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CONTRACTS SUMMARY
Contents
GENERAL INTRODUCTION TO CONTRACTUAL REMEDIES: ........................................... 2
Damages:..................................................................................................................................... 3
Measurement: .......................................................................................................................... 3
Mitigation:............................................................................................................................... 4
Remoteness ............................................................................................................................. 4
Specific Performance and Injunction: ......................................................................................... 5
FORMATION OF THE CONTRACT ........................................................................................... 5
Intention to Create Legal Relationships:..................................................................................... 5
Offers: ......................................................................................................................................... 7
Offer Mechanics: .................................................................................................................... 7
Duration of Offer .................................................................................................................... 9
Acceptance: ............................................................................................................................... 12
Communication of Acceptance ............................................................................................. 12
Time and Place:..................................................................................................................... 15
Acceptance of Unilateral Offers: .......................................................................................... 15
Consideration : .......................................................................................................................... 16
General .................................................................................................................................. 16
Sufficiency of Consideration: ............................................................................................... 16
Past Consideration: ............................................................................................................... 17
Performance of Existing Duty: ............................................................................................. 18
Promissory Estoppel ............................................................................................................. 19
PLAN OF ATTACK FOR THIS AREA: ............................................................................. 21
Certainty or Ascertainability of Terms: .................................................................................... 21
Capacity to Contract: ................................................................................................................ 23
TERMS OF CONTRACT............................................................................................................. 24
Interpreting Written Contracts: ................................................................................................. 24
Implied Terms of Contract: ....................................................................................................... 27
Exclusion Clauses: .................................................................................................................... 28
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Old Method to deal with these clauses: ................................................................................ 28
Construction of exclusion clauses ......................................................................................... 29
PLAN OF ATTACK FOR THIS AREA: ............................................................................. 31
DEFECTS IN CONTRACTUAL RELATIONS: ......................................................................... 31
Misrepresentation:..................................................................................................................... 31
Prerequisites of Actionable Misrepresentation: .................................................................... 31
Types of Misrepresentation: ................................................................................................. 32
Remedies: .............................................................................................................................. 33
Mistake:..................................................................................................................................... 35
Types of Mistake: ................................................................................................................. 35
Common Mistake:................................................................................................................. 36
Mutual Mistake: .................................................................................................................... 37
Unilateral Mistake:................................................................................................................ 38
Mistaken as to Document (Non Est Factum): ....................................................................... 39
Frustration: ............................................................................................................................ 40
PLAN OF ATTACK IN THIS AREA: ................................................................................. 41
Illegality: ................................................................................................................................... 41
Types of illegality: ................................................................................................................ 41
Consequences of Illegal Contract: ........................................................................................ 44
Unconscionability: .................................................................................................................... 45
ENFORCEMENT, BREACH AND REMEDY ........................................................................... 47
Privity........................................................................................................................................ 47
GENERAL INTRODUCTION TO CONTRACTUAL REMEDIES:
Remedies for Breach of Contract:
Substitutionary remedy (compensate people to put them in similar situation to what they
would have been in had the contract been performed)
1. Damages
equitable remedies:
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2. Specific Performance
3. Injunction
Damages:
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main remedy for breach of contracts = award of damages
rights to damages for breach of contract is a matter of law
o idea damages not have to be specified in the contract
can pre-estimate damages (agree to what damages can be if contract is breached) if it’s a
genuine attempt to pre-estimate damages
o if not genuine – may be unenforceable as a penalty clause
compensate for damages that the defendant should have realized were going to occur
when the defendant entered into the contract
o contract is a bargain
o different than torts
 not about a bargain – compensate for wrongful behaviour
in general no punitive damages for breach – not punish people for breach, compensate
people for breach
also cases show is a thing such as intangible injury that isn’t too remote to be recovered
o not in line with pure bargain theory
o giving people money almost as punitive damages
o can have damages for disappointment in contract (Jackson v. Horizon Holidays)
 per Jarvis v. SwansTours – damages for loss of holiday may include:
 difference in value between what promised and what obtained
 damages for mental distress, inconvenience, upset, disappointment,
frustration caused by loss of holiday
can also have damages for family members, in spite of privity issues (Jackson v. Horizon
Holidays)
in rem remedy
o can enforce whenever defendant has assets
damages not always an effective remedy (Warner Bros. Pictures v. Nelson)
o performance is unique, money probably not effective replacement
Measurement:
 for service contract – damages = difference between cost of getting someone else to
perform and cost of getting you to perform
 for goods – damages = prima facie difference between contract price and market price
o reflected in section 49 of Sale of Goods Act
o is prima facie – not always
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some situations difference between contract price and market price not
right ex. when is a glut of product on the market (Thompson Ltd. v.
Robinson Ltd.)
o rules not apply very well at personal level (Ruxley Electronics Ltd. v. Forsyth)
can’t say impossible to calculate damages if can show lost chance (Howe v. Teefy)
o CHECK
Mitigation:
 if is breach of contract –innocent party can’t just sit back and let damages flow
 have obligation to mitigate (limit) your damages (Victoria Laundry Ltd. v. Newman
Industries)
 obligation at common law to mitigate your damages
 question of what reasonable person to do in mitigation of damages = question of fact (not
law), depends on circumstances (Payzu v. Saunders)
 includes idea maybe have to go find someone to perform as quickly as can
o have to do what’s reasonable under circumstances to limit damages
 sometimes best way to mitigate damages = give party a second chance, BUT  not if
circumstances are such that by going back and trying to mitigate with party will have a
re-breach and likelihood of no performance second time around (Payzu v. Saunders)
Remoteness
 not recover if damages too remote
 test to determine if damages are too remote: (Hadley v. Baxendale)
o Only recover if
1. damages flow naturally from the breach
2. special circumstances known by the parties at the time the contract was
formed (special circumstances have to be communicated)
o use objective test to determine if damages are too remote
o In Hadley v. Baxendale – lost money because contract was not performed- not tell
the defendants it was their only shaft, not reasonable to assume that a mill would
only have one shaft, not fair to force defendant to compensate for special damages
that he shouldn’t have foreseen
o in Victoria Laundry Ltd. v. Newman – recover for loss of profit (could argue
recover profits under either branch of Hadley – profit damages flow naturally
from the breach, could also argue were communicated special circumstances
known to each party – communication between parties about urgency and wanting
to increase profits)
 however not recover for loss of special government contract – special
circumstance, not known to defendant at time made contract
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Specific Performance and Injunction:
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equitable remedies
o not substitutionary
 are orders of the court that say perform the contract (or not breach a
negative stipulation of the contract) or else is a contempt of court
o can be put in jail
o hard remedy for court to order because they have to police it in the future
o general rule – not get equitable remedy if common law remedy of damages is
appropriate
o discretionary remedies- should be administered in fair fashion (ex. not injunction
forever but 3 years or until end of contract in Warner Bros Pictures v. Nelson)
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not order specific performance for personal service (Warner Bros. Pictures v. Nelson)
o policy considerations – slavery
any contract for sale of an interest in land = unique contract, therefore specific
performance applies
not have any problem making people perform their contract through injunction as long as
not offend policy considerations (Warner Bros. Pictures v. Nelson)
o not want people to make contracts and then just walk away from them
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FORMATION OF THE CONTRACT
Intention to Create Legal Relationships:
1. Before a court will enforce an agreement between parties, the parties must evidence an
intention to be bound by the agreement. Only when such an intention exists can there be a
legally-binding contract.
2. In ascertaining the existence of intention, the law provides a number of presumptions,
depending on circumstances:
a. In domestic relationships, there is presumption that the parties do not intend their
agreements to have legal consequences (Balfour v. Balfour – husband and wife)
b. This presumption also extends as well to more distant relatives (Jones v.
Padavatton – presumption is broader than spouses, mother and daughter -parents
and children (Jones v. Padavatton tells us further family members probably
covered under presumption, though is weaker) ; Parker v. Clark- uncle/aunt and
niece)
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c. It also extends to more distant family circles and friends (as in Simpkins v. Paysgrandmother, granddaughter and border)
** idea that strength of presumption increases with strength of relationship
d. In business relationships, the presumption is that parties intend to be bound
(Carlill v. Carbonic Smoke Ball Company;(say get 1000 pounds if use product
and get flu, company argue was just a “puff”, court find is contract, Carbolic
Smoke Ball Company not rebut the presumption) Rose and Frank Ltd. v.
Crompton)
3. In each case, the presumption is rebuttable (not absolute) by leading evidence that shows
an opposite intention.
4. The onus of proof to rebut the presumption is on the party against whom the presumption
is taken – requires person to lead evidence that suggests in spite of the existence of the
presumption – a contract was intended (Salmon L.J. in dissent in Jones v. Padavatton)
a. onus on party trying to rebut to lead evidence that suggests in spite of the
existence of the presumption- a contract was/ was not intended
5. Test applied to determine if the presumption is rebutted is an objective test.
a. Court not ask “did these parties actually intend to contract?”
b. Court find the requisite intention if an ordinary reasonable person, having
considered all of the facts, would have come to the conclusion that the parties
intended to be bound (per Salmon L.J. in Jones v. Padavatton)
i. reasonable person test
6. A number of factors are seen to be relevant to rebutting the presumption:
a. in domestic relationships
i. if at the time of the agreement, the parties are not living in amity (Merritt
v. Merritt (husband and wife were separated at time of agreement))
ii. documentation (more likely intended contract when it’s in writing) or
other formalities, such as the involvement of a lawyer (people who make
non-contractual arguments don’t involve lawyers), may also be important
(Merritt v. Merritt (wife got husband to write down agreement); Jones v.
Padavatton (mother’s lawyer was involved))
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iii. the severity of the reliance placed on the promise (Salmon L.J. in Jones v.
Padavatton (Salmon in dissent said –the more a party alters their position
as a result of a promise (the enforceability of which is in question)- the
more likely it is the parties can be seen to have intended it as a contract);
Parker v. Clark (sold house based on promise to live with aunt and uncle
for life)
iv. whether the terms of the agreement are clearly set out and certain
(Delineating specific, for example responsibilities, suggests existence of a
contract- when have vagueness – suggests no contract – Fenton Atkinson
L.J. in Jones v. Padavatton)
v. whether the nature of the agreement can be seen as having formal, or even
informal, commercial implications (Roufos v. Brewster; Simkins v. Payscourt find constituted an informal syndicate for profit that is strong enough
to rebut the presumption – family/ friend relationship consumed by
business element of relationship), made contracts before – lead to think
relationship is more commercial
b. Monetary deposits in support of promises made in advertisements, or similar
actions indicating sincerity in the promise, may demonstrate intention consistent
with the proposition that parties in a commercial context intend to be bound
(Carlill v. Carbolic Smoke Ball Company)
c. Statements in a business context that the agreement is “binding in honour only”
appear to rebut the presumption of intention (Rose and Frank Ltd. v. Crompton –
document itself states that it’s not a formal agreement). However, this may not be
so if the statement appears not to be rational in the context of the transaction, as
with a deed or other formal document. But this exception may have limited
application for other types of clearly commercial situations, as seen in Jones v.
Vernon Pools, Ltd.(only reject Rose and Frank clause if statements are so
repugnant to contract that’s being alleged that you can’t enforce that clause, Rose
and Frank clause held up in this case) unless this case is specific to its facts
Offers:
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Offer Mechanics:
has to be current existence of an offer
other party to contract has to accept
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have negotiations or relationship reached point where it is fair for a party to say I accept
o TEST to know if relationship matured to point where acceptance possible =
reasonable person test
 would a reasonable person conclude that the other party is entitled to say I
accept your offer?
 advance to point where reasonable person could accept is linked up with
certainty/ ascertainability of terms
o if yes – offer
o if no – no offer, may be invitation to treat
2 types of offers
1. normal offers in bilateral, face to face negotiations
2. unilateral contract offers (come from ex. ads, train schedules) (Carlill v.
Carbolic Smoke Ball Co.) (Denton v. Great Norhtern Ry. Co.- train schedule as
an offer [by publishing schedule offer a train if Denton rely on schedule and show
up] (contract separate from taking of money for a ticket))
 can be made to world at large
 can be made on smaller scale between 2 parties – Petterson v. Pattberg unilateral offer if bring money for mortgage will give discount
 in general terms (unless specify otherwise) can accept offer without
communicating the acceptance
 if you do the following- I’ll make a payment to you
o Ex. swim the pond
 accept offer by performing conditions in the offer (ex. the Satanita - accept
offer by show up to race)
 no need to notify of acceptance of the offer
Pharmaceutical Society v. Boots (display of products = an invitation to treat (invitation
to make an offer), acceptance occur when person at cash takes money
request for a statement of terms is not an offer (Harvey v. Facey)
generally price lists, catalogues don’t constitute offers (Boyer and Co. v. Duke) (Harty v.
Goderham) (Harvey v. Facey)  is an invitation to treat
o someone saying want something off of that list is an offer
o price list not enough because need to accept
 prices could have changed
 could have already sold the product
o still have to look at it in the particular context that the price list/ price quotation is
contained in
 in volatile markets (like in Johnson Brothers v. Rogers Brothers) a
statement of price (even flowered up with things like “we want your
patronage” is less likely to constitute an offer because anyone who gets
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that statement should realize that anyone who gets that offer should think
prices will change
o rebuttable
 can be an offer – as in Quebec Pharmaceutical v. T Eaton Co. (T. Eaton
sent catalogue to Quebec, Court comment is lots of support for catalogues
not being offers, ruled made offer to Eaton’s in Ontario, accepted in
Ontario so happened in Ontario, not contrary to Quebec law – one judge
said catalogues aren’t offers but they could be
 depends on
o how specific the terms of the price quote are
o what say about ability to fill the offer
o how specific it is for people
 in same way as can turn catalogue into an offer – price quotation can be an
offer – if state a price and demonstrate sincerity in relation to that point,
not a volatile market – could be a difference (Harty v. Gooderham)
collateral contracts
o collateral or sit beside a main contract of sale or something else (Ex. collateral
unilateral contract of train schedule in Denton v. Great North Ry. Co.
o have to be reasonably within the contemplation of the parties
o ex. the Satanita (web of unilateral collateral contracts of boaters agreeing with
other participants in the race to abide by the rules around main contract of racing
between individual participant and the yacht club)
 has to be reasonable to assume
 offer been made
 when perform conditions – contract been formed
 reasonableness come from:
 ex. in the Satanita rules of race for the benefit of everyone
involved
o A and B enter into contract- terms not really to benefit A,
but a whole bunch of people who entered into same form
and will get some benefit out of it
o to make work – law recognize need web of unilateral
collateral contracts
Duration of Offer
 ways that offers die
1. revocation of offer
 offerer can always revoke offer
 even offers of unilateral contract (Petterson v. Pattberg)
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o Denning in Errington v. Errington – implied term of
contract that once performance is commenced – offeror
can’t revoke (once daughter start to perform – as long as
keep performing, she’ll be allowed to perform
 once offer is revoked, others can no longer accept (Dickinson v. Dodds)
 way of dealing with can you revoke an offer once performance began:
 can revoke an offer
 if do so = may be collateral contract that’s unilateral – if start
performance (therefore accepted offer) won’t revoke or make
performance impossible as long as you complete performance in a
reasonable time
 revocations have to be communicated (Dickinson v. Dodds)
 communication not have to be direct (Dickinson v. Dodds)
o not have to be an explicit “I revoke”
o no special words necessary
 communication has to be reasonably reliable
 Acting inconsistently with the continuation of an offer will revoke
an offer (Dickinson v. Dodds)
o getting information from another source can revoke the
offer (like in Dickinson v. Dodds)
 offer made to world at large can be revoked if done in same way offer was
made (Shuey v. USA)
 offeree cannot say didn’t see the revocation if done in this way
(Shuey v. USA)
2. rejection of offer
 made an offer, you reject it
 if reject offer – offeror no longer bound by it
3. counter offer
 make an offer to buy X for 5000
 respond saying will pay 4000
 law says this is the equivalent of a rejection
 means person can’t turn around and change their mind and say they will
buy the car
 have to look at it from point of view of reasonable person who gets
correspondence to this effect
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offer that has been rejected or counter offered can be reinstated by the offerer conducting
himself in way that would make a reasonable person see it as open (Livingstone v. Evans)
4. lapse
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at some point in time offer die because it’s stale (Errington v. Errington),
(Dickinson v. Dodds),
 too much time between offer and acceptance
stipulated lapse date:
 lapse at a particular point in time
o will lapse if not accepted before then
if no lapse date – implied term of the offer holds that it will lapse after a
reasonable time
 theory of lapse – supposed to be that it’s an implied condition of
the offer (Buckley in Manchester D.C. v. Commercial & General
Investments articulate this position as by implication offer made on
terms that if it’s not accepted within reasonable time – must be
treated as withdrawn )
o traditional theory (Forbes view as still holding)
 Buckley in Manchester D.C. v. Commercial &
General Investments prefer to think of lapse in a
different way  as offer lapse after the offeree had
reasonable time to accept the offer or offeree will be
deemed to have rejected it
 problems when no stipulated lapse date
o When offeree purported to accept – was there anything to
accept? Or was it reasonable for the offeror to think that
their offer had lapsed
offer lapse after a reasonable amount of time (Barrick v. Clark) (Loring
v. City of Boston)
 only information relevant to determining lapse date is what you
knew at time of offer
 thing to look at to determine reasonable time:
o nature of the contract (goods being sold)
 (Barrick v. Clark – land as subject matter argues
for longer lapse date – price not variable, land in
Saskatchewan in winter)
o circumstances of offer
 competitive bidding (shorten lapse date)
 tenant on property that can’t be taken off for a
period of time – lengthen lapse date (Barrick v.
Clark – tenant couldn’t be taken off property to
March 1  lengthen lapse date)
o conduct of the parties
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saying things like need to do ASAP would shorten
lapse date
 (Barrick v. Clark – all way through Clark
saying want to know ASAP, conduct seem
to demonstrate shorten lapse date)
collateral contract to protect someone work for revocation, but not
for lapse (Loring v. City of Boston) [idea that if enter into
performance and revoke offer once performance begun – may be a
collateral contract that’s unilateral – if start performance (therefore
accepted offer) won’t revoke or make performance impossible as
long as you complete performance in reasonable time]
offer to leave an offer open for a period of time not binding unless it’s an offer to leave
open supported by other consideration (Dickinson v. Dodds)
o not binding (nothing to bind promisor to promise) UNLESS (Dickinson v. Dodds)
 turned into option contract (give you the right to accept offer, you have the
right to accept that offer for a period of X days)
 offeror seals the offer (shows intention to be binding)
Acceptance:
Communication of Acceptance
 acceptance has to be communicated (Felthouse v. Bindley)
o generally can’t say if don’t hear back from you – we have a contract (Felthouse v.
Bindley)
o generally silence is not an acceptance (Felthouse v. Bindley)
 some exceptions
1. course of conduct
o conduct may be the equivalent of saying I accept (Cole
McIntyre- Norfleet v. Holloway)
 conduct of party (even though not say they accept)
can make you think they have accepted
 Cole McIntyre- Norfleet v. Hollowaytravelling salesman back to the store who
made order a number of times
 Wheeler v. Klaholt –by holding onto the
shoes and not responding to terms of offer
deemed to have accepted
2. industry custom
o some businesses don’t expect an acceptance
3. past dealings between the parties
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o have a way of operating
o may not be an industry custom – but could be how party A
and party B have always done business together
 ex. always made order and got acceptance
4. terms of offer itself may mean that acceptance doesn’t have to be
communicated
o if offeror puts in a term like this – “giving all leverage to
offeree” – not a smart thing to do
o postal acceptance rule (Household Insurance v. Grant)
 contract is formed and acceptance is complete when letter of acceptance
is posted (not when is received)
 applies
 to non-instantaneous means of communication
o like post, courier, telegrams (for telegrams established in
Hinkel v. Pape)
o may even apply when acceptance never arrived because
non-instantaneous means of communication failed
(Household Insurance v. Grant)
 where it is stipulated use of the means of communication or
implied means of communication
o implied because
 offeror use that means of communication to make
offer
 by sending by post at very least imply could
respond by post (Household Insurance v.
Grant)
 way done business in the past
 in past offeror said accept by post, this time
no stipulation
 if accept by means that aren’t authorized – acceptance only good when
received not when sent
 important because offer could lapse or offeree could revoke in the
interim
 fault analysis
 if at fault for failure of communication – can’t take advantage of
the rule (rule set out by Denning in Entores v. Miles for
instantaneous communication – argue this should also apply to
non-instantaneous communication for situations like letter
(communication) not get through because put wrong address on it,
took more time to get there
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o instantaneous communication- acceptance only good when received subject to the
fault of the offeror for non-receipt (Entores v. Miles) (Eastern Power v. Azienda –
also include faxing)
 if non-receipt is offerors fault, and offeree not reasonably know that
offeror not receive – acceptance is good from when sent
 in situation of email server fail to deliver – offeror would argue not his
fault but his email provider was at fault for failure of communications
o Electronic Commerce Act
 e-acceptance is as good as any other
 statutory override of Entores v. Miles and Eastern Power v. Azienda
 presumption created by statute that documents = received when delivered
in to the system (when sent off email and made it capable of being
retrieved and processed)
 electronic information or document presumed to be received by addressee
 22(3)(a) if the addressee has designated or uses an information
system for the purpose of receiving information or documents of
the type sent when it enters that information system and becomes
capable of being retrieved and processed by the addressee OR
o “of the type sent” – can’t presume unless means of
communication or past dealings show normally use that
communication
 22(3)(b) if the addressee has not designated or does not use an
information system for the purpose of receiving information or
documents of the type sent when the addressee becomes aware of
the information or document in the addressee’s information system
and it becomes capable of being retrieved and processed by the
addressee
 rebuttable presumptions
 show that despite the presumption you didn’t know
 reasonable person test
 if rebut probably leave you back with common law – Entores v. Miles and
Eastern Power v. Azienda
 ECA made area more complex
 statute overlays common law
 need to
o sort yourself out with statute- see where that gets you
 are you a or b
 can you rebut?
o if statute not help you – back to common law
unsolicited goods
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o consumer transaction
 Consumer Protection Act applies
 if get unsolicited good, don’t have a contract or any reason why
have to send back or not use
o sender sends at own risk
o unsolicited good not include something sent by mistake
o commercial transaction
 Wheeler v. Klaholt applies
 by holding goods and not responding to terms of offer – deemed to have
accepted
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CASHING CHEQUE FOR LESSER SUM WHEN SAYS “PAYMENT IN FULL”:
o Issue of if cashing cheque could be seen as expressly accepting the lesser sum in
lieu of the whole debt under Mercantile Laws Amendment Act
o is risk o that unless cheque is cashed and person who received cheque sends
person who made cheque letter saying it’s accepted on account
Time and Place:
 means of communication be allowed when:
o offeror stipulates a specific method of acceptance- can only accept in that way
(Eliason v. Henshaw)
 offeror can stipulate means of acceptance and only be bound by
acceptance by that means if offer is very clear on that term
 method of acceptance is part of offer, can’t accept another way
 Holwell Securities Ltd. v. Hughes – stipulated offer acceptable by notice
in writing before a certain date
 postal acceptance rule not apply when not receive communication
when express terms of offer specify that acceptance must reach
offeror
o if only suggest a method of acceptance – Manchester D.C. v. Commercial &
General Investments offer good when communicated to offeror, provided that the
method used was no less convenient to the offeror (generally means offeror gets
offer at least as quickly as would have with suggested method)
o if not unreasonable (impliedly authorized) (Henthorn v. Fraser)
Acceptance of Unilateral Offers:
 unilateral contract
o not necessary to notify of intention to accept (Carlill v. Carbolic Smoke Ball Co.)
 exception to general rule acceptance needs to be communicated
 acceptance occurs with performance
 offeror gets notice of acceptance with notice of performance
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o offeree required to tell offeror about acceptance (performance) within a
reasonable period of time (Bishop v. Eaton)
 reasonable period of time is probably same period of time would feed
lapse of offer
o must know about offer of unilateral contract to accept it (Finch v. Snedaker)
 have to know about offer to perform it
o not enough to know of reward – must be motivated by it in some way (R v. Clark
– not recover because even though knew about reward, gave information on
police killers to clear himself of the crime, not to collect award offered- hold
motive is relevant )
 offer must have been in your mind at time performed
 Forbes view – can have more than 1 motive
 Canadian case Smurnis v. Sun Publishing – court hold motive irrelevant as
long as person can show they had interest in reward when they performed
 also say character of person claiming not matter
Consideration :
General
 for a promise to be binding, it needs to be supported by consideration
 in order to have enforceable contract need to have proper consideration for formation of
the contract
o needs to be “mutuality in the bargain”
o person enforcing has to get some benefit from contract or person to hwom
promise is made has to incur some detriment at request of promisor
 need proper consideration
o historical roots of consideration as sealed document with person’s ring (show
formal intention by putting seal on it – should be bound)
o if sealed – is consideration (regardless of someone getting a benefit, or incurring
having a disbenefit)
 failure of consideration can ruin otherwise good contract
 document that looks like formal contract (in writing, signed by both parties) can still fail
for lack of consideration (Tobias v. Dick & T. Eaton Co.)
o If document fails to be a contract for consideration – could be standing offer
(Tobias v.Dick & T. Eaton Co.)
 standing offer can be revoked at any time
 need to fill placed orders (because they constitute acceptance of
standing offer)
Sufficiency of Consideration:
 proper consideration =
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1. real
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

can’t be illusory (Thomas v. Thomas) (White v. Bluett)
 moral obligation to pay is illusory consideration – “a moral
obligation to pay, while binding in conscience, is not binding in
law”(Eastwood v. Kenyon)
 examples of illusory: (because not move from the party who’s suing on the
promise- therefore not sufficient consideration)
 natural love and affection (White v. Bluett)
 pious respect (Thomas v. Thomas)
 subscription of others argument in Dalhousie v. Boutlier Estate
(not move from Dalhousie- move from people making other
subscriptions)
2. has to move to the person to whom the promise is made
 move from party that has the benefit
3. doesn’t have to be adequate (but has to be real consideration)
 consideration not have to be adequate as long as it’s real (Thomas v.
Thomas- some rent and keeping house in good repair not the equivalent of
living in the house, but is real)
promise to do what you have a legal right to do is good consideration (ex. release you
from legal obligations I have on you, for a sum of money)
o agreement not to do what you aren’t legally entitled to do is no consideration
(White v. Bluett)
promise for a promise is sufficient (Harrison v. Cage) as long as the promise is
enforceable (Dalhousie v. Boutlier Estate- court unable to tell if Dal performed)
o neither party get anything yet
o need promise made that’s certain enough to be relied upon (enforceable)
 effect of promise not certain enough to be enforceable – then not good
consideration (as in Dalhousie v. Boutlier Estate)
agreement to do something you have already agreed to do is not consideration (Stilk v.
Myrick – already agreed to sail ship out and back, no new consideration)
Past Consideration:
 in order for consideration to bind a promisor to a promise –consideration has to be
temporally coincident with the promise
o have to get something for the promise (not before or after)
o has to be connection in time between promise and consideration given on other
side
 past consideration is not good consideration (Roscorla v. Thomas)
o past consideration not binding without some other assistance
o exception:
18

if what was given in past was requested by other person in circumstances
it would be reasonable to assume get payment – then promise is binding
(promise for money after secured pardon for murder in Lampliegh v.
Brathwait)
Performance of Existing Duty:
 seen with Stilk v. Myrick
o agreement to do what already bound to do is not consideration, therefore
agreement to pay more money is not enforceable
o not same as if so many people left ship was dangerous to sail in understaffed
situation
 pay greater amount there
 those sailors would no longer be obligated because they had agreed to
undertake normal perils of voyage – not agree to sail in unsafe manner
 BUT in Williams v. Roffey Bros & Nicholls – say that will be a contract to pay greater
sum if
o is a practical benefit
 if circumstances are such that the plaintiff gets a benefit or an obviation of
a disbenefit
o can’t extort new contract
 can’t be extortion or duress
 Greater Fredericton Airport Authority v. NAV Canada
o negotiations between parties creates practical benefit for airport authority
(enabled them to get better navigation system, be done on time)
o however new bargain was obtained under duress
o still not clear if Williams v. Roffey Bros. & Nicholls is the law in Canada
 Greater Fredericton strengthens its position in Canadian context
 agreeing to take lesser sum when larger sum owed
o starts with Pinnell’s case
 greater sum can always be collected unless there was “an accord in
satisfaction”
 otherwise agreement unsupported by consideration
 agreement to accept lesser sum in satisfaction of a greater sum owing not
binding unless get something different (something different therefore new
deal)
 be an accord if get something different (ex. horse, robe, hawk for
the debt)
o if agree to take something different- court no look at if
what you got has lesser value
o not look at value of the something different you got
19



if only agreed to accept lesser form of money – no consideration
good consideration if
 get lesser sum early
 agree to take lesser sum of money in different place
o reinforced by Foakes v. Beer
Mercantile Laws Amendment Act –statute that sits on top of common law in this area
o (16)part performance of an obligation, either before or after a breach thereof,
when expressly accepted by the creditor in satisfaction or rendered in pursuance
of an agreement for that purpose, though without any new consideration, shall be
held to extinguish the obligation
o part performance if
 expressly accepted
 rendered pursuant to an agreement
o therefore if have payment of the part that’s accepted in satisfaction or rendered
pursuant to an agreement to accept the part, even though made without
consideration extinguishes the obligation
o statute kicks in if been performance
o A promise to accept a lesser amount in satisfaction of payment of a greater
amount can be binding if it is expressly accepted by the promise or rendered
pursuant to an agreement.
Promissory Estoppel
 a promise without consideration cannot be withdrawn if there is a promissory estoppel
Central London Property Trust v. High Trees House
o only come about if existent contract and agreement to amend existing contract
 Denning in Central London Property Trust v. High Trees House says is concept of
promissory estoppel
o concept of equitable promissory estoppel
 when make a promise (not to enforce strict legal rights) to the other party,
estopped from going back later on and insisting on strict legal rights
because prior representation not supported by any consideration
o if promise made without consideration relating to existing legal relationship and
the promise is intended to be binding
o party who made representation is “estoped” from enforcing strict legal rights
under the contract
 in order to have an estoppel:
o must have been a course of conduct leading to the promise (not a mere
forbearance)
 estoppel not result from friendly forbearance (SCC in John Burrows Ltd.
v. Subsurface Surveys)
20



the more an agreement looks like friendly forbearance- less likely
to have estoppel
 estoppel only arise if representation is made in circumstance where
it’s
o obvious it was intended to be relied upon
o was relied upon
o made in course of negotiations or at other time when
reasonable to assume it was relied upon
o promise must have relied on the promise to his detriment
 Ajayviv v. RT Bristol Ltd. (Privy Council)
 first tie down of estoppels
 in order for estoppel to work – person who’s asking for estoppel to
be in force must show not only representation (promise made
without consideration) but also that they relied on that to their
detriment
o changing position to detriment supports equity that arises
o promise must have been made in circumstances where it would not be unfair for
an estoppel to apply
 can’t insist on equitable remedy if haven’t acted equitably (D&C Builders
v. Rees) – defendant had realized builder was in some financial difficulty,
said take lesser sum or else get nothing and ruin business – defendant not
get estoppel because it’s an equitable remedy and defendant didn’t act
equitably)
 will be unfairness if you extort the promise
Denning seen as making law in Central London Property Trust v. High Trees House
o subsequent cases try to tie Denning principle of equitable/ promissory estoppel
down
 Ajayviv v. RT Bristol Ltd. (Privy Council) [see above]
promissory estoppel is a shield, not a sword (Coombe v.Coombe)- promissory estoppel
not create causes of action, only creates defences
o shields person who has a contract from someone who says will enforce contract
after make a representation
o not a contract- can’t use promissory estoppel to in effect create a contract
 in Australia in Walton Stores v. Maher – in right circumstances estoppels
can give rise to a contract
 High Court of Australia hold that if convince someone to act this
much to their detriment – are stopped form denying existence of
contract and paying or damages from contract
 NOT law in Canada
21
o Forbes – probably not see courts stretch themselves like in
Walton because Williams v. Roffey Bros. & Nicholls does
a lot of work
o exception Proprietary estoppel (Crabb v. Arun D.C.)
 another creature of Denning
 occurs in circumstance where representation is made to convey an interest
or easement over land or right of way which is relied upon to detriment to
representation in the conveyance of an interest in land
 estoppel being used as a sword
PLAN OF ATTACK FOR THIS AREA:
1. general approach- Sitlk v. Myrick (agreement to do what already bound to do is no
consideration)
2. did I have an amendment with consideration?
o maybe agreed to lesser performance, you agreed to pay less
o if can show what law regards as consideration – can always have amending
agreement
3. Williams v. Roffey Bros & Nicholls
o did you get a practical benefit in exchange for agreement made without
consideration?
o sure didn’t extract practical benefit by duress?
4. Does Mercantile laws amendment act (MLAA) apply?
o if go through all of this and not get good answer – here’s a statutory solution
o do you have part performance? (has someone agreed and accepted a lesser sum of
money
 if has been
 performance of agreement to take lesser performance so that
statute says even though no consideration, what you’ve done
extinguishes consideration
5. Can you argue estoppel
o another area where have a contract one party not enforce contract- no
consideration- may give rise to an estoppel to stop a person who said not need full
performance to change mind later and try to get full performance
Certainty or Ascertainability of Terms:
*** terms specific enough to be enforceable? ***


to be enforceable, terms have to be certain or ascertainable pursuant to a mechanism that
doesn’t fail or complete or completeable according to a mechanism that doesn’t fail
types of cases in this area
22
1. contract appears to be complete but language used is so uncertain that the court
has trouble interpreting it
 no mechanisms for creating certainty
 issue = always one where contract will fail when court says use language
that’s so imprecise that it can’t determine what contract means
 try to figure out what parties intended by looking at things like (Scammell
& Nephew v. Ouston)
 think wording itself is certain enough to apply meaning to it
o normally find meaning of contract in terms of contract
o if ambiguity- look behind the contract at things like
drafting discussions
 past dealings between the parties
 industry terms
 surrounding circumstances
 cases:
 Scammell & Nephew v. Ouston (language like “higher purchase
terms” too uncertain to be enforceable, contract fail)
 Hillas v. Arcos (question of what timber in “normal form” meant,
example of court looking at anything it can to determine what
words meant –looked at past dealings)
2. incomplete contract, but an agreement to negotiate to complete
 negotiate in good faith or from a good agreement –get any further than
agreement to agree?
 agreement to agree is mechanism for ascertaining terms
 agreement to agree is fine as long as parties eventually agree
 fails for incomplete terms if parties don’t eventually agree because
can’t figure out terms, mechanism fail
 cases
 Walford v. Miles (agreement to negotiate in good faith doesn’t
place any higher duty on you than an agreement to agree- like
agreement to agree, it’s a mechanism, if mechanism fails there’s no
contract)
 Empress Towers v. Bank of Nova Scotia (even if contract
doesn’t say will negotiate in good faith, may have implied duty to
negotiate in good faith- based on cases like Scammell & Nephew
v. Ouston, agreement to agree is not an agreement, except landlord
has implied obligation to negotiate in good faith for new rent – he
failed to do so, so won’t issue eviction order
 refinement/ clarification to Empress Towers v. Bank of Nova
Scotia - Edper Brascan Corporation v. 117373 Canada Inc.
23

(have to deal with Empress Towers on basis of its very peculiar
facts – landlord waited until the date when lease was about to
expire)
3. contracts which are complete (meaning because have agreement) that says in the
agreement will be documented in formal contract
 complete maybe, but formal document intended
 problem – parties come to agreement, that include there essential terms of
contract, also agree to have formal agreement put together by lawyers –
when parties can’t agree to that formal agreement – have a contract? or
have bones of a contract (agreement to agree to detail later on, when
parties can’t agree to details- agreement fails)
 British American Timber Co. v. Elk River Timber Co. demonstrate risks
in this area- if parties agree in letter of intent to what they think are
essential terms of contract of transaction- unlikely court would say that’s
not a contract
 view condition of need formal agreement as just a memorialisation
o the simpler the contract, the more likely the court will say
have essential elements of the contract (The simpler the
contract the more likely it will fall into British American
Timber Co. v. Elk River Timber Co.)
o agreement to agree to terms and if can’t agree to settle by
mechanism like arbitrator is an agreement (Calvin
Consolidated v. Manning)
 as long as arbitration proceeding produces a result –
have a contract
 if arbitrator not decide or stipulated arbitrator won’t
decide it probably would only be agreement to
agree
defined legal meaning of “use reasonable efforts” and “use best efforts” not the same
 “use best efforts” – interpreted to mean do everything could do to get that
approval
 no reasonable filter
 “use reasonable efforts” – have obligation to get approval, obligation require you
to do reasonable things
Capacity to Contract:


law says before can have a contract- both parties have to have legal capacity to enter into
contract
capacity is issue for cases involving
24



infants (children) contracts
people who lack mental capacity
 temporarily (drunk, off medication) or permanent
Sale of Goods Act, R.S.O. 1990, c. S.1
3(1) Capacity to buy and sell is regulated by the general law concerning capacity to contract
and to transfer and acquire property, but where necessaries are sold and delivered to a minor
or to a person who by reason of mental incapacity or drunkenness is delivered to a minor or
to a person who by reason of mental incapacity or drunkenness is incompetent to contract he
or she shall pay a reasonable price therefore
(2) in his section, “necessaries” means goods suitable to the conditions in life of the minor or
other person and to his or her actual requirements at the time of the sale and delivery

common law says contract with an infant is voidable at the decision of the infant (other
party can’t set it aside)- unless it’s a contract of necessities
o if necessities- infant can still set the contract aside (may not have to pay the
contract price) but may have to pay a reasonable price
1.
Both parties to the contract need the legal capacity to enter into the contract.
2.
Capacity:


A contract with an infant is voidable at the election of the infant unless [Sale of Goods
Act]:
o It is a contract of necessities (Nash v. Inman – shows how to interpret
“necessities”contract was for clothes, infant’s dad shows that he sent infant to
school with sufficient good clothes, Court holds contract not for necessities)
o It is beneficial/provident (throughout the whole term of the contract) [Toronto
Marlborough’s Hockey Club v. Tonelli- In early years- its beneficial for Tanelli
(teaching skills to make him pro), but in later years could make much more
turning pro and paying part of contract to them not beneficial for him]
A contract with a person lacking mental capacity (temporary/permanent).
TERMS OF CONTRACT
Interpreting Written Contracts:
Parole Evidence Rule:
25




general rule – assume the four corners of the contract contain the entire deal between the
parties
o one interprets the bargain, the contract between the parties by looking at the four
corners of the document
if contract been reduced to writing, and that’s an agreed memorial of the agreement- the
terms of the agreement will be found in the contract- not go behind the document
o rules applies to other writings – pre-contract writings
 if document takes benefit of Parole Evidence Rule – then you don’t go
behind the document to look at things like documents you had before
(correspondence, letters of intent)
rule of substantive contract law
o not a rule of evidence
o only evidence that’s relevant is the contract
excludes
o oral evidence of the parties
o any documents that are precursors to the contract
Exceptions to Parole Evidence Rule:
1. prove writing is not an agreed memorialisation of the deal
o ex. only presents one side, only one parties’ recollection of the bargain
 can argue what have in writing is one parties recollection of what was
agreed to – not deserve protection of parole evidence rule – is only some
evidence
o not take benefit of parole evidence rule when you negotiate with someone, have a
handshake and a bargain, go back to office and take note of what agreed
 not agreed by parties to be memorialisation of the bargain
2. condition precedent to a contract (Pym v. Campbell) [agreement to buy invention, agreed
would be no bargain unless A approved invention – though not in the written document]
o can always prove by other evidence that this document wasn’t meant to be a
contract because there was a conditioned precedent that wasn’t met
o parole evidence rule only apply if there is a contract and it was intended to be a
contract
3. can prove were 2 contracts – one in writing, one oral (Morgan v. Griffith) [rabbits]
o can always prove was one contract in writing and a second contract that wasn’t in
writing
o written contract takes benefit of parole evidence rule
 not stop party from being able to prove there was a second contract
o need pretty potent evidence to show was a second contract at the same time
 need to show court not just manufacturing second contract because not
like the first
26
 parole evidence rule meant to stop things like that
 ex. oral evident rabbits all over the place and at time of signing agreed if
sign lease will get rid of rabbits
o courts look at these claims sceptically
 why parties do that? really mean to have 2 contracts?





messy area – demonstrated by Hawish v. Bank of Montreal
if conflict between oral and written contract signed – not allow to go behind the written
contract to prove that collateral contract (Hawish v. Bank of Montreal)
o can only show are 2 contracts if oral contract not conflict with terms of the written
contract
question of how far this goes – issue of having a clause in the contract that says that the
contract includes the entire agreement – ENTIRE AGREEMENT CLAUSE
o if real subject matter of second contract is covered by writing – will have hard
time proving second contract
o entire agreements clauses generally been viewed as presumptive only (not
definitive)
o may be viewed as an exclusion clause (because they exclude remedies) therefore
can treat them as such
special terms
o Court say parole evidence rule operates in this area
o rule tells if there is written document, determine intention of the parties in using
words- have normal, sensible grammatical meaning
 not ask what parties intended
o hard to argue used plain language in a contract but meant something specific
(Southern Resources Ltd. v. Techomin Australia)
if is ambiguity in the words used in contract – then can go behind the writing (Southern
Resources Ltd. v. Techomin Australia)
o 1st court asks what extra information is there (has to be information about what
both parties intended – not just what one party didn’t tell the other party)
o 2 types of ambiguity
 patent ambiguity
 ambiguity when look at contract and not know what people mean
 obvious on the face of the contract that language used is unusual
 can look at all sorts of evidence – extrinsic evidence such as prior
dealings, correspondence in negotiations, industry standards
 seen in Hillas v. Arcos, Scammell & Nephew v. Ouston
 follow that if have a document that’s patently ambiguous- the idea
that it’s the agreement of the parties doesn’t really make sense
27

o not doing an injustice to the theory that the document is
what’s supposed to be construed –because is ambiguity on
the face of the contract
latent ambiguity
 appears from words of contract that there is an intended meaning,
but parties say might have had our own special meanings
 court says this not work except that you can use latent ambiguity to
identify the subject matter of the contract (rather than to change the
detail of the contract)
Implied Terms of Contract:
Types of Implied Terms:


terms implied in fact
o terms that the parties intended or must have intended or else contract not make
sense (plaintiff argue this in the Moorcock – court rule only imply a term when
absolutely necessary to give business efficacy to the contract)
o harder to imply a term in negotiated, written contract than something that’s less
settled (ex. oral argument)
o to get a term implied into contract need to show:
1. term must be necessary to give business efficacy (problem in Codelfa
Construction v. State Rail Authority)
2. must be reasonable/ equitable
3. must be so obvious as to go without saying (problem in Codelfa
Construction v. State Rail Authority)
4. must be capable of clear expression
5. can’t conflict with express term of written contract (Hawrish v. Bank of
Montreal)
 very hard to get court to agree to implied term of contract in written contract situation
(demonstrated in: Codelfa Construction v. State Rail Authority, Gabriel v. Hamilton
Tiger Cats Football Club – contract to play makes sense as is, not imply in term he
should be paid more when league extended the season)
terms implied in law
o not what he parties must have intended, but what the law thinks that a contract of
this type should include
o what he law stipulates as being intended or required
o Liverpool City Council v. Irwin (law has to put term in because it’s the only fair
thing to do – type of contract makes it such that you have to keep residential
tenancy building in good repair)
28


Forbes say this area is limited- for violations like Liverpool City Council
v. Irwin – usually have legislation that takes over (ex. commercial tenancy
laws)
terms implied by statute
o terms implied by the Sale of Goods Act
 any contract for sale of goods – implied term of contract that:
 vendor implies has power to sell (vendor has title)
 fit for purpose
 goods are suitable for sale, merchantable quality
o therefore not have to write into contract that washing
machine is a good washing machine
o if are consumer and enter into contract for sale of goods to which the consumer
protection act would apply – illegal to contract out
Exclusion Clauses:
Ways exclusion clauses can arise:






Exclude liability of one of the parties for non-performance however the breach occurs
(McCutcheon v. MacBrayne Ltd.)
can limit liability to a fixed amount or to only certain types of damages
o ex. in case of breach – not liable for more damages than amount paid under the
contract
can say no consequential damages
o most often called limitation of liability clauses
o limit to ex. only direct damages
can limit right to pursue a remedy for breach
o agree not able to recover unless make claim within certain time period or not have
right to injunction as remedy
can limit or negate ability to claim an implied warranty (implied term) under Sale of
Goods Act
o agree not to be entitled to claim any protections in Sale of Goods Act
 limiting or excluding liabilities through terms of contract
courts apply very strict construction to these contracts
o courts use strange interpretational techniques to interpret these clauses
Old Method to deal with these clauses:
1. ask if exclusion clause is part of contract
29
o some way to find exclusion clause never made it into contract? – then can get rid
of contract
o not an excuse to say didn’t know exclusion clause was there, or not understand it
 Parker v. South Eastern R.Y. [immaterial that not read agreement and
not know what it said] (with a bit of reference to McCutcheon v.
MacBrayne Ltd.) [if McSproran on this trip had signed contract for this
trip, not matter if he knew about exclusion clause]
o signature to a contact = conclusive, bound (L’Estrange v. F. Graucob, Ltd.)
o assent to document = bound
 if assent to an unsigned document containing terms on which contracting
and it has an exclusion in it – unable to plead not know exclusion clause
was there
 Parker v. South Eastern R. Y.
o if no signature or assent – have to prove have knowledge of the clause
 question of actual knowledge (not constructed knowledge)
 past dealings may be relevant, but only if past dealings show knowledge
or assent
 if can show past dealings had exclusion clause and you understood
it- then exclusion clause stands
 just because had exclusion clause before not necessarily mean
exclusion clause stands [had past dealings in McCutcheon – but
no actual knowledge of what contract was about]
 McCutcheon v. MacBrayne Ltd.
o if is ticket or something to that effect (not something supposed to sign but has
conditions on it) ask
 can you reasonably say didn’t know (nature of document, amount of
knowledge)
 Parker in Parker v. South Eastern R. Y. argued he was not aware
of the nature of the document itself makes him not know about
exclusion
 has person who’s relying on the clause done everything that’s reasonable
to bring it to your attention [taken reasonable measures to bring exclusion
clause to attention of other party]
 Union Steamship v. Barnes – hold exclusion clause is
enforceable- party done everything they could to bring exclusion
clause on ticket to attention of other party
** old analysis usually stopped after 1
Construction of exclusion clauses
30

Doctrine of Fundamental Breach
o rule of law approach – Denning
 Carsales Arrow v. Wallace (1956- Denning)
 now settled law that exclusion clause only avails a party in
performing a contract in its essential terms
 if party fundamentally breached the contract – may not rely on
exclusion clause
 Horbott’s Plasticine company v. Wayne Tech
 negotiated construction contract, agree company that owns
building will assume the risk
 building burn down – can’t have more fundamental breach than
that
 intentions of parties frustrated by Denning’s rule of law approach
(rule of law that exclusion clause can not avail a party)
o Matter of construction approach  Suisse Atlantique – (1967)(HL) - is a matter of construction (not a rule of
law) as to if exclusion clause supposed to apply
 is a matter of construction in every case whether or not an
exclusion clause was meant to apply
o look at exclusion clause and parse it against the party that’s
relying on it in a fashion that allow you to determine if
exclusion clause was supposed to apply in circumstances
that occurred
 is a rule of construction, not a rule of law (Photo Production Ltd. v.
Securicor Transport Ltd.)
 have to look at exclusion clause in context of contract as a whole to
decide if exclusion clause is meant to apply to facts as they occurred
(Photo Production Ltd. v. Securicor Transport Ltd.)
o Denning response – George Mitchell Ltd. v. Finney Lock Seeds Ltd.
 HL paying lip service to sanctity of contract
 HL really saying exclusion clause will be applied if fair and reasonable
under the circumstances
 if not unconginable to rely on exclusion clause – then it applies
 if unfair/ unreasonable – exclusion clause not apply
 saying same thing as Photo Production Ltd. v Securicor Transport Ltd
– but in different way
o consideration of fairness involves things like
 standard
 inequality of bargaining power between parties
 nature of contract
31





nature of breach
 if party intentionally breaches it’s less likely that its fair and more
likely that person hiding behind exclusion clause
Ont CA says test is whether unfair, unreasonable or unconginable to rely on exclusion
clause in the circumstances (Fraser Jewellers v. Dominion Electric Protection)
o says apply SCC decision in Hunter Engineering
o still talk of things like fundamental breach – but say don’t matter
is an SCC authority that adopts Denning test (Hunter Engineering)
easy to say, hard to apply
o fair for exclusion clause to apply in McCutcheon v. MacBrayne Ltd. ?
 demonstrate fairness hard to argue, imprecise test
s. 31 of Consumer Protection Act
o any attempt in a consumer contract to exclude the implied warranties from the
Sale of Goods act is illegal
 needs to be consumer contract –not done by a company or a person done
in the course of their business
PLAN OF ATTACK FOR THIS AREA:
 seems to Forbes orthodox answer = test articulated by HL in Photo Production Ltd. v
Securicor Transport LTD
 explain Denning approach/ explanation – George Mitchell Ltd. v. Finney Lock Seeds
Ltd.
 Denning appears to be adopted in Canada (Fraser Jewellers v. Dominion Electric
Protection)
 conclusions may be the same under both tests
DEFECTS IN CONTRACTUAL RELATIONS:
Misrepresentation:



representation made during the negotiation of a contract, for whatever reason not end up
as a term/warranty in the contract
has to be actionable misrepresentation
difference between void and voidable contracts
o void – contract never really existed
o voidable – contract is still good
Prerequisites of Actionable Misrepresentation:
1) Material (Redgrave v. Hurd)
o needs to be real inducing factor to make the contract
32

presume it was an inducing factor for the party if representation would
have induced a reasonable person
 TO REBUT- need to prove either
 other person knew representation was false or
 other person didn’t rely on it
o not necessarily THE inducing factor, but an inducing factor
2) Statement
o need a positive statement
o GENERAL RULE: failure to speak is not misrepresentation
 exceptions
 if is fiduciary relationship – person may have a duty to speak
o trustees, directors, and officers – misrepresentation for
someone in this type of position to not make full discloser
of everything they know about ex. buying the company
 if is contract “of utmost good faith”
o ex. insurance – failure to disclose diseases have is a
misrepresentation even if you don’t think they are
important
 contracts for purchase of shares – common law duty to tell you
things necessary for you to know to buy shares
3) has to be a representation of fact
o not opinion
o if make representation to someone having no more special knowledge and qualify
the statement with “I think” or “it seems to me” or the like, that statement is not a
misrepresentation because it is not a representation of fact, is a statement of
opinion only (Bisset v. Wilkinson)
o Denning in Esso Petroleum Co. v. Mardon – if parties have special knowledge,
even if qualify statement as opinion, should regard as statement of fact
Types of Misrepresentation:
1) Fraudulent Misrepresentation
 person to whom the misrepresentation was made may have
 tort remedy (tort of deceit)
 rescission
 ability of a person to say have a voidable contract, going to elect to
void the contract (Treat it as at an end, subject to bars of
rescission)
 need to prove (Redgrave v. Hurd)
 person made statement knowing it was wrong (knowing falsehood)
33
 statement made recklessly without care to true/false, without reasonable
belief it was true
 need to show misrepresentation was material (Redgrave v. Hurd)
2) Negligent Misrepresentation
 Denning introduce as intermediate step (between fraudulent and innocent)
 someone makes a negligent misrepresentation that results in formation of contract
 could result in
 tort damages (Esso Petroleum Co. v. Mardon)
 if
o person in special relationship
o makes special representation in exact circumstances have
special knowledge
o makes to a person who’s a member of a class where
reasonable to assume that person will rely on it
o gives rise to a duty to use reasonable care and skill to
ensure representation you made is sincere
 tort remedies for recission:
o Hedley Byrne
 no reason can’t say negligent misstatement because
contract ensued
 contract remedies – rescission (could set aside the contract)
 collateral warranty (Esso Petroleum Co v. Mardon)
o in consideration of signing lease, promise you in way of
collateral contract will sell 200,000
 like Morgan v. Griffith
 may be a difference between tort and contract damages
 tort – greater foreseeability, broader range of damages than under
contract test of Hadley v. Baxendale (only get damages for what
was reasonably foreseeable to parties at time of contract or because
of special circumstances communicated)
3) Innocent Misrepresentation
 actionable misrepresentation that’s neither fraudulent nor negligent
Remedies:
 generally not matter what the type of misrepresentation it is – remedy is recission
 special problems – innocent misrepresentation
o recission
 could not be viable remedy because
 nor work (Mr. Martin in Esso Petroleum Co. v. Mardon)
o bled money into the station
34
 or could not be available because of bars to rescission
o generally no damages for innocent misrepresentation
 unless can convert representation into a term of collateral contract

collateral contracts
o in Esso Petroleum Co v. Mardon – Denning say if not want tort damages – say
collateral contract
o if argue collateral contract- start from presumption that if there was a real
intention to make a contract, the terms would have been in the contract (Heilbut
Symons & Co. v. Buckleton)
 to convert into collateral contract – need to prove it is inherently possible
that the parties intended two contracts, one written ,one oral (Heilbut
Symons & Co. v. Buckleton)
 needs to be real inducing factor to formation of contract (if was real
inducing factor – less likely parties didn’t intend two contracts)
 can’t argue collateral contract if terms of contract arguing conflict with
terms of first written contract (Hawrish v. Bank of Montreal)
 if can do so – can also fit into the parole evidence rule exception for
collateral contracts from Morgan v. Griffith
Recission:
 party to whom misrepresentation is made can rescind the contract
 rescindable contract is a voidable contract
o can be rescinded by the innocent party
o significance – good contract until it’s rescinded
o property passes under voidable contract
 bars to recission:
o inability to make restitution
 subject matter of contract been destroyed, consumed, altered – so can’t
make restitution
 Courts struggle with this concept (ex. O’Flaherty v. McKinley)
 substantial restitution is good enough (car has 7000 clicks on it, but
has not substantially altered the car)
o demonstrate courts being a bit reasonable in this area
o intervening third party rights
 buy something where misrepresentation in play, then sell to someone else
 can’t rescind because third party owns the car
 property passes under voidable contract
35

property pass from vendor to purchaser, from purchaser 1 to
purchaser 2
o fully executed contract for sale of land
 can’t rescind, may be able to sue for damages
 thought that there has to be finality to sale of land property interest
 representation made in contract for sale of land can only give right of
rescission until time of closing
 has to be finality to conveyance of land (Redican v. Nesbitt)
 EXCEPTION TO RULE – Rule not apply if representation was
fraudulent (Redican v. Nesbitt) (Redgrave v. Hurd)
o overarching policy reason – not want people to benefit
from fraud
o reasonable time to find out truth for other goods
 for goods (not land) – may lose right to rescind if take possession of
property and held it for reasonable period of time for you to investigate
and find out the truth (Leaf v. International Galleries)
 not the same as land
o affirmation
 if having found out truth you don’t do anything – probably lost right to
rescind
 if not do anything – misrepresentation probably not that important to you
Damages:
 party to whom misrepresentation is made can get damages remedy
 tort damages remedies
o fraudulent misrepresentation
 tort of deceit
o negligent misrepresentation
Mistake:
Types of Mistake:
1) common mistake
2) mutual mistake
3) unilateral mistake
4) mistaken document
5) frustration

mistake results in void contract
o contract never was
o property not pass
36



 thus still belongs to party that had it in the first place
biggest problem = remedy
o property not pass under void contract
 if gave property under void contract and it’s sold to someone else – can go
to third party who bought property and ask for property back
cases show not easy to prove actionable mistake (because result is so bad)
Denning ask why mistake makes contract void – why not voidable
o get property back from rogue
o once sell to third party – not rescind contract because of bar to recission
(intervening third party rights)
o Great Peace Shipping v. Tsavliris Salavage – appears CA in England say Denning
wrong- no such thing as equitable mistake that makes contract voidable, if is
mistake – contract is void
Common Mistake:
 mistake shared by both parties
o both parties mistaken in same way
o mistake wrapped into terms of the contract
o very often mistake occurs from one party representing something to the other
party
o ex. Great Peace Shipping v. Tsavliris Salavage – both parties think boat is 35km
away, actually 200km
 pre- Bell v. Lever Bros. Ltd. – in order to have common mistake that renders contract
void – mistake had to be fundamental
o fundamental mistake = obvious, goes right to subject matter (not quality)
o ex. bought something already owned (Cooper v. Phibbs – court rule contract for
sale of fish house on a particular property void when realize that purchaser
already owned that property)
o ex. bought something that didn’t exist (Couterier v. Hastie – court set contract for
corn aside for corn that parties had contracted for that had already been destroyed
at time of contract – had fermented on boat)
o not happen very often that have mistake as to substance that’s fundamental to
contract to void contract
 Denning not accept that common mistakes always render contract void (Solle v. Butcher)
o propose 2 types
 common mistake at common law
 common mistake in equity
 may occur when no common mistake at common law
 common mistake in equity make contract voidable not void
o like misrepresentation – contract subject to recission
37

o maybe at equity is thought common mistake not render
contract void but voidable (subject to bars of recission)
 person who’s mistaken can elect to set contract
aside subject to bar to recission (ex. intervening
third party right)
o thought Denning would win this – rejected in Great Peace Shipping v. Tsavliris
Salavage
 CA see no basis for Denning idea of separate equitable jurisdiction for
setting aside equitable common mistake
 therefore at least in England to extent that Solle v. Butcher says
there can be equitable mistake – it’s wrong
test for common law common mistake: (Great Peace Shipping v. Tsavliris Salavage)
1) mistake must go to existence of vital attribute of subject matter of the contract
 may be a little less than mistake as to substance in Bell v. Lever Bros. Ltd
2) mistake has to render performance impossible
 not just more difficult
 in Great Peace Shipping v. Tsavliris Salavage – was 400 not 35 miles,
make performance just more difficult (not impossible)
3) mistake can’t be fault of party who’s alleging mistake (McCray v.
Commonwealth Disposal Commission)
4) on construction of the contract, neither party must be seen to have accepted the
mistake
 possible when parties enter into contract that they address problem of what
happen if ex. no tanker
 if look at contract and see parties recognized that possibility and made
provision in contract for what would happen if that occurred – court
enforce that method that parties agreed to
Mutual Mistake:
 parties have different views on terms of contract
o not share mistake
 no common thought on what terms of contract are
o each have different view of what terms of contract are
o Smith v. Hughes - thought selling new oats, purchaser thought buying old oats
 actionablility depends on if both parties views of facts are reasonable
o if both views reasonable – contract is void
o if not reasonable – not actionable mistake, contract stands
 ex. Smith v. Hughes – one parties view was not reasonable, therefore can’t
claim mistake
38


court said if a person conducts himself so as to indicate that he is
contracting on a set of terms, he cannot say that he was mistaken as
to those terms (aka his view of facts unreasonable)
neither party can sue for breach of contract if have different view of terms of contract (no
common understanding) and both parties views were reasonable (Raffles v. Wichelhous)
Unilateral Mistake:
 one party mistaken, other not
o ex. rogue cases – one party cause other party to be mistaken
 classic rogue –deliberately fool other party into contract (ex. Lewis v.
Averay – tell plaintiff was Richard Greene – Robin Hood)
o almost all the time party that’s not mistaken is deliberately misleading
 have to argue mistake because *** important preamble to unilateral mistake***
o misrepresentation not work
 could claim misrepresentation as to a material term of the contract
(identity of the rogue)
 if could locate rogue could sue for the return of the money
(monetary value of property you sold to him – presumably rogue
has sold to third party) in the tort of deceit (Redgrave v. Hurd)
 problems:
o guy disappeared or
o can’t get anything from him (no money)
o recission not work
 bar to recission – intervening third party rights [sell goods to other parties]
o thus in order to recover have to try claim unilateral mistake
Settings where unilateral mistake arise:


snapping up of mistaken contract
o becomes unilateral mistake when had to know it was a mistake (Hartog v. Colins
& Shields)
 other party is mistaken and you know it
rogue appears, try to cause mistake
o mistaken party needs to show that the mistake was fundamental (Cundy v.
Lindsay)
 show in material fashion meant to contract with who rogue pretended to be
(not just the rogue)
 identity of purchaser would appear to be important – as such
attempts to verify identity may be important to establishing
materiality (Ingram v. Little)
39

as long as made attempt to identify person dealing with, make reasonable
investigations – set contract aside (Ingram v. Little)
 rogue created mistake, knew other party was mistaken
o Denning hold that unilateral mistake means voidable contract (not void contract)
(Lewis v. Averay)
 if look at this in context of Great Peace Shipping v. Tsavliris Salavage –
hold that equitable jurisdiction idea is wrong (Solle v. Butcher is wrong) –
same thought could apply to unilateral mistake, not sure

mistake comes up so rarely – not sure where Canadian courts stand
o law in flux
Mistaken as to Document (Non Est Factum):
 Despite of rules talked about under exclusion clause (if sign document or assent to it you
represent to world you’ve read and understood the terms- then bound by it) – non est
factum – signed document but was so fundamentally mistaken to nature of document –
maybe can have it set aside
 long history of non est factum – goes back to Thurogood case
o set aside because nature of document was radically or completely different than
what thought were signing
o not available as a remedy if been careless or negligent in signing document
o to prove Non Est Factum – have to prove nature of document was different in
class than what you expected to sign (as opposed to content of document)
 have to ask if effect of document is radically or fundamentally different than what
intended (Saunders v. Anglia Building Society)
 Denning probably right with idea negligence as opposed to carelessness disentitled
someone from non es factum (Saunders v. Anglia Building Society) (if careless,
disentitle)
 In Canada these principles followed strictly (ex. Prudential Insurance v. Cunyep)
o class of document sign materially different? (ex. deed different than receipt)
o duty of care
 law change with Marvco Colour Research v. Harris
o if been careless in signing document (as against 3rd party who may have interest in
the land) not entitled to plead non est factum and say document is void
o still able to set aside document on basis of non est factum
 to do so need to show:
 document signed was radically or fundamentally different than
what intended
 going to be pretty rare to say signed document without reading it but
wasn’t careless
40

to plead non est factum need to do everything possible under the
circumstances and still get it wrong  Hard to prove non est factum
Frustration:
*** IF ALREADY PERFORMED – NO FRUSTRATION ISSUE






at time contract was entered into – was no mistake
something happens in future that parties didn’t expect
o something weird happened in future that neither party expects
mistake as to future events
older cases argued – frustration as matter of implied term of contract (Taylor v. Caldwell)
[to give business efficacy – imply term that if hall burn down, not have to pay rent]
Davis Contractors v. Fareham U.D.C.
o frustration not depend on implied terms of contract
o have to construe the contract
 ask if future event result in fundamentally different performance
 does it appear one of the parties accepted that risk
o if put Codelfa Construction v. State Rail Authority through Davis Contractors v.
Fareham U.D.C. test
 future event (injunction) occurred that made performance of the contract
fundamentally different than what parties intended
 grant of injunction = unanticipated, and that fact coming from mistake of
law = sufficient to cause frustration
 when look at circumstances, was not a risk Codelfa agreed to take on
 agreed on assumption would work 24/7
Frustrated Contracts Act – not tell what frustrated contract is [look to Davis Contractors
v. Fareham U.D.C. for that]  tells what to do when have a frustrated contract
o sums paid are to be returned – subject to deduction for expenses incurred
 if money been spent on performance (or to set up performance) – not get
back
 reimbursed at fair value (not contract price)
o if performance is severable – then treat performance in severed chunks
 ex. contract to build 3 houses – get 1 built
 treat as separate contract to complete 1, ask what part of contract
price is attributable to that performance
o only applies if contract not speak otherwise
 if contemplate that event might occur and it does occur:
 ask why someone not assume risk
 look to remedy stated in contract
41
PLAN OF ATTACK IN THIS AREA:
 Misrepresentation case?
 unilateral mistake case?
 snapping up of mistaken offer case? (unilateral mistake type 1)
 mutual mistake case?
Illegality:


different perceptions of what illegality does to a contract
o some say makes it void (not voidable)
 Forbes not see as right – because has property implications
 may not be able to enforce contract, or property rights for property
delivered under the contract
o better to look at as illegality makes contract unenforceable
 not give contract remedy or maybe not even other rights to get property
back or anything else may make more sense
types:
1. common law illegality
2. statutory illegality
Types of illegality:
1. common law illegality
 contract the intent of which is contrary to public policy
 old heads of common law illegality
1) contract to commit a crime or a tort
2) contracts to promote corruption in public office
 ex. Parkinson v. College of Ambulance – court says contract to
give money to college to get knighted illegal at common law
3) contracts for payments of bribes
4) contracts to defraud the revenue
 intention of a contract to create false impression about ex. how
much rent landlord get from a property, therefore false impression
about taxes payable
5) contracts for an immoral purpose
 societal values change over time – demonstrated by In the Matter
of Baby M
 at one time thought bounds of public policy were set - cases like In
the Matter of Baby M, contracts to sell organs – show aren’t set
 public policy said to be an unruly horse, one should be careful not to get
carried away
42



Denning says that right man in the saddle can handle it
 shouldn’t look at public policy as closed
 have to continue to look as societal standards change
 judges can see societal standards differently (as seen in the Matter of
Baby M)
restraint of trade
 contrary to public policy to stop a person unreasonably from carrying on
their profession, employing themselves
 ex. non-compete contract
 arise when
 employ person into business who’s going to become important in
the business
 when sell business –say not set up a competing business in area
over a considerable period of time
 non-compete or restraint clause not per say unenforceable (Grordon v.
Ferguson)
 prepared to enforce them, not necessarily like them because of
restraints they put on people’s ability to make a living
 Ask: (Gordon v. Ferguson)
1. reasonable as between the parties
 if yes – can enforce
 ask if employee is going to become subject to any trade
secrets
 also reasonable if customers of employee may come to
depend upon the employee (ex. people start to come to
Gordon’s office to see Ferguson)
2) not more broadly drawn than is necessary to protect reasonable
business issues of the employer (in terms of distance and duration)
 if reasonable between the parties, can’t be unreasonable in
breadth or duration
 people started getting cute in this area – said 10km, if that’s too much
5km, if that’s too much 3km – ask court to determine which is reasonable
 Ont CA about 3 years ago say need to elect proper duration and
distance
 if see scale and top one is too high – declare all fail
 scale not smart thing to do now
tithe selling agreements
 may not be enforceable because of policy (Ex. give money to improve
hotel if they only sell your beer in hotel)
43
 tithe selling agreements tie property down so can’t use them for how you
want
 same analysis applies
 reasonable between the parties
 not more broad than need to be
 distance
 duration
 is it contrary to public interest?
 ex. enforcing clause meant not enough doctors in area, if
operation of clause would create an unreasonable
monopoly on carrying out business
 never seen case decided on this criteria
2. statutory illegality
o statute itself says contract dies
 statutes like Planning Act – says if piece of property and retain fee simple
in abutting land that’s not a separate lot- then contract for sale of land is
void
 need planning permission before sever land you own into chunks
 effect of breach of statute = simple here
o statute says contract is void
 entering into the contract is the exact prohibition that’s contained in the
statute
 ex. offence to sell handgun to someone who doesn’t have a license
 contract is the illegality
 if contract is the illegality – can’t enforce it
o contract not itself directly illegal, but no doubt that entering into the contract
creates an illegality of some sort
 ask what the intent of the statute was
 meant to indirectly prohibit this contract
o why want to regulate ex. banking business (Yargo
Pastoral Co v. First Chicago Australia Ltd.)
 so can control it
 protect people who give money to banks
 was the statute meant to protect the type of person with whom the contract
was made
 is party before the court to be protected by statute
 big difference if illegal contract was ex. deposit contract with bank
 is there a penalty for breach of statute – does penalty apply to making of
the contract
44

penalty could be based on ex. entry into contract with someone
without license that statute requires
o circumstances where illegality occurs in performance of contract
 GENERAL RULE – illegal performance not make contract illegal unenforceable (St. John Shipping Corp v. Joseph Rank Ltd)
 BUT – have to look at statute- if statute says illegal performance makes
contract illegal –then of course it does (St. John Shipping Corp v.
Joseph Rank Ltd.)
 BUT – if parties agreed to illegal performance – contract is unenforceable
(Ashmore, Benson, Pease & Co. v. Dawson Ltd.)
 if facts show must have known about illegality – will be deemed to
have known about the performance (Ashmore, Benson, Pease &
Co. v. Dawson Ltd.)
 if one party knew had to perform illegally:
 if one party knows performance has to be illegal – and that person
engaged in illegal activity – the agreement or knowledge of illegal
activity makes it probably illegal
o if you intend illegal performance – and intention is just
yours alone – contract may not be illegal on its own, but
your attempt to enforce contract could be illegal (other
party could enforce [not have intention you did], you
couldn’t)
Consequences of Illegal Contract:
 illegal contract = unenforceable
 if have dirty hands, can’t come to courts and ask for a remedy
 GENERAL RULE: not only can you not come to court and enforce illegal contract, also
can’t say property got away from you by illegal contract – want help to get property back
 EXCEPTIONS:
o Repent
 if enter into illegal contract and before contract is fully formed you change
your mind – may be able to say property got away from you under illegal
contract but I repented – not want to complete illegal contract
 difference between repenting and having illegal intention frustrated
 can’t say intend illegal contract, other person not perform, so I
repent (Bigos v. Boustead)
 once intention to perform and performance fails – not get property back
o If find parties not equally blameworthy
 engaged in illegal contract – but both parties not equally blameworthy
 Denning in Kiriri Cotton v. Dewoni
45

ask
o what statute supposed to do
o was statute supposed to protect the other party
 if both answer yes party asking for money back was not equally
blameworthy- should get money back
o If can assert independent legal right related to property and property is not
fungible (not money - is separate and identifiable piece of property)
 best chance of righting problem in this area
 Singh v. Kuluba
 claim person has to back title can be made without reference to
illegality
o not have to enforce illegal contract
o just want property back
Unconscionability:



gives person ability to say contract is set aside (voidable contract – contract good until
exercise rescission rights)
o different than lack of capacity (no bargain if no contractual capacity)
historically (until about 30 years ago) people were allowed to make bad bargains
o exceptions
1. duress
 enter into contract because of threat- courts say not enforceable
 lacked contractual intention
 had to be physical duress to the person or members of family
 economic duress seen as fine for a long time
2. undue influence
 ex. Royal Bank of Scotland v. Etridge
 law in more ancient formation always said were certain categories
of relationship where presume could be wrongful
o if have contract that come out of those certain categories of
relationships – look at specifically – doctor/patient,
clergy/parishioner, spouses, sometimes parent child where
parent or child has more influence
 is relationship factually one where one of the parties has reposed
sufficient trust and confidence in the other
unconscionability then developed differently – not just need to have duress or undue
influence due to special relationship
o not need to fit into two categories of duress (Marshall v. Canada Permanent Trust
Co – no threat of physical injury) or undue influence (Marshall v. Canada
Permanent Trust Co – Marshall and Walsh not related)
46

to make unconscionability argument need to show:
1. gross inequality of bargaining power
 one party has to be someone like elderly Mr. Marshall (Marshall v.
Canada Permanent Trust Co.)
 can still fall into what would have been old categories – ex. Mundinger v.
Mundinger – uncongenable bargain between husband and wife)
2. improvidence - overreaching by stronger party over weaker party
 facts give perception that have used unequal bargaining power –made deal
severely not in favour of weaker party
 demonstrated in Macaulay v. Schroeder Music –inequality of bargaining
power between young musician and music company, especially in light of
fact the contract was take it and have career or don’t and have nothing)
o giving guarantees
 people unrelated to value of loan give guarantee (under seal like in Lloyds
Bank v. Bundy to avoid consideration problem) because are relative,
friend (someone who would have one of the previously used categories) –
some of the ugliest cases = between husbands and wives (Royal Bank of
Scotland v. Etridge)
o need independent advice (Royal Bank of Scotland v. Etridge)
 not lawyer for spouse
 even if give beautiful advice – cases in Ontario say because not
independent, not good advice
 anytime have circumstance that a financial institution is “put on notice” –
no reason to secure but for some special relationship with debtor, bank has
to figure out (to get over uncongenability because levelled the playing
field) (Royal Bank of Scotland v. Etridge)
 does person know what they are doing
 do we know that they were advised by a lawyer who gave them
good advice?
o lawyer has to explain the documents
o understand risks of default
o understand have a choice (not necessary to enter into
transaction)
o may be a better way to deal with this
o give advice in absence of other party
o bank has to confirm that the volunteer
 received independent legal advice
 were happy with selection of lawyer who gave the
legal advice
47
ENFORCEMENT, BREACH AND REMEDY
Privity




question of who can enforce an otherwise proper contract
only people who can enforce a contract are people who are a party to contract - gave
consideration for the contract
GENERAL RULE – third party can’t enforce contract (Even if is clearly for benefit of
third party) unless can have some special way to get around problem (Tweddle v.
Atkinson)
how get around general rule:
o make beneficiary party to contract
 need to fix consideration problem – could put a seal on it
o enforceable through other party
 A and B have contract, B can always say you promised to give that to C
 question of damages- if damages not there, can potentially get specific
performance (specific performance supposed to be available when
damages not an appropriate remedy)
o structures
 trusts
 can fix privity problems (get over beneficiary issues) by making
into a trust
 have trustee, settlers, beneficiaries
 trust is contract between seller and trustee
 trust law say if trustee not perform, beneficiaries can impose
performance on trustee
 once see a privity problem in contract – add paragraph that says
hold in trust
 agency
 have principle, agent, third party
o agent has contract of agency (express or implied) – says are
my agent, entitled to make contracts on my behalf
 agency law says is contract formed by agent between principle and
third party – even possible that as long as agent tells third party
he’s contracting as agent, could make contract of behalf of
undisclosed principle
 can’t argue agency unless looks like agency was intended
(Midland Silicates v. Strutants)
 for agency argument need: (New Zealand Shipping Co. v.
Satterthwaite & Co.)
o contract make clear third party is to be protected
48

o
o
o
o
in head contract, say limitation of liability clause
apply to our servants, agents or independent or sub
contractors
contract makes clear contracting in 2 capacities
 agent for others
 principle for itself
agent has to have authority to contract as agent for third
party
 need existing relationship with third party so that
third party said to agent that it has authority to enter
into contract
 ex in New Zealand Shipping Co. v.
Satterthwaite & Co. – New Zealand
shipping Co had carried out all stevedoring
work in Wellington for ships owned by
carrier
 otherwise need ratification
 difficult if agent engage in contract and
hasn’t yet found subcontractors
 if agency agreement not already in place – at
later date third party can say enter into
contract to perform, and ratify that act as
agent
o problem: people not think that way
 if no pre-existing relationship and not identify who
third party could be – Forbes prefer to use trust
 no problem in trust law to hold property for
unidentified party as long as party is
identifiable (ex. unborn grandchildren)
third party has to give consideration to owner for the
contract
 when third party begins performance of contract
with agent – also gives consideration to the main
party
 agree to give contract with exclusion clause,
when perform give consideration to offer of
giving benefit of exclusion clause
 is collateral unilateral contract
principled exception – only one articulated so far in
London Drugs v. Kuehne & Nagel Ltd.)
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if have contract that provides limitation of liability
in favour of corporation and people who are trying
to shelter under limitation are performing contract
that contained the exclusion clause – those people
entitled to third party benefit under the contract
even though have no privity to the contract
works when
 contract expressly or impliedly contemplates
third party
 third party must have been providing the
very service provided in the contract
are principled exceptions – can’t make huge
changes in law by court ruling
 think court should make incremental
principled exceptions to the law (London
Drugs v. Kuehne & Nagel Ltd. – quoted in
Greater Fredericton Airport)