Table of Contents
I. CONTRACT FORMATION .............................................................................................................................................................. 2
PROMISSORY ESTOPPEL ................................................................................................................................................... 2
NON EST FACTUM ................................................................................................................................................................ 2
MISTAKEN IDENTITY.......................................................................................................................................................... 3
PRIVITY AND 3P BENEFICIARIES ................................................................................................................................... 3
Test (London Drugs)........................................................................................................................................................... 4
II. CONTENT OF THE CONTRACT................................................................................................................................................... 4
REPRESENTATIONS AND WARRANTIES ...................................................................................................................... 4
Innocent Misrepresentation ............................................................................................................................................ 5
Negligent Misrepresentation........................................................................................................................................... 6
Fraudulent Misrepresentation ....................................................................................................................................... 6
Condition ................................................................................................................................................................................ 6
Warranty................................................................................................................................................................................. 7
Warranty vs. Innocent Misrepresentation: ................................................................................................................ 7
PAROL EVIDENCE RULE (PER) ........................................................................................................................................ 8
Gallen Approach to PER IF THERE IS A WARRANTY AND AN ENTIRE AGREEMENT CLAUSE ................... 9
INTERPRETATION ............................................................................................................................................................. 10
FUNDAMENTAL BREACH ................................................................................................................................................. 10
The Current Test for Exclusion Clauses: ................................................................................................................... 10
III. CONTROL OF CONTRACT POWER ........................................................................................................................................ 10
STANDARD FORM CONTRACTS AND REASONABLE NOTICE............................................................................... 11
Unsigned Agreement/Ticket ......................................................................................................................................... 11
Signed Agreement ............................................................................................................................................................. 11
UNCONSCIONABILITY, DURESS & UNDUE INFLUENCE ......................................................................................... 12
UNCONSCIONABILITY....................................................................................................................................................... 12
BUSINESS PRACTICES AND CONSUMER PROTECTION ACT................................................................................. 12
Duress Test .......................................................................................................................................................................... 14
UNDUE INFLUENCE ............................................................................................................................................................ 14
ILLEGALITY AND PUBLIC POLICY................................................................................................................................. 15
Contrary to Public Policy ................................................................................................................................................ 15
Common Law Illegality .................................................................................................................................................... 15
Statutory Illegality ............................................................................................................................................................ 15
PENALTIES AND FORFEITURES .................................................................................................................................... 16
IV. EXCUSES ........................................................................................................................................................................................ 16
DOCTRINE OF MISTAKE................................................................................................................................................... 16
Mistaken Recording .......................................................................................................................................................... 17
Mistaken Payments ........................................................................................................................................................... 17
Mistake in Formation ....................................................................................................................................................... 17
Mistaken Assumptions .................................................................................................................................................... 18
Equitable Mistake .............................................................................................................................................................. 19
FRUSTRATION..................................................................................................................................................................... 19
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I. CONTRACT FORMATION
PROMISSORY ESTOPPEL
 Common Law estoppel: a party is barred from denying or alleging a certain CURRENT fact or state of facts because of
the party’s previous conduct, allegation or denial
 Roberton Pension: Gov dept says that a particular disease caused by war, guy who has the disease relies on this,
and court holds that gov cannot go back on this as it was a representation of fact which is relied on.
 Promissory estoppel: deals with the representation of FUTURE conduct
 A person will be estopped from adopting a particular cause of action when they said that they wouldn’t or that they
would do something else (High Trees)
 Essentially: using reliance as the basis upon which to enforce a K (reliance is not consideration)
 NOTE: This can be used in lieu of fresh consideration for GTAs – result is that person is estopped from denying
that contract changes took place (High Trees)
 Variation in K must always be a promise to accept less (Gilbert Steel) and never a promise to provide more
(High Trees)
 Promissory estoppel was originally an equitable doctrine – maxims that apply in equity apply here
 Mere acts of indulgence/conduct alone is insufficient for claiming promissory estoppels, there must be some type of
negotiations such that a party would reasonably rely (Subsurface Surveys)
 Counter: Conduct can be sufficient for promissory estoppel if reliance is reasonable (Owen Sound)
Test for Estoppel:
1. There is an existing legal relationship between the parties (NM v. ATA)
a. Generally, this means an existing contractual relationship (so gift cases do not usually meet this requirement)
2. There is a clear promise or representation (note distinction between conduct vs. express negotiations)
3. The promise was made with the intention that it be relied upon and it was in fact relied upon
a. Objective test: would a reasonable person think they could rely on that statement? Consider:
i. Nature of the relationship: past dealings, custom, understanding between the parties
ii. Type of transaction and context: commercial relationship or social relationship (consider if the
parties took the trouble of putting the agreement in writing or other formalities)
iii. Reasonableness and foreseeability of reliance: was the info requested? Is there unfair surprise?
iv. Values/Consequences: what are the consequences of liability or no liability? Should the court aim to
foster care or self-reliance in this situation? Consider the social utility of the promise.
4. There is no reason not to enforce the promise.
Sword vs. Shield (Combes)
 Can NOT use PE as a sword – a cause of action
o Reason: if PE could be used as a sword, there would be no requirement for consideration as an element of an
enforceable promise; every promise that was made would pretty much be enforceable
 Can only use PE as a shield – a defence to prevent the party who made that promise from relying on their strict legal
rights because it would be unfair
o Can’t use it to establish that there was a contract
o Can be used by the plaintiff, it just can’t be the plaintiff’s cause of action
o Can be used to shield a person from a party who agreed to accept less (D&C Builders) but the agreement to
accept less must have been voluntary
NOTE:
 If a party had previously relied on a waiver of rights, the party now seeking to rely on these rights must give notice to
end the waiver and return to their strict legal rights (Hughes)
NON EST FACTUM
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“It is not my deed”
Generally, a person of full age and understanding, who can read and write, is bound by their signature on a legal
document. (L’Estrange) You can’t take advantage of your own carelessness. If you sign, it is almost irrefutable proof
that you accepted the contents (Saunders) Reflects the need for certainty and predictability in commerce.
Non est factum is granted very rarely (Saunders)
Policy: generally the person who signed the document is the least cost avoider and should bear the risk.
Effect: the contract is void
The burden of proof is on the person seeking to rely on non est factum
The mistaken person has an obligation to take all reasonable precautions in the circumstances (generally
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insufficient to say that you relied on the trusted friend)
Test:
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A plea of non est factum is available to a person who, for permanent or temporary reasons, is not capable of reading
and sufficiently understanding the document signed. (i.e. education, illness, incapacity)
The mistaken person must prove that they took all reasonable precautions in the circumstances (Win-Up). It is
generally insufficient to say that you relied on a trusted friend. (Marvco Color)
A plea of non est factum is NOT available where:
a) The signature of the document was brought about by the carelessness of the signer in failing to take precautions
that they ought to have taken (Marvco Color)
b) The actual document is not fundamentally different from the document as the signer believed it to be. (Saunders)
MISTAKEN IDENTITY
o
Policy: Who should bear the loss? Economic analysis generally favours the 3P purchaser as the original seller is in the
best position to avoid the loss at the least cost. To protect themselves, the seller should require full payment in
advance. But the common law traditionally favoured the original property owner (nemo dat)
No offer to rogue – contract void: A-B contract can be characterized as being void ab initio because there was no
offer/acceptance. There was an offer but it was not made to the rogue; it was made to the person the rogue was
impersonating. No contract was formed and as a result no title passes from A to B. B cannot pass any property to C.
Result: A retains title to property. (Ingram v. Little) Contrast with Phillips v. Brooks where the customer’s identity was not
found to be fundamental – the shopkeeper intended only to contract with the customer who entered the store.
Fundamental mistake regarding identity of contracting party – contract void: If A-B contract is void for fundamental
mistake regarding the identity of a contracting party, the contract is void because there was no meeting of the minds.
Result: A retains title to property.
Contract voidable because of fraudulent misrep: A-B contract is voidable because of B’s fraudulent misrep, title passes to B
subject to A’s equitable right to rescind the contract with B and regain title. Could also just sue for damages.
Result: A regains title to property.
Contract voidable because of fraudulent misrep but not avoided before sale to BFP: If B transfers title to C before A finds
out about the fraudulent misrepresentation and rescinds the contract with B, then C, the BFP, acquires the property.
Result: C takes title to property. Lewis v. Avery, Phillips v. Brooks
Codified in Sale of Goods Act s. 28
Comment: These cases all arise in the context of face-to-face dealings. When it happened via mail (Cundy v. Lindsay) the HL
followed the nemo dat principle that there was no contract so the original seller would get the goods back. Newcombe says
that in Canada courts would probably apply the Lewis v. Avery approach in Canada (voidable, bona fide purchaser).
PRIVITY AND 3P BENEFICIARIES
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Privity: Only parties to a K can enforce it. Third parties or strangers to a K have no legal rights even if the K was
intended to benefit them. (Atkinson – marriage money, Beswick - widow, Resch v. Canadian Tire - bicycle)
o Exception: Presumption that employees are third party beneficiaries to an exclusion clause
Rationale for Strict Privity:
o 3P has not provided any consideration, 3P could prevent K modifications since 3P rights could be seen to
have crystallized; preserves the parties’ freedom of K (the right to modify or rescind the K without fear of
liability to a third party)
o Can-Dive states that 3P rights cannot be revoked when they have crystallized
o Economic rationale: encouragement of market based concepts, encourages self-reliance, minimizes
liability for contracting parties
Vertical privity: I.e. manufacturer  distributor  retailer  consumer
o Consumer may be able to sue manufacturer (see representations and warranties)
Horizontal privity: I.e. seller  buyer  user
o User cannot sue the seller in K because no privity (Resch v. Canadian Tire)
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Avoiding Privity:
 Courts will sometimes use a 2-K approach with a unilateral K
 Legislation has been created to remedy 3P issues
 In the absence of legislation, 3 legal relationships are commonly used to circumvent privity:
o Trust: A legal relationship in which one person transfers property to the trustee to hold for the benefit of the
3P, 3P is allowed to sue on K because legal interest is held for their benefit
o Assignment: Transfer of a right from one person to another, usually by way of sale. You can only assign
benefits. Note: with assignments you take subject to all the equities.
o Agency (most common – used “after the fact”): Legal relationship between 2 persons, a principal and an agent,
whereby, the principal grants the agent the authority to act on the principal’s behalf (Dunlop)
Test for Agency: (NZ Shipping)
1. The negotiating parties must have intended that 3P benefit from the contract
2. At the time of formation, agent was acting on behalf of 3P (or at least not to exclusive benefit of themselves)
3. The party that acted as an agent for 3P must have had the authority to do so (can be given retroactively ex post
facto)
 This is usually easiest to establish.
4. There must be consideration moving from the 3P to the non-agent (principal) party.
 This can be the hardest criteria to establish
 Can frame as a unilateral K – if you perform this work, you are covered by the exclusion clause
Employees and Exclusion Clauses
 A big exception to privity of K
 Policy concerns regarding employee liability: unfair surprise, unjust enrichment, business efficacy
 Strong presumption that employee is a 3P beneficiary for the purposes of exclusion clauses. D must rebut this
presumption using London Drugs criteria. You need a clear indication to the contrary to rebut.
Test (London Drugs) (extended to non-employee context in Can-Dive)
1. The limitation of liability clause must, either expressly or impliedly, extend its benefit to the employees (3P)
seeking to rely on it.
a. If not express, how to determine of it is implied: (Laing)
 Look at K contextually, consider the intention of the contracting parties
 Identity of interest between the employer and employee
 If employees perform employer’s contractual obligations, there is an identity of interest
 Any intention that employees were to be excluded? Puts onus on P to establish affirmative intention
for employees to be excluded
 Should the contracting party have known that the performance of K would be done by other party’s
employees? (Compare Greenwood (lease) with London Drugs – need employees to look after item)
2. Employees must have been acting in the course of their employment/performing the very services contemplated for
in K OR the 3P had to be performing the very activities contemplated as coming within the scope of the K
Notes:
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If the London Drugs test doesn’t work, you can still argue agency under NZ Shipping.
Problems that remain for employees: employer may have no insurance or there may be no limitation clause;
therefore employee won’t have any 3rd party rights; employer might not ensure the insurance extends to
employees; employer may expressly decide not to insure employees
Options for employees: Ensure insurance coverage extends to the employees, ensure employee benefits from
waiver of subrogation, self-insure , obtain indemnity from insurer
II. CONTENT OF THE CONTRACT
REPRESENTATIONS AND WARRANTIES
ISSUE: what obligations arise out of the contract? When is the K breached?
Policy Factors:
 Reasonable reliance/expectations vs. unfair surprise
 Risk allocation – economic approach; who should bear the risk that statements in negotiations turn out to be wrong
 Caveat emptor – should have checked it out; if term was important to you, you should have made it an express term
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Business efficiency – who had best, easiest, cheapest position to determine if info was correct/check it?
Categories:
 Categorization is remedy driven; judges decide on the remedy first
 Representations are statements of fact that represent something to be true; they may give rise to liability if they turn
out to be false (misrepresentations)
 Warranties are contractual promises that something is true
 Conditions are very important terms/warranties that are foundational to the nature of the contract
Classification
Remedy
Interest Protected
Mere puff: legally meaningless
None
Caveat emptor
statement
Innocent misrep: a statement
Rescission + restitution; but, if K is fully
Restitution (prevent unjust
made a party who didn’t know it
executed the right to rescind is limited
enrichment)
was false
(Ennis)
Negligent misrep (tort): Did
not know for sure, did not check
Reliance damages (*but can include opp
Reliance
and knew it would be relied
costs! Esso)
upon
Fraudulent misrep (tort):
Knew was not true or was
Rescission and reliance damages
Reliance
reckless as to truth of statement
Warranty: A representation by
the seller that the subject of the
sale has certain characteristics
Expectation damages
Reasonable expectation
that is elevated to a term of the
K.
Condition: A term that goes to
Repudiation and expectation damages
Reasonable expectation
the root of the K
Innominate term (either a
Expectation damages or repudiation
warranty or a condition)
depending on whether the result of the breach
Reasonable expectation
(created by HongKong Fir)
goes to the root of the contract
Rescission: equitable remedy.
Void K: There was no offer/acceptance/consideration – remedy is just restitution or bailment or etc (no contractual
remedies...like reliance – see Redgrave) Once void, not in realm of K law
Voidable – there was a contract but the court can use their jurisdiction to rescind
With rescission you don’t get the right to sue for expectation damages, you just get restitution
Mere Puff
1. A legally meaningless statement of the sort often made by a seller to encourage someone to make a purchase
2. I.e. “This car is a real beauty.”
Innocent Misrepresentation
3. A statement turns out to be false but party making it did not know that it was false
4. Policy: caveat emptor vs. unjust enrichment (conflicting concerns)
o On one hand, we want the buyer to make sure statements are true (get a warranty)
o On the other hand, we don’t want the seller to be able to make more money by misrepresenting/not seeking
information to find the truth – purchase price probably reflected what they said
 A buyer can seek rescission for an innocent misrep even where the buyer had the opportunity to verify the correctness of
the representation and did not. (Redgrave)
 Strong caveat emptor for land (Redican)
Requirements for Innocent Misrep:
1. False representation of fact (difference between fact and opinion)
2. The misrepresentation has to be on an important or material term (not essential though)
3. Has to induce entry into K. Not necessarily the only reason for entering the K but an important factor in K entry.
4. Statement maker did not know the correct facts; is ignorant of the truth
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Remedy:
 Rescission and restitution damages – get back what you paid, no reliance or expectation damages (Redgrave)
 BUT this is only available if two limitations are met:
 Must be possible to return parties to their original positions (restitutio in integrum)
 You have to seek rescission before the whole K has been performed (Redican)
o Courts try to get around this – question of whether K remains executory
o After full performance court will not save you from your bad deal (Redgrave, Redican)
 There is an implied term of reasonable inspection – especially in consumer context (Ennis. Note Leaf
where the court denied the claim for rescission because it was 5 years later)
 Usually you are only aware of the problem much later on, after the reasonable period for inspection
has passed, so you need to sue on the basis that it was a warranty
 Courts are hesitant to order rescission for land contracts because ppl should go check it out for themselves
(Redican)
Negligent Misrepresentation  Concurrent Liability in Contract and Tort
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Fills the gap between fraudulent misrepresentation and innocent misrepresentation
If a man who has or professes to have special knowledge or skill, makes a representation to another – be it advice,
information or opinion – with the intention of inducing him to enter a K – he is under a duty to use reasonable care to
see that the representation is correct, and that the advice, information or opinion is reliable (Hedley Byrne)
Where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both,
subject to any limit the parties themselves have placed on that right by their contract (BG Checo)
o The tort duty is modified only with respect to those wrongs that fall within the scope of the K (BG Checo)
o A pre-K misrep can give rise to an action in tort but not in K (i.e. where a negligent misrep does not amount to
a term of the K but was still reasonably relied upon by the plaintiff in entering into the contract. (BG Checo)
Requirements: Hedley Byrne
 Duty owed – special relationship between speaker and receiver
 False representation
 Statement was negligently made (did not meet the standard of care)
 Reasonable reliance
 Damage (detrimental reliance)
Damages: normal tort measure (reliance damages)
However some courts have included “opportunity costs” in calculating reliance damages – result is that total damage
award ends up being effectively equivalent to an award of expectation damages (Esso)
Fraudulent Misrepresentation
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High standard – have to lie knowingly
o Imposition of a high threshold for a finding of fraudulent misrep (Derry v. Peck)
o Standard of proof is higher than BoP
o Clear evidence that D intended to mislead
Also, if you allege fraud and are unable to prove it, the court imposes significant sanctions/penalties against you
Remedy: Rescission and reliance damages
Policy Interest: Reliance
Condition
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A term that goes to the root of the K
Remedy: repudiation of K and expectation damages
o Relieved of future performance, sue for losses, subject to the obligation to mitigate
Once the good has been accepted and after the period of reasonable inspection is over, a condition may only be
treated as a warranty – same as s.15(4)
Sale of Goods Act:
o S.32: payment and delivery are concurrent conditions – conditions only apply if both are there
o S.39: A buyer is deemed to have accepted the goods if the buyer does something to the goods that is
inconsistent with them not being the owner or a reasonable time elapses
o S.17(1): there is an implied condition that the goods correspond with the description and that they
correspond with the sample
o S.16: There is an implied condition that the seller had the right to sell the goods and an implied warranty
that the buyer can enjoy the goods free from any title claims
o S.18: implied condition as to the quality or fitness of the goods
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If the buyer makes known to the seller the particular purpose for which the goods are required
(express or implied) and the goods are the type that the seller supplies, there is an implied
condition that the goods are reasonably fit for that purpose
 If goods are bought by description from a seller who deals in goods of that description, there is
an implied condition that the goods are of merchantable quality (but if the buyer examined the
goods there is no implied condition regarding defects that the examination ought to have
revealed)
 Implied condition that the goods will be durable for a reasonable period of time having regard
to the use to which they would normally be put and to all the surrounding circumstances of the
sale
S.15(3): a term can be a condition even though it is called a warranty in the K
S.15(1): A buyer can also treat a condition as a warranty if they want and just sue for damages rather
than repudiating
S.15(4): once the K has been executed, a breach of any condition can only be treated as a breach of
warranty – can’t repudiate the contract, can only sue for damages.
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o
o
o
Warranty
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A term of a K that parties intend to be binding but does not go to the very root of the K (i.e. not a condition)
A statement made before K was entered into – usually promise by a seller that subject of sale has certain qualities
Test: "An affirmation at the time of the sale is a warranty provided it appears on the evidence to be so intended."
(Heilbut) This is an objective test (Dick Bentley)
Usually written K is what stands (PER). However, a warranty will be elevated to a term of K. So if statement turns
out to be untrue, it amounts to a breach of K
Leading Authority: Dick Bentley
o person making statement has to prove it was an innocent misrep rather than a warranty
Note that warranties normally pertain to present or past facts. However in Esso Mardon a breach of warranty
was found regarding future facts.
Note: before Dick Bentley the court would use a collateral contract approach to enforce the warranty  it gets
around the problem of finding consideration for the representation made prior to the K. (Murray – unilateral K
was “if you buy this product from our dealer, we promise that the reps in the brochure are true”)
Policy:
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Caveat Emptor – protect your own interests, make sure statement is true
Unfair surprise - one party thought that the statement they made was just part of pre-contract negotiations and
find out that something they said has become part of the contract
Risk allocation - Who ought to bear the risk of the statement? Consider sophistication and knowledge of parties!
Business efficacy – floodgates
Prima Facie Warranty if: (Dick Bentley)
1. A representation
 Warranties can be express or implied (Fraser Reid)
 Oral or written (Murray – written in brochure)
2. Made in the course of dealings
 Can be in a brochure (Murray)
3. Statement intended to induce other party to enter into K
 A statement will be a warranty when the party making the statement intends it to be binding
 So, intention is key but how do we determine intention?
o Objective test – conduct of parties, words, behaviour, rather than their thoughts (Dick Bentley)
o Would a reasonable person infer that it was a warranty? (Dick Bentley)
4. Statement actually induced party to enter into K (reliance)
5. Reliance must be reasonable
 Does party making statement have special knowledge or skill?
PROBLEM – these doctrinal requirements are very similar to innocent misrepresentation – how to tell which a statement is?
Warranty vs. Innocent Misrepresentation:
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Timing of Statement
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A certain amount of puffery is expected at the beginning. The earlier the statement was made in the
negotiations, the less likely that it was a warranty and the more likely it is a “mere puff”
Importance of Statement
 How important was the statement to the person to whom it was made?
 To what extent did it induce entry into the K?
 In Dick Bentley, miles mattered so helped to raise from innocent misrep to warranty
Was the speaker aware of the importance of the statement (foreseeability of reliance)?
 Was the importance of the statement clear to the maker of the statement (warranty) or will that person be
unfairly surprised by finding that it has contractual consequences?
Relative knowledge and skill of the parties
o Does the person making the statement have a special skill or knowledge of the facts upon which the other relies?
Far more likely to be a warranty if party making statement has special knowledge and skill.
o In Dick Bentley, dealer – knowledge and skill = warranty
o Conversely, how knowledgeable is the person to whom the statement is made (which in turn goes to the
reasonableness of her expectations that the statement is true)?
Content of Statement
o How vague/specific was the statement? (More specific = warranty)
o Opinion or fact? (Fact = warranty)
o Obvious statements of opinion will not usually be held to be warranties depending on skill
o Exception: Esso – opinion, but special knowledge and skill – intended it be relied upon
Context
o Was statement made during a casual, informal conversation or in a formal setting?
o Was it an offhand or casual opinion or did it play a central role?
Have the parties taken the trouble to reduce the contract to writing?
o If so – then P had an opportunity to incorporate the statement as a term of the K (caveat emptor) (UNLESS
STANDARD FORM CONTRACT)
o Courts are reluctant to add oral terms to written documents especially where the term significantly adds to or
deviates from the written obligations of the parties (PER)
Disclaimers
o Did speaker say or do anything to disclaim responsibility for it or to prevent the other party from relying
upon it? Was there an exclusion clause?
o D could have taken these precautions
o Court won’t be sympathetic to warranty argument where a clause of K says that you entered into K based on
your own knowledge rather than relying on oral representations from anyone
o USE GALLEN
Price/consideration
o Does the price charged tell us anything about how the parties allocated responsibility for the truth of the
statement (e.g. $7 for ring is different than same ring for $7000)
o Is there a discount involved? This would indicate that perhaps P assumed a greater risk.
G) Innominate Term
 Term that is neither a warranty or a condition at the time that the K is formed, but can give rise to a right to
repudiate after the fact depending on the seriousness of the breach of contract.
 If the injured party has been deprived of substantially the whole benefit of the contract (condition) = repudiation
and expectation damages. If more like a warranty = expectation damages only.
 Identified in Hong Kong Fir Shipping
o Promise that the ship would be seaworthy
o Small breach (missing headlight, which is required by law)  expectation damages
o Big breach (out of commission for a year)  expectation damages and repudiation
 Categorization happens after breach, and depends on how serious the breach is
PAROL EVIDENCE RULE (PER)
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Arises when there is a conflict between the written document and any extrinsic evidence
Sometimes K is silent with respect to this issue BUT sometimes there is an:
o Entire Agreement clause –words of this document constitute the whole agreement (Zippy Print)
 These are very strong in commercial transactions between sophisticated consumers, but if there is a
weaker party (i.e. a franchisee), or a standard form K, or other factors, then the court can do an “end
run” around it
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Exclusion clause – the parties agree that they have made no other representations or warranties about the
condition of the goods outside of the written K (Gallen)
Despite the existence of the clauses above, one party still argues that there is something missing (see Gallen and
Zippy Print)
While this is a procedural rule, it operates substantively (i.e. in the face of a written agreement the prior
representation or statement has no contractual effect)
Evidence of a collateral agreement that contradicts the written document is inadmissible (Hawrish)
Hawrish is not absolute – PER recast as a presumption: If there is a contradiction between the written and oral
agreements, there is a strong presumption that the written K prevails, which can be rebutted by the evidence
“If on the evidence it is clear that the oral warranty was intended to prevail, it will prevail.” (Gallen)
Strength of presumption in favor of the written contract varies depending upon the circumstances: Does it add a
term (weak), vary a term (medium), or contradict a term (strong presumption against)?
Courts should try to interpret the written K and the oral agreement harmoniously (Gallen)
General exclusion clauses will NOT override specific oral representations on points of substance made to induce
the buyer to enter into the K UNLESS the buyer reasonably understands and acknowledges that it does (Zippy Print)
o Consider intent, reliance, reasonable expectation, unfair surprise, seriousness of conflict, nature of the
document and clarity of wording, the type of bargaining relationship (power, evidence of sharp dealings), the
nature of the representation (evidence, clarity)
o What you should do: have a clause whereby the buyer agrees that nothing outside of the written contract
has induced them to buy.
o
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o
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Rationale for PER:
 Creates a good incentive to put everything you are relying on into the written K.
 Administrative/adjudicative ease – court shouldn’t have to sift through conflicting evidence of the parties
 Prevent fraud/perjury
 Enhance certainty, predictability, stability
 Efficacy of commercial documents – reduces transaction costs, protects reliance on written Ks
 Prevent unfair surprise – written K protects expectations of party who relies on written agreement
 Control agents/employees – agents and employees can’t make promises not in the K
Exceptions to PER: (Evidence is admissible where)
1. K is NOT the whole agreement: parties didn’t intend the written K to reflect the entire bargain (Zippy Print)
2. The K was ambiguous
3. The K was invalid: i.e. lack of intention, consideration or capacity
4. There was a misrepresentation: innocent, negligent or fraudulent
5. Mistake: as to the nature or effect of the K
6. Rectification: to correct an error/typo in the written K
7. There was a separate agreement (Collateral Warranty): ‘Two K theory’ – oral rep is part of second, ‘collateral’ K
8. Unconscionability
9. Statutory Override/Consumer Contracts: the Business Practice and Consumer Protection Act states that the PER
shall not operate to exclude evidence – but the presumption in favour of the written K still stands
10. Modifications and discharge
11. Equitable remedy
What is left of the rule? You can’t admit evidence regarding the parties’ subjective intentions during negotiations (Prenn) but
note that there is still a PRESUMPTION in favour of the written document
Gallen Approach to PER IF THERE IS A WARRANTY AND AN ENTIRE AGREEMENT CLAUSE
1.
2.
3.
Is the oral representation a warranty? (Must be a warranty to be elevated to a term of the K)
a. Onus of establishing that there is a collateral warranty is on party claiming that there is one
b. Dick Bentley test
If it is a warranty – try to interpret the oral warranty and the written K harmoniously (Gallen)
a. If there is no express contradiction then no problem. A collateral warranty can add to, subtract from and
vary written document (Gallen)
b. It has to contradict something other than the entire agreement clause!
c. Any policy considerations?
If there is still a contradiction, the Hawrish principle that the written K prevails is the presumption (Gallen)
a. It is a stronger presumption if there is a contradiction, weaker presumption if the warranty only adds a term
b. Rebutting the presumption factors:
i. General (Reliance on oral statement, intent for it to be part of K, reasonable expectations and unfair
9
surprise of party to whom oral statement was made)
ii. Nature of the conflict (How serious of a contradiction)
iii. Nature of the document (Entire agreement clause? Did parties read the agreement? Clear wording?)
iv. Bargaining relationship (Power, standard form K that the party did not read, past relations and
experience, sharp practice)
v. Nature of the representation (Quality and credibility of the evidence, clarity and specificity,
significance)
 In Gallen and Zippy, PER rebutted
S. 187, Business Practices and Consumer Protection Act
 The PER does not exclude evidence relating to the understanding of the parties as to a consumer transaction
 Consumer transaction: from a supplier to a consumer for purposes that are primarily personal, family or household
 NOTE: this only applies to the admissibility of evidence. The presumption/idea that the written K is
binding/trumps, still stands.
INTERPRETATION
1.
2.
3.
Aimed at ascertaining the true intentions of the parties at the time K was signed (Consolidated-Bathurst)
Objective approach to determining the parties intentions. Consider the context of the agreement (B.C.C.I. v. Ali)
Where there is no ambiguity, take the ordinary meaning of the words (Eli Lilly) There is no need for extrinsic
evidence (KPMG) unless the ordinary meaning is contrary to the intentions of the parties (Scott v. Wawanesa)
4. When there’s ambiguity, take the approach which produces a sensible commercial result (Consolidated-Bathurst)
5. Interpretation must give effect to all parts of the agreement. No provision of an agreement should be interpreted to
be redundant, but sometimes courts recognize that agreements contain language that is duplicative.
6. Contra proferentem: ambiguous provisions are to be construed against the drafter.
7. Words are to be given their natural or ordinary meaning but evidence may be admitted to prove that the word has
special or technical meaning.
8. Evidence of prior negotiations is inadmissible for the purpose of construing the final agreement (Prenn)
(rationale: The nature of negotiation is that even if the parties intentions are convergent, they are still not the same
and only the final document will properly reflect a consensus of the parties) but the factual matrix and commercial
context is almost always relevant. (Reardon Smith) Look at whether it’s about the “aim and genesis of the
transaction” (McCammus)
9. Canadian courts are generally flexible when accepting evidence of subsequent conduct (Re CRN)
10. Related agreements may be taken into account where the agreements are components of one larger transaction
FUNDAMENTAL BREACH
 This used to be a way to get out of an exclusion clause in a signed contract
Old Doctrine of Fundamental Breach: where a breach of contract constitutes a radical or fundamental departure from the
obligations set out in the contract, you can’t rely on an exclusion clause (Karsales)
 Tercon: “A court has no discretion to refuse to enforce a valid and applicable contractual exclusion clause unless
the plaintiff can point to some paramount consideration of public policy sufficient to override the public interest
in freedom of contract and defeat what would otherwise be the contractual rights of the party”
 It was a rule of construction (Photo Production) Canada adopted in Hunter Engineering, confirmed that it
doesn’t exist in Tercon
The Current Test for Exclusion Clauses: (Tercon)
1. As a matter of interpretation, does the exclusion clause apply?
a. Depends on the assessment of the intention of the parties
b. Normal interpretation rules apply (contra proferentum, etc)
c. Can be read down (Tercon)
2. If the exclusion clause applies, was it unconscionable at the time the K was made?
a. i.e. professionals cannot contract out of their liability
3. Overriding public policy to not enforce?
a. Burden on the party that does NOT want the exclusion clause to apply
b. Examples: criminality, fraud, abusive conduct (Plastex)
III. CONTROL OF CONTRACT POWER
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Values in Contract Law:
 Freedom of K: the purpose of the enforcement of promises is the realization of the principle of individual autonomy
o Must balance this with fairness, recognizing inequality of bargaining power
 Good Faith and the Protection of Reasonable Expectations
STANDARD FORM CONTRACTS AND REASONABLE NOTICE

Cases often related to disparity in bargaining power – abuse of contract power
Advantages of Standard Form Ks:
1. Reduce transaction costs
2. Terms are based on past experience. They allocate risk and allow for predictability and certainty
3. A standardized term with a fixed meaning reduces “judicial risk” that the term will be interpreted differently
4. Can prevent agents (or employees) from altering terms with the consumer
Disadvantages:
 Often don’t give enough notice and only protect the party who made the K
 No bargaining – terms unilaterally imposed to the benefit of the party who designed the form
 Standard forms can be used to defeat the expectations of the customer
Unsigned Agreement/Ticket
Mellish rule: Where an unsigned written doc contains conditions, party enforcing the conditions needs to show evidence of
assent to the terms, either:
1. Actual knowledge that the document contained conditions (Spurling)
2. Reasonable steps to provide notice that the document contained conditions (Spurling)
a. Particularly onerous provisions require a higher standard of warning (Spurling)
b. Were the steps reasonable? – consider:
 Location of notice
 Textual clarity
 Clarity with respect to format (size, colour of print…)
 Timing (when given)
 Reasonableness of exclusion
 Sophistication of parties
 Speed of transaction
o The law treats notice and signature as substitutes (Parker)
Policy Rationale: Caveat emptor, business efficacy, reasonable reliance by issuer of ticket that acceptance of document
amounts to a representation by customer that they accept terms – issuer entitled to rely on customer’s acceptance of terms,
unfair surprise – to the consumer who didn’t receive notice or where no reasonable steps were taken
Signed Agreement
1.
2.
Begin with the proposition set out in L’Estrange: where a party has signed, they are bound
a. Extended to risky activities in Delaney
Given the circumstances, should a reasonable person know that the party signing was not consenting to the terms in
question? If so, an obligation to take reasonable steps to give notice to the party of onerous terms arises. (Tilden)
Factors:
a. Is the clause inconsistent with the rest of the contract?
i. Clause in an insurance K that excludes coverage for just a tiny bit of alcohol = inconsistent with the
rest of the contract (Tilden)
ii. A Release and Indemnity Agreement = consistent with purpose of K to engage in inherently risky
activity (Karroll)
b. Length and format of the K – is there small print?
i. In Karroll, it was a short, clear agreement she could easily have read, she wasn’t sure whether she
read it or not, Tilden does not apply. She was used to signing these!
c. Time available for reading it and understanding it – was the agreement a standard form K, signed in a
hasty/informal manner?
d. Was it apparent that the party did not read it?
e. Particularly onerous clause? (i.e. an onerous limitation clause, a clause that limits your right to sue)
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3.
4.
If the party seeking to rely on the terms did not take those steps  the clause is not binding
Even if Tilden doesn’t apply, you are not always bound by a signed doc (i.e. duress, illegality, mistake…)
UNCONSCIONABILITY, DURESS & UNDUE INFLUENCE
o
o
o
Unconscionability: focus on overall commercial morality of the bargain in light of both bargain power and the
resulting bargain
Duress: a coercion of will that vitiates consent; focus on the pressure exerted on one party over another
Undue influence: focus on the improper exercise of influence by someone in a special relationship of trust and
confidence
UNCONSCIONABILITY
Cases where there is inequality in bargain power and substantial unfairness in the resulting contract
Is the transaction, seen as a whole, sufficiently divergent from community standards of commercial morality such that
it should be rescinded? (Kreutziger)
o P will argue the broader case of Kreutziger and D will argue the more narrow case of Morrison
o Effect: K voidable  can be rescinded
 Court can also find that a particular aspect of a K is unconscionable and not enforce that term (Plas-tex –
exclusion clause)
o Requirements: (Morrison, Lidder v. Munro)
1. Inequality in bargaining power
 Not merely inequality: the person with the superior bargaining position must have taken
advantage of that position (Morrison v. Coast Finance)
 Contextual factors to consider:
 Economic resources
 Knowledge
 Need/availability of options
 Personal capacity: age, intelligence, illiteracy, language barriers…
 Transactional incapacity: the nature of the transaction and relative abilities of parties
 Disability that falls short of legal incapacity (Diminished capacity after a stroke - Marshall)
 Love
 Relationships that might give rise to undue influence (ie: lawyer/client)
 Personal relationships w/inequality in bargaining power (ie: parent/child)
 Personality
2. Substantial or gross unfairness in the bargain
 Are the terms usual or unusual? Are they consistent with the core and purpose of the K? To what
extent will efficient transactions be enhanced/hindered by allowing the parties to contract on the
basis of unread terms? Has one party said or done anything to create false expectations?
Consider: economic resources, knowledge, need, disability that falls short of legal incapacity, etc.
o
o
BUSINESS PRACTICES AND CONSUMER PROTECTION ACT


o
Addresses certain forms of market failure and disparities between manufacturers/sellers and consumers in terms of
knowledge, bargaining power, and resources
Economic rationales for government intervention in consumer marketplaces:
 Monopoly: ensure a competitive market place; maximize consumer wealth
 Externalities: regulation of product safety hazards and pollution
 Information Failures: to protect consumers from asymmetries in information
 Transaction costs: pursuing complaints cost money and time
 Public goods: government needs to educate consumers about them
Non-economic rationales for government intervention:
 Paternalistic concerns: protection of the gullible and vulnerable by “predatory” sellers
 Redistributive concerns: interest rate regulations; rent controls; statutory warranties; pricing of goods…
S.5 – A supplier must not commit or engage in a deceptive act or practice in respect of a consumer transaction.
Unconscionable acts or practices
8 (1) An unconscionable act or practice by a supplier may occur before, during or after the consumer transaction. (Note
this is what Wilson wanted to protect by keeping fundamental breach)
12
(2) In determining whether an act or practice is unconscionable, a court must consider all of the surrounding
circumstances of which the supplier knew or ought to have known.
(3) Without limiting subsection (2), the circumstances that the court must consider include the following:
(a) Whether the supplier subjected the consumer or guarantor to undue pressure to enter into the transaction;
(b) Whether the supplier took advantage of the consumer given their physical or mental infirmity, ignorance,
illiteracy, age or inability to understand the character, nature or language of the consumer transaction, or any other
matter related to the transaction;
(c) Whether, at the time the consumer transaction was entered into, the total price grossly exceeded the total price at
which similar items were readily obtainable
(d) whether, at the time the transaction was entered into, there was no reasonable probability of full payment
(e) whether the terms were so harsh or adverse to the consumer as to be inequitable;
Prohibition and burden of proof
9 (1) A supplier must not commit or engage in an unconscionable act or practice in respect of a consumer transaction.
(2) If it is alleged that a supplier committed or engaged in an unconscionable act or practice, the burden of proof that the
unconscionable act or practice was not committed or engaged in is on the supplier.
Remedy for an unconscionable act or practice
10 (1) The consumer transaction is not binding on the consumer or guarantor. Many remedies for mortgages.








Consumer: an individual, whether or not in BC
Consumer transaction: has to be for person, family or household
Supplier: an individual, whether or not in BC
Supply: goods, services, real property to a consumer including sale, lease, assignment, award…
Effect: This changes the caveat in consumer transactions to seller beware (NOT buyer beware)
You can’t contract out of your consumer protection rights (s. 3)
Remedies:
o If a consumer has suffered damage or loss due to a contravention of the Act, the person may bring an action
against the supplier in court (s. 171(1))
o The court has a number of remedies available: a declaration that the act or practice contravenes the act; an
interim or permanent injunction restraining the supplier from contravening the act (s. 172(1))
In CL, need unequal bargain as well as unequal bargaining power – it’s unclear under the legislation if you had one
factor (total price far exceeding) and another factor, without unfair bargaining power, if you could find
unconscionability. Seems likely courts will still track to CL test.
Rushak v. Henneken (1991, BCCA) Deceptive statements under the Trade Practices Act, obligation to refrain from
making laudatory statements where there is some knowledge of a problem
Facts: 14 year old car bought from dealer; put in storage for a year and car is rusted through due to latent defect (coated over
with waterproofing); cost of repair is $10,000; P claims deceptive act or practice and statement with effect or capability of
deceiving or misleading consumer. Dealer argues caveat emptor – price was reasonable, no pressure, car checked by mechanic
and dealer urged buyer to take it to a Mercedes dealer
Held: Court holds for P; breach of Trade Practices Act
 Car was from alpine region where lots of salt is used; dealer knew this and knew cars from this area were plagued
with rust problems; he also knew the car had been restored for resale.
 He ought to have known there might be a rust problem and there is no way for P to ascertain that.
 Statute does not create affirmative obligation to disclose BUT imposes obligation to refrain from making
laudatory statements about the car (these would be deceiving or misleading statements under the statute)  the
statement that this was a “good car” was misleading and that was not appropriate without qualifications in this case
 Puffery cannot excuse the giving of an unqualified opinion as to quality when the supplier has factual
knowledge indicating that the opinion may in an important respect be wrong  shift away from caveat emptor
 Anything laudable has to be balanced by truth about negative aspects
DURESS
o Where one party exerts improper pressure or coercion towards another party forcing them to enter into a K or
agree to a particular term against their interest.
o Is the agreement “inequitable, extortionate, and unreasonable”? (Port Caledonia)
o Categories:
1. Duress to person/family – threats of physical harm
2. Duress to goods/property
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3.
o
o
o
Economic duress
a. Now accepted as a sub-category of duress
b. BUT: mere economic pressure is not enough, since commercial transactions often happen under
economic pressure
Historically, courts use the “overborne will” approach (Pao On) The compulsion has to deprive the party of the
“freedom of exercising his will”. Fairness of bargain was basically irrelevant; issue was one of consent
 Effect = the contract was void because duress vitiated consent
Problems with this approach:
 The real issue is unfairness, not a lack of will
 If the issue is seen as consent, and the contract is voided, third parties are not protected
Now: K voidable at the request of the party who was under duress
Duress Test (Universe Tankships – adopted in BC in Gotarverken)***Burden is on plaintiff***
1. Pressure amounted to compulsion of the will of the victim (No longer an issue of consent)
a. The real issue is the “victim’s intentional submission arising from the realization that there is no other practical
choice open to him” (Gotarverken)
b. Relevant factors to look at:
i. Whether the person protested at the time (Gotarverken)
ii. Whether there was an alternative option (Gotarverken)
o Options that result in severe economic damage are not reasonable alternatives
iii. Whether there was independent legal advice (very important factor) (Gotarverken)
iv. Whether, after entering into K, person took prompt steps to avoid it (Gordon v. Roebuck)
2. Pressure exerted was illegitimate
a. Was there a threat of unlawful action? (i.e. threat of some illegal or criminal conduct)
b. What was being demanded? Did involve severe bad faith (i.e. threatening to fire, which would be legal)
c. Mere economic pressure is not illegitimate (Gordon v. Roebuck)
i. P protested, there was no practical alternative open, advised he had no alternative, took steps to
avoid the K BUT did not prove that pressure was illegitimate (so was allowable hard bargaining) And
there wass an open question as to whether a payment was required (Gordon v. Roebuck)
d. Court will not uphold Ks made in an emergency situation where the asking of a higher price reflects extortion
or duress (Post Caledonia)
3. If a court finds that the victim expressly or implicitly approved the K after the pressure ceased, no relief
a. Not complaining afterwards, not repudiating the agreement even after having the opportunity to consult
counsel, continuing to affirm the K  this is approving the K, so K not voidable (Stott v. Merit)
Note: Fairness of bargain is doctrinally irrelevant, issue is consent (but unfairness usually comes in to it)
UNDUE INFLUENCE
o



Undue influence is the unconscientious use by one person of power possessed over another in order to induce the
other to enter a transaction (Earl of Aylesford v. Morris)
Equity’s version of duress
Issue: did the party enter into the K freely and autonomously?
Effect: If UI is found, contract is voidable - the person who was forced to enter into transaction by UI is entitled to set
that transaction aside as against the wrongdoer
Categories:
1. Class 1: Actual Undue Influence
a. Claimant must prove on the facts that the wrongdoer exerted undue influence
b. Can be any circumstance with disparity of bargaining power
c. Claimant must prove that there was a formal relationship and the stronger party in that relationship
exerted undue influence to obtain the K
d. Once claimant proves this, burden shifts to D to disprove
2. Presumed Undue Influence
a. A relationship of trust and confidence exists
i. Class 2(a): De Jure – relationships that raise the presumption of influence automatically
 Solicitor/client
 Doctor/patient
 Trustee/beneficiary
 Fiduciary Relationships
 Religious advisor/worshipper
14
 Spousal relationships are NOT in this category (Bank of Montreal v. Duguid)
 If it falls in one of these categories, the onus shifts to the alleged wrongdoer
ii. Class 2(b): De Facto – a relationship of trust and confidence
 The claimant bears the burden of proving that the relationship is one of trust and
confidence. If established, onus shifts to the alleged wrongdoer to prove there was no UI
 Such a relationship was found between banker and guarantor for son’s mortgage (Bundy)
 Married couples will fall under this category if they can show: (Duguid)
o There is trust and confidence in financial affairs
o There are sexual/emotional ties that can be used a weapon for undue influence
Alternate Scenario: Where P is seeking to set aside a K with a 3P because a wrongdoer exercised UI (i.e. Duguid) I.e. wife
wants to get the agreement with the bank set aside because of husband’s UI
1. Was there actual undue influence? If yes, go to 3.
2. If no actual UI, is there either de jure or de facto presumed undue influence? See above.
3. If there is actual or presumed undue influence:
a. Was the wrongdoer (i.e. husband) an agent of the 3P?
b. If no, did the 3P have constructive notice of the possibility of UI? There is constructive notice where:
o The transaction does not on its face financially benefit the person seeking to have it set aside,
AND
o The person seeking to have the transaction set aside and the wrongdoer are in a relationship that
raises the suspicion of undue influence (any non-commercial relationship)
c. If the wrongdoer was an agent or 3P had constructive knowledge, then the onus shifts to the 3P (i.e. bank)
to rebut the presumption of UI by showing they took steps ensure that the K was entered into freely. They
should have (Etridge – wives guaranteeing husband’s debt):
i. Met with the individual separately
ii. Advised on the risk
iii. Explained the nature of the risk
iv. Urged independent legal advice
d. 3P needs to disprove UI by showing that the K was result of free exercise of independent will (ILA = not
conclusive, but persuasive)
Canada: It isn’t settled that transaction has to be to the disadvantage of the plaintiff – overall, though if for market value
unlikely to win at UI claim.
ILLEGALITY AND PUBLIC POLICY
Contrary to Public Policy: There is an inherent power of the court to set aside contracts that are contrary to public policy;
usually identified as a residual power to address harms where there’s a gap in the law
 Spectrum of ideas:
o Public policy as an unruly horse (Richardson v. Mellish)
o You just need a good judge in the saddle to control the unruly horse (Denning in Enderby Football Club)
 Categories:
o Contracts injurious to the state (i.e. with enemies; for the sale of public offices; bribery/corruption…)
o Contracts injurious to the administration of justice (i.e. not to disclose information in a criminal investigation)
o Contracts involving immorality (i.e. co-habitation agreements between unmarried persons)
 Ie: contract for carriage hire by a prostitute (Pearce v. Brooks)
o Contracts affecting marriage (i.e. restraint on marriage, contract to divorce…)
o Contract in restraint of trade (Shafron)
o Surrogacy contracts (note: in Canada, we have the Assisted Human Reproduction Act to set out rules for this)
Common Law Illegality
 Contracts that involve the contravention of a legal obligation imposed by the common law (i.e. to commit a tort)
Statutory Illegality
 Can arise where the K is expressly or impliedly prohibited by statute, is entered into with the object of committing
an act prohibited by statute, and requires performance contrary to statute, and confers benefits in violation of a
statute
 Easy cases:
o Contrary to criminal law
o Cases where the statute specifically says “no contract shall be entered into…”
15
o Cases where the statute says unlicensed persons may not maintain an action for fees (Ie: Real Estate Act)
 Hard cases:
o Administrative infractions, trivial illegality and where the statute does not address the effect of noncompliance
o Court is not going to let you claim illegality for your own actions if you try to raise illegality as a defence
(Doherty – municipality zoning)
Classical approach: No court will help a person who founds their claim on an illegal or immoral act. K was void ab initio i.e.
neither party is entitled to seek the court's aid, even if the party seeking relief acted in good faith. Ignorance of the law is no
excuse. (Holman v. Johnson)
Modern approach: where a K is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party
seeking to enforce the illegal K where, in all the circumstances of the case, including regard to the objects and purpose of the
statutory prohibitions it would be contrary to public policy to do so
 A contract that contravenes a statute may be void; the court has discretion (New Solutions – credit arrangement read
down to the legal credit rate)
o Notional severance: Reading down the provision to make it legal and enforceable. Court is less likely to simply
say that the K is void. (New Solutions)
 Courts will take a flexible approach: consider the consequences of invalidating the K, the social utility of the
consequences, and the determination of the class of persons for whom the prohibition was enacted (Still)
 Courts have broad remedial discretion in addressing issues of illegality (Still – employment benefits)
o Can sever part of the offending K, may refuse the claim, may provide relief
PENALTIES AND FORFEITURES

Penalty clause: a clause that imposes severe monetary penalties for a breach of a K

NOT enforceable because the sum stipulated is extravagant/unconscionable in comparison to the loss
(Thermidaire - Provision requiring payment of gross trading profit for breach of covenant not to sell competing goods
is “grossly excessive and punitive”)
o A penalty clause will be distinguished from liquidated damages (fair/genuine pre-estimate of damages)

Forfeiture: Deposit is forfeited if purchase not completed by a certain date
o Where no forfeiture clause in the K: Buyer can only recover money if seller terminates the K (i.e. by
recovering the goods), subject to a cross-claim for damages. (Stockloser)
 Stockloser: Vendor claimed to be able to retake possession of machinery and retain all
instalment payments.
o Where forfeiture clause/deposit paid: Buyer cannot recover money at CL, but equity will step in where:
o Effect is penal in the sense that the sum forfeited is out of all proportion to the damage; and
o It would be unconscionable for the seller to retain the money (Stockloser)

S. 24 of the Law and Equity Act: Provides the court with a broad discretion to relieve against all penalties and
forfeitures; they can basically do what they think is fit
IV. EXCUSES
DOCTRINE OF MISTAKE
 When one or both parties are under a mistaken impression of the content, or are mistaken as to the nature
or effect of a contract
 General rule: True ambiguity + about important/fundamental term of agreement – no reason to prefer one party’s
understanding = Agreement may be void for mistake
 NOTE: THIS IS AN ARGUMENT OF LAST RESORT; after you go through other arguments (i.e. is if a puff; is it a
condition…?) THEN consider mistake
 Underlying issue in all cases is the allocation of risk (i.e. which party should bear the disappointment)
General Rule: VERY hard to plead mistake.
Four Types:
1. Mistaken Recording (Rectification)
2. Mistaken Payments
3. Mistake in Formation
4. Mistaken Assumptions
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Mistaken Recording (Rectification)




Written record of an oral K is not an accurate reflection of the oral K
General Rule: Written document prevails.
o Traditionally, the PER prevailed: evidence cannot be admitted to vary the terms of the written agreement
Policy: caveat emptor
Exception: Rectification to allow for correction of typographical errors
o The Plaintiff must… (Performance Industries)
 Prove the existence and content of the correct term in prior oral agreement
o How this is done will depend on circumstances (sometimes witnesses, documents)
o Content must be as of date of signing
 Show “convincing” proof of the oral agreement
o When someone wants the court to rewrite a K for them, they must have a stronger burden of
proof than BoP but not as high as BRD
o Concern: Allowing rectification may promote a lack of due diligence
o The bigger change you want to make to written K, the more convincing your proof must be
o Lack of care doesn’t bar you from meeting this standard, it just makes it harder
o Ambiguous wording (with no prior agreement about what the word means) does not meet this
requirement (Shafron – “metropolitan city of Vancouver”)
 Provide the precise wording for rectification
o Here it will be more difficult in cases where the change is bigger (e.g. add a whole paragraph)
o In Performance Industries it was an easy change (feet to yards)
o Rationale: courts will not create an agreement for the party
 Prove that the other party knew or ought to have known of the mistake in recording (objective test)
o Must prove that not granting relief would be inequitable or unconscionable
o Policy: If court didn’t rectify, court would really be encouraging equitable fraud
o Unjust enrichment factor – D would have unfair advantage AND be unjustly enriched
Plaintiff doesn’t have to prove they did their due diligence (Performance Industries) Courts are reluctant to order
rectification unless there is a smell of fraud (Morely)
Mistaken Payments
o
o
o

General Rule: If there is a mistake in payment, the person who got too much must pay it back.
Policy: unjust enrichment/restitution.
Rare Exception: If you have relied on the mistake and made a change in position.
o Protects reasonable reliance (and making you pay it back would be unfair)
o I.e. You received the money, didn’t know there was an error, you spend the money
Reliance on receipt of money led to a significant change in position – something more than simply spending the
money on normal expenses – must be an act (e.g. the discharge of debt or gift) that would impose an unfair burden
on recipient to return mistaken funds
o Ie: spent the money on something you wouldn’t have if you didn’t get that money
o Ie: you forgave a debt
o Ie: you spend a crazy night on the town, spending more than you normally would (Budai)
Mistake in Formation
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Mistake with regard to the terms of the contract (a mistake in formation of K)
"It is only in a case where circumstances are so ambiguous that a reasonable bystander could not infer a common
intention that the court will hold that no contract was created." (Contrary approach: Staiman – not going to let you
out of K, we’re going to say there was a K for all the old steel)
Use this argument when applying the Smith v. Hughes test for whether there was a K (the objective test for whether
the parties intended to enter into a K).
o Example: Two ships, each party has a different one in mind. No consensus ad idem; K void for mistake.
(Raffles) – would probably be decided differently today b/c ship didn’t go to “fundamental term” of K
General Rule: An agreement may be void for mistake if: (objective test – Smith v. Hughes)
o there is true ambiguity
o the mistake is regarding an important/fundamental term of agreement
o there is no reason to prefer one party’s understanding over the other (Staiman)
Result: Contract is void ab initio even if there was offer, acceptance and consideration
Remedy: Restitutionary damages (prevent UE) – put the parties back in position they would have been.
 Remedy is restitutionary because both parties are technically “innocent”
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Common mistake: Both parties make the same mistake regarding a fundamental fact (res sua, res extincae)
o The K will be void
Mutual mistake: Parties think different things.
o Enforcement depends on, objectively, whether one interpretation is preferred (Staiman)
Unilateral mistake: One part is mistaken about an important fact, the other party knows it – concerns about fraud here
o Courts may or may not enforce the contract – depends on whether the mistake is reasonable or not
Considerations Regarding Mistake:
1. Caveat Emptor: Law should not provide remedy for regret; obligation on parties to ensure their own interests
2. Reasonable expectations, unfair surprise, reliance
a. Price: Determines reasonable expectations
b. Common usage/custom of trade: what could parties would normally expect
c. Knowledge and Skill of Parties: Who was in the best position to clarify the issue
3. Certainty of K and security of contractual expectations: Function of K would be seriously impaired if a party
can back out by alleging mistake
4. Protection of 3P: Protecting 3P by not voiding K between A and B
5. Risk Allocation: K itself should assign risk and courts should not reallocate
a. Ease of Avoidance: who could most easily and cheaply have avoided mistake (generally the seller)
6. Knowledge of ambiguity – quasi-skunky behaviour where one party had knowledge of the ambiguity but lay in
the weeds –parties shouldn’t take advantage of ambiguity
Mistaken Assumptions
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Clarify that you’re arguing under the common law mistake under Lever Brothers
If that test is not met, then note that you’re using equitable mistake from Solle
Occurs when an agreement is reached and is correctly recorded, but one or both parties makes a false assumption
concerning some matter relevant to the decision to enter the K
The mistake relates to the underlying reason or motive of one or both parties for entering into the transaction
General Rule: Caveat emptor - NO relief for mistaken assumptions but see categories below
o Courts especially will not grant relief/void a K when it will affect a third party
Result of the finding of a mistaken assumption: Void K
If the K provides that one party bears the risk of the particular mistake, that party cannot rely on the doctrine of
mistake to have the contract set aside. (Miller Paving – A thought B had fully paid, signed a mutual release)
Look at the factual matrix – which party could be seen to bear the risk of a particular mistake?? (Miller Paving – A
was responsible for correct invoicing, K allocated risk of the mistake to them)
TEST: does the mistaken assumption render the contract void? (Bell)
There are three types of mistaken assumptions that lead to void Ks:
1. Identity of contracting parties (nullifies consent)
a. Intention is to contract with specific people; contact is void if there’s a mistake about this
2. Existence of subject matter (nullifies consent)
a. Res Extincta: where subject matter of contract is assumed to be in existence by both parties, but in fact is not
b. Res Sua: contract of sale of item already owed
3. Quality of subject matter:
a. Both parties make the same mistake about a fundamental underlying assumption
b. It has to be a mistake of both parties “as to the existence of some quality which makes the thing without the
quality essentially different from the thing as it was believed to be” (Bell)
c. Knowledge of the parties at the time the K is formed is important – if there was no way to know what the
subject matter would be, the purchaser took a chance and bears the risk – no mistake found (Backus)
i. An agreement to terminate a breached K and an agreement to terminate an unbroken K are not
sufficiently different to ground a claim of mistake. (Bell)
ii. Leasing a flat at a rate prohibited by statute, where it was believed that the flat wasn’t subject to it,
fails the Bell test, but may succeed in equity. (Solle)
iii. Contracting for a barren cow, but then getting a breeding cow is a mistaken assumption about the
existence of the subject matter (Sherwood)
The test for common law mistake (Great Peace – which overruled Solle in the UK regarding equitable mistake)
1. Common assumption as to existence of state of affairs
2. No warranty by either party that state of affairs exists
3. Neither party at fault
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4. Must render performance of the K impossible (not literally impossible, more like contractual purpose is impossible)
Effect: The contract is void.
Equitable Mistake (Solle)
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Remedy: K is voidable at option of the court
TEST: Equity will relieve a party from the consequence of a mistake where the contract entered into is: (Solle)
1. Under a common and fundamental misapprehension (not your fault)
2. It can be done without injustice to third parties
3. It is unconscientious/unreasonable for the other party to avail themselves of the advantage
Policy considerations: fairness, unjust enrichment (needs something in addition to test to get court to help)
Remedies are more flexible. CL mistake leads to the K being void – equitable jurisdiction allows for the K to be
rescinded on terms = lots of discretion
Examples of when equity may be used: fraud-like actions; material misrepresentations; mistakes by one party
Solle was overruled in Britain by Great Peace Shipping BUT it is still good law in Canada
o Upheld in Williams v. Gled (2006 BC)
If you’re a P you want this test  NOT Bell test because the threshold is lower
FRUSTRATION
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Frustration: a mistake with respect to a future fact or event
To qualify as frustration, an event must change the nature of the outstanding contractual obligations so significantly
that it would be unjust to hold the parties to the contract.
This has to be something that was not known/in existence at time of K formation
The object of the doctrine is to achieve a just and reasonable result following a significant change in circumstances. It’s
a question of who will bear the loss of the frustrating event.
Frustration occurs when an event occurring subsequent to contract formation makes performance legally
problematic. Either:
o Impossible to perform
 Contract for the portrait, and then painter loses sight – impossible to perform
 Music hall lease, and then music hall burns down – (Taylor)
o Undue hardship (event imposes an inordinate and unexpected expense)
The mere fact that a contract becomes more expensive or difficult to carry out is not in itself a sufficient reason to
provide relief; it must be radical, not simply an inconvenience (Colwyn)
The courts will consider the knowledge and expectations of the parties, the context, the nature of the event, and the
terms of the K. (Sea Angel – Charterers assumed the general risk of delay)
The doctrine is not to be invoked lightly. (Sea Angel)
The unexpected event must be so far beyond the range of risks that the contract allocates that it constitutes a
fundamental change in the bargain: “A radical change in circumstances”
EFFECT: Frustration does not make contract void; parties are just relieved of future obligations – see legislative
response below.
Policy Consideration/Issue with Frustration:
 Whether, due to an unanticipated change in circumstances, the risk of undue hardship to one party is so
serious that it will outweigh the general policy of enforcement (caveat emptor)?
 Who should bear the risk of the unforeseen event?
Rules: Plaintiff must establish that
1. The element of the K that is disrupted by the frustrating event is so fundamental such that it would be tacitly
assumed by the parties to be a pre-condition to performance
a. The continued existence of the goods or of the subject matter of the K (Taylor – music hall)
b. The continuation of certain conditions or the happening of an event (Krell – coronation)
c. Rule has evolved to include frustration of commercial purpose- the commercial purpose of the contract no
longer exists (Krell)
2. May be factually possible to perform the contract, but would impose substantial, undue hardship or burden
a. The event must have a major impact on the economics of the transaction – more than a mere increase in
expense that makes the K less profitable
b. Change must be permanent (Colwyn)
c. The event must deprive one of the parties of the substantial intended benefit of the transaction
d. K will be frustrated if the commercial purpose is destroyed (Krell)
3. The frustrating event must be unanticipated
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Must occur after formation (Colwyn)
Cannot be foreseen – was the event of such a character that it cannot reasonably be said to have been in
the contemplation of the parties at the time of formation (Colwyn)
c. Must not be a risk that the parties addressed, nor a risk that the parties should have been expected to
address
d. Sophistication of parties?
4. No allocation of Risk by K
a. Is the risk of the unforeseen event expressly or implicitly allocated in the K?
b. I.e. K is only frustrated IF no force majeure clause in K
5. No Fault
a. The event is beyond the control of the parties and is not caused by one of them
b. Frustration cannot be self-induced (Colwyn)
Frustration in Land Contracts
 Historically, frustration not available for land – land is land – essence of the K is the sale and purchase of land
 Current Rule: land contracts can be frustrated, however only under specific situations (Colwyn)
 If buyer plans to use land for a particular purpose, and vendor is aware of this, and then buyer is no
longer able to use the land for the intended purpose. See the factors above.
History of Frustration
1. Frustration did not render the contract void ab initio – everything done up until the frustrating event was performed
under a valid contract. The contract becomes void at the time of the frustrating event, both parties relieved of future
performance, but left with their losses (Appleby v. Myers)
a. Applied in Krell – D does not get his deposit for the room back
b. Problem: It was totally unprincipled – loss essentially depended on luck
2. Case law reformed this common law rule - changed this remedy to be restitution (Fibrosa Spolka Akelyna)
a. Can recover loses based on restitution, as there is unjust enrichment due to total failure of consideration
b. Problem: Restitutionary recovery is limited to monetary payments; doesn’t apply to expenses incurred in
reliance and sometimes leaves the recipient who has to return the money at a grave disadvantage, as he
might have incurred expenses in connection with the partial carrying out of the contract.
3. Legislative response to deal with this problem: Frustrated Contracts Act
a. Allows courts to apportion any reliance losses, considering pre-payments and expenses incurred
b. Generally 50/50, but can change % split, i.e. if party at fault, or if reliance damages were extravagant.
c. Policy: balances unjust enrichment against reliance
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