that only holds if there was a
contract, which there wasn‟t
Ratio: The time to determine issues of formation is at the time the agreement that is alleged to be a contract is
made
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When is an agreement to agree to terms in the future sufficiently certain to be recognized as a contract?
When the court has sufficient machinery (aka an objective standard) to determine the reasonable expectations of a
contract, the court will enforce the contract. Two sources of objective standards - a formula provided by the
parties and the reasonableness standard.
Court must either have machinery or be able to imply a standard of reasonableness in order to enforce contracts
with terms TBD in the future
Hillas & Co. v. Arcos Ltd.
Hillas agrees to buy lumber from Arcos in a future lumber season. There is an option to have delivery, but Arcos
did not deliver, arguing that they were not contractually obliged b/c there was a lack of specificity regarding the
price and grade of wood.
Issue: Was there a contract when the material terms are not fixed?
Decision: There was a contract (trial said yes, COA said no, HOL said yes)
Reasons:
o There was no set price, but there was an objective standard to determine it. There was a price list
available, so there was “machinery” to allow a determination of price with sufficient certainty.
o “Standards of softwood lumber” read this in context. The option was part of a larger agreement that
used a reference to fair specifications. If they cannot agree on “fair specifications”, the law may imply a
reasonable standard (objective standard), which provides the required “machinery”
o Time of delivery was not uncertain. Even if it was, they can fall back on the Sale of Goods Act
Ratio: When the court has sufficient machinery (aka an objective standard) to determine the reasonable
expectations of a contract, the court will enforce the contract. Two sources of objective standards - a formula
provided by the parties and the reasonableness standard.
Note: This is different from May v. Butcher b/c here there is machinery to base the price on.
Policy: In this case, Hillas had clear reliance on the option, so it was clear that the option itself was part of their
consideration of the contract.
Foley v. Classique Coaches Ltd
P bought land from D at a given price, but also included the term that P would buy all gas from D at a price to be
determined
Decision: There was a contract.
Reasons:
o Followed Hillas v. Arcos
o If the parties clearly intended to enter into a contract, then the court should attempt to enforce it
o Implied the term that the gas must be sold at a reasonable price and be of reasonable quality implied
objective standard. So, the failure to establish all terms fully does not necessarily nullify the agreement.
o Arbitration provision provided the machinery for interpreting what is reasonable
Ratio: Court must either have machinery or be able to imply a standard of reasonableness in order to enforce
contracts with terms TBD in the future.
Policy: P would not have sold the land to D if D had not agreed to buy gas from them; thus, it was a large part of the
consideration of the contract
Can an agreement to reach terms in the future be enforced as an agreement to negotiate (‘process’ contract)?
Yes, in certain circumstances.
Competing authorities, and SCC has not made a decision on it. There is some reluctance of courts to enforce an
agreement to negotiate, but it happens. SCC implies a duty to perform, but not to negotiate.
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Does a promise to negotiate in good faith create sufficient certainty to give rise to a contract?
Sufficient certainty may be found in a duty to negotiate in good faith, but not necessarily will be
Test: To imply a term of good faith (Empress Towers):
o Parties must have both considered it and intended it to be a term
o There must be an objective standard to measure
An agreement to agree can be a contract provided that the terms/obligations are sufficiently clear and objective.
“Best efforts” is better than “good faith” for an enforceable contract. Also, make sure there is an objective
standard if possible.
An agreement to negotiate in good faith can be a contract given that the parties both intended to do so, and there
is an objective standard (good faith & objective machinery) in which to measure.
Empress Towers Ltd. v. Bank of Nova Scotia
BNS was renting from ET. BNS had a right to renew the lease once for 5 years with the same terms, with
exception to the rent. The rent was to be renegotiated and agreed upon by both parties. If they could not agree, the
contract could then be terminated by either party.
BNS gives ET notice to renew w/rent suggested by an independent assessment. ET does not respond for an
extended time, and when it does, it wants $15K up front, and new terms (including a 90 day termination
provision)
Issue: Does an agreement to contract “at a market rate, as mutually agreed” constitute a contract?
Decision: Yes; it was contractually enforceable.
Reasons:
o This was not an agreement to rent at market rate, due to the provision to agree on the rental price, but
their was an implied term that the parties would negotiate in good faith to reach agreement on market
rent, and the agreement would not be unreasonably withheld
o This standard was deemed to be sufficiently objective to avoid uncertainty. Good faith = best efforts to
reach agreement
o Parties clearly intended to be committed to negotiate on rent, so by not attempting to negotiate at all, ET
was in breach
o The agreement was to agree on market rate, so they had an objective standard in which to measure the
sincerity of the parties‟ efforts
Ratio: An agreement to negotiate in good faith can be a contract given that the parties both intended to do so, and
there is an objective standard (good faith & objective machinery) in which to measure.
Wellington City Council v. Body Corporate 51702 (Wellington)(New Zealand Case)
Facts: City owned a number of properties, had leases with many people, and had an agreement to negotiate in
"good faith" (this was an expressly stated term). Distinguishable from Mannpar and Empress b/c this was a new
contract rather than a renewal.
Issue: Is an agreement to negotiate in good faith a contract?
Decision: No.
Reasons:
o 2 contracts process contract (agreement to negotiate), and primary contract (actual contract)
o Breach of the process contract requires a failure to try, but not necessarily a failure to agree
o “Good faith” only requires the parties to be honest, but not reasonable, so it is not an objective standard
Ratio: An agreement to agree can be a contract provided that the terms/obligations are sufficiently clear and
objective. “Best efforts” is better than “good faith” for an enforceable contract. Also, make sure there is an
objective standard if possible.
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Can a promise to negotiate in good faith be implied?
A duty to negotiate in good faith may be implied, but not necessarily will be (Wellington)
A duty to negotiate in good faith may be implied where an objective standard exists against which to measure
performance of the duty. (Empress Towers, compare Mannpar)
The implied term is based on the “officious bystander” or “business efficacy” test; i.e.the intention of the parties
determined objectively. See MJB Enterprise.
A duty to negotiate in good faith will not be implied in the absence of a clear intention to create a binding
contractual obligation. (Mannpar)
*Also see Wellington above.
Mannpar Enterprises Ltd. v. Canada
Gov‟t grants M a 5 year permit to remove sand and gravel from a reserve. He has a right to renew for another 5
years w/renegotiation of the royalty rate and surface rental
Gov‟t does not allow him to renew, and M argues that they are in breach to negotiate
Issue: Is this enforceable? Should a term to negotiate in good faith be implied?
Decision: No.
Reasons:
o Gov‟t had obligation to respect the needs of the band on the reserve, so they did not commit to negotiate
b/c they needed permission lacks the clear intention to be bound
o There was no clear objective standard against which to measure good faith efforts no „market rate‟
Ratio: While there may be an implied duty to act in good faith, the court must analyze facts on a case by case
basis to find it, and there must be an objective standard
Courts are less likely to enforce an agreement to negotiate that is not a right to renewal in a previous contract
Is there a contract where parties have reached agreement on the primary terms of the transaction but they
contemplate the execution of a more detailed written agreement?
No.
Bawitko Investments Ltd. v. Kernels Popcorn Ltd.
K is franchisor, B is franchisee. Parties orally agreed on some of the terms in their agreement both parties
agree on that.
Issue: Is a preliminary agreement a contract when the parties agree to execute a more complete contract at a later
time?
Decision: No.
Reasons:
o Must have clear intention on both ends that the agreement should be binding still negotiating
o The parties had not agreed on all essential provisions of the contract there were still major terms left to
be decided
Test for a binding contract:
o Parties agree on all essential terms and provisions
o Intention to be bound
Note: There are cases in which courts have found a contract in a primary agreement tends to be determined
based on facts
Parties will often do primary negotiations “subject to later contract”
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REMEDIES: What does the victim of breach receive?
DAMAGES
Available to victim of breach as of right, but if no loss is proven, they are nominal
Damages are expectation – what the victim of breach would have received had the contract been performed
How can the award be quantified when the victim of breach cannot establish that there would have been a profit if
the contract were performed?
If the victim of breach cannot prove a profit if the contract were performed, he only gets nominal damages.
Onus is on defendant to prove it if the plaintiff is running a loss
Bowlay Logging Ltd v. Domtar Ltd.
Domtar was to provide trucks for Bowlay lumber; Domtar did not provide trucks
Bowlay was losing money in the contract
Bowlay asked for reliance interests ($ spent in contract) Issue is what damages should be
Decision: they received expectation interests, not reliance
Ratio: A plaintiff is entitled to recover expenditures, but only to the extent that they would have had them if the
contract was performed
Onus is on defendant to prove that plaintiff was running a loss if that is the case
Rebuttable presumption: presumption that plaintiff would at least have recovered expenditures if contract was
performed
Limitations Principle: plaintiff must prove their loss to receive expectation interest. If not, they are left with only
a reliance claim. If defendants can prove that plaintiff was running a loss, only nominal damages are awarded
Is the victim of breach entitled to recover all losses that can be proven to have been caused by the breach? Are any
losses too remote to merit compensation? What principles govern?
Loss must be reasonably foreseeable or communicated at the time of contract
“Reasonably foreseeable” does not rely on what the defendant actually thought about, but what would have been
foreseeable to him if he had thought about it
Must take imputed knowledge (knowledge that a reasonable person in position of defendant would know) and
actual knowledge (based on what defendant was told) into account. Any special circumstances must be
communicated
Other factors to consider when evaluating risk allocation:
Type of contract – sale v. carriage, etc.
Subject matter of contract – new BMW v. old dodge
Character of parties – do they possess expertise?
Price paid by parties
Usual practice of custom in this type of contract
Insurance coverage for risk
Hadley v. Baxendale
Mill shaft was to be delivered by courier to the mill courier was late
Issue: was plaintiff entitled to damages for loss of profits from shutting mill down due to the breach?
Decision: No. Only nominal damages were awarded, because the loss was not foreseeable to the defendant
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Ratio: Loss must be reasonably foreseeable or communicated at the time of contract in order to receive damages
Note: Vicarious liability of employees for a company was not developed at the time of this case
Victoria Laundry (Windsor) Ltd. v. Newman Indust. Ltd.
Facts: Newman sold boiler to Victoria, late delivery
Issues: Were damages from lost laundry service recoverable? Were damages from loss of a lucrative dying
contract recoverable?
Decisions: Damages from lost laundry service were recoverable; damages from the dying contract were not
Ratio: “Reasonably foreseeable” does not rely on what the defendant actually thought, but what would have been
foreseeable if they had thought about it.
Ratio 2: Must take imputed knowledge (knowledge that a reasonable person in position of defendant would
know) and actual knowledge (based on what defendant was told) into account. Special circumstances must be
communicated
Note: This was an engineering firm selling a product, rather than a courier delivering it; thus, they are expected to
have some special knowledge & know more than a courier would
Are damages recoverable to compensate for intangible injuries such as loss of enjoyment or injured feelings?
Is one of the objects of the contract to secure a psychological benefit?
If so, apply the compensation principle, subject to:
a) the ordinary principles of remoteness (i.e. Was mental distress within the “reasonable contemplation of the
parties”?)
b) determination of whether the degree of suffering warrants compensation
Vorvis v. Insurance Company of British Columbia (1989 SCC)
“Aggravated damages” = damages for mental suffering associated with a breach of contract.
“Punitive damages” = damages to punish the party in breach for reprehensible conduct.
Ratio: Subject to the “peace of mind” exceptions, damages can only be awarded in either category where the
conduct of the party in breach constituted an “independent actionable wrong.”
Fidler v. Sun Life (2006 SCC):
Breach was insurance company‟s obligation to provide Fidler‟s disability pay.
Issue: is Fidler entitled to additional damages for mental distress resulting from the breach?
Decision: Yes. She received aggravated damages (but not punitive ones).
Reasons: Mental suffering was a clearly foreseeable consequence from breach of the contract. She did not have to
establish an “independent actionable wrong” (tort). Punitive damages were rejected as the behaviour of the
insurance company was not particularly malicious.
Ratio: mental distress may be treated as any other loss rather than punitive or aggravated damages. 2
requirements:
o Emotional well being must be an expected outcome of the contract
o Person must have experienced mental suffering must not be too remote
Are damages recoverable to punish the defendant for breach (punitive damages)?
Requirements for Punitive damages:
1. Conduct must be an independently actionable wrong – i.e., based on a cause of action independent of the primary
breach of contract.
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But the cause of action need not constitute a tort. Per Whiten, “can be found in breach of a distinct and separate
contractual provision or other duty such as a fiduciary obligation”.
Primary breach = breach of promise to pay benefits
“separate” breach = breach of good faith duty
2. Conduct must be “deserving of punishment because of its shockingly harsh, vindictive, reprehensible or malicious
nature.”
Whiten v. Pilot Insurance Co.
Fire in Whiten‟s household; insurance company tried to get out of paying them.
Issue is whether or not Whitens are entitled to punitive damages.
Insurance company breached the duty to pay for Whiten‟s total loss.
Must have an independent actionable wrong for punitive damages (Vorvis v. ICBC).
Court awarded damages based on a breach of duty to act in good faith. This is the duty to act fairly in assessment
of the claim, and was deemed to be an independent actionable wrong
Ratio: court will grant punitive damages when there is an independent actionable wrong. Not acting in good faith
is an independent actionable wrong
This term is applicable when there is a relationship of vulnerability on one end, where one party has limited
bargaining power.
Additionally, the conduct must be deserving of punishment because of its overly indecent nature.
Could the plaintiff reasonably have avoided some of the losses for which compensation is claimed?
The Duty to Mitigate (Loss)
Defendant cannot be called upon to pay for avoidable losses
Avoidable losses are those that the plaintiff could have avoided by doing what was reasonable in the
circumstances upon learning of the breach. The duty to mitigate therefore arises at the date the contract is
breached, but mitigating action may be delayed if that would be reasonable in the circumstances (Asamera Oil.)
The plaintiff may not delay taking action on the basis of a claim to specific performance unless there is a
“substantial and legitimate interest represented by specific performance”
Asamera Oil Corp. v. Sea Oil & General Corp
Baud corp. lent 125 000 shares to Brook, who was required to return them in December 1960. Brook sold the
shares in 1958.
Issue: What is Baud entitled to? The value of the shares varied greatly. (see ppt)
Decision: the value of the loss is based on the date that the plaintiff should have purchased shares to mitigate the
loss.
Baud implicitly had the funds to buy shares. Although the price fluctuated, at certain points, it was stable enough
that court determined it was reasonable to mitigate
At a certain point, plaintiff should have either purchased shares or pursued litigation. It is at this point that the
shares are valued.
This duty may change depending on the financial position of the plaintiff and what is reasonable under the
circumstances.
In the event that the breach leaves you with resources to achieve performance elsewhere, you have a duty to do
that (mitigate)
If not, then you may or may not have this duty, depending on financial circumstances
Ratio: Plaintiff must take all reasonable steps to mitigate the loss, and he is not entitled to damages for avoidable
loss
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If Baud had a legitimate legal claim to specific performance, they would not have had to mitigate
SPECIFIC PERFORMANCE (EQUITABLE REMEDIES)
Under what circumstances is specific performance or an injunction available as an alternative to damages?
Plaintiff must prove that the subject matter of the contract is unique
Only available when damages do not provide adequate remedy
Specific performance is never granted for employment slavery-like. Occasionally, court will prevent D from
working for anyone else if he quits, but even this is very rare
John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd
Dodge was contracted to purchase a piece of land from D
Must get approval to subdivide land, which the sellers could not get
Sellers then could not sell the land this was deemed a breach of contract despite informing P in advance
Issues: When is a victim of breach entitled to specific performance? What is the date of the actionable wrong?
Was the property unique?
Traditionally, specific performance was always available when the contract involved a sale of land b/c every
piece of land is unique but not anymore
Date of wrong is the date that P knew that contract would not be fulfilled. It is at this point that the uniqueness of
the land should be examined
Note: P did not have duty to mitigate if they have a legal claim to specific performance
Decision: The land was deemed unique, and specific performance granted
Reasons: Due to location (purpose of land to P was to build hotel), land was particularly well suited
Ratio: P is entitled to specific performance if he can prove that the subject matter of the contract is unique.
Is an order for specific performance precluded by a recognized defence?
Yes:
a) Mutuality: only award specific damages if we would award them to the other party if roles were reversed
b) Misrepresentation & mistake: SP is not granted in cases of misrepresentation or mistake
c) Conduct of Plaintiff: plaintiff must behave well against defendant
d) Hardship: if SP causes unnecessary hardship, it may not be granted
CONSIDERATION
What is required to establish consideration in a promise?
There must be obligations for both parties (Dalhousie College v. Estate of Arthur Boutilier)
There must be consideration of the benefit gained from the other party when doing the promised action, not just a
simple exchange of benefit (Brantford General Hospital Foundation v. Marquis Estate)
The Governors of Dalhousie College at Halifax v. The Estate of Arthur Boutilier, Deceased pg 157 (1934 SCC)
Man sent letter promising to donate $5000 to Dalhousie for some general college things (buildings, teaching, etc)
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Issue: Is the promise enforceable as a contract?
Decision: No.
Reasons:
o No consideration b/c Dalhousie did not promise to do anything
o Although it says “consideration of subscriptions of others”, that is between B and “others”, not Dalhousie
o Letter was only terms of a gift, which is unenforceable
Ratio: A promise to give a gift is not a contract, even if it is conditional. There must be obligations for both
parties.
Note: This would have been different if the College had promised to build a specific building or do something
specific if the money was given
Brantford General Hospital Foundation v. Marquis Estate pg 161 (2003 ONSC)
M promised to give $1 million at the rate of $200K/year for 5 years. After the first year, she died. The remaining
$800K was not paid
Issue: Is the promise to rename the hospital enough to establish consideration?
Decision: No.
Reasons:
o Evidence showed that M did not consider that at all in her decision
o She did not request it, nor was it agreed to as a bargain
o Although she donated the money for the hospital to build a new wing, there was no direct promise from
the hospital to do so – no bargain.
Ratio: There must be more than an exchange of benefit for consideration to be established. There must be
consideration of the benefit when doing the promised action.
Can an implied promise account for consideration?
Yes, although if it is impossible to identify any actions or failure to act that would constitute a breach of contract,
then no obligation was undertaken (Wood v. Lucy, Lady Duff-Gordon)
Wood v. Lucy, Lady Duff-Gordon pg 182 (1917 American)
Agent was given absolute right to market LDG‟s products in return for LDG getting half of the profits. He said
that he would report to her regularly. LDG argued that this is not a contract b/c he does not actually have to do
anything.
Issue: Is this a contract?
Decision: Yes.
Reasons:
o Court implied a term for agent to market products
o B/c he promised to report to her, he did have duties
Ratio: Need obligations on both sides for consideration, but an enforceable obligation may be found in an
implied promise.
Terms will be implied when a reasonable person would have agreed to it.
Note: If it is impossible to identify any actions or failure to act that would constitute a breach of contract, then no
obligation was undertaken.
Can an act done before the making of a promise ever constitute consideration in some circumstances?
Traditionally, no. If the plaintiff did the labour for the defendant voluntarily, and out of his own will, he cannot
recover any monetary compensation for his actions. However, if the labour is performed at the request of the
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defendant, and if a promise of compensation follows the labour, the plaintiff is entitled to recover it (Lampleigh v.
Brathwait)
Promises supported by past considerations are only enforceable to the extent that the value of the promise is
proportionate to the benefit.
Eastwood v. Kenyon (1840)
Young orphan is to inherit property when she comes of age
Guardian spent money on her education, maintenance and support
Normally court could imply that woman would repay guardian (which she promised to do)
A young man falls in love with the girl, becomes engaged, and offers to pay the guardian instead – goes back on
promise later
D won – court deemed that past consideration is no consideration at all in regards to enforcing a contract.
Lampleigh v. Brathwait pg 185 (1615 All ER)
D committed a murder, requested P to do his best to obtain a pardon from the King for him. P rode around and
got the pardon. After, D was so thankful that he offered to pay D 100 pounds. However, D did not pay – argued
that since action was before promise, there was no consideration.
Issue: Is there consideration here?
Decision: Yes.
Reasons:
o There is an obligation to pay a reasonable sum for the service rendered, as it is between strangers (Lady
Duff-Gordon)
o By agreeing to the 100 pounds, P gives up his right to sue for (or receive/bargain for) a reasonable sum –
this is P‟s consideration
o D‟s consideration his promise to pay
Ratio: If the plaintiff did the labour for the defendant voluntarily, and out of his own will, he cannot recover any
monetary compensation for his actions. However, past consideration is good consideration when an act is
performed at the request of the other party or when there is reasonable expectation for compensation.
Note: Promises supported by past considerations are only enforceable to the extent that the value of the promise is
proportionate to the benefit.
Can an act of forbearance (a promise not to sue in return for a settlement) constitute good consideration?
Yes. In addition, even if the person did not actually have the right to sue, the forbearance can be good
consideration as long as the person honestly believed that he had the right (Callisher v. Bischoffsheim)
Callisher v. Bischoffsheim pg 171 (1870 English)
P intended to sue gov‟t for shorting him money. D offered to give P bonds so he would not pursue his legal
action. The securities were not delivered, and P took action against D. P‟s original claim was not an actual claim,
but both parties though that it was.
Issue: Is a promise to forbear legally binding even if the settlement is based on a dubious claim?
Decision: Yes.
Reasons:
o P honestly believed that he had a cause of action – he thought that the right that he gave up in the
settlement was worth something
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Ratio: If you give up or promise to give up rights that you honestly believe that you have, that can be good
consideration for a contract. Honesty is key here.
Can there be consideration if the person agrees to perform a public duty?
Generally, no. However, courts can find consideration if the promise provided something extra beyond the
requirements of the public duty.
Note: this is in force even if the public figure (e.g. police) is off-duty.
Can there be consideration if a party performs a pre-existing duty to a third party?
Yes. It is generally considered to be good consideration b/c it gives you rights against other party and vice versa
(i.e. he can sue you). (Pao On v. Lau Yiu Long)
Pao On v. Lau Yiu Long pg 173 (1980 AC)
P sold their company Shing On to Fu Chip. There were two agreements:
o In the first, P agreed to sell shares in Shing On in exchange for shares in Fu Chip, and they agreed not to
sell 60% of the shares acquired until a certain date. If the shares fell below $2.50, FC agreed to buy them
back.
o In the second, LYL, a major shareholder, simply agreed to guarantee that if the shares fell below $2.50,
SO would be compensated. This was b/c the first agreement was not beneficial to SO and they were
considering breaching it. LYL did not want them to breach, so he agreed to indemnify them if they
performed their duty to FC.
Issue: Is the duty owed to FC good consideration for LYL‟s promise to SO?
Decision: Yes.
Reason:
o When LYL made his promise to SO, he gained a valid legal cause of action if SO did not follow through
on their promise.
Ratio: Promise to perform a pre-existing legal duty to a third party can be good consideration.
Can consideration be established through the performance of a pre-existing duty to the promisor?
Traditionally, no. If one party only gets something that they were already entitled to, there is no consideration
established (Stilk v. Myrick, Gilbert Steel Ltd. v University Const. Ltd)
Currently uncertain. See cases below.
Estoppel can only be used as a defence, which means that you cannot use estoppel as an argument when suing for
breach of contract (Gilbert Steel Ltd. v University Const. Ltd)
Note: In Williams v. Roffey, the court held that if the other party obtained a benefit or avoided a disbenefit in
regards to avoiding a breach in return for performance of a pre-existing duty, then consideration is established.
However, this is an English case. Use with care.
Note 2: In Greater Fredericton Airport Authority, the court ruled that courts may enforce a contract without
consideration as long as there is an exchange of benefits and there is no economic duress. However, this case is
an NBCA case – not binding on most courts.
Stilk v. Myrick pg 177 (1809 ER)
Ship‟s crew agreed to be paid a certain sum for going on a voyage. On the voyage, 2 members deserted. The
captain promised that the wage of those two men would be divided between the remaining shipmates if they
agreed to continue to work.
Issue: Was the continued agreement to work good consideration for the promise?
Decision: No.
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Reasons:
o The workers only promised to do exactly what they had already promised to do, which was work on the
ship – they could not legally quit w/out breaching the contract
o They did not give up any rights in exchange for the promise
o Policy – crew members might blackmail captains to get more money if this action succeeded.
o Might have been different if the crew could have quit (then by staying, they are giving something) or if
the captain had discharged the men
Ratio: Consideration is not established when you have a pre-existing legal duty to perform to the promisor.
Gilbert Steel Ltd. v University Const. Ltd. pg 178 (1978 ONCA)
UC agreed to buy steel from GS at a set price. Partially through the contract, UC promised to pay more in light of
the market price of steel rising.
Issue: Is the promise binding, or is there no consideration for it?
Decision: The promise is not binding – there was no consideration
Reasons:
o UC did not get anything that they were not already entitled to – nothing different or additional
o Followed Stilk v. Myrick
Ratio: A promise to perform an existing obligation to the other party is not consideration for a promise (same as
Stilk v. Myrick). Estoppel can only be used as a shield, but not a sword – it is only a defence.
Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. pg 182 (1991 All ER)
D contracted to build apartments, and subcontracted out to P for a certain price. The price was too low, and P was
in financial difficulties, so D offered to pay more. P never got the extra money.
Issue: Is the promise legally enforceable – is there adequate consideration?
Decision: The promise is legally enforceable; there was consideration.
Reasons:
o Branched off from Stilk
o A benefit is derived for the contractor if the work is completed on time.
o The subcontractor behaved in an honest way; he did not demand more, but he could not do the work by
the deadline without more.
o The subcontractor agreed to build the apartments one at a time, which is a practical benefit to D.
o There was no evidence of economic duress – D being forced to pay more b/c they cannot afford the loss
of P not performing
Ratio: If there is a situation where there may be an efficient breach, and if the agreement allows there to be a
benefit or to avoid a penalty, then there is good consideration. A promise to perform a pre-existing contractual
duty provided there are practical benefits to the other party can amount to good consideration.
Note: This is an English case; it is controversial.
Greater Fredericton Airport Authority Inc. v. Nav Canada pg 186 (2008 NBCA)
Gov‟t contracted to do certain things for the airport, then said that they would not do it unless GFAA paid more –
different from Williams b/c there was a threat not to perform. You would think that this is economic duress, but
for some reason, the court didn‟t judge that there was.
Issue: Was there consideration here?
Decision: No, but the contract may still be established without it.
Reasons:
o Followed Stilk v. Myrick – no consideration from a threat not to perform a duty already owed unless paid
more money.
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o Branched from Stilk by stating that consideration is not always necessary to enforce a promise – courts
always use “fictions” to avoid the rule. Followed Williams in this respect – there was an exchange of
benefits.
o The concept that estoppel cannot be used by the plaintiff produces “an unjust result”
Ratio: Courts today may enforce a contract when there is no consideration if there is an exchange of benefits and
there is no economic duress.
Note: Paying more almost always gives a practical benefit – all promises could hypothetically be enforced. Thus,
as long as there is no economic duress, the promise can be enforced by the court.
Can the payment of an existing debt, or a promise to pay part of an existing debt, account for consideration for the
other party's promise not to enforce the entire amount of the debt?
Yes, in Alberta! Under the Judicature Act, which has overthrown the decision in Foakes.
According to common law, practical benefits are NOT valid consideration in agreements to accept less (Foakes v.
Beer, Selectmove). This is far stricter than the rule in agreements to pay more (see stretching of the rule in Roffey
and Fredericton Airport)
Changing the method of payment MAY constitute good consideration in common law (Foot v. Rawlings)
Foakes v. Beer pg 192(1884 HOL)
F was in debt to B. They signed an agreement which outlined the exact days of payment, and amount to be paid
on each day. This agreement allowed F to extend his paying time. At the end of the payments, B claimed interest.
Issue: Can she claim the interest, or is the agreement binding to B?
Decision: The agreement is not binding on B, and she can claim the interest.
Reasons:
o There was no consideration from F – the difference in payment only benefited him.
o The interest was not mentioned at all in the agreement.
Ratio: Practical benefits obtained by having a debtor pay later and in installments does not constitute legal
consideration.
Re Selectmove Ltd. pg 195 (1995 All ER)
S owed the gov‟t money in taxes and insurance. S offered to make monthly payments, and the gov‟t starts
accepting them. Gov‟t then asked for full amount.
Issue: Was the agreement binding?
Decision: No.
Reasons:
o No consideration, despite practical benefits to gov‟t.
o Although the judge liked the argument, he couldn‟t give it effect b/c if he did, it would be contrary to
Foakes v. Beer, and the principle there could never be applied.
o Did not want to change the law
o Roffey must be limited to situations that involve promises to pay more, b/c otherwise it would conflict
with Foakes.
Ratio: Practical benefit is NOT consideration in agreements to accept less.
Foot v. Rawlings pg 197 (1963 SCC)
F owed R a large sum of money. R offered to lower the amount/month and the interest rate. F agreed and gave R
a series of post-dated cheques. They agreed that if any of the cheques bounced, the amount and interest rate
would revert back to the original amounts. F complied with the agreement for over a year, and R sued for the
balance of the debt.
Issue: Was there valid consideration made to R?
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Decision: Yes.
Reasons:
o There is a presumption of consideration if the court can find it
o Interest was explicitly mentioned in the agreement
Ratio: Changing method of payment may constitute good consideration – giving of “something more”.
Judicature Act (2000) (Alberta) pg 200
[1] Part performance of an obligation either before or after a breach will extinguish the obligation:
a. When expressly accepted by a creditor in satisfaction, or
b. When rendered pursuant to an agreement for that purpose though without any new consideration
Note: overrides Foakes v. Beer.
If (a) had happened before this act, and the part performance was done before the breach, it would have still been
enforceable
Requires full satisfaction upon the lesser sum. If payments are not made, the act is not invoked.
ALTERNATIVE APPROACHES TO ENFORCING PROMISES: PROMISORY ESTOPPEL AND WAIVER
Estoppel prevents promisor from retracting their promise.
Only if there is NO consideration do you consider estoppel.
In equity, parties cannot go back on promises intended to be binding, intended to be acted on, and in fact acted on
(three qualities of estoppel) (High Trees)
Estoppel does not provide damages; it is NOT EVER a cause of action. It may only be used to enforce the other
party to perform the promise
Promises that could fall under promissory estoppel:
o a) alter existing legal relations,
o b) need clear intention (objective) and
o c) not applicable if elicited under coercion or economic duress.
Central London Property Trust Ltd. v. High Trees House Ltd. pg 203 (1947 All ER)
HT leases an apartment from CLP and sublets it. Lease is for 99 years. HT could not find renters during
WWII, so CLP reduced the rent. HT continues to make reduced rent payments, and CLP demands full
amount after war.
Issue: Is this agreement enforceable?
Decision: Yes.
Reasons:
o The promise was intended to be bound as long as the conditions prevailed
o Lord Denning decision
o Branched from Foakes
Ratio: In equity, parties cannot go back on promises intended to be binding, intended to be acted on, and in
fact acted on (three qualities of estoppel)
NOTE: Duration or termination of an estoppel as a result of this case:
o a) look at the prevailing conditions and the terms of the promise itself to determine its scope and
o b) if you cannot define the scope, can terminate an estoppel with reasonable notice (cannot be
inequitable).
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Can indulgences by a creditor give rise to promissory estoppel?
Yes, but there must be a clear basis for assumption that the promisor intended to waive enforcement of strict legal
right in the future (e.g. words in an agreement). Simply not objecting is NOT enough (John Burrows Ltd. v.
Subsurface Surveys)
Also, a creditor is barred from his legal rights only when it would be inequitable for him to insist on them. If one
is to claim estoppel, it must be done with clean hands (D.& C. Builders Ltd. v. Rees)
John Burrows Ltd. v. Subsurface Surveys Ltd. pg 205 (1968 SCC)
SS purchased business belonging to JB. Acceleration clause permitting creditor to claim entire amount if there
was default of more then ten days on any monthly payment. 11 day late payments always accepted. Eventually,
JB sues for whole amount under the clause.
Issue: Is JB estopped from suing?
Decision: No.
Reasons:
o Acceptance of late payments does not mean that JB intended to waive his rights – not enough to show
that one party took advantage of the indulgences of the other
o Must be evidence that first party intended that the legal relations would be altered by negotiations.
Ratio: Intention to be bound and express negotiation is ESSENTIAL. Must be clear basis for assumption that the
promisor intended to waive enforcement of strict legal right in the future (e.g. words in an agreement). Not
objecting is NOT enough. Must be inequitable in order for estoppel to apply.
Note: Friendly indulgences in some cases could give rise to an estoppel. The best way to avoid this may be to
simply NOT indulge – if you do, you are running a risk of giving up your rights.
D.& C. Builders Ltd. v. Rees pg 208 (1966 English)
DC had debt of 482 pounds, and R made promise to accept 300 pounds in discharge. Took money because if not,
company would have gone bankrupt.
Issue: Is the settlement binding on the creditor? Is he bound by estoppel?
Decision: Estoppel is not applicable; the settlement is not binding.
Reasons:
o All they are doing is performing party of an existing legal duty.
o No true accord- wife held creditor to ransom and she had no right to insist that they take the settlement.
o Followed Foakes
o Following Roffey, after accepting less, can reassert rights by giving reasonable notice
Ratio: Creditor is barred from his legal rights only when it would be inequitable for him to insist on them. If one
is to claim estoppel, it must be done with clean hands.
What constitutes sufficient reliance by sellers to give rise to equitable estoppel?
To give rise to an estoppel, it is not necessary to show detriment. Could have actually benefited from
representation, but there must be proven reliance on the promise (The Post Chaser)
There must be some element of inequity or unfairness in the promisor going back on the promise, but parties do
NOT have to be worse off.
Société Italo-Belge Pour Le Commerce Et L’Industrie S.A. v. Palm and Vegetable Oils (Malaysia) Sdn Bhd; The Post
Chaser pg 220 (1982 All ER)
SIB agreed to sell oil to PVO, who in turn contracted to sell to sub-buyer. Declaration of ship to be made to buyers
in writing as soon as possible after ship sailed, but was made more than a month after. SIB forced to sell oil
elsewhere at lower cost.
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Issue: Does this delay in making the declaration of shipping give PVO the right to reject the sellers' tender of
documents?
Decision: No. PVO‟s refusal to receive them was a breach.
Reasons:
o Implied promise that they would accept late declaration by not objecting
o Depends on the facts, but it must be inequitable.
o Insufficient reliance in this case – PVO did not act on based on a promise from SIB
Ratio: To give rise to an estoppel, not necessary to show detriment. Could have actually benefited from
representation, but there must be reliance on the promise.
Can estoppel be used as a cause of action?
Traditionally, no (Combe v. Combe), but…
In current law, estoppel may be used as a cause of action, as long as the situation is inequitable and the
requirements for estoppel are met (Robichaud v. Caisse Populaire de Pokemouche)
Courts tend to be reluctant to allow estoppel to be used as a cause of action. Generally, it still isn‟t used as a cause
of action, but the doctrine will prevail in some inequitable situations. (Robichaud v. Caisse Populaire de
Pokemouche)
Combe v. Combe pg 224 (1951 All ER)
Husband agreed to pay maintenance to wife after divorce, not in exchange of anything. Wife suing to make promise
enforceable.
Issue: Can estoppel be used as a cause of action?
Decision: Principle in High Trees does not create new causes of action where none existed before.
Reasons:
o Cannot substitute estoppel for consideration.
o Husband's promise was not a promise to alter
Ratio: Promise must be to change existing legal relations. Estoppel cannot be used for a cause of action on its own.
Robichaud v. Caisse Populaire de Pokemouche Ltée pg 229 (1990 NBCA)
The defendant (Caisse) obtained a judgment against the plaintiff (Robichaud), and agreed to remove from the
registry the judgment against the plaintiff in exchange for an immediate payment of a lesser sum. The defendant
later refused to ratify the agreement and insisted on their strict legal rights. The plaintiff sued to compel the
defendant to accept the lesser payment to satisfy the debt and to remove the judgment as promised. The plaintiff
attempted to use promissory estoppel as a sword.
Issue: Can promissory estoppel be used as a sword?
Decision: Yes.
Reasons:
o There was a legal relationship, a representation, and an action made based on that representation (3
requirements for estoppel)
o The doctrine of promissory estoppel prevails in inequitable situations.
o If the promise in question can be used successfully as a defence to an action, it would be inequitable to
hold that the same promise cannot be used as grounds for an action.
Ratio: In current law, estoppel may be used as a cause of action, as long as the situation is inequitable and the
requirements for estoppel are met.
Does the legal relationship need to be in the present?
No. A reasonable expectation of a future legal relationship is sufficient. However, a promise as to future conduct is
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not sufficient (Walton Stores (Interstate) Pty. Ltd. v. Maher, M.(N.) v. A.(A.T.))
Walton Stores (Interstate) Pty. Ltd. v. Maher pg 245 (1988 Australia)
W entered in negotiations with M for lease of some property owned by the latter, to build a new store. M was going
to have to destroy existing buildings. Lease has not been finalized, but agreement on most terms. Destruction
begins, but W backs out
Issue: Can estoppel be extended to a future state of affairs?
Decision: Equity will come to the relief of plaintiff because of unconscionability.
Reason:
o W knew that demolition had occurred during the weeks of silence.
Ratio: Representation must be as to an existing fact; a promise or representation as to future conduct is
insufficient. However, if there is an expectation of a future legal relationship, that IS sufficient.
M.(N.) v. A.(A.T.) pg 254
Arises out of a failed relationship. M promises to pay off mortgage of A, loaning her money with promissory
note. In reliance of promise, A resigned and moved to Vancouver.
Issue: Is this sufficient to establish promissory estoppel?
Decision: No.
Reasons:
o M was not intending to make a binding promise, therefore promissory estoppel doesn't apply.
o Distinguishable from Walton b/c here there was no intention to create a legal relations
Ratio: Must either have legal relations or have a reasonable expectation that there will be legal relations between
the parties.
Note: Courts tend to be reluctant to allow estoppel to be used as a cause of action.
ALTERNATIVE APPROACHES TO ENFORCING PROMISES: PROMISES UNDER SEAL
Royal Bank v. Kiska pg 252 (1967 ONCA)
The plaintiff brought an action on a guarantee signed by the defendant. However, instead of having a wafer seal,
only the words “seal” were written with the signature of the defendant.
Issue: Is there sufficient formality in the words “seal” to enforce a promise?
Decision: Majority found that there was consideration in this case.
Dissent [Laskin J.]: There is no consideration or sufficient formality to the words “given under seal” written in
replacement of an actual seal. A seal is required where there is no consideration in the contract.
PRIVITY
The doctrine of privity states that you must be a part of the contract in order to sue or be sued:
o Must be one of the people making the contract
o Must be one of the parties giving consideration
Nowadays, the court seems to be making many exceptions to this doctrine; they don‟t seem to like it very much
Exceptions to the privity doctrine tend to be made when the court can establish that the intention of the contract
was for the third party to be protected
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How may a third party acquire a contractual benefit in spite of the doctrine?
A third party has no right to sue in a contract even if he/she receives a benefit; however, she/he may have a right
as executor of the estate, as the estate of the deceased can enforce the legal rights of the deceased (Beswick v.
Beswick (H.L.))
A third party may receive a benefit if there is express mention in the contract that it is intended to extend to them,
and the party who made the contract acts as agent for them (New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite
Co. Ltd)
Employees may obtain the benefit of a limitation of liability clause (London Drugs):
o a) if the clause extends to the employees (either express or implied),
o b) if the employee is acting in the course of their employment and
o c) if the employee is providing the performance of the contract
Whether or not a contract provision will extend to employees or contractors depends on the intention of the
parties and policy reasons (Edgeworth Construction)
An insurance company can sue in the name of someone that they are compensating (subrogation) (Fraser River
Pile)
London Drugs test:
An exception to the doctrine of privity may be made out if:
a. The parties making the contract intended it to extend to the third party in question, and
b. The third party was performing the very activities contemplated as coming within the scope of the contract in
general or the provision in particular
Parties making the contract can make changes to the contract that affect the 3rd
party without the consent of the 3rd
party all the way up until the rights of the third party have crystallized. After that, they can‟t (Fraser River Pile)
Beswick v. Beswick (C.A.) pg 305 (1966)
Peter was a coal merchant, gave business to nephew. In return, nephew was to pay the old man‟s widow 5
pounds/week after his death. When Peter died, his nephew refused to pay the widow. Widow sued both in a
personal capacity and as executrix of the estate.
Issue: Can the widow sue the nephew?
Decision: She could sue as a party to the contract (as executrix), and request specific performance.
Reasons:
o Mutuality – nephew could have sued for SP if Peter had breached
o If damages were given, they would only include the amount payable until that time. After that, she would
have to sue again
o If she sued for damages, only nominal damages would be given potentially, b/c the estate didn‟t actually
lose anything through the breach
o Denning suggested that privity is “only a matter of procedure” – this is kind of crazy and wrong.
Ratio: Where a contract is made for the benefit of a third person who has a legitimate interest to enforce it, it can
be enforced by the third person in the name of the contracting party or jointly with him or, if he refuses to join, by
adding him as a defendant. (Lord Denning)
Beswick v. Beswick (H.L.) pg 306 (1968)
Appeal of above case
Decision: Widow allowed to enforce agreement as executor. Specific performance ordered
Reasons:
o Doctrine of privity prevails
o Specific performance is more convenient – see above
o If specific performance was not granted, it would create a great injustice
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Ratio: A third party has no right to sue in a contract even if he/she receives a benefit (no exception to privity
doctrine); however, she/he may have a right as executor of the estate, as the estate of the deceased can enforce the
legal rights of the deceased.
New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite Co. Ltd. pg 293 (1974 All ER)
Shipping contract between owner and carrier. Also a contract between the carrier and the stevedores (people
unloading the ship). Contract between owner and shipper specified a limited liability for the carrier. Although the
clause said that it covered „agents‟ of the carrier, the stevedores are a 3rd
party to the contract between the owner
and the carrier
Issue: Can the stevedore take the benefit of the provision?
Decision: Yes.
Reasons:
o Bill of lading makes it clear that the stevedore is intended to be protected
o Carriers acted as agent for the stevedores, carrier made a contract with the owner, so through the carrier,
the stevedores had a contract with the owner
o In a business relationship, a gratuitous promise is prima facie implausible
o Performance of services for the carrier was consideration for the agreement that the stevedore should
have the benefit of the limitations in the bill of lading
o Bargain initially unilateral, becomes mutual when they performed their services by unloading the goods
(this is weird)
Ratio: A third party may receive a benefit if there is express mention in the contract that it is intended to extend
to them, and the party who made the contract acts as agent for them. One can act as agent and for self at the same
time.
London Drugs Ltd. v. Kuehne & Nagel International Ltd. pg 298 (1992 SCC)
LD was storing a machine in KN warehouse. There is a limited liability clause of $40 unless insurance was paid.
Employees negligently dropped the machine. LD sued individuals, claiming that the clause does not apply to
them.
Issues: Do employees acting in the course of their employment and performing the contractual obligation owe LD
a duty of care? Can they take advantage of the limitation of liability clause in the contract made by their
employer?
Decision: Yes to both. Court made an exception to the doctrine of privity specifically for employees for a use of
limited liability clause
Reasons:
o Commercial reality – the work of a company can only be done by employees, so the only way the clause
could ever be used is if it extends to employees
o Does not detract from the rights of the parties to the contract very much
o LD agreed to the limitation – just trying to go back on the contract based on a technicality – term was
implied
Ratio: Employees may obtain the benefit of a limitation of liability clause:
o a) if the clause extends to the employees (either express or implied),
o b) if the employee is acting in the course of their employment and
o c) if the employee is providing the performance of the contract.
Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. pg 308 (1993 SCC)
Engineering firm ND made drawings for EC. Drawings were inaccurate and EC lost money, but the contract was
between EC and government. EC sues ND for inaccurate representation, saying that they should know that EC
would be relying on the drawings
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Issue: Can the engineers rely on the provision in the contract between EC and the government to negate their duty
of care?
Decision: No.
Reasons:
o No evidence suggesting that the firm was intended to be covered under the contract
o There were other ways for the firm to protect themselves (insurance, etc)
Ratio: Whether or not a contract provision will extend to employees or contractors depends on the intention of
the parties and policy reasons
Fraser River Pile & Dredge v. Can-Dive Services Ltd. pg 310 (1999 SCC)
FR contracted to get insurance for their barge. Insurance company was told that FR would be leasing the barge to
other parties (charterers) and that the insurance was to extend to the charterers. CD severely damaged the barge,
and the insurance company sues through FR for negligent destruction of the barge
Issue: Is CD entitled to rely on the clause in the insurance contract on the basis of the court‟s exception to privity
established in London Drugs?
Decision: Yes.
Reasons:
o Intention of the contract was to protect the charterers
Ratio: London Drugs test:
An exception to the doctrine of privity may be made out if:
a. The parties making the contract intended it to extend to the third party in question, and
b. The third party was performing the very activities contemplated as coming within the scope of the
contract in general or the provision in particular
Note: Parties making the contract can make changes to the contract that affect the 3rd
party without the consent of
the 3rd
party all the way up until the rights of the third party have crystallized. After that, they can‟t.
CONTINGENT AGREEMENTS
3 types:
Condition precedent to formation
o Something must happen before there is a contract at all. Usually left to the choice of one party to make
the contract or not. “I‟ll buy it if I like it”.
Condition precedent to performance
o Subject to a condition if an event occurs. One party‟s ability to fulfill the contract depends upon the
condition
Condition subsequent
o Parties must perform, but there is a provision that if something happens later, one or both parties will be
excused from further performance
How do I determine whether it’s a condition precedent to formation or a condition precedent to performance?
The law leans in favour of the contract being formed (condition precedent to performance), but the decision will
depend upon the intention of the parties (Wiebe v. Bobsein (BCSC))
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Wiebe v. Bobsein (B.C.S.C.) pg 321
Contract for sale of B‟s house subject to the condition that the W is able to sell his house by a certain date. No
specification as to how much the W‟s house had to sell for. B decided later that he did not want to sell the
property, as the price had gone up significantly
Issue: Was the agreement a binding contract for the sale and purchase of the property, or was it a form of option
that could be cancelled by the D (B) prior to the specified date?
Decision: It was a binding contract – both parties must perform their primary obligations.
Reasons:
o Parties intended for the agreement to be a binding contract
o W had a duty to take reasonable steps to sell his house – if he didn‟t, he would be in breach
o Thus when W‟s property was sold, the contingency was filled and B was obliged to sell. B/c the original
agreement was binding, B could not cancel it
Ratio: A condition precedent operates one of two ways. It either:
i. Prevents the creation of a contract (formation), or
ii. Merely suspends performance of some or all obligations until the condition is met (performance)
The law leans in favour of the contract being formed (condition precedent to performance), but the
decision will depend upon the intention of the parties.
Wiebe v. Bobsein (B.C.C.A.) pg 327
Dissent (Lambert): Contract should not be binding because of the uncertainty of terms. The condition precedent
was uncertain and it could have been remedied by clarifying the term.
Reciprocal Subsidiary Obligations
Contractual obligations that only have to be performed upon satisfaction of a condition precedent are primary
obligations
Subsidiary obligations are other obligations that lead up to the primary obligations
o These responsibilities are often unclear
o The court may imply subsidiary obligations to one or both parties (Dynamic Transport Ltd)
Dynamic Transport Ltd. v. O.K. Detailing Ltd. pg. 332 (1978 SCC)
Sale of land subject to subdivision approval. Neither party obtained it.
Issue: Which party was obligated to obtain the subdivision approval?
Decision: The owner of the land must obtain subdivision approval
Reasons:
o This obligation is implied – owner should make best effort
o Business efficacy – the owner is the only party with the power to do that
Ratio: Even where the contract is silent, the court may imply subsidiary obligations to one or both parties.
What is the remedy for a breach of a ‘best effort’ obligation?
If the plaintiff can prove on a BOP that had the defendant had used best efforts, the plaintiff would have realized
a benefit, then he gets full damages
If not, only nominal damages will be awarded (Eastwalsh Homes Ltd. v. Anatal)
Eastwalsh Homes Ltd. v. Anatal Developments Ltd. pg.335 (1993 ONCA)
Anatal was in breach b/c it did not use its best efforts to register the sub-division within the contractual time
period. If it had, the chances of success would have only been 50%.
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Issue: What is the appropriate remedy in this case?
Decision: Only nominal damages
Reasons:
o P must prove loss on a BOP
o 50-50 does not pass the BOP; must be a greater chance of loss than not
o Thus, the P did not prove the burden that is required to establish loss
Ratio: The plaintiff must prove on a BOP that if the defendant had used its best effort to complete the obligation,
the plaintiff would have realized a benefit. If the plaintiff cannot prove this, only nominal damages will be
awarded.
Unilateral Waiver
Condition Precedent: There is no contract until the condition is fulfilled, satisfied or waived. Usually, the
condition will relate to a specific matter like mortgage financing or the physical state of the premises.
o If a waiver provision has been included, the condition might be to the benefit of only one party. In this
case, the waiver can be executed by that party alone.
True condition precedent: A condition that benefits both parties. E.g. in real estate might include compliance with
Planning Act or registration.
o A true condition precedent involves a third party and cannot be waived.
Can a condition precedent be waived?
A true condition precedent can‟t be unilaterally waived even if it is for the benefit of one party only and the
fulfillment of the condition is completely within the control of that one party. (Zhilka, Barnett)
There is dissent on the rule (Beauchamp), but…
Turney v. Zhilka is the leading case. It has been criticized, but it was reaffirmed in Barnett v. Harrison. In the
exam, should know difference between true and ordinary condition precedent, discuss the different cases
(although in the end, the rule in Zhilka will be the one used)
FYI: Hopp thinks you should only apply Zhilka to same fact situation. Hopp prefers Beauchamp analysis for this
case except for the fact that there is clause that says if conditions not complied with, agreement should be null and
void.
Turney v. Zhilka pg. 339 (1959 SCC)
The parties had a contract that w/a condition precedent that plans must be approved by Village Council.
Purchaser said he was waiving the condition precedent and could do so because it was solely for his benefit. He
then sued for specific performance.
Issue: Can a condition precedent be waived if it is solely for the benefit of one party?
Decision: No.
Reasons:
o It was a true condition precedent – relied on 3rd
party
o Until the event occurs there is no right to performance on either side
o Court acknowledges this actually benefitted both anyway.
Ratio: A true condition precedent can‟t be unilaterally waived even if it is for the benefit of one party only and
the fulfillment of the condition is completely within the control of that one party
Beauchamp v. Beauchamp p. 340 (1973, ONCA)
Parties entered into a contract with a condition that would get 2 mortgages for $12,500. Only got one mortgage.
Seller tried to argue that it was a condition precedent and could not be waived.
Issue: Can a condition precedent be waived if it is solely for the benefit of one party?
Decision: Yes. Specific performance granted
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Reasons:
o Distinguished from Zhilka
o Deemed not a true condition precedent b/c it was put in for only one party.
Ratio: The condition precedent can be waived if it is solely for the benefit of one party and is completely in
control of that party.
Barnett v. Harrison p. 341 (1976, SCC)
Two conditions precedent: purchaser would get zoning approval to use land as desired and provision that could
use sellers name in making application, and if municipality makes suggestions for changes, purchaser could
accept those changes. Agreement said if conditions not complied with, agreement should be null and void.
Issue: Can a true condition precedent be waived?
Decision: No.
o Could not be distinguished from Zhilka.
o Majority said that the true condition precedent could not be waived.
o Laskin, dissenting, said that if it were only to the benefit of the purchaser he would follow Beauchamp
Ratio: Law currently dictates that if it is a true CP, it cannot be waived even if it is only to the benefit of one
party.
REPRESENTATIONS AND TERMS: CLASSIFICATIONS AND CONSEQUENCES
What am I looking at, and what is the remedy for breach?
1. Misrepresentation:
A statement of present fact to another for the purpose of having them enter a contract that a reasonable
person would see and be induced to enter said contract.
Must be false!
If there is a representation calculated to induce a party to enter a contract, then it is an inference of fact
that the party was induced by the representation to enter the contract (Redgrave v. Hurd)
An opinion given by one party with greater knowledge may be a representation if the other party would
not know better for reason of lack of knowledge (Smith v. Land)
3 types:
a. Innocent:
The party did not know that the statement was false
Remedy:
o P can refuse to proceed with contract if executor, can resist an action for specific
performance, and demand that expenses made in reliance be reimbursed
o No damages!
b. Fraudulent:
Statement is a deliberate lie OR person making the statement does not know if it is true and does not
care
Remedy:
o Same rights as innocent misrepresentation, but also has rights after contract is executed or
can rescind the contract
o Can also get damages (Kupchak v. Dayson Holdings Ltd)
o Note: this is subject to rights of third parties, or if the results would be inequitable to the
other party
c. Negligent:
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Made by someone who has inside or particular knowledge and makes a statement knowing that it will
be relied upon by the other party and it turns out to be false
Innocently but negligently made
Remedy:
o Can get damages before or after contract is executed (Kupchak v. Dayson Holdings Ltd)
2. Term (also see „Classification of Terms‟ below):
A promise made as part of a contract
2 types:
a. Warranty:
Less serious term
Breach results in damages only
b. Condition:
Essential term
If breached, can rescind, refuse to proceed, or get damages
c. Innominate:
Cannot be classified as condition or warranty until they are breached
Remedy depends on the consequences of the breach (Hong Kong Fir)
3. Collateral Contract:
A contract made to promote another contract
Existence of a collateral contract must be strictly proved through evidence of the intention of the parties
(Heilbut, Symons & Co. v. Buckleton)
4. Nothing of importance:
A representation that is true – no legal consequence or remedy
Redgrave v. Hurd pg. 355 (1881, English)
Old lawyer wanted to sell partnership in his firm to young lawyer. He claimed that the business made a certain
amount per year, and he gave the young lawyer some papers. Young lawyer found out that the practice was
worthless and refused to proceed.
Issue: What type of misrepresentation was this? What damages could be granted?
Decision: Was classified as an innocent misrepresentation; no damages granted.
Reasons:
o Young lawyer must prove on a BOP that the misrepresentation was made deliberately or recklessly to
prove fraudulent misrepresentation
o Young lawyer did not rely on the papers; he did not look at them lack of due diligence
Ratio: If there is a representation calculated to induce a party to enter a contract, then it is an inference of fact that
the party was induced by the representation to enter the contract.
Smith v. Land
Ratio: An opinion given by one party with greater knowledge may be a representation if the other party would
not know better for reason of lack of knowledge.
Kupchak v. Dayson Holdings Ltd. pg.363 (1965, BCCA)
Fraudulent misrepresentation (which is important b/c the contract was already executed, so if it were innocent, it
could not be rescinded). However, the contract could not be rescinded b/c D had sold half of the property to
someone else.
Issue: What is the appropriate remedy?
Decision: Award of damages granted.
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Reasons:
o Specific performance impossible
o Innocent party was entitled to that remedy (as this was fraudulent)
o So, damages must be awarded in replacement of the specific performance to which they were entitled
o Defence of laches not possible b/c the innocent party gave notice about the upcoming claim to the D
Ratio: For fraudulent or negligent misrepresentation, equity may adjust the rights of the parties by ordering either
one to pay compensation to the other to make good some deficiency in perfect restitution.
Heilbut, Symons & Co. v. Buckleton pg. 371 (1913, HOL)
Man was going to buy shares in a rubber company. The appellants were in such high standing in the industry that
when he asked if they were coming out with a new rubber company he said “that‟s good enough for me!” and
bought shares. The company was crap, and he sued for fraudulent misrepresentation and breach of warranty (a
collateral contract or promise)
Issue: Was there a collateral contract?
Decision: No.
Reasons:
o Existence of collateral contract must be strictly proved – depends on the intention of the parties
o No evidence that the statement made was regarded as anything but a representation of present fact
o The representation was made innocently, so no damages awarded
Ratio: Existence of a collateral contract must be strictly proved through evidence of the intention of the parties
Leaf v. International Galleries
K for sale of painting by a certain artist. Buyer finds out that the painting was done by a different artist, and wants
to rescind the contract
If a condition is breached, P cannot rescind, can only get damages
Implied Terms
3 types of terms which are “implied by law”, rather than intention (Machtinger):
o Necessary for business efficacy
o Implied as a matter of custom or usage
o “Legal incidents of a particular class or kind of contract”
Machtinger v. HOJ Industries Ltd. pg. 463 (1992, SCC)
Reasonable notice in an employment contract.
Issue: Must an employer give reasonable notice if it is not in the contract?
Decision: Yes. Term was implied.
Reasons:
o Courts have implied this term for years
Parole Evidence Rule
States that where there is no fraud, the court will not allow parole evidence (oral) that modifies, contradicts, one
of the statements in the written K (Hawrish)
Exceptions:
o Does not prevent finding that K was result of prior fraudulent misrepresentation
o Not applicable to a collateral oral contract (Hawrish)
o Will not be applied to exclude evidence where despite a conflict, court is convinced of an oral K (Bauer)
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o Cannot use PER to exclude an oral misrepresentation (innocent or fraudulent) in regards to the effect or
meaning of a K (Allstate Grain)
o Can use promissory or equitable estoppel to get around PER
PER creates a strong but rebuttable presumption that the written agreement contains the full K (Allstate Grain)
Hawrish v. Bank of Montreal pg. 412 (1969, SCC)
Ratio: PER is not applicable if it can be established that there is a collateral oral contract.
Note: collateral contracts must be strictly proved on the evidence (Heilbut), and this can be difficult
Bauer v. Bank of Montreal pg. 415 (1980, SCC)
Ratio: Court must be convinced on a BOP that the only agreement between the parties was the written one. Then
the PER will preclude evidence of earlier dealings
Gallen v. Allstate Grain Co. pg. 422 (1984, BCCA)
Group of farmers. Representation induced them to enter K. This representation was in conflict with the written K,
which said that D did not guarantee anything about the productiveness or any other matter pertaining to the seed,
and D was not in any way responsible for the crop.
Issue: Does the PER apply here?
Decision: No. D was held liable.
Reasons:
o Court was convinced that the representation was made to induce, so was prima facie a term
o If evidence indicates that collateral agreement was to have effect, must interpret terms of K in accordance
with it
Ratio: PER is not absolute – it is a presumption that is rebuttable. If the contract is induced by an oral
misrepresentation that is inconsistent with the written contract, the written contract cannot stand.
Classification of Terms
K is a bundle of terms of differing importance. All terms are promises
o Warranty: gives rise to obligation on promisor and right to promisee if it is breached. Obligations and
rights do not end K. If it is thought that K would be made even if the warranty was not part of it, the term
is a warranty
o Condition: more important. Breach sometimes gives ability to rescind. If K would not have been made
but for the inclusion of that term, it is a condition. Evidence of statements made prior to execution of K is
important. Sometimes rescission; sometimes damages. For chattels, only damages may be obtained.
Always ask for both rescission and damages, just in case.
o Not all terms can be classified before breach
Ones that cannot be classified b/c they can be breached in many different ways are called
innominate terms
The legal consequences of a breach, unless specified in the contract, depend on what happens b/c of it, NOT
whether it is a warranty or a condition (Hong Kong Fir)
The classification of a term as a „condition‟ in the K does not necessarily make it a legal condition instead of a
warranty, if the consequences of the breach would result in a different classification (Wickman Machine Tool v.
Schuler)
Hong Kong Fir Shipping v. Kawasaki Kisen Kaisha Ltd. pg.436 (1962, All ER)
Leasing a ship for 24 months; ship was to be made „seaworthy‟ by the owners. Ship was out of service for about 5
months. After that, the charterers refused further performance as the ship was not „seaworthy‟.
Issue: What are the consequences of the owner‟s breach? Can the charterers refuse to proceed with the contract?
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Decision: Remedy is damages – charterers cannot refuse to proceed.
Reasons:
o Many terms cannot be classified as “conditions” or “warranties”
o The breach must deprive the party of everything he expected to receive from the contract in order for
refusing performance to be a remedy. Otherwise, damages only
o Court ruled that here, the breach could be compensated for by damages
Ratio: The legal consequences of a breach, unless specified in the contract, depend on what happens b/c of it,
NOT whether it is a warranty or a condition. If the breach deprives a party of everything he expected from the
contract, he can refuse to proceed. If it does not, he is only entitled to damages.
Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. pg.474 (1972, All ER)
W was to send reps once a week – this was listed as a condition in the contract. Also, under s.11, S had the right
to rescind the K if W breached and did not remedy the breach within 60 days of being informed of it.
Issue: Can S rescind the K?
Decision: No.
Reasons:
o There were many visits to be made
o If even one failure to visit made S able to rescind, it would be unreasonable
o The intention of the parties was not clear
Ratio: A term may be breached in many different ways, so the court tends to look at the consequences of the
breach. The K must be read as a whole. The classification of a term as a „condition‟ in the K does not necessarily
make it a legal condition (vs warranty).
STANDARD FORM CONTRACTS AND EXCLUSION CLAUSES
General Principle of Interpretation
When interpreting a standard form contract, the court will construe any ambiguity in the favour of those that did
not draft the contract/those with less knowledge (Scott)
Scott v. Wawanesa Mutual Insurance Co pg. 468 (1989, SCC)
Family had house insurance; their son Charles burned down the house. Insurer said that there was an exclusion
clause for „loss or damage caused by a willful act of the insured or of any person whose property is insured
hereunder‟
Issue: Does the exclusion clause apply only to the insured responsible for the act, or does it apply to all of them?
Decision: The clause applies to each person separately.
Reasons:
o Seems to ignore the phrase “any person whose property is insured hereunder”
o Terms were clear, but giving them effect would defeat the intention of the parties
o The clause should have been explicitly brought to the attention of the family, since it would be assumed
that it was covered
Ratio: When interpreting a standard form contract, the court will construe any ambiguity in the favour of those
that did not draft the contract/those with less knowledge.
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Unsigned Documents
In ticket cases, the customer is bound by terms as long as they are sufficiently brought to his notice beforehand,
but not otherwise (Shoe Lane Parking)
Any significant term of an unusual nature in a contract must be explicitly brought to the other party‟s attention in
order for the term to be enforceable (Interfoto Picture)
In order to imply a term into a contract b/c of past dealings, the party must prove that the other party had actual
knowledge of that term (McCutcheon)
Thornton v. Shoe Lane Parking Ltd. pg. 478 (1971, All ER)
Car park. Automatic ticket dispenser (pay on the way out). Ticket has clause “All cars parked at owner‟s risk”.
Sign by dispenser said “Subject to the conditions of issue as displayed on the premises”. Man is injured partially
due to negligence of the parking company
Issue: Were the conditions binding?
Decision: Not all of them. The ones that were unexpected and not brought to his attention were not binding.
Reasons:
o Once he had the ticket, T couldn‟t practically have stopped to read the conditions – he was committed
o Some conditions were onerous – not what would be expected (not liable for anything)
Ratio: In ticket cases, the customer is bound by terms as long as they are sufficiently brought to his notice
beforehand, but not otherwise. He is not bound by the conditions on the ticket, b/c he has already committed at
that point.
Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. pg. 483 (1988, All E.R.)
IP sent photos to SV upon request. Rep from SV did not return them in a timely manner, and as per the contract,
they were charged an exorbitant fee for every day past 2 weeks that they had the photos. This was set out in the
delivery note w/the photos, and they then called IP to confirm receipt of them.
Issue: Did IP do what was necessary to bring the exorbitant fee to the attention of the D?
Decision: No – thus, the clause is not binding, and IP only gets what the average fee would be.
Reasons:
o Court ruled that there was a contract, however…
o SV could not have known that the holding fee would be that high if their attention was not drawn to the
clause – was not an ordinary term
o The term was not drawn to SV‟s attention in any way by IP
Ratio: Any significant term of an unusual nature in a contract must be explicitly brought to the other party‟s
attention in order for the term to be enforceable
McCutcheon v. David MacBrayne Ltd. pg. 488 (1964, HOL)
Man did not sign the risk note from company, but he had contracted with them frequently before. Due to their
negligence, he lost his car. He did not read the conditions at any point
Issue: Are the conditions of the contract binding?
Decision: No. The company must pay for the car.
Reasons:
o Practically, it would take a ridiculous amount of time to read the contract, and it would not be efficient to
do so
o Thus, the contract was not meant to be read or understood
o If the man had signed the contract, he would not have a case, but the court cannot imply a term that a
party did not know about
Ratio: In order to imply a term into a contract b/c of past dealings, the party must prove that the other party had
actual knowledge of that term.
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Signed Documents
A party seeking to rely on onerous terms must take reasonable measures to draw the terms to the attention of the
other party, and in the absence of reasonable measures, the term will not be enforced (Tilden) IF one of the
following conditions are present (Silver Star Mountain Resorts):
1. Document is signed in circumstances which made it “not her act” (non est factum)
2. Agreement has been induced by fraud or misrepresentation
3. The party seeking to enforce the document knew or had reason to know of the other‟s mistake as to its
terms
Tilden Rent-a-Car v. Clendenning pg. 492 (1978, ONCA)
Man rents a car and pays for additional coverage. He damages the car, but there is a clause that says that if he
breaches the contract in any way at any time, they will not cover the cost, and he had breached a condition
(consuming alcohol)
Issue: Is the clause effective?
Decision: No.
Reasons:
o The conditions are onerous
o E.g. if he was driving on a parking lot, he wouldn‟t be covered, drinking ANY amount of alcohol at all
o The condition in question was printed in tiny, faint font on the back
o Employees were instructed not to tell customers about the condition unless they were directly asked
Ratio: Notwithstanding that the contract was signed, a party seeking to rely on onerous terms must take
reasonable measures to draw the terms to the attention of the other party, and in the absence of reasonable
measures, it is unnecessary for the wronged party to prove fraud, misrepresentation or non est factum (a mistaken
signing of a contract done w/out negligence)
Karroll v. Silver Star Mountain Resorts Ltd. pg. 496 (1988, BCSC)
Woman competing in a ski competition. Signed a document that she may or may not have read, but she knew that
it limited her legal rights. There is an exclusion clause for liability by the resort. She hits someone and sues.
Issue: Is she bound by the exclusion clause?
Decision: Yes.
Reasons:
o She likely had time to read it
o It was a typical contract for this sort of activity
o She knew that she was limiting her legal rights when she signed it
o No requirement to bring the term to her attention b/c this case does not fall under any of the 3
circumstances in which that is required by law
Ratio: The rule that an exclusion of liability clause is not applicable unless the party takes reasonable steps to
bring it to the other‟s attention is a limited principle, applicable only in special circumstances. The fact that a
signed contract was not read only nullifies terms in 3 circumstances:
1. Document is signed in circumstances which made it “not her act” (non est factum)
2. Agreement has been induced by fraud or misrepresentation
3. The party seeking to enforce the document knew or had reason to know of the other‟s mistake as to its
terms
The Doctrine of Fundamental Breach
States that as a rule of law, exemption clauses can only be relied upon when the party is carrying out the contract
in its essential respects (Karsales)
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The doctrine has been overruled (Hunter).
o However, if the courts will not allow a party to rely on an exclusion clause if it is unconscionable
(Dickson J.) or unreasonable (Wilson J.) (Hunter, Fraser Jewellers)
o This applies even if the exclusion clause is clear – parties cannot engage in unconscionable conduct and
use the exclusion clause as a safety net (Plas-tex v. Dow)
o If the clause is clear and it is not unconscionable to allow the party to rely on it, the court will give effect
to the clause, even if it is a fundamental breach (Solway)
Karsales (Harrow) Ltd. v. Wallis pg.506 (1956, All E.R.)
Hire-purchase owner sells car to finance company, purchaser gets financing for car from the finance company.
When man looked at the car w/the owner, it was fine. When it was delivered by the finance company, it was “in a
deplorable state”. There was an exclusion clause between the finance company and purchaser that there is no term
of any sort.
Issue: Did the finance company breach the contract?
Decision: Yes.
Reasons:
o Under a hire-purchase agreement, there is an obligation for the lender to deliver the car in substantially
the same condition as when it was seen
o Buyer was deprived of everything he expected to receive in the contract – thus it was a fundamental
breach, and the term breached was a condition
Ratio: Exemption clauses can only be relied upon when the party is carrying out the contract in its essential
respects. A party cannot use an exemption clause to avoid basic contractual obligations, no matter how broad the
clause is. This is a rule of law.
Photo Production Ltd. v. Securicor Transport Ltd. pg. 508 (1980, H.L.)
Contract for security services – make 4 visits per evening for a small sum. One night, a security employee
deliberately started a fire. S relied on an exclusion clause.
Issue: Was S liable to P despite the exclusion clause?
Decision: No.
Reasons:
o Overruled Karsales – no such rule of law as stated above
o The words were clear in the clause
o It was reasonable for the parties to rely on it
Ratio: If the exclusion clause is clear as a matter of construction and it is reasonable for the parties to rely on it,
the courts will give effect to the clause.
Hunter Engineering Co. Inc. v. Syncrude Canada Ltd. pg. 514 (1989, SCC)
K for purchase of conveyance system. Exclusion clause affecting warranties. Gearboxes broke down after less
than a year.
Issue: Should D be allowed to rely on the exclusion clause?
Decision: Yes.
Reasons:
o Overruled Karsales in Canada
o This was done b/c that was the true issue behind the doctrine of fundamental breach – new tests get to the
root of the issue
o Here, it was not unreasonable or unconscionable to allow D to rely on the clause
Ratio: There is no rule of law as stated in Karsales. However, the courts will not allow a party to rely on an
exclusion clause if it is unconscionable (Dickson) or unreasonable (Wilson).
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Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. pg. 528 (1997, ONCA)
Jewelry store hired monitoring service to respond if there was a break in. Thief broke in and there was a delay by
D. Thief escaped. Exclusion clause excluding liability by D.
Issue: Can they rely on the exclusion clause?
Decision: Yes.
Reasons:
o Clause was clear
o Not unconscionable or unreasonable to allow the party to rely on it
o Mere inequality of bargaining power is not enough to be unconscionable – there must be an abuse of
bargaining power
Ratio: Regardless of whether the breach is fundamental, an exclusion clause should prima facie be enforced
according to its true meaning, unless the enforcement of the clause is unconscionable or unreasonable.
Solway v. Davis Moving & Storage Inc. pg. 533 (2002, ONCA)
K for moving and storage of antiques, including several rare and valuable artifacts (known to the mover).
Exclusion clause limits liability of the mover to 60 cents/pound (about 10% of loss). D left its truck on a public
street open and theft occurred.
Issue: Should D be allowed to rely on the exclusion clause?
Decision: No.
Reasons:
o The representation made by D to induce S to enter the contract involved the goods being safe
o This makes it unreasonable or unconscionable to rely on the clause
Ratio: Parties are allowed to rely on an exclusion clause if it is not unreasonable or unconscionable in the
circumstances to do so.
Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd. pg. 538 (2004,SCC)
Dow sold resin that it knew was defective & knew would cause loss and/or damage. Dow tried to rely on a
broadly worded exclusion clause.
Issue: Is Dow liable?
Decision: Yes.
Reasons:
o Difference in bargaining power
o Dow knew that the resin was dangerous and knew what it would be used for and knew that Plas-Tex did
not know it was defective
o Dow only sold it b/c the exclusion clause would protect them from all liability
Ratio: Even if a clause is clear, a party to a contract cannot engage in unconscionable conduct and use the
exclusion clause as a security net.
OBSTACLES TO THE ENFORCEABILITY OF CONTRACTS: THE STATUTE OF FRAUDS
Section 4:
o Certain types of contracts must be in writing to be enforceable
o The K‟s are still valid, just not enforceable
So, can still be used as a defence to an action, but cannot be used as basis for an action
Can be consideration for a new K
o Note: the contract itself does not need to be in writing, as long as you have a memorandum or note that is
signed
Memo can be written after the K
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It only needs to be signed by the person who wants to rely on s.4 (or an agent of that person), not
both parties
“Sufficient” signature is quite broad – can appear anywhere in the document, as long as it‟s clear
This memo can be in more than one document, as long as it is possible to link the two documents
Section 17:
o No longer law in Alberta
5 Types of K caught under s.4:
1. Contract re: marriage between others
2. K for purchase and sale of interest in land
If there are sufficient acts of part performance for this type, K may be upheld
o These acts must be special, unequivocal, and must by themselves prove the existence of the K
o If there are other possible reasons for the actions, it does not count as part performance (Deglman v.
Guaranty Trust)
o If the court believes that there was a K made, and that the acts were done by the P in reliance of this
K, and that it would be inequitable not to enforce the agreement, it will be enforced, even if the acts
are not “equivocal”. (Lensen v. Lensen)
3. Personal guarantee – where one party promises to fulfill the obligations of another if the other does not fulfill his
obligation. By far the most important type of K today that is caught under s.4
Memo needs to be signed by guarantor
4. Contracts not to be performed within a year
Either explicitly or implied
5. Contracts to Charge an Executor or Administrator on a Special Promise to Answer Damages out of his Own
Estate (rarely seen)
Note: must still be a K – thus must have consideration
Deglman v. Guaranty Trust Co. (1954, SCC)
Police officer had an aunt who owned 2 houses. He helped maintain them, and in return she promised that he
would get one of the houses upon her death. K, but no writing. Death, but no house. He sued the estate, alleging
part performance.
Issue: Was his contribution sufficient for part performance?
Decision: No. No remedy awarded whatsoever.
Reasons:
o S.4 of the SOF prevents it
o Followed Maddison v. Alderson, which had far stronger facts and no remedy awarded
o There were other possible reasons for the man‟s actions
Ratio: If there are other possible reasons for the actions, it does not count as part performance. Court is really
asking for alternate evidence of the K.
Lensen v. Lensen pg. 271 (1984, Sask CA)
K for purchase and sale of interest in land.
Issue: What is the test for sufficient part performance in a purchase and sale of land?
Ratio: If the court believes that there was a K made, and that the acts were done by the P in reliance of this K,
and that it would be inequitable not to enforce the agreement, it will be enforced, even if the acts are not
“equivocal”.
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OBSTACLES TO THE ENFORCEABILITY OF CONTRACTS: THE PROTECTION OF WEAKER PARTIES
Got fraud?
o Can avoid K
o Can hold other party to performance and sue for damages
Mental incapacity – if one party takes advantage? (drunk counts)
o Can avoid K
o Can enforce K
K that is not a K at all – something fundamentally wrong with K
o Void ab initio
Terminable K – can be terminated before it is finished
Voidable K – no damages. It just ends b/c it isn‟t a K at all
Duress
Traditionally, duress involved a threat of violence
Economic duress is a threat of an economic kind that results in a promise where the party threatened does not
really consent. (Greater Frederickton Airport Authority Inc. v. Nav Canada)
Greater Frederickton Airport Authority Inc. v. Nav Canada pg. 666 (2008, NBCA)
Nav Canada promised to install certain machinery, but when the time came, they refused to do it unless GF paid
for it. GF needed the machinery, so it agreed to pay b/c it was causing problems
Issue: Is there economic duress in this case?
Decision: Yes.
Reasons:
o Nav Can refused to fulfill their contractual obligation, and GF had no practical alternative but to pay
o Lack of practical alternatives is evidence of ED, but not conclusive proof of it
o In the circumstances, it was determined that GF did not really consent to pay
Ratio: Economic duress is a threat of an economic kind that results in a promise where the party threatened does
not really consent.
Undue Influence
Relationships where one person exerts will over another
Equity states that where it is clear that undue influence could be exerted (by knowledge, strength, status,
relationship, etc), there is a rebuttable presumption of undue influence
o The presumption is only there if there is a status relationship
If one party can overcome the other, a status relationship is made out
o Burden is on stronger party to disprove it on BOP
o One way is to prove that weaker party had independent legal advice
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