LAW 410
CONTRACTS
Bauman
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CONTRACTS SUMMARY (CAN
begins p. 13)
To create a legally-binding
contract, there must be:
(1) Offer
(2) Acceptance
(3) Consideration
(4) Intention to be bound
(5) Privity
(6) Certainty of terms
OFFER AND INVITATION TO
TREAT
• Offer – expression of
willingness to contract on
specified terms with the
intention that the agreement
is to become binding as soon
as it is accepted by the
offeree.
• Invitation to treat – a
statement indicating intent to
enter into a contract if a
suitable arrangement can be
made. It is not an offer.
Canadian Dyers v. Burton (1920
Ont. H.C.)
• A mere quotation of price
does not constitute an offer to
sell – it is merely an
invitation to treat.
• However a quote plus an
indication of willingness by
the parties to enter into a
contract will be held to be an
offer.
Boots Cash Chemists (1953 Eng.
C.A.)
• An advertisement or display
of goods is a mere invitation
to treat.
• The offer comes when the
customer takes the item to
the cashier, who may accept
the offer.
UNILATERAL CONTRACTS
• Generally, advertisement of
goods is treated as an
invitation to treat and not an
offer.
• However, it is possible to
make an offer to the general
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public by way of an
advertisement if there is some
language f commitment or
some invitation to take action
without further
communication.
Unilateral contract –
different from bilateral
contracts in that they do not
require formal acceptance.
Advertisement of unilateral
contracts are invariably treated
as offers.
The intention to be bound is
inferred from the fact that no
further bargaining is expected.
Carlill v. Carbolic Smokeball Co.
(1893 Eng. C.A.)
• An advertisement will be
considered an offer where (a)
the advertiser promises a
specific reward or makes a
guarantee in return for the
performance of an action, and
(b) a person completes the
performance of that action.
• Consideration takes the form
of the time / effort /
inconvenience involved in the
performance of the action by
the offeree.
Goldthorpe v. Logan (1943 Eng.
C.A.)
• Hairy face case.
• An advertisement to perform a
service “results guaranteed” is
a unilateral contract – it
constitutes an offer made to
the general public to perform
the service, guaranteeing
satisfactory results, in return
for monetary consideration,
which any member of the
public may accept and so
create a binding contract
between the parties.
• Here the plaintiff was gullible.
Leonard v. PepsiCo (1999 U.S.)
• An advertisement is not an
offer but an invitation to treat.
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Courts will consider whether
a reasonable person would
have believed the
advertisement to be an offer.
AUCTIONS AND TENDERS
• Auctions – general rule is
that an offer is made by the
bidder and accepted by the
auctioneer. A bidder may
withdraw the offer any time
before it is accepted. An
auctioneer may withdraw the
goods at any time before an
offer to purchase is accepted.
An offer made by a bidder
lapses when a subsequent bid
is made.
o Fixed bid – offer to
buy at fixed price.
o Referential bid – an
offer to purchase at a
designated amount
over the next highest
bid. Courts prefer
fixed bids.
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Tenders – a statement that
goods are to be sold by
tender is not normally an
offer, so that the person
making the statement is not
bound to sell the person
making the highest tender.
However, a formal call for
tenders will be considered an
offer which is accepted by a
contractor when he submits a
bid in accordance with the
information for tenderers.
Harvela Inmvestments (1986 H.L.)
• Where a vendor chooses to
invite offers by fixed bid, a
purchaser must comply with
the terms of that type of bid.
• The vendor sets the terms of
the offer process.
R. v. Ron Engineering (1981
S.C.C.)
• An invitation for tenders is a
unilateral offer which is
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accepted when a contractor
submits a bid (Contract A)
and the deadline passes. This
contract is an agreement by
the parties to enter into a
subsequent contract
(Contract B) if that bid is
chosen.
A bid may be withdrawn at
any time before the deadline.
Once the deadline has
passed, however, Contract A
becomes binding and the
parties are bound by the
terms and conditions of the
call for tenders.
Courts use this analysis
where there is no room for
negotiation – bidders have to
accept the terms of the call
for tenders as they stand.
MJB Enterprises v. Defence Const.
(1999 S.C.C.)
• A “privilege clause” does not
empower an offeror to
disregard a compliant bid in
favour of a non compliant
one.
• It does, however, allow the
offeror to accept any
compliant bid regardless of
whether or not that bid is the
lowest.
COMMUNICATION OF OFFER
Williams v. Carwardine (1833
K.B.)
• In reward cases, the courts
must be satisfied that (a) the
offeree at least had
constructive knowledge of
the offer, and (b) the offeree
has fulfilled the terms of the
offer.
• Whether or not that person
was prompted by good
motives is irrelevant.
R. v. Clarke (1927 H.C.A.)
• Where a person does not
have at least constructive
knowledge of a reward at the
time that the conditions are
fulfilled, there is no
consensus ad item and
therefore no contract.
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A person can not later claim a
reward once they become
aware of it.
ACCEPTANCE
• An acknowledgement or an
indication of intention to
accept is not sufficient to
constitute acceptance.
• An offer may be accepted by
words or conduct – acceptance
by conduct is based on the
reasonable person standard.
• Acceptance must be
unqualified.
COUNTER-OFFERS
Livingstone v. Evans (1925 Alta.
Q.B.)
• A counter-offer amounts to the
rejection of the original offer.
Hyde v. Wrench (1840)
• A counter-offer must be more
than an inquiry.
• The original offer may be
revived by the original offeror
(by words or conduct).
BATTLE OF THE FORMS
• Last shot analysis – where
conflicting communications
are exchanged, each is a
counter-offer so that if a
contract results, it must be on
the terms of the final
document.
Butler Machine Tool (1979 Eng.
C.A.)
• Exception to the last shot
analysis.
• Where there is a battle of the
forms, the court may base its
decision on the entirety of the
documents rather than on
which party made the first or
last blow.
Tywood Industries (1979 Ont. H.C.)
• Where one party wishes to
make a change to the standard
contract, that party must
specifically bring the change
to the attention of the other
party in order for there to be a
meeting of the minds.
ProCD v. Matthew Zeidenberg
(1996 US 7th Cric.)
• The manufacturer of a
product is not required to
include all terms and
conditions of use on the
outside of the package.
Additional terms and
conditions may be placed on
the user after purchase. If the
purchaser does not agree with
those terms they may simply
not accept them and return
the product.
Dawson v. Helicopter Exploration
Co. (1955 S.C.C.)
• Where there is an exchange
of promises the court will
look to enforce a bilateral
contract, even where the
promises are to be carried out
in the future.
• This protects the offeree from
revocation of the offer.
• Executory contract – creates
rights and obligations now
for actions to be performed at
a later date.
SILENCE
• Generally, an offeree who
does nothing on receipt of an
offer which states that it may
be accepted by silence is not
bound.
Felthouse v. Bindley (1862
Exchequer)
• Silence alone does not
constitute acceptance. In
order for a contract to be
binding, the offer must be
accepted by words or
conduct.
St. John Tug v. Irving Refinery
(1964 S.C.C.)
• Generally, an offer that
modifies the terms of an
existing contract will be held
to have been accepted where
the offeree either (a) does not
object to the chance, or (b)
continues to avail himself of
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the service performed by the
offeror.
Courts will consider prior
dealings in order to
determine whether an
obligation will be imposed
even though there has been
no formal acceptance.
VARIATION OF ACCEPTANCE
TERMS
Eliason v. Henshaw (1819 U.S.)
• The offeror is master of the
offer and can dictate when
and how the offeree must
accept in order for a contract
to be formed.
• Acceptance is valid only if it
complies with the terms of
acceptance stipulated by the
offeror.
• However, where it is not
possible for the offeree to
comply, he must find a
reasonable alternative means
of conveying acceptance in
order to fulfill the terms.
Carmichael v. Bank of Montreal
(1972 Man. Q.B.)
• If the offeree is unable to
carry out the terms of
acceptance as specified by
the offeror, an alternative
method of acceptance will be
deemed acceptable.
• Although the offeror is
master of the offer, he must
make it possible for the
offeree to adhere to the terms
of acceptance.
COMMUNICATION OF
ACCEPTANCE
• Generally, an acceptance has
not effect until it is
communicated to the offeror.
• An offeror may authorize a
third party to accept.
• For unilateral contracts, the
offeree has only to perform
the conditions of the offer in
order for there to be
acceptance.
SPONTANEOUS METHODS
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General rule – a contract is
formed when acceptance of an
offer is communicated by the
offeree and received by the
offeror.
Postal rule – acceptance is
communicated when the
acceptance is posted (put in
the mail). The contract is
formed at the time and in the
place that the acceptance is
posted (Household Fire).
The postal rule still applies
where acceptance is mailed to
an incorrect address provided
by the offeror (Manchester
Diocesan).
The postal rule will not apply
where it would lead to
manifest inconvenience or
absurdity – ie. where the
acceptance becomes lost due
to fault of the offeree.
Telex rule – in cases of
instantaneous communication
(e-mail, fax), the contract is
formed at the moment and in
the place when the offer is
received by the offeror
(Brinkibon).
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enter into a contract at a later
date.
Acceptance must strictly
comply with the conditions
stipulated for exercise of the
option.
Usually supported by a nonrefundable deposit.
TERMINATION OF OFFER
• 3 ways to terminate: (1)
revocation of offer, (2)
rejection / counter-offer, and
(3) lapse of time.
• Generally, an offer may be
withdrawn at any time before
it is accepted.
• Revocation need not be
communicated by the offeror
himself – it is sufficient that
the offeree knows from a
reliable source that the
offeror no longer intends to
contract with him.
Byrne v. Van Tienhoven (1880)
• The postal rule does not
apply to revocations –
revocation is not effective
until it actually reaches the
offeree.
Holwell Securities v. Hughes (1974
Eng. C.A.)
• The postal rule does not apply
where (a) the express terms of
the offer specify that
acceptance must reach the
offeror.
Dickinson v. Dodds (1876 Eng.
C.A.)
• Inconsistent dealing amounts
to an implied reaction of
other open offers whether or
not the original offeree knew
of the revocation.
Rudder v. Microsoft (1999 Ont.
S.C.J.)
• Where a term of an agreement
is clearly stated and that
agreement is accepted by an
offeree, that offeree will be
held to the term regardless of
whether or not he actually read
that part of the agreement.
• It is the responsibility of the
offeree to read the terms and
conditions of the offer before
accepting.
FIRM OFFERS
• A firm offer is one that is to
remain open for a set period
of time.
• Does not create any legal
rights – may be revoked at
any time before it is
accepted.
• In order to gain rights, an
offeree should purchase an
option.
OPTIONS
• An option is a contract that
fives the optionee the right to
MISTAKE
• A tenderor can not accept a
tender that contains a mistake
that is patently obvious on
the face of the bid.
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DEATH OF OFFEROR
• Generally, the death of either
party while an offer is open
terminates that offer.
Errington v. Errington and Woods
(1952 Eng. C.A.)
• A unilateral offer may be
revoked at any time before
performance is completed
except where the offeror
attaches a condition of
irrevocability allowing the
offer to stay open based on
the continued performance of
a specified act.
LAPSE
• A firm offer can not be
accepted after the stipulated
time period has lapsed.
Barrick v. Clarke (1951 S.C.C.)
• An offer with no express
provision limiting its
duration terminates after the
lapse of a reasonable amount
of time.
• Reasonableness is
determined based on (a) the
nature of the negotiations, (b)
the industry norm, and (c) the
particular circumstances of
the offer including the
conduct of the parties.
CONSIDERATION
• Definition - some right,
interest, profit or benefit
accruing to one party, or
some forbearance, detriment,
loss or responsibility given,
suffered, or undertaken by
the other (Currie v. Misa).
• Something of value in the
eyes of the law.
Dalhousie v. Boutelier Estate (1934
S.C.C.)
• Gratuitous promises are ones
not supported by
consideration and are
therefore not enforceable.
Wood v. Lucy, Lady Duff Gordon
(1917 U.S.)
• Consideration does not have to
be expressly stated in an
agreement – courts may imply
consideration by looking at the
nature of the agreement.
PAST CONSIDERATION
Eastwood v. Kenyon (1840 Eng.
Q.B.)
• Past consideration is not good
consideration.
• Moral consideration (ie. love
and affection) is not equivalent
to legal consideration.
Lampleigh v. Braithwait (1615 K.B.)
• Exception to the rule that past
consideration is not good
consideration.
• In cases where consideration is
past, the court may
nonetheless enforce a contract
where (a) the promisee was
clearly asked to perform the
act, (b) the promisee performs
that act, (c) there is a
reasonable expectation of
payment, and (d) if the
promise was given before the
performance of the act it
would have lead to a legally
enforceable contract.
FORBEARANCE
• Forbearance – an intentional
delay in collecting a debt or
demanding performance of a
contract, usually for a
specified period of time.
BDC v. Arkin (1996 Man. Q.B.)
• Generally, forbearance to sue
can constitute good
consideration at common law.
• However, exceptions are made
where (a) either party knows
or believes that the claim is
invalid, (b) one party conceals
facts from another, or (c) the
party that threatens to pursue
the claim never really intended
to pursue it.
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Where the validity of a claim
is doubtful, there may be
good consideration.
PRE-EXISTING LEGAL DUTY
Gilbert Steel (1976 Ont. C.A.)
• Parties verbally agreed to an
increase in the price of steel
to be supplied under a
contract.
• Any variation to terms of a K
must include fresh
consideration unless made
under seal.
Williams v. Roffey Bros (1990 Eng.
C.A.)
• When it appeared that the P
sub-contractor would not be
able to complete the terms of
the existing contract, the D
contractor agreed to pay the
P an increased amount to
complete renovations of
apartments.
• A promise to perform an
existing obligation can
amount to good consideration
provided that the promisee
receives some benefit
(“something extra”) or avoids
a dis-benefit.
• Here D avoids having to pay
penalties to owner of the
building for not completing
work on time.
• Does not extend to
repayment of debts.
• Even where there is good
consideration, courts will not
generally enforce the promise
where it was made under
duress.
VAGUENESS
• A K may be unenforceable
where the terms are specified
but wording or meaning is
vague.
R. v. CAE Industries (1986 Man
C.A.)
• Department of Defence
agrees under contract to use
“best efforts” to provide
additional man hours per year
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to the P maintenance
company.
“Best efforts” means to leave
no stone unturned – but does
not extend to where it would
disregard previous
contractual obligations or
neglect public interest.
INCOMPLETE TERMS
• A contract may be
unenforceable where parties
did not stipulate a basis upon
which certain aspects of the
transaction or relationship are
to proceed.
• Usually deal with contracts
for the supply of goods or
services over a period of
time.
• Must see if you can
determine the content of the
parties’ reciprocal obligations
with respect to those
elements of the transaction.
May & Butcher (1934 H.L.)
• Agreement for the purchase
of tentage on dates and at
prices to be agreed upon as
the tentage became available
for purchase.
• An agreement between two
parties to enter into an
agreement in which some
critical part of the contract
matter is left undetermined is
no contract at all.
• It is not up to the courts to fill
in the blanks left by parties to
a contract.
• Price could not be
determined by arbitration
clause because in order for
there to be an arbitration
clause there must be an
agreement.
Hillas v. Arcos (1932 H.L.)
• Option to purchase lumber at
5% reduced rate from the
official price list value at any
time during 1931.
• “What can be made certain
should be made certain” wherever possible courts will
try to give proper legal effect
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to any clause that the parties
understood and intended was
to have legal effect.
Not trying to build a contract
for the parties, just trying to
give effect to what the parties
intended.
Foley v. Classique Coaches (1934
Eng. C.A.)
• D agreed to purchase all gas
from the P at a price “to be
agreed by the parties in
writing from time to time”.
• May & Butcher is too strict
and was only meant to apply
where there is no indication of
intention to be bound.
• Here, parties acted for 3 years
as if they had a contract –
shows intention.
• Contract is valid despite the
lack of a fixed price.
On Agreements to Agree:
• An agreement to agree is not
enforceable if it does not
include all of the essential
terms.
• In some cases the courts may
enforce the K if the parties
provide a mechanism for
providing the missing terms
(arbitration, cost plus).
• Courts may look at custom
and standard business practice
or expert witnesses to imply
terms and enforce the contract.
• Courts will sometimes apply a
standard of reasonableness to
determine what is a
“reasonable price”.
• Sometimes the court will find
that the omission of a vital
term will render the agreement
unenforceable.
• Where parties to a lease
agreement do not agree on a
commencement date there is
no contract.
• Where a piece of land is to be
paid for in installments and a
part of the land to be conveyed
w/ each payment, the exact
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part of land to be transferred
each time must be specified.
“Void for uncertainty” means
that there never was a
contract – void ab initio.
AGREEMENTS TO NEGOTIATE
Watford v. Miles (English Case)
• Agreements to negotiate are
not enforceable.
• S.C.C. in Martel Building is
also reluctant to recognize a
duty to negotiate in good
faith.
Empress Towers (1991 B.C.C.A.)
• Agreement for renewal of a
commercial lease to be at
“prevailing market rate” as
mutually agreed upon by the
parties.
• Where parties agree to agree
on a price and there is an
objective benchmark
available for determining that
price, the parties may have a
duty to negotiate in good
faith.
Alberta Sale of Goods Act
• Parties may either fix the
price of goods in their
contract or provide a fixed
manner in which the price
shall be determined.
• If the price is not determined,
it will be a “reasonable price”
– court has jurisdiction to set
this price.
• What is reasonable depends
on the circumstance of each
particular case.
Mannpar Enterprises (1999
B.C.C.A.)
• Government refused to
negotiate for renewal of a
lease that was dependent on
renegotiation of the royalty
rate and annual rental rate.
• Lack of arbitration clause
suggests that the Crown
wanted some leeway to get
out if they wanted.
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Distinguished from Empress
Towers in that there is no
objective benchmark.
Crown also had a duty to the
interests of the Indian Band
involved.
There is no duty to negotiate
in good faith.
Wellington City Council (2002
N.Z.C.A.)
• Agreement for lease
stipulates that landlord will
negotiate in good faith for
leases at not less than current
market value.
• This is an agreement to agree
that is unenforceable.
• Parties do not have a duty to
negotiate in good faith, even
where a contract expressly
states that they will.
• Policy consideration – courts
will not generally enforce
agreements to negotiate
because (a) “good faith” is
subjective, (b) it is difficult to
ascertain after the fact
whether parties did negotiate
in good faith, (c) parties
should be free to negotiate
with their best interests in
mind.
ANTICIPATION OF
FORMALIZATION
• When does a contract arise –
at the end of negotiations or
when the formal contract is
executed?
• These cases are decided on a
case-by-case basis using
factors such as: (a) the
parties’ reasonable
understanding as to whether
they had an agreement, and
(b) the language used in
preliminary agreements.
Bawitko Investments (1991 Ont.
C.A.)
• Potential franchisee gets
verbal agreement to amend
certain terms of a standard
franchise agreement.
• Where parties orally agree on
all the essential provisions to
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be incorporated into a formal
document with the intention
that their agreement shall
thereupon become binding,
they will have fulfilled all the
requisites for the formation of
a legally binding contract.
Here some essential terms still
remained to be agreed upon –
oral agreement only related to
certain terms of the entire
contract.
INTENTION TO CREATE LEGAL
RELATIONS
• It is a general principle of
contract law that an agreement
will not be enforceable in law
unless both parties intended to
be legally bound.
Balfour v. Balfour (1919 Eng. C.A.)
• Husband verbally agreed to
pay wife maintenance.
Agreement was supported by
good consideration.
• Domestic agreements are
generally not enforceable in
law unless the claimant
establishes on a balance of
probabilities that the parties
intended that a breach of the
agreement would have legal
consequences.
Rose & Frank v. J.R. Compton
(1923 Eng. C.A.)
• Parties enter into a formal
agreement that contained a
clause stipulating that it would
not be legally binding.
• In the case of commercial
relations, the presumption is
that the parties intended to e
legally bound by their
agreement.
• The onus of proof lies on the
defendant on the balance of
probabilities to show
otherwise.
TD Bank v. Leigh (1999 Ont. C.A.)
• Parent company provides a
letter of comfort guaranteeing
the debts of its subsidiary.
• When a court, having
considered the background,
purpose and entirety of a
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document finds that the
parties did not intend to be
legally bound by their
agreement, that agreement
will be unenforceable in law.
Generally, letters of comfort
are not meant to be legally
binding but merely to foster
positive business
relationships.
ACCORD AND SATISFACTION
Pinnel’s Case (1602)
• A fresh promise from a
creditor to receive a lesser
sum pursuant to an existing
legal agreement and without
fresh consideration is
unenforceable.
Foakes v. Beer (1884 H.L.)
• Pursuant to a judgment,
debtor and creditor agreed
that the debtor would not
have to pay the interest as
usually required.
• A promise to receive a lesser
sum in satisfaction of the
greater whole is not
enforceable unless it is
accompanied by fresh
consideration.
Re: Selectmove (1995 Eng. C.A.)
• P informally agreed to pay
outstanding debt in
installments. After making
several payments, the P
company folded and the
creditor demanded the full
amount owing.
• Court found no consideration
for the agreement – creditor
can claim full amount as per
Foakes.
Foot v. Rawlings (1963 S.C.C.)
• D owed the P a sum of
money under a series of
promissory notes. Parties
agreed to reduce the monthly
payment and interest. P later
tried to recover the full
amount.
• Court found consideration in
the promissory notes being a
“negotiable instrument”.
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Where a creditor agrees to
accept a lesser sum in
fulfillment of the greater
whole, a court may find good
consideration where there is
acceptance and delivery of a
negotiable instrument.
In such cases, the agreement
will be deemed to be legally
enforceable.
Judicature Act
• Part performance of an
obligation either before or
after a breach thereof shall be
held to extinguish the
obligations
(a) When expressly
accepted by a creditor in
satisfaction, or
(b) When rendered pursuant
to an agreement for that
purpose though without
any new consideration
(where parties mutually
extinguish the
obligation).
WAIVER AND PROMISSORY
ESTOPPEL
• Exceptions to the
requirement of consideration.
• Waiver: the voluntary
relinquishing of a known
legal right.
Requirements for Estoppel:
(1) Pre-existing legal
relationship between the
parties at the time that the
statement on which the
estoppel is founded was
made.
(2) A clear promise or
representation made by the
party against whom the
estoppel is raised establishing
his intent to be bo9und by
what he has said.
(3) Reliance by the party raising
the estoppel upon the
statement or conduct of the
party against whom the
estoppel is raised.
(4) The party to whom the
representation was made
must have acted upon it to his
detriment.
(5) The promisee must have acted
equitably.
High Trees (1947 K.B.)
• If a promise is made which is
intended to create legal
relations, and which to the
knowledge of the person
making the promise, was
going to be acted on by the
person to whom it was made,
and if it is so acted upon, the
promise must be honored.
John Burrows (1968 S.C.C.)
• D had not enforced an
acceleration clause that
allowed it to claim the full
amount owing upon default. P
defaulted again, D invoked
clause.
• Agreement not to invoke the
clause was not a clear and
unambiguous promise
intended to affect the legal
relationship between the
parties. It was a mere friendly
indulgence.
D & C Builders v. Rees (1966 Eng.
C.A.)
• P agreed in writing , under
duress, to accept a lesser sum
in satisfaction of a debt. The
agreement was not supported
by consideration.
• Where there is no true accord
and satisfaction for an
agreement by a creditor to
accept a lesser sum (ie. due to
extortion), the creditor can not
be estopped from insisting on
its strict legal right to claim
the full balance owed.
Sask River Bungalows (1994 S.C.C.)
• Insurance company in the past
did not enforce its right to
compel timely payment. Court
held that this was not
sufficient to amount to a
waiver of this right.
• Waiver of a party’s rights
under a contract may be found
where the party waiving (a)
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has full knowledge of their
rights, and (b) clearly and
consciously intends to
abandon them.
A waiver may be retracted at
any time. However, once the
other party has relied on that
waiver, reasonable notice
must be given.
International Knitwear (1995
B.C.C.A.)
• Landlord agreed to reduce
rent. When tenant defaulted
on the reduced amount, the
landlord sued for the full
amount in arrears.
• A promise that a promisee
will not insist on its strict
legal right arising out of an
existing legal relationship
may be revoked for the future
given reasonable notice.
W.J. Allan v. El Nasr (1972 Eng.
C.A.)
• Terms of agreement for sale
of goods required buyer to
open an account in Kenyan
shillings. Instead they opened
one in £. Payment for first
shipment was accepted by
sellers in £. £ was devalued
and seller demanded payment
for second shipment in
Kenyan funds.
• Accepting the 1st payment in
£ was held to be an
acceptance of a variation of
the terms of the K.
• Detriment is not required for
P.E. – only that the promisee
in some way acted differently
than he would have were it
not for the promise.
Societe Italo-Belge (1982 Eng.
Q.B.)
• In order for P.E. to apply, it
must be inequitable to allow
the promisee to insist on its
legal rights.
• Still unclear whether
detriment is required.
Edwards v. Harris-Intertype (1982
Ont. C.A.)
9
•
Detriment is not required – a
party must merely conduct its
affairs in reliance on the
promise.
Petridis v. Shabinsky (1982 Ont.
H.C.)
• P had the option to renew a
lease before December 31.
Landlord said that he would
meet after the New Year to
discuss renewal.
• P.E. does not apply because
the option was the legal
relationship in question, and
it was no longer available
after Dec. 31. Also, there
was no detriment and a P can
not bring estoppel as a cause
of action – ooh! Problem!
• Case decided on the basis of
waiver.
• To avoid this - use “without
prejudice” letter.
Robichaud v. Caisse Populaire
(1990 N.B.C.A.)
• Promissory estoppel may
provide a cause of action
where it is being invoked by
a plaintiff as a defence to the
insistence by the defendant
on a strict legal right.
Combe v. Combe (1951 K.B.)
• Husband agreed in writing to
pay wife an allowance after
their divorce. He did not pay.
Wife sues to claim payments.
• Estoppel can not be used
only as a shield and not as a
sword. It can not be used to
create legal rights where
none previously existed.
Waltons Stores (1988 H.C.A.)
• D induced the P to demolish
a building when the terms of
the contract had not yet been
formalized. P wants to estop
the D from not completing
the contract.
• The requirements for
promissory estoppel in
Australia are premised upon
unconscionable conduct on
the part of the promisor and
do not require a pre-existing
legal relationship.
M(N) v. A(T) (2003 B.C.C.A.)
• The suggestion that Canadian
law should move toward a
more generous approach to
promissory estoppel as has
been adopted in Australia and
the US has been rejected by
the B.C.C.A.
REQUIREMENT OF WRITING
Statute of Frauds (1667)
• The following agreements
must be in writing:
(a) Guarantee of a debt
(b) Pre-nuptial agreements
(c) Contracts for the sale of
land, tenements or
hereditaments.
(d) Any agreement or
contract to be
performed within 1
year.
(e) Any contract for the
sale of any good valued
at $50 or more.
• No particular requirement for
the form of the note or
memorandum as long as it
contains all of the essential
terms (parties, property, and
price).
• Must be signed by the party to
be charged (defendant to an
action) or an authorized agent.
• Initials are sufficient.
• Signature can appear
anywhere on the document so
long as it was placed with the
intention of authenticating the
document,
• Non-compliance renders the
contract procedurally invalid
and unenforceable.
• However, a contract that does
not comply with the statute
still has legal significance in
several ways:
o May be used as a
defence
o May be the basis for
action in equity.
o May be consideration
for a new contract.
Dynamic Transport (1978 S.C.C.)
• Agreement for the sale of
land – “more or less” 4 acres
for $53,000.
• Parole evidence rule – if
there is evidence in writing
(such as a signed contract)
the terms of that contract
cannot be altered by evidence
of oral (parole) agreements
purporting to change, explain
or contradict the written
document.
• In determining the meaning
of the terms of the note or
memorandum required by the
Statute of Frauds, the court
may allow parole evidence to
be introduced.
PART PERFORMANCE
• Where a party to a contract
unenforceable under the
Statute of Frauds stood by
while the other acted to his
detriment in performance of
his own contractual
obligations, the first party
will be precluded from
claiming exoneration, on the
ground that the contract was
unenforceable, from
performance of his reciprocal
obligations.
• Appropriate remedy is
specific performance.
• The acts proved in evidence
must be unequivocally
referable to the alleged
contract.
• 2 theories of part
performance in Canada:
(1) Alternative evidence
theory – the purpose
of the requirement of
writing is evidentiary
only, therefore part
performance is a way
of getting alternative
types of evidence as to
the terms of the
contract admitted in
court.
(2) Equitable theory – part
performance raises an
equity in the P’s
favour that would
10
make it unjust to deny
performance of the
contract. Here the
judicial approach is to
consider all of the
circumstances. The
acts must be referable
to a contract.
Deglman v. Guaranty Trust (1954
S.C.C.)
• P lived with aunt and
performed jobs for her in
exchange for a house that she
was to leave to him on her
death. Agreement was not in
writing. Estate refuses to
transfer the property.
• In order for the doctrine of
part performance to apply,
the acts done must be
unequivocally referable to
the alleged contract.
• Here the acts were not
referable to the particular
property. Quantum meruit
damages awarded.
Thompson v. Guaranty Trust (1974
S.C.C.)
• Gus lives on Dick’s land for
48 years, runs the farm. Dick
wanted to leave the land to
Gus, but did not leave
sufficient documents.
• The acts done by the
claimant must be performed
for the single purpose of
fulfilling the terms of the
alleged contract.
• Gus gets order of specific
performance.
• Distinguished from Deglman
– there the acts were more
likely attributable to a
positive family relationship.
Lensen v. Lensen (1984 Sask. C.A.)
• Oral promise by father to
transfer 2 quarter sections of
land to his son. Son
exclusively occupied the
land, gave up opportunities to
buy other properties, made
capital improvements.
• Court uses equitable theory
of part performance.
•
The actions proved must be
unequivocally referable to
some contract for the land, and
the acts must prove the
existence of some contract that
is consistent with the alleged
contact.
PRIVITY OF CONTRACT
• Generally, only parties who
are privy to a contract can sue
or be sued on that contract.
Courts do not generally
recognize the rights of a third
party.
• Unless agreement is made
under seal, consideration must
flow to the promisor.
• Agency exception – a
principle not named in a
contract may sue on that
contract where a party to that
contract is acting as agent for
that 3rd party. Still requires that
3rd party give consideration
personally or through the
agent.
Provender v. Wood (1630)
• Father of bride promised to
pay father of groom £20 if
their children married. Kids
married, father did not pay.
Son was allowed to sue.
Where there is a sufficiently
proximate relationship
between the promisee and a 3rd
party beneficiary, that 3rd party
may sue for a breach of a K
made between the promisor
and promisee.
• Reversed in Tweedle v.
Atkinson.
Tweedle v. Atkinson (1861 Q.B.)
• Father of bride and father of
groom each agreed to pay the
groom a sum of money upon
the marriage of their children.
Written agreement made after
the marriage was intended to
give the groom the right to sue
either. Sum was not paid.
• Where a 3rd party is a stranger
to the consideration given for
an agreement, that 3rd party
will not be allowed to sue on
an agreement made between
a promisor and promisee.
Dunlop v. Selfridge (1915 H.L.)
• P manufacturer had an
agreement with intermediary
that they would not sell tires
below P’s set list price unless
those companies were in the
trade. Those companies had
to agree not to sell tires to
customers below P’s set
price. P wants to sue for a
breach of the vendor’s
agreement with the
intermediary.
• No privity. No consideration.
No agency.
THIRD PARTY BENEFICIARIES
Exceptions to the Rule of Privity:
(a) Statute
(b) Specific performance
(c) Trust
(d) Agency
(e) Employment
(f) Subrogation
Beswick v. Beswick (1968 H.L.)
• Business transferred to
nephew with the
understanding that after
Uncle’s death the nephew
would make regular
payments to the Uncle’s
widow.
• A 3rd party may be able to sue
on a contract and obtain a
remedy of specific
performance where (a) that
3rd party has a legitimate
interest in that contract and
(b) sues in the name of one of
the parties to that contract.
• Here, widow is executrix of
her husband’s will – allows
her to sue in his name.
McCannell v. Mabee McLaren
(1926 Eng. C.A.)
• Multiple car dealers each
have an agreement with
Studebaker that if they sell a
car to a person who lives in
another dealership’s territory,
11
•
•
•
they will pay that dealership
50% of the profit of the sale.
One dealer wants to sue
another directly for breaching
their agreement to
Studebaker.
Test for agency depends on
the actions and intention of
the parties.
Where a 3rd party is acting as
agent to a contract, that party
is held to be privy to the
agreement if:
(a) The party to the
contract with whom
the agent negotiates is
aware that the agent is
acting as agent for
another party, and
(b) The contract into
which the agent enters
on behalf of one of the
parties is one for
which the agent has
been given signing
authority.
The Eurymedon (1975 Privy
Council)
• Drill made by machine tool
co. must pass through several
hands before it reaches
purchaser. Drill was damaged
while being unloaded. Bill of
lading included a limitation
of liability clause which the
D stevedore was able to take
advantage of.
• The agent needs express or
implied authority to act on
behalf of a principle.
• In Alberta, the principle may
ratify the agreement after the
fact even thought the agent
did not have authority
(Alberta Business
Corporations Act).
London Drugs v. Kuehne & Nagel
(1992 S.C.C.)
• Employees of D warehouse
damaged the P’s transformer
while fucking around with
forklift. Contract between P
and D included a limitation
•
•
of liability clause that limited
liability to $40. LD did not get
extra insurance. Employees
were able to get protection
under the clause.
Agency argument fails –
requirements not met.
In order for employees to be
covered by employer’s
limitation of liability clause:
(a) The contract must either
expressly or impliedly
extend the benefit to the
employees. Parties must
have intended that the
employees be covered.
(b) The employees must
have been acting within
the terms of their
employment
(c) The P has to know that
the work under the
contract would be
performed by
employees.
Edgeworth Construction (1993
S.C.C.)
• Government enters into
contract to build roads. The P
contractor lost money as a
result of the negligence of the
D engineer in his drawings
(which affected the bid
amount). D wants to claim
protection under
Government’s limitation of
liability clause.
• Case distinguished from
London Drugs because (a) no
evidence of intention that the
engineer would be covered,
and (b) engineer would be
expected to have his own
professional insurance.
Fraser River Pile (1999 S.C.C.)
• Subrogation – assuming the
legal rights of a person for
whom expenses or a debt has
been paid. Usually comes up
when an insurance company
which pays its insured client
for injuries and losses then
sues the party who the injured
person claims caused the
damage.
•
In order for subrogation to
provide an exception to the
doctrine of privity:
(a) The parties to the
contract must have
intended to extend the
benefit to the 3rd party
seeking to rely on the
provision.
(b) The activities
performed by the 3rd
party seeking to rely
on the provision must
be the very activities
that were
contemplated as
coming within the
scope of the contract
in general, or the
provision in particular,
as determined by
reference to the
parties.
CONTINGENT AGREEMENTS
• Condition precedent –
contract ay be postponed
until the occurrence of a
specified event
• Condition subsequent –
contract may be found void
ab initio if a certain even or
occurrence happens.
• Used where prospective
contracting party wants to
prevent the other party from
dealing with someone else,
without making a contractual
commitment until certain
information is obtained or a
certain state of affairs comes
to pass.
• Offer – Where one party
does not intend to enter into a
contract unless or until the
contingency is satisfied,
written or oral
communication of the terms
of a proposed agreement is
merely an offer to contract on
those terms. No initial
contract is created – parties
may withdraw at any time.
12
•
•
Conditional contract –
Language that expresses an
agreement “subject to” a
predetermined state of
affairs is often ambiguous –
may create an initial contract
under which certain
obligations are to be
performed. Failure to meet
the condition terminates the
contract, but until then
neither party may withdraw.
Here there is actually a
contract.
Option – Where one party
provides consideration
(usually a non-refundable
deposit) for the other’s
agreement to enter into the
primary contract at a future
specified time. The
difference between an option
and a conditional contract is
consideration.
Wiebe v. Bobsien (1985 B.C.S.C.)
• Real estate transaction made
subject to the buyer taking
“all reasonable steps” to sell
his Port Moody home by a
specified date.
• A real estate contract
containing a condition
precedent will usually result
in a binding agreement for
purchase and sale.
• The obligation to complete
the contract is merely in
suspense pending the
occurrence of the event
constituting the condition
precedent.
• Where the intention of the
parties shows otherwise, a
condition precedent may
prevent the formation of a
binding agreement.
• C.A. held that the words
“take all reasonable steps”
were too uncertain.
4 types condition precedent
situations:
(1) Where the condition is
worded in such a way that the
transaction is still in a novel
stage – ie. “subject to the
approval of the corporate
purchaser”. Treated as a mere
offer until the condition has
been met. Until then either
party may walk away.
(2) Where the condition is clear,
precise and objective – ie.
“subject to the election of Bob
Smith in the municipal
election of May 1”. Neither
party can withdraw – must
wait and see if the condition is
fulfilled. If it is not fulfilled,
either party may terminate the
contract. Here there is a
preliminary contract.
(3) Where the condition is
objective but requires
someone to act – ie. “subject
to the approval of the
municipal planning authority”.
Impliedly, the obligation will
be on the vendor unless
otherwise stipulated by the
agreement.
(4) Where the condition is so
uncertain that the contract will
be void for uncertainty.
SUBSIDIARY OBLIGATIONS
Dynamic Transport (1978 S.C.C.)
• Real estate transaction made
subject to obtaining
subdivision approval from the
municipal planning board
(which is not guaranteed).
Documents were silent as to
which party was to obtain
approval.
• Parties may stipulate in an
agreement as to which party is
required to undertake
subsidiary obligations.
• That party must use “best
efforts” or “reasonable
endeavours” (objective
standard).
• Where an agreement is silent
on the matter, the court will
impliedly place the obligation
on the vendor.
Eastwalsh Homes v. Anatal Dev.
(1993 Ont. C.A.)
• Real estate transaction made
subject to subdivision
approval before the
•
•
conveyance date. Vendor was
to obtain approval but did not
make any efforts to obtain
approval.
The appropriate remedy for
breach of a subsidiary
obligation is either damages
or specific performance.
Here damages were awarded
– case doesn’t say but
Bauman thinks this is
because there had been a 3rd
party sale.
UNILATERAL WAIVER OF
CONDITIONS
• A party may unilaterally
waive a condition if the
agreement expressly allows
them to do so.
• If there is no express right of
waiver –
o Condition can not be
waived if it is a true
condition precedent.
o If it is not a true
condition precedent is
may be waived if it is
for the sole benefit of
the party waiving, and
it is severable from the
rest of the contract.
Turney v. Zhilka (1959 S.C.C.)
• True condition precedent –
one which depends upon the
happening of a future
uncertain event, the
happening of which depends
entirely on the will of a third
party.
• Neither party to a contingent
agreement may waive a “true
condition precedent”
• Where there is a concluded
contract, a part may
unilaterally waive a condition
in that contract where (a) the
condition was included only
for that party’s benefit, and
(b) the clause is severable
from the rest of the contract.
13
Beauchamp v. Beauchamp (1973
Ont. C.A.)
• Transaction made conditional
to the purchaser securing 3
mortgages at specified rates
and terms. Purchaser instead
secures a single mortgage for
the full amount.
• Court held that this was not a
true condition precedent –
applies Turney v. Zhilka but
distinguishes this case on the
facts.
Barnett v. Harrison (1976 S.C.C.)
• Transaction made subject to
approval of a re-zoning
application to be obtained by
the purchaser. Purchaser
made diligent efforts but was
unable to obtain approval –
wants to unilaterally waive
the condition.
• Court applied Turney v.
Zhilka and held that it was a
true condition precedent that
could not be waived. Also,
the condition was for the
mutual benefit of the parties
– not just for the purchaser.
REPRESENTATION AND
TERMS
Pre-Contractual Representations:
(1) Mere puffery – sales talk. No
legal liability even if the
statements are false because
no reasonable person would
rely on such statements
(Goldthorpe, Carbolic,
PepsiCo).
(2) Mere statements of opinion –
generally no legal liability.
(3) Material (false)
representations that induce a
party to enter into a contract.
These types of
representations may lead to
legal liability.
 Innocent
misrepresentation –
party didn’t know at
the time that what they
said was false – no
element of fraud.
Remedy is rescission
(equitable).

Fraudulent
misrepresentation –
remedy is damages
(common law). Usually
in such cases the
contract is already
executed and the
contract can not be
rescinded.
 Negligent
misrepresentation –
remedy is damages.
Redgrave v. Hurd (1881 Eng. C.A.)
• Sale of a law firm – vendor
made representations as to
profits which were false.
• Court found no evidence of
fraud – rescinded the contract.
• If a material representation is
made during the precontractual period, the onus is
on the representor to show that
the either (a) the representee
had knowledge of the falsity,
or (b) that that the representee
did not rely on the
representation.
• There is no positive duty on
the representee to check the
validity of a representation.
Smith v. Land and House Property
(1884 Eng. C.A.)
• Sale of a hotel – vendors said
that the current tenant was
“very reliable”. Later he went
bankrupt. Purchaser claims
that this was a
misrepresentation that they
relied upon. Vendor says it
was a statement of opinion.
• When the facts are not known
to each of the negotiating
parties, a statement of opinion
by the party who was in the
better position (or the one who
had particular knowledge) is
regarded as a statement of fact
if it is relied on by the
representee.
Bank of BC v. Wren (1973 B.C.S.C.)
• Bank failed to tell guarantor
that the shares given in
guarantee had been changed
and were worth significantly
less.
•
Misrepresentations can be
made by silence or omission.
Kupchak v. Dayson (1965
B.C.C.A.)
• Sale of real property for
shares in a motel company.
Representations as to motel’s
earnings turned out to be
false. Property had been
altered by other party in the
meantime.
• Court held that
representations were
fraudulent.
• Normal remedy would be
damages.
• Court holds that it has the
discretion to grant equitable
remedies even in cases where
damages are the usual
remedy.
• Court rescinds contract and
gives damages.
• This case is an anomaly.
Redican v. Nesbitt (1924 S.C.C.)
• Sale of a leasehold property –
realtor made representations
as to the nature of the
property that the buyer relied
on. Representations turned
out to be false.
• Generally, once a contract
has been executed rescission
will not be available.
REPRESENTATION AND
TERMS
Types of Terms of the Contract:
(1) Warranties (collateral
contract) – those which go to
the very heart of the
agreement. Must be proved
strictly – requires intention to
be bound. Remedy for breach
is damages. Goes to quality
of the purchased item.
(2) Conditions – Remedy for
breach is rescission. Goes to
the identity of the purchased
item.
(3) Innominate Terms – The
right to rescind depends on
the consequence of the
breach.
14


For minor infractions
of conditions—no
rescission (e.g. minute
late on delivery) and
for major infractions
of warranties—
rescission.
TEST for seriousness:
does it substantially
deny one party the
whole benefit of the
contract?
Heilbut, Symons & Co. v.
Buckelton (1913 H.L.)
• Misrepresentation went to the
nature of the company in
which shares were being
bought.
• An affirmation at the time of
sale is a warranty, provided it
appear on evidence to be so
intended.
Dick Bentley v. Harold Smith
Motors (1965 Eng. C.A.)
• Bentley dealer verbally
agreed to guarantee the car
for 1 year for parts and
labour.
• Whether or not a warranty
was intended depends on the
conduct of the parties rather
than on their thoughts – test:
would an intelligent
bystander have reasonably
believed that a warranty was
intended?
• Here the conduct leading to
the finding of a warranty was
the vendor choosing to make
statements about the quality
of the vehicle without having
checked it out when he was
in a position to do so.
Leaf v. International Galleries
(1950 Eng. C.A.)
• Purchaser bought a painting
that he was told was by a
famous painter. Painting later
turned out to be worthless.
• Court held that it was a
condition – representation
went to the identity of the
painting.
•
A plaintiff may be barred from
being granted rescission once
a “reasonable amount of time”
has passed.
CLASSIFICATION OF TERMS
Hong Kong Fir (1962 Eng. C.A.)
• Third term approach
(innominate terms).
• Courts may wait and see what
the consequences of the breach
are in order to determine
whether a term is a condition
or a warranty.
• More flexible approach –
allows courts to consider
subsequent conduct of the
parties to determine intention.
Krawchuk v. Ulrychova (1996 AB
Prov. Ct.)
• Buyer was told that the horse
would be good for his
daughter. Horse turned out to
have several problems. Buyer
wants money back
(rescission).
• Court used the third term
approach and determined that
the term was a warranty and
that it had been breached.
• Court awarded damages, not
rescission.
Wickman Machine Tool (1974 H.L.)
• Language used is not
determinative of whether a
term is a condition or a
warranty. The distinction is a
matter of substance and not
form.
• Factors to consider:
(1) look at wording of
contract—expressly or
implicitly making term
a condition
(2) Surrounding
circumstances:
(commercial setting,
would damages alone
be sufficient, was there
an ulterior motive for
rescission?
(3) If not determinative:
probably innominate
Contracts Can
OFFER AND INVITATION TO TREAT
Canadian Dyers Association v. Burton
(1920), 47 O.L.R. 259 (HC)
PROCEDURAL SETTING:
• Trial Decision (Ontario Provincial Court)
FACTS:
• In May, 1918, the P asked the D for the lowest price at which he would be willing to sell his property
located adjacent to the CDA factory.
• In June, the defendant quoted a price and some attempts at negotiating by the P took place.
• After 18 months of no communication, the D was again asked for the lowest price at which he was
willing to sell the property. This gesture was taken by the P to be an offer, and accepted.
• A deposit was sent to the D, who was asked to have a deed prepared. A deed was drawn up by the D’s
solicitor, who in November returned the cheque to the P stating that there was not contract in place.
ISSUE(S):
• Did the parties involved indeed enter into a contractual relationship?
DECISION:
• For the plaintiff - the D is guilty of breach of contract and is therefore libel.
REASONS:
• The judge regarded the quotation of price as more than just a quote. It is, in fact, an offer. Specific
importance is placed on the words “the price… is the lowest I am prepared to accept…”. Furthermore,
the defendant did not return the cheque citing the lack of contract. Instead he prepared a deed, suggested
a title search and named a closing date – all while retaining the cheque. As the judge argues, “[the
defendant’s] actions show that he regarded his letter as an offer and the letter of the 23rd as making a
contract…”
RATIO DECIDENDI:
• There can be no contract of sale unless an offer to sell and an acceptance of the offer or and offer to
purchase and an acceptance of that offer can be found. In addition, a mere quotation of price does not
constitute and offer to sell to the person to whom the quotation is addressed. It is simply an invitation to
him to make an offer to buy at that price or another price, which may be accepted or rejected by the
vendor before there is a contract (offer to treat).
NOTES:
• Deciding whether or not an agreement has been reached depends on the language used and the context
of the situation (ie. the past relationship of the parties involved). In this case, the re-statement of a quote
in and of itself does not make the quotation an offer. All factors and context must be considered.
• See also Harvey v. Facey - same applicable principles but different facts (and therefore different
outcome).
• Not always the vendor who makes the offer and the potential purchaser that accepts. Can be the
opposite.
• Remedy: No remedy specified in this case. However, there are 2 main potential remedies to be carried
out by the court:
(1) The court may make a judicial order forcing the carrying-out of the contract (Decree of Specific
Performance). Both parties would be held to their respective obligations as outlined by the
contract. For example, the court will set date for completion of transaction. D must pay money
and P must take possession of the land. If D does not comply, the court may apply its power to
hold the D in contempt, issue a warrant for his arrest and potentially throw him in jail.
(2) The court may make award of compensation (damages) instead of enforcing terms of the
contract based on the loss suffered by the P based on the D's breach of contract.
•
•
•
The court may also order the carrying-out of the contract, as well as order the P to pay damages relating
to any losses incurred by the P during the time that the matter was before the court.
In this case the P is interested only in the particular piece of land in question, not any other form of
compensation (monetary or otherwise).
Specific performance is usually reserved for land transactions.
Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd.
[1953] 1 Q.B. 401, [1953] 1 All E.R. 482 (C.A.)
PROCEDURAL SETTING:
• Decision for the Defendant at Queen's Bench
• Decision was appealed by the Pharmaceutical Society
FACTS:
• The Respondent (R) operated a self-serve drug store.
• Some drugs which were classified as "poison" under the Poisons List of the Pharmacy and Poisons Act
(1933) were displayed on self-serve shelves, but the sales were recorded by a qualified pharmacist at the
check-out counter.
• The R was sued by the Pharmaceutical Society (the Appellant) for selling poisons contrary to the act by
failing to have a registered pharmacist supervise the sale of products.
• The case turns on when and where the sale took place.
• According to the Appellant's argument, the sale takes place when a customer takes an item from the
shelf and places it in his basket (ie. the display of items is an offer to sell).
• The Respondent, however, argues that the sales transaction takes place at the cashier's desk when the
customer pays for the item.
ISSUE(S):
• Were the sales of two medicines containing substances included in Part 1 of the Poisons Act in
accordance with section 18(1)(a)(iii) of the Pharmacy and Poisons Act of 1933 that required that such
transactions must be supervised by a registered pharmacist?
DECISION:
• Appeal dismissed.
REASONS:
• The R is not in breach of professional conduct because the sale occurred under the supervision of a
pharmacist. Whereas the A argued that the offer and acceptance occurs when a store displays a price and
a customer chooses the item from the shelf, in fact the offer and acceptance required to complete a sale
occurs at the moment of purchase (by bringing the items to the cashier, the buyer offers to purchase that
item and the cashier accepts). Because the R supervised all purchases involving medications at the cash
desk, his actions in this case were in compliance with section 18(1)(a)(iii) of the Pharmacy and Poisons
Act.
RATIO DECIDENDI:
•
As a general rule, the courts view an advertisement (or for that matter, any display of goods) as a mere
invitation to do business, rather than an intention to enter into a contract with the public at large. The
purpose of the advertisement or display is merely to invite offers that the seller may accept or reject.
NOTES:
• The display of a price on an item in a store and the customer's action of selecting the item from the shelf
does not constitute offer and acceptance. The display of price is simply an invitation to treat.
• Pharmaceutical Society is a Self-Regulating Profession (makes rules for the profession). Society is
charged with enforcing regulations.
• If the contract was formed when the customer takes the item from the shelf, the customer's freedom of
choice is limited. This type of arrangement would prevent customers from changing their minds or from
taking items from the shelf to look at them.
Carlill v. Carbolic Smoke Ball Co.
[1893] 1 Q.B. 256 (C.A.)
PROCEDURAL SETTING:
• Trial judgment for the plaintiff.
• Decision appealed by Carbolic Smokeball Co.
FACTS:
• The Defendants, who were the proprietors and vendors of a medical preparation called "The Carbolic
Smoke Ball", placed an advertisement in the local newspaper offering a $100 reward to any person who
contracts the influenza virus or other related illnesses after having used the ball according to directions
for two weeks.
• The Plaintiff, on the faith of this advertisement, bought one of the balls and used it as directed. Despite
these measures, however, the P caught influenza.
• The courts held that she was entitled to recover the $100 reward. The D appealed.
ISSUE(S):
• Was a contract formed between the P and the D as a result of the advertisement, and, if so, has that
contract been breached?
• How long was the offer good for?
• How was acceptance communicated?
• How could the D ensure that the product was used properly?
• How does the D know who they've entered into a contract with?
DECISION:
• Appeal dismissed. Trial judgment stands.
REASONS:
• Because the D stated that $1000 was deposited with the bank for the purpose of paying potential
rewards, the court finds that the statement of reward was in fact more than just mere "puffery". Here, the
D shows intent to make good on its promises by placing money in the bank for the express purposes of
paying such rewards.
• In addition, the court reasons that if a person or company chooses to make extravagant promises of this
kind he probably does so because it pays him to make them, and, if he has made them, the extravagance
of the promises is not reason in law why he should not be bound by them.
• Also, the fact that the offer is vague (by choice of the D) is not reason enough to conclude that there was
not contract.
RATIO DECIDENDI:
•
An advertisement is an offer where the advertiser promises a specific reward or makes a guarantee for
performance of an action.
NOTES:
• Consideration - n. 1) payment or money. 2) a vital element in the law of contracts, consideration is a
benefit which must be bargained for between the parties, and is the essential reason for a party entering
into a contract. Consideration must be of value (at least to the parties), and is exchanged for the
performance or promise of performance by the other party (such performance itself is consideration). In
a contract, one consideration (thing given) is exchanged for another consideration. Not doing an act
(forbearance) can be consideration, such as "I will pay you $1,000 not to build a road next to my fence."
Sometimes consideration is "nominal," meaning it is stated for form only, such as "$10 as consideration
for conveyance of title," which is used to hide the true amount being paid. Contracts may become
unenforceable or rescindable (undone by rescission) for "failure of consideration" when the intended
consideration is found to be worth less than expected, is damaged or destroyed, or performance is not
made properly (as when the mechanic does not make the car run properly). Acts which are illegal or so
immoral that they are against established public policy cannot serve as consideration for enforceable
contracts. Examples: prostitution, gambling where outlawed, hiring someone to break a skater's knee or
inducing someone to breach an agreement (talk someone into backing out of a promise).
• This case is known as the case that created the unilateral contract (only one side is bound once the
terms of the contract are performed) - an offer is made in return for performance of an action.
• Nudem pactum - nude contract (meaning that there was no consideration)
• The court finds that consideration in this case comes from labour, time, some suffering / pain on the part
of Mrs. Carlill (no benefit flows from the P to the D, but the P suffered a detriment as a result of the
performance of the action required to fulfill the terms of the contract)
• This case includes the same principles as mail-in warranties today
To evaluate a contract:
o Find the offer
o Find the acceptance
o Find consideration (which makes it a legally enforceable contract)
Goldthorpe v. Logan
[1943] O.W.N. 215, [1943] 2 D.L.R. 519 (C.A.)
PROCEDURAL SETTING:
• Appeal from a judgment dismissing an action brought by Pearl E. and J. Thomas Goldthorpe against
Anne G. Logan and Kathleen Fitzpatrick for damages for negligence and breach of contract.
FACTS:
• The female appellant had some hairs on her face and wanted to have them removed.
• She saw advertisements published in a newspaper by the defendant Anne Graham Logan.
• She went to the place of business stated in the advertisement and consulted the defendant Kathleen
Fitzpatrick, a registered nurse, who was an employee of the defendant Logan.
• She was told that her face could be definitely "cleared," that the hair could be removed permanently, and
the result was guaranteed. She then submitted to a number of "treatments" by electrolysis for the purpose
of removing the hairs but the result was not satisfactory.
• Hairs continued to grow on her face in the same way as before, and in spite of the efforts of the
defendants to remedy the condition.
• She claims in this action that the treatments by or on behalf of the defendants were unskillfully or
negligently administered, or should not have been administered at all, and that as a result thereof she has
suffered damages.
•
•
In the alternative the plaintiffs claim the defendants were under a contract to remove safely and
permanently the hairs in existence when the treatment was given, and guaranteed satisfactory results.
The plaintiff argues that the results were not satisfactory and that the defendants are in breach of
contract.
ISSUE(S):
• Was there any negligence on the part of the Ds which caused loss or damages to the Ps?
• Was there a contract between the defendant Logan and the plaintiff Pearl Elizabeth Goldthorpe?
• If so, what is the result in law of a breach thereof on the part of that defendant?
DECISION:
• Appeal allowed in part.
• The D is not liable for negligence but is found to be in breach of contract.
• The defendant is ordered to return the P's payment of $13.25 and to pay $100 in damages to the plaintiff.
REASONS:
• First, the court finds that the plaintiff is unable to provide evidence that would lead the court to make a
finding of negligence, and that the continued growth of hair on the plaintiff's face was likely attributable
to causes other than the treatment itself (ie. continued natural growth).
• On the allegation of breach of contract, however, the court reasons that pursuant to Carlill v. Carbolic
Smoke Ball Co., the guarantee tendered by the defendant does in fact constitute an offer that was in turn
accepted by the plaintiff. That is, a legally enforceable contract exists between the plaintiff and the
defendant, and that contract has been breached by the defendant.
• Finally, the court applies the "reasonable person" standard of interpretation to come to the conclusion
that in this case a reasonable person would likely interpret the terms of the advertisement of an offer.
RATIO DECIDENDI:
• An advertisement to perform a service, "results guaranteed", constitutes an offer made to the general
public to perform this service, guaranteeing a satisfactory result, in return for a monetary consideration,
which any member of the public may accept and so create a binding contract between the parties.
NOTES:
• This case involves an oral promise by registered nurse that was an employee of the defendant Logan.
• The plaintiff originally claimed only that the Defendant was negligent in his performance of the terms of
the contract. The statement of claim was amended to include breach of contract - good move given the
decision of the courts.
• Standard of interpretation - the court uses the "reasonable person" standard (what would a reasonable
person think when they see this advertisement).
• Consideration - by undergoing this treatment (which may include pain or discomfort), or by paying
money for the treatment (monetary consideration).
• Third party consideration - if a third party pays (ie in this case perhaps the D's husband made the
payment) there may not be an enforceable contract. The third party is not party to that contract.
• Without consideration there is a contract but it is not enforceable.
• $100 is awarded as what a hairless face should be worth has the treatment been successful (damages
awarded for failed expectations). This amount was probably determined on the basis of similar case law.
• The damages requested by the plaintiff's husband were denied and the case dismissed. The husband is
not party to the contract in question - courts usually deny third party recovery claims. A third party may
bring an action in tort that may or may not be successful (however in this case there is no negligence).
• Damage vs. Damages - Damage in this case is the loss for harm or injury suffered by the plaintiff - either
physical, emotional or financial. Damages refers to the sum of money paid by one person to the other for
injury, loss or damage caused by the defendant to the plaintiff.
Leonard v. PepsiCo, Inc.
88 F. Supp. 2d 116; 1999 U.S. Dist. LEXIS 11987; 39 U.C.C. Rep. Serv. 2d (Callaghan) 1
PROCEDURAL SETTING:
• Trial decision by the United States District Court for the Southern Discrict of New York on a charge of
breach of contract.
FACTS:
• This case arises out of a promotional campaign conducted by PepsiCo Inc. (the defendant) entitled
"Pepsi Stuff," that encouraged consumers to collect "Pepsi Points" from specially marked packages of
Pepsi or Diet Pepsi and redeem those points for Pepsi merchandise.
• Before introducing the promotion nationally, PepsiCo conducted a test of the promotion in the Pacific
Northwest. A Pepsi Stuff catalog was distributed to consumers in the test market, including Washington
State, where the Mr. Leonard (the plaintiff) resides. While living in Seattle, Mr. Leonard saw the Pepsi
Stuff commercial that he contends constituted an offer of a Harrier Jet.
• On or about March 27, 1996, the plaintiff submitted an Order Form, 15 original Pepsi Points, and a
check for $700,008.50 designated for the purpose of purchasing the Harrier Jet featured in the
commercial.
• On or about May 7, 1996, the defendant's fulfillment house rejected plaintiff's submission and returned
the check, explaining that the item was not part of the Pepsi Stuff collection, it was not included in the
catalogue or on the order form, and only catalogue merchandise could be redeemed under this program.
• The plaintiff argues that the commercial constituted an offer, while the defendant contends that the
Harrier Jet was featured in the commercial for entertainment purposes only, and that no reasonable
person would agree with the plaintiff's interpretation of the commercial.
ISSUE(S):
• Does a television commercial constitute an offer?
DECISION:
• Decision for the defendant. The court finds that the television commercial was not an offer.
REASONS:
• First, the law states that, as a general rule, an advertisement does not constitute an offer but a mere
invitation to customers to make an offer to purchase. In addition, the court finds that the plaintiff's letter
of March 27, 1996, with the Order Form and the appropriate number of Pepsi Points, did constitute an
offer. As a result, there would be no enforceable contract until defendant accepted the Order Form and
cashed the check. Because the defendant did not accept the Order Form and returned the plaintiff's
check, there is no legally enforceable contract.
• Furthermore, although the plaintiff argued that, as in Carlill v. Carbolic Smokeball, a promise of reward
does in fact constitute an offer to the public, the court finds that in this case the Harrier Jet commercial
did not direct that anyone who sent in 7,000,000 Pepsi Points would receive a Harrier Jet. Instead, the
commercial urged consumers to accumulate points and to refer to the Catalog to determine how they
could redeem them. The catalogue did not include a Harrier Jet.
• Finally, the court finds that the tongue-in-cheek attitude of the commercial would not cause a reasonable
person to conclude that a soft drink company would be giving away fighter planes as part of a
promotion.
RATIO DECIDENDI:
• An advertisement does not constitute an offer of sale but is solely an invitation to customers to make an
offer to purchase. In addition, an advertisement is not transformed into an enforceable offer merely by a
potential offeree's expression of willingness to accept the offer through, among other means, the
completion of an order form.
NOTES:
• Plaintiff seeking a decree of specific performance.
• The general rule is that an advertisement does not constitute an offer. The Restatement (Second) of
Contracts explains that:
• "Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily
intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even
though the terms of suggested bargains may be stated in some detail. It is of course possible to make an
offer by an advertisement directed to the general public, but there must ordinarily be some language of
commitment or some invitation to take action without further communication."
• This case shows that plaintiffs do not always win when a reward is offered in an advertisement
(Different from Carlill v. Carbolic Smokeball and from Goldthorpe v. Logan)
• Court uses the "reasonable person" standard here also.
Harvela Investments Ltd. v. Royal Trust Co. of Canada (C.I.) Ltd.
[1986] A.C. 207, [1985] 3 W.L.R. 276, [1985] 2 All E.R. 966 (H.L.)
PROCEDURAL SETTING:
• Appeal to the House of Lords.
FACTS:
• On September 15, 1981 Royal Trust (the respondent) invited Harvela Investments (the appellant) and Sir
Leonard Outerbridge, to make offers to purchase the vendor's shares in A Harvey & Co. Ltd.
• The invitation, which was sent by telex, stipulated that offers must be made by sealed tender or
confidential telex which would not be divulged by the vendors before the invitation expired at 3:00 pm
the following day when the vendors would accept 'the highest offer'.
• Harvela offered $2,175.000. Sir Leonard offered $2,100,000 or $101,000 in excess of any offer, which
ever is higher.
• The court of appeal found in favour of Harvela. The court of appeal found in favour of Sir Leonard. This
appeal is brought by Harvela.
ISSUE(S):
• Were Harvela and Sir Leonard invited to participate in a fixed bidding sale, or in an auction sale, and,
pursuant to that decision, whose bid is the vendor required to accept?
DECISION:
• Appeal allowed. The vendors are bound to accept Harvela's offer.
REASONS:
• Although it is not expressly stated by the D, the court finds that by inviting confidential offers the D
intended only to accept fixed bids. If it were to be otherwise, there would be an unlimited ceiling as one
referential bid could trump another, and so on… As such, the D was not able to accept Sir Leonard's bid,
which was non compliant. By accepting Sir Leonard's bid the D is therefore in breach of contract.
RATIO DECIDENDI:
• Where a vendor chooses to invite offers by fixed bid, a purchaser must comply with the terms of that
type of bid. That is, the vendor sets the terms of the offer process.
NOTES:
• Court presumed that the intention of the Defendant was to accept only fixed bids - likely that by using
plain language this is what they meant.
R. in Right of Ontario v. Ron Engineering & Construction (Eastern) Ltd.
[1981] 1 S.C.R. 111
PROCEDURAL SETTING:
• Appeal to the S.C.C.
FACTS:
• The contractor submitted a tender to build a project for a price of $2,748,00. In accordance with the
Information for Tenders, the contractor also submitted as a tender deposit a certified cheque in the
amount of $150,000. In addition, the Information for Tenders specified that should a bid be retracted the
commission may choose to retain the deposit.
• Tenders for the project closed at 3:00 pm on July 4, 1972. Upon learning that their tender was $632,000
lower than the next lowest bid, the contractor sent a telex requesting to withdraw the original tender
without penalty, citing an error in estimate.
• In place of the original bid amount, the contractor submitted a revised figure of $3,498,058.00.
• When the contractor declined to enter the agreement for the original amount, the owner, relying on the
tender deposit term, decided to retain the deposit and proceeded to accept another tender. The contractor
commenced this action to recover the tender deposit.
ISSUE(S):
• Is the contractor entitled, in law, to withdraw its tender and recover its deposit? That is, is a tender an
offer?
DECISION:
• Appeal allowed. The bidder is liable for breach of contract.
REASONS:
• First, the court finds that a legally enforceable contract has been formed between the parties.
Specifically, a unilateral contract arose automatically upon the submission of a tender between the
contractor and the owner. Included as terms in that contract was the specification that the tenderer could
not withdraw the tender for a specified period of time, after which, if the tender had not been accepted,
the deposit could be recovered.
• The court then points out that the tender deposit submitted by the contractor was recoverable under
certain conditions of the contract, none of which was met, and also was subject to forfeiture under
another term of the contract, the conditions of which had been met. The tender, despite being the product
of a mistaken calculation, is subject to the terms and conditions of the contract so as to invoke forfeiture
of the deposit. The deposit therefore is forfeited and the decision of the lower court overturned.
RATIO DECIDENDI:
• An invitation for tenders is a unilateral offer which is accepted when a contractor submits a bid
(Contract A) and the deadline for tenders passes. This contract is an agreement by the parties to enter
into a subsequent contract (Contract B). A bid may be withdrawn at any time before the deadline. Once
the deadline has passed, however, the contract is binding and the parties are bound by the terms and
conditions of the call for tenders.
NOTES:
• Leading Canadian case on Law of Tenders
• The court distinguishes between 2 contracts in this case:
(A) Contract A - The contractual relationship that arises upon submission of a tender. Invitation to
tender is the offer, submitting a bid is the acceptance. This contract imposes certain obligations
upon the contractor (the person submitting the tender).
(B) Contract B - The construction contract entered into if the tender is accepted - further to Contract
•
A.
Here the bidder is liable. Can an owner also be liable for breach of Contract A - see next case.
M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd.
[1999] 1 S.C.R. 619, 170 D.L.R. (4th) 577
PROCEDURAL SETTING:
• Appeal to the S.C.C.
FACTS:
• The respondent (Defence Construction) invited tenders for the construction of a pump house, the
installation of a water distribution system and the dismantling of a water tank on the CFB Suffield in
Alberta.
• Four tenders were received, including one from the appellant (M.J.B. Enterprises). The contract was
awarded to Sorochan Enterprises Ltd., the lowest tenderer, and the work was carried out.
• The appellant was the second lowest tenderer.
• Included in the Tender Documents was a "privilege clause" that stated that "the lowest or any tender
shall not necessarily be accepted".
• When the appellant brought complaints regarding the alleged breach of the Instructions to Tenderers by
Sorochan, the lower courts found that (a) Sorochan's bid was invalid, and (b) given the "privilege clause"
the respondent was not obligated to accept the next lowest tender.
• The Alberta Court of Appeal dismissed the M.J.B.'s initial appeal.
ISSUE(S):
• Does the inclusion of a "privilege clause" in the tender documents of a contract allow the person calling
for tenders to disregard the lowest bid in favour of another tender, including a non-compliant one?
DECISION:
• Appeal allowed. Damages in the amount of $398,121.27 awarded to the appellant.
REASONS:
• First, the court finds that a contract (Contract A) was formed when the tenderers accepted the
respondent's offer to submit tenders.
• In addition, the respondent is unable to accept the bid from Sorochan given that it does not conform to
the specifications of Contract A (namely the procedure and rules outlined by the Tender Documents) and
is therefore non-compliant.
• However, the court finds that because of the "privilege clause", the respondent is not obligated to accept
the next lowest compliant bid (ie that of the appellant).
• In making this decision, the court considers 3 factors: (1) custom usage and common trade practices, (2)
the legal incidents of a particular class or kind of contract, and (3) the presumed intention of the parties.
• Finally, the court finds that although Sorocan's bid was invalid and the respondent was not obliged to
accept the next lowest compliant bid, the respondent is liable for breach of contract in that it breached its
obligation to the appellant (and others), that it would accept only a compliant tender. That is, the
"privilege clause" does not protect the respondent in regards to accepting a non-compliant bid.
RATIO DECIDENDI:
• A "privilege clause" does not empower an invitor to disregard a compliant bid in favour of a noncompliant one.
NOTES:
•
•
•
•
•
Uses the same "Contract A" vs. "Contract B" distinction as R. v. Ron Engineering. In this case the
question is whether a Contract A arose, and, if so, what obligations, if any, it imposes on the owner
rather than the tenderer.
Sorochan submitted a qualified bid - included a written note qualifying its tender, which was in violation
of the terms of the Instructions to Tenderers (Contract A).
Privilege Clause - standard clause included in many Calls for Tender.
On a balance of probabilities, the court finds that more likely than not, the invitor would have awarded
the contract to the appellant has Sorochan's bit not been an issue.
Nominal Damages - appellant did not get full damages but a portion.
COMMUNICATION OF OFFER
Williams v. Carwardine
(1833), 4 B. & Ad. 621, 111 E.R. 590 (K.B.)
PROCEDURAL SETTING:
FACTS:
• Walter Carwardine, the brother of the defendant, was seen on the evening of the 24th of March, 1831 at
a public house and was not heard of again until his body was found on April 12th in the river Wye.
• During the subsequent inquest, it was discovered that the plaintiff (Mary Anne Williams) was with the
deceased on the night he was supposed to have been murdered. She did not provide the police with any
information that lead to the apprehension of the real offender.
• On April 25th the defendant distributed a handbill in the town stating that any person (except the
murderer) who gave information that leads to the discovery of the murderer of Walter Carwardine
should, on conviction, receive a reward of 20l.
• After being severely beaten by her husband and believing that she had not long to live, she made a
voluntary statement containing information that lead to the subsequent conviction of her husband for the
murder of Walter Carwardine.
ISSUE(S):
• Did the plaintiff fulfill the terms of the reward contract, and
• Was she motivated to give information by the reward or by some other factor?
DECISION:
• For the plaintiff. Mrs. Williams is entitled to recover the reward offered by the defendant.
REASONS:
• The court finds that Mrs. Williams did fulfill the terms of the reward contract in that (a) she had
constructive knowledge of the reward, and (b) she fulfilled the terms of the contract.
• The judge puts it to the jury to decide whether or not her actions were motivated by the reward or by
some other factor. The jury finds that she was not motivated by the award, however because of the
previous finding of the judge, the jury's finding is irrelevant.
RATIO DECIDENDI:
• In reward cases, the courts must be satisfied that (1) the offeree had knowledge of the offer and (2) the
offeree fulfilled the terms of the contract. Whether or not that person was prompted by good motives is
irrelevant.
NOTES:
• Consensus ad idem - Meeting of minds - can be by action or by implication. With out a meeting of
minds no contract occurs.
•
•
Constructive Knowledge - Sometimes a fact is treated as known by everybody in the community
because it was well published. In these cases there is no need to provide evidence that an individual had
specific knowledge of a fact. In this case the court finds that Mrs. Williams had constructive knowledge
of the reward.
Directed verdict - Judge asks the jury for a specific finding of fact - asks them to deliberate on a
specific question or fact of the case - often done to cover the judge's butt in case of appeal (provides
factual basis for the decision - if the judge has the common law wrong the decision may not be
overturned on a question of law)
R. v. Clarke
(1927), 40 C.L.R. 227 (Aust. H.C.)
PROCEDURAL SETTING:
FACTS:
• The police offered a reward to anyone who provided information that leads to "the arrest and conviction
of the person or persons who committed the murders "of a Mr. Walsh and another victim.
• At the time of the investigation, the plaintiff (Clarke) provided the police with false information in order
to avoid being falsely charged with the murder himself.
• At the trial of the two murder suspects (Treffene and Coulter), Clarke testified and gave information that
lead to the conviction of both suspects.
• After an appeal of the judgment failed, Clarke thought of the reward for the first time and decided to
claim it.
ISSUE(S):
• Did Clarke have knowledge of the offer at the time the information was given and
• Did he fulfill the terms to the contract?
DECISION:
• Appeal allowed. The plaintiff's claim is dismissed.
REASONS:
• First, the court decided that there was no consensus ad idem. That is, at the time the information was
given there was no consensus of the mind between the Crown and Clarke. Although there is evidence
that the respondent knew of the reward at the time he gave the information, the respondent's state of
mind at the time was such that it was the same as if he had never heard of the offer in the first place. In
other words, Clarke did not mentally assent to the Crown's offer. As a result, the requirement that the
offeree have knowledge of the offer is not met. In this case, there is no contract and hence no breach of
contract.
• Second, the court finds that Mr. Clarke did not strictly satisfy the terms of the contract as laid out by the
government. Specifically, although the information that Clarke provided did lead to the conviction of the
suspects, it did not lead to the arrest of Treffene, who was arrested prior to the information being given.
In addition, Mr. Clarke's information lead only to the conviction of the suspects for the murder of Mr.
Walsh, not both victims.
RATIO DECIDENDI:
• In reward cases, the courts must be satisfied that (1) the offeree had knowledge of the offer and (2) the
offeree fulfilled the terms of the contract. Whether or not that person was prompted by good motives is
irrelevant.
COMMENTARY:
•
•
In regards to motive, the court in the end agreed with Williams v. Carwardine in that motive is irrelevant
in reward cases, however in dicta the judge discusses motive in a way that is contrary to the finding in
Williams v. Carwardine.
This part of the reasons is not necessary for the judgment and the judge should have just shut up.
NOTES:
• truCourt feels that they have squared their reasoning with the common law precedent set out in Williams
v. Carwardine - Decision on the requirement of knowledge is consistent / judge's discussion of motive as
being relevant is not consistent (said in dicta - not binding but influential)
• Shows how sometimes courts tread a fine line between nonsense and following the law - court really
stretches their reasoning in order to justify the outcome - results oriented case. Here the court did not
want the claimant to get the reward - they don't like him. Don't underestimate the extent to which the
court looks at the parties and decides who they want to win.
• In these cases it is usual for the courts to interpret the terms of the contract very strictly.
ACCEPTANCE
Livingstone v. Evans
[1925] 3 W.W.R. 453, [1925] 4 D.L.R. 769 (Alta. S.C.)
PROCEDURAL SETTING:
• Trial Decision at Alberta Supreme Court (now QB)
FACTS:
• The defendant (Evans), through his agent, wrote to the plaintiff (Livingstone) offering to sell him the
land in question for $1800 on a payment schedule. When he received the offer, the plaintiff wired the
agent "send lowest cash price. Will give $1600. Wire". The agent replied "Cannot reduce price".
Immediately upon the receipt of this response the plaintiff wrote accepting the offer.
ISSUE(S):
• Was the plaintiff's counter-offer a rejection of the defendants' offer which freed them from it. That is, is
the original offer still valid?
DECISION:
• For the plaintiff. A decree of specific performance is made by the court.
REASONS:
• The court finds that the plaintiff's telegram was undoubtedly a counter-offer although it also contained
an inquiry. Specifically, the words "will give $1600" constitute an offer that voids the defendant's
original offer unless it was later revived by the defendant.
• Next, the court considers whether or not the phrase "cannot reduce price" constitutes a rejection of the
plaintiff's offer or a renewal of the original offer. The court finds that the statement is in fact a renewal
of the original offer - it is equivalent to a re-statement of offer and shows that the defendant was still
open to accepting it.
RATIO DECIDENDI:
• A counter-offer amounts in law to the rejection of the original offer.
NOTES:
•
•
Principle of Hyde v. Wrench - UK common law - a counter-offer amounts in law to the rejection of the
original offer. The court uses this case as part of the spirit of Canadian contract law even though it was
decided in England in 1840.
Agent was not very good - should have used more specific language to indicate that the original offer
was void.
Butler Machine Tool Co. v. Ex-Cell-O Corp.
[1979] 1 W.L.R. 401, [1979] 1 All. E.R. 965 (C.A.)
PROCEDURAL SETTING:
• Appeal of a trial decision awarding damages to Butler Machine Tool Co. for breach of contract.
FACTS:
• The seller (Butler Machine Tool) are manufacturers and retailers of custom-order machine tools. The
plaintiff quoted a price to the buyer (Ex-cell-o corp) for machine to be delivered in 10 months at a price
of ₤75,535.
• On the back of the order form were a number of terms and conditions that stipulated that they were to
"prevail over any terms and conditions in the buyer's order". Specifically these terms and conditions also
allowed the seller to charge an increased price to the buyer at the time of delivery.
• The buyer's document also included a number of terms and conditions which were different from those
put forward by the sellers.
• On the bottom of the buyer's order form was a "tear-off slip" that invited the sellers to accept the order
"on the terms and conditions stated thereon". The sellers filled out and returned the slip with a letter
stating that the buyer's order had been entered in accordance with the seller's original quotation.
• When the machine was delivered the seller claimed that it was entitled to an extra ₤2,892 under the price
formula of their original offer.
• The buyers take the position that their order prevailed and that there was a fixed price contract.
ISSUE(S):
• Which of the sets of terms and conditions prevail?
DECISION:
• For the defendant (Ex-cell-o Corp).
REASONS:
• The court points out that the goal of their analysis is to determine whether there has been a consensus
reached on all material points of the contract, even though there may be differences between the forms
and conditions printed on the back of them.
• In this case, the court considers all documents as a whole and determines that the sellers made the first
blow with the provision that their terms and conditions "shall prevail over any terms and conditions in
the Buyer's order"- a condition that continued throughout all subsequent dealings and therefore must be
understood as having been accepted by the buyer. However, the court finds that the acknowledgment of
the 5th of June (the completed and returned tear-off slip) is the decisive document that makes clear that
the contract was on the buyer's terms and not on the seller's. Because the buyer's terms did not include a
price variation clause the court finds for the defendant buyer.
RATIO DECIDENDI:
• Where there is a battle of the forms, the court may base its decision on the entirety of the documents
rather than on which party made the first or last blow.
NOTES:
•
•
Battle of the forms - There is a contract as soon as the last of the forms is sent and received without
objection being taken to it. The difficulty is to decide which form, or which part of which form, is a term
or condition of the contract. In some cases, the battle is won by the man who fires the last shot. He is the
man who puts forward the latest terms and conditions: and, if they are not objected to by the other party,
he may be taken to have agreed to them. Contrarily, the battle may also be won by the man who gets in
the first blow.
In this case the judge looks not to who got in the first or last blow, but to the documents as a whole.
Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd.
(1979), 100 D.L.R. (3d) 374 (Ont. H.C.)
PROCEDURAL SETTING:
• Request for a stay of proceedings by the defendant.
FACTS:
• The defendant (St. Anne Pulp and Paper) submitted an invitation to tender ("Request for Quotations")
containing 13 terms and conditions.
• The plaintiff (Tywood) replied with a quotation (the offer) along with a list of 12 terms and conditions.
At this point, neither party’s list of terms and conditions contained provisions regarding arbitration.
However, the plaintiff’s terms and conditions did contain a condition that stipulated that no
modifications could be made to the terms and conditions of the contract.
• The plaintiff eventually submitted a revised proposal with the same 12 terms, and the defendant
submitted 2 Purchase Orders, both containing a list of 19 terms and conditions, one of which was an
arbitration clause.
• The P.O. was not signed or returned to the defendant as asked, but the defendant shipped the goods to
the plaintiff anyway.
• The plaintiff's action ifs for the price of goods sold. T
• he defendant moved to stay the action under s. 7 of the Arbitration Act on the grounds that the
agreement of sale contained a clause for submission to arbitration.
ISSUE(S):
• Which terms and conditions prevail? Specifically, is the arbitration clause a binding part of the contract?
DECISION:
• For the plaintiff - action will proceed.
REASONS:
• It is not satisfied in law that the parties agreed to arbitration nor did the plaintiff ever agree to the
supremacy of the defendant's terms and conditions. When they submitted the arbitration clause, the
defendant did not draw the plaintiff's attention to it, and when the plaintiff failed to return the P.O. slip
(which featured an acknowledgment of the defendant's terms), the defendant did not complain. The court
found that the conduct of the parties indicates that neither considered any terms other than those dealing
with specifications and price. Ultimately, the plaintiff did not signal an agreement to the terms laid out
by the defendant.
RATIO DECIDENDI:
• Where one party wishes to make a change to a standard contract, that party must specifically bring the
change to the attention of the other party in order for there to be a meeting of the minds.
ProCD v. Matthew Zeidenberg and Silken Mountain Web Services, Inc.
86 F.3d 1447 (U.S.C.A. 7th Cir., 1996)
PROCEDURAL SETTING:
• Application for injunction brought by the plaintiff to stop the defendant from distributing information
obtained from the plaintiff's product. Injunction denied at circuit court level - appealed.
FACTS:
• The plaintiff (ProCD) is the seller of a database CD that contains names, phone numbers, addresses and
zip codes complied from 3,000 telephone directories.
• The plaintiff spent over $10 million in developing the product, which they sold in two forms: (1) a CD
for personal use, and (2) a CD for professional use. Every product box declares that the software comes
with restrictions stated in an enclosed license.
• The terms and conditions of the license are included in print form with the CD and in electronic form on
the CD that appear when the product is installed by the end user.
• The defendant (Mr. Zeidenberg) bought a consumer package from a retail outlet but decided to ignore
the license. He formed Silken Mountain Web Services to resell the information in the database. The
company makes the information on the CD available over the interned for a fee (less than ProCD
charges for the product).
• The district court found that the licenses were ineffectual because a purchaser can not be bound by terms
that were secret at the time of purchase.
ISSUE(S):
• Must buyers of computer software obey the terms of "shrink-wrap" or "end user" licenses that are
contained inside the box rather than on the outside of the package?
DECISION:
• Appeal allowed. Injunction granted.
REASONS:
• According to the lower court, (A) the placing of an item on the shelf is an "offer" which the customer
may "accept" by paying the asking price and leaving the store with the goods, and (B) a contract
includes only the terms on which the parties have agreed and a person cannot agree to hidden terms.
However, the appeal court finds that one of the terms to which the defendant agreed by purchasing the
product was that the transaction was subject to a license.
• Additionally, the court finds that due to the size of the packaging, it is not logistically reasonable to
include all of the terms and conditions on the outside of the package rather than in a "read-me" file
included in the software. If a buyer is not satisfied with the terms and conditions of the license, he may
return the product to the retailer and ask for a refund. In this case, the defendant inspected the package,
tried out the software, learned of the license, and did not reject the goods therefore accepting the terms
and conditions of the end user agreement.
RATIO DECIDENDI:
• The manufacturer of a product is not required to include all terms and conditions of use on the outside of
the package. Additional terms and conditions may be placed on the user after purchase.
KEY NOTES & CONCEPTS:
• "shrink-wrap" license - Gets its name from the fact that retail software packages are covered in plastic
shrink-wrap and some vendors, though not ProCD, have written licenses that become effective as soon
as the customer tears the wrapping from the package. (aka "end user licenses").
• Similar situation - concert tickets - the purchasing of a ticket is subject to certain terms and conditions
that you are said to agree to by attending the event (ie. you will not record the concert, etc.).
According to the district court's analysis -
All warranties included inside a product are irrelevant. Similarly, the information provided on a package insert
with a prescription medication is not part of the contract entered into when the purchaser buys the product.
Directly contradictory to Boots Cash Chemists How do we account for this difference in law? Boots Cash Chemists is a British Case - different jurisdiction Wisconsin (and most of US) law looks at the situation differently - different precedents.
Dawson v. Helicopter Exploration Co.
[1955] S.C.R. 868, [1955] 5 D.L.R. 404
PROCEDURAL SETTING:
• Appeal from the BCCA on a finding for the defendant.
FACTS:
• In 1931, Dawson discovered and staked a mineral deposit in a remote area in northern BC and a report
of his discovery was made to the BC Mines Department. He filed claims, which subsequently lapsed.
• In 1951, Dawson communicated several times with the respondent (Helicopter Exploration) concerning
the exploitation of this property (exchanging knowledge of the claim area for a cut of the profits).
• Despite some attempts at making arrangements to explore the area (which may have included an offer by
the respondent company), the parties failed to reach an agreement and communication ceased.
• On August 1, 1951 (2 months later) the respondent company sent an exploration party to the area and
located the mineral deposits. Dawson was not aware of this until some time the following year.
• In 1953, the respondent made arrangements to develop the claim with a new company to whom the
claims had been sold. Dawson brings a cause of action for breach of contract.
• The defence argues that there was no contract, and that, in the alternative, the plaintiff abandoned his
rights under the contract by letting communication lapse.
ISSUE(S):
• Was there a contract between the P and the D at the time in question?
• If there was a contract, was it formed on the basis of a unilateral offer or a bilateral contract?
• Did the P abandon his rights by allowing communication to lapse?
DECISION:
• Appeal allowed.
REASONS:
• First, the court finds that there is a bilateral contract (rather than a unilateral one). The court favours this
approach in order to protect the interests of the parties from a period prior to the beginning of the
performance on either side - that is from the making of mutual promises. Second, the court finds that the
contract imposed a duty on the P to remain ready during a reasonable time prior to that mentioned for
the trip to obtain a leave of absence. The D was bound to not, by its own act, prevent the complementary
performance by Dawson.
RATIO DECIDENDI:
• Where there is an exchange of promises the court will look to enforce a bilateral contract, even where
the promises are to be carried out in the future.
NOTES:
• Unilateral contract - Can be retracted at any time up until the terms of the contract are accepted (usually
takes the form of performance of an action). Here performance would have entailed the P flying in to the
are with the D to show them where the claim was. D claims that letter of June 7th saying "don't count on
us" constituted revocation of the offer. Argument worked in BCCA.
•
•
•
•
Bilateral contract - When both parties have reached an agreement sufficient for the court to conclude that
they had a contract prior to June 7 - they had enforceable promises to one another. The court finds that
the April 12 letter (from P to D) saying "we've got a deal" was the acceptance - concluded contract that
creates rights and obligations to be performed in the future at a flexible date. This is how the SCC sees
the contract.
Obligation of P- to show the D where the claim is.
Obligation of D - to fly him in by helicopter
Called an Executory Contract - creates obligations now for actions to be performed at a later date.
Why do the courts tend lean this way (toward bilateral contract)?
• Protects the rights and expectations of the parties earlier on in the process - during the period
when they have a contract.
• Lots of uncertainty with unilateral contract - parties would wonder if they actually have a deal.
Accordingly, the D can not revoke the contract - and is in breach.
Felthouse v. Bindley
(1862), 11 C.B. (N.S.) 869, 142 E.R. 1037 (Ex. Ch.)
PROCEDURAL SETTING:
• Appeal of a trial decision finding the defendant liable for conversion and awarding £33 in damages to
the plaintiff.
FACTS:
• The plaintiff (Paul Felthouse) wished to purchase a horse from his nephew, John.
• Due to a misunderstanding, the uncle believed that he had purchased the horse for £30, whereas his
nephew thought the price was 30 guineas (one guinea being worth slightly more than one pound). As a
result, the uncle wrote to the nephew on Jan 2nd offering to split the difference writing "If I hear nothing
more about the matter, I consider the horse mine at 30 pounds, 15 shillings". The nephew did not reply
to the letter. On Feb 25th an auction sale was held of the nephew's farm stock.
• The horse in question was sold by accident despite the nephew's instructions to the auctioneer not to sell
it. The nephew wrote to the uncle informing him of the auction sale.
• The uncle brought an action of conversion against the auctioneer.
• At trial, the defendant argued that the property in question was not vested in the plaintiff at the time of
the auction sale by the defendant.
ISSUE(S):
• Was there a legally enforceable contract between the uncle and the nephew such that property in the
horse was vested in the plaintiff?
• Is the defendant liable for conversion?
DECISION:
• Appeal dismissed.
REASONS:
• First, the court finds that there was no complete contract on Jan 2nd and that the uncle had no right to
impose upon the nephew a sale of his horse for £30.15s. Because there was no acceptance, the offer
stood open as of the date of the auction sale. By his actions at the time of the auction sale, it appears that
the nephew intended that his uncle have the horse at the stated price, however he had not yet
communicated this to the plaintiff or done anything to bind himself.
• Because there was no contract between the uncle and the nephew as of Feb 25th, nothing had been done
to vest the property in the horse in the plaintiff by the time of the auction sale.
RATIO DECIDENDI:
• In order for an enforceable contract to arise the offeree must communicate by words or conduct the
acceptance of the offer to the offeror. Silence can not be deemed to constitute acceptance.
NOTES:
• Affirmation of the silence rule - silence itself can not indicate acceptance of an offer.
• Unilateral contracts - acceptance is made by the performance of an action - risk taken by the offeror.
Saint John Tug Boat Co. v. Irving Refinery Ltd.
[1964] S.C.R. 614, 49 M.P.R. 284, 46 D.L.R. (2d) 1
PROCEDURAL SETTING:
FACTS:
• The respondent (Irving Refinery) operates an oil refinery in St. John, NFLD. It is supplied with crude oil
by tankers owned or chartered by the California Shipping Company of the US. California Shipping is
represented in St. John by Kent Lines Ltd., a shipping firm which was owned or controlled by the
respondent company.
• For its business, the respondent required that tug boats be available to guide tankers coming into the
harbour. The chairman of the respondent company (also president of Kent Lines) made arrangements
with an outside company to supply the tugs.
• After some difficulties occurred, the respondent had to turn to the appellant's company to supply the tugs
instead (the only other tugs available).
• As of March 24, 1961 no firm arrangements had been made for this service between the parties. The
respondent company had been using the appellant company's services for approximately one year. St.
John Tug wrote to Kent Lines stating that as of the beginning of April they would only be able to supply
2 tugs and that "If we do not hear from you we will assume that you are making arrangements elsewhere
for any additional tugs that you may require".
• An offer for standby service at a daily rate of $450 per tug for the month of June was made by the
plaintiff in Mar, which the defendant verbally accepted. The arrangements were extended twice, until
Aug. The standby services continued to be employed by the defendant until Feb and the defendant
company was billed each month.
• The defendant defaulted on payment after August and claims that there was no contract in place after
August.
ISSUE(S):
• Was the conduct of the defendant company (continued use of the tugs on reserve without refusal of
service) enough to constitute a continuing acceptance of a standing offer?
DECISION:
• Appeal allowed. The defendant is liable for the outstanding standby tugboat fees.
REASONS:
• In order to make its judgment, the court uses an objective test - what would a reasonable man believe
that he has consented to? Here it doesn't matter what the subjective intention of the defendant was at the
time - only what the court finds that a reasonable person would think. The court uses the standard set out
in Smith v. Hughes.
• This case differs from Felthouse v. Bindley in that there is not just silence, but also prior dealings and the
actions indicate a continuing contract. Still reconcilable with Felthouse in that it is not really just a case
of silence.
RATIO DECIDENDI:
• Generally, an offer that modifies the terms of an existing contract will be held to have been accepted
where the offeree either (a) does not object to the change or (b) continues to avail itself of the service
performed by the offeror.
• In such cases the court will consider prior dealings to determine whether an obligation will be imposed
where there has been no formal acceptance by the offeree.
Eliason v. Henshaw
(1819), 4 Wheaton 225, 4 U.S. (L. Ed.) 556
PROCEDURAL SETTING:
FACTS:
• The plaintiffs wished to purchase a quantity (2-300 barrels) of flour from the defendant.
• The plaintiff wrote to the defendant on Feb 10, 1913 offering to sell the flour in their shop or to purchase
it at market value (specifically $9.50 per barrel). The letter stated that if the defendants required an
advance on payment they could write them by mail and a portion of the money would be sent. Finally,
the letter asked that the defendant's write in return by wagon the following day as to whether or not the
offer was accepted.
• The defendant did not respond until Feb.19th when he wrote to the plaintiffs by regular mail accepting
the their offer to purchase 300 barrels of flour at $9.50 per barrel.
• The defendant did not require an advance and indicated that payment could be made upon receipt of the
goods, which he would deliver promptly.
• On Feb. 25 the plaintiffs wrote the defendant stating "not having heard from you the next day" they had
"bought all we wanted".
• In the mean time, the plaintiff had delivered the flour to the location specified by the defendants, who
refused delivery.
ISSUE(S):
• Were the terms of the offer complied with in a way that creates a binding contract between the parties?
That is, was there a valid acceptance?
DECISION:
• For the defendant.
REASONS:
• The Ps had calculated how long it would take by wagon from Herper's Ferry to Mill Creek and back
again with a load of flour, and determined at what time they should receive the desired answer. It was
therefore crucial that the D comply with the terms of the acceptance set out by the P (including how the
acceptance was to be sent and where it was to be sent).
RATIO DECIDENDI:
• The offeror is master of the offer and can dictate when and how the offeree must accept in order for a
contract to be formed. An acceptance is valid only if it complies with the terms of acceptance stipulated
by the offeror.
• A little wiggle room - if it is not possible for the offeree to comply with the terms of the acceptance, he
must find a reasonable alternative means of conveying his acceptance to the offeror in a way that
complies with the terms of the acceptance stipulated by the offeror.
NOTES:
• Offeror is in control of the terms of the offer - can dictate when and how the offeree must accept even if
it is not reasonably feasible.
Carmichael v. Bank of Montreal
[1972] 3 W.W.R. 175, 25 D.L. R. (3d) 570 (Man. Q.B.)
PROCEDURAL SETTING:
FACTS:
• The bank wished to sell a residential property that it owned, which it listed on the MLS for $28,900. Mr.
Cuthbert was the prime listing agent for the bank.
• A number of sub-agents also had the power to access the listing and try to introduce potential buyers to
the deal for a split fee.
• Tilley, a sub-agent, presented an offer of $26,000 to the bank (through Cuthbert) on behalf the plaintiffs
(Mr. and Mrs. Carmichael).
• The bank did not accept the offer but instead made a counter offer of $27,500 to the plaintiffs through
Cuthbert and the listing agent that would be valid until 6:00 pm on Friday, September 3rd.
• The plaintiffs viewed the property again at the earliest possible time on the deadline day (5:00) before
they completed and signed an acceptance at Tilley's office at 5:45.
• Tilley attempted to communicate this offer to the bank through Cuthbert, who was not in his office.
Tilley instead phoned the bank at approximately 6:00. The bank manager was not in but Tilley left a
message communicating the plaintiff's acceptance of the offer with the assistant manager noting the
time. Tilley also left a similar message at the bank manager's home and delivers a letter of acceptance to
Cuthbert's home by 6:15.
• When the bank manager returned Tilley's phone call he states that there was no contract because the
acceptance had to be received at Carmichael's office by 6pm.
• The bank sells the property to a 3rd party several days later.
ISSUE(S):
• Was the plaintiff's acceptance of the counter-offer communicated by the defendant in time and in an
acceptable manner?
DECISION:
• For the plaintiff. The acceptance by the buyer was valid. The plaintiffs are entitled to the house by
decree of specific performance.
REASONS:
• First, the court deems that verbal acceptance (ie the 6pm telephone call from Tilley to the bank) is
enough in this case to constitute valid acceptance and create a legally enforceable contract. That is, the
communication of acceptance to a qualified bank employee was sufficient. In addition, the court
concludes that the bank manager did return to the bank and receive the message from Tilley at
approximately 6:00 - in time for the imposed deadline.
RATIO DECIDENDI:
• If the offeree is unable to carry out the acceptance as specified by the offeror, an alternative method of
acceptance will be deemed acceptable.
• Although the offeror is the master of the offer, he must make it possible for the offeree to adhere to the
terms of acceptance.
COMMENTARY:
• In the alternative - although the offeror is the master of the offer, the offeror must make adherence to the
terms of acceptance possible. That is, both the bank manager and Cuthbert had a responsibility to make
themselves available in the time leading up to 6:00pm. Specifically, the court uses the phrase "he who
seeks equity must do equity".
NOTES:
• Equity - The court has the authority to grant equitable remedies in order to see that justice is properly
served. Equity is not just a general sense of fairness - has its own rules, procedures and guidelines.
Equity is applied using precedent.
• Examples of equitable remedies:
• Decree of specific performance
• Injunction
• Recission
• Cancellation
• Rectification
• Doctrine of Par performance
COMMUNICATION OF ACCEPTANCE
Brinkibon Ltd. v. Stahag Stahl und Stahlwarenhandelsgesellschaft mbH
[1983] 2 A.C. 34, [1982] 2 W.L.R. 264, [1982] 1 All E.R. 293 (H.L.)
PROCEDURAL SETTING:
FACTS:
• May 3, 1979 - Telex from Vienna to England communicating offer.
• May 4, 1979 - Telex from England to Vienna communicating acceptance.
• The plaintiff (buyers) are located in England and wish to bring action before the British courts.
• The defendant company (seller) argues that no contract was formed in England.
ISSUE(S):
• Where was the contract formed?
• When does the acceptance to a contract take place? That is, does an acceptance faxed from London and
received in Vienna constitute the formation of a contract that is legally enforceable in English
jurisdiction?
DECISION:
• For the defendant. The contract is not legally enforceable in England
REASONS:
• The court points out that the general rule of contract law is that a contract is formed when acceptance of
an offer is communicated by the offeree to the offeror. In situations where communication occurs at a
distance, however, the general "postal rule" applies (England, 1800s)- acceptance is communicated
when the acceptance is posted (ie put into the mail) - does not require actual simultaneous
communication between offeror and offeree. Postal rule, however, can lead to problems (ie lapse in time
between acceptance and receipt of that acceptance, what if the letter is lost - the contract would still be
valid).
• In terms of instantaneous modes of communication (ie telex), the court finds that the "postal rule" does
not apply. Instead, the communication of acceptance is not valid until the offeror actually gets it - and it
occurs in the place where it is received.
RATIO DECIDENDI:
• The postal rule does not apply to telex communication. Instead, the contract is made at the moment
when the telex accepting the offer is received by the offeror, creating a contract in the place where it is
received (in this case in Vienna).
NOTES:
• Case looks at the precedent set by Entores Ltd. v. Miles Far East Corp. General Rule The contract is formed when acceptance of an offer is communicated and received by the offeree to the offeror applies in situations where both parties are located in the same jurisdiction - ie "I offer A", "I accept A".
Postal Rule Exception to the general rule - in situations where communication occurs at a distance, the "postal rule" applies acceptance is communicated when the acceptance is posted (put in the mail) - therefore the contract is formed in
the place where the mail is posted. As a general rule this still applies - except for in exceptional circumstances cases we will see.
Telex Rule Exception to the "postal rule" - in cases of instantaneous communication (ie telex) the contract is made at the
moment when the telex accepting the offer is received by the offeror. In these cases the contract is formed in the
place where the acceptance is received.
Rudder v. Microsoft Corp.
(1999), 2 C.P.R. (4th) 474, 40 C.P.C. (4th) 394 (Ont. S.C.J.)
PROCEDURAL SETTING:
• Application by the defendant company for a stay of class proceedings in Ontario (class action suit).
FACTS:
• The Microsoft Network (MSN) is an online service that provides inter alia information and services
including internet access to its members. The service is provided to members around the world from a
"gateway" location in Washington State.
• The representative plaintiffs (Rudder & P2) were subscribers of MSN.
• The plaintiffs allege that Microsoft has charged members of MSN and taken payment from their credit
cards in breach of contract (the electronically-executed MSN "member agreement") and that Microsoft
has failed to provide reasonable or accurate information concerning accounts.
• The member agreement contains a clause stating that the agreement is "governed by the state of
Washington" and that all disputes arising out of MSN use or membership are to be handled in the courts
of King County, Washington.
• The plaintiffs bring their action in Ontario and argue that the "forum selection cause" is invalid because
the representative plaintiffs read only part of the agreement and thus had no notice of the clause.
• Furthermore, they point to the fact that courts are not legally bound to give effect to exclusive
jurisdiction clauses and ask the court to use its discretion.
ISSUE(S):
• Did the Plaintiffs willingly and knowingly agree to the forum selection clause as contained in the
member agreement?
DECISION:
• For the defendant. Stay of proceedings is granted.
REASONS:
• The court finds that the forum selection clause was not "buried" in the agreement. The members of the
MSN network therefore willingly agreed to the terms and condition of the contract and the court refuses
to overrule those terms.
RATIO DECIDENDI:
• Where a term of an agreement is clearly stated and that agreement is accepted by an offeree, the offeree
must be held to that term regardless of whether or not he actually read that part of the agreement. That is,
it is the responsibility of the offeree to read the terms and conditions of an agreement before accepting.
NOTES:
• Class action suit - plaintiffs were "all persons resident in Canada who subscribed for the provision of
Internet access or information or services from or through MSN, the Microsoft Network, since
September 1, 1995. Estimated to be 89,000 MSN members across Canada.
Household Fire & Carriage Accident Insurance Co. v. Grant
(1879), 4 Ex. D. 216 (C.A.)
PROCEDURAL SETTING:
• Appeal of a trial judgment for the plaintiff.
FACTS:
• The defendant made an application through an agent of the plaintiff to purchase 100 shares of the
plaintiff company. He paid a deposit of ₤5 (₤1 per share) and agreed to pay the sum of 19s. per share
within 12 months of the date of allotment.
• On October 20, 1874 a letter of allotment was sent to the defendant and his name was entered on the list
of shareholders. The letter of allotment did not reach the defendant.
• The plaintiff company recorded dividends paid to the defendant's account. The company then went into
liquidation.
• In December, 1877 the official liquidator noticed that the defendant still had not paid the full amount
owing and made an application to recover the outstanding funds.
• The defendant declined to pay on the grounds that he was not a shareholder.
ISSUE(S):
• Is the defendant a shareholder in the plaintiff company? That is, was a contract formed even though the
acceptance by the plaintiff company was not received by the defendant?
DECISION:
• Appeal dismissed. The defendant is liable as a shareholder.
REASONS:
• The general rule in contact law is that a contract is formed when there is a meeting of the minds
(consensus ad idem). In this case, there was no such meeting. However, in this case the court considers
the post office to be the agent for both parties. Accordingly, as soon as the acceptance is delivered to the
post office, the contract is made complete and final and as absolutely binding as if the acceptor has put
his letter into the hands of the messenger or his agent himself.
RATIO DECIDENDI:
• The postal rule - acceptance is communicated as soon as it is posted at the post office. At that time the
contract is made complete and final.
Holwell Securities v. Hughes
[1974] 1 W.L.R. 155, [1974] 1 All E.R. 161 (C.A.)
PROCEDURAL SETTING:
• Trial judge found for the defendant - dismissed the plaintiff's claim.
FACTS:
• The p wishes to purchase a house and has purchased an option to keep the offer open for a period of 6
months. The terms of the option stipulated that the optionee must notify the optionor in writing of their
intent to exercise the option.
• The plaintiff (optionee) sent a letter to the defendant (optionor) indicating his desire to exercise the
option.
• The letter was not received by the defendant. However, verbal notice was given to the defendant by the
plaintiff's solicitor.
ISSUE(S):
• Was the option legally enforceable, and
• Was there a valid exercise of the option by the optionee based on the verbal communication of
acceptance? That is, did the optionee properly fulfill the terms of the option contract?
DECISION:
• Appeal dismissed. The vendor wins.
REASONS:
• Verbal communication of acceptance is not good enough - the terms of the option contract stipulated that
acceptance had to be received in writing and therefore were not properly fulfilled. In addition, the postal
rule should not apply here because it would produce manifest inconvenience and absurdity. That is, the
parties in this case can not have intended that there should be a binding agreement until the party
accepting an offer or exercising an option had in fact communicated the acceptance or exercise to the
other.
RATIO DECIDENDI:
• The postal rule does not apply where (a) when the express terms of the offer specify that the acceptance
must reach the offeror, or (b) where it would produce manifest inconvenience and absurdity.
NOTES:
• Optionor- vendor (defendant)
• Optionee - purchaser (plaintiff)
• Option - already a contract - allows 1 party the right under the contract to purchase the property later on
- only creates a right that they may choose to exercise - the optionee is not required to act on the option.
Consideration in this case is in the form of money paid to the optionor by the optionee, but can be given
in other forms as well. It is a contract that allows the possibility of creating a contract later.
TERMINATION OF OFFER
Byrne v. Van Tienhoven
(1880), 5 C.P.D. 344
PROCEDURAL SETTING:
FACTS:
• On Oct 1st the defendant mailed an offer to sell 1000 boxes of tin plates to the plaintiff at a fixed price.
• On Oct 11 the offer arrived received by the plaintiff, who responded by telegram that day accepting the
offer. In addition, confirmation of acceptance was sent by mail on the same day.
• On Oct 8 the defendant mailed a revocation of offer which was not received by the p until Oct 12 (after
the acceptance had been communicated).
• The defendant argues that the offer was revoked on Oct 8 - before it was accepted by the plaintiff.
ISSUE(S):
• Is posting a letter of revocation sufficient communication of the withdrawl of an offer? That is, does the
postal rule apply to revocations?
DECISION:
• For the plaintiff (buyer/offeree)
REASONS:
• Court uses common sense - practical inconvenience dictates that the postal rule should not apply here.
In common law, an offer may be revoked at any time before it has been accepted. However, classical
contract law also stipulates that parties must have a consensus ad idem (meeting of the minds) in order
for a contract to be valid. In this case, the meeting of minds occurred when the plaintiff accepted (mailed
the acceptance on the 11th) - the revocation therefore occurred after the offer had been accepted and is
consequently invalid.
RATIO DECIDENDI:
• Revocation is not effective until it is actually communicated by the offeror to the offeree. The postal rule
does not apply to revocations.
Dickinson v. Dodds
(1876), 2 Ch. D. 463 (C.A.)
PROCEDURAL SETTING:
FACTS:
• On June 10 the defendant offered to sell a property to the plaintiff for ₤800 that would remain open until
9:00am on June 12.
• On the 11th, Mr. Berry (the plaintiff's agent) informs the plaintiff that the defendant was negotiating sale
of the same property with a third party.
• The plaintiff gives a formal acceptance letter to the defendant's mother-in-law at the defendant's house.
The mother-in-law forgets to give the letter to the defendant.
• On June 12 at 7:00 am Berry meets the defendant at the train station and gives him a copy of the
acceptance letter.
• The defendant informs Berry that the property has already been sold. In addition, the plaintiff gave the
defendant a copy of the letter on the same morning (before the offer closed).
• The defendant also informed the plaintiff that the property had been sold. The plaintiff is suing for
breach of contract and seeks specific performance.
ISSUE(S):
• Did the knowledge that the plaintiff offeree acquired about the 3rd party transaction make it legally
impossible for the p offeree to turn around an legally accept the d's offer and therefore create a binding
agreement for sale of the property.
DECISION:
• For the defendant - Plaintiff's action is dismissed.
REASONS:
• The court finds that there was no valid contract between the plaintiff and the defendant. Even if a
specific time is set for the offer period, an offer may be revoked at any time before it is accepted. A firm
offer does not create any rights in the plaintiff unless there is an option agreement made between the
parties.
•
The d never revoked his offer to the p - just went ahead and dealt with the 3rd party. The courts decision
confirms that selling to a 3rd party (making a contract) aka "inconsistent dealing" amounts to an implied
revocation of other open offers whether or not the original offeree knew of the revocation - a
controversial principle. Case can also be read to require that the offeree know of the revocation. In this
case, the p gained knowledge of the 3rd party sale, but what if he did not know - the analysis suggests
that he could have still validly accepted. That is, revocation requires inconsistent dealing AND
knowledge.
RATIO DECIDENDI:
• Inconsistent dealing (ie selling to a third party) amounts to an implied revocation of other open offers
whether or not the original offeree knew of the revocation - a controversial principle.
COMMENTARY:
• Headnote writer includes his own interpretation of the case which is completely wrong - he states that
inconsistent dealing by itself is enough to constitute valid revocation - fortunately headnote writers have
no authority - shows why you should never rely on headnotes alone.
NOTES:
• Firm offer - an offer stated to be open for a certain period of time.
• To keep the offer exclusive the plaintiff would have to make a contract with the defendant for an
exclusivity option - make an option agreement. Usually different from a deposit - the money paid for the
option is usually non-refundable. In fact, the court usually finds that a deposit is not sufficient for
making an option agreement.
• Naked offer- nudem pactum - an mere offer.
R. in Right of Ontario v. Ron Engineering & Construction (Eastern ) Ltd.
[1981] 1 S.C.R. 111 (S.C.C.)
PROCEDURAL SETTING:
• Trial court found dismissed the claim for the return of the deposit.
• Decision was overturned by the Appellate court.
• Supreme Court finds with the trial court - appeal
FACTS:
• The Defendant sought to have its deposit returned after it realized that it had made a mistake in its
tender.
• The court found that the D had already entered into a legally binding contract (Contract A) and was
therefore not entitled to the return of the deposit.
• Here the judge deals with the issue of mistake in the revocation of an offer.
ISSUE(S):
• Did the mistake made by the defendant operate to entitle it to revoke its offer? Did the mistake act to
terminate the bid automatically so that the plaintiff could not legally accept the defendant's offer?
DECISION:
• For the plaintiff. The tender is not a mistake and is therefore valid and binding.
REASONS:
• The court finds that the bid was not a mistake in that the defendant submitted the whole document that
they intended to submit, with the figures that they intended to submit - regardless of whether those
figures were miscalculated. In addition, once a bid is submitted in accordance with the terms and
conditions of the invitation to tender it becomes irrevocable after the deadline passes. Finally, the lower
court finds that a party that is aware of a material patent on the face of a bid (such as a page missing) is
not able to accept that tender even if the deadline has passed - to do so would allow a tenderor to take
advantage of a tenderee. However, this is irrelevant because there is no mistake in this case according to
the court.
RATIO DECIDENDI:
• Where a tender that contains a mistake that is patent on the fact of the bid is submitted by a contractor,
that tender can not be accepted by the tenderor. That is, the tender is automatically terminated.
• In order to decide whether or not an error constitutes a mistake, the court will ask whether or not the
error would be patently obvious to the tenderor.
Errington v. Errington and Woods
[1952] 1 K.B. 290, [1952] 1 All E.R. 149 (C.A.)
PROCEDURAL SETTING:
FACTS:
• In 1930 the father bought a house for his son and daughter-in-law to live in. He put down ₤250 cash and
borrowed ₤500 from a building society to be repaid with interest in weekly installments. The house and
the loan both remained in the father's name.
• The deposit was a gift from the father to the couple, however the couple agreed to pay the weekly
mortgage installments.
• The house was to become the property of the couple when the mortgage was paid.
• The father died before the mortgage was paid off. His widow is suing on the basis that the contract is
void upon the father's death. She is seeking an order to eject the couple from the house and take
possession for herself.
ISSUE(S):
• Does a contract continue after the death of the offeror?
DECISION:
• For the defendants - the action is dismissed.
REASONS:
• First, the court characterizes this contract as a unilateral one. That is, the father promised the house in
return for their act of paying the installments.
• Contrary to the general rule of contract law, the court finds that offer could not be revoked once the
couple entered into the performance of the act. To do this, Lord Denning imposes a clause of
irrevocability in the offer. That is, he finds that the father meant to allow the couple to live in the house
so long as the payments were made. If this is so in life, it must be so in death.
• The contract would, however, cease to be binding on the father if the couple left the performance
incomplete, which they have not done. So long as the couple continues to pay the mortgage installments
as required, they will be entitled to have the property transferred to them as soon as the mortgage is paid
off.
RATIO DECIDENDI:
• A unilateral contact may be revoked at any time before the performance is completed except where the
offeror attaches a condition or irrevocability allowing the offer to stay open based on the continuation of
a specified act. In this case the condition of irrevocability was implied rather than express.
NOTES:
•
•
General rule (continues today) - a unilateral contact may be revoked at any point before the performance
is completed. This case goes against this rule.
Can not be construed as a bilateral contract because there is no consideration on the part of the father he gets nothing from the deal.
Barrick v. Clarke
[1951] S.C.R. 177
PROCEDURAL SETTING:
FACTS:
• The appellants, executors of the estate of E.J. Barrick, had been negotiating for several weeks for the
sale of 3 quarter-sections belonging to the late Mr. Barrick to the respondent.
• On Oct. 30 Clarke offered to purchase the land for $14,500 and asked the A to reply by telegram.
• The A did not reply by telegram but instead wrote to the R counter-offering to sell the property for
$15,000 cash.
• The letter was delivered to the A's residence while he was away. His wife wrote back to the respondent
saying that her husband would be back in 10 days and asking them to "hold the offer open until you hear
from him". No reply was received to this letter.
• When the A returned 20 days later, he wrote to the Rs accepting their offer and sent a $2000 deposit.
• In the mean time, however, the Rs had sold the property to a 3rd party after having not heard from Clark
within 10 days.
• Clark sued for breach of contract and seeks specific performance. The action was dismissed at trial. The
court of appeal reversed that judgment.
ISSUE(S):
• Was Clarke's acceptance of the appellant's offer made within a reasonable time?
DECISION:
• For the plaintiff - appeal allowed - the offer had lapsed.
REASONS:
• The court finds that the P received the letter of offer on Nov. 20 when it was received by his wife. This
offer remains open for a "reasonable time". The court reasons that because farm lands are not subject to
frequent or sudden changes in price, a reasonable time to accept an offer in the usual course of business
would be longer than that with respect to commodities like shares of stock or perishable goods. Because
the P indicated that he wanted to close the sale as soon as possible, and then went away, the court finds
that a reasonable time had passed and that the offer had lapsed.
RATIO DECIDENDI:
• An offer with no express provision limiting its duration terminates after the lapse of a reasonable amount
of time.
• Reasonableness is determined based on (1) the nature of the negotiations, (2) the industry “norm” in
terms of the course of business in negotiation leading to the sale, and (3) the circumstances of the offer
including the conduct of the parties in the course of negotiations.
Manchester Diocesan Council of Education v. Commercial and General Investments Ltd.
[1970] 1 W.L.R. 241 (Ch.D.)
PROCEDURAL SETTING:
FACTS:
•
•
•
•
•
•
•
•
The P is a corporate body in which there is vested a freehold property known as the Hesketh Fletcher
Senior Church of England School.
Part of the property was vested in the P by way of the Endowed Schools Act 1869-1948.
Clause 4 of the act stipulated that the P was authorized to sell the property that was closed or to be
closed and that such sale would be subject to the approval of the Minister of Education.
Negotiations between the P and a development company began shortly before the school closed in 1967.
The P decided to sell the property by tender. Included in the tender were the terms and conditions that
would govern the sale.
Condition 4 stipulated that acceptance of the successful tender would be communicated by letter to the
address given in the tender. It dealt with the mode of acceptance but did not give a timeline.
The D's tender was accepted and a letter sent. The letter did not receive the letter because the address
given by the D on the tender was incorrect.
The sale was approved by the Minister and notice was sent to the D several months later.
The D's lawyer wrote to the P claiming that no contract had been formed. In response, the P's lawyer
sends formal acceptance to the D on Jan. 7.
ISSUE(S):
• Was a contract formed when the acceptance letter was sent to the D, even though the letter was mailed to
the wrong address?
• If there was no contract at that point, was the formal acceptance letter of Jan. 7 sufficient to create a
contract despite the amount of time that had passed?
DECISION:
• For the plaintiff - an order of specific performance is granted.
REASONS:
• The court finds that there are 2 ways to find a contract here. First (this is the ratio), a contract was
formed when the first letter was sent (Postal Rule), even though the letter was sent to the wrong address.
Condition 4 was actually put into the contract by the P, who could waive it if they liked. Therefore, they
could stipulate how acceptance was to be communicated - either by mail or by any other means that is
no less advantageous.
• The court did not treat ministerial approval as an important factor - the P had the power to form a
contract that was subject to a condition to be performed later (approval). If that condition does not occur
later, the contract would be terminated down the road.
RATIO DECIDENDI:
• The postal rule may apply even where acceptance is mailed to an incorrect address provided by the
offeror.
COMMENTARY:
• In the alternative, the court finds that there is another way to conclude that there is a contract.
• Is the offer still open on Jan. 7 when the P's lawyer sends formal acceptance? That is, had a reasonable
amount of time passed to conclude that the offer had lapsed?
NOTES:
• Example of good solicitor's practice - the P's lawyer sent the Jan. 7 letter just in case - turned out that if
it was in fact needed it would have worked.
NECESSITY OF CONSIDERATION
Dalhousie College v. Boutilier Estate
[1934] S.C.R. 642
PROCEDURAL SETTING:
• Appeal to SCC from the County Court of Halifax, Nova Scotia.
FACTS:
• The D, Mr. Boutilier, promised to give $5,000 to the P for the purposes of maintaining and improving
the efficiency of teaching, constructing new buildings and keeping up with growing need.
• The D's donation was delayed due to financial difficulties, however he still expressed a desire to make
the payment. The D died before making any payments.
• The P seeks to recover the promised funds from the D's estate.
ISSUE(S):
• Was there good consideration for Mr. Boutelier's promise so that now the College can enforce his
dishonoured promise in contract? That is, is Mr. Boutelier's promise binding?
DECISION:
• For the defendant - there was no contract.
REASONS:
• It was an agreement but it was unsupported by consideration - nudem pactum. The D did not stand to
gain any benefit from the deal - no reciprocal promises therefore no good consideration. If the P had
agreed to name a building after the D, however, that may have been good consideration.
• The D also argued that because they had already invested money in the project on the belief that the
money was coming, the P's estate should be made to pay. The court disagreed saying that "to hold
otherwise would be to hold that a naked, voluntary promise may be converted into a binding legal
contract by the subsequent action of the promisee alone without the consent, express or implied, of the
promisor.
RATIO DECIDENDI:
• Where the promisee receives no benefit and the promisor experiences no detriment from making such
promise, there is no consideration. Therefore, the promisee can not be held to his promise under contract
law.
NOTES:
• Authority - Sargeant v. Nicholson p.178 - court rejects this decision stating that it is bad law.
Wood v. Lucy, Lady Duff-Gordon
(1917), 118 N.E. 214 (U.S.N.Y.)
PROCEDURAL SETTING:
FACTS:
• The D is a socialite and a famous fashion designer. It is said that her endorsement helps a sale.
Manufactureres of fashion articles often pay for a certificate of her approval. She employed the P to help
her turn this recognition into profit.
• The P was to have the exclusive right to place the D's endorsement on the work of other fashion
designers. In addition, the P would have the right to act as a sales agent for the D. In return, the D would
receive 50% of the profits. The agreement was for 1 year but would be renewable on a year-to-year
basis.
• The D endorsed some products without The P's knowledge and withheld the profits. The P sued.
•
The D argues that the contract was not good for lack of consideration on the part of the P.
ISSUE(S):
• Was there sufficient consideration to constitute a legally enforceable contract between the parties?
DECISION:
• For the Plaintiff.
REASONS:
• The court finds no express promise from the P in the documents, but there was an implied promise. Here
the P had to perform certain types of acts in order to make a profit (this is consideration). So long as the
P goes out and does this the D will receive something of value in return. The D's promise to give the P
half of the profits was a promise to use reasonable efforts to bring profits and revenues into existence.
RATIO DECIDENDI:
• Consideration does not have to be expressly stated on the fact of an agreement between parties. The
court may imply consideration based on the nature of the agreement itself.
NOTES:
• Different from Dalhousie where promises were vague. Here the few promises made created specific
duties in the P.
PAST CONSIDERATION
Eastwood v. Kenyon
(1840), 113 E.R. 482 (Q.B.)
PROCEDURAL SETTING:
FACTS:
• On the death of John Sutcliffe, his infant daughter, Sarah, was left as his sole heiress.
• The P, acting as Sarah's guardian, spent money on her upbringing and education for which she had to
borrow money. The funds were borrowed from a Mr. Blackburn in exchange for a promissory note.
• When the girl came of age she agreed to pay the amount of the note, and made payments for 1 year.
Sarah then married the D, who also promised to repay the amount of the note. Both failed to repay the
note.
• The P is suing the D on his promise.
ISSUE(S):
• Is consideration given in the past good consideration for a present promise?
DECISION:
• For the Defendant.
REASONS:
• Express promises require consideration at the time that the promise is made. In this case, the benefit
conferred on the D took place when Sarah was growing up - far in the past.
RATIO DECIDENDI:
• Past consideration is not good consideration. In addition, moral consideration is not good consideration do not confuse moral obligations with legal obligations.
NOTES:
• Consideration - doing something beneficial to the girl in her infancy.
Lampleigh v. Braithwait
(1615), 80 E.R. 255 (K.B.)
PROCEDURAL SETTING:
FACTS:
• The Defendant (Mr. Braithwait) killed Patrick Muhame.
• The D asked the P (Mr. Lampleigh) to get him a pardon from the King. At this point there was no
discussion of payment for the P's service.
• The P journeyed from London to Roiston and back at his own time and expense in order to obtain the
pardon.
• Afterwards, in consideration for his undertaking, the D promised to give the P ₤100. The D, however,
never did give the P the money.
• The Plaintiff, therefore, has brought an action of assumpsit against the Defendant. The Defendant argues
that he is not bound to pay the money to the plaintiff because the consideration is past.
ISSUE(S):
• Is the D liable to pay the $100 to the P even though the consideration is passed?
DECISION:
• For the plaintiff.
REASONS:
• First, the court finds that there was an implied understanding between the parties that payment would be
made to the plaintiff for his service. That is, the court found that Braithwait intended to compensate
Lampleigh. In fact, the type of act performed by the plaintiff is not the type that would usually be
expected to be done for free. When coupled with the later promise, the court finds a legally enforceable
contract between the parties.
4-part test:
(1) the defendant asked the plaintiff to do something for him
(2) the plaintiff performed the service
(3) If the promise was given before performance of the act it would have lead to a legally enforceable
contract.
(4) There is a reasonable expectation of payment.
RATIO DECIDENDI:
• In cases where consideration is past, a court will generally enforce a contract where (a) the D was clearly
asked to perform an act, (b) the D performs the act, (c) there is a reasonable expectation of payment, and
(d) if the promise was given before performance of the act it would have lead to a legally enforceable
contract.
• In these cases, past consideration is good consideration - exception to Eastwood v. Kenyon.
NOTES:
• Assumpsit - In the old forms of action, an action of assumpsit lay whenever the defendant had promised
to do something or not to do something, and then breached his undertaking. It was a method for the
enforcement of contracts not under seal and came to cover the whole sphere of simple contracts. In the
historical sense, assumpsit is the foundation of our modern law of simple contract.
Thomas v. Thomas
(1842), 2 Q.B. 851
PROCEDURAL SETTING:
• Trial decision.
FACTS:
• The P's husband, at the time of his death, owned a row of 7 houses, one of which he lived in himself.
• Upon his death he appointed his brother and the D as executors of his will and charged them to take
possession of all of his houses.
• On the morning before his death, Mr. Thomas declared orally (in the presence of 2 witnesses) that he
wanted his wife to have either the house they lived in and all that it contained, or 100₤. This
arrangement became subject to (a) the P remaining unmarried, (b) her agreement to pay 1 pound yearly
to the executors for rent, and (c) her agreement to keep the dwelling house and premises in good repair.
• The P remained in the house for some time, however the D eventually evicted the P.
ISSUE(S):
• Did the plaintiff give good consideration for the property?
DECISION:
• For the plaintiff.
REASONS:
• First, the court finds that moral consideration is not equal to legal consideration. That is, pious respect
for the wishes of the testator is not consideration. However, the court finds that the P's payment of $1 per
year in ground rent is consideration, as is her agreement to keep the property in good repair. Here the
court does not judge that value of the consideration, but only looks to see that it exists.
RATIO DECIDENDI:
• The court will look to find consideration but it will not judge its value. Consideration will be found as
long as something of value (even nominal) passes from the promisee to the promisor. As per Carbolic,
the performance of an action in a unilateral contract is good consideration.
FORBEARANCE
B.(D.C.) v. Arkin
[1996] 8 W.W.R. 100 (Man. Q.B.)
PROCEDURAL SETTING:
• Decision at Manitoba Q.B. upheld by C.A.
FACTS:
• 2 teenage boys get caught shoplifting by a security guard at Zeller's in Manitoba. The stolen items were
recovered and put back on the shelf.
• To recover the items Zeller's contracted a collection agency (Acclaim Civil Loss Recovery), who wrote
to the parents of the P asking for restitution in the amount of the value of the goods plus costs ($225). If
the P paid the company agreed to halt proceedings.
• The P sent payment and afterward consulted a lawyer, who said that there is no claim against parents,
who are not legally responsible for torts committed by their children unless they have acted negligently.
• The P takes the company to court to recover the amount that she had paid. The trial judge dismissed the
claim.
•
•
The D argues that the P voluntarily paid the amount of the claim and that consideration took the form of
Zeller's promise not to sue (forbearance).
The P claims that the claim against her was invalid and that the money she paid should be returned to
her.
ISSUE(S):
• Is Zeller's Forbearance to sue good consideration in this case?
DECISION:
• For the P - appeal allowed.
REASONS:
• The claim against the P is invalid (no common law principle or statute saying that the parents are legally
responsible for the wrongs done by their child).
• In addition, Zeller's never seriously intended to pursue the matter in court - likely because they knew it
was an invalid claim. There was no good consideration - the D is giving up nothing by agreeing not to
sue because they never intended to do so.
• Finally, the lawyer for the collection company likely knew that the claim was invalid and was abusing
his power as a lawyer.
RATIO DECIDENDI:
• As a general rule, forbearance to sue can constitute good consideration at common law.
• However, there are specific exceptions to this general rule including (a) where either party knows or
believes that the claim is invalid, (b) where one party conceals facts from the other, (c) where the party
that threatens to pursue the claim never really intended to pursue the claim.
• Exception to the exception - where a claim is doubtful (not clear whether or not it will succeed) there
may be good consideration
PRE-EXISTING LEGAL DUTY
Pao On v. Lau Yui Long
[1980] A.C. 614 (P.C.)
PROCEDURAL SETTING:
FACTS:
• 2 parties enter into a main agreement (real estate transaction). Parties proposed a share exchange for the
property instead of cash.
• The Ds would remain the majority shareholders in the company. The Ps had to agree not to sell the
shares for 1 year. The Ds also promised to protect the Ps if the shares fell below a certain level by
agreeing to buy a certain number back (price protection clause).
• Later, the Ps realized that the agreement heavily favoured the Ds if the shares increase in value. They go
back to the Ds and ask to rearrange the terms of the subsidiary agreement.
Gilbert Steel Ltd. v. University Construction Ltd. (1976)
(1976), 12 O.R. (2d) 19, 67 D.L.R. (3d) 606 (C.A.)
PROCEDURAL SETTING:
• Appeal to the Ontario Court of Appeal of a judgment for the defendant.
FACTS:
•
•
•
•
•
•
•
September 4, 1968 – P and D enter into a written contract in which the P agrees to deliver fabricated
steel for apartment buildings to the defendant for the purpose of building 3 apartment buildings.
The price of steel fixed by the contract was $153 per ton for “hard grade” and $159 per to for “Grade
60,000”.
Deliveries for 2 of the buildings were made and the price paid by the defendant to the plaintiff.
Before the delivery was made for the 3rd project, the price of steel was increased by the mill, which gave
notice of further increases to come.
The parties agreed on a new (higher) price for the first of 2 buildings to be erected at that site – the
parties both incurred a loss given the increase.
After another increase in the price of steel, the parties made an oral agreement on another, higher price.
The court determined that the parties did in fact enter into an oral agreement. The issue here deals with
whether or not that agreement is legally binding.
ISSUE(S):
• Was there consideration for the oral agreement reached between the parties?
DECISION:
• For the defendant – appeal dismissed.
ANALYSIS:
•
RATIO DECIDENDI:
• Any variation of the terms of an existing contract must be made with consideration unless made under
seal.
NOTES:
• Courts can be inventive in the ways that they find consideration (what form it takes) – this case is a good
example of this – even though the court finds in the end that there is no consideration.
What could have been done to prevent this dispute?
(1) Make new agreement under seal to eliminate the need for consideration.
(2) Include a price escalation clause in the original contract to account for potential price increases.
(3) Include a “force majeure” clause that protects parties from circumstances beyond the control of the
contractor which would prevent him from fulfilling the contract.
(4) Put the verbal agreement in writing and make sure that the language specifies that the parties agree to
recind the original agreement and substitute a new contract in its place.
Williams v. Roffey Bros. & Nichols (Contractors) Ltd.
[1990] 1 All E.R. 512 (C.A.)
PROCEDURAL SETTING:
FACTS:
• The defendant entered into a contract with the owners of an apartment building to renovate 27 suites.
The D sub-contracted the carpentry work to the plaintiff for a set price of $20,000.
• The P encountered financial difficulties during the course of the project and the D became concerned
that the P would be unable to complete the contract by the due date and that he would be liable to the
owners.
• The D agreed to pay the P a further $10,300 and to pay it upon completion of each flat at a rate of $575
per apartment.
• The P completed 8 apartments under this agreement.
•
When the D stopped making payments, the P stopped work and sued.
ISSUE(S):
• Is there good consideration for the D’s promise to pay the P an increased price to perform a duty he was
already contractually required to do?
HELD:
• Appeal dismissed.
ANALYSIS:
• Both parties stood to gain from the new agreement (the P gets more money, the D gets the projects
completed where they otherwise would not have been). It is not required that each party suffer detriment.
Although the P was already required to complete the project, he would not have been able to do so were
it not for the D’s offer of more money. Therefore, there is good consideration.
• The court emphasizes that fact that it was the D (larger company) that offered the pay increase –
therefore this is not a situation of duress.
RATIO DECIDENDI:
• A promise to perform an existing obligation can amount to good consideration provided that the
promisee receives some benefit (“something extra”) or avoids a dis-benefit as a result of the promise.
• This does not extend to repayment of debts.
• As a matter of policy the courts try to avoid enforcing contracts where the promise is essentially extorted
from the promisee – that is, the promisee was under duress – even if there is good consideration.
NOTES:
• This case is distinguishable from Gilbert (above) because the P received something extra for its promise
– that is, the P avoids having to pay damages to the owner for the work being late.
• Court distinguishes ruling in Stilk v. Myrik (1819) arguing that times have changed – general principle
still holds – if 2 parties already in a contractual relationship try to negotiate the terms of that agreement,
the promise made must include consideration by the promisee – that is, the promisee must be getting
something extra for the promise where the promisor already has an obligation to perform the terms of
the contract.
VAGUENESS
R. v. CAE Industries Ltd.
[1986] 1 F.C. 129, [1985] W.W.R. 481, 30 B.L.R. 236, 20 D.L.R. (4th) 347
PROCEDURAL SETTING:
• Appeal to Manitoba court of Appeal.
• Leave to appeal to S.C.C. refused.
FACTS:
• Negotiations took place between the Government of Canada and the respondent about the possibility of
taking over and running an aircraft maintenance base no longer used by Air Canada.
• February 28, 1969 – respondent writes to ministry of transport asking for a number of assurances from
the government regarding the proposed purchase.
• March, 1969 – letter signed by 3 ministers sent to the respondent assuring the following:
(1) To support and make every effort to maintain current employment levels and to develop a
continuing aerospace industry in Winnipeg.
•
•
•
(2) Department of Defence production can guarantee 40,000 – 50,000 man hours of work per year,
and the government agrees to make its best efforts to secure additional work to reach the target
goal of 700,000 man hours per year.
(3) Government of Canada agrees that any work given to the operation in Winnipeg will not be
taken away from its contract base in Edmonton.
(4) Existing Air Canada lease from the Department of Transport will continue under present
financial terms and conditions for a period of 10 years.
The Respondent arranged for the purchase of the base.
In 1971, the workload diminished and the respondent sued for breach of contract.
Appellant argues that the letter of March 26 was never intended to become a legally-binding contract.
ISSUE(S):
(1) Was a contract intended?
(2) Is the contract too vague and uncertain or incomplete to be legally binding? That is, did the parties
express the terms in sufficiently clear language as to have created rights and obligations enforceable in a
court of Law.
HELD:
• For the respondent (CAE) - Appeal dismissed.
ANALYSIS:
Issue 1:
• Court finds evidence in the circumstances of the letter to find that the government did intend to create
legal relations – specifically the fact that it was the appellant who approached the respondent as a
potential buyer of the facility and it was in the Government’s best interests to find a buyer. Also, the
terms of the agreement had already been partly performed.
• Onus of proof in such cases is on the party who asserts that there is not relationship – burden is a heavy
one.
Issue 2:
• Court attempts to interpret the meaning of such “vague” words as “assurances”, “can guarantee”, “set
aside” and “best efforts” – looks at previous interpretations in case law, general meaning, etc.
• Court finds that the Government agreed (legally-binding) to provide a minimum of 40,000 man hours of
work per year, and to use their “best efforts” to make up the shortfall – “best efforts” determined to
mean that they would “leave no stone unturned” – but that that obligation ends where it would disregard
previous contractual obligations or neglect public interest.
RATIO DECIDENDI:
•
INCOMPLETE TERMS
•
•
•
Following 3 cases represent major Canadian case law regarding the issue of whether an agreement that is
incomplete on its face may constitute a contract.
In these cases, the parties did not stipulate a basis upon which certain aspects of the transaction or
relationship were to proceed (different from above case in which the terms were specified but were
vague).
All 3 cases concern agreements for the sale of goods – at the time of their agreement the parties in each
case were unable to determine one or more essential features of the anticipated transaction (ie. the price
to be paid, quality of goods)
•
•
•
These types of cases are common in contract law where contracts are made for the supply of goods or
services in the future or over a period of time.
Question is whether it is possible to determine the content of the parties’ reciprocal obligations with
respect to those elements of their transaction.
If it is impossible to ascertain what it is that the other party is expected to do or not do to satisfy the
agreement, it is impossible to determine whether or not a party has breached his or her obligations.
May & Butcher Ltd. v. R.
[1934] 2 K.B. 17 (H.L.)
•
Leading case that illustrates that an agreement to agree is not a contract.
PROCEDURAL SETTING:
FACTS:
• The appellants entered into an arrangement with the respondent (the Disposals Board) for the purchase
of surplus “tentage” which the government had in its possession since WW1.
• June 1921 – correspondence from the Disposals Board to the appellant outlined the terms of the
arrangement – stipulated that in consideration for the appellant paying a 1000£ deposit the respondent
agreed that:
(1) Agreement is for the purchase of the total stock of tentage that the government has.
(2) Prices and dates for payment would be agreed upon from time to time as the tentage became
available and was offered to the appellant.
(3) Delivery dates are to be agreed upon at a later date as necessary.
(4) Any disputes arising out of the agreement would be arbitrated in accordance with the
Arbitrations Act, 1889 – put in to deal with any disputes as to price to be agreed.
• In January, 1922 the board changed.
• Jan 7, 1922 – letter confirming the sale of the first delivery of tentage pursuant to verbal negotiations
sent from the new Disposals Board to the appellant – this is where the dispute arose.
• New Board says the price was never agreed and that there is no contract.
• Appellant says that the arbitration clause was in place to solve such price disputes.
ISSUE(S):
• Were the terms of the agreement sufficiently defined to constitute a legally binding contract?
HELD:
• For the respondent (Government Disposals Board) - Appeal dismissed. There is no contract.
ANALYSIS:
• First, the court finds that price is a vital part of a contract. In this case, that price was missing – this is
fatal to the agreement.
• The P argued that the court should fill in the blanks by substituting a “reasonable price” – tries to bring
in s.8 of the Sale of Goods Act, which stipulates that where parties cannot agree on a price a reasonable
price will be specified (by the courts).
• Court is unwilling to do this – says their job is not to fill in the terms of a bargain that the parties have
failed to specify. If there is no agreement, there is no consensus ad idem, and therefore no contract.
• P argues that arbitration clause could be used to settle it – therefore there is a specified manner of
coming to an agreement in the case of a dispute.
• Court says that in order to invoke the arbitration clause you must first have an agreement. Clause refers
to an “agreement” (contract) – here there is no contract, therefore the arbitration clause can not be
invoked.
•
•
Does the P have certain rights to enter into a new contract given that he paid a deposit? – court says no.
There is nothing for the deposit to attach to (no contract).
There is not meeting of the minds because of the uncertainty of the terms.
RATIO DECIDENDI:
• An agreement to agree is not a contract where a vital part of the contract is missing – “an agreement
between two parties to enter into an agreement in which some critical part of the contract matter is left
undetermined is no contract at all”.
• It is possible for 2 people to contract that they will sign a document which contains all the relevant
terms, but it is not open to them to agree that they will in the future agree upon a matter which is vital to
the arrangement between them and has not yet been determined.
NOTES:
• Courts interpreting this case very strictly – trying to uphold certain principles.
Hillas & Co. v. Arcos Ltd.
(1932), 147 L.T. 503 (H.L.) – before May & Butcher but reported later.
PROCEDURAL SETTING:
• Trial judge awarded damages to Hillas (the P) – awarded damages of 30,000£ for breach of contract.
• Judgment reversed by the Court of Appeal – said there were too many details left out and that the
agreement was unenforceable due to uncertainty (mere agreement to agree).
• P appeals to House of Lords.
FACTS:
• The appellant (an English Timber firm) brought an action against the respondent (business
representatives of the Russian Government), for breach of a contract to supply 100,000 standards of
Russian timber during 1931.
• Under the agreement, Hillas agreed to buy a stipulated amount of timber “of fair specification” on
favourable terms during 1930. This agreement was carried out without a problem.
• The agreement included a provision that the buyers shall also have the option of entering into a contract
with the sellers for the purchase of 100,000 standards for delivery during 1931. The buyer would be able
to obtain the goods at a 5% reduced rate from the official price list value at any time during 1931. The
option had to be exercised before Jan 1st, 1931.
• The respondent entered into a contract to sell its entire timber shipment for 1931 to Central Softwood
Buying Corporation (competition of the appellant).
• The appellant entered into a subsequent company to based on the option. When the appellant tried to
exercise hisoption, he was told that the lumber had already been sold.
ISSUE(S):
• Is the option provision a binding agreement?
HELD:
• Appeal allowed – trial decision restored. Clause 9 is not a mere agreement to agree but an enforceable
contract which the respondent breached.
ANALYSIS:
• Appellant argues that a number of material terms were left out – therefore there is no agreement (it.
Price, delivery, standard of goods etc.).
• Here the court looks at the intention of the parties and found that the parties did intend to make a
contract given their past dealings.
•
•
•
•
•
•
•
Court says that “what can be made certain should be made certain” – courts should fill in the blanks
where it is satisfied that the parties, who are sophisticated business people with past dealings, intended
to make an agreement.
Categorizes this contract as an “installment contract” – these types of contracts should be enforced by
the courts wherever possible to promote business.
Clause 9 should be read in relation to the previous existing contract.
Clause 9 is clear about price (5% discount off market value) – this avoids the need to specify a particular
price.
Description of product was also clear enough – usually determined on market standards. If there is a
dispute, the Sale of Goods Act steps in to determine what the expectations of the parties were and how
they should be satisfied reasonably.
Shipping dates do not need to be decided ahead of time – these types of things depend on external
factors (ie seasons) and need to be negotiated along the way.
Case seems to be the opposite of May & Butcher – there is binding authority either way – still hasn’t
been made clear in subsequent case law. What accounts for the difference? – facts are somewhat
different but similar enough. Instead it may come down to judicial philosophy – how the court felt about
their role in terms of stepping in to fill in terms in each case. What should the role of judges be in these
cases? May & Butcher says that courts should stay out. This case favours the opposite.
RATIO DECIDENDI:
•
Foley v. Classique Coaches Ltd.
[1934] 2 K.B. 1 (C.A.)
PROCEDURAL SETTING:
• Decision at trial for the plaintiffs.
FACTS:
• The defendant – operators of a fleet of motor coaches – agreed to purchase a piece of land from the
plaintiffs, who owned a service station on adjacent premises.
• Sale was made subject to the defendants entering into a supplemental agreement to purchase all the gas
required for their business from the plaintiffs “at a price to be agreed by the parties in writing and from
time to time”.
• Supplemental agreement contained an arbitration clause (clause 8) should the parties be unable to agree.
• Things proceeded smoothly for approx. 3 years.
• The D thought that they could get their gas cheaper somewhere else and argued that there was no
agreement and they were not legally bound to buy petrol from the plaintiff.
• Plaintiff seeking an injunction requiring the defendant to fulfill the terms of the agreement (buy the
petrol from the plaintiff).
ISSUE(S):
• Is the supplemental agreement legally binding despite the lack of fixed price?
HELD:
• Trial judgment for the plaintiffs affirmed – appeal dismissed.
ANALYSIS:
• Looks at both May and Butcher v. R. and Hillas v. Arcos (contrary precedents) - court decides that in
this case the parties clearly believed that they had a contract and in fact acted for 3 years as if they did
have a contract – shows intention to make a binding contract.
•
•
How does court reconcile this conclusion with May and Butcher? – here there was clear intention, and
action. Also, the sale of land is tied to the supplementary agreement (one is subject to the other) – the
supplementary agreement provided consideration for the sale of the land.
Court says that May and Butcher is too strict – really it is meant to apply to situations where there is no
indication of intention to be bound.
RATIO DECIDENDI:
• …
BAUMAN’S COMMENTS ON AGREEMENTS TO AGREE
• An agreement to agree is not legally enforceable if does not include all of the essential terms.
• Essential terms must not necessarily be in writing (court will hear evidence as to verbal agreements).
• In some circumstances, however, the courts may enforce the contract if the parties provide a mechanism
for providing the missing terms (ie. arbitration clause, agreement on cost plus).
• Also, courts may look at custom and business practices or expert witnesses to imply terms and enforce
the contract.
• Courts sometimes are willing to imply a standard of reasonableness (ie. price will be a reasonable price
as determined by the court).
• Sometimes, however (as in May & Butcher), courts will find that the omission of a vital term will render
the agreement unenforceable. Also, (a) where parties in a lease agreement do not agree on a
commencement date for that lease there is not contract, (b) where a piece of land is paid for in
installments and parts of the land conveyed with each payment – contract is not binding if the exact part
of land to be transferred each time is not specified.
• Previous dealings (ie. acting as if there was a contract in the past) may be used as evidence in favour of
enforceability of the deal but it is not in itself conclusive (see May & Butcher, HIllas & Arcos).
• When deals are subject to a formal document – can go either way.
• What happens when parties attempt to reach an agreement and that agreement includes a term that
stipulates that the parties will agree to negotiate in the future? – Is an agreement to negotiate in the
future by itself a type of contract that the courts will enforce? – next section.
• Cases of uncertainty are usually decided on a case-by-case basis, depending on the facts.
• “Void for uncertainty” – phrase is slightly misleading – where there is uncertainty there is, and never
was, a contract. “Void” implies that there was a contract to begin with.
AGREEMENTS TO NEGOTIATE
Empress Towers Ltd. v. Bank of Nova Scotia
[1991] 50 B.C.L.R. (2d) 126
PROCEDURAL SETTING:
• Trial judgment for the defendant – appealed.
FACTS:
• The plaintiff is the landlord of a commercial building in which the defendant has a lease agreement.
• The defendant has been under a lease agreement with the plaintiff since 1972 (12 yrs)
• The plaintiff is seeking a writ of possession against the Bank of Nova Scotia pursuant to s.18 of the
Commercial Tenancy Act (B.C.).
• S. 18 of the lease agreement reads: The landlord hereby grants the Tenant rights of renewal of this lease
for 2 consecutive periods of 5 years each, such rights to be exercised by 3 months’ written notice from
the Tenant, subject to all the terms and conditions herein contained excepting any right of renewal
beyond the second 5 year period and excepting the rental for any renewal periods, which shall be the
•
•
•
•
•
•
•
•
•
market rental prevailing at the commencement of that renewal term as mutually agreed between the
Landlord and Tenant. If the parties do not agree upon the renewal rental within 2 month following the
exercise of a renewal option, the agreement may be terminated by either party.
1984 lease was due to expire on August 31, 1989.
The defendant exercised its option to lease for a further 5 year term on May 25, 1989.
Bank proposed to pay a rental rate of $5400 a month – up from $3097.
No written reply received from Empress.
Bank wrote to the plaintiff again re-stating the proposed amount and indicating that they were willing to
negotiate.
July 26 – solicitor for Empress wrote to the D saying that they were considering the offer.
Aug 31 (day lease was to expire) – Empress replied saying that it would allow the bank to remain on a
month-to-month basis if $15,000 was paid before September 15 and a rent of $5400/month was paid
thereafter.
New lease was to be terminable on 90 days’ written notice.
Trial judge found for the defendant – writ of possession denied.
ISSUE(S):
• Is the renewal clause void either for uncertainty or as an agreement to agree?
• If the renewal clause is not void, what does it mean?
HELD:
• For the respondent (Bank of Nova Scotia) - Appeal dismissed.
ANALYSIS:
• Uses precedent set by Hillas v. Arcos – courts will try, wherever possible, to give the proper legal effect
to any clause that the parties understood and intended was to have legal effect – not trying to build a
contract for the parties, just to give effect to what the parties intended.
• The court finds that where the parties say that they will enter into a lease at a rental to be agreed, no
enforceable lease obligation is created.
• Here there is an objective benchmark for determining the renewal rate (market value).
• However, the parties do not just leave it there – indicate that market rate must be mutually agreed upon
by the parties.
• However, court will not enforce the renewal clause as an automatic right of renewal because there was
an out (either party could walk away if no agreement had been reached after 2 months)
• Therefore, the court says that there may be a duty to negotiate.
• Specifically, this arrangement implies that (a) the landlord will negotiate in good faith with the tenant
with the objective of reaching an agreement of the market rental rate, and (b) agreement on a market
rental will not be reasonably withheld.
• Standard for fulfilling that duty is to use “best efforts” to reach an agreement.
• Trial judge held that the landlord had not negotiated in good faith – appeals court agrees.
RATIO DECIDENDI:
•
NOTES:
• Empress has been mentioned many times as precedent, however few cases actually follow the decision –
most cases are distinguished from the facts in Empress.
• Courts are very wary about making a duty to negotiate a legal duty.
• There may be other duties that arise, however, in the course of negotiation – ie. cases of
misrepresentation.
ALBERTA SALE OF GOODS ACT
• S. 10(1) – addresses the price of goods covered by the Act. The parties can fix the price in their contract,
but if they fail to do so they can fix the manner in which the price shall be determined.
• S. 10(2) – if the price is not determined in accordance with subsection 1, the buyer shall pay a
reasonable price.
• Legislation reads like Hillas & Arcos decision – court has jurisdiction to set a reasonable price for the
parties.
• S. 10(3) – What is reasonable is dependant on the circumstances of each particular case.
Mannpar Enterprises Ltd. v. Canada
(1999), 173 D.L.R. (4th) 243 (B.C.C.A.)
PROCEDURAL SETTING:
FACTS:
• Mannpar held a permit under contract with the Crown, acting through the Department of Indian and
Northern Affairs, to remove and sell sand and gravel located on an Indian reserve.
• The permit had an initial term of 5 years.
• Both parties expected the operation to extend for a 10-year term.
• Crown had obligations to the band – fiduciary relationship.
• Permit included Clause 7 which stipulated that “the permitee shall have the right to renew this permit for
a further 5 year period subject to satisfactory performance and renegotiation of the royalty rate and
annual surface rental. Under no circumstances shall the royalty rate or surface rental be less than the
rates received in the preceding term.”
• The Department refused to negotiate.
• Trial judge held that there was no duty to negotiate in good faith.
• Plaintiff trying to extend principle from Empress Towers by analogy.
ISSUE(S):
• Is clause 7 uncertain and therefore void?
• Should the court imply a term requiring the Department to negotiate in good faith for the renewal?
HELD:
• Trial judgment for the defendant upheld - Appeal dismissed.
ANALYSIS:
• Mannpar argued that the Department had a duty to negotiate in good faith – uses Empress Towers as its
authority.
• Court distinguishes this case because:
(a) In Empress Towers there was a benchmark that could have been used as an objective assessment
– namely “prevailing market rate as agreed upon by the parties”. That is, according to the clause
the parties had to mutually agree on market value. P argues that the words “not less than the
rates in the preceding term” provide a benchmark. However, the court does not see this as an
effective benchmark – clause does not provide a measure for what the parties have to agree
upon.
(b) The Court in Empress was implying terms into leases that were continuing. In this case, the
parties only anticipated that the business arrangement between them might last for 10 years –
just a permit for a project – court says that this is different from a lease where it is more difficult
to extricate oneself from the premises.
•
•
•
•
No arbitration clause in this agreement – indicates that the Crown may not have wanted to have to
negotiate – court saying that the ambiguity may have been purposeful in order to create some latitude for
the Crown.
Court finds that the wording of the agreement (specifically in the renewal clause) indicates that the
Crown wanted to ensure itself considerable latitude in deciding whether or not to agree to an extension
of the original 5 year term and in deciding what terms would be acceptable if it were to agree to a
renewal.
Also, the Crown had to keep the interests of the Band in mind (fiduciary duty) – renewal seems to have
intentionally left to “renegotiation” so that the Crown could be free to consult with the Band, who
ultimately owns the land in question.
Therefore, the Crown is not under a duty to negotiate in good faith.
RATIO DECIDENDI:
•
Wellington City Council v. Body Corporate 51702
[2002] 3 N.Z.L.R. 486 (C.A.)
PROCEDURAL SETTING:
• Trial judgment for Body Corporate 51702 - Wellington City Council held liable for breach of contract –
damages of $580,000 awarded.
• Judgment appealed by Wellington.
FACTS:
• March 2, 1999 – Council (landlord) wrote to the tenant (Body Croporate 51702) stating: “Council
officers will negotiate, in good faith, sales of Council’s leasehold interests to existing lessees at not less
than the current market value of those interests.”
• It is not clear whether the offer to negotiate in good faith is tied to the original lease or not – but it seems
that the letter reflects a term already included in the existing lease.
• Trial judge held that this was an offer to negotiate in good faith, which the respondent accepted by its
conduct (entering into negotiations on that basis).
• Court finds that each party provided consideration to the other in the exchange of promises – this is
problematic, however. An exchange of promises alone is not good consideration. This is why it seems
likely that the letter reflects a term already in the lease (for which there was consideration).
• Negotiations failed – tenant argues that landlord did not negotiate in good faith.
• Appellant argues that this was not just an agreement to negotiate in the future but a contract in and of
itself.
ISSUE(S):
• Does an express agreement to negotiate in good faith, when supported by consideration, constitute a
legally-enforceable contract?
HELD:
• For Wellington – appeal allowed.
ANALYSIS:
• Court agrees that agreements to agree or contracts to make contracts containing as yet unascertained
terms are not enforceable.
• Court defines an obligation to negotiate in “good faith” as an obligation to honestly try to reach
agreement. However, parties remain able to pursue their own interests within what is subjectively
honest, rather than what is objectively reasonable.
•
•
•
•
•
•
•
Plaintiffs argue Coal Cliff Collaries as being an analogous precedent – court finds that this case is
distinguishable on the facts. The court says that Walford v. Miles is a better precedent.
Walford v. Miles – agreements to negotiate are unenforceable.
Walford v. Miles also reflects certain policy considerations – courts generally do not enforce agreements
to negotiate because (a) there is no certainty (negotiating in good faith is a subjective matter), and (b) it’s
difficult for courts to ascertain how parties negotiated after the fact, and (c) parties should be free to
negotiate with their own best interests in mind, and to walk away from negotiations.
Agreements to use “best endeavours”, however, are generally enforceable.
If the parties identify with sufficient precision how they ought to proceed, the court may be persuaded to
enforce what they call a “process contract”.
Here, however, there is (a) no procedure in the process contract for negotiation, and (b) no sufficient
benchmark for determining price – “not less than market value” is not good enough. Whereas in
Empress Towers “prevailing market value” was a sufficient benchmark – “not less than market value” is
too vague (only specifies a lowest price).
Court will not enforce a contract here – shows that Empress Towers is still an anomaly.
RATIO DECIDENDI:
•
SUMMARY OF DUTY TO NEGOTIATE
• Idea of duty to negotiate interferes with the basic principles of free negotiations – see. Watford v. Miles
(English Case).
• No Canadian equivalent – S.C.C. has not yet ruled conclusively on the issue – Watford v. Miles is the
most influential precedent on Canadian law. However, S.C.C. in Martel Building seems to be hesitant to
enforce a duty to negotiate in good faith.
• In the US the tendency is toward enforcing a duty to negotiate in good faith – see p. 170.
• Empress Towers case remains an anomaly in Canadian Law – has been cited many times but very few
cases succeed (most are distinguished on the facts).
• Courts are extremely hesitant to enforce a duty to negotiate, even where parties have specified that they
will negotiate.
ANTICIPATION OF FORMALIZATION
•
•
•
Often there is a lag between the time when the parties negotiate an agreement and when further final
documentation is drawn up and signed by the parties.
When does a contract arise – when the parties agree at the end of the negotiations, or when the formal
contract is executed by the parties?
These cases are decided by the courts on a case-by-case basis based on factors such as (a) the parties’
reasonable understanding as to whether or not they had reached an agreement, and (b) the language used
in preliminary agreements.
Bawitko Investments Ltd. v. Kernels Popcorn Ltd.
(1991), 79 D.L.R. (4th) 97 (Ont. C.A.)
PROCEDURAL SETTING:
• Trial judge held for the plaintiff (Bawitko) and awarded damages.
FACTS:
• The appellant (Kernels) is a franchisor with a portion of its stores being operated under franchise
agreements with various franchisees.
•
•
•
•
•
In 1994 the appellant planned to open a new store in Hamilton, Ontario. They were approached by the
respondent, who inquired about acquiring franchise rights to this store. The respondent was provided
with a franchise information package containing, among other things, a franchise application and a
“draft” or “standard” form franchise agreement approximately 50 pages long
On April 18, 1984 the respondent met with a representative of Kernels. A verbal agreement was reached
in regards to a number of terms of the franchise agreement. Specifically, the representative assured the
respondent by saying “you’ve got a deal” and shaking hands.
The respondent refused to sign the written franchise agreement in its standard form (without the
modifications) and the parties’ relationship disintegrated. The respondent commenced an action against
the appellant for specific performance (which was denied) and then for breach of contract (which was
successful at trial).
Trial judge held that the parties had an agreement (namely the draft agreement as it stood with the
exception of the agreed-upon changes).
Appellant argues that the oral contract was not in itself a complete and legally enforceable contract but
was subject to and dependent upon a formal written franchise document being settled, approved and
executed by the parties.
ISSUE(S):
• Does the oral agreement of April 18th itself constitute a legally enforceable contract?
HELD:
• For Kernels - appeal allowed.
ANALYSIS:
• There was no consensus ad idem in relation to certain important terms. Onus lies on with the plaintiff to
prove that there was a meeting of the minds. Here there is evidence that the parties failed to discuss a
number of important terms – plaintiff can not meet its evidentiary burden.
• “Where an oral agreement is incomplete because essential provisions intended to govern the contractual
relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid
in itself and is dependent on the making of a formal contract; or the undertaking or intention of the
parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations
are to be deferred until a formal contract has been approved and executed, the original or preliminary
agreement cannot constitute and enforceable contract.”
• Here, the parties were in agreement in regards to certain specific terms, however the other terms were to
be settled and agreed later – therefore no final oral agreement was reached on April 18th.
RATIO DECIDENDI:
• As a matter of general principle, where parties agree orally on all the essential provision to be
incorporated into a formal document with the intention that their agreement shall thereupon become
binding, they will have fulfilled all the requisites for the formation of a contract.
INTENTION TO CREATE LEGAL RELATIONS: FAMILY RELATIONS
•
•
•
•
•
•
Intention here refers to the whether the agreement was intended to create legal consequences.
Agreements that give rise only to social or moral obligations are not enforceable.
In order to determine whether the parties intended to create legal relations courts look to see if the
parties intended that, if their relationship broke down, they would be able to go to court.
The presence of consideration in and of itself will not settle the issue – courts can still declare the
agreement non-enforceable due to lack of requisite intent.
Onus of proof on the claimant to prove that the agreement was intended to have legal consequences.
Court also looks at:
(1) What the relationship between the parties was at the time the agreement was entered into,
subject matter of the transaction (ie commercial property vs. sentimental objects),
(2) General nature of the transaction (verbal or formalized, were there witnesses, was it sealed etc.),
(3) What was the precision or vagueness of the terms agreed to?
(4) Who prepared the agreement? (ie. a lawyer or the parties themselves on the back of a napkin).
Balfour v. Balfour
[1919] 2 K.B. 571 (Eng. C.A.)
PROCEDURAL SETTING:
• Appeal of a trial judgment finding for the plaintiff (Mrs. Balfour).
FACTS:
• Husband agreed verbally to pay his wife 30£ per month in maintenance while he was away in Ceylon.
The wife was sick and was unable to accompany him to Ceylon until she recovered. The couple later
agrees that they would prefer to live apart. The husband stopped paying; wife asked for and was given a
separation order and sued for breach of contract to recover unpaid maintenance.
• Trial judge found that (a) there was sufficient consideration, and (b) the parties intended that the
agreement have legal consequences.
ISSUE(S):
• Does an agreement between spouses, whether or not it is supported by consideration, constitute a legally
enforceable contract?
HELD:
• For Mr. Balfour – appeal allowed.
ANALYSIS:
• Appeals court also finds good consideration – not clear from the extract exactly what it is (however, it
may be that the wife suffered a detriment by having to stay in England while her husband was away).
• However, this agreement is not a contract in the typical sense of the word – court looks at the
relationship between the parties at the time of the agreement – here, when the agreement was made they
were still happily married and did not intend to divorce.
• As a general rule, courts presume in such cases that the parties did not intent to create a legal contract
but only a personal agreement that creates only social or moral obligations.
• Court argues that if they were to enforce such agreements any dispute before husband and wife would
end up before the court – floodgates argument. Also, courts would end up becoming involved in marital
disputes – something which the courts do not want to do. For example, a husband agrees not to leave his
clothes on the floor in exchange for the wife doing the laundry – wife could then bring an action in court
– court would become too involved in family life.
RATIO DECIDENDI:
• Domestic agreements are generally not enforceable in law, unless the claimant can establish on a balance
of probabilities that the parties intended that the agreement have legal consequences.
INTENTION TO CREATE LEGAL RELATIONS: COMMERCIAL ARRANGEMENTS
Rose and Frank Co. v. J.R. Crompton and Bros. Ltd.
[1923] 2 K.B. 261 (C.A.)
PROCEDURAL SETTING:
•
•
•
Trial judge held for the plaintiff – rejects the “honourable pledge” clause as repugnant and against public
policy - finds the contract legally binding.
Judgment reversed by the Court of Appeal – contract is not binding.
H.L. restores the trial judgment.
FACTS:
• Rose and Frank Co. was the sole distributor of the English defendant’s paper products in the US. The
two companies had, in the past, a vague agreement that was nonetheless legally binding.
• In 1913, the parties signed a new document which contained the following clause: “this arrangement is
not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be
subject to legal jurisdiction in the Law courts of either the US or England, but is only a definite
expression and record of the purpose and intention of the parties concerned to which they each
honourably pledge themselves with the fullest confidence, based upon past business with each other, that
it will be carried through by each of the parties with mutual loyalty and friendly co-operation”.
• The defendants refused to fulfill some of the plaintiff’s orders for their products and terminated the
agency agreement.
• Defendant argued that the “honourable pledge” clause was not intended to have legal consequences and
therefore is not legally enforceable.
ISSUE(S):
• Did the parties intend to give legal effect to the honourable pledge clause?
HELD:
• Appeal allowed – the contract is not legally binding.
ANALYSIS:
• Court of appeal – the usual presumption that the parties intended to be bound was successfully rebutted
by the “honourable pledge” clause – therefore the defendant has discharged its burden and has shown
that the parties did not intend to be legally bound by the agreement.
• House of Lords disagreed.
RATIO DECIDENDI:
• In the case of commercial relations, the assumption of the courts is that the parties did intend to be
legally bound by their agreement. The onus of proof lies on the defendant on the balance of probabilities
to show otherwise.
Toronto Dominion Bank v. Leigh Instruments Ltd. (Trustee of)
(1999), 178 D.L.R. (4th) 634 (Ont. C.A.)
Creditor
(Bank)
Parent Company (Plessy)
Subsidiary Company (Leigh)
(Debtor)
PROCEDURAL SETTING:
• Appeal of a trial judgment finding for the defendant.
• Leave to appeal to S.C.C. refused.
FACTS:
•
•
•
•
•
•
Letter of comfort – usually issued by parent companies to creditors of subsidiaries to ensure that
subsidiaries will be able to meet their financial obligations. However, these letters usually state that the
parent company will not guarantee that the subsidiary will meet is obligations (not legal guarantee).
Paragraph 3: “It is our policy that our wholly owned subsidiaries, including Leigh Instruments Ltd., be
managed in such a way as to be always in a position to meet their financial obligations including
repayment of all amounts due under the above facility (referring to a line of credit).
Subsidiary becomes insolvent – bank goes after the plaintiff for recovery on the line of credit.
Plaintiff argues that the words “be managed” mean that the defendant took on the responsibility to
oversee its subsidiary’s affairs and therefore assumed responsibility for guaranteeing its debts.
Court attempts to determine what meaning should be properly given to the words in paragraph 3. This is
done by asking the question: “bearing in mind the relevant background, the purpose of the document,
and considering the entirety of the document, what would the parties to the document reasonably have
understood the contested words to mean?” – from Eli Lily v. Novopharm (S.C.C.1998).
Plaintiff sues in tort (for negligent misrepresentation) and for breach of contract (failing to pay the debts
of the subsidiary when it went bankrupt).
ISSUE(S):
• Does the letter of comfort create legal obligations on the part of the parent company? That is, can the
bank, when the subsidiary company goes bankrupt, legally pursue the parent company to fulfill the
financial obligations of the subsidiary company?
HELD:
• Appeal dismissed – trial judgment upheld.
• There was no intention to create legal relations on the part of the parent company with regards to its
subsidiary’s creditors.
ANALYSIS:
• Court held for the defendant (upheld trial decision) – found that there was merely a moral (business)
obligation and not a guarantee – reputation of the parent company is jeopardized if a subsidiary goes
under – however business consequences to the parent company are not equal to legal consequences.
• In addition, the court points out that both parties were experienced in business and that, specifically, the
bank was familiar with letters of comfort and knew full well that they are not meant to provide security
in the usual sense. They are merely “gentlemen’s agreements” meant to foster positive business
relations.
RATIO DECIDENDI:
• When a court, having considering the background, purpose and entirety of a document, finds that on the
balance of probabilities the parties did not intend to be legally bound by their agreement, that agreement
will be unenforceable in law.
CONCLUSIONS ABOUT INTENTION TO CREATE LEGAL RELATIONS
• The general rule is that an agreement is not a binding contract unless it is intended by both parties to
have legal effect and legal consequences (more than “mere puffery” as stated in Carbolic).
• In the commercial context, this intention is presumed but may be refuted where the language in the
agreement expressly states as such (Rose and Frank).
• In general, letters of comfort do not create legal obligations because in the course of business practice,
banks know that they are not intended to be legally binding.
• Courts are generally hesitant to enforce social or familial obligations with mere moral consequences
(Balfour v. Balfour). However, see Errington v. Errington & Woods for a different result. Also, courts
will generally enforce pre-nuptial agreements and separation agreements. In these cases there is usually
an intention that the agreement have legal effect.
•
•
•
Matrimonial Property Act (Alberta) – allows parties to a marriage to make agreements in regards to
matrimonial property at any time. This statute requires that each party seek independent legal advice.
Usually these cases will depend on the particular facts of each case to determine what the parties did or
did not intend. The court will look at the background relationship between the parties, the entirety of the
document, industry practices, purpose of the document etc.
Also, there may be policy reasons why courts will not enforce certain agreements (specifically family
obligations) – for example, the court does not want to get involved in the daily affairs of a marriage.
ACCORD AND SATISFACTION
•
•
•
•
Sometimes parties to an agreement wish to vary the terms of an existing contract.
The law requires that such agreements must have fresh consideration (see Stilk v. Myrik – discussed in
Williams & Roffey Bros.).
Where parties agree to rescind a contract consideration is usually found in the parties’ relinquishment
from its obligations and/or the abandonment of its rights.
Example: A agrees under an original contract to pay a certain sum to B, and later B agrees to accept a
lesser sum. Is a promise to accept less than the complete fulfillment of an existing legal obligation
without fresh consideration legally binding?
Pinnels’ Case (1602)
• A fresh promise to receive a lesser sum pursuant to an existing legal agreement and without fresh
consideration is unenforceable.
• In such cases, the creditor may still go after the debtor for the full amount.
• Still good law – forms the basis for current law.
Foakes v. Beer
(1884), 9 App. Cas. 605 (H.L.)
PROCEDURAL SETTING:
• Trial judgment for the defendant.
• Court of Appeal overturned trial judgment.
• House of Lords agreed – appeal dismissed.
FACTS:
• The plaintiff obtained a judgment against the plaintiff for £2,090.
• The plaintiff and the defendant agreed in writing (but not under seal) that the debtor would make
payment on its debt until the full amount was paid in exchange for the plaintiff’s promise not to take
further action on the judgment. There was no discussion of the annual rate of interest to accrue on the
amount (to which the winner of a judgment is legally entitled). Therefore, the creditor is technically
agreeing to accept a lesser amount than they are legally entitled to.
• Debtor paid off the full judgment amount (the principle).
• Plaintiff brings another action in court to recover the interest on the amount paid by the defendant.
• Trial judge held for the defendant. Court of appeal reversed the trial decision - held that the plaintiff was
legally entitled to the interest despite the agreement not to bring further action.
ISSUE(S):
• Is the agreement by the plaintiff to accept less than the amount to which she was legally entitled void for
lack of consideration?
HELD:
• For the plaintiff (appeal dismissed) – the creditor is entitled to collect on the outstanding interest.
ANALYSIS:
• Looks to Pinnel’s Case and applies the general rule (agreement to accept a lesser sum than owed under
an existing contract is unenforceable where there is no fresh consideration for that agreement). Court
holds that the lower court erred in not applying a rule that has been part of the common law for almost
300 years.
• Court finds that there was no consideration for the agreement and therefore it is of no force or effect.
The plaintiff is therefore not bound by its agreement not to bring further action on the judgment.
• Had the agreement been made under seal, no consideration would have been required and the agreement
would be legally binding.
RATIO DECIDENDI:
• A promise to receive a lesser sum in satisfaction of the greater whole is not enforceable unless it is
accompanied by fresh consideration.
Robichaud v. Caisse Populaire (N.B.C.A.) – excerpt p. 211
• Court may, in some cases, find consideration and therefore enforce the agreement to accept a lesser sum.
• This case goes against the grain from the principle in Foakes v. Beer (exceptional case).
• Interesting Canadian authority.
Re: Selectmove Ltd.
[1995] 2 All E.R. 531 (C.A.)
PROCEDURAL SETTING:
•
FACTS:
• The plaintiff (Selectmove) failed to make the appropriate tax and insurance deductions from its
employees and therefore found itself in arrears to the Crown.
• July 5, 1991 – collector met with the company to make arrangements for payment of arrears.
• Selectmove proposed to pay installments of £1000 per month until the debt was paid.
• Creditor said that he would have to get approval from his superiors, and that he would get back to the
company if the arrangement was unacceptable.
• The company began to make payments, although not in strict accordance with the agreement.
• The company folded and the Crown demanded payment of the full amount of the arrears outstanding.
• The company argued that it had an enforceable agreement with the Crown.
ISSUE(S):
• Was there an agreement between the parties? That is, was there sufficient acceptance?
• If there was an agreement, is it nonetheless void for lack of sufficient consideration?
HELD:
• Appeal dismissed – (a) the Crown did not accept the agreement of July 15, and (b)
ANALYSIS:
• “If you don’t hear from me, assume we have a deal” – contrary to general principles of contract law –
court can not enforce this as an agreement because there was no communication of acceptance.
Therefore, there was not agreement.
• Williams v. Roffey Bros. – a promise to perform an existing obligation can amount to good consideration
provided that there are practical benefits to the promisee.
• In regards to consideration, the court applies the principle in Foakes v. Beer and holds that…
•
•
Even though the court is bound by Foakes v. Beer, the judge seems to be reluctant to apply the principle
(p. 211) – seems to be hinting that he would like the Foakes v. Beer principle to be re-evaluated on
principle – but this has to be done either by the H.L. or the UK Parliament (Court of Appeal doesn’t
have jurisdiction – not binding in its authority).
Court also has to deal with Williams v. Roffey Brothers – distinguishes this case on the facts (here the
relationship is debtor/creditor as opposed to contractor/contractee).
RATIO DECIDENDI:
•
Foot v. Rawlings
[1963] S.C.R. 197, 37 D.L.R. (2d) 695
PROCEDURAL SETTING:
• Trial judge held for plaintiff (creditor) – there was no consideration – looked to Foakes v. Beer.
• B.C.C.A. affirmed this decision
• Appealed to S.C.C.
FACTS:
• Promissory note – unconditional promise in writing to pay a specified sum at either a time stated or on
demand. Can be made “payable to bearer” – makes it transferable.
• July, 1958 – the defendant owed the plaintiff a sum of money under a series of promissory notes. The
parties made a written arrangement for repayment of the sum in which (a) the debtor was allowed to pay
back the sum in the amount of $300 per month instead of $400, and (b) the interest rate was reduced.
The creditor agreed not to take legal action on the sum owing as long as the debtor did not default on the
payments as agreed.
• 2 ½ years later, the creditor brought an action to recover the full amount, even though the debtor had not
defaulted. The creditor argued that the agreement to accept a lesser payment was not supported by fresh
consideration and was therefore unenforceable.
ISSUE(S):
• Was the agreement by the creditor accompanied by good consideration and therefore enforceable?
HELD:
• Appeal allowed – there was good consideration.
ANALYSIS:
• How did S.C.C. find consideration? – looked at series of post-dated cheques provided to the creditor by
the debtor – this in itself was good consideration because it was of fresh benefit to the creditor so long as
the debtor did not default.
• This principle comes from Sibree v. Tripp (1846) - Acceptance and delivery of a negotiable instrument
constitutes good. Here, the negotiable instrument is the post-dated cheques – they can be “signed over”
to other parties and are therefore negotiable. That is, the cheques are a “bird in the hand” now – rather
than a promise to pay installments in cash (as in Foakes) which is only a promise to pay in the future.
• Therefore, the action brought against the debtor is premature (the defendant had not defaulted).
• However, it is questionable in reality that this is actually an advantage – for a creditor cash may be more
advantageous (for example, cheques are only promises to have the money available in the bank on the
date of the cheque being cashed – still problems with NSF).
• Not overturning Foakes v. Beer – just finding an exception to the general principle in an earlier case
(albeit not from the H.L.).
• “Negotiable instruments” – bills of exchange, bankers’ draft, promissory note, post-dated cheque etc. In
mercantile law (on which modern contract law is largely based), consideration is assumed to underlie a
•
negotiable instrument. They are negotiable in the sense that they can be transferred from one person to
another either by exchange or by endorsement.
Later we will see D & Builders v. Rees – Lord Denning seems to reject a cheque (negotiable instrument)
as being good consideration.
RATIO DECIDENDI:
• Where a creditor agrees to accept a lesser sum in fulfillment of the greater whole, a court may find good
consideration where there is acceptance and delivery of a negotiable instrument. In such cases, the
agreement will be deemed to be enforceable.
JUDICATURE ACT
(13)(1) - Part performance of an obligation either before or after a breach thereof shall be held to extinguish
the obligations
(a) when expressly accepted by a creditor in satisfaction, or
(b) when rendered pursuant to an agreement for that purpose though without any new consideration.
– this means when the parties mutually extinguish the obligation (no consideration required for
that agreement).
•
•
•
•
•
•
This provision was introduces specifically to deal with cases like Foakes v. Beer. However, if you look
back at Foakes v. Beer and try to apply this provision the result would likely had been the same – on
point (a) there was no express acceptance of payment of the full sum without interest. On point (b),
neither party discussed the extinguishing of the debtor’s obligation (specifically, they did not discuss the
matter of interest).
Moral of the story – if you are a lawyer and your client is a debtor wishing to negotiate a settlement with
a creditor, make sure in writing that the creditor is expressly accepting the lesser sum in full satisfaction
in whole of the obligation, and that that performance fully extinguishes the obligation.
Example – a creditor is owed $500. The debtor says he can only pay $300. The creditor accepts a cheque
for $300 from the debtor, who was written “payment in full” on the note line. If the creditor cashes the
cheque, is he expressly accepting the lesser sum in satisfaction in full of the greater sum?
According to Foakes v. Beer, this agreement is unenforceable unless there is fresh consideration.
According to the Judicature Act s. 13(1)(a), express acceptance is required – this means that the parties
must put their minds to the acceptance – can you show on a balance of probabilities that the creditor was
accepting the lesser sum? This case would turn on the creditor’s intention. Here there is a good argument
for implied acceptance of the offer to pay a lesser sum – but is this good enough to be express
acceptance? – probably not.
Writing a cheque is characterized in law as an offer – must be accepted by the payee to be binding.
WAIVER AND PROMISSORY ESTOPPEL
•
•
•
•
•
Common law has a difficult time with agreements between parties who are in a legal relationship and
wish to vary the terms of their agreement.
19th Century – courts of equity stepped in to soften the harshness of the common law.
First comes up in Hughes v. Metropolitan Ry. Co. (1877) – decided after the official merger of the courts
of common law and equity – just after Judicature Act (1873). Court now has the ability to tap into both
common law and equity, depending on what is relevant to the case at bar.
In equity, agreements may be enforceable absent consideration.
Difference between waiver and estoppel can be confusing – be aware of this – definitions on p. 219 note
6. They are related, however waiver is not really expressed in terms of equity – not really based on
reliance.
•
•
Bauman - waiver involves the voluntary relinquishing of a known legal right.
Sometimes cases can be framed as cases of waiver or estoppel and achieve the same result (ie.
Saskatchewan River Bungalows case).
Central London Property Trust v. High Trees House
[1947] 1 K.B. 130, [1956] 1 All E.R. 2256
PROCEDURAL SETTING:
• Trial decision (when Lord Denning was still a trial judge).
FACTS:
• The plaintiffs (landlord), in an agreement under seal, leased a block of flats to the defendant (tenant) for
a term of 99 years at a ground rent of £2,500 per year.
• During the war, it was apparent to the plaintiff that the defendant would be unable to pay the yearly lease
because they were unable to rent enough flats. Accordingly, the parties agreed in writing that the lease
amount would be reduced to £1,250 per year.
• The defendants paid the new lease price between 1941 and 1945, by which time the flats were again
fully rented.
• In September, 1945, the receiver of the plaintiff company (appointed by the plaintiff’s creditors to run
the business and collect outstanding debts) looked into the matter of the lease and ascertained that the
actual ground rent per year was £2,500.
• September 21, 1945 – the plaintiff wrote to the defendant demanding payment of the full lease rate and
claiming arrears in the amount of £7,916 for previous years. The plaintiff instigated this action to test its
legal position on the matter.
• The defendant argued that:
o the parties were in agreement that the rent should only be £1,250 and that that agreement
extended for the duration of the lease, (court says no – there was no consideration for the new
arrangement).
o in the alternative, because of their representations to the defendant, the P is estopped from
demanding more than £1,250 per year, and
o in the further alternative, by failing to demand rent in excess of £1,250 they had waived their
right to demand a larger sum up to September, 1945.
ISSUE(S):
• Can the plaintiffs be estopped from demanding more than the reduced lease rate as agreed by the
parties?
HELD:
• The P is estopped from demanding the full amount of the lease during the war years.
• However, the P is able to re-assert its strict legal right where reasonable notice is given.
ANALYSIS:
• Originally, estoppel as a rule only applied to statements of fact and not to statements regarding the future
(ie. in Jordan v. Money).
• Here, Denning L.J. expands the doctrine to include representations as to the future – if estoppel only
applied to representations of fact it would be hard to apply it in this case (which involved a statement
about the future). To get around this, Denning looks to a series of cases in which courts have said that
where you make a promise…. CLASSIC QUOTE….. p. 218. He says that cases of classic estoppel and
cases like this one (which involves representations as to the future) are based on the same basic
principle, therefore they are analogous.
• At common law alone, the result would have been that the plaintiff would have been able to demand the
full rate for the entire lease term because they had an agreement under seal. A lease under seal can only
•
•
•
•
be varied by another document under seal (called a “deed”). A verbal arrangement or letter is not enough
to vary such a lease.
However, in equity, some agreements may be enforced in certain cases where specific conditions are
met.
Estoppel prevented the P from demanding the full amount of the lease for the period during the war (the
time period during which the conditions that gave rise to the promise prevailed) – however, the P was
allowed to re-assert its legal right once conditions changed, so long as it gives appropriate notice.
This was merely a trial decision – attracted a lot of criticism but was never appealed. Why? These
proceedings were friendly – parties just wanted to know what their rights were.
Language used by Denning L.J. suggests that estoppel can apply where the parties intended to create a
legal relationship – however Canadian courts have not interpreted this case in that way. Also, this
language must be interpreted in the context of the High Trees facts – here there was a pre-existing legal
relationship.
RATIO DECIDENDI:
(1)
John Burrows Ltd. v. Subsurface Surveys Ltd.
[1968] S.C.R. 607, 68 D.L.R. (2d) 354
PROCEDURAL SETTING:
• Court of Appeal held for the Defendant – Promissory Estoppel does apply.
FACTS:
• The D purchased a business from the P for $127,000. Part of the price was secured by a promissory note
in the amount on $42,000. The note provided for monthly payments and contained an acceleration clause
permitting the creditor to claim the entire amount due if there was a default of more than 10 days on any
monthly payment.
• Subsurface was often late making payments to the P. However, the P never invoked the acceleration
clause that entitled him to demand repayment of the full amount.
• Following a disagreement between the parties, the P decided to invoke the acceleration clause when the
next payment was late.
• The D claims that the P is estopped from asserting its right because, by its past conduct, it had foregone
that right and led the D to believe that the P would not insist on asserting its strict legal right under their
existing agreement.
ISSUE(S):
• Can the P invoke the acceleration clause even though, in the past, it had not done so?
• Does the doctrine of Promissory Estoppel apply in this case?
HELD:
• Appeal allowed – Estoppel does not apply.
ANALYSIS:
• There was no clear and unambiguous promise that was intended to affect the existing legal relationship
between the parties – it was a mere friendly indulgence not to invoke the acceleration clause in the past.
• Is there a policy reason to apply strict rules? – If the doctrine were to be relaxed to allow conduct (and
not a clear and unambiguous promise) to ground and estoppel, creditors would always have to strictly
insist on their legal rights for fear that they would lose them – debtors would ultimately suffer for it.
RATIO DECIDENDI:
•
In order for estoppel to apply, the promise, made by the promisee with the intention of affecting the legal
relationship between the parties, must be clear and unambiguous.
D & C Builders Ltd. v. Rees
[1966] 2 Q.B. 617, [1965] 3 All E.R. 837 (C.A.)
PROCEDURAL SETTING:
• Trial judgment for the plaintiff – appealed by the D.
FACTS:
• The P is a small building company. The D owns a shop where he sells builder’s materials.
• In the spring of 1964, the D hired the Ps to do work at his premises. The Ps did the work and rendered
accounts in May and June which totaled £746. The D paid £250 on account. There was no dispute over
the work done, however the D did not pay the remaining balance.
• In August the Ps wrote to the D demanding payment. The D did not reply.
• In November, while the P was ill, his wife spoke to the D, who offered to pay £300 in settlement of the
outstanding balance.
• The P’s company was in dire financial straits, and would be bankrupt if they did not get the £300. The D
knew this. Therefore, the P decided to accept the payment and see what they could recover later.
• When the P went to collect the money, the D insisted that the words “in completion of the account” be
added to the receipt.
• After, the Ps were worried about their financial position, so they contacted their solicitor.
• On Nov. 28 the solicitor wrote to the D complaining that they were treating the £300 as a payment on
account. The Ps brought an action for the full amount of the outstanding balance.
• The trial judge held that there was no consideration for the new agreement – it was a case of agreeing to
take a lesser sum when a larger sum was due.
• The D appealed, claiming that there was accord and satisfaction (accord when the Ps agreed to accept
the lesser sum, and satisfaction when the cheque was honoured).
ISSUE(S):
• Where a merchant who is owed a sum of money is asked to take less, cash down, in fulfillment of that
debt because the debtor can not pay the full sum, is that settlement binding on the creditor?
HELD:
• Appeal dismissed – trial judgment for the plaintiff upheld.
ANALYSIS:
• Court holds that the principle in Foakes v. Beer applies – there was no consideration for the new
arrangement, therefore it is not legally binding.
• Can equity step in to help the debtor? Yes, however the creditor is barred from his legal rights only
where it would be inequitable for him to insist on them. Where there has been a true accord, under which
the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts on that accord by
paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist
on the balance.
• Here, the court finds that there is no true accord – the debtor held the creditor to ransom – they
threatened to break their contract (we’ll pay you 300 or nothing).
• Therefore, the court finds that there is no reason in law or equity why the creditor should not enforce the
full amount of the debt owed to him.
RATIO DECIDENDI:
•
Where there is no true accord and satisfaction for an agreement by a creditor to accept a lesser sum (for
example, for reasons of extortion), the creditor can not be estopped from insisting on its strict legal right
to claim the full balance owed.
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. (Case of waiver)
[1994] 2 S.C.R. 490
PROCEDURAL SETTING:
• C.A. held for SRB. Maritime appealed.
FACTS:
• On July 26, 1978, Maritime life (the appellant) issued an insurance policy on the life of Michael
Fikowski to Saskatchewan River Bungalows (the respondent).
• In 1984, ownership of the policy was transferred to Connie Fikowski, at which time she became the
beneficiary of the policy. SRB retained the responsibility of paying the annual premiums.
• The policy contained a provision stating that after the first premium has been paid, a grace period of 31
days would be implemented for subsequent payments. Any payment not made by the end of the grace
period would result in the termination of the policy.
• The policy could be reinstated within 3 years of the date of lapse upon written application to the
company if the insured (a) could establish the good health of the insured person, and (b) paid all unpaid
premiums plus interest, at a rate to be decided by the insurance company.
• In 1979, the policy lapsed when SRB failed to pay the annual premium within the grace period.
• The policy was reinstated in accordance with the terms of the policy. On this occasion, Maritime
accepted the application for reinstatement and did not require evidence of the health of the insured.
• In 1984, there was a mix-up with the annual payment by SRB – the payment was not made during the
grace period. Maritime offered to accept late payment of the premium if it was postmarked or received at
the office by September 8. SRB did not respond to the offer.
• In November, 1984 Maritime wrote to Connie Fikowski informing her that the annual payment had not
been made and that the policy had been suspended. They also sent a similar letter to SRB, which was not
received until in April, 1985 because SRB’s operation had been closed for the winter season and they
only checked their mail occasionally.
• SRB sent a replacement cheque 3 months later, which was refused by Maritime.
• The letter included the option to reinstate, pursuant to the conditions outlined in the policy, including
proof of the health of the insured person.
• SRB became aware that Mr. Fikowski (the insured) had become terminally ill and was no longer
insurable. He died in October, 1985. Maritime rejected SRB’s claim for benefits under the policy on the
ground that is was no longer in force.
• SRB argues that Maritime, through its conduct, waived its right to compel timely payment under the
policy. They also argue that none of Maritime’s acts were sufficient to retract its waiver of time, and that
the policy was still in force at the time of MR. Fikowski’s death.
ISSUE(S):
• Did Maritime, by its words or conduct, intend to waive its rights under the policy agreement?
HELD:
(1) Appeal allowed – SRB is not entitled to benefits under the insurance policy.
ANALYSIS:
• Waiver will only be found where the evidence demonstrates that the party waiving had (a) full
knowledge of rights, and (b) an unequivocal and conscious intention to abandon them – this is a
stringent test seeing as no consideration supports such waivers.
•
•
•
•
•
•
The court finds that the November letter sent to both Mrs. Fikowski and SRB constitutes an intention on
the part of Maritime to waive its rights to timely payment – the letter said that the policy was
“technically out of force” and “we will require immediate payment of $1,361.00 to pay the annual
premium.” – no mention of reinstatement or of the requirement to demonstrate Mr. Fikowski’s
insurability.
Was the waiver still in effect when SRB tendered the missing payment in July, 1985?
Waiver can be retracted if reasonable notice is given to the party in whose favour it operates. This
requirement of notice is designed to protect reliance by the person in whose favour waiver operates.
Therefore, where the party has not relied on the waiver, no notice is required.
Here, SRB did not rely on Maritime’s waiver. In fact, SRB did not send a replacement cheque until 3
months after receiving the letter that the policy had lapsed. Therefore, Maritime was not required to give
notice and its waiver was not in effect at the time when SRB sought to make payment. Maritime had no
obligation to accept the late payment.
Furthermore, Maritime was only required to reinstate the policy if SRB provided evidence of
insurability, which was not possible.
SRB is not entitled to any benefits under the policy.
RATIO DECIDENDI:
• Waiver of a party’s rights under a contract may be found where the party waiving (a) has full knowledge
of their rights, and (b) clearly and consciously intends to abandon them.
• A waiver may be retracted at any time. However, where the other party has relied on that waiver,
reasonable notice must be given.
International Knitwear Architects Inc. v. Kabob Investments Ltd.
(1995), 17 B.C.L.R. (3d) 125 (C.A.)
PROCEDURAL SETTING:
(1) C.A. held for landlord (Defendant).
FACTS:
• The plaintiff (tenant) leased a commercial premises from the defendant (landlord) for a 5 year term from
May 1, 1987 to April 30, 1992 for a basic rent of $2,290 per month, increasing yearly to $3,150.
• In May, 1989 the P was experiencing difficulties and the landlord agreed to reduce the rent to $1,000 per
month.
• On December 13, 1991, not having received the December 1st payment from the P, the D demanded
arrears, interest, and reinstated the full rental amount starting in January, 1992,
• The P sued for illegal distress (landlord changed the locks and seized the premises to compel payment),
and the landlord counterclaimed for rent and other moneys owing under the lease for the whole term.
• The P contends that the D’s notice was insufficient to reinstate its right before the end of the lease term
(3 months). In the alternative, they argue that the minimum sufficient notice would be for Feb. 1, 1992.
ISSUE(S):
• Can the defendant be estopped from asserting its legal right to demand the full rental price?
• Was the defendant’s notice of reinstatement of its right sufficiently “reasonable”?
HELD:
• The P is liable for the full rental amount for the remainder of the lease term starting Feb. 1, 1992.
ANALYSIS:
• The court held that the notice did not have to be written, and that from the time that the notice was
given, February 1, 2005 was a reasonable time to reinstate the D’s right to collect the full rent
(approximately 5 weeks).
•
•
Landlord is estopped from demanding the arrears for the full rental rate – precedent would be High
Trees – can only claim for future payments given reasonable notice.
Reliance – tenant conducted his affairs on the basis of the promise made by the landlord.
RATIO DECIDENDI:
• A promisee’s promise not to insist on its strict legal right arising out of a pre-existing legal relationship
may be revoked for the future given reasonable notice.
W.J. Allan & Co. v. El Nasr Export & Import Co.
[1972] 2 Q.B. 189, [1972] 2 All E.R. 127 (C.A.)
PROCEDURAL SETTING:
•
FACTS:
• The buyers (D), an Egyptian company trading in Tanzania, purchased 500 tons of coffee from the sellers
(P), a Kenyan coffee producer, under 2 separate contracts for 250 tons each at a set price in Kenyan
shillings.
• Payment was to be made by a confirmed irrevocable letter of credit – basically an account with a bank
that the seller could draw payment from by submitting an invoice.
• At the time, the Kenyan shilling and the English pound were equivalent.
• The buyers paid for the first shipment in English pounds – account was set up at an English bank. The
sellers made no complaint. They shipped the first 250 tons of coffee, as well as 29 tons in advance of the
second shipment.
• On November 16th, 1967, the sellers shipped the remaining 221 tons and on November 18th they
prepared an invoice for the shipment in pounds sterling. Before the documents were presented for
payment, it was announced that the pound would be devalued.
• The sellers prepared a new invoice which included an extra 165,530 Kenyan shillings to offset the
devaluation. The buyers refused to pay the increased amount.
• The sellers brought an action for the full amount of the invoice in Kenyan shillings.
ISSUE(S):
• Was there a variation of the terms of the original contract by the conduct of the parties?
• By previously accepting payment in pounds sterling, did the seller waive its right to demand payment in
Kenyan shillings?
HELD:
• Appeal allowed.
ANALYSIS:
• By opening an account in pounds sterling with the bank, the buyers were not conforming to the terms of
the agreement. By accepting payment in pounds sterling, the buyers agreed to irrevocably vary the terms
of the contract from payment in Kenyan shillings to pounds sterling.
• On the same token, had the Kenyan shilling devalued instead, the seller could not be allowed to pay a
lesser sum for the product.
• Is there consideration for this variation? – if yes, there is no need to turn to estoppel or waiver. Court
says that the contract was varied – so what was the consideration? Court doesn’t discuss it specifically –
but probably was some form of convenience.
• The sellers argue that they were entitled to make use of the payment in pounds sterling without
impairing their rights to assert the original terms of the contract in the future. The court disagrees.
OBITER DICTA:
•
•
•
The buyers also argue that they are able to succeed on the grounds of waiver – if there was no
irrevocable variation of the contract, the seller had at least waived its rights under the agreement, and it
had not given notice of revocation of that waiver.
The court agrees, but does not deal specifically with this issue in its analysis because it didn’t have to –
already found that the contract was varied.
Court holds that this is not a case of promissory estoppel because the promisee did not suffer a detriment
by relying on the waiver. However, there is some discussion in the case as to whether detriment is
actually required – or just that the promisee in some way acted differently then he would have were it
not for the promise. Denning L.J. says that detriment is not required for P.E.
RATIO DECIDENDI:
• Ratio concerns variation – variation of a contract requires fresh consideration for that variation.
• However, what is interesting about this case for the purposes of this section comes from dicta –
detriment is not required for estoppel – it is only necessary that the promisee in some way acted
differently then he would have were it not for the promise.
Societe Italo-Belge Pour le Commerce v. Palm and Vegetable Oils (Malaysia) – The Post Chaser
[1982] 1 All E.R. 19 (Q.B.)
Kievit (Supplier)
Societe Italo-Belge (PLAINTIFF, SELLERS)
Palm and Vegetable Oils (DEFENDANT, BUYER)
Conti (Sub-buyer)
Lewis & Peat, NOGA (sub sub-buyers)
PROCEDURAL SETTING:
• Appeal of a trial judgment finding for the defendant buyers.
FACTS:
• The Ps agreed to sell palm oil to the defendants, who in turn contracted to sell it to sub-buyers (Conti),
who would sell it to further buyers.
• The terms of the contract required a “declaration of ship to be made to buyers in writing as soon as
possible after vessel’s sailing”.
• The sellers did not give this declaration until more than a month after the ship had sailed
(non-conformity with the terms of the contract), but on receipt of the declaration Conti (sub-buyer) made
no complaint, however further sub-buyers did.
• On Jan. 20th, the buyers requested and received the tender documents for the shipment from the sellers
(by accepting the documents they are accepting the shipment). The sub-buyers (Conti) refused the
documents because of their lateness. Subsequently, the buyers (the Defendant) also refused the
documents (effectively rejecting receipt of the shipment). The sellers were forced to sell to other buyers
at a loss. They brought an action for damages.
• Trial judge held that the delay in making the declaration of ship gave the buyers (the D) the right to
reject the seller’s tender of documents.
ISSUE(S):
• Did the delay in making the declaration of ship give the buyers the right to reject the seller’s tender of
documents?
• Did the buyers waive their right to reject the seller’s tender documents? That is, did the buyer’s original
acceptance of the documents constitute an unequivocal representation that they did not intend to enforce
their strict legal rights to reject the seller’s tender documents?
HELD:
• Appeal dismissed. Decision for the buyers upheld.
ANALYSIS:
• The court holds that the letter of Jan. 20th was a sufficiently unequivocal representation as to for the
purposes of waiver – by requesting the documents as if the sale were fine, the buyers waived their rights
to refuse the documents because of lateness.
• However, the court turns to the question of whether there was sufficient reliance by the sellers on this
representation to give rise to estoppel.
• This begs the question as to whether conducting their affairs on the basis of the representation is
sufficient reliance, or whether by doing so he must have suffered some form of prejudice which renders
it inequitable for the representor to go back on his representation.
• Refers to W.J. Allan v. El Nasr – where Lord Denning considered that actual detriment may not be
required to give rise to estoppel.
• In this case, the court finds that the sellers did not act to their detriment (they did not expend any money
– the time period between the representation and the action was only a few hours). The sellers did,
however, conduct their affairs on the basis of the buyer’s representation – saying that detriment is not
required.
• Is this sufficient?
• Court holds that although detriment may not be required, it must be inequitable for the promisee to
revert to its original position in order to give rise to an estoppel. To establish inequity, it is not necessary
to show detriment – they are related.
• The court finds nothing to indicate that it would be inequitable to allow the buyers to enforce their legal
right.
• Because a necessary element of promissory estoppel is missing, the court holds for the buyers.
RATIO DECIDENDI:
• In order for promissory estoppel to apply, it must be inequitable for the promisee to insist on its strict
legal rights arising out of their existing legal relationship.
• Still remains unclear from this case whether detriment is also required.
COMMENTARY:
(1) In Edwards v. Harris-Intertype (Can.) Ltd. (1983 Ont. C.A.), the court reiterated the requirement that a
party must alter its position to its detriment before promissory estoppel can apply.
(2) Court agrees that detriment is not required – all you need to show is that the party claiming the estoppel
has conducted its affairs in reliance on the promise. This judge and the judge in El Nasr are both highly
respected in the area of equity.
(3) However, in this case to focus is on the final requirement (equity) – which is directly related to the
concept of detriment. It may be inequitable to allow a promisee to insist on its strict legal right because
the promisor has relied to his detriment on the representation.
(4) If you were to directly require detrimental reliance it would mean that there is consideration for the
variation of the contract (the detriment is the consideration) – the point of estoppel is to circumvent the
requirement of consideration. This is very circular.
Petridis v. Shabinsky
(1982), 132 D.L.R. (3d) 430 (Ont. H.C.)
PROCEDURAL SETTING:
•
FACTS:
• The P carried on a restaurant business in a shopping centre owned and managed by the defendant.
• The lease, which was to expire on June 30, 1981, gave the P (tenant) an option to renew, to be exercised
by December 31, 1980 (6 months prior to the termination of the lease).
• In order to renew, the P was required to give the landlord notice in writing 6 months prior to the expiry
of the lease. Renewal was to be on the same terms as the original lease, except that the renewal lease was
not to contain any right of further renewal and the rent, if not agreed, was to be fixed by an arbitrator.
• Towards the end of 1980, the P mentioned to the D the need to get together and discuss the renewal of
the lease. The D replied that he would see the P after the holidays.
• Negotiations took place (verbally and in writing) between Jan 28 and May 25th 1981. They were unable
to agree on the rent price, and neither party considered arbitration.
• On June 2, 1981, the D gave notice to the P that they would be required to vacate the premises at the end
of the lease (less than 30 days).
• The P, who believed that he had exercised his option, consulted a lawyer.
• On June 4th, 1982, the D accepted an offer to lease the premises from another company.
• The P has spent a lot of money on his restaurant business, and was unable to relocate on such short
notice.
• The P sued for an injunction and a declaration that the lease had validly been renewed.
ISSUE(S):
• By continuing to negotiate after the termination of the option, did the landlord implicitly agree not to
insist on his strict legal right arising out of their legal relationship (specifically, the right to terminate the
option on December 31, 1980).
• Who can invoke the doctrine of promissory estoppel?
HELD:
• For the plaintiff – court grants the requested injunction and issues a declaration that the lease is renewed
for the first 5 year term – lease rate to be fixed by arbitration.
ANALYSIS:
• Court holds that promissory estoppel can not apply because:
o The option (not the lease itself) was the legal relationship on which the estoppel was founded.
Because the option was no longer available at the time the representation was made (after Jan
31, 1980), there was no pre-existing legal relationship.
o Estoppel can not apply because neither party has suffered a detriment – uh oh. Courts have
already shown that detriment is not required, only reliance.
o Estoppel can only be used as a shield – here the court says that because the plaintiffs are the
initiators of a cause of action, estoppel is not available. This is problematic, however, because
the plaintiffs are actually claiming estoppel as a defensive shield – to stop the defendant from
insisting on his strict legal right.
• Can this case be characterized in terms of waiver? That is, by continuing to negotiate after the option
had expired, did the landlord waive his right to refuse proper exercise of the option by the plaintiff?
• Court says yes – the landlord clearly wanted to continue negotiations pursuant to the option – he wanted
the lease to continue and hoped to persuade the tenant to accept the proposed rent.
• Therefore, it would be inequitable to allow the landlord to terminate negotiations without giving
reasonable notice to the tenant.
•
•
•
•
Court says that in terms of waiver, not detriment is required.
Requiring the tenant to vacate on such short notice is not “reasonable”.
Therefore the court holds for the plaintiff and essentially forces renewal of the lease.
The landlord should have used a “without prejudice” letter to make it clear to the tenant that any
negotiations were not to be construed as being conducted pursuant to the option, which has expired.
Instead, they are entering into fresh negotiations with no rights or obligations stemming from the option.
RATIO DECIDENDI:
• The doctrine of promissory estoppel can only be invoked as a defensive shield and not as a cause of
action.
• Court seems to say that a plaintiff can not assert estoppel – but we will see that this is not true.
COMMENTARY:
• What about the requirement that the promise be “clear and unambiguous”? – here the courts imply a
promise from conduct. Also, see Saskatchewan River Bungalows where the S.C.C. did the same. “Clear
and unambiguous” would logically mean express, however the courts seem to have held otherwise.
Robichaud v. Caisse Populaire de Pokemouche Ltee.
(1990), 69 D.L.R. (4th) 589 (N.B.C.A.)
PROCEDURAL SETTING:
• Trial judge held for the defendant.
FACTS:
• Caisse obtained a judgment against the plaintiff for $3,787. The Royal Bank also obtained a judgment
against the plaintiff in the amount of approximately $10,000.
• As part of a debt consolidation negotiated by Acvo Financial, both the Royal Bank and Caisse agreed to
remove their judgments from the registry in exchange for payment of $1000 to each creditor.
• A cheque for $1000 was sent to Caisse – the board of directors refused to ratify the agreement, which
had been reached through its local manager, and the cheque was not cashed.
• The P sued to try and compel Caisse to accept the payment and to remove the judgment from the registry
as agreed (enforce the agreement).
• P frames its action in both accord and satisfaction and, in the alternative, promissory estoppel.
• Case is settled on the basis of accord and satisfaction.
ISSUE(S):
• Can promissory estoppel be invoked as grounds for an action (a sword)?
HELD:
• Appeal allowed – the defendant is estopped from retracting its promise.
ANALYSIS:
• Court held that there was good consideration for the agreement – the benefit to Caisse was the
immediate receipt of payment and the saving of time, effort and expense.
• There was a pre-existing legal relationship (the judgment) – in fact, all of the requirements for
promissory estoppel are met.
• Court finds that estoppel can be invoked where the party asserting the estoppel is using it as a defence to
the other party going back on its promise – this is what is happening here.
• The fact that it is the plaintiff claiming the estoppel is irrelevant.
• In the end, this case is decided on the basis of accord and satisfaction because there was good
consideration for the variation of the agreement – no need to go to estoppel.
•
However, court holds that estoppel can be invoked by a plaintiff – here it would be inequitable to not
allow the plaintiff to claim estoppel.
RATIO DECIDENDI:
• Promissory estoppel can form a cause of action where it is being invoked by a plaintiff as a defence to
the insistence by the defendant on a strict legal right.
Combe v. Combe
[1951] 2 K.B. 215, [1951] 1 All E.R. 767 (C.A.)
PROCEDURAL SETTING:
• Trial judgment for Mrs. Combe at trial on the basis of promissory estoppel.
FACTS:
• Mr. and Mrs. Combe were married in 1915 but separated in 1939. In 1943 their divorce was granted.
• Feb. 9, 1943 – wife’s solicitor wrote to the husband’s solicitor saying “with regard to permanent
maintenance, we understand that your client is prepared to make an allowance of £100 per year, free of
income tax.” The husband’s solicitor confirmed, and on August 11, the decree was made absolute.
• The wife’s solicitor wrote for the first installment, and asked that the yearly amount be paid in 4
installments over the year.
• The husband replied that he did not want to pay in advance. In fact, he did not make any payments.
• The wife made no official application to the divorce court for maintenance (in fact her income was much
higher than her ex-husband’s).
• In 1950, the wife brought an action claiming arrears for 6 ¾ years (£675).
• Trial judge found that there was no consideration for the promise, but held that it was nonetheless
enforceable given the principle in High Trees.
• The husband appealed.
ISSUE(S):
• Can promissory estoppel be used as a cause of action?
HELD:
• Appeal allowed – estoppel does not apply.
ANALYSIS:
• Denning L.J. finds that estoppel does not apply here – conditions are not met – there is no pre-existing
legal relationship at the time that the promise was made (but they were still married – this is arguable).
• If detriment is required, this condition is also arguably not met –the wife made more money than the
husband – she did not rely to her detriment on the promise made by Mr. Combe.
• Also, estoppel can not apply because it can only be raised as a defence – here the wife is using estoppel
as her primary cause of action – suing on a promise, not defending herself.
• Don’t stretch the doctrine too far – does not overthrow the need for consideration in the formation of
legal agreements.
• This case is really a question of whether or not there was good consideration for the promise.
• Court holds that there was no consideration and therefore the agreement is not legally enforceable.
RATIO DECIDENDI:
• Promissory estoppel can only be used as a shield and not as a sword.
Waltons Stores (Interstate) Pty. Ltd. v Maher
(1988), 62 A.L.J.R. 110 (H.C.A.)
PROCEDURAL SETTING:
• Appeal of a trial decision finding for the plaintiff on the basis of common law estoppel by representation
– remedy of damages granted.
• Court of Appeal dismissed the appeal and affirmed the trial judgment.
• Appeal goes to the high court.
FACTS:
• Waltons Stores (the appellant) negotiated with the Mahers (the respondents) for a lease of land owned by
the Mahers.
• Waltons proposed a demolition, and replacement in accordance with their specifications, of an existing
building on the land. The target date for occupation created a need for a sense of urgency.
• The Maher’s solicitor told the Waltons’ solicitor that the Mahers could not complete construction before
the target date, unless demolition began immediately.
• Some proposed amendments to the lease remained to be agreed – Walton’s sent a letter to the Mahers
stating:
o “You should note that we have not yet obtained our client’s specific instructions to each
amendment requested, but we believe that the approval will be forthcoming. We shall let you
know tomorrow if any amendments are not agreed to”
• The Mahers were not notified of any objections
• Several weeks of silence –
o The Mahers went ahead and demolished the building during this time
o Waltons was aware that the Mahers were undertaking the demolition.
• Waltons returns the unsigned lease and said that they would not proceed.
• Appellant wants a judicial declaration that a contract existed – specific performance (force the
respondent to sign the lease) or damages (for their actual financial loss) in the alternative.
ISSUE(S):
• Is Waltons estopped from denying the existence of the lease?
• What kind of estoppel applies – estoppel by representation or promissory estoppel?
HELD:
• Appeal dismissed – promissory estoppel applies – damages granted.
ANALYSIS:
• Can’t treat this as common law estoppel – not a representation of existing fact – here the representation
is as to future conduct.
• Is this a proper case of promissory estoppel?
o Are the conditions met?
o No pre-existing legal relationship at the time that the promise was made. Court gets
around this by re-defining the requirements for promissory estoppel.
o Instead, the court holds that PE requires:
(1) The plaintiff assumed or expected that a legal relationship existed between the
plaintiff and the defendant or that a particular legal relationship will exist
between them, and, in the latter case, that the defendant is not free to withdraw
from the expected legal relationship.
(2) The defendant has induced the plaintiff to adopt that assumption or expectation.
(3) The plaintiff acts or abstains from acting in reliance on the assumption or
expectation.
(4) The defendant knew or intended him to do so.
(5) The plaintiff’s action or inaction will occasion detriment if the assumption or
expectation is not fulfilled, and
•
•
•
•
(6) The defendant has failed to act to avoid that detriment whether by fulfilling the
assumption or expectation or otherwise.
Court says that all of these elements are fulfilled by the facts of this case.
Also, there is evidence of unconscionable behaviour on the part of Waltons – Waltons knew that the
Mahers were going ahead with the demolition and did nothing to stop then when they knew that they
were not going to go ahead with the promise.
This is a very radical expansion of the doctrine.
Here, estoppel is being invoked by the plaintiff to create new rights – contrary to the sword/shield
maxim. Court here is being extremely revolutionary – taking a broader policy-based view of what the
doctrine is about – looking at the underlying policy of fairness.
RATIO DECIDENDI:
• The requirements for promissory estoppel in Australia are premised upon unconscionable conduct on the
part of a promisor and do not require a pre-existing legal relationship.
M.(N) v. A(A.T.)
(2003), 13 B.C.L.R. (4th) 73 (B.C.C.A.)
PROCEDURAL SETTING:
• Trial judge held for M – dismissed A’s claim to have a promise made to her by M upheld.
• Specifically, the trial judge held that promissory estoppel did not apply because the required pre-existing
legal relationship was lacking.
FACTS:
• Mr. M. promised to pay the balance outstanding on the mortgage of Ms. A’s home in England if she
would come to live with him in Canada with a view to marriage.
• In reliance on that promise, Ms. A resigned her permanent job and moved to Vancouver in 1993.
• The relationship was stormy, partly because Mr. M. did not pay off the mortgage as promised.
• He did, however, loan her $100,000 on a promissory note dated April 6, 1994. Ms. A applied these funds
toward her mortgage.
• About a week later, Mr. M evicted Ms. A from his home. She has not been able to find permanent
employment since, either in England or in Vancouver.
ISSUE(S):
• Did the trial judge err in refusing to enforce the promise on which Ms. A relied to her detriment?
• Should Canadian law take promissory estoppel in a similar direction to Australia and the U.S.?
HELD:
• Appeal dismissed – trial judgment upheld.
ANALYSIS:
• Court is being asked by the appellant to extend the doctrine of promissory estoppel in a similar manner
as has been done in Australia, New Zealand and the U.S.
• Respondent argues that this is not a case of promissory estoppel but should be resolved on the basis of
intention to create legal relations – asserts that there is no evidence to suggest that the respondent
intended to be legally bound by the promise.
• Court holds that even the requirements from Waltons are not met (specifically, the assumption or
expectation of a legal relationship).
• Court finds not evidence that the law is slowly moving toward a more generous approach to estoppel (as
said by Waddams).
RATIO DECIDENDI:
•
The suggestion that Canadian law should move toward adopting a more generous approach to
promissory estoppel as has been adopted in Australia and the U.S. has been rejected by the B.C. Court of
Appeal.
COMMENTARY:
• U.S. 2nd Restatement of Contracts s. 90 – A promise which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee or a third person and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The
remedy granted for breach may be limited as justice requires.
REQUIREMENT OF WRITING
•
•
Statute of Frauds (1677) – English parliament imposes a requirement of writing for certain types of
contracts.
This meant that some promises might not be enforceable even if they were supported beyond all
question by consideration.
STATUTE OF FRAUDS (1667)
• Received from British Law.
• Differs from province to province – some have re-enacted it provincially. In Alberta, we still have the
same Statute of Frauds as received from England (no Alberta Statute of Frauds).
• Manitoba has repealed their statute of frauds.
• S. 4 First stipulated a requirement of writing for certain types of agreements, such as:
o A guarantee (guaranteeing of debts).
o Pre-nuptial agreements (agreements made upon consideration of marriage).
o Any contract for the sale of land, tenements or hereditaments (most litigation takes place here).
o Any agreement or contract to be performed within 1 year (this provision has been repealed in
England, BC – its repeal has also been recommended in Alberta).
• Also, writing is required for any contract for the sale of any goods of the value of $50 or upwards.
What is the purpose of the requirement of writing?
• 4 commonly listed factors that lea to the enactment of the Statute of Frauds include:
(1) Parties to an action, their spouses, and persons with an interest in the action were not competent
to testify.
(2) Trial by jury was in a state of transaction and it was still possible for jurors to decide cases on
the basis of personal knowledge.
(3) Perjury and subornation were rife.
(4) Citizens were extremely litigious.
• Today, these considerations largely do not exist - so, why is the requirement of writing important today?
What are the effects of non-compliance with the Statute?
• Non-compliance with the Statute renders the contract unenforceable – prevents a plaintiff from bringing
a legal action without affecting the essential validity of the contract (mere procedural invalidity).
• A contract that do not comply with the statute still have legal significance in several ways:
o It may be used as a defence (which does not constitute bringing an action).
o It may be the basis for an action in equity (part performance).
o It can be consideration for a new contract or for a negotiable instrument.
What is required?
• Agreement must be put to writing or there must be a note or memorandum evidencing the agreement.
•
•
•
•
No particular required form for the note or memorandum (can be scribbled on a napkin) – as long as it
sufficiently evidences the existence of a contract it will suffice.
The note or memorandum must contain all of the essential terms (minimally this must include the
parties, property and the price).
Agreement muse be signed by the party to be charged (the defendant to the action).
o Initials have been held to be sufficient.
o It is not necessary that the signature or initials appear at the end of the document.
o However, the signature must have been placed with the intention of authenticating the
document.
o Signature must be that of a lawfully authorized agent.
Joined agreements (or documents that outline further terms to the note or memorandum) will be held to
be binding under the Statute where it is shown that there is some clear connection between the
documents, regardless of whether or not those adjoining documents are signed.
PART PERFORMANCE
• Equitable doctrine
• In the event that the requirement of writing is not met, nonetheless where one party can establish that
there was part performance of that contract, the court may enforce the terms of that contract.
• Comes into play where the court is convinced that there has been part performance of the contract and
that it would therefore be inequitable to deny the contract.
• Courts have developed certain criteria that must obtain in order for the doctrine to kick in.
• Nature of the doctrine is to prevent one party from fraudulently taking advantage of the other.
Where… a party to a contract unenforceable under the Statute of Frauds stood by while the other acted to his
detriment in performance of his own contractual obligations, the first party will be precluded by the Courts from
claiming exoneration, on the ground that the contract was unenforceable, from performance of his reciprocal
obligations: and the court will, if required, decree specific performance on the contract.
Dynamic Transport Ltd. v. OK Detailing Ltd.
[1978] 2 S.C.R. 1072, 6 Alta. L.R. (2d) 156
1.42 acres
4 acres
Warehouse belonging to OK Detailing.
PROCEDURAL SETTING:
• Trial judge held for P – order of specific performance or damages in lieu of.
• Alta. C.A. reversed the decision for lack of certainty in the land description.
FACTS:
• Concerns an agreement for the sale of land – parcel of land in West Edmonton – 5.4 acres.
• Dynamic wanted to buy 3 acres for $30,000.
• Counter offer by OK Detailing of 4 acres, “more or less”, for $53,000.
• Offer and acceptance form was used to accept the second offer.
• D refused to complete the transaction.
• D claims that the contract is unenforceable because the terms are too vague and uncertain (specifically,
the description of the land etc.)
• P tries to get a court order to have the deal go through (specific performance).
ISSUE(S):
• Is the description of the land contained in the agreement sufficiently certain to satisfy the Statute of
Frauds?
HELD:
• Appeal allowed – trial judgment restored.
ANALYSIS:
• Court held that the deal was precise enough to satisfy the Statute of Frauds.
• What about the warehouse? Boundary line seemed to go right through the warehouse that the seller used.
Court took into account the surrounding circumstances in that the vendor wanted to use the warehouse
after the sale of the land.
• Court found that the vendor “later” came up with the argument that the obligations of the sale were
unclear.
• Therefore, the vendor’s arguments that concerned the statute of frauds and uncertainty of terms would
fail - at the time of the contract the seller simply didn’t want to sell (land worth had increased).
• Courts can use parole evidence if it helps to make the intentions of the terms more clear.
RATIO:
• In determining the meaning of the terms of the note or memorandum required by the Statute of Frauds,
the court may allow parol (oral) evidence to be introduced.
COMMENTARY:
• Parol evidence rule - if there is evidence in writing (such as a signed contract) the terms of the contract
cannot be altered by evidence of oral (parol) agreements purporting to change, explain or contradict the
written document.
Deglman v. Guaranty Trust
[1954] S.C.R. 725, [1954] 3 D.L.R. 785
PROCEDURAL SETTING:
• Trial court and Ont. C.A. both held for the P
FACTS:
• P’s aunt owned a number of houses / units in a complex (Unit 548, 550).
• P lived with his aunt in Montreal for a period of 6 months while he went to school.
• Aunt agreed that if the P did certain things while he lived there (such as “be good to her”, perform
certain chores, jobs, help with the other buildings and tenants, etc.) that she would provide him with 548
when she died (looks like a unilateral contract).
• P did all of the things that she asked.
• At no time did the P live in Unit 548 (the unit in question).
• Aunt is now deceased – P claims that they had a contract and therefore he is now entitled to 548.
• Nothing in writing – non-compliance with the statute of frauds.
• P argues that there is part performance and therefore it would be inequitable to deny performance of the
contract.
ISSUE(S):
• Can the equitable doctrine of part performance be used to get around the requirement of writing in this
case?
HELD:
• Appeal dismissed – however the court compensates the P for his work done for the aunt.
ANALYSIS:
• SCC looks at Maddison v. Alderson (leading case) – similar facts but must stronger in favour of
applying part performance.
• Requirements for part performance stem from Madison (unequivocal referability to the alleged contract).
The acts must be directly referable to the lands in question.
• Here the requirements are not met.
• Still, court compensates the P based on quantum meruit – he gets compensated monetarily for the work
he did.
• This is somewhat contradictory.
RATIO:
• In order for the equitable doctrine of part performance to apply, the acts proved in evidence must be
unequivocally referable to the alleged contract.
Thompson v. Guaranty Trusts
[1974] S.C.R. 1023, [1973] 6 W.W.R. 746, 39 D.L.R. (3d) 408
PROCEDURAL SETTING:
• Trial court held for the P – there was sufficient performance to enforce a contract.
• Court of Appeal said that the criteria for part performance were not met – appeal allowed.
FACTS:
• The P (Gus) is suing for specific performance of an alleged agreement between him and the D - Dick
(now deceased).
• Agreement was that if the P stayed and worked on the farm as a hired hand, Dick would will him his
land and everything on it (both realty and personalty).
• Gus stayed for 48 years – same promise was reiterated on several subsequent occasions.
• The D was crippled when he fell off a horse – the P took over the complete operation of the farm. He
also did the cooking, cleaning, took care of Dick, diversified the business etc.
• In 1942, Dick had a will drawn up but it was never found (it had been stolen).
• Later, when Dick is in the hospital, he wants to clarify his testamentary wishes – he calls on a friend (Ed
– a notary – not a lawyer) to draft a will leaving everything go Gus. Ed draws up and has Dick sign
power of attorney paper (turns over decision-making authority but only operated during Dick’s lifetime
– only temporary – does not accomplish what Dick wanted). Ed did not explain this situation to Dick.
• Court concludes that Dick probably thought he was signing a will and that he did not appreciate the
nature of the actual document.
• Dick then died.
• Gus argues that there was sufficient part performance to justify an order for specific performance of the
agreement, notwithstanding that the agreement was not reduced to writing.
• Court finds that there is an oral agreement – question is whether or not it is enforceable in law.
ISSUE(S):
• The requirement of writing under s. 4 of the statute of Frauds not being satisfied, is there sufficient part
performance of the agreement in order to justify an award of specific performance?
HELD:
• Appeal allowed – order for specific performance granted.
ANALYSIS:
•
•
•
•
Court distinguishes these facts from Deglman – in that case the acts done were more likely attributable
to a good aunt/nephew relationship than to an agreement to be willed property – acts done were not
directly referable to the actual unit that he was supposed to get.
However, the court still upholds the same test for part performance from Deglman.
In this case, the acts done were acts done in furtherance of the original oral contract – “every act of
performance were acts which were unequivocally referable to a contract in reference to the very lands in
question.
Test for part performance is quite strict.
RATIO:
• The equitable doctrine of part performance requires unequivocal referability to the alleged contract –
acts done by the claimant can’t be ambiguous – must be performed for the single purpose of fulfilling
the terms of the oral contract.
Lensen v. Lensen
[1984] 6 W.W.R. 673, 14 D.L.R. (4th) 611, 35 Sask. R. 48 (C.A.)
PROCEDURAL SETTING:
• Trial judge dismissed the P’s action – the oral contract is not enforceable because (a) it does not comply
with the statute of frauds, and (b) there are not sufficient acts to invoke the equitable doctrine of part
performance.
FACTS:
• The P and his wife lived with his parents on the family farm.
• When the parent’s family moved – the P alleged that the father had agreed to…
ISSUE(S):
• Do the P’s acts of part performance take the alleged contract out of s. 4 of the Statute of Frauds?
• In order for part performance to apply, must the acts done by the claimant prove the precise terms of the
alleged contract or only that there is a contract?
HELD:
• Appeal allowed.
ANALYSIS:
• 2 theories of part performance:
o Court says that the traditional theory that underlies the doctrine is the “alternative evidence”
theory – views the purpose of the writing requirement as evidentiary only – therefore part
performance is a way of getting alternative types of evidence as to the terms of the contract
admitted in court.
o Second theory (equitable theory) stipulates that part performance raises an equity in the P’s
favour that would make it unjust to deny performance of the contract. The point of this theory is
to ensure that the promisor does not behave unconscionably. Judicial approach here it to look at
all of the circumstances – more latitude – acts done must be referable to a contract.
• Trial court relied upon theory #1
• Court of appeal wants to rely on theory 2 and find for the P’s son.
• Like Deglman – family relationship, unclear terms.
• Usually unspecific terms would be fatal to the P’s action – however using the second theory (which has
been “gaining momentum” in several courts including the Sask. C.A. and the H.L.) equity may step in to
help the P.
•
•
Here, court holds for the P – the actions proved were referable to a contract in relation to some land
owned by his father and therefore the test for part performance is met.
Combination of specific performance and compensation awarded.
RATIO:
• In order for the doctrine of part performance to apply, the acts of the claimant proved in evidence must
be referable to a contract. That is, the acts must be unequivocably referable to some contract fore the
land. The acts must prove the existence of some contract, and be consistent with the alleged contract.
COMMENTARY:
• Note that in Canada it is still unclear which view the courts will take – neither view has been applied
consistently.
• From Fridman – no clear, undisputed authority has settled whether the proper attitude for the courts to
adopt is that the acts relied upon must point to the specific contract alleged, or some contract of that
type, or need only establish some sort of contract between the parties, therefore permitting the admission
of parol evidence to supply the missing information as to the contract and its terms.
PRIVITY OF CONTRACT
•
•
•
•
Doctrine of privity applies to prevent 2 types of people from enforcing a contract:
(1) Strangers to a contract – As a general rule a contract does not confer rights or obligations upon
any person who is not party to the contract. Therefore, a stranger can not sue or be sued under a
contract - this is relatively uncontroversial in Canadian law.
(2) Third party beneficiaries (persons identified and intended by the promisor and promisee to
receive all or part of the benefit of the agreed upon performance). This aspect of the doctrine is
more controversial.
Why is this the general rule?
o In order for rights and liabilities to be enforced in the courts they should somehow depend on
the parties’ consent – a third party may not have consented or may not know of the existence of
the contract – makes not sense to expose them to liability or to grant them rights.
o Also, privity is intimately related to the principle of consideration – a stranger to a contract has
not given consideration.
Potential exception: Agency relationships with a third party – where a party to the contract is agent or
trustee for the third party.
History of the doctrine: Some writers claim that this doctrine goes back to 16th century English common
law. However, others argue that it has only become firmly established in the 20th century – this accounts
for much of the conflict in the early case law.
Provender v. Wood
(1630), Het. 30, 124 E.R. 318
FACTS:
• One father (father of the bride) promised to another father (father of the groom) that if their children
married he would pay him £20. The father of the groom agreed and intended that, if they did marry, he
would give the money to his son.
• The two children were married – the father did not pay.
• Son (groom) sued the father of the bride.
• D (father of the bride) argued that the only party with an interest to bring this action in court was the
father of the groom and not the son-in-law.
ISSUE:
•
Can a son recover damages for a breach of a promise made to his father? That is, in this case is a
promise made to the father the same as a promise made to the son?
ANALYSIS:
• Court doesn’t give a lot of reasoning for its decision – seems obvious to them that the son-in-law should
be able to sue for breach of a promise made to his father.
• Decision rationalized on the basis of the close relationship between the son and father.
• Can we find consideration flowing from the promisee (son) to the promisor (father-in-law)?
o At the time, this may have taken the form of the wife’s dowry – flowing from her father to her
new husband.
• Court does not treat the P as a stranger to the original promise, even though he is a third party
beneficiary. Court says that a duty to one is like a duty to the other.
HELD:
• For the plaintiff (son-in-law)
RATIO:
• Where there is a sufficiently proximate relationship between the promisee and a third party beneficiary,
that third party may sue for breach of a contract made between a promisee and promisor.
• Requires (a) benefit conferred on the third party, and (b) proximity between the third party and the
promisee.
COMMENTARY:
• Wasn’t a clear distinction between tort and contract law at the time – court feels that the promisor owes
a “duty” to both the promisee and his son.
• No specification as to what a sufficiently proximate relationship is.
Tweddle v. Atkinson
(1861), 1 B. & S. 393, 121 E.R. 762 (Q.B.)
PROCEDURAL SETTING:
• Trial decision.
FACTS:
• Similar situation as above, but here each father orally agreed to pay money to the groom upon the
marriage of their children.
• Uneven contribution – one to pay £100 and the other to pay £200.
• Written agreement made after the marriage was intended to give the groom the right to sue to enforce
either promise.
• Both fathers passed away - by the time the action was brought, neither amount was paid.
ISSUE(S):
• Can the P (a third party beneficiary) sue to enforce an agreement made by his deceased father-in-law and
his father?
HELD:
•
For the D – court reverses Provender v. Wood.
ANALYSIS:
• Since Provender v. Wood:
o Contract law and tort law had become separate areas.
o Also, the doctrine of consideration had become much more fundamentally important in contract.
•
•
•
•
Consideration must move from promisee to promisor, not from a third party to the promisor.
Court holds that the son-in-law is not a total stranger to the consideration – he gives “love and affection”
in return for the money. However, this is not considered to be sufficient consideration for the promise.
Agency argument - father was acting as agent for his son at the time of the promise. Therefore the son,
as the real principal behind this deal, should be able to sue.
Court doesn’t agree – this means that the son-in-law could be liable for a breach of that contract with the
father of the bride – works both ways. Seeing as the parties did not intend this, accepting the agency
argument would be absurd.
RATIO:
• Where a third party is a stranger to the consideration given for an agreement, that third party will not be
allowed to sue on an agreement made between a promisee and promisor.
Dunlop Pneumatic Tyre Co. v. Selfridge & Co.
[1915] A.C. 847 (H.L.)
Dunlop (manufacturers) (P)
Dew & Co. (wholesalers)
Selfridge (retailers) (D)
Customers
PROCEDURAL SETTING:
• Trial judge found for Dunlop – granted damages and an injunction to stop the D from selling tires at a
lower price than stipulated by the P.
• C.A. reversed.
FACTS:
• Dunlop (P) manufactures tires – they sold their tires to Dew and Company (wholesalers) on the terms
that Dew would not sell the tires below Dunlop’s list prices, except to customers legitimately engaged in
the motor trade. Dew could sell to those customers at 10% below list price if, in turn, they would agree
with Dew not to sell below the appellant’s list prices.
• Dew sold tires to Selfridge (the defendant), who sold tires to 2 customers at prices below those specified
by the appellants.
• P sues Selfridge – does not have a direct contract with Selfridge – only indirect relationship.
• P wants £5 damages for each tire sold below list price, and an injunction precluding the D from making
future sales at below list price.
ISSUE(S):
• Can Dunlop sue to enforce the agreement made between Dew and Selfridge?
HELD:
•
For the D – 3rd party can not sue to enforce provisions in a contract to which it is not privy.
ANALYSIS:
• 3 most important principles in the doctrine of privity:
(1) Privity - Only a party to a contract can sue or be sued on that contract – court does not
recognize the right of a third party in contract law.
(2) Consideration - If contract is not under seal, in order to enforce that contract consideration must
•
•
•
•
•
•
flow to the promisor.
(3) Agency exception - A principle not named in a contract may sue on that contract where a party
to the contract is acting as agent for that third party. However, that third party must have given
consideration either personally or through his agent.
No contract between the P and the D – intermediary (Dew)
P did give consideration to Dew – selling them the tires for money. This transaction was accompanied
by certain terms concerning the further sale of the tires.
Court held that Dew could sell the tires at whatever price they wanted – they now own them – they can
ignore the P’s request.
Also, the P was not privy to any agreement made between Dew and the D.
Was Dew acting as the P’s agent? – Court was divided on this issue – however the majority held that
there was no agency relationship between the P and Dew. It was not necessary to deal with this
argument, however, because the court may have rendered their decision based on consideration. This is
really dicta.
No privity, no consideration, questionable whether there was an agency relationship.
RATIO:
• See 3 most important principles in the doctrine of privity – above.
COMMENTARY:
• Price fixing is illegal in Canada under statute.
THIRD PARTY BENEFICIARIES
Ways in which a Third Party may acquire the benefit (exceptions to the rule of privity):
(1) Statute – for example: Insurance legislation
(2) Specific Performance – for example: Beswick Case.
(3) Trust
(4) Agency
(5) Employment – for example: London Drugs Case.
(6) Subrogation
Beswick v. Beswick (C.A.)
[1966] 1 Ch. 538, [1966] 3 All E.R. 1 (C.A.)
PROCEDURAL SETTING:
• Widow’s action dismissed at trial (trial judge held for the D).
FACTS:
• Mr. Beswick was a coal merchant - his nephew worked with him and was interested in taking over the
business.
• When Mr. Beswick was injured an unable to work, papers were drawn up transferring the business to the
nephew. The agreement stipulated that Mr. Beswick would remain a consultant to the company at a set
weekly wage until his death – at which time an amount of £5 per week would be paid to his widow.
• After Mr. Beswick’s death, the nephew made 1 payment to the widow.
• After approximately 1 year, the widow brought an action to recover the amount owing in arrears as well
as to enforce the agreement made between Mr. Beswick and the nephew.
• Widow is not privy to the contract but is only a third party beneficiary.
•
Under the general rule of privity, her claim would be dismissed.
ISSUE(S):
• Does the doctrine of privity bar a third party beneficiary from suing on an agreement made between two
other parties? If so, what is the appropriate remedy?
HELD:
• Appeal allowed – decree of specific performance issued.
ANALYSIS:
• Court held that under the general rule of privity the result of this case would be unjust – looks for a way
to get around this.
• Seeing as lack of privity makes a contract procedurally void, Lord Denning wants to find a procedural
way to enforce such a contract.
• Lord Denning holds that a third party who has a legitimate interest in a contract made for their benefit
should be allowed to succeed where they sue in the name of one of the parties to the contract, or by
adding both parties as defendants (that is, in their personal capacity).
• In this case, the widow is executrix of Mr. Beswick’s will.
• Here, the widow’s interest is legitimate in that the weekly payment was probably what she planned to
live off of.
• Other judges don’t go as far as Lord Denning – they say that she can sue in the name of her deceased
husband but not in her personal capacity.
RATIO:
• A third party may be able to sue on a contract and obtain a remedy of specific performance where that
third party has a legitimate interest in that contract and sues in the name of one of the parties to the
contract.
Beswick v. Beswick (H.L.)
[1968] A.C. 58, [1967] 2 All E.R. 1197 (H.L.)
HELD:
• Appeal dismissed – Court of Appeal judgment stands.
ANALYSIS:
• Court agreed with the majority of the lower court (but not Lord Denning) and reinforced the exception
that a third party may successfully sue in the name of one of the parties to the contract.
• Also, court said that if they buy into the D’s argument that only nominal damages are called for, then the
D again gets a huge benefit – not only did he get the business, but he got away with paying only a few
pounds to the widow – this would be grossly unfair. Therefore the court takes equitable considerations
into account – it would be a breach of conscience if the nephew were able to escape the promise he had
made to Mr. Beswick just because of a technicality.
• Therefore, the appropriate equitable remedy is specific performance.
RATIO:
• A third party beneficiary may not sue on a contract to which they are not privy. However, a third party
beneficiary may sue to enforce a contract to which they are not privy where (a) they have a legitimate
interest in that contract and (b) sue in the name of one of the parties to the contract.
COMMENTARY:
• Case is still good law in Canada – argument of Lord Denning has not bee accepted but it may still be
argued where it is to your client’s benefit.
•
However, in England this case is no longer useful – there have been statutory enactments (1999) that
protect third party beneficiaries – Doctrine of privity has been significantly widdled down.
McCannell v. Mabee McLaren Motors
Style of cause.
•
•
•
•
Agency – principle (A) engages an agent (B) to negotiate with 3rd party (C).
(B) signs the contract, but the courts will treat the contract as being between (A) and (C).
When A’s existence is known to C, and the agent (B) has requisite authority to enter into that type of
contract on behalf of A, there will be no problem allowing (C) to sue (A) or (A) to sue (C).
However, problems may arise where:
o Agent enters into a type of contract for which they did not have the requisite authority.
However, here C may be able to sue B (but not A).
PROCEDURAL SETTING:
• Trial judge held for P.
• B.C.C.A. upheld the trial judgment.
FACTS:
• Studebaker are manufacturers of cars – distribute and sell through dealers. Dealers must sign a contract
relating to the specific territory in which they may sell the cars.
• Clause 20 – dealer can only deal or sell cars to persons residing in their territory. If they sell to a person
from another territory, the dealer must pay the dealer in that other territory half of the profit of the sale.
• D is a dealer – sells a car to a person that lives in the P’s territory.
• The P wants his half of the profit as per clause 20. D refused to pay.
• D’s main argument is lack of privity between P and D – each have contacts with Studebaker but not with
each other.
• P argues agency relationship – Studebaker was merely acting as agent for all of the dealers involved in
the same type of territory agreement.
ISSUE(S):
• To what extent can a contract between a manufacturer and a dealer be enforced by a third party who has
entered into the same contract with the manufacturer?
• Is there an agency relationship?
HELD:
• Appeal dismissed – trial judgment upheld.
ANALYSIS:
• Test for agency – court looks at actions and intention of the parties – no specific language necessary.
• Here, court held that Studebaker was acting as agent for each dealer (intermediary) – this is evidence by
clause 20 – construed by the courts as a “mutual” agreement between all dealers.
• Even though Studebaker never called itself “agent” specifically – court finds that it was the intention of
the parties that Studebaker was acting as agent.
• Is there consideration given from the P to the D (as opposed to between either dealer and Studebaker)? yes, takes the form of the understanding that all dealers will be equally subject to the same terms of
clause 20 – all receive the same benefit and take on the same responsibilities.
RATIO:
• Where a third party is acting as agent for a party to a contract, that party is held to be privy to the
agreement if:
•
(a) the party to the contract with whom the agent negotiates is aware that the agent is acting as agent
for another party, and
(b) the contract into which the agent enters on behalf of one of the parties is one for which the agent
has been given signing authority.
There must be consideration flowing between the parties involved in the action (not just between each
party and the agent).
New Zealand Shipping Co.v. A.M. Satterthwaite & Co. (The Eurymedon)
Style of cause.
PROCEDURAL SETTING:
•
FACTS:
• Ajax Machine Tool Company are English manufacturers of a custom-made drill to be shipped to a buyer
in New Zealand. First the drill must pass through several hands:
o Manufacturer
o Shipper
o Unloader/Stevedore (D)
o Buyer/consignee (P).
• Bill of lading - evidences ownership – handing over the bill when it reaches the buyer transfers
ownership. Also: describes the freight, terms of the agreement etc.
• Drill was shipped but was damaged while it was being unloaded.
• P sues for 880 – the amount that it would cost to fix the drill.
ISSUE(S):
• Can the D Stevedore take advantage of the terms of the bill of lading (an agreement to which it is not
party)?
• Was there consideration between the P and D (if there is an agreement, is it enforceable?).
HELD:
• For the D – the Stevedore can take advantage of the limitation clauses contained in the bill of lading.
ANALYSIS:
• Did the Stevedore provide consideration? – yes, the performance of the services contemplated under the
agreement (unloading the drill) – a la Carbolic Smokeball.
• Scrutton (discussed in the analysis) – distinguished on the facts.
• Dissent – minority not convinced that the criteria set out in Scrutton are actually met by the facts of this
particular case.
• Corporate relationship of the parties (one owned by the another) – this is important –this is what allows
the court to find an agency relationship.
RATIO:
•
FURTHER EXCEPTIONS TO THE DOCTRINE OF PRIVITY
• SCC has made inroads in terms of exceptions to the doctrine of privity.
• Employment – see London Drugs Case – this can arise because of an overlap between tort and contract
– in some cases courts have held that tort liability can add to obligations stemming from a contract (for
example, where one party is negligent in performing the terms of the contract and causes injury to the
other party in the process).
•
•
•
One way to get around tort action is to include an exemption or limitation clause in a contract.
Originally limitation clauses were introduced as a mechanism to foresee and limit potential liability –
but courts didn’t like them – tortfeasors could insulate themselves from liability in situations where there
is really no negotiation (for example, going in for surgery, parking in a pay parking lot etc.). Courts
tended therefore to read these clauses very narrowly. As a result, the courts often nullified them all
together where they are broadly worded.
To get around these clauses, courts have held that limitation clauses may excuse the company (issuer)
from liability, but perhaps not the negligent employee.
London Drugs Ltd. v. Kuehne & Nagel International
[1992] 3 S.C.R. 299, 97 D.L.R. (4th) 261
PROCEDURAL SETTING:
• Trial court held that the employees were liable for the full amount of the damage in excess of $40
(which is payable by the D under the contract).
• BCCA heard appeal by the employees and reduced their liability to $40 – held that the employees could
be covered under the limitation clause.
• LD appealed to the SCC.
FACTS:
• LD had a large transformer delivered to the D storage company / warehouse operator to store it while
they were building a new store.
• The contract included a clause limiting the liability of the warehouse to a maximum of $40.
• With full knowledge of this clause, LD decided not to seek additional insurance.
• While it was being moved to the warehouse, two employees decided not to lift in with a crane (as usual)
but to lift it with two fork lifts (which would be more fun).
• The transformer fell and was damaged to the tune of approximately $30,000.
• LD sued for breach of contract and negligence (tort).
ISSUE(S):
• Do employees owe a duty of care to their employer’s customers?
• To what extent can employees claim the benefit of their employer’s contractual limitation of liability
clause?
HELD:
• Appeal dismissed.
ANALYSIS:
• Employees did owe a duty of care to the Plaintiff.
• Employees breached that duty of care.
• Employees are protected by the limitation of liability clause made between their employer and London
Drugs.
• Why should the third parties be able to take advantage of the clause?
o Court holds that the existing law would lead to a harsh result in which the employees would be
liable for the majority of the damage while the employer basically got of scott free.
o This case establishes a new exception to the traditional analysis of privity.
o Court holds that it would be commercially unfair and harsh to hold the employees liable – stems
from common sense.
• Criteria that must be satisfied in order for future cases to qualify under this narrow exception:
(1) The contract must either expressly or implicitly extend the benefit (in this case, the limitation of
liability clause) to the employees – parties must have intended that the employees would be
covered / would be privy to the contract.
•
•
•
•
(2) Employees must be acting within the terms of their employment.
(3) The P has to know that the employees would be performing such services – must be foreseeable
to the P that the work to be performed under the contract would be performed by employees.
What is the policy that stands behind this decision – make sure that LD (which failed to take out the
excess coverage being fully aware of the limitation of liability) can not now turn around and circumvent
the limitation clause and sue the employees when they knew that employees would be carrying out the
work and they could have taken reasonable steps to protect itself.
Also, employees do not expect to be exposed to liability in such cases – otherwise they may not have
taken such a job or they would self-insure.
What is the evidence that the employees were intended to be covered by the clause? – the contract used
the word “warehouseman” – which the court interpreted to be broad enough to include the employees.
This is not an agency relationship – court rejects the argument – facts fail the test for agency (employees
did not give employer authority to contract on their behalf). However, in this exception you don’t need
authority.
RATIO:
• Where certain specific criteria are met, the doctrine of privity will not act to bar employees from being
covered by a limitation of liability clause in a contract made between their employer and a third party.
COMMENTARY:
• Really good general quote from the SCC (great for appeals in general) – “courts have not only the power
but the duty to make incremental changes to the common law to see that it reflects the emerging needs
and values of our society.”
Edgeworth Construction v. N.D. Lea & Associates
(1993), 107 D.L.R. (4th) 169 (S.C.C.)
PROCEDURAL SETTING:
•
FACTS:
• Government of BC entered into a contract to build roads near Revelstoke with the P. The P lost money
on the project as a result of the D engineer (errors in specifications and construction drawings that
affected the bid amount).
• Clause 42 of the construction contract between the P and the government – the tender documents were
furnished merely for the general information of bidders and were not in anywise warranted or
guaranteed by or on behalf of the minister – seems to absolve the government of liability for the plans.
• Cause of action brought against the engineer in negligent misrepresentation.
ISSUE(S):
• Does the exemption contained in clause 42 immunize not only the government but the third party
engineers from liability?
• Should the D be allowed to protect itself under clause 42 even though it was not privy to the contract?
HELD:
• For the P - appeal allowed.
ANALYSIS:
• Court held that negligent misrepresentation was made out – there was a representation by the D that he
knew the P would rely on, and which the P did in fact rely on.
• Therefore there is a prima facie cause of action against the D.
•
•
Can the D exempt itself from liability? No – court distinguishes this case from London Drugs because
there was not evidence of an intention (express or implied) that the engineers would be covered by the
clause.
Also, it was reasonable, unlike in London Drugs, that the engineer would have insurance of its own to
protect itself against potential liability. Engineers usually have professional liability insurance (unlike
blue collar employees).
RATIO:
•
Fraser River Pile & Dredge v. Can-Dive Services
[1999] 3 S.C.R. 108, 176 D.L.R. (4th) 257
• Subrogation - n. assuming the legal rights of a person for whom expenses or a debt has been paid.
Typically, subrogation occurs when an insurance company which pays its insured client for injuries and
losses then sues the party which the injured person contends caused the damages to him/her. Example:
Fred Farmer negligently builds a bonfire which gets out of control and starts a grass fire which spreads
to Ned Neighbor's barn. Good Hands Insurance Co. has insured the barn, pays Neighbor his estimated
cost of reconstruction of the barn, and then sues Farmer for that amount. Farmer will have all the
"defenses" to the insurance company's suit that he would have had against Neighbor, including the
contention that the cost of repairing the barn was less than Neighbor was paid or that Neighbor
negligently got in the way of firefighters trying to put out the grass fire.
PROCEDURAL SETTING:
• Can Dive held liable for $949,503 at trial
• C.A. allowed the appeal.
FACTS:
• A barge called the “Sceptre Squamish” belonging to the appellant sank. At the time it was under charter
to the respondent (Can Dive).
• The insurance contract between Fraser River and the insurer contained a clause under which the insurer
waived its right of subrogation against “any character” and extended coverage to affiliated companies
and charterers.
• The insurer paid Fraser River the amount set out in the policy for the loss of the barge.
• Fraser river made a further agreement with the insurer to pursue a negligence action against Can Dive,
and to waive any right to the waiver of subrogation clause.
• Can Dive was held liable at trial on the ground that as a third party it could not enforce the waiver in the
contract of insurance.
ISSUE(S):
• Is Can Dive, as a 3rd party beneficiary under the insurance policy, entitled to rely on the waiver of
subrogation clause?
HELD:
• Appeal dismissed – judgment for the D upheld.
ANALYSIS:
• Court looks to the exception carved out in London Drugs and seeks to determine whether this situation
also merits creating an exception.
• If a new exception is to be created, two critical and cumulative factors must be present:
(1) Did the parties to the contract intend to extend the benefit in question to the 3rd party seeking to
rely on the contractual provision?
(2) Are the activities performed by the 3rd party seeking to rely on the contractual provision the very
•
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activities contemplated as coming within the scope of the contract in general, or the provision in
particular, again as determined by reference of the parties?
As to intention – court holds that the D has a compelling argument for relaxing the doctrine of privity,
specifically because of the use of the words “any characters” (intended to include 3rd parties) – parties
agree on this – question is really whether or not this clause has legal effect.
P argues that the clause can only be enforced by Fraser River on behalf of Can Dive, but not by Can
Dive itself – no language to support this argument.
As to the activities performed – P argues that the waiver of subrogation clause upon which the D seeks
to rely is contained in an unrelated contract that does not pertain to the charter contract in effect between
Fraser River and Can Dive.
Court doesn’t buy this argument – says that the relevant activities arose in the context of the relationship
of Can Dive to Fraser River as a charterer – the very activity anticipated in the policy pursuant to the
waiver of subrogation clause.
Both conditions have been met by the facts of this case.
Policy reasons in favour of an exception in this circumstance:
o Better reflects commercial reality
RATIO:
•
REVIEW OF PRIVITY
• Courts originally of common law tradition from the cases really had no problem with privity. Then the
courts got harder in these cases, as in the Dunlop Case
• This was the HIGH WATER MARK for privity, execution.
• However, see the beginnings of the loosening up of this attitude in the courts.
o the Agency exception.
o water mark is lowering.
o taking advantage of various terms and conditions.
o legislatures also got involved in creating exceptions.
o New rules by statutes.
o Agency exceptions.... McCannell v. Mabee McLaren Motors
o Employment exceptions.... London Drugs
o Still going further... not limiting to employment. Laying down a general principle of exceptions.
• When you face a hypothetical in which one of the obstacles seems to be the doctrine of privity, you have
to analyze it according to the traditional understanding.
o This would lead to the exact opposite result.
o Work your way through and see what it would give you. Then ask, does one of the exceptions
apply? (agency, employment, subrogation, etc.)
o Is there sufficient evidence to show that something applies? Even if not, not out of luck. Then
go to the general language used by the SCC.
o Does the criteria laid now, show intention? What certain rights or protections are set out
o -are they named? Do they fall in a specific class of persons? ie. Obvious in Can-Dive that
‘Charterer’ means ‘Charterer’
o Was there an identiy of interests between that third party and one of the parties of the contract look to London Drugs
o Could the third party have been expected to have taken precautionary measures? In London
Drugs this would have been unreasonable - the workers would have expected to have been
covered, whether they knew it or not.
o FINALLY, the courts asks, did the third party, when they did what they did, were they acting in
the scope of their employment, or within the scope of the contract that was formed? Were they
doing what they were supposed to do?
CONTINGENT AGREEMENTS
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•
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Agreements subject to either a condition precedent (contract may be postponed until the occurrence of
a specified event) or condition subsequent (contract may be found to be void from the outset if a
certain event or occurrence happens).
Common example:
o A home-buyer wants to purchase a home, but cannot commit to paying for it until financing has
been arranged.
o If the prospective buyer defers entering into a contract until financing is confirmed, the seller
might sell it to someone else. On the other hand, if the prospective buyer agrees to buy the house
but is then unable to arrange the financing required to pay the price, the buyer will find himself
in breach of the contract and liable for damages if the seller ultimately sells at a lower price.
In these types of cases, a prospective contracting party wants to prevent the other party from dealing
with someone else, without making a contractual commitment until certain information is obtained or a
certain state of affairs has come to pass.
This may be done by making a contract conditional.
Offer/Option/Contract
• Where one party does not intend to enter into a contract unless or until the contingency is satisfied,
written or oral communication regarding the terms of a proposed agreement is merely an offer to
contract on those terms, which may be accepted upon satisfaction of the contingency.
• In such cases no initial contract is created – there is nothing to prevent the offeror from withdrawing the
offer until the contingency is satisfied.
• Language that expresses an agreement as “subject to” a predetermined state of affairs is often ambiguous
– may create an initial contract under which certain obligations are to be performed. Failure to meet the
condition terminates the contract, but until then neither party may withdraw – this is a true conditional
contract because there actually is a contract.
• An alternative way to accomplish this same goal is through an option – one party provides consideration
(usually a non-refundable deposit) for the other’s agreement to enter into the primary contract at a future
specified time. The difference between an option and a conditional offer is the presence or absence of
consideration.
THIRD PARTIES’ OBLIGATIONS
Wiebe v. Bobsien (B.C.S.C.)
[1985] 1 W.W.R. 644, 59 B.C.L.R. 183, 36 R.P.R. 277, 14 D.L.R. (4th) 754
PROCEDURAL SETTING:
• Trial decision.
FACTS:
• The D is a contractor. He owns the property in question in Surrey, BC. On May 14th, 1984 he listed it for
sale with a realtor.
• The P also owned a house in Port Moody. He made an offer to purchase the D’s property.
• June 22, 1984 - both parties signed an interim agreement that included the following terms:
o A deposit on account of the proposed purchase price - $1,000.
o Purchase price - $360,000
Completion date – August 29, 1984
Sale is subject to the P selling his Port Moody residence on or before August 18.
Pending the sale of the P’s home, the seller retains the right to sell his property to another
purchaser is one could be found. In such an event, the P is to have 72 hours to remove the
“condition precedent” from the interim agreement with the D so that the sale is no longer subject
to the sale of the P’s home.
o On its face, the agreement is not under seal.
o If the D does not sell his residence by August 18 he is entitled to terminate the agreement and
receive his $1,000 deposit back.
July 22 – D decided that he did not want to go through with the sale – he informed the P of this fact by
telegram on this date.
The P did not accept the cancellation but continued his efforts to sell his Port Moody home.
On August 18 the P found a buyer for his home and informed the D that the subject clause was removed.
When the completion date of August 29 arrived, the D refused to close.
o
o
o
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•
•
•
ISSUE(S):
• Is the interim agreement a form of option that could be cancelled by the defendant prior to August 18, or
it is a binding agreement for the sale and purchase of the D’s property?
HELD:
• Judgment for the Plaintiff.
ANALYSIS:
• P argues that the agreement of June 22 was a binding contract for purchase and sale.
• D argues that there was no contract, and possibly not even an option seeing as the P was able to reclaim
the $1,000 if the transaction fell through. Therefore the D was free to withdraw any time prior to August
18.
• A condition precedent may operate in 1 of 2 ways – there is case law supporting each.
(1) To prevent the creation of a contract, or
(2) To merely suspend performance of some or all of the obligations set out in the contract until the
condition is met.
• Usually depends on the intention of the parties as either expressed in the contract or as shown by
surrounding events.
• As a general rule, in a real estate transaction a condition precedent which must be performed by the
purchaser will not prevent the formation of a contract but will simply suspend the covenant of the
vendor to complete until the condition precedent is met by the purchaser.
• Here, the contract and surrounding events indicate that the parties intended to reach a consensus at the
time they signed the interim agreement.
• The P therefore had a duty to take all reasonable steps to fulfill the condition (sell his home). Had he not
dome so, he would be in breach of the agreement and liable for damages to the D.
• When the P sold his Port Moody home, the D was then contractually bound to sell his property to the P
because the agreement was no longer in suspense – hence, the D had no legal right to cancel the
contract.
RATIO:
• A real estate contract containing a condition precedent will usually result in a binding agreement for sale
and purchase. The obligation to complete the contract is merely in suspense pending the occurrence of
the event constituting the condition precedent.
• In some instances, such a condition may prevent the formation of a contract if the agreement itself and
the surrounding events indicate it was never the intention of the parties to bind themselves to a contract
of sale and purchase.
Wiebe v. Bobsien (B.C.C.A)
[1986] 4 W.W.R. 270, 64 B.C.L.R. 295, 39 R.P.R. 228, 20 D.L.R. (4th) 475
HELD:
• Appeal dismissed – trial judgment stands.
DISSENT
• Each condition precedent case must be considered on its own facts.
• Lambert J.A. holds that the agreement should fail for uncertainty. This is because it is implied in the
agreement that the purchaser take “all reasonable steps” to complete the condition. What does this
mean? Does he have to sell at the price he can get, on the marked, in the allotted time? Or is he entitled
to insist that the sale can only be completed at a price he considers to be reasonable and is willing to
accept? – more than just the officious bystander test.
• The way to avoid this would be to include the price and the essential terms upon which the purchaser
must sell his own house – that way there is a measurement for the court to determine “reasonable
efforts”.
4 types of situations where conditions precedent are involved:
(1) Where a condition precedent is worded in such a way that the transaction is still at a novel stage –
“subject to the approval of the corporate purchaser”. Until the condition precedent is met, or once the
condition is not met, either party can walk away from the transaction. Treated as an offer that has never
been accepted.
(2) Where the condition is clear, precise and objective – “subject to the election of John Smith in the
municipal election of September 15th” –clear objective condition – neither party can withdraw – have to
wait and see if the condition is fulfilled. If it is not, the parties may be free to terminate the contract.
Here there is a preliminary contract (obligations on the part of both parties).
(3) Where the condition precedent appears to be objective but requires someone to act – “subject to the
approval of the municipal planning authority” – looks like situation 2, but it is different because
someone has to apply for the subdivision approval – must undertake all reasonable steps to make sure
the plans are approved. Is there a preliminary contract? Which party must undertake to do the required
act? What happens when the party responsible does not undertake best efforts? Most courts would say
that there is a preliminary contract – reciprocal subsidiary obligations. Majority of the C.A. in Wiebe v.
Bobsien said that the facts of that case fell under this heading. Dissenting judge did not agree. Instead
thought it fell under a fourth category.
(4) Where the condition precedent is so uncertain that as a contract term it is incurable and void for
uncertainty.
ABSENCE OF CONSIDERATION AND UNCERTAINTY OF TERMS
RECIPROCAL SUBSIDIARY OBLIGATIONS
Dynamic Transport v. OK Detailing
Style of cause.
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Facts as above – unclear description of land in a real estate transaction, appreciation of the land, seller
wants to back out.
Agreement was subject to obtaining subdivision approval (making an application to the municipal
planning board, make oral submissions, be available to answer questions). Board will deliberate and
make a decision – not a sure thing that you will get approval.
Documents were silent as to which party was to be responsible for obtaining approval.
ISSUE(S):
• Which party is required to use “best efforts” to get subdivision approval for the proposed commercial
development of the land in question?
HELD:
• It is the responsibility of the vendor to use best efforts to fulfill the condition precedent (based on the
Municipal Planning Act)
ANALYSIS:
• S. 19 of the Municipal Planning Act – the person who proposed to carry out the division of land shall
apply for subdivision approval.
• Court holds that the person in this case who proposed the division of land is the intending vendor.
• This will not always be the same in purchase/sale agreements – parties can put a term stating otherwise
in their agreement. If they fail to specify, however, the court will hold (based on the statutory language)
that the obligation will be on the vendor.
• Here, it was the vendor who refused to complete the sale – court gave specific performance of the
contract – vendor loses on both the certainty argument (above) and on the contingency argument.
Vendor never fulfilled his obligations – therefore was in breach of contract.
• This is a “situation 3” case as discussed above.
RATIO:
• Parties can stipulate in an agreement as to which party is required to undertake subsidiary obligations –
must use “best efforts”, “reasonable endeavours” (objective test).
• Where an agreement is silent on this matter, court will impliedly place the obligation on the vendor.
Eastwalsh Homes v. Anatal Developments
Style of cause.
PROCEDURAL SETTING:
• Trial judge awarded damages to the P.
FACTS:
• Developer selling a parcel of land to a purchaser to be subdivided into 147 lots.
• Agreement placed the obligation on the vendor to obtain subdivision aproval before conveyance of the
land.
• If such registration were not achieved on time, the agreement would terminate.
• Developer did not use “best efforts” (if any) to fulfill its obligation by the specified date.
• Turned out that the parcel of land appreciated by about $4 million during the interval.
• Purchaser found out that the developer was never going to convey the land, failed to mitigate his losses
by trying to buy other property in the area.
• Plaintiff asked for specific performance, and damages in the alternative.
• Trial judge refused to award specific performance – vendor likely turned around and sold the property to
someone else after the original agreement terminated (but not clear on the facts). Instead, he estimated
that there was about a 50% chance that had the vendor done what he was supposed to do, the subdivision
would have been approved on time (never know what municipal planning boards will do and in what
time period) – therefore he awards $2 million in damages (half of the increase in the value of the land).
• P also claimed for loss of profits – lost profits that he would have made on each house he built in the
subdivision. Trial judge says no because the P failed to mitigate his losses.
ISSUE(S):
• What is the appropriate remedy when a party fails to fulfill its obligation to perform a subsidiary
obligation?
HELD:
• Appeal allowed.
ANALYSIS:
• C.A. – lays out general principles:
o If the party that bears the burden of discharging a subsidiary obligation is in breach, then the P
bears the burden of showing on a balance of probabilities that is suffered losses as a reasonable
and probable consequence of the D’s breach.
• Here the P lead evidence that they lost at least $4 million.
o Even though it may be difficult for a court to quantify the loss, a court should do what it can to
try and asses what the real loss is.
• Here the probability of success comes into play – what percentage probability of success
is there? Damages awarded on a proportional basis.
• C.A., applying these principles, says that the trial judge got it wrong – the P failed to show on a balance
of probabilities that is suffered real losses – thought the chances of success were less low - in fact, there
was hardly any likelihood that the D would have succeeded in the time available, even if they had used
“best efforts”.
• Doesn’t necessarily have to be 50% - must only be “substantial” – not clear exactly what “substantial”
means. Some other cases have awarded based on as little as 25%.
RATIO:
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UNILATERAL WAIVER
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Parties to a contract that includes a condition precedent as one of the terms can agree to vary or waive
satisfaction of the condition.
Also, parties may expressly permit or preclude waiver of a condition precedent by stating so in the
contract.
Where a contract is silent on the point, can one party unilaterally waive a condition inserted in the
agreement upon which the deal was supposed to turn?
Turney v, Zhilka
[1959] S.C.R. 578, 18 D.L.R. (2d) 447
PROCEDURAL SETTING:
• Trial judge held that the condition could be unilaterally waived because it had been inserted solely for
the benefit of the purchaser (who wished to waive it).
FACTS:
• Parties entered into an agreement for purchase and sale of property – “providing that the property can be
annexed to the Village of Streetsville and a plan is approved by the Village Council for subdivision”.
• Who is supposed to fulfill the condition (go out and get approval)? – doesn’t say.
• Closing date is set for 60 days after the plans are approved.
• Purchaser made inquiries to the village council for subdivision approval – didn’t look like approval was
going to happen (prospects of annexation were “remote”).
• The purchaser decided to waive the condition because (a) it was severable from the rest of the
agreement, and (b) it was inserted for the benefit of the purchaser anyways.
• Vendor didn’t want to close the sale because the condition was not met.
ISSUE(S):
•
Can the condition be unilaterally waived by the party who claims that the condition was only included
for their benefit?
HELD:
• Appeal allowed – the condition can not be unilaterally waived.
ANALYSIS:
• The only circumstances in which a party has a right of unilateral waiver is when there is an already
enforceable contract – in such case where a condition has only been inserted for the benefit of one party
and that condition is severable from the rest of the contract, that party may unilaterally waive the
condition.
• Here, there was no concluded contract – this was a special condition – a “true condition precedent” – an
external condition upon which the existence of the obligation depends. Neither party has the power to
waive a true condition precedent. In this case it is dependant on approval by a third party (a “future
uncertain event”).
• Why? Until that condition is met neither party has gained any rights or assumed any obligations to be
waived.
• What is the alternative to a “true” condition precedent? – an “ordinary” or “internal” condition – one
which, if not fulfilled, may still allow the courts to find a contract (perhaps Wiebe v. Bobsien is an
example of this).
• This is still the leading case on unilateral waiver in Canada – SCC leaning away from presuming
obligations and rights – saying that there are no rights and obligations until there is an actual binding
agreement.
• In a novel case – ask yourself if the condition is more like that in Wiebe v. Bobsien (initial obligations)
or more like that in this case (no rights and obligations).
• If the condition is a not a true condition precedent you still have to continue your analysis – is there an
express or implied right of unilateral waiver?
RATIO:
• Neither party to a contingent agreement may waive a true condition precedent.
• Where there is a concluded contract, a party may unilaterally waive a condition in that contract where (a)
the contract was included only for that party’s benefit, and (b) the clause is severable from the rest of the
contract.
Beauchamp v. Beauchamp
[1973] 2 O.R. 43, 32 D.L.R. (3d) 693 (Ont. C.A.)
PROCEDURAL SETTING:
• Trial judge applied Turney v. Zilka and found for the vendor.
FACTS:
• In the interim agreement for the sale and purchase of land, the transaction was conditional to the
purchaser securing 3 mortgages at specified rates and terms. If the condition was not satisfied, the
agreement was to be “null and void”.
• The condition was included merely for the benefit of the buyers – all the vendors cared about was
receiving the full purchase amount.
• Buyers was able to secure a single mortgage for the full amount – just as good, but not good enough to
satisfy the condition according to the trial judge.
ISSUE(S):
• Should the principle from Turney v. Zilka apply to the facts of this case?
HELD:
• Appeal allowed – order for specific performance granted.
ANALYSIS:
• Based on Turney v. Zilka, there would be no contract and therefore no right of unilateral waiver –
therefore the vendor is off the hook.
• However, the Ont. C.A. says that this is not a true condition precedent – this case is distinguishable –
therefore the appeal is allowed.
• How did the court distinguish this case? Not really clear.
• Perhaps the court is just trying to give the buyer a break – getting a better deal in fulfilling the gist of the
condition should not be held against the buyer.
• Here the buyer is just modifying the condition, not trying to re-write it completely.
• Because the court says that essentially the condition was fulfilled, this is really not a case of unilateral
waiver.
RATIO:
•
Barnett v. Harrison
[1976] 2 S.C.R. 531, 57 D.L.R. (3d) 225, 5 N.R. 131
PROCEDURAL SETTING:
• Trial judge held for the vendor.
• C.A. affirmed.
FACTS:
• The purchaser (Barnett) planned to build an apartment building on the land in question - subject to rezoning application being approved and approval of plans.
• Agreement stipulated that the purchaser would be responsible for getting approval.
• If the condition is not met, the agreement is to be null and void and the purchaser’s deposit returned.
• There was an express waiver clause in regards to services to the lot – but not to getting approval.
• Sale was to close within 60 days of approval.
• The purchaser made diligent efforts to obtain approval but was unsuccessful. He decided that he wanted
to waive the condition and purchase the land anyway.
• In the mean time, the vendor had found a better offer and refused to proceed (trying to fin a way to
recede from their contract with the appellant) – argued that the condition had not been met.
• Trial judge held that the case was governed by Turney v. Zilka – the condition was a “true condition
precedent” that could not be unilaterally waived.
• P wants specific performance of the conveyance of land.
ISSUE(S):
• What kind of condition is the condition in question?
• Can that condition be unilaterally waived?
HELD:
• Appeal dismissed.
ANALYSIS:
• Court holds that this is a true condition precedent – Turney v. Zilka applies – therefore the P is not
entitled to unilaterally waive the condition.
•
•
•
•
Majority noted that in the agreement the contract was to become null and void if the condition is not
fulfilled (parties had obviously contemplated the possibility that the condition would not be fulfilled) – if
the court allowed the P to unilaterally waive the condition, this term would have been circumvented – it
was an integral party of the agreement. To allow the P to do this would in effect be to allow the P to rewrite the agreements.
Also, the condition was not only for the benefit of the P, but for the mutual benefit of the parties.
Court affirms Turney v. Zilka – should remain good law because:
o The rule has been good law for a long time and it would create legal uncertainty if they were not
to reverse it.
o …
o …
Ways around Turney v. Zilka:
o Show that it isn’t a true condition precedent, or
o Show that the condition has been met.
Laskin (dissent)
• Turney v. Zilka is distinguishable – not entirely dependent on a 3rd party.
• The condition was for the sole benefit of the P.
• This dissent is good to remember for when you have a client in this position.
RATIO:
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REPRESENTATION AND TERMS
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•
•
2 parties engaged in pre-contractual negotiations often exchange information
Courts don’t’ treat all statements made during the pre-contractual stage as leading to liability – have to
ask if the statements were made with sufficiently serious intent so that it was to form part of an
enforceable contact.
What is the appropriate remedy when such a statement turns out to be untrue of exaggerated?
Pre-contractual representations
(1) Mere puffery – sales talk (no legal liability
even if the statements are false – no
reasonable person would rely on such
case). See Goldthorpe, Carbolic, PepsiCo.
(2) Mere statements of opinion (generally, no
legal liability – but see CASE).
(3) Material (false) representations that induce
a party to enter into a contract (innocent,
fraudulent, negligent). See Redgrave.
These types of representations may lead to
legal liability.
Terms of the contract
(1) Warranties
(2) Conditions
(3) Innominate
Remedies for pre-contractual misrepresentations
- First, what kind of representation is it? Does liability arise?
- Courts often get tied up over the appropriate remedy in such cases where liability arises.
- Usually either P wants damages or to back out of the deal altogether.
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How does the court determine the appropriate remedy? Depends on the kind of misrepresentation –
how it is categorized by the court.
 Innocent misrepresentation – party didn’t know at the time that what they said was false –
no element of fraud. However, innocent misrepresentation still requires a legal remedy –
doesn’t mean you’re off the hook. Remedy is rescission of the contract – parties must do
what is necessary to put themselves back in their pre-contractual position. Rescission is an
equitable remedy.
 Fraudulent misrepresentation – remedy is damages (common law remedy). Usually in
such cases the contract is already executed, therefore the contract is not rescinded.
 Negligent misrepresentation – remedy is damages (like negligence in general).
In reality, judges may actually start their analysis with the remedy – perhaps they want to rescind
the contract because it sucks or one party acted badly – if they want to rescind, they must find
innocent misrepresentation – then they go to that.
Remedies for breach of terms of the contract
- Terms of the contract are those which go to the very heart of the agreement (ie. you buy a 1956 car,
which turns out to be a 1958, which is worth far less – that term is included in the contract – “I buy
from you a 1956…”. Therefore we have a material representation which goes to one of the terms of
the contract itself.
- First, court will classify the type of term (warranty or condition).
 Breach of warranty – remedy is damages – award money for the quantified amount that
was lost on the deal.
 Breach of condition – remedy is recision (equitable).
MISREPRESENTATION AND RECISSION
Redgrave
Style of Cause
PROCEDURAL SETTING:
- Trial judge held for the vendor and ordered specific performance.
- C.A. reversed and granted an order of rescission and return of the deposit (no damages).
FACTS:
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Alleged fraudulent misrepresentation.
Case concerns a sale of a law firm. Senior partner makes representations to a potential purchaser as
to the firm’s yearly profits. The books say otherwise, but the purchaser is told that there are other
papers that show the income. Buyer decides to buy the practice (put down a deposit) based on these
representations. He sells his firm, buys the new firm and moves his family. He discovers that the
income of the new firm is almost none. The buyer then refuses to pay the balance owing on the sale.
The vendor brings an action asking for specific performance of the contract of sale.
ISSUE(S):
- Is the P entitled to specific performance, or is the D entitled to recover damages or rescind the contract
based on fraudulent misrepresentation.
HELD:
- For the buyer – trial decision is overturned and an order of rescission granted.
ANALYSIS:
- C.A. said that there was no deceit or fraud – not shown on the facts.
- In order to show fraudulent misrepresentation the court requires:
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A statement is made either with knowledge of its falsity or without belief by the representor
in the truth of the statement, or
 That the statement was made recklessly without regard as to whether it was true or false.
Court says that the vendor is an ass, but there is no evidence to suggest that he had knowledge of the
falsity etc..
This means that there is no remedy for damages.
Are there grounds for a remedy of rescission? Yes.
Court holds that the misrepresentation in this case is not fraudulent, but it is innocent – this is good
enough to order rescission of the contract.
Where you have facts that establish both fraud and misrepresentation, the equitable remedy
predominates.
Court also points out that the buyer could have examines the “other documents” and likely would have
seen that there were no profits. Does this disentitle him to a remedy of rescission? No – the buyer
reasonably relied on the representation, and there is no real requirement of diligence on the part of the
buyer.
RATIO:
- If a material misrepresentation is made during the pre-contractual period, the onus lies on the representor
to show that the representee either had knowledge of the falsity, or that the representee did not rely on
the representation.
Smith
Style of cause.
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Vendor sues for specific performance
Defence was misrepresentation.
P vendor said that the statements were mere statements of opinion.
Court disagreed – held that the D was misled by a description that was a description of fact.
Also, when the facts are not known to each of the negotiating parties, then a statement of opinion by the
party who is in the better position (the one who has particular knowledge) is regarded as a statement of
fact where it is relied upon by the representee.
No positive duty to check out the validity of the representation.
Therefore rescission is the appropriate remedy.
An innocent misrepresentation can give rise to legal liability.
Bank of BC
Style of cause.
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Lendor (Bank) makes a loan to a corporation, takes security from the corporation and a number of
individuals (principles) who stand behind the corporation, including some personal guarantees.
Also, bank took some collateral in the form of shares in other companies owned by the corporation.
One individual (Alan) gave a personal guarantee – he happened to be involved in some shady partners in
the enterprise. After the security was given, the partners changed the shares that were subject to the
agreement in order to give the bank less collateral. The Bank knew this but Alan was not told.
Bank’s lending officer was called into the bank to sign another guarantee, which he did.
Bank was not repaid, wants to realize on its security. Shares turned out to be worthless and the bank
goes after the individuals, including Alan.
Alan argues that he was a victim of misrepresentation (by way of an omission – failure by the credit
manager of the bank to tell him that the shares had been changed).
Court held for Alan – he was misled and did rely on that misrepresentation.
Court rescinds the second guarantee.
Case illustrates how a misrepresentation can be made by silence or omission.
Dayson
Style of casue.
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This case muddies the waters a bit – somewhat of an anomaly.
Sale of real property in exchange for shares in a motel company.
Transaction completed in March – 2 months later the people who bought the shares found out that the
representations as to the motel’s earnings were false – they stopped making mortgage payments to the
vendor.
Purchasers informed the other party that they wanted to unravel the deal because of the
misrepresentations.
Vendors brought an action of foreclosure for failure to pay the mortgage.
Transaction also included a number of other properties – including one on which a building had been
demolished since.
What happens if in the mean time (after a misrepresentation) the parties have done things with a
property?
Are the purchasers entitled to rescission?
Trial court held for purchasers – there was fraudulent misrepresentation about the motel’s earnings. The
appropriate remedy was damages. Also, the change in the nature of the property was a bar to rescission.
Trial judge took 2 years to decide the appropriate quantum of damages.
Bad judge!
Purchasers were still not happy – case goes to appeal.
BCCA allowed the appeal on the issue of remedy and granted rescission.
Agreed that the vendor was liable for making a fraudulent misrepresentation that the purchaser had
relied upon.
How can they then award rescission?
Generally, (from Spence v. Crawford) – equity turns on the court’s discretion and should not adhere to
inflexible rules. If the court finds it appropriate to grant a remedy in equity, the remedy of rescission
ought not to be barred unless that remedy would produce injustice or would be too complicated.
How is this possible?
 Vendors have to take back shares – motel goes back to the vendors.
 Vendors have to return 1 of the 2 properties that they took in exchange.
 The other property (changed one) does not have to go back, but the vendor has to
compensate the appellant for the amount plus the increase in value of the property as a
result of the changes made (looks a lot like damages).
 Mortgages held on the motel property are also rescinded.
Generally, judges can’t order damages to go along with rescission – but this case is an exception.
Does the fact that the buyers stayed in control of the motel company after they had become aware of the
misrepresentation amount to an affirmation of the agreement? Court says no – it was prudent for them to
stay in possession and keep running the motel. Also, they hired a lawyer and repudiated the agreement in
writing.
Apparently BCCA tends to do things its own way.
Nesbitt
Style of cause.
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P and D agreed to the sale of a leasehold (rental property)
D was represented by an agent. In reliance on representations made by that agent as to the status of
electricity on the property and the number of bedrooms, the P bought the interest.
After the transfer was completed, the P discovered that the property was deficient.
D put a stop payment on his cheque – doesn’t get cashed.
P sued for the amount owing.
Trial (jury) found for the P vendor. C.A. agreed. The contract was already fully executed.
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What is the appropriate remedy where the contract has been fully executed by each side – is rescission
still available?
Rationale is that usually once a contract has been fully executed it is not possible to restore the parties to
their original position. Here it would involve ordering the landlord (3rd party) to accept a re-assignment
of the lease.
SCC agreed, up to a point – agrees with lower court’s account of the law, but sent the case back for
another trial – had not been adequate instruction to the jury as to whether or not there was sufficient
evidence to make out fraudulent misrepresentation.
Why is this important? – because if fraudulent misrepresentation is found damages can be awarded.
A fully executed contract generally means that a court will not grant rescission.
Principle didn’t seem to affect decision in Kupchak.
Bars to rescission argued:
- Misrepresentee has by words or conduct indicated an intention to affirm the contract (election)
- Misrepresentee Has already received some or whole benefit from the contract
- Subject matter has been altered (land has been altered)
- Passage of time – misrepsesentee waited too long before trying to rescind the contract
- Contract has already been executed (this has been modified by statute).
- Subject matter has been re-sold to someone else
REPRESENTATION AND TERMS
- Does the representation actually form a term of the contract?
- How do you tell?
- Generally, whether or not a particular representation is a material part of the contract depends on
intention of the parties.
Buckleton
Style of cause.
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Sale of shares.
Misrepresentation went to the nature of the company in which the shares were being bought.
If certain representations of fact are made with the intention that that statement would form a term of the
contract, the courts will accept that it is a term of the contract and ask whether it was a warranty.
P says it was fraudulent misrepresentation, or in the alternative, a breach of warranty.
Trial court found no fraud but did find breach of warranty – P is entitled to damages.
H.L. allowed the appeal – no damages are assessable for breach of warranty.
Court addressed what factors to look at to determine what is a warranty – a warranty arises when in
essence there is a collateral contract between the parties – it is like a parallel contract to the main
contract.
If you can prove the statement, it becomes a term of the contract. If the statement turns out to be false,
there is action for breach of contract.
Is there such evidence here? Court says no based on the totality of the evidence – no intention to make a
binding contract parallel to the main contract – not contractual liability intended.
Claims that there is a collateral contract should be viewed with suspicion – must be proved strictly.
Bentley
Style of cause.
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P purchaser went to buy a car at a Bentley dealership – asked questions about a used car.
Dealer said that the car had had some repairs and had only been driven 20,000 miles since the repairs
had been done.
Dealer verbally agreed (in front of P’s wife) to guarantee the car for 12 months for parts and labour –
dealer had particular knowledge upon which the P would rely.
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P bought the car but had to have work done several times.
Eventually, P got fed up and brought an action in court for breach of warranty.
Is the representation innocent or fraudulent?
Lord Denning said that if the representation is made within the course of dealings designed to make the
party act, and in fact they do act, this shows prima facie that the parties intended the representation to be
binding – there is a warranty as part of the main contract.
Different from the collateral contract approach.
Presumption can be rebutted – vendor has to show that the misrepresentation was innocent and not a
breach of warranty.
Here, vendor failed to rebut the inference – therefore there was a warranty, it was breached, and
damages were awarded.
Lethan International Galleries
Style of casue.
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Alleged famous painting – purchaser was told it had been painted by a particular famous English painter.
Based on this, he bought the painting.
5 years later he takes it to auction and finds out it is actually worthless.
P brings an action for rescission.
Was the misrepresentation, if it is a term of the contract, a warranty or a condition?
Condition – rescission. Warranty – damages.
Trial judge found for the vendor.
C.A. held for the purchaser – there was a breach of condition but rescission was not available.
Are there any bars to rescission? – yes. Court thought that the P waited too long to have the painting
assessed.
Statutory Changes
- UK Misrepresentation Act – rule in Nesbitt abolished.
- Puts right to rescind within the discretion of the court.
- Provides the court with more flexibility.
- Traditional bars to rescission are still relevant
- Alberta Consumer Protection legislation (Fair Trading Act) – see p 412 – 415. Note that the court has
broad discretion to grant the best remedy under the circumstances.
- Sale of Goods Act CLASSIFICATION OF TERMS
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If a term is a material term, the court must decide if it is a warranty or a condition because the remedies
are different.
How have the courts themselves tried to get away from the traditional classificatory approach?
Hong Kong
Style of cause.
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English courts in 1960s made some efforts to gain more flexibility.
Charter of a ship for 24 months – for a large part of that period the ship was in dock being repaired (out
of commission).
At the end of the period, the renter tried to repudiate the contract.
Is the lessee entitled to do this or must they continue renting the ship for the rest of the contractual
period.
Court said that they could not repudiate.
Breach of warranty is limited to damages – breach of condition can lead to rescission or damages.
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Court tries new approach to distinguishing between warranty and condition – wait and see what the
consequences of the breach are – does the breach go to the root of the contract and deprive the party of
the whole benefit substantially?
Called “third term” approach – innominate term (term without a name).
This approach is better because it is more flexible and courts can take into account subsequent conduct
of the parties to find intention etc. – very common sensical.
Approach adopted in Canada (including Alberta) – First City Trust (1989)
 Does this mean that the old approach is supplanted? No.
 Courts ought to, in analyzing terms, follow these steps:
• Apply the traditional test of intention.
• Look to surrounding circumstances with the view to determine the “commercial
setting” – purpose, market etc.
• If you are still not sure, examine the practical consequences (third term approach).
Crawchak
Style of cause.
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Horse bought a horse for his daughter that he was told would be a good horse for a child – turned out the
horse started chewing the fence and causing health problems. Vet had to come in etc. Horse also started
bucking.
Purchaser wanted his money back (rescission).
Court used Hong Kong approach as interpreted by the Alta C.A. in First City – went to the third term
approach.
The representation was a warranty – damages awarded (about ½ the purchase price) but not rescission.
Whitman Machine Tool
Style of cause.
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H.L. interprets the meanings that can attach to the word “condition”.
Even though the parties may use the term “condition”, doesn’t mean that the term is actually a condition
for the purposes of this section.
Here the parties used the term “condition” – therefore says that they can get rescission for a breach of
that condition.
Court says no – still goes through an analysis to determine intention as a matter of substance.
True for Sale of Goods Act too.