Contracts Final Exam Outline
Law 108A
ZS
2013
With Professor Mary Anne Waldron
Table of Contents
Offer and Acceptance ...................................................................................................... 2
Battle of the Forms ...................................................................................................................3
Formalization and Certainty..................................................................................................3
Correspondence ........................................................................................................................4
Consideration: benefit to the promisor or detriment to the promisee ..........................4
Post-Contractual Modifications................................................................................................5
Other Issues With Consideration.............................................................................................6
Intentions ........................................................................................................................... 7
Non Bargain Promises ..................................................................................................... 7
Past Consideration ...................................................................................................................7
Reliance and Estoppel .............................................................................................................7
Unilateral Contracts ........................................................................................................ 9
Revocation of Unilateral Contracts ......................................................................................9
Third Party Beneficiaries ............................................................................................. 10
Mistaken Identity and Non est Factum – Void and Voidable Contracts ............ 12
Chart of Void/Voidable ..........................................................................................................12
Mistaken Identity ...................................................................................................................12
Non est Factum ........................................................................................................................13
Contract Interpretation ................................................................................................ 13
The Parol Evidence Rule .......................................................................................................13
Clauses Excluding Liability..................................................................................................15
Misrepresentation ..................................................................................................................16
The Relationship between Torts and K – Negligent Misrepresentation............................... 18
Residual Powers of the Court in Contract Enforcement....................................... 18
Unconscionability, Undue Influence and Duress.............................................................18
Unconscionability ................................................................................................................... 19
Undue Influence ..................................................................................................................... 19
Penalties and Forfeitures .....................................................................................................20
Common Law Illegality..........................................................................................................21
Statutory Illegality .................................................................................................................21
Mitigating the Consequences of Illegality .........................................................................22
Mistakes ............................................................................................................................ 22
Mistakes About Contractual Terms ....................................................................................23
Mistake in Assumptions ........................................................................................................23
Rectification of Documents ..................................................................................................... 24
Frustration = mistake as to what will happen in the future. ........................................24
Remedies........................................................................................................................... 25
Specific Performance .............................................................................................................25
Remoteness ..............................................................................................................................25
Intangible Injuries and Punitive Damages .......................................................................26
Mitigation .................................................................................................................................27
1
Offer and Acceptance
1)
2)
3)
4)
5)
6)
A contract is a promise that is legally enforceable.
An offer should contain all the terms that the parties will agree upon.
timetable: offer is timetable and acceptance is showing up
Denton v. Great
a. an example of unilateral K
Northern Railway
offeree can bind the offeror to K because offeree has power of
Company
acceptance
(1856)
D promised low price for
no offer if terms not agreed
Johnston
flour. P orders next day.
a. invitation to treat: there is room for
Brothers v.
discussion and negotiation, and thus not an Rogers Brothers D replies saying price
gone up. P sues for
offer
(1899)
promise of low price.
b. quotation of prices is not an offer to sell
terms of offer can change before acceptance
test whether a binding obligation may
originate in ad addressed to general public
Lefkowitz v.
is “whether the facts show that some
Great
D refused to sell P a
performance was promised in positive terms
Minneapolis
certain fur piece which it
had offered for sale in a
in return for something requested” (Williston,
Surplus Store
newspaper ad. Ad
Contracts)
(1957)
contained price, mode of
a. sometimes if terms of ad clear enough, can
acceptance, and product.
be seen as offer – but ambiguous
policy considerations can guide court
Pharmaceutical Boots operated shop
determination of what is offer and acceptance
Society of Great where substances were
a. ex. if taking the product off the shelf
Britain v. Boots displayed in self-service
area and customer could
constitutes acceptance, this would be
Cash Chemists
only escape by passing
absurd because then customer will not be
(1953)
area under supervision
able to put product back
of pharmacist.
7) where an offer is made in terms which fix no time limit for
acceptance, the offer must be accepted within a reasonable
time to make K
8) 2 possible views if over reasonable time
a. withdrawn
b. refused – this is preferred because less ambiguous
9) until offer has been accepted, open to the offeror at any
time to withdraw or put limit on time for acceptance
10) acceptance needs to be communicated to the buyer
a. when you have an agent, they are acting on your behalf, and
communicating something to the agent is like communicating
to the principle
Manchester Diocesan
Council for Education
v Commercial &
General Investments
Ltd
(1969)
Larkin v. Gardiner
(1895)
Held: merely signing
document not enough,
acceptance is when
offeror knows of the
signature.
11) Canadian law does not recognize a firm offer – need
Dickinson v. Dodds
consideration
(1876)
a. a promise that you will leave the offer open is not an
enforceable promise
12) acceptance has to be on the terms of the offer – means
Eliason v. Henshaw
offeror can dictate place, time, mode of acceptance etc.
(US 1819)
13) otherwise, it becomes a counter-offer
14) offeror cannot impose silence as a mode of acceptance
a. Consumer Protection Act states do not have to buy unsolicited goods  this shows
legislation not allowing offeror to impose silence
2
Battle of the Forms
1)
2)
3)
4)
5)
6)
usually winner is the one who gets the last word, and must use
offer/counter-offer analysis
or, the terms on both sides are to be construed together, and
“conflicting terms may have to be scrapped and replaced by a
reasonable implication”
additional terms in an acceptance are to be considered as
suggestions for additions to K, not a counter-offer as long as they
don’t materially alter the K
terms and conditions of K A are dependent upon tender call,
including implied irrevocability of a bid in return for fair shot at
being selected
cannot make a K to agree in the future, but you can make a K
that delineates the 2nd K specifically enough so that the terms of
the 2nd K cannot be renegotiated after the making of the 1st
(which is the case in K A and K B)
note that in most jurisdictions statutes regulate the tendering
process to ensure efficiency and fairness in allocating government
contracts, but not in Canada
Butler Machine Tool
Co Ltd v. Ex-Cell-O
Corporation (England)
Ltd
(1979)
Uniform Commercial
Code (US)
MJB Enterprises v.
Defence Construction
(1999)
Formalization and Certainty
1) if an essential matter in the K is left
undetermined, there is no K  price is an ex.
of essential matter
2) no agreement to agree
3) note that May and Butcher is an unusual
case – usually, you do not have to fill out all
the details for there to be a K
4)
May and
Butcher, Limited
v. The King
(1929)
Terms of agreement
between supplier and
purchaser uncertain –
price, place of delivery,
etc. to be determined in
future. D refuses to sell
because P offering price
that D finds insufficient.
court will imply term if possible
a. infer parties’ intentions by looking at past dealings
b. standard of the trade
c. if one party benefitted with condition
Foley v.
that they would abide by K, this points
Classique
towards enforceability of K
Coaches, Limited
i. does not matter that parties said they
(1934)
would agree from time to time because
there was arbitration clause (third party
would intervene) – so not an agreement
to agree
d. market standards
Hillas v. Arcos (1932)
note that: Classique Coaches was seeking to get
an unfair advantage (i.e. paying less for the land)
 this probably influenced court’s reasoning
Courts will try, wherever possible, to give legal
effect to any clause that the parties clearly
understood and intended was to have legal
Empress Towers
v. Bank of Nova
Scotia (1990)
P sells gas; D owner of
motor coaches.
Agreement for D to buy
land beside P for $1100;
agreement contingent on
D agreeing to purchase
all gas from P. After 3
years, arguments about
price and quality of gas.
D decided that since
price was not part of the
agreement (agreement
said parties would agree
to price from time to
time), K was
insufficiently clear, so
unenforceable. D refused
to buy any more gas but
wished to keep land.
Did not fix rent into K on
renewal because it was
recognized that markets
3
effect.
e. a K demands a degree of diligence; it must
be negotiated in good faith and the
agreements that constitute it cannot be
unreasonably withheld
f. officious bystander test: imagine a
nosey, officious bystander walking past two
K’ing parties and asking them, whether
they would want to put some express term
into the agreement; if the parties would
instantly reply “of course” the term is apt
for implication
g. business efficacy test: assuming things
to give the deal business efficacy, a term
may be implied; must ask “would the K
make business sense without the term?”
This case really pushes court’s gap filling
abilities to the limit.
should change – it was
stated that the new rent
would be that of market
price agreed upon by
both parties.
Negotiations went on.
Empress Towers finally
responded with a huge
rent to be paid and a
subsequent rent
$5400/month.
Bank refuses. Empress
Towers says Bank must
move.
Correspondence
1) post-box rule: acceptance being placed in the mail established a
K (but this is no longer the automatic rule – must show that it
was reasonable to expect acceptance through mail)
2) where it must have been within contemplation of the parties that
post might be used as means of communicating acceptance, the
acceptance is complete when it is posted
3) revocation has to be communicated (offeree protected because
they are not the party who has control of the mode of acceptance)
4) civilian rule – must have a moment where both minds were one,
so the communication is less important; if cannot find moment
were both parties were of same mind – no K, and communication
was not an issue
5) if offer explicitly states that notice is required in order for
it to be valid then the postbox rule is overridden, even if both
parties contemplated that post might be used for sending
acceptance
6) where the transmission is instantaneous, like a fax or
telephone, the postal rule does not apply
a. but while telephones are instantaneous, modes like email or
fax are more difficult because they may not go through  look
to provincial statute to see how this is dealt with
7) K is under the jurisdiction where the acceptance is received
Henthorn v. Fraser
(1892)
Byrne v. Leon Van
Tienhoven
(1880)
Holwell Securities Ltd
v. Hughes
(1974)
Eastern Power Ltd v.
Azienda
(1999)
Consideration: benefit to the promisor or detriment to the promisee
1) need consideration for enforceability of leaving a promise/offer
open
a. marks the transaction legally as a K
b. evidence that parties themselves treated this agreement as
intending to be legally binding
c. protects reliance
2) a promise in return for a promise is good consideration
3) abstaining from complaining is not adequate consideration – no
right to complain, not a real detriment to promissee
Dickinson v. Dodds
(1876)
White (Executor) v.
William Bluett (1853)
4
4) someone legally entitled to drink, smoke, play cards etc. and
giving them up is good consideration (more specific than just “not
complaining” in White v. Bluett, and he actually had a legal right
to do these things)
5) agreement to pay rent, keep up repairs is consideration
a. some of the reasons for this is due to availability of
documentary evidence, and that the rent was payable directly to
executors, not landlords (so executor, the promissor, benefited)
note that: respect for wishes of testator while a factor in the decision
was not considered good consideration, b/c doesn’t move from plaintiff
6) mutuality: there must be something given in
Tobias v Dick
and T Eaton Co
exchange for a promise; no contract if one
party gets absolutely no benefit
(1937)
a. the arrangement is an offer to allow Tobias
to purchase the machines, and as Tobias
takes each machine, there is a little K
formed
b. but at this point all we have is an
outstanding offer to sell the machines, and
the little separate Ks
7) “A promise may be lacking, and yet the whole
Wood v. Lucy,
writing may be ‘instinct with an obligation,’
Lady Duffimperfectly expressed”
Gordon
8) courts may imply a promise to use reasonable
(1917)
efforts on behalf of the defendant to find a K
a. implied promise to use best efforts in
K performance can be considered good
consideration
b. distinguished from Tobias v. Dick because
Lucy is not making Wood buy anything;
Wood was giving monthly reports to her
(highlights the intention behind the K);
and because agreement was much more
detailed
Hamer v. Sidway
(1891)
Eleanor Thomas v.
Benjamin Thomas
(1842)
Dick has promised to
give Tobias exclusive
selling agency. Tobias
used trickery to get Dick
to sign the agreement.
Tobias made no promise
to buy any machines at
all. Tobias not agent for
Dick since he is not
under any obligation to
sell.
D is a fashionista.
Entered into contract
with Wood to turn her
“vogue into money,” P
gets exclusive right,
subject to approval, to
place her name
endorsements on designs
of others; in return he
gave her half of all profit
made. D breached by
endorsing clothes made
by other manufacturers,
kept profit.
Post-Contractual Modifications
1) K modifications can be rejected for public policy reasons – ex. in
this case, if agreement were enforceable it would enable sailors to
act opportunistically while at sea
2) a promise to do what you are already obliged to do is not good
consideration
3) subsequent modification in K needs fresh
Gilbert Steel Ltd
consideration
v. University
Construction Ltd
(1976)
4) relaxed modern approach to K
modification:
a. IF A is in a K with B to do work/service for
B in exchange for payment from Band if
b. when A has not yet completed the work
Williams v.
Roffey
(1991)
Harris v. Watson
(1791)
Stilk v. Myrick
(1908)
University and Gilbert
had written K for
purchase of steel. Price
of steel goes up and
Gilbert announced an
increase in price which
was agreed to.
Roffey Bros
subcontracted some roof
work to a group of
carpenters, Williams.
Roffey Bros were worried
5
and B has reason to doubt A will or will be
able to complete his side of the bargain,
and
c. B promises A an additional payment in
return for A’s promise to finish his side of
the K (the work) on time, and
d. as a result of this new promise B receives,
IN PRACTICE, a benefit, or avoids a
disbenefit, and
e. B’s promise is not given as a result of
economic duress or fraud on the part of A
THEN the benefit to B can be taken as
consideration for B’s promise; promise can
then be legally binding
5) change in law: variation to an existing K, unsupported by
consideration, is enforceable so long as it is not procured under
economic duress (in this case, court says the GFAA had no
alternative – NAV by statute was required to do this and paid
under protest)
6) differences with Williams v. Roffey
a. NAV probably could have paid – not a case that they were not
able to pay – or they could have just moved the old equipment
b. there wasn’t really a promise to do more – GFAA was dragged
into doing this
c. no doubt on one party not being able to perform
d. GFAA got NAV agreeing to complete K, but there was no
practical benefit
7) absence of economic duress not only essential element
(disagrees with GFAA v. NAV)
Williams would not
complete the work on
time – there are penalty
clauses in the main
contract for Roffey Bros.
Roffey Bros promised to
pay Williams a further
£10,000 when the work
was completed.
Job gets done, but no
payment.
Greater Fredericton
Airport Authority v.
NAV
(2008)
River Wind Ventures
Ltd (2009)
Other Issues With Consideration
8) basic rule = partial-payment of a sum is not good
consideration
9) part-payment can extinguish the whole debt if agreed
10) general rule: if you have genuine belief that you have good legal
claim, then promise to give that claim up is good consideration for
another agreement
11) detriment to promisee can constitute good
Dalhousie
consideration only if it is at request of
College v.
promisor
Boutilier Estate
12) generally promises to give to charity are not
(1934)
legally enforceable
a. a gratuitous promise does not have
sufficient consideration to be considered a
binding contract unless the money was
given for a specific purpose which can be
seen as of some benefit to the promisor
13) for estoppel to apply, the promisee must rely
on actual actions of the promisor, not merely a
statement that they will do something
Foakes v. Beer
(1884)
Law & Equity Act
Fairgrief v. Ellis
(1935)
Boutilier pledged a sum
to Dalhousie prior to his
death, which he never
actually paid despite
being reminded of his
pledge. Dalhousie sued.
Estate argues there was
no consideration given
for Boutilier’s pledge.
6
Intentions
1) presumption that in family and purely social relationships there is
no intention to create a legally binding relationship
a. was the K adapted at some point?  flexibility of the agreement
shows it is a pure family arrangement
2) presumption that agreement is legally binding if business
relationship
3) presumption may be rebutted by clear expression of intent not to
K
Jones v. Padavatton
(1969)
Rose v. J.R. Crompton
(1923)
Non Bargain Promises
Today, promises under seal (without consideration) are still enforced because it gives evidence
of legality, and intention to make K – modern ex. is promise to give to charity.
Past Consideration
1) if you ask someone to do something where there is assumption
that there must be payment, then that is sufficient
consideration – implied promise to pay
a. may use officious bystander test
2) if cannot imply promise for payment, then past consideration
that is executed is not sufficient for future promise
Lampleigh v. Brathwait
(1615)
Roscorla v. Thomas
(1842)
Reliance and Estoppel
1)
2)
3)
4)
5)
Estoppels stop someone from doing something.
Landlord by conduct led
if A leads B to suppose that A’s strict rights
Hughes v.
tenant to believe strict 6will not be enforced, A who might have
Metropolitan
months deadline for repairs
otherwise been able to rely on those rights is
Railway Co
would not be enforced.
estopped from doing so
(1877)
Tenant relied on this.
a. in this case, landlord could probably have
reinstituted his right by giving another
notice
doctrine of promissory estoppel – if a
Central London 1937 High Trees leased a
party makes a promise and the other party
Property Trust block of flats for a rate
£2,500/year from Central
relies upon the promise, the original
Ltd. v. High
promisor cannot take back the promise at a
Trees House Ltd London Property Trust. Due
to the war occupancy rates
later stage (does not matter that there is no
(1947)
were drastically lower.
consideration for the modified K)
Parties made agreement in
promises made do not last forever
writing to reduce rent.
a. promise in this case was made in context
Neither party stipulated the
of war – so reasonable that rent would
period. Over the next 5
increase once war ended  estoppel not
years, High Trees paid the
reduced rate while the flats
applied
began to fill. Central
the difference between High Trees and
London sued for payment of
Hughes is that a term is changing, and
the full rental costs from
parties are enforcing a new promise (not the
June 1945 onwards.
same as the rely/do not rely situation in
previous case)
problem with High Trees: if no consideration
– how would we then tell the difference
between a binding promise and a non-
7
binding promise?
6) estoppel is only a defence, not a cause
of action where one did not exist before
(i.e. promissory estoppel is not a
replacement for consideration)
a. cannot stretch High Trees this far
b. if one of the parties to a K changes the
terms and the change is relied upon, even
in the absence of consideration, he cannot
revert back to the previous legal relations
as if the promise to alter the relations had
not been made by him
c. thus, consideration remains a
necessity for K formation, although not
for its modification or discharge
7) by accepting late payment for so many
times, P gave D false sense of security that
late payment was ok – but SCC says D was
merely taking advantage of the friendship
8) SCC does not say you cannot have estoppel
by looking at conduct, but must have
substantial evidence that would lead a
reasonable person to believe that there
was change in legal relationship (later,
the test developed in Owen Sound)
Combe v. Combe
(1951)
Held: normally
forgoing right to
sue is good
consideration –
but here 1) no
evidence she
promised this, 2)
husband did not
request it so it
does not qualify
as consideration,
3) statutory law
preventing
waiving right to
sue
John Burrows
Ltd. v.
Subsurface
Surveys
(1968)
9) objective test for intentions: would it be
Owen Sound
reasonable for a person to say there was
Public Library
intention to affect legal relations?  this
Board v. Mial
intention can be inferred from evidence
Developments
10) here, estoppel applied to prevent from
Ltd.
terminating K – but ONCA says then
(1979)
Library can sue for damages for breach of K
Held: estoppel
– not precisely suing on the estoppel, but
applied, but K
collecting damages for breach of promise
breached so now
being enforced through estoppel  this is a
can sue.
bold move (how sharp does the shield
have to be before it becomes a sword?)
11) where there has been a true accord under which the creditor
voluntarily agrees to accept a lesser sum in satisfaction of
the greater, and the debtor acts on that accord by paying the
lesser sum, then it is inequitable for the creditor afterwards to
insist on the balance – estoppel applies
a. however, there must be true agreement to lesser sum
b. however, in this case there was no true accord between P and
D, as D’s wife held P to ransom – D told P if he did not accept
lesser sum then he would get nothing
12) should the BCCA say that even though
N.M. v. A.T.A.
Mr. made an agreement to
pay wife $ per year after
they split up. Mrs. claims
she agreed to forego her
rights for recovery in court
in consideration of this.
Husband did not pay $, and
wife sued claiming that he
was estopped from ceasing
his promise because she had
relied upon it.
P and D were friends. P sold
assets to D for $. Balance
was payable by way of a
promissory note. D
deposited shares with P.
Interest is payable monthly.
If default on payment of
interests, then other party
has a right to demand the
full payment immediately.
Payments were often late. P
and D had big fight. P asked
for full payment.
D wants that P submit
documents before payments
made. D requests corporate
seal to validate one of the
subcontractors; not a
required part of K but P
promises to do so. P does
not get seal immediately, so
D does not pay. P cancels K
for failure to pay. D claims
they did not have to pay
until P secured seal.
D. & C. Builders, Ltd. v.
Rees
(1965)
Held: P did not truly agree
to lesser sum, only accepted
because if no $ he would go
bankrupt  no estoppel
applied.
NM made a promise to ATA
8
there was no legal promise between parties,
the promise should be enforced?  Huddard
JA refuses to go so far and says promisee
must have had an expectation of a legal
relationship – i.e. did the parties intend to
affect their legal relations? (Jones)
a. in this case, court refuses to apply
estoppel because no intention to create a
legal relationship
b. furthermore, no mutuality – if he paid off
her debts and she split with him, the
courts could do nothing for him
(2003)
to pay the balance
outstanding on the
mortgage of her home in
England if she moved to
Canada. ATA moved, but
NM refused to pay off the
house in England. NM did
however loan ATA money to
pay off the debt on a
promissory note. Later NM
and ATA split and since
then ATA unable to find
suitable work in either
country.
Unilateral Contracts
An act done in response to an offer. The performance is both consideration and acceptance.
1) acceptance occurs when someone performs, need not notify
Williams v. Carwardine
offeror of performance
(1833)
2) knowing of K matters when completing the performance,
but motivation does not matter in unilateral K
D’s ad said would give £100
3) no notification required to accept
Carlill v.
unilateral K
Carbolic Smoke to anyone who gets sick
after using ball for 3 weeks.
a. here, the ad was a promise and not mere
Ball Company
“£1000 has been deposited
puffery
(1893)
Held: the ad was a
unilateral K.
with bank to show
sincerity”. P gets ball, uses,
got sick. D refuses to pay.
Revocation of Unilateral Contracts
Normal rule for revocation: in unilateral Ks, would allow revocation while someone in
middle of performance of requested action.
Cases where may seem unfair to allow revocation partway through:
1) detrimental reliance
2) unfair enrichment
3) where offeror gains some benefit (possibly non-pecuniary) from part performance
4) where performance requires long-term effort
Ways courts deal with revocation:
1) imply a term that will not revoke (Errington v. Errington)
2) imply/categorize it as a promise for a promise (Dawson v. Helicopter Exploration)
1) if agent allowed to make terms of K, agent can Dale v. Manitoba Access funding by gov.
for ed. Delegated
designate what is performance and acceptance
(1997)
authority to U of M. Gov.
in a unilateral K
changed program, and
2) court can imply term into offer that
by this time U of M had
offeror will not revoke offer once
promised the subsidies
performance commenced
to continue until
3) objective test for offer or acceptance – not
what the party making it thought or intended,
but what reasonable person in position of the
parties would think it meant
Grant v. Province
of New
Brunswick
(1973)
Held: a reasonable
completion.
Gov. offered to purchase
potatoes under
stabilization program.
P’s application to sell
potatoes to gov. denied.
9
person would
think the gov. had
offered.
4) a frequently implied term in unilateral K is that one cannot
revoke once performance has begun
5) courts prefer to interpret Ks as bilateral so parties can
arrange their affairs based on faith in K, knowing it will be
enforced if other party fails to follow through
a. in this case, can imply bilateral K through exchange of
mutual promise (Dawson promised to take Helicopter to
location of minerals and Helicopter promised to provide pilot to
take Dawson)
6) now, you can argue unjust enrichment in this type of case
because: Lac Minerals Ltd. v. International Corona Resources Ltd.
(SCC 1989)  where you transfer confidential information, you
have a fiduciary relationship
Gov. argues it was not
offer; rather, P’s app. to
sell was offer that was
not accepted so no K.
Errington v. Errington
(1952)
Dawson v. Helicopter
Exploration Co. Ltd.
(1955)
Held: bilateral K since
mutual promise –
Dawson promised to
take Helicopter to
location of minerals and
Helicopter promised to
provide pilot.
Third Party Beneficiaries
Doctrine of privity of K: to sue in K, must be party to K, because it was be unfair if you could
sue on the K but not be sued on the K.; if want to sue must provide consideration on the K.
Exceptions:
- agency (Dunlop; NZ Shipping)
- assignment of rights
- trust
- statutory exceptions (ex. Bill of Lading Act and Insurance Acts) (NZ Shipping)
- if parties to K intended to extend privity to 3rd party (Frazer River Pile)
1) privity of K: 3rd party cannot sue in K, even if it was made in
Tweddle v. Atkinson
benefit for him, if not party to K and consideration not moving
(1861)
from him
Dunlop  K with Dew
2) exception to privity of K is if a party named
Dunlop
in the K was acting as an agent of an
Pneumatic Tyre (wholesaler)  K with
Selfridge (retailer); price
unnamed party
Co. Ltd. v.
Selfridge & Co. maintenance agreement;
a. Dunlop argued agency, but consideration to
Selfridge sold to
Selfridge did not come from Dunlop, it was
Ltd. (1915)
individuals below agreed
Dew who gave it
price.
b. nothing to suggest in K that Dew got the
Held: no privity of
price provision for Dunlop = no indication
K because no
that Dew was acting both as principle and
evidence of
also as agent for Dunlop
c. note: if Dunlop had written into K with Dew agency.
that Dew had to enforce price agreement
with retailers, Dunlop would have been able
to sue Dew
Mr. sells business to
3) widow cannot sue as 3rd party but can sue as
Beswick v.
nephew and in return,
administratrix (because then she is party to K)
Beswick
nephew promises to pay
4) note: that today, we would probably solve this
(1968)
Mr. on a weekly salary
issue under an unjust enrichment claim
and when he dies to pay
Held: widow
a. benefit has been transferred to the nephew
widow a weekly
so if he does not pay, he is unjustly enriched successful in claim
10
b. court will order remedy of resulting trust
The Eurymedon
allowance. D fails to pay.
Federal Steam Navigation Co. Ltd
“carrier”
Ajax Machine Tool Co. Ltd.
“consignor”
A.M. Satterthwaite
“consignee” – party to K due to
Bill of Lading statue
as administratrix.
Bill of Lading
(K) – with
liability clause
to £100
NZ Shipping Co. Ltd.
“stevedores” – owner of carrier 
allows carrier to act as agent to NZ
Facts:
 Ajax (consignor) signs a bill of lading with Federal Steam Navigation (carrier) to
transport their drill from England to Satterthwaite (consignee) in New Zealand
 upon arriving in NZ, NZ Shipping Co unloads the drill and, in doing so, damages it
 bill of lading had a provision that limited the liability of Federal Steam Navigation to a
maximum of £100 unless the consignor had paid more, which they had not done
 therefore, Satterthwaite brings an action against the negligent stevedores, NZ Shipping
Co, claiming that as a 3rd party they are not privy to K and therefore not protected by it
(note that Satterthwaite can do NZ Shipping because they do so in tort, not in K – no issue privity)
Issue: Is NZ Shipping (stevedores) protected by the “Himalaya Clause” of the bill of lading?
Held: Yes. Federal Steam Navigation acted as an agent to NZ Shipping in signing the Bill of
Lading with Ajax.
Rationale:
 court employs the exception of agent-principle relationships to extend liability coverage
of the bill of lading to the stevedores
 the parties must show that there was an actual agent-principle relationship:
o first, must show express agency relationship
 there was an express statement in the K that Federal Steam Navigation
was acting as agent for all independent contractors
o second, must show that the agent had the authority to act in this manner
 NZ Shipping Co was the parent company of Federal Steam
Navigation
o third, must show consideration flowing from the party seeking to enforce K
 court finds that the bill of lading was a unilateral K which granted
anyone who transported the goods to receive benefit of the limitation
clause (unloading the machine was performance and consideration both)
 but stevedore was already under duty to unload the machine, so how
could it form consideration? – p.396:it is good consideration if you are
legally bound to one person, to make that promise to another person;
because you are giving the other party a right to sue you (i.e. increasing
legal liability) – which is good consideration
 therefore, the act of the stevedores unloading the drill, though negligently, was
acceptance and consideration of the K and allowed them to be protected by the limited
liability clause
5) K implies that it covers employees since corporation does not have
London Drugs Ltd. v.
hands and feet – it must be the employees who carry out the work
Kuehne & Nagel
6) relaxed agency test to allow employees to benefit from liability
International Ltd
clauses – liability applies to employees when:
(1992)
11
a. the limitation of liability clause must, either expressly or
impliedly, extend its benefit to the employee(s) seeking to rely
on it (here, the clause said it extended to “warehousemen”); and
b. employees must have been acting in the course of their
employment and must have been performing the very services
provided for in the contract between their employer and the
other party when the loss occurred
7) extends London Drugs privity to K exception to all 3rd parties,
not just employees
8) parties to a K cannot unilaterally revoke the rights of a 3rd
party if 3rd parties rights have already crystallized
Held: London Drugs
acting as agents for its
employees, therefore
exclusion of liability
extends to employees.
Fraser River Pile and
Dredge Ltd. v. CanDive Services Ltd
(1999)
Mistaken Identity and Non est Factum – Void and
Voidable Contracts
Void = treat as if K never existed, but cannot get the thing back if A transferred to B – but can
get rights back from 3rd party (nemo dat) (but C can sue B for breach of warranty of title).
Voidable = can still have valid K until one party acts to set it aside – 3rd parties can acquire
rights under K if they are acquired before K set aside.
Rescission = put parties back into original position – not quite the same as void.
Fraudulent misrepresentation: statement made of deliberate lie, or made recklessly (i.e.
not caring if it is true or false), and has a significant impact on the K  voidable.
Mistaken identity  void. [Defence of mistaken identity does not succeed often, primarily
because it has an impact on 3rd parties who do not have a chance to protect themselves.]
Mistake as to nature of document (non est factum)  void.
Chart of Void/Voidable
Void
Mistaken identity
Non est factum
Mistaken assumption as fundamental in Bell
v. Lever sense
Mistake in Terms
Voidable
Unconscionability
Undue influence
Duress
Negligent/fraudulent/innocent
misrepresentation
Mistaken Identity
1) if you intend to K with person in front of
you, believing he is credible when he is not,
then it fraudulent misrepresentation – K is
voidable
a. thus, P cannot recover ring from D, who is a
valid third party purchaser
Phillips v.
Brooks
(1910)
2) presume that person intends to K with person to whom he
is addressing, unless presumption rebutted
3) distinguishes Phillips v. Brooks – said the seller in that case only
knew of name after K was complete  K void in this case
4) when 2 parties create what appears to be a K, fact that one person
is mistaken as to identity of other, does not mean no K, just means
K is voidable – i.e. fraudulent misrepresentation
5) identity must be of vital importance in order for the mistake to
R buying jewelry from P
and says he is “Sir
George Bullough” and
gives address; P checks
address; R pays with
check, which is
dishonoured. R sells ring
to D (does not know
illegality).
Ingram v. Little (1961)
Lewis v. Averay (1972)
12
count as mistaken identity
6) Lord Denning says Phillips and Ingrams are indistinguishable
Non est Factum
7) defence of non est factum is only available where the signer proves
a. signature produced by fraudulent misrepresentation
b. document was, because of a misrepresentation, fundamentally
different from what it was thought to be; and
c. the signer was not negligent in making the mistake – burden
lies with P to demonstrate he has not acted negligently
 consequently, non est factum cannot normally be claimed by
a person of full capacity (non est factum is a doctrine that allows
a signing party to escape performance of the agreement)
8) anyone who is negligent/careless in signing K is precluded
from relying on non est factum as against a person who relies
upon that document in good faith for value
9) policy reason: the party able to prevent the loss through exercise
of reasonable care should bear that loss
Saunders v. Anglia
Building Society
(Gallie v. Lee)
(1971)
Held: Gallie not
negligent because broke
glasses; even if could
read, could not
understand legal jargon;
however, intended
nephew to have house, so
doc. not fundamentally
different  non est
factum fails.
Marvco Color Research
Ltd. v. Harris et al.
(1982)
Held: Ds careless in
failing to read doc. before
signing as both well
educated + understood
mortgages  non est
factum fails.
Contract Interpretation
The Parol Evidence Rule
Parol evidence = evidence of things said or written leading up to and prior to the conclusion of
an agreement between the parties
Parol evidence rules does 2 things:
1) could not admit evidence of what parties said when they reduced their agreement to
a written signed document (many exceptions – ex. fraud, misrepresentation etc.)
2) if can admit the evidence, unless proving something like fraud, cannot use that
evidence to change the meaning of a term of the document, either by adding to it,
varying it, or contradicting it
Parol evidence rule is subject to exceptions (Gallen v. Allstate): when the parties to an
agreement have apparently set down all its terms in a document, extrinsic evidence is not
admissible to add to, subtract from, vary or contradict those terms except
1) to show that the K was invalid due to fraud, misrepresentation, mistake, incapacity,
lack of consideration, or lack of K’ing intention
2) to dispel ambiguities, to establish a term implied by custom, or to demonstrate the
factual matrix of the agreement
3) in support of a rectification claim
4) to establish a condition precedent to the agreement
5) to establish a collateral agreement (Hawrish)
6) in support of claim that document was not intended by the parties to constitute
the whole agreement
7) in support of a claim for equitable remedy, such as SP or rescission, on grounds of
misrepresentation (innocent, negligent, fraudulent)
13
8) in support of a tort claim that oral statement was in breach of duty of care
K that P acquire 4%
1) generally principle: interpret words of K
Prenn v.
interest of D’s company.
as if they intended to do something
Simmonds
D argues a necessary
2) courts will not take evidence of negotiations
(1971)
condition set by K not
into account when interpreting K
satisfied: company must
a. whole point of negotiations is to argue back
earn from than
Held: “profit”
and forth
£300,000. Company did
b. also, vague language in K is not the result of intended to mean
not earn this alone, but
profits of whole
poor drafting – sometimes parties state
did earn it if subsidiaries
group 
words vaguely so it can mean what both
considered.
otherwise, there
parties want it to mean
was no point in
3) courts do look at
having the second
a. aim and genesis of the K = what were they clause, and
trying to do with the K?
otherwise Prenn
b. functioning of the agreement – how it was
would have total
intended to work
control over if
Simmons gets his
c. commercial practices and statutory
shares or not
requirements of how profits are recorded
d. plain meaning of words
e. what the words mean in other sections of the
K
Hawrish v. Bank of
4) parol evidence can be used to establish existence of
Montreal
collateral K
(SCC
1969)
5) cannot use parol evidence to directly contradict a signed, written
document
6) court found against Hawrish – but note that a large part of this
decision probably turned on the fact that there was no evidence
that the oral agreement was ever made
Oral representation
7) substance of parole evidence rule – does it add
Gallen v.
made to P that there
to, subtract, vary, or contradicts the signed
Allstate Grain
would be no problem
document?
(1984)
with weeds in buckwheat
8) important principles:
crop. P then signed
a. contra proferentum – where you have a
Held: oral
standard form K to buy
agreement is a
written doc produced by one of the parties,
seeds from D and sell
collateral K that
and there is an ambiguity in the doc, the
back crop. Clause in K
was made to
ambiguity will be read against the interest
that D will not be
induce customers
of the party who prepared/presented the
responsible for the crop.
to buy product,
document
P prepared substantial
hence oral can be
acreage for the project
b. if there is a collateral K, you must prove
admitted;
and planted seed. Weeds
there was one
principle of
destroyed the crop. P
c. if written K induced by oral
harmonious
suing for breach of
representation that is inconsistent with
interpretation
collateral K.
written K, written K cannot stand
applied: AllState
not responsible for
d. presumption is not equally strong in every
things like natural
case (levels of presumption against oral)
disasters, or how
- adds to K  weak
much Buckwheat
- subtract from/vary  medium
grows, but is
- contradictory  strong
responsible for
- but if there is a general exclusion of
crop destroyed by
liability for any oral rep, and the oral rep.
weeds.
at issue is specific, presumption in favour
14
of written K is less strong
9) principle of harmonious interpretation:
look at document, and representation – can
you read them together to see if they can be
read as not contradictory?
10) old rule was that once document signed, person
Tilden rent-Abound by it – court changed this rule
Car v.
(although only in consumer context)
Clendenning
a. most of the time customers do not read
(1978)
the K, they also know that the Clendenning
did not read it
b. a reasonable person would read the
Held: Clendenning
document as saying that the customer
not bound by the
exclusion clause
would not be liable, and it would be
he signed.
reasonable for the customer to assume that
they were protected
Note: this rule/test
c. particularly onus or stringent terms
applies to any
must be brought to the attention of the
onerous term in
signer
consumer context
d. any efforts to inquire by Clendenning
with standard
would have been futile – the employees
forms, not just
testified that they were told to say that
exclusion clauses.
customer had full coverage
e. there was evidence that customers were
encouraged not to read the K
11) no general requirement that a party tendering document for
signature to tell the party of onerous terms or make sure the party
signing understands the doc. – only where other party should
reasonably know that party signing document does not know the
terms or does not understand them  thus, Tilden Rent-A-Car
ratio should not be seen as wiping out the rule of “you’re
bound by what you sign”
Front of the K said
customer responsible for
a list of things that
might happen, but on the
back there was quite a
bit more. In the back, in
small and faint font, said
that the customer will
not let vehicle be driven
by a person who has
drunk alcohol, whatever
the quantity.
Carol and Silver Store
Mountain Resorts Ltd
(BCSC)
Clauses Excluding Liability
1) reject doctrine of fundamental breach –
instead, whether exclusion clause applies
is a matter of construction
2) 3 major principles of K interpretation
a. contra proferentem
b. if going to limit liability in exclusion
clause, must be clear – and if want to
exclude liability for negligence, must
expressly state it so (cannot use general
words)
c. look at commercial context
3) here, commercial context is that D gave modest
price and had little knowledge about value of
P’s property – suggests that P is the one to
carry the substantial risk of damage and
insure against it
4) presumption against the existence of
unconscionable Ks between sophisticated
Photo
Production v.
Securicor
(1980)
Held: D not liable,
clause applies.
Hunter
Engineering v.
P’s factory burnt down
as result of D’s employee
throwing match, starting
fire. K was for D
(security company) to
patrol P’s factory over
night for small fee.
Limitation clause in K
states that D will only
liable for own negligence
in hiring/supervising
employees but will not be
liable if the behaviour
could not have been
foreseen.
One company bought
gearboxes from 2
15
commercial parties
5) Dickson says if K unconscionable, will not
apply exclusion clause, but if not
unconscionable, then courts only have to
interpret if the exclusion clause applies
6) Wilson and L’Heureux-Dubé want instead to
ask at the final stage: is it fair and reasonable
that the exclusion clause continue to operate
for the party responsible for the fundamental
breach?
a. courts have residual power not to apply
clause wherever it is unfair and
unreasonable
7) test for application of exclusion clauses: does
the exclusion clause apply to the situation
before the court, using the principles of
interpretation?; if so, freedom of K prevails
unless
a. the agreement is unconscionable, or
b. the court nevertheless refuses to enforce the
valid exclusion clause because of the
existence of overriding public policy (not just
talking about unfairness, but a situation
that is quite extreme  ex. balancing
stability/certainty in commercial bargains
vs. public interest in preventing harm)
8) majority said clause does not apply
a. interpret “participating in the RFP” shows
that the parties did not even intend it to
apply to actions outside the RFP – i.e. noneligible bidders
b. document ambiguous, should be interpreted
in favour of Tercon (since gov. drafted the K
 contra proferentum)
c. finally, need to interpret document as a
whole – RFP was very detailed, which
means no sense that gov. can just waive the
whole thing
Syncrude
(SCC 1989)
companies; both whom it
had exclusion clauses;
gearbox failed.
Held: not
unconscionable
and clauses apply
to what happened;
especially since
both were
sophisticated
business partners
so no
unconscionability.
Tercon
Contractors v.
BC
(SCC 2010)
Held: clause does
not apply, but
even if it does,
contra
proferentum since
clause ambiguous.
Note: minority
disagreed because
it is extremely
difficult to know
whether a bid is
compliant or not;
if litigation then
risk is to the taxpayer’s purse, so it
is reasonable for
gov. to make
exclusion as broad
as possible.
Dispute over tendering
process and accepting
bid by ineligible party.
There is an implied duty
to treat all proponents
fairly under K A – that is
the consideration; K A
prevents proponents
from withdrawing bids,
and binds them from
accepting the main
contract, K B, once
selected. There thee was
an exclusion clause
preventing recovery of
damage included by the
gov.
Misrepresentation
Misrepresentation: a false statement made prior to entering into K, whether written or oral,
that is important to formation of K
A tortious action arising in K situations, where one party induces making of K by making a
fraudulent misrepresentation to the other party  remedy is setting the K aside – K is
voidable (as long as no 3rd party involved); and get damages in tort.
Innocent misrepresentation  remedy is rescission of K (rescission means undoing the K
and putting parties back in position they would have been in had the K never been made), but
no monetary damages.
Innocent (Heilbut)
Collateral K
Negligent
Fraudulent (Heilbut)
- no damages
- damages
- damages (tort)
- damages
- rescission IF
- set aside K
possible
16
1) innocent misrepresentation gives no damages, only rescission
2) fraudulent or reckless misrepresentation gives rise to damages
3) burden on P to show misrepresentation was collateral K
a. must look to party’s intentions and show that they had clear
intent to K
4) main point to be asked = how important was the statement to
the K process?; if very important  collateral K
5) note that HL was concerned that collateral Ks was a way of
Heilbut, Symons v.
Buckleton
(1913)
Held: “rubber company”
is not so foundational to
K, so innocent
misrepresentation.
avoiding the principle of no damages for innocent
misrepresentation
6) a warranty must be intended to create K
Bentley
obligations
Productions v.
a. if intelligent bystander would reasonably
Smith Ltd
infer from party’s conduct that warranty
(1965)
was intended, this would suffice
7) if representation made in course of dealings for Held: it is a
the very purpose of inducing the other party to warranty – parties
intended it to have
act on it, and it actually incudes him to act on
K force and
it, that is ground for inferring that the
statement made
representation was intended as a warranty
for purpose of
8) test for collateral K
inducing P to act
a. the statement must be the basis of the sale
on it, and P did act
b. must find that the parties that the party
on it
making the statement would have legal
responsibility for its truth
9) test for innocent misrepresentation
a. representation of fact that unknowingly are false
b. statement does not have to be so important so as to form the
basis of the sale (unlike collateral K)
10) rescission of K is primarily an equitable remedy, and thus had
many requirements
a. must act promptly
b. must come with clean hands
c. must be able to put parties back in original positions (so no
interference with 3rd parties rights)
11) in Sales of Goods Law, Ks divided into 2 types
Leaf v.
a. condition – fundamental term  breach
International
allowed buyer to reject item
Galleries
b. warranty – term of lesser importance in the
(1950)
K (different from how it was used
Held: collateral K,
previously)  breach allowed to sue for
but too long time
damages
passed.
12) here, it was a breach of condition –
fundamental (basically a collateral K),
however, too long time had passed (5 years)
13) a person may be liable for breach of warranty
notwithstanding that he has no K relationship
with the person to whom the warranty is given
 intentions of the party governs and this
may lead to collateral K
Murray v. Sperry
Rand Corp
(1979)
Note: here the
Statement made in
leading up to purchase of
car, statement concerned
number of miles the
engine had done, and
proved to be untrue –
claim is that this was a
collateral K.
Redgrave v. Hurd
(1881)
P bought painting from
D. D represented it was
painting by Constable. 5
years later finds out not
Constable. P wants
rescission. At trial, was
debate on if the painting
was real; if we think
about K as allocating
risks, perhaps the
parties knew there was
some risk involved.
P wanted tractor.
Brochure made one
representation and sales
rep. made another.
Tractor did not perform
17
14) collateral K in this case – representations
made were very clear, specific and made
directly to the farmer, and made to induce him
to buy the machine, which would be
consideration to the manufacturer; but be
very cautious of making collateral Ks like
this as there have not been a lot of cases that
have done this
manufacturer not
party to K, but it
published the
brochure, which
was intended as
sales tool (so treat
it as a promise).
as promised.
The Relationship between Torts and K – Negligent Misrepresentation
1) when lawyers enter K into clients, it had always been held that
there was an implied term in that K, that the lawyer would carry
out the work in a careful and professional reasonable manner 
case law says can sue lawyer in both tort and K
2) negligent misrepresentation:
a. tort law will imply a duty of care when the advisee seeks
information from an advisor who has special skill and where
the advisee trusts the advisor to exercise due care, and that
the advisor knew or ought to have known that reliance was
being placed upon his skill and judgment
b. no reason why cannot use negligence even if no K if someone
undertakes to do something for you – this undertaking
produces a duty, and if they do not carry out that duty
carefully they can be liable for damages suffered
3) nobody ensured Mardon that there would exactly be a certain
output of gas, but it was still a forecast that was relied on, and
there was implied term that this forecast was made with
unreasonable care and skill  the breach is in the failure to
use reasonable care and skill in making the forecast
4) can also find for negligent misrepresentation based on Hedley
Byrne (undertaking + skilled advisor + reliance)
5) where you have possible alternate claims in
Central Trust v.
negligence or K, P can choose whichever
Rafuse
(SCC 1986)
benefits them
a. but if the manner is directly covered by K,
then cannot avoid K by suing in tort – ex. if
K excludes liability in negligence
b. if conflict in damages, courts should sort
them out
Hedley Byrne v. Heller
(1964)
Held: no negligent
misrepresentation since
there was express
disclaimer.
Note: when lawyers
enter K w/ clients, case
law says implied term
that lawyer would carry
out the work in
professional/reasonable
manner; can sue lawyer
in both tort and K.
Esso Petroleum v.
Mardon
(1976)
Lawyer handling affairs
of company and made
stupid mistake;
overlooked something
that was a well-known
provision of corporate
law, caused company to
lose much money –
company sued for
negligence + breach of K.
Residual Powers of the Court in Contract Enforcement
Unconscionability, Undue Influence and Duress
These 3 will all result in court setting aside K – will refuse to enforce the K, and sometimes
may completely rescind it.
Duress asks: was party’s consent given freely?
- simply superior bargaining power is not enough to raise defence of economic duress
when trying to attack the whole K (and not K modification)
- the pressure used must be illegitimate (ex. threat of criminal/tortious conduct)
Undue influence attacks the consent of the person who is entering into the K (idea is that
18
one of the parties has some overwhelming influence upon them that, in effect, means they do
not really consent); once undue influence is established, then onus shifts to other party to show
they took good care of the interests over whom they were exercising the influence.
Unconscionability is a more controversial and new category; it deals in part with free
consent, but more with the fairness of the bargain.
Unconscionability
1) 2 criteria of unconscionability in Canadian law
Marshall v.
– party wanting to use unconscionability has
Canada
burden of proof (although once the prima facie
Permanent
argument is accepted, burden on other party
Trust Co
to rebut it)
(1968)
Held:
a. gross inequality of bargaining power
unconscionable.
b. bargain grossly unfair and improvident
2) K was unconscionable as wife not in position
Mundinger v.
of equal bargaining power and entered into a
Mundinger
grossly unfair bargain with no independent
(1968)
legal advice
P heard D was selling his
land so visited him at old
age home. P agreed to pay
$7000 (considerably less
the market price) and take
over lease.
Divorced W looking to
overturn a separation
agreement which gave her
$10,000 for conveying 2
jointly-owned properties
to H, agreed while
suffering nervous
breakdown, under threat,
duress by H; had gone to a
solicitor but put H in rage,
he gave a bit more money
but not enough to match
value; family physician
and psychiatrist said she
was not in condition to
protect own interests.
Undue Influence
Using undue influence test: (equitable remedy) (Bundy)
1) will overborne
2) proved relation of trust and confidence OR category where relation presumed
3) transaction requiring explanation – burden of proof shifts
2 categories of undue influence: (Bundy)
1) prove K obtained by undue influence (essentially saying that there is another person
who was so dominating that you could not truly consent – now more likely to be dealt
with under duress) (Etridge)
2) relationship of trust and confidence – established in 2 ways
a. prove it
b. specific relationships in which it is presumed that there is relationship of trust
and confidence
- parent-child
- doctor-patient
- religious advisor-disciple
- solicitor-client
- trustee-beneficiary
3) unconscionability requirements satisfied
Lloyd’s Bank v. Bundy
a. inequality of bargaining power (crucial factor was that the
(1975)
bank manager knew the company was going down – he was not
really trying to saved the company, he was only trying to shore
up the bank’s security position)
19
b. and grossly unfair bargain
4) in the alternative, can also prove by undue influence
a. father had proven relationship of trust and confidence with
bank – and bank gained a significant advantage that
needed explaining
5) trust and confidence not presumed in spousal
relationship, but it was proved
6) O’Brien principle = where you have a spouse guaranteeing
another spouse’s loan, if the spouse procuring the guarantee from
his wife exercises undue influence over his wife, the lender will be
held to have constructive knowledge of that undue
influence, and the lender will thus be held responsible for the
husband’s behaviour (applies if relation is non-commercial)
7) the guarantor must explained the risks involved, and make a
decision in the absence of the other person to proceed 
generally done through solicitor’s independent legal advice – bank
must be satisfied that that guarantor knows
a. nature of document
b. practical consequences (ex. lose house, bankrupt)
c. seriousness of risk
d. what the credit line is for
e. what benefits the guarantee will give
f. then check to see if guarantor still wishes to proceed (then
bank allowed to rely on the guarantor’s agreement – and even
if it is later proved that the husband exercised undue influence
on the wife, the guarantee still stands)
8) Canadian courts do not always require an independent legal
advisor for the guarantor, but they still need proof that the
guarantor knew the list of what Etridge sets out above
Royal Bank of Scotland
v. Etridge
(2001)
Issue: what should the
bank do to protect itself
from cases where the
undue influence is
against a 3rd party (wife)?
Note: normally, in order
to affect a transaction,
the undue influence
would have to have been
applied by the other
contracting party or, at
least, the party guilty of
the undue influence
would have had to be
acting for the other
contracting party – the
bank must take steps
here only because of the
O’Brien principle.
Penalties and Forfeitures
Penalty: provision that is included to terrify you into keeping your K obligations.
- penalties are not enforced
- penalties are intended either to terrify the other party into not breaching the K, or
intended to punish the party for breaching the K
Liquidated damages: (which differ from penalties)
- pre-assessment of what damages likely to be suffered, and include that assessment in
the K
- courts do not hesitate to enforce liquidated damages
Problem occurs when provision in K crosses the line, so that it is no longer a liquidated
damage, but a penalty (in terroram).
Forfeitures = K forcing you to give something up (ex. K provides that a breach of K will result
in you giving up piece of land)
- equitable courts believed they could step in and relief parties for forfeiture agreements
- usual relief in cases of forfeiture provision is more time
1) indicia to consider in determining liquidated damage vs.
H.F. Clarke v.
penalty
Thermidaire Corp
a. how does the amount stipulated relate to the reasonably
(SCC 1974)
anticipated damages for breach? (ex. would some of the
breaches be very trivial ones, and some be more serious? – if
Held: provision called for
“gross trading profit”; by
only one sum declared for liquidated damages, it must suggest
definition, this is going to
that one party is not genuinely trying assess what its losses
20
would be)
b. would it be very difficult to determine what losses are? – if too
difficult, makes sense to only fix one sum for liquidated
damages
c. is the amount set out of all proportion to any loss that would
have been anticipated?
be higher than actual
losses that Thermidaire
would procure, so it is
clearly punitive.
Common Law Illegality
Courts usually will not enforce Ks for illegal purposes.
1) basic rule = courts will not assist P whose
Holman v.
K is illegal
Johnson
2) in this case, held K not illegal since P simply
(1775)
sold tea and D did something illegal with it 
the K itself was not illegal
3) Ks in restraint of trade = Ks that limit the ability of
individuals to participate in normal economic affairs
a. worry is that the former employee/vendor takes “good will” of
sold business with them – i.e. take the clients
b. the exception to Ks in restraint of trade is that if they are
reasonable within scope, courts will enforce them
4) difference between employer/employee and vendor/purchaser is
inequality of power, and the restraint having much bigger impact
on the employee – courts will take much tougher view as
what is reasonable in an employer/employee situation
5) general rule = court will not allow criminal Brissette Estate
to profit from his/her own crime
v. Westbury
(irrespective of the ultimate payee of the
(SCC 1992)
proceeds)
6) in this case, what really was happening was
that the children of deceased W was trying to
get insurance proceeds  but court said
insurance made proceeds payable to H, and
since H cannot profit from his crime, children
cannot get it
7) the general rule does not cover completely
Oldfield v.
independent innocent beneficiaries
Transamerica
Life Insurance
8) W completely innocent, and she was the
(SCC 2002)
beneficiary, and thus Brissette does not apply
to this
P sold tea to D, knowing
it was intended to be
smuggled into England.
D failed to pay.
Shafron v. KRG
Insurance Brokers
(SCC 2009)
Held: “Metropolitan area
of Vancouver” is too
vague, and therefore
unreasonable  court
will not enforce.
Couple took out
insurance policy which
both were name as
“insured.” Policy said on
death of one, insurance
paid to survivor. H
murdered W. W’s estate
claims proceeds.
H and W divorced. H
required to maintain life
insurance payable to his
W. H died while in
committing a crime. W
wants to get insurance
proceeds.
Insurance company says
because the insurance
became payable due to
illegally, K
unenforceable.
Statutory Illegality
Sometimes the statue itself provides what happens when K is in violation of a provision.
Problem is what if statute does not say what happens.
1) when K is contrary to public policy expressed in statute, it is
Kingshot v. Brunskill
illegal and no compensation granted
(1953)
K between township and
2) no longer a blanket invalidation of all Ks in
Doherty v.
developer for sale of
contravention of statute
Southgate
21
3) new test for breach of statutory illegality = not
only is it against regulation, but is it contrary
to public policy?
4) factors to taken into account in this case
a. Southgate trying to take advantage of
their own wrong to escape K obligations
b. no evidence that outcome would have been
any different
c. nothing in statue saying what happens if K
breaches statute
d. Doherty had acted in good faith
(2006)
Held: K is still
enforceable
despite being
contrary to
statute.
land. Municipal Act
provided that certain
procedures had to be met
by a municipality prior
to selling land –
including giving public
notice. Township failed
to give notice. Then,
Township failed to rezone land (i.e. breached
K). P sues for breach.
Township claims K void
because they
contravened Act and it
was therefore illegal.
Mitigating the Consequences of Illegality
CC set a limit of 60% interest, although most loan-sharking transactions can set up to 200300%.
Severance: if K has provision that makes K illegal, take blue pencil, and strike a line through
specific words/phrases, and if this edit process can remove the illegality from the K, then the
rest of the K can be enforced without the illegal provision.
- where parties were sophisticated business people, court resorted to severance test (to
preserve for the lender at least some of their return)
- but there are lots of cases of real loan-sharking type situations where court held whole
thing unenforceable
1) blue pencil requires consideration whether illegal K can be
New Solutions
rendered legal by striking out illegal parts in agreement
Financial Corp v.
2) notional severance – if cannot use blue pencil, can read the
Transport NA
whole K down to accepted level of interest
(SCC 2004)
3) but cannot apply notional severance where the ambiguity
is in reasonableness (ex. Shafron and what “Metro Van” is) –
use blue pencil
P granted permanent
4) must look at policy reasons why illegal K
Still v. MNR
resident status subject to
should not be enforced
(1998)
approval. P took this to
5) court considered
mean she could work.
a. she was paying EI the whole time, so her
Held: P is legal
Began work, later
immigrant acting
getting EI benefits not affecting the
granted permanent
in good faith, and
solvency of the EI program
status. P laid off and
no further policy
b. statute did provide penalty for people
applied for
reason not to
knowingly working illegally – she did not
unemployment benefits,
enforce K.
know, so she would get no penalty; but not
but was denied on ground
getting EI is in effect penalty
that K for service was
illegal before permanent
c. purpose of provisions was to prevent illegal
residency granted.
immigrant workers – she is legal
d. she is not really at fault; it is the gov.
document’s fault that the document is so
ambiguous and unclear
Mistakes
Mistake is a residual category – meaning the cases do not fit under the normal heads of breach
of K term, unconscionability, undue influence, duress, misrepresentation, or collateral K.
22
Mistakes About Contractual Terms
1) what would a reasonable person think the
term would mean?
a. if courts can determine, then the meaning
will be enforced
b. if cannot determine, no K
Hobbs v. E & N
Railway
(SCC 1899)
Held: K with
minerals.
2) if term is clearly ambiguous, parol evidence may be used for
purpose of showing what parties believed/intended – but if
cannot determine what parties meant or what reasonable
person would think  no K
3) court says there was K looking at all the circumstances – it
was clear that the “steel” was the scrap, and not the structured
steel
4) only if one comes to the point where cannot determine objective
what the terms were, would the court say no K
P paid D $120 for land. P
thought buying with
minerals, D thought
without. D said in the
office, “land” meant no
minerals.
Raffles v. Wichelhaus
(1864)
“Peerless” case.
Staiman Steel v.
Commercial
(1976)
Mistake in Assumptions
Note: SCC has made very few decisions on K mistake, and Ron Engineering, although earlier
than Great Peace Shipping, it is more in accordance with Great Peace Shipping than Solle.
1) if mistake in fundamental assumption in K  K is void
Bell v. Lever Bros
2) but if mistake in quality of the thing K’ed for  still is a K
(1932)
3) only time you could say that K was affected by one of these
underlying mistakes in assumption, is where mistake is so crucial Held: end result would
be Bell fired anyways, so
that it changes the entire character of the deal
4) this rule is also quite harsh – requires a very high level of mistake court does not set K
aside.
before courts will help  and courts do not really help, they just
destroy the K
5) equitable mistake – if parties were under a
Solle v. Butcher P rented apartment from
D for $250/yr for 7 yrs.
common misapprehension either as to facts or
(1950)
Both parties believed
as to their relative and respective rights,
apartment not governed
provided that
by rent control and this
a. the misapprehension was fundamental and
was good rent. In fact,
b. the party seeking to set it aside was not
max rent was $140. P
himself at fault
now claims lease at
6) problem #1: if Solle is accepted, we must treat
$140.
Bell as solely ruling on common law, and not
equity
7) problem #2: how huge does the mistake
have to be? what is “fundamental?” 
uncertain
8) note that Solle gives courts more flexibility
9) Bell and Solle cannot stand together, thus Solle is overruled
Great Peace Shipping
10) for mistake in assumption to succeed, must have
v. Tsavliris Salvage
a. common mistake in assumption – mistake in assumption as to
(2002)
state of affairs on both sides
b. may be about existence of, or vital attribute of, the
Held: mistake in
assumption claim fails
consideration to be provided, or circumstances that render
because does not make
performance of K to be possible
performance impossible,
c. no warranty made as to existence of the assumption
and K already said what
d. non-existence of the state of affairs is not fault of either party
would happen if
e. non-existence of the state of affairs must render the
cancellation occurred
23
performance of K impossible
f. once all the above satisfied, look to K to ensure that K has not
already allocated risk of the thing that happened
11) note that Great Peace Shipping has not been followed by
Canadian lower courts, they prefer Solle
12) K A: court characterized this as a unilateral K, and said call for
tenders is offer, submission of bid is performance and
consideration  K A is formed prior to information about the one
party’s mistake  K A is validly formed
13) Great Peace said there cannot be anything in the K that already
deals with mistake  there is a provision here, and K A clearly
says deposit is forfeited
14) Estey J. decides on public policy: “the integrity of the bidding
system must be protected where under the law of contracts it is
possible so to do”  i.e. if this tender was so defective that you
could not call it a tender, it would not have been capable of
acceptance and K A would never have formed
R. v. Ron Engineering
(SCC 1981)
Held: K A stands but
probably not K B if bid
selected; court is really
saying that K A is
validly formed, and
mistake does not do
anything to the K
because K A itself
contains provisions as to
what happens – like
Great Peace Shipping.
Rectification of Documents
A claim that both parties made mistake, that their agreement was wrongly written – i.e.
mistake is the written document; does not reflect what parties agreed to  court will rectify
document (i.e. re-written to reflect correct agreement)
P sold 2 businesses to D,
1) in order to get rectification it is necessary to
Bercovici v.
an extra area (Lot 6 in
show:
Palmer
Block 33A) was disputed
a. parties in complete agreement on the terms
(1966)
to be included in the
Held: rectification
of the K but
possible, judgment selling of the 2
b. by an error wrote them down wrong
for P; D never took businesses. D sought to
c. court must be left with no fair and
change the wording from
possession of
reasonable doubt that the deed signed does
Block 33A to 33 (since no
cottage, never
not embody the final intention of the parties
such thing as 33A), while
paid insurance –
2) type of evidence that can be looked at:
etc. so never really P sought to delete
a. documentary evidence
reference to Lot 6
did anything to
b. conduct of parties during negotiations
show they thought altogether.
c. conduct of parties subsequent to signing
they had
possession of it.
Frustration = mistake as to what will happen in the future.
1) general rule = no matter what happens, promises must be kept
2) if K performance depends on the
Taylor v.
continued existence of a person or thing,
Caldwell
and that person or thing ceases to exist,
(1863)
performance may be excused for impossibility
of performance, as long as it is not the fault
of either party that the thing/person has
vanished
3) but if a party gives an express or implied
warranty that that thing will continue to
exist, that party is liable for breach if it ceases
to exist
4) deals with what happens when benefits have conferred and K
frustrated
Paradine v. Jane
(1647)
D K’ed to permit P the
use of the Musical Hall.
K stated that the Hall
must be fit for a concert
but there no express
stipulation regarding
disasters. Hall was
destroyed by fire before
the first concert. Neither
party was at fault.
Frustrated
Contracts Act
24
5) if part of K carried out, you can get some value for the benefit you
conferred on other party
Remedies
Broadly speaking, there are 3 kinds:
1) expectation damage (what would have happened have the K been properly carried
out?) – the normal reward  also usually the highest reward
a. “the party complaining should, so far as it can be done by money, be placed in
the same position as he would have been if the contract had been performed”
(Wertheim v. Chicoutimi Pulp)
2) reliance damages (what have you lost in reliance on the K?) – more usually
rewarded in tort and easier to prove
3) restitution (restores benefit transferred) – requirements
a. loss to innocent party
b. K breaker received a benefit
1) reliance damages is usually the fallback when you cannot
Anglia Television v.
prove expectation damages
Reed
a. Lord Denning says P can have the option of claiming
(1971)
reliance losses rather than expectancy damages
2) P not limited only to expenditures incurred after formation of K in Held: reliance damages
allowed because
a claim for wasted expenditure from a breach of K
expectation too difficult
a. problem: Lord Denning also let them recover for cost occurred
to prove.
before entered into K
b. later cases made it clear that there is limit on expectancy
Note: Esso Petroleum is
damages
another ex. of where
i. cannot claim reliance losses if they would exceed
reliance losses awarded
expectation damages
because in K law you can
ii. maximum claimable amount in reliance is governed by
sue for the fact that
what they would have expected had K been fulfilled
reliance was reasonably
iii. D not liable for P’s failure to make good bargain
made.
Surgery to repair scar
3) court said should have awarded expectancy
Hawkins v.
tissue on hand resulting
damages and not reliance damages (i.e. value
McGee
from burns P sustained.
of hand had doctor delivered on promise, and
(1929)
D gave P a 100%
not how much worse the hand became)
guarantee to repair the
scar. Surgery
unsuccessful.
Specific Performance
1) very rare, and normally not rewarded unless damages not enough
2) if 3rd party legitimately involved in transaction, no specific performance will be
rewarded (Falcke v. Gray) (equity requirement)
3) will not enforce positive contract for servitude (Warner Bros v. Nelson)
4) must come with clean hands (equity requirement)
5) must come promptly (equity requirement)
6) if requires supervision in detail, will not award SP
7) no SP if it would cause severe hardship to performer (Warner Bros)
Remoteness
1) an injured party may recover
a. damages reasonably considered to arise
naturally from a breach of K, or
Hadley v.
Baxendale
(1854)
Shaft in P’s mill broke. P
hired D to transport the
broken mill shaft to an
25
b. anything that is special, or unusual, that is
communicated to the other party
(rationale = if known, other party can shift
risks properly)
2) in this case, common carrier had no way to
refuse shaft, and could not know that mill was
inoperable  it was the Mill’s responsibility to
tell D of the inability
Held: damage too
remote, not
recoverable.
3) in order to make breaching party liable, it is not necessary that he
actually asked himself what loss is liable from a breach; it is
based on whether a reasonable man would see himself
liable for lost profits in the circumstances at time of K
formation
4) court splits profits into 2 categories
a. normal profits
b. especially lucrative K profits
5) background: when ship deviates from route, it
is an extreme breach of K – because there are
always risks to shipping, and deviation
substantially changes the risk  courts always
treat deviation as a fundamental breach in K,
for which damages are payable
6) it is not enough that P’s loss is directly caused
by breach in K, the question is if a reasonable
man in the position of D should realize that
such loss was a serious possibility from the
breach of K (summarizes both branches of the
test)
7) court (traditionalists) said too remote because
the extreme fluctuations happened so quickly –
that it is not reasonable to foresee
8) court (non-traditionalists) adjusted the
foreseeability rules a bit, but also held too
remote  as part of reasonable foreseeability
test is the general understanding of the
industry – that what you get is the difference
in value over the days of which the ship is late
– that is part of the factual matrix of the K
The Heron II
(1969)
Held: damages for
loss awarded –
because it is
reasonably
foreseeable that if
shipping delayed,
prices would
change.
Transfield
Shipping
Held: no
compensation for
the unusual
extreme
fluctuation of
rates – too remote.
engineer in Greenwich to
make duplicate. P told D
that shaft must be sent
immediately. D promised
to deliver next day. D did
not know that the mill
would be inoperable. D
did not transport shaft
as promised, causing
mill to remain shut down
for additional 5 days.
Victoria Laundry v.
Newman
(1949)
Held: profits of normal
business not too remote
because Ds are engineers
who know what boilers
are for, and for that P in
laundry and dyeing
businesses; but profit
from lucrative K from
gov. are too remote.
Koufos chartered a ship
(Heron II) from
Czarnikow to bring 3,000
tons sugar to Basra. Was
9 days late. Sugar price
dropped from £32 10s to
£31 2s 9d. Koufos
claimed difference in the
loss of profit. Czarkinow
knew there was a sugar
market, but not that
Koufos intended to sell it
straight away.
Chartered ship 8 days
late, unusual extreme
fluctuation in rates of
charters at this time;
second charter does not
want to cancel K
entirely, but wants to
rewrite it at the lower
rate; owners claimed the
amount they would have
got had the ship been
returned on time.
Intangible Injuries and Punitive Damages
Aggravated damages = damages for mental distress, upset, emotional distress etc.  normally,
cannot claim damages for emotional distress.
Punitive damages = to punish K breaker; rarely awarded – imposed only if there is highhanded, malicious, arbitrary or highly reprehensible misconduct that departs to a marked
degree from ordinary standards of decent behaviour (Pilot Insurance).
26
1) in certain Ks (entertainment, enjoyment) damages for mental
distress can be recovered in K – if a positive emotional benefit was
the purpose of the K, that is when you can claim damages for loss
of that benefit in mental distress
2) aggravated damages can be claimed when
Fidler v. Sun
a. an important object of the K (not the only
Life
object of the K) is to secure some kind of
(SCC 2006)
psychological benefit
Held: Fidler could
b. degree of mental suffering caused by
get aggravated
breach has to be sufficient to warrant
damages.
compensation
3) if given, punitive damages should be assessed in an amount
reasonably proportionate to such factors as the harm caused,
the degree of the misconduct, the relative vulnerability of the
plaintiff and any advantage or profit gained by the defendant
4) punitive damages are generally given only where the misconduct
would otherwise be unpunished or where other penalties are or
are likely to be inadequate to achieve the objectives of
retribution, deterrence and denunciation
5) threshold question in awarding punitive damages for breach of K
is to find that there has been an “actionable wrong independent of
the loss claim under the K”
6) in this case, insurers are held to have duty of good faith to their
insured (this duty of good faith is the independent wrong)
a. Pilot Insurance broke their provision of K to pay benefit
b. Pilot Insurance also breached their independent duty of good
faith to the insured by persecuting them
Jarvis v. Swan Tours
(1973)
Commercial K to provide
disability insurance to
Fidler; Sun Life broke K
with Fidler (failed to
provide insurance over
many years).
Whiten v. Pilot
Insurance
(SCC 2002)
Arson claim by
insurance company, but
no evidence of this; only
slight evidence was that
the family was in
financial difficulties.
Held: Ps rewarded claim
under fire insurance
policy + legal costs +
punitive damage of $1
million.
Mitigation
1) there is a duty on the P to mitigate their
losses, and they are not allowed the charge
D for losses that they could have avoided
acting reasonably
a. court said if it is a reasonably thing to take
the offer, P should have taken the offer –
and this was not a breach of K that would
render dealings between P and D impossible
2) when someone breaks K in anticipatory
breach, you can accept the termination, sue for
breach, OR can continue to insist on
performance and hold the K open for other
party’s performance
Payzu v.
Saunders
(1919 KB)
Held: P only
recovered for
value of credit
they should have
received, but not
for losses based on
the higher price
they paid.
White & Carter
v. McGregor
(1961)
3) when party commits anticipatory breach of K, other party can
elect to terminate K, sue and mitigate, OR can refuse to terminate
and insist on performance and not mitigate, BUT ONLY IF they
have a reasonable claim for SP
D agreed to sell silk to P
from January-April. Silk
was delivered. Cheque
from P to D delayed. D
said they wouldn’t sell to
P anymore unless they
pay in cash for each
order (instead of
charging credit – this is
a breach of K). P found
somebody else to supply
for a much higher cost.
D’s sales manager
entered into K with P to
display ads on litter bins.
Later that day D wrote
to P to cancel before
anything done. P refused
cancellation, displayed.
Asamera Oil Ltd. v.
Sea Oil
27