COMM 393
PRACTICE MIDTERM AND GUIDE
QUESTION 1: 25 marks
Sam Oakes runs a business known as “Oakes by Oakes”. Sam is a man in his late fifties
who for a number of years has produced oak spindles for staircases. A number of people
had approached him to do oak baseboard and trim for custom homes and he decided to
enter this field as well.
Sam spoke to his friend George who produced this line of products in pine, and asked
him what to do about equipment. George told him Eric of “Eric’s Tool Shop” had sold
him a Model SS90 table router made by Carsoncraft Tools as being “just perfect for
baseboard and trim”.
Sam then went to Eric’s Tool Shop and spoke to Eric. He told Eric that he had spoken
with George about the SS90 and told him that was interested in making baseboard and
trim. Eric said he remembered the sale to George and said “if you want to do baseboard
and trim the 90 serious is the best on the market. George, I hear, does about 5000 feet
per year. Would you do more than this?” Sam said no, the he would only produce about
4000 feet of trim and baseboard per year. “Then the SS90 will do you fine” said Eric.
The shop phone rang and while Eric was on the line, Sam wrote out a cheque on the
Oakes by Oakes account in the amount on the price tag on the router. Eric returned to
talk to Sam and Sam handed him the cheque. Eric promised to deliver the router by the
end of the month.
Sam immediately entered into a contract with a developer to produce oak trim over the
course of the month to follow delivery of his router. The router was delivered on time
and Sam began work. The machine laboured through the oak and eventually slowed.
Suddenly, smoke poured out of the motor and the machine quit working altogether.
Sam took the router back to Eric and complained. Eric was astonished that Sam was
using oak to make the baseboard and trim. “Nobody does that anymore! It’s too
expensive! I assumed when you said you spoke to George that you were going to use
pine. The SS90 is for soft woods if you were going to need a router for hardwoods you
would need the HS90 series. Because this SS90 cannot be repaired I will place it with
the HS90 router for you but the HS series machines are special order items and they
cost more. If you pay the difference in price of $300 I will put in the order. It will arrive
in a couple of months”.
Sam protested. “You sold me the wrong router so I shouldn’t have to pay the difference
between the SS90 and HS90! AND if I don’t have the trim done in two weeks, I will lose a
profit of $25,000 on a contract that I have with a developer!”
Eric responded, “Look, I’m being more than fair here. You asked me for that machine
and then you wrecked it. There’s nothing more I can do for you. Do you want the HS
machine for $300 extra or not?”
a) 15 marks
21 minutes
Advise Sam fully as to his legal rights and remedies against Eric’s Tool Shop. Be sure
to explain the law fully.
b) 10 marks
15 minutes
Would your answer in part a) change if Sam had signed an agreement with Eric’s
Tool Shop containing the following clause?
“The parties agree that there are no representations, guarantees or warranties
relating to the equipment other than those which appear herein. The buyer hereby
waives any protection under the Sale of Goods Act.”
QUESTION 2: 25 marks
On September 10, Thrifty Supermarket entered into a contract in writing to sell land
that it owned to Bora Bros. Ltd., real estate developers that intended to clear the site
and build town houses on it. Bora Bros. agreed to pay $4 million for the site, and
completion (the date that title would transfer and the money would change hands) was
to be December 1. Bora Bros. gave Thrifty Supermarket a deposit of $250,000. The
contract was made “subject to Thrifty Supermarket providing Bora Bros. with a
satisfactory environmental assessment on or before October 15.” A term of the
agreement said:
The buyer agrees that the seller makes no representation regarding:
a) zoning or
b) the availability of a development permit.
Thrifty Supermarket obtained the environmental assessment and delivered it to Bora
Bros. by courier on October 15 with a letter saying that as part of the closing documents
Thrifty would require Bora Bros. to sign an agreement not to open any grocery business
on the site for a period of one year that competed with Thrifty Supermarket.
a) 10 marks 15 minutes
The market value of the site is now only $3 million and Bora Bros. has told Thrifty
Supermarket that it will not go through with the purchase. Could Bora Bros. get out of
the deal and recover its deposit from Thrifty Supermarket?
b) 10 marks 15 minutes
The reason that the property has dropped in value is that on September 10, city council
decreased the density of building that would be allowed there. Would this fact give
Bora Bros. any grounds for getting out of the deal and recovering its deposit?
c) 5 marks
7 minutes
Would it make any difference to your answer to part b) if the decision of city council had
been made August 15, but that neither Thrifty Supermarket nor Bora Bros. knew about
the decision until October 20?
QUESTION 3: 10 marks
15 minutes
Does the Canadian Charter of Rights and Freedoms apply to decisions of the Canadian
Forces? Explain your reasoning fully.
ANSWER GUIDE
QUESTION 1:
a) 15 marks
Does the SGA apply?
The SGA applies to the sale (where title passes from the seller for $ consideration from
the buyer) of goods (tangible personal property). The SGA applies here as Eric is selling a
router for money consideration from Sam.
Sam will try to argue that there has been a breach of the implied terms for
merchantability and fitness for purpose under the SGA in order to obtain the remedy of
rescission.
Is there a breach of the implied term for fitness for purpose? If so, what are the
damages?
In order to prove a breach of the implied condition for fitness for purpose, Sam will have
to prove that he communicated his purpose for the goods, relied on Eric’s skill and
judgment and Eric normally deals in goods of that description. (KOBELT CASE) He will
argue that Eric should have known that he was making baseboard and trim out of oak
because of the name of his business “Oakes by Oakes” which has clearly printed on the
cheque that Sam gave to Eric to pay for the goods.
If a court agreed that there was a breach of the SGA then Sam would argue that he is
entitled to the new machine for the same price and he would also try to claim damages
for his lost profit of $25,000. The damages recoverable would be those that are
reasonably foreseeable to the parties at the time of the breach (Westcoast
Transmission). Sam would also have to show that he did what was reasonable to
mitigate his losses.
Under these rules, Eric would be liable for replacing the machine at the same cost
however he will argue that he is not liable for Sam’s lost profits as they were not
reasonably foreseeable to him at the time of the contract. He would also argue that
Sam did nothing to mitigate his losses by renting another router, for example, to finish
the job.
Eric will argue that the purpose for the goods was not communicated to him with
reasonable precision. He made the assumption that Eric was using the tool for softer
woods because of the sale he made to George, Sam’s friend, and because no one makes
baseboard and trim out of oak anymore because it is too expensive. Eric will argue that
had he known that Sam would be using the router for hard woods he would have
recommended a different model.
I think a court would decide that there has been no breach of the implied condition as
to fitness because Sam did not communicate his purpose nor did rely on Eric’s skill and
judgment and Sam would get no remedy (ARGUABLE)
Is there a breach of the implied condition of merchantability?
Sam might also try to argue that there had been a breach of the implied condition that
the goods be merchantable. Here Sam would have to prove that the goods were not fit
for their normal purpose and were not saleable. The router is merchantable for soft
woods, but not suitable for Sam’s purpose. A court would likely find that the router was
merchantable.
A court would probably find that Sam has no remedy under the SGA because the router
was merchantable and there has been no breach of the implied term for fitness.
b) 10 marks
Under S.20 of the SGA a seller is permitted to include a clause excluding liability for
breaches of the SGA if the seller is selling to a buyer for business. Because Sam is buying
for his business, Eric would be permitted to include this clause.
Dawe v. Cypress Bowl states that the seller must do what is reasonable to bring the
terms to the buyer’s attention. Because this term is clearly worded and is in a contract
that Sam signed I think a court would say that the clause is enforceable.
If a court found that there was a breach of the implied term as to fitness for purpose
then this clause would protect Eric from liability UNLESS Sam were able to show that
reliance on the clause by the seller would be unconscionable (Maloney case). The effect
of a finding that the clause is unconscionable is that the clause is nullified. It could be
that because the good was destroyed and was not repairable that reliance on the
exclusion clause in this case would be unconscionable and therefore nullified (arguable)
and Sam would be entitled to rescission or damages.
QUESTION 2:
a) 10 marks
An anticipatory breach of condition (an essential term of the contract) requires a
definite, unequivocal manifestation of intention on the party of the repudiator that he
will not render the promised performance when the time for it in the contract arrives
(Brealta case) The requirement was not part of the original contract and is being
introduced by Thrifty after the contract. This could probably be considered an
indication that Thrifty will not complete unless this requirement is met, therefore and
anticipatory breach of condition. Bora Bros. would be entitled to get out of the deal and
sue Thrifty for damages.
This case is different from the Montane case. There the court said that by including a
statement in the addendum that the vendor would provide inspection certificates, the
buyer was just recording the content of a previous telephone conversation, and not
indicating that it would not go through with the deal if the inspection certificates were
not provided. This case is different because the non-competition clause had not been
discussed previously, and Thrifty does seem to be indicating that it will not go through
with the deal unless the non-competition term is agreed to.
b) 10 marks
Can Bora Bros. claim frustration of contract? Frustration is a supervening event beyond
the control of either party that renders performance impossible or radically different
than intended. Hardship is not frustration. Frustration will discharge the contract unless
there is a term that says otherwise.
The question would be whether the decision of city council that devalued the land
qualifies as frustration. It is still possible to perform the contract – but is performance
radically different. Probably a decision that reduces the number of townhouses allowed
and reduces the value of the property to this extent would qualify as frustration, and
Bora Bros. would be able to get out of the deal. (arguable).
c) 5 marks
Again, frustration is a supervening event beyond the control of either party that renders
performance impossible or radically different than intended.
Here there would be no frustration because this is not a supervening event. It did not
happen after the contract was entered into. If Bora Bros. backs out of the deal, it will be
liable for breach of contract.
QUESTION 3: 10 marks
In the Liebmann case the court had to consider the question of whether the decisions of
governmental officials could be scrutinized under the Charter of Rights and Freedoms.
The Charter only applies to Government and prevents the government from creating
legislation which would infringe upon any of the rights protected in the Charter. In the
Liebmann case, Liebmann argued that the decision not to hire him for a position in the
Canadian Forces because of his religion was unconstitutional as being contrary to
Section 15 of the Charter. The court reasoned that because the governmental official
making that decision was authorized to do so pursuant to the National Defence Act (a
Federal statute) that this gave the court the jurisdiction to apply the Charter to
Government AND Governmental action and decision making.
The Government’s only defence to this action would be to argue that the decision not to
hire Liebmann because of this religion could be reasonably justified in a free and
democratic society under S. 1 of the Charter.