CONTRACTS OUTLINE - NEWCOMBE
December 2014
Section 1: Importance of Remedies – 2
Section 2: Offer and Acceptance – 4
1.
2.
3.
4.
5.
6.
7.
Bargain theory. Offer and Acceptance - 4
Tendering Process – 5
Acceptance and Unilateral contract – 7
Battle of the forms – 8
Acceptance – 10
Mailed acceptance – 12
Termination of offer – 14
Section 3: Certainty of Terms – 16
Section 4: Enforcement of Promises – 18
1.
2.
3.
4.
Exchange and Bargains – 18
Past consideration – 18
Consideration – 19
Pre-existing legal duty – 21
Section 5: Promissory Estoppel and Waiver – 25
1.
2.
3.
4.
5.
6.
Background on estoppel – 25
Nature of the representation – 25
The Equities - 26
Notice Retracting a Waiver of Legal Rights – 26
Promisee’s reliance – 26
Sword of shield - 27
Section 6: Intention, Seals and Writing – 30
Section 7: Privity of Contracts – 33
1.
2.
3.
4.
Privity of Contract – 33
Avoidance of the Contractual box – 34
Employee Liability – 35
Legislation - 36
Section 8: Contingent Agreements – 37
1. Type of condition – 37
2. Waiver of condition – 39
3. Damages - 40
Section 9: Representation and Terms – 42
1.
2.
3.
4.
5.
6.
7.
The Issue – 42
Misrepresentation and Rescission – 42
Warranties – 45
Distinguishing between innocent misrepresentations and warranties – 46
Concurrent Liability in Contract and Tort: Negligent Misrepresentation – 47
Parol Evidence Rule – 48
Classification of Terms – 52
1
SECTION 1 – REMEDIES
What is a remedy?
A remedy is the means employed by the court to enforce a right or redress an injury—what does
the court order be done? For example, a court may make a declaration, order money to be paid,
or grant an injunction to stop certain conduct.
Categories of remedies
1.
The principle remedy for breach of contract in common law is damages. Damages
are an award of money by the court that the contract breaker must pay.
2.
Other remedies were developed in the Courts of Chancery or Equity—equitable
remedies such as specific performance: a court order that a contract be performed.
The general principles of damages
The choice of remedy turns upon what interests we are trying to protect and what goals we
are trying to promote through the law of contract.
The general policy: Courts are seeking some fair measure of protection for the plaintiff's
interests without unduly burdening the defendant.
Policy:
Balancing reasonable expectations of plaintiff without unfairly surprising
defendant
Categories of remedies - restitution, reliance and expectation
Interest
Purpose
Measure
Justice
Restitution
Prevent unjust
enrichment to Δ
Benefit to Δ
Corrective
Reliance
Prevent harm to π
Loss to π
Restorative
Expectation
Secure benefit to π
Expected π benefit
Distributive
The expectation measure of damages is the normal measure of contract damages.
Triangle: defendant
Pi: plaintiff
Restitution: unjust gain should be taking away
Reliance: places them in the same situation as before the promise was made.
Expectation: no harm is required for it to take place. As to put the plaintiff in the position she
would have been in if the promise had been fulfilled.
Why award expectation damages? Fuller and Purdue “The Reliance Interest in
Contract Damages”
1.
More effective sanction
2.
Easier to calculate the expected benefit than to measure the reliance occasioned by
the contract; often reliance is difficult to quantify
3.
Policy in favour of promoting and facilitating reliance on business arrangements
4.
Promotes market ordering – future entitlements are the stuff of many market
transactions and thus they have a present value
2
Royalty Rocker
1.
(i)
(ii)
(iii)
Restitutionary Damages
Purpose = prevent unjust enrichment
Measure = benefit to the defendant (Larry) - difference between sale price based on the statement
that the chair was an antique and market value of the replica
Amount = $30 (Larry received $80 for a chair that was worth $50)
2.
Reliance Damages
(i)
Purpose– prevent harm to the plaintiff
(ii)
Measure – loss to the plaintiff. Put Mary back in the position she was in before the transaction
took place. The purpose here is to restore the status quo.
(iii)
Amount
Assets/income
Expenditures
$50 chair
$80 chair
$20 stripper
$100
(iv)
Reliance damages = $50.
Expectation Measurement
(i)
Purpose: Secure benefit to the plaintiff
(ii)
Measure: expected benefit to the plaintiff (Mary). Put Mary in the position she would have been
if the contract had been performed without a breach.
(iii)
To calculate: “Where Would the Plaintiff Have Been Had the Contract Been Concluded” and then
compare with "Where the Plaintiff is Now". The difference is the expectation measure of damages.
Assume Mary started with $1000 in her bank account. Where would she have been if K had been
performed?
Income/Assets
Expenditures
$500 (sale of chair)
$80 (purchase of chair)
$20 (stripper)
$100 (restoration)
$200
Net profit :
$300
She would have $1300 in her bank account.
Where is Mary now assuming breach of contract?
Income/Assets
Expenditures
$50 (the chair)
$80 (purchase of chair)
$20 (stripper)
Totals
$50
$100
Mary would have $900 in her bank account (she spent $100) and a chair worth $50.
To put Mary in the position she would have been in had the chair been a Royalty Rocker, we have to pay
her $50 (her reliance interest) plus the net profit of $300 she would have earned.
Expectation damages are $350:
- $300 in profit
- $20 for stripper (wasted – she would have recovered)
- $30 overpayment (wasted - she would have recovered))
$900 in bank + $350 damages = $1250 in bank, plus she has a chair worth $50.
She now has assets worth $1300, the same amount she would have had had she sold the chair for $500.
3
SECTION 2 – OFFER AND ACCEPTANCE
Stages in the Common Law Contract Making Process
“Puff”/ “mere puff”
Invitation to treat/advertisement/quotation
Offer
Communication of offer
Rejection of offer
Counter-offer
Communication of counter-offer
Receipt of counter-offer
Acceptance of counter-offer
Communication of acceptance
1. Bargain Theory: Offer and Acceptance
Issue: Determination of when communications will give rise to legal obligations.
Policy Framework: Balance the need to enforce promises (reasonable expectations) and the
avoidance of surprising parties with unanticipated liabilities (unfair surprise).
Legal Framework: The balancing takes place (in part) through the rules encompassed by the
bargain theory of contract – namely, those relating to offer, acceptance and consideration.
Test: In resolving questions surrounding offer, acceptance and consideration, courts will adopt an
objective (reasonable person) standard.
The Bargain Theory of Contract
based on a “mirror image” approach.
 One party, the “offeror”, sets out the terms of doing business.
 The “offeree” may either accept or reject the offer. If the offer is accepted, a contract is
created.
 If the offeree does not accept some or all of the proposed terms, the offer has been
rejected.
 The offeree may make a counter-offer and becomes the offeror. This exchange of offers
allows the parties to bargain over the terms of a contract.
Offers must be distinguished from “invitations to treat” or “invitations to offer”, which form
part of the preliminary negotiations.
Offer
The task is to ascertain what communications (offers) will be elevated to the status of legal
offers bearing in mind that the consequences may be very serious – the recipient of the
communication (offeree) thereby enjoys the power to bind the offeror to a contract (an
offer creates the power of acceptance in the offeree) and thus to claim expectation damages.
a. There must be a manifestation of an intent to be bound; generally a mere advertisement,
enticement or invitation to treat (i.e. negotiate) is insufficient
Pharmaceutical Society v. Boots: Display is like an advertisement, when the customer brings
goods to cashier it’s an offer, acceptance is cashier taking money.
b. The offer must be sufficiently specific and comprehensive that the terms of the agreement
can be identified (the problem of uncertainty).
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c. An offer ceases to exist if it is rejected, and in any event expires after a reasonable time,
the length of which is determined by the context
d. An offer can be revoked anytime before being accepted. However, unless the offer has
expired (passage of a reasonable period of time), effective revocation may require notice of
revocation
e. An offer is binding once it is accepted (unequivocally) and thereafter cannot be revoked.
Acceptance
Acceptance by word/return promise produces a bilateral contract; acceptance by
performance results in a unilateral contract.
a. Must be clear manifestation of an intent to be bound.
b. Must sufficiently correspond to the offer; otherwise, it will be viewed as a counter-offer
c. Generally must be communicated to the offeror and must be done before the offer has
expired or been revoked
Canadian Dyers Association v. Burton p. 18
The question is one of intention; and whether a proposal is to be construed as an invitation to deal
or as an offer which can be turned into a binding agreement by acceptance depends upon the
language used and the circumstances of the particular case.
Pharmaceutical Society v. Boots p. 20
The Defendant argued that the contract was initiated when the customer brought the drugs to pay
for them (offer) and the pharmacy would accept the offer when they took the cash. Display of the
price was found to be an invitation to treat.
2. The tendering process
Contracts for the procurement of goods and services, in particular, construction services are
often obtained through a tender process in which the buyer/owner seeks bids/tenders for
the provision of goods and
services.
The call for tenders setting out
the terms upon which the
buyer/owner is interested in
contracting.
The call for
tenders usually includes the
terms and conditions of the
actual construction or services
contract that will be concluded.
The tenderers submit their
tenders in accordance with the
call for tenders.
R. v. Ron Engineering p. 33
5
Tendering process is analyzed as a two-contract approach:
 Contract A: The contract governing the tendering process. The call for tenders is an
offer and the submission of the bid is acceptance. If a bid is accepted, the bidder must
enter into Contract B. The terms of Contract A depend on the call for tenders.
 Contract A will often provide that the bids are irrevocable and that if a bid is
accepted, the bidder must enter into Contract B (the contract for the provision of
goods or services) with the owner. There will often be a “privilege clause” as
part of the conditions, which provides that the owner is not required to accept the
lowest priced tender.
 The owner can generally only accept bids that are compliant with the bid
conditions and has an obligation to treat all bidder fairly.
 Bidders/tenders will normally have to provide a deposit and/or performance bond
to guarantee that if their tender is selected that they will enter Contract B. The
deposit/performance bond is forfeit if the selected bidder fails to enter Contract
B.
 Contract B: The contract for the provision of goods or services with the owner. The
terms and conditions of Contract B (and often the actual text of Contract B) are included
in the call for tenders.
MJB Enterprises p. 36
 SCC clarifies the Contract A and Contract B analysis.
 Contract A does not arise in all circumstances. Whether it does depend on the call for
tenders/request issued by the owner.
o An owner might just say we are interested in receiving expressions of interest for
the project. The court may simply categorize the expressions of interests as
invitations to treat – essentially the owner might be negotiating with multiple
parties.
 No implied term in Contract A that the owner had to accept the lowest bid.
 Court interprets the privilege clause (which reserves to the owner certain rights including
whether to accept or not to accept tenders or whether to accept the lowest tender) as not
including the right to accept non-compliant tenders.
o In this case, the bid that the owner had accepted was non-compliant because the
tenderer had not provided a lump sum price reflecting the risk of the how much
of each type of fill would be required for the project. The owner breached
Contract A by accepting a non-compliant bid.
 Result: MJB awarded lost profits (expectation damages) as a result of not obtaining
Contract B.
Double N Earthmovers v. Edmonton (SCC, 2007) – NOT IN MATERIALS
Contract A has two implied terms:
 to treat all bidders fairly and equally; and
 to accept only a compliant bid.
SALE OF GOODS ACT
72 In the case of a sale by auction the following rules apply:
(a) if goods are put up for sale by auction in lots, each lot is, unless there is evidence to the
contrary, deemed to be the subject of a separate contract of sale;
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(b) a sale by auction is complete when the auctioneer announces its completion by the fall
of the hammer, or in other customary manner, and until that announcement is made a bid
may be retracted;
(c) if a sale by auction is not notified to be subject to a right to bid on behalf of the seller, it
is not lawful for the seller to bid or to employ any person to bid at the sale, or for the
auctioneer knowingly to take any bid from the seller or any such person, and any sale
contravening this rule may be treated as fraudulent by the buyer;
(d) a sale by auction may be notified to be subject to a reserved or upset price, and a right
to bid may also be reserved expressly by or on behalf of the seller, and if a right to bid is
expressly reserved, but not otherwise, the seller or any one person on the seller's behalf
may bid at the auction.
3. Acceptance and Unilateral Contracts
The common law distinguishes between bilateral and unilateral contracts.
(a) Acceptance by word/return promise produces a bilateral contract
 In most cases, the offer is accepted by a reciprocal promise – either oral or written. The
result is a bilateral contract.
 I offer to sell you my boat my boat for $1000. You accept my offer. In this case, we
have reciprocal promises. I have promised to sell you my boat and you have promised
to pay $1000. We have an offer, acceptance and consideration, the consideration being
the mutual promises to buy and sell.
 We have a typical bargain where the parties contemplate a commercial exchange.
(b) Acceptance by performance/action results in a unilateral contract.
 The result is a unilateral contract. In this case, acceptance of the offer occurs by
performance of an action – not by a reciprocal promise.
 The classic illustration is the offer of a reward. My dog Echo is lost. I make an open
offer to the world to reward the finder. If you find Echo and return her to me I will pay
you $1000.
 In this case, the contract is not accepted until performance, i.e. until you find Echo and
return her to me. Once you return Echo to me, you have satisfied the condition of the
offer and are entitled to the reward.
 We have an offer (an open offer to the world), acceptance through performance of the
condition, and the consideration is that I have promised to pay $1000 and you have
performed everything necessary to be entitled to the $1000.
An important difference between unilateral and bilateral contracts
(a)
I offer to pay you $500 if you find my dog (this is a unilateral contract; the offer
is accepted upon performance).
(b)
I offer to pay you $500 for finding my dog. You promise to find my dog (this is a
bilateral contract; exchange of promises)
In (a), the unilateral contract, there is no binding obligation to find the dog. In (b), the
bilateral contract, there is a binding obligation to find the dog. If you fail to find the dog,
I can sue you for breach of contract.
Carlill v. Carbolic Smoke Ball Company p. 25
Reward for use of smoke ball. Case solidified the principle of the unilateral contract in common
law and that there is no requirement to provide notification of acceptance. By asking for
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performance, the offeror has dispensed with the usual requirement that there must be notification
of acceptance.
As the company had put the offer out to the world, the plaintiff was able to accept and enter into
the unilateral contract by meeting the conditions set out in the advertisement. Despite the
arguments of Carbolic, a formal acceptance was implicitly unnecessary due to the phrasing of the
ad.
Goldthorpe v. Logan p. 30
Electrolysis treatment claimed results guaranteed. Court found that it wasn’t puff. Found intention
of oferer by looking at the surrounding circumstances. She was a vendor seeking a purchaser.
Offer made to the public. Any member was free to lend oneself to the terms and conditions and
accept the offer.
Blair v Western Mutual Benefit Association p. 45
Miss Blair was unsuccessful in claiming retirement pay that she argued had been offered in a
resolution made by the Association’s board of directors. BULL J.A. found that in order for any
contract to be upheld there must be a distinct offer made on behalf of the contractor and
communicated. One's action must have consideration of offer for it to constitute acceptance.
McFARLANE J.A. added that it must be showed that she considered it an offer and accepted it in
order to support claims of contractual obligation.
Decided that the resolutions were not meant to be offers.
Williams v Carwardine p. 48
Carwardine’s brother killed. Williams was at the scene of the crime. Defendant offers reward for
information. Plaintiff is attacked by the murderer who knows she witnessed the crime, and
plaintiff then, fearing for her life, provides information leading to murderer’s conviction.
Williams tries to claim reward posted by Carwardine. Carwardine contests the claim, saying that
in offering the information Williams was not acting with the underlying motivation of fulfilling
the contract’s condition. The court determined that Williams is eligible for the reward. Although
Williams’ motivation was not to fulfill the contract, she did have an awareness of the offer and,
through performance, accepted its terms.
R v Clarke p. 49
Clarke provided information leading to the arrest of two murder suspects. Later, he tried to claim
the offered reward, but Clarke stated that he had no intention of claiming the reward when he
decided to give information because he had no knowledge of it. The court held that he had not
accepted the unilateral contract because he had forgotten and given no consideration to the reward
and, thus, could not consent. In providing the information, he did not act in reliance upon the
reward.
4. Battle of the Forms
A common occurrence is that seller and buyer use their own standard form contracts, each
asserting that their terms govern, terms which of course are drawn to benefit them. When a
dispute arises, each party asserts that their form trumps.
Approaches:
1.
First shot rule (Reflected in the Trial Decision): First set of terms governs if they say they
cannot be modified, unless there is a clear disagreement to the acceptance of those terms.
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2.
Last shot rule/performance doctrine (CA – Lawton): Last form wins. Common law
approach, where each communication is viewed as an offer and counteroffer. In the case, seller’s
form will be the last one, with delivery of the goods or services being construed as acceptance of
that form.
3.
Third approach (CA Denning): Reconcile the terms, if contradictory, they cancel each
other out and the court replaces/implies reasonable terms. On this view, the parties’ agreement is
constituted by the terms that are common to their respective forms, together with implied
reasonable terms.
Common law adopts the last shot rule.
Denning’s approach or reconciliation and implication of reasonable terms (also reflected in the
Uniform Commercial Code 2-207) has not been adopted in the UK or Canada.
Note, in many sales cases the last shot will be the seller’s form accompanying the goods, which
the buyer will sign to accept the goods. Thus, although in Butler the buyer prevailed, the last
shot rule generally favor sellers. Note that buyers/receivers can overcomes this by stamping the
seller’s form with a notice saying that the goods are accepted on the buyer’s terms.
Livingstone v Evans p. 52
Evans offered to sell land for $1800. Livingstone counteroffered. Evans refused the counteroffer
by saying “cannot reduce price”. Livingstone sent $1800, but Evans didn’t want to sell anymore
so Livingstone sued for breach of contract. The court found that a counteroffer does constitute a
rejection of the original offer, but Evans’ response that he “cannot reduce price” renewed the
original offer.
Butler Machine Tool Co. p. 54
23 May:
Seller’s offer to sell on stated terms and conditions to prevail over terms in Buyer’s
order (includes price variation clause) OFFER
27 May:
Buyer placed order on its own terms, with tear-off acknowledgment of terms
REJECTION OF OFFER/COUNTEROFFER
5 June:
Seller completes acknowledgment and sends letter stating that order was being
entered into on basis of quote in 23 May letter. ACCEPTANCE, letter referred to
quote as to price and identity.
TRIAL: First shot. Seller’s offer with respect to price subject to material terms cannot be
modified.
CA: Last shot. Last form governs. Buyer prevails and is not subject to price variation clause
Tywood Industries Ltd v St. Anne-Nackawic Pulp & Paper Co. Ltd. P. 56
Sept 19: St. Anne sent “A Request for Quotations” to Tywood that included 13 Terms and
Conditions on the back with no clause regarding arbitration.
Sept 26: Tywood responded with a quotation that had 12 Terms and Conditions on the reverse,
with no clause regarding arbitration but with a clause stating forbidding modification of the
terms.
Jan 6 and July 3: St. Anne sent a purchase order with 19 new Terms and Conditions on the
reverse, including a clause stating controversies would be settled with arbitration.
The issue was which conditions should be followed. The court found that because the plaintiff did
not sign the purchase order and the defendant didn’t complain about lack of signature, neither
party considered any terms found on the reverse of the documents (they just cared about the price
and specifications on the face of the documents) so they did not have to submit to arbitration.
(Reasonable Terms)
ProCD v Matthew Zeidenberg and Silken Mountain Web Services Inc p. 59
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Matthew Zeidenberg purchased ProCD’s SelectPhone product, containing information compiled
from over 3,000 phonebooks. He subsequently started Silken Mountain Web Services and began
selling this information at a lower price online, contrary to the “shrinkwrap” (enclosed) license of
product.
Issue: Must buyers of computer software obey the terms of shrinkwrap licenses? Does the fact
that they are included inside the product and not on external packaging change their legitimacy?
Held: Unless the terms themselves violate the law of contracts, the terms are enforceable. “One of
the terms to which Zeidenberg agreed by purchasing the software is that the transaction is subject
to a license.” In many areas of contract, money is exchanged before the terms are settled. Also for
practical, policy reasons: boxes are only so big and the early development of online software
downloading.
US Uniform Commercial Code
§ 2-207. Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent
within a reasonable time operates as an acceptance even though it states terms additional to or
different from those offered or agreed upon, unless acceptance is expressly made conditional on
assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between
merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time
after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish
a contract for sale although the writings of the parties do not otherwise establish a contract. In
such case the terms of the particular contract consist of those terms on which the writings of the
parties agree, together with any supplementary terms incorporated under any other provisions of
this Act.
5. Acceptance
Courts tend to treat offers as calling for bilateral rather than unilateral action
Problem: The doctrinal common law rule is that an offer can be revoked before acceptance. If an
offer is construed as unilateral, then the offeree might be getting ready to perform or in the middle
of performance when the offer is revoked.
Since a unilateral offer is not accepted until the performance is complete, the effect of the
traditional rule is that the offer could be revoked where the offeree is relying on the offer.
In order to protect the offeree’s reliance, courts tend to categorize offers as calling for bilateral
rather than unilateral action.
Dawson v Helicopter Exploration Co p. 65
Dawson is a prospector with mineral claims that are due to lapse soon. Contact a mining
company. Series of correspondence. Dawson has disclosed enough information for helicopter to
locate the mining and they went there to get the minerals and tried to exclude Dawson.
Policy consideration: unjust enrichment, substantial reliance in this case, business ethic, promotes
good faith.
RAND J. The substantial contention of the respondent is that any offer
contained in the correspondence and in particular the letter of March 5 called
for an acceptance not by promise but by the performance of an act, the
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location of the claims by Dawson for the respondent. It is based upon the
well known conception which in its simplest form is illustrated by the case of a
reward offered for some act to be done.
… The offer was unconditional but contemplated a performance subject to the condition
that a pilot could be obtained by the respondent.
… this interpretation of the correspondence follows the tendency of courts to treat offers
as calling for bilateral rather than unilateral action when the language can be fairly so
construed, in order that the transaction shall have such “business efficacy as both parties
much have intended that at all events it should have”
Silence is not acceptance
Felthouse v Bindley p. 70
The offeror essentially said if I do not hear from you we have a binding contract on my terms.
Decision: Justice Willes determined there was no contract since there was no acceptance and
ruled it a nonsuit. Acceptance cannot be communicated by silence
But acceptance can be implied based on the parties’ conduct and the circumstances
Felthouse v Bindley p. 70
Smith v. Hughes which I adopt as a proper test under the present circumstances:
If, whatever a man’s real intention may be he so conducts himself that a reasonable man would
believe that he was consenting to the terms proposed by the other party and that other party upon
that belief enters into a contract with him, the man thus conducting himself would be equally
bound as if he had intended to agree to the other party’s terms…
**Contracts are looked at from an objective perspective.
Saint John Tug Boat Co v Irving Refinery Ltd p. 73
Tug Boat contracts with Irving to provide a tugboat for a certain period of time. The contract is
extended by Irving twice. After the last extension, Tug Boat continues to provide theboat for
several months, from which Irving benefits. Irving does not pay Tug Boat’s monthly invoices
during this time. Despite inquiries from Tug Boat as to payment and Irving’s knowledge of the
continued service, Irving never opts out of the use of the tugboat.
Did Irving’s acquiescence constitute consent to continue the service under the same terms? Judge
rules that Irving must pay Tug Boat. Binding acceptance can be reasonably inferred because
Irving acquiesced to continued service knowing that Tug Boat expected to be paid.
Kinda applied Smith v Hughes.
… The question to be determined on this appeal is whether or not the respondent’s course of
conduct during the months in question constituted a continuing acceptance of these offers so as to
give rise to a binding contract to pay for the “stand-by” services of the tug at the rate specified in
the invoices furnished by the appellant.
… It must be appreciated that mere failure to disown responsibility to pay compensation for
services rendered is not of itself always enough to bind the person who has had the benefit of
those services. The circumstances must be such as to give rise to an inference that the alleged
acceptor has consented to the work being done on the terms upon which it was offered before a
binding contract will be implied.
Acceptance must be in accordance with terms of offer
Eliason v Henshaw p. 77
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Acceptance was to be at specified place. Acceptance sent to Georgetown. Acceptance was not
in accordance with the terms of the offer. Offeror may dictate terms of acceptance which must be
followed in order for a contract to exist
BUSINESS PRACTICES AND CONSUMER PROTECTION ACT
12 (1) A consumer has no legal obligation in respect of unsolicited goods or services unless and
until the consumer expressly acknowledges to the supplier in writing his or her intention to accept
the goods or services.
(2) Unless the consumer has given the acknowledgment referred to in subsection (1), the supplier
does not have a cause of action for any loss, use, misuse, possession, damage or misappropriation
in respect of the goods or services or the value obtained by the use of the goods or services.
(3) Subsections (1) and (2) do not apply to goods supplied to a consumer on a continuing basis
under a contract between the consumer and supplier.
(4) If it is alleged that the supplier supplied unsolicited goods or services, the burden of proof that
the goods or services were not unsolicited is on the supplier.
13 (1) This section does not apply to
(a) a material change in services referred to in section 25 (4) [continuing services
contract — cancellation], and
(b) a change to the price of goods or services or a renewal of an existing supply of
goods or services if the goods or services are not otherwise changed.
(2) If a consumer is being supplied with goods or services on a continuing basis and there is a
material change in the goods or services, or in the supply of the goods or services, the goods or
services are deemed to be unsolicited goods or services from the time of the material change
unless the supplier is able to establish that the consumer consented to the material change.
(3) Subject to subsection (4), a supplier may rely on a consumer's consent to the material change
if that consent is made by any method that permits the supplier to produce evidence to establish
the consumer's consent.
(4) A supplier does not establish a consumer's consent by providing notice to the consumer to the
effect that the supplier will supply the materially changed goods or services to the consumer
unless the consumer instructs the supplier not to supply the goods or services.
11 (1) In this Division, "unsolicited goods or services" means goods or services that are supplied
to a consumer who did not request them, other than
(a) goods or services supplied to a consumer who knew or ought to have known they
were intended for delivery to another person,
(b) goods or services for which the supplier does not require payment, or
(c) a prescribed supply of goods or services.
(2) For the purposes of the definition of "unsolicited goods or services", a request for goods or
services must not be inferred only from the passage of time or from the consumer's
(a) payment for the goods or services,
(b) use of the goods or services,
(c) request to purchase another similar good or service, or
(d) inaction.
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6. Mailed Acceptance – Correspondence
The postal acceptance rule is an exception to the general rule that the acceptance must be
communicated (and received) by the offeror before there is a contract.
The rule: An offer is accepted when the offeree puts its notice of acceptance in the mail—i.e.
prior to actual receipt of notice by offeror
Application: Applies where use of post is the contemplated method of communication.
Household Fire & Carriage Accident Insurance Co. v Grant p. 79
Does a letter of acceptance being posted, even if it does not arrive, constitute acceptance of the
offer? The post office is the agent between the two parties. When the acceptance letter is given to
the post office the contract becomes binding. The offerer can place restrictions on how the offer
is accepted in their offer to the offeree, Grant did not do this. It would slow down business
transactions if they had to wait on an acknowledgement of the acceptance of the offer.
Holwell Securities Ltd. V. Hughes p. 84
Hughes issues an option to sell property to Holwell. In their offer they stipulate that acceptance
must be made “by notice in writing to the (defendant).” The letter was posted, however it was not
received. Court dismisses the appeal. The postal acceptance rule does not apply in this case
because notification of acceptance was stipulated in the offer. Doesn’t apply when the express
terms of the offer specify that the acceptance must reach the offeror.
Brinkibon LTD (appellants) v. Stahag Stahl UND Stahlwarenhandelsgesellscaft mbH p. 87
In order to do so the buyers (respondents) must show that the contract was made within England
(contract with Austrian company). Telex (an old-school form of text messaging) constitutes a
form of instantaneous communication. General rule of contracts is that a contract is formed when
acceptance is communicated by offeree to offeror. Contract is formed where the acceptance is
received.
If acceptance made by post: done when put in the hands of post office in England.
If acceptance done by phone: done when heard by the offeror in Vienna.
Rudder v Microsoft Corp p. 91
Clause in the MSN contract specifying the forum where dispute would be argued: Washington.
The forum selection clause is enforceable. The entire agreement was readily readable by using the
scrolling function, and subscribers also had to click “I agree” twice. Furthermore, there were no
terms in the Agreement that were harder to read than others, so no special notice of the forum
selection clause was required. Finally, while plaintiffs wanted all clauses in the Agreement but
the forum selection clause to be enforced, the judge reasoned that to give legal effect to only
some clauses would not be in the interest of commercial certainty.
E-commerce (British Columbia, Electronic Transactions Act)
- enabling statute; does not create substantive rules for e-commerce contracts
- offer and acceptance can be in electronic form
- weight of opinion is that instantaneous communication rule applies to email
- acceptance when and where received by the offeror (section 18(2))
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18 (1) Unless the originator and addressee agree otherwise, information or a record in electronic
form is sent when it enters an information system outside the control of the originator or, if the
originator and the addressee are in the same information system, if the information or record
becomes capable of being retrieved and processed by the addressee.
(2) If information or a record is capable of being retrieved and processed by an addressee, the
information or record in electronic form is deemed, unless the contrary is proven, to be received
by the addressee
(a) when it enters an information system designated or used by the addressee for the
purpose of receiving information or records in electronic form of the type sent, or
(b) if the addressee has not designated or does not use an information system for the
purpose of receiving information or records in electronic form of the type sent, on the
addressee becoming aware of the information or record in the addressee's information
system.
(3) Unless the originator and the addressee agree otherwise, information or a record in electronic
form is deemed to be sent from the originator's place of business and is deemed to be received at
the addressee's place of business.
(4) For the purposes of subsection (3), if the originator or the addressee has more than one place
of business, the place of business is that which has the closest relationship to the underlying
transaction to which the information or record in electronic form relates or, if there is no
underlying transaction, the principal place of business of the originator or the addressee.
(5) For the purposes of subsection (3), if the originator or the addressee does not have a place of
business, the references to "place of business" in subsection (3) are to be read as references to
"habitual residence".
7. Termination of Offer
Offeror can revoke prior to acceptance even in the case of a firm offer open until a specified
date.
Dickinson v Dodds p. 96
Facts: Dodds makes a written offer to Dickinson to sell property, to be open until Friday.
Dickinson decides to accept and learns that Dodds is offering to others.
Issue: Was Dodds required to communicate retraction of offer?
 Dickinson knew that the offer had been retracted. There was no continuing offer.
Assuming that the retraction must be communicated, plaintiff knew that in this case.
 In this case, offeree had indirect notice that the offer had been revoked.
 Dickinson knew that Dodds had changed his mind before Dickinson accepted. There was
never the existence of the same mind (Note: Dickinson said he had decided on Thursday
morning – there was an uncommunicated meeting of the minds).
 Promise is a “nudum pactum” – a naked promise. Meaning: there was no consideration.
Dickinson had not paid for the promise – it was simply an offer that could be revoked.
Note: One of the areas where the common law diverges from business practices. In US and Civil
Law, a firm offer is generally binding.
How does one make an offer firm: transform it into an option contract. Pay $1 to keep the offer
open? Or use a seal.
Barrick v Clark p. 102:
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Nov 15 - Barrick offered to sell some property to Clark. Clark’s wife received the offer while
Clark was away. Court found that the contract was invalid because a “reasonable” amount of time
had elapsed. What constitutes a “reasonable time” depends upon the nature and character of the
business, as well as the conduct of the parties negotiating the contract. Further, the letter indicated
by its own terms (through language such as “immediately” and “as soon as possible”) that the
acceptance was to be made promptly, and December 10th was too far outside of this reasonable
period of time for acceptance.
Postal acceptance rules does not apply to revocation of offers
Byrne v Van Tienhoven p. 99
Defendant posts offer on Oct 1 and posts revocation on Oct. 8. Plaintiff telegraphs acceptance on
Oct. 11 and confirms by post on Oct. 15. Plaintiff receives defendant’s revocation on Oct. 20
 An offer is open to be accepted anytime before it is revoked.
 Revocation must be communicated.
 Posting of acceptance is sufficient communication to accept offer
 Posting is insufficient communication of revocation
This is because an acceptance can be anticipated but a revocation cannot. Both legal principles
and practical convenience require that a person who has accepted an offer not known to him to
have been revoked, shall be in a position safely to act upon the footing that the offer and
acceptance constitute a binding contract.
Revocation before performance complete: how to protect reliance?
Problem: Doctrinal common law rule is that offer can be revoked before acceptance.
(a) Court can imply a promise not to revoke the bargain: the two contract approach
Errington v Errington and Woods p. 100
Facts: Father pays downpayment and daughter to pay mortgage. The house will be hers when
the mortgage is paid off.
Contract #1: pay mortgage and house will be yours
Contract #2: so long as you pay the mortgage you may remain in possession (an implied
promise not to revoke Contract #1)
The court rules that the offer could not be revoked once the performance (paying the installments)
began; however, the contract would cease to be binding if they left the performance incomplete or
unperformed
(b) Offer cannot be revoked once performance has commenced (Held by some courts, not all of
them)
Ayerswood Development Corp. v. Hydro One Networks - Not in Materials
Ontario Hydro not permitted to revoke offer for payments under energy efficiency program once
performance commenced. Relies on Baughman v. Rampart Resources (BCCA, 1995), where
Madam Justice Southin, relying on UK authority, states:
Whilst I think the true view of a unilateral contract must in general be that the offeror is entitled
to require full performance of the condition which he has imposed and short of that he is not
bound, that must be subject to one important qualification, which stems from the fact that there
must be an implied obligation on the part of the offeror not to prevent the condition becoming
satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform.
15
Until then the offeror can revoke the whole thing, but once the offeree has embarked on
performance it is too late for the offeror to revoke his offer.
16
SECTION 3 – CERTAINTY OF TERMS
Court will not enforce an agreement that has gaps or is missing an essential term: not all
commercial agreements are binding contracts
Overlapping categories of uncertainty
(a)
vagueness/ambiguity – “I will buy your eggs if good”
(b)
contract is incomplete; lacking an essential term
- the “3Ps”: parties (who?), property (what?) and price (how much?)
(c)
agreement to agree – common law courts traditionally have refused to enforce agreement
to negotiate/agreement to agree
Vagueness:
R. v. Cae Industries Ltd p. 112
Courts will generally make every effort to find a meaning in the words actually used by the
parties in deciding whether and enforceable contract exists; government required employ its best
efforts to secure additional work for company
No necessary terms of the contract were left unsettled; a potential need for future contracts does
not delegitimize this one
Trilogy of cases on Incomplete Terms:
May v. Butcher p. 117
Court refuses to enforce because prices, quantity and delivery not agreed: price and payment
“shall be agreed upon”. Arbitration clause is of no assistance because of indeterminacy.
Hilas v. Arcos p. 120
Court should construe documents fairly and broadly to give them effect, but the Court may not
make an agreement for the parties. Court enforces agreement despite uncertainties.
“The law in determining what is reasonable, is not concerned with ideal truth, but with
something much less ambitious, though more practical.”
Present agreement (contract de praesenti): an agreement to enter into an agreement
Agreement to agree is not enforceable
If a contract for a future contract contains enough information to render it enforceable as is, the
contract is binding. If the price is not reasonably fixed, the contract is merely an (unenforceable)
agreement to negotiate.
Foley v. Classique Coaches p. 124
Court enforces provision that the price of petrol is “to be agreed by the parties in writing from
time to time” .
Scrutton states that there was a binding contract. He struggles to fit together the precedents of
May & Butcher Ltd. v R and Hillas & Co., Ltd. v Arcos, Ltd. (1932). Holding that each of these
cases was decided on the facts, he notes that the two parties acted for three years as if there was a
contract, so Classique Coaches cannot simply decide not to adhere to it all of a sudden.
An agreement to make an agreement does not constitute a contract. Past performance will
indicate that an agreement (or contract) is binding. (reliance interests)
**Policy problem if we didn’t enforce that kind of agreement: less flexible, problem of reliance,
unjust enrichment
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Agreement to negotiate
An agreement to negotiate in an endeavour to arrive at terms pursuant to which a transaction will
be performed is distinct from an agreement to perform a transaction on unspecified terms or terms
to be agreed upon. An agreement to negotiate does not ALWAYS constitute a contract (few
adherents amongst the judiciary find negotiations contractual- P129).
General approach of common law courts has been not to enforce agreements to negotiate:
 too uncertain
 remedy?
 inconsistent with right to pursue self-interest
Empress Towers v. Bank of Nova Scotia p. 130
BNS was a tenant of Empress Towers and their lease was due for renewal. Lease renewal clause
included provision that if tenant and landlord couldn’t mutually agree on a price within two months,
then the lease could be terminated by either party. Empress replied on the last day of the 2 month
extension period.
Majority finds that it is an implied term that the landlord will negotiate in good faith with an
objective of reaching an agreement on the market rental rate and that agreement on a market
rental rate will not be unreasonably withheld.
Manpar Enterprises v. Canada p. 132
Right to renew subject to renegotiation of the royalty rate. No duty to negotiate in good faith
here, because it must be expressed or implied in the contract
“…unless there is a benchmark or standard by which to measure such a duty, the negotiation
concept is unworkable”.
A duty to negotiate in good faith?
Common law courts have generally showed a antipathy to the idea of there being a duty to
negotiate in good faith.
Walford v. Miles
“The concept of a duty to carry on negotiations in good faith is inherently repugnant to the
adversarial position of the parties when involved in negotiations.”
Martel Building v. Canada
No tort duty of care in context of commercial contractual negotiations.
Wellington City Council v. Body Corporate 51702
- “What stance a negotiating party may take within the bounds of subjective honesty is much
more difficult to determine than if the bounds were those of objective reasonableness”
- “The law regards the task of reconciling self interest with the subjective connotation of having
to act in good faith as an exercise of such inherent difficulty and uncertainty as not to be
justiciable. The ostensible consensus is therefore illusory.”
Potential meaning/scope of a duty to negotiate in good faith?
 withholding information;
 bargaining with no intention to reach agreement;
 reneging on a promise given in negotiations;
 refusal to make reasonable efforts in negotiations;
 breaking off negotiations without notice to pursue a better offer
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SECTION 4 – ENFORCEMENT OF PROMISES
1. Exchanges and Bargains
Common law views contracts as bargains: promises must be supported by consideration –
something of value. There must be offer, acceptance and consideration
(a) Charitable subscriptions
Common law is very reluctant to enforce gift promises.
Statutory changes in some jurisdiction – ex: Statute of Frauds RSPEI
Dalhousie College v. Boutilier Estate p. 160
Subscription to Dalhousie for $5,000. No consideration.
Some older cases had suggested various rationales for upholding promise:
- consideration arising from similar promises of other subscribers
- subscription for a specific purpose was an implied undertaking by charity to spend money for
the intended purpose
Here:
- no negotiation with other subscribers
- no request to carry out specific works
- a general subscription statement
- reliance does not make the promise irrevocable
Reliance is not consideration!
Branford General Hospital Foundation v. Marquis Estate p. 165
- Pledge by Marquis is not contractually binding.
- No consideration by hospital.
- Naming of unit was simply a way of showing gratitude. This suggestion was made by the
hospital and not by Mrs. Marquis. Evidence showed that the mention of her name on the plaque
was irrelevant to her in her decision to donate the money. There was also no mention of the
naming promise in the pledge document itself. Finally, her modest personality made it very clear
that she never sought the naming of the unit as a condition for making her pledge
(b) Mutual promises are consideration
Wood v. Lucy p. 169
Facts: Exclusive distributorship: common commercial arrangement. Wood has the exclusive
right - subject to Lucy’s approval - to place her endorsements on designs of others and to sell
Lucy’s own designs. Profits are shared 50-50. Term: one year and then year to year subject to
revocation on 90 days notice. Lucy places endorsements and kept all profits. Wood sues for 50%.
Lucy’s Argument? No consideration. He made no promise.
Courts Response? Implies a promise - and thus consideration - by Wood to use reasonable
efforts to market the designs.
The case illustrates the lengths to which the court will go to squeeze the parties’ relationship into
the classical bargain template in order to enforce a promise that merits enforcement.
2. Past consideration
Past consideration is not good consideration. The doctrinal explanation: no consideration – there
was only a past gift – a benefit voluntarily conferred by the plaintiff. One may be morally obliged
to keep one’s promise but not legally obliged.
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Eastwood v Kenyon p. 170
Sutcliffe has an infant daughter named Sarah. He dies. The plaintiff is the executor of John
Sutcliffe’s will – manages estate. The plaintiff borrows L140 to look after Sarah’s estate. When
Sarah came of age she promised to repay him the 140 pounds.
**Is her promise binding? No. No consideration. Past consideration is not sufficient.
Sarah marries. Upon marriage, the couple becomes one and the sole legal identity is that of the
husband. Hence her legal obligation became that of her husband.
**However, since her promise is not binding on her, then it is not binding on him.
But as well, the husband also promises to pay and later refuses.
**Is his promise binding? No. No consideration for his promise.
Policy rationale:
- lack of deliberation
- lack of reliance
- no unjust enrichment: benefit was not asked for, gratuitously provided
- distinguish moral and legal obligations
- concern regarding fraud on creditors
Reflects values of individualism and positivism - the notion that law does not exist to enforce
moral obligations and that people should be free, so far as is possible, from obligations imposed
by the courts. Contract, on this view, should be confined to commercial exchanges and should
not be an instrument for adjusting the moral obligations among people.
Application in commercial context
Roscorla v. Thomas (1842. Eng.)
T1:
K for sale of horse for £30.
T2:
Promise that horse was not over five years, was sound and free of vice.
T3:
Breach of promise. Horse was “very vicious, restive, ungovernable, and ferocious”.
No consideration for promise that horse was free of vice.
Exception: Doctrine does not apply if the past act/performance was done at the request of
the promisor
T1:
Request for service (offer)
T2:
Performance (acceptance = unilateral contract)
T3:
Promise to pay (quantification of legal obligation)
T4:
Reneges on promise
Lampleigh v. Brathwait p. 172
A voluntary act does not result in an obligation to pay a reward. However, if the party that gave
the promise of the reward (B) requested the other party (L) to perform the act, then the reward
will be tied to the request and the resulting benefit (to B) as a binding obligation.
3. Consideration
Canadian common law enforces promises three ways
Contract: offer, acceptance, consideration, certainty as to terms, intention to create legal
relations, sometimes requirements for writing (i.e. land contracts)
- Promise must be made for “consideration” in order to be enforced.
- Consideration is the “price” paid for the promise: can be anything of value (in the eyes of the
law) money, services, transfer of property, giving up a right, forbearance on a claim;
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- Consideration cannot be “illusory”: I promise to accept your $1000 if you promise to give it to
me. This is a non-enforceable gift promise—there is no consideration.
Deed: a sealed document - a non-bargain promise that is enforceable because of the form in
which it is made. (because of the formalities on which it is made. Can make a promissory note
this way, it will be enforceable)
Requirements: in writing, signed, sealed and delivered.
Estoppel: person held to their promise in a limited number of circumstances because of the
reasonable reliance of the promisee:
A rule of law that when person A, by act or words, gives person B reason to believe a certain set
of facts upon which person B takes action, person A cannot later, to his (or her) benefit, deny
those facts or say that his (or her) earlier act was improper.
The role of legal formalities in contract law
“Consideration and Form”, Professor Fuller described three functions served by legal formalities:
Evidentiary Function: the need for evidence of the existence of a contract.
Cautionary Function: ensure that parties deliberate before they contract
Channelling Function: ensure there is a simple, external test of enforceability.
Enforcement of promises – policy framework
Reasonable Expectations -------------------------------------------------------- Unfair Surprise
Evidence - Deliberation - Unjust Enrichment - Reliance - Facilitate private ordering/utility of
exchange
Incomplete gift case
Thomas v Thomas p. 173
PATTESON J. . . . Motive is not the same thing with consideration.
Consideration means something which is of some value in the eye of the law, moving from the
plaintiff. . . .
Now that which is suggested as the consideration here, a pious respect for the wishes of the
testator, does not in any way move from the plaintiff; it moves from the testator; therefore, legally
speaking, it forms no part of the consideration.
Then it is said that, if that be so, there is no consideration at all, it is a mere voluntary gift: but
when we look at the agreement we find that this is not a mere proviso that the donee shall take the
gift with the burthens; but it is an express agreement to pay what seems to be a fresh
apportionment of a ground rent, and which is made payable not to a superior landlord but to the
executors.
So that this rent is clearly not something incident to the assignment of the house; for in that case,
instead of being payable to the executors, it would have been payable to the landlord.
Compromises/Settlements
(a)
Forbearance on right to sue/to make a legal claim is good consideration
(b)
Very common practice: settlement of civil litigation
(c)
Is the compromise on an “invalid” claim good consideration?
B.(D.C.) v. Arkin p. 175
Claim against mother for shoplifting by her son. There was no valid claim against D.C.B because
parents are not liable for their children. Forbearance to sue can be good consideration but only
where a valid claim exists. A claim must be made in good faith and with a good chance of
success, and the court did not like the conduct of Zeller’s counsel. Settlement needs to be
consensual, and there is an issue of unjust enrichment here.
21
(1) reasonable claim (even if the validity/success of the claim is doubtful); (2) bona fide
belief in claim and serious intention to pursue; and (3) no concealment of material facts
4. Pre-Existing Legal Duty
Public Duty: Traditional view was that if the promisee performs a public duty there
is no consideration.
Duty Owed to a Third Party: The performance of a duty owed to a third party has
traditionally been viewed as good consideration
Pau On v. Lau Yiu Long p. 180
A promise to perform, or performance of a pre-existing duty to third party can be valid
consideration. Past performance can be consideration if three conditions are met: (a) the act of the
promisee must be done at the promisor’s request, (b) the parties must have understood that the act
was to be remunerated by a payment or the conferment or some other benefit (c) The payment, or
the conferment of benefit must have been legally enforceable had it been made in advance
Contract modification – Going Transactions Adjustments (GTAs)
Traditional rule is that contract modification without “fresh” consideration is unenforceable
(because past consideration is not good consideration)
Problem: Parties to contract modify contractual obligations on ongoing basis.
Doctrinal Issue: Contract modification is not enforceable unless there is “new”
consideration. A promise to do what you are already contractually obliged to do is not good
consideration (Stilk v. Myrick).
Policy to enforce modification?: party autonomy, reliance, reasonable expectations,
business
efficacy.
Policy not to enforce?: exploitation, ransom and duress
Stilk v. Myrick p. 182
Promise to share wages not enforceable – no consideration because sailors already obliged under
contract to bring ship to destined port. Performance of a pre existing duty is not good
consideration for modification of contract.
Gilbert Steel v. University Construction p. 184
Promise to pay more for steel not enforceable.
T1:
Contract: Def (UC – Tenenbaum) agrees to buy steel from Gilbert. Price settled. (4
September 1968)
T2:
Steel mill notifies Gilbert of a price increase and notes that there may be further
increases.
T3:
New written K with increased prices. New price did not reflect entire increase.
Contract for one year. Construction and delivery begins. (22 October 1969)
T4:
Steel mill: further price increase. (1 March 1970)
T5:
Discussion between Gilbert Steel and University Construction. Oral agreement to pay
more. Judge found this as a fact. Gilbert Steel provides a written contract to UC but not
executed. (1 March 1970)
T6:
Steel supplied. 43 deliveries invoiced at new price (12 March 1970 until completion)
T7:
Invoices for steel at new price as per oral contract
T8:
Invoices paid but only rounded amounts so that it was not clear whether increased price
was being paid.
T9:
Def refuses to pay increase.
22
Issue: Contract Modification enforceable? Held: No.
Court rejects Gilbert Steel’s arguments:
1. Not a contract modification. Previous contract terminated and new contract with new price.
Court: Plaintiff pleaded that contract was amended.
2. Fresh consideration provided by promise of good price in future contracts.
Court: Too vague, uncertain.
3. Fresh consideration provided by additional credit provided due to increase in price.
Court rejects.
4. Promissory estoppel: Equitable doctrine that holds a party to its promise where the other party
has acted in reliance on the promise.
Court: Estoppel cannot be used to create a contractual obligation.
Williams v Roffey Bros & Nicholls (Contractors) Ltd p. 188
Defendant contracted work to the Plaintiff for carpentry. The agreed upon fee was too low and
the Plaintiff experienced financial difficulty while carrying out the obligations. The Defendant
was liable for incomplete work, and agreed to pay Plaintiff extra per flat completed.
The benefit of timely completion is good consideration even if a pre-existing duty is performed,
so there was consideration in the new agmt. The Plaintiff received monetary compensation from
the Defendant in exchange for increased productivity.. The oral agreement did not constitute
economic duress as seen in Stilk v Myrick.
Greater Fredericton Airport Authority Inc v Nav Canada p. 192
The promise was unenforceable, not because it lacked consideration but because it was made
under economic duress. Stilk v. Myrick considered inappropriate for this case because: a) S v M
unsatisfactory for enforcement of post-contractual modifications (overly rigid) b) May be good
reasons to enforce some gratuitous promises (e.g. promisee relied on them to their detriment) c)
doctrine of consideration and concept of bargain and exchange should not be 'frozen in time' for
risk of irrelevance.
Post contractual modifications not supported by consideration can be enforced as long as they are
not procured under economic duress.
How to avoid problem in the first place?
Price adjustment mechanism in the contract; clauses that provide for renegotiation of contractual
obligations based on objective standards backed up by dispute resolution by an independent third
party.
Techniques to make a contract modification enforceable
(i)
Seal
(ii)
Court finds there is new consideration for the contract modification:
(a)
Consideration may be nominal: the peppercorn theory of consideration—the
court enforces bargains made by the parties and does not enquire into the
adequacy of consideration.
Note: Judges wishing to enforce contract modification have been very adept at
finding “new consideration”.
Mr Justice Robertson in GFAA v. NAV Canada says that courts should
not use the “hunt and peck theory” to find consideration where none
exists.
(b)
Consideration can be the bona fide compromise of a disputed claims:
forbearance on right to sue is good consideration (B. (D.C.) v. Arkin).
Note: Traditional rule remains that forbearance on breaching on existing contract
is not good consideration for a contract modification. This is simply another way
23
(iii)
(iv)
(v)
of saying that performance of an existing contractual obligation is not good
consideration.
(c)
A promise to a third party to perform an existing contractual obligation owed to
another is good consideration. For example, A has promised B not to sell shares
before a certain date. A makes the same promise to C in exchange for a price
guarantee. There is good consideration for the price guarantee (Pao On v. Lau
Yiu Long).
(d)
A payment to pay more for an existing contractual obligation, where promisor
obtains “in practice a benefit, or obviates a disbenefit”. (Williams v. Roffey).
Court take a less rigid approach—“the courts should be more ready to finds its
existence so as to reflect the intention of the parties to the contract”.
Note: concerns regarding unfairess/being held to ransom can be addressed
directly: courts have developed the doctrine of economic duress, which can be
used to guard against opportunistic conduct.
Terminate K1 and enter into K2. Parties can agree to terminate an existing contract and
enter into an entirely new contract: but “mere” change in price may be categorized as a
variation/modification (Gilbert Steel v. University Construction).
Doctrinal change: “…there are valid policy reasons for refining the consideration
doctrine to the extent that the law will recognize that a variation to an existing contract,
unsupported by consideration, is enforceable if not procured under economic duress”
(GFAA v. NAV Canada).
Estoppel?: doctrinal position in Canada is that estoppel cannot be used as a sword only a
shield - cannot be used as a cause of action to enforce a promise to pay more (Gilbert
Steel v. University Construction).
Vienna Convention on International Sale of Goods
29 (1) A contract may be modified or terminated by the mere agreement of the parties.
(2)
A contract in writing which contains a provision requiring any modification or
termination by agreement to be in writing may not be otherwise modified or terminated by
agreement. However, a party may be precluded by his conduct from asserting such a provision to
the extent that the other party has relied on that conduct.
Debt Settlement/Compromise Agreements – Agreements to Accept Less
Foakes v Beer p. 198
Follows precedent in Pinnel’s Case that held that payment of a lesser sum for a greater sum is not
good consideration. If you want to be released form a debt, then the law requires “particular
solemnities to give a gratuitous contract the force of a binding obligation”
- Cannot pay $5 now as consideration for a debt of $10
- But you can enter in an “accord and satisfaction”: you can make a debt release
agreement (an accord) as long as there is satisfaction (i.e. nominal consideration—the
peppercorn)
- So I can give you $5 and my worthless worn out shoes
- “A man may give in satisfaction of a debt of £100, a horse of the value of five
pounds, but not five pounds” (Baron Alberson in Sibree v. Tripp, 1846)
- And say I can give you two post-dated cheques for $5—a negotiable instrument is
something different from money
Re SelectMove Ltd p. 201
Even if there is a benefit for less payment to the creditor, it is not sufficient consideration.
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Foot v. Rawlings p. 203
Debt settlement agreement. Debtor provides post-dated cheques.
“I have reached the conclusion that the giving of the several series of postdated cheques
constituted good consideration for the agreement by the respondent to forbear from taking
action on the promissory notes so long as the appellant continued to deliver the cheques
and the same were paid by the bank on presentation.”
Undertaking of terms in which one party substitutes something of value to give to the other party
in exchange for the other party’s forebearance can be consideration
Legislative Reform
Agreement to accept partial payment is now enforceable if expressly accepted by creditor in
satisfaction
Law and Equity Act, R.S.B.C. 1996, c. 253, s. 43:
Part performance of an obligation either before or after breach of it, when expressly
accepted by the creditor in satisfaction or rendered under an agreement for that purpose,
though without any new consideration, must be held to extinguish the obligation.
25
SECTION 5 – PROMISSORY ESTOPPEL AND WAIVERS
1. Background on estoppel
Common law estoppel: A party is barred from denying or alleging a certain fact or state of facts
because of the party’s previous conduct, allegation or denial. Representation as to existing fact.
Promissory estoppel/equitable estoppel/estoppel by representation: question of estoppel as to
future conduct (i.e. a promise is made about future conduct): “I will not take that action”.
Representation as to future conduct.
Equitable courts: a party is not allowed in equity to go back on such as promise
Note: Promises about conduct in the future are the essence of contractual obligations
Hughes v. Metropolitan Railway Company p. 207
Was there a promise that negotiations would suspend the 6 month repair deadline? IF parties have
entered into definite and distinct terms involving certain legal rights (e.g. penalties, eviction),
AND one party is thereby reliant that the rights from those negotiations will not be enforced (or
will be suspended), THEN the person who would otherwise have enforced those rights will not be
allowed to enforce them if it makes contract inequitable.
Landlord cannot rely on strict legal rights under lease because parties had been negotiating.
“… if parties who have entered into definite and distinct terms involving certain legal
results – certain penalties or legal forfeiture – afterwards by their own act or with their
own consent enter upon a course of negotiation which has the effect of leading one of the
parties to suppose that the strict rights arising under the contract will not be enforced, or
will be kept in suspense, or held in abeyance, the person who otherwise might have
enforced those rights will not be allowed to enforce them where it would be inequitable
having regard to the dealings which have thus taken place between the parties.”
Central London Property Trust Ltd v. High Trees House Ltd. p. 209
Agreement to reduce rent during the WWII. Classic contract modification to accept less.
“There has been a series of decisions over the last fifty years which, although they are said
to be cases of estoppel are not really such. They are cases in which a promise was made
which was intended to create legal relations, and which, to the knowledge of the person
making the promise, was going to be acted on by the person to whom it was made, and
which was in fact so acted on.”
“The courts have not gone so far as to give a cause of action in damages for the breach of
such a promise, but they have refused to allow the party making it to act inconsistently with
it. It is in that sense, and that sense only, that such a promise gives rise to an estoppel.”
Agreements to pay more are often view as offensive use of promissory estoppels, so agreements
to pay less are different. The judge also reasoned that a promise intended to be binding and acted
upon is binding so far as its terms properly apply.
2. The Nature of the Representation
John Burrows Ltd. v. Subsurface Surveys p. 211
Facts: Delay in making payment on promissory note by buyer. Vendor accepted late payment 11
times. Falling out between parties. Next payment is late and vendor claims to be entitled to
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accelerate payments. Is Vendor estopped from accelerating payments and seizing security without
giving notice that in the future it is going to rely on its strict legal right?
Held: It is insufficient for there to be mere acts of indulgence. There must be evidence that the
promisor intended that the legal relations between the parties would be altered. Here there was a
friendly indulgence, but no specific promise or representation, other than the practice/conduct in
allowing past late payments.
Note: Owen Sound Pub. Library Bd. v. Mial Developments Ltd. (1979, Ont. C.A.) suggests that
intention can be inferred from reasonable reliance by the promisee.
3. The Equities
D. & C. Builders Ltd. v. Rees p.214
Case of the debt settlement of a debt for a building job. The plaintiff was nearly bankrupt and
accepts settlement. Held: Settlement not binding.
Under common law (Foakes), smaller payment is not good consideration for larger debt, equity
“has stretched out a merciful hand to help the debtor.”
However, there is a qualification to this – the debt settlement/the accord – must be a true one.
Must be voluntary. Here not voluntary. “The debtor’s wife held the creditor to ransom”.
Application of equitable principles: “He who comes into equity must come with clean hands”.
Nascent doctrine of economic duress (undue pressure/intimidation)
4. Notice Retracting a Waiver of Legal Rights
Waiver occurs where one party to a contract or to proceedings takes steps which amount to
foregoing reliance on some known right or defect in the performance of the other party.
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance p. 217
Issue: Did insurance company waive right to compel timely payment under the policy?
Waiver requires (i) unequivocal and conscious relinquishment of rights; and (ii) full knowledge
of rights. Note: Waiver is a unilateral act.
Insurance company waived rights in November 1984. Insured did not rely on this waiver and
insurance company was entitled to provide notice of policy lapse (which it did in February 1985).
Insured failed to reinstate policy.
Where a party relies on waiver, waiver can only be retracted if there is reasonable notice:
“Waiver can be retracted if reasonable notice is given to the party in whose favour it
operates…. the “reasonable notice” requirement has the effect of protecting reliance by
the person in whose favour waiver operates.”
If no reliance, no reasonable notice is necessary.
Issue of time extensions for contract completion. Always make and reassert that time remains of
the essence.
International Knitwear Architects Inc. v. Kabob Investment Ltd. p. 222
Landlord was required to give reasonable notice to revive obligations under lease. Reasonable
notice fixed at just over a month.
5. The Promisee’s Reliance
W.J. Allan v. El Nasr
Payment made in English sterling not Kenyan currency. Two ways of thinking, same result.
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Megaw: Currency varied in contract by parties’ conduct. Seller accepted the sterling credit and
cannot no revert to the original contractual provisions.
Denning: Waiver is a manifestation of the broader principle of promissory estoppel.
“Nevertheless, the one who waives his strict rights cannot afterwards insist on them. His
strict rights are at any rate suspended so long as the waiver lasts. He may on occasion be
able to revert to his strict legal rights for the future by giving reasonable notice in that
behalf, or otherwise making it plain by his conduct that he will therafter insist on them. . .
But there are cases where no withdrawal is possible. It may be too late to withdraw; or it
cannot be done without injustice to the other party. In that event he is bound by his
waiver. He will not be allowed to revert to his strict legal rights. He can only enforce
them subject to the waiver he has made.”
Société Italo-Belge v. Palm and Vegetable Oils (Malaysia) p.227
Seller delivers documents late. Buyer accepts them. Buyer held to have made a representation
that they were prepared to accept documents. What type of reliance is required by seller?
. . . whether it is sufficient for this purpose that the representee should simply have
conducted his affairs on the basis of the representation, or whether by so doing he must
have suffered some form of prejudice which renders it inequitable for the representor to go
back on his representation.
…it does not follow that in every case in which the representee has acted, or failed to act,
in reliance on the representation, it will be inequitable for the representor to enforce his
rights for the nature of the action, or inaction, may be insufficient to give rise to the
equity…
In particular, having regard to the very short time which elapsed between the date of the
representation and the date of presentation of the documents on the one hand and the date
of rejection on the other hand, I cannot see that, in the absence of any evidence that the
sellers’ position had been prejudiced by reason of their action in reliance on the
representation, it is possible to infer that they suffered any such prejudice. In these
circumstances, a necessary element for the application of the doctrine of equitable estoppel
is lacking
Equitable estoppel requires reliance and detriment.
6. Sword or Shield?
Combe v. Combe p. 231
Divorce. Husband agrees to pay spousal maintenance of L100 annually (no consideration). No
payment. Almost 7 years later, wife sues for arrears.
Promise not enforceable: Promissory estoppel cannot be used to create new causes of action
where none existed before. It only prevents a party from insisting on strict legal rights, when it
would be unjust, having regard to the dealings between the parties. It may be part of a cause of
action, but not a cause of action in itself. The doctrine of consideration is too firmly fixed to be
overthrown by a side wide…. it still remains a cardinal necessity of the formation of contract,
although not of its modification or discharge.
Petridis v. Shabinsky p. 233
Plaintiff ran a restaurant in shopping centre owned by defendant. Plaintiff had
option to renew tenancy under lease but required to give notice in writing 6 months
prior to expiry of lease. Under negotiation (after 6 months but before expiry) but
parties were unable to agree on rent. Defendant sent letter to plaintiff ordering he
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make vacant the space. The extension of time, given to the plaintiff beyond the 6 month
requirement, was not a variation of the contract but a waiver of a right under that contract. Waiver
of strict rights under the lease with respect to renewal option.
Robichaud c. Caisse Populaire de Pokemouche Ltée p. 236
Robichaud seeking to enforce Caisse’s promise to remove from court registry a judgment against
him. Robichaud had agreed paid $1,000 of the $3,787.80 judgment. The plaintiff sued to
compel the Caisse to accept the $1,000 as agreed and to remove the judgment
Courts allow Robichaud’s action. While often defendant will use promissory estoppel, the
plaintiff can use it as well. But it is still used as a shield, not a sword.
Waltons Stores (Interstate) Ltd. v. Maher p. 237
Negotiations for lease of Maher’s land, with Maher to erect a building on the land for use by new
Waltons store under a lon- term lease. Time is of the essence in order for construction to occur
on time.
7 November: Maher sends draft lease and says that lease has to be concluded with next day or
two to allow completion of building in time.
7 November: Walton’s solicitor responds: approval should be forthcoming and that they would
let them know if any amendments were not agreed to.
11 November: Maher sends copies of executed lease to Walton for execution.
10 December: Walton knows that demolition of current building on Maher’s land is ongoing.
19 January: Walton reneges.
Waltons’ … “inaction…constituted clear encouragement or inducement to the respondents to
continue to act on the basis of the assumption which they had made. It was unconscionable
for it, knowing that the respondents were exposing themselves to detriment by acting on the
basis of a false assumption, to adopt a course of inaction which encouraged them in the course
they had adopted.”
Waltons “… is estopped in all the circumstances from retreating from its implied promise to
complete the contract…”
** In certain case promissory estoppel can be used as a sword… Note: There was no existing
legal relationship (lease had not been signed) but the promisee (Maher) had reasonable
assumption or expectation of a legal relationship
US Position: Section 90, Second Restatement on Contracts:
A promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promisee or a third party and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise.
The remedy granted for the breach may be limited as justice requires.
N.M. v. A.T.A. p. 246
NM promises to pay outstanding balance on ATA’s mortgage if she would come to Vancouver
and live with him with a view to marriage. ATA gives up her job in England and comes to
Vancouver. NM refuses to honour promises and eventually loans ATA $100,000 on a promissory
note. A week later NM evicts ATA from his home and he sues her on the promissory note. Held:
Although NM made promise and ATA relied on it to her detriment, not enforceable.
Trial: Promissory estoppel cannot be used to found a claim where there is no existing legal
relationship between the parties.
CA agrees: there must be an expectation as to a legal relationship between the promisor and
promisee. The promise was not intended or expected to be binding and she took the risk of NM
not following through.
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Incoherence of Shield/Sword Distinction
The traditional doctrine is that promissory estoppel may only be used as a shield. It cannot be
used as a sword – to found a cause of action.
- a promise to accept less is binding (High Trees)
- a promise to pay more is not binding (Gilbert Steel)
Is there a real difference?
Assume:
Contract to sell 10 tons of grapes for $20,000.
Bad weather - production down - market price up.
Variation #1: Agreement to take less
Buyer agrees/promises to accept 8 tons at $20,000 in full satisfaction of
contract
Subsequently sues when only 8 tons are delivered , arguing that under the
contract buyer is entitled to 10 tons.
Variation #2: Agreement to pay more
Buyer agrees to pay $25,000 for 10 tons.
Seller delivers and buyer pays only $20,000 relying on written contract
Note: In each case effective price per ton is $2500. Does it make sense to enforce one promise
but not the other when they are functionally equivalent?
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SECTION 6 – INTENTION, SEALS AND WRITING
Intention to Create Legal Relations
Not all agreement are contracts—the parties must have intended to create legal relations
Requirement acts as an additional “screening mechanism” to distinguish between
social/non-legal agreements and contracts. The rule is applied using factual presumptions
 There is a presumption that commercial agreements are intended to create legal
relations
 There is a presumption that social, domestic, family agreements are not intended to
create legal relations.
Balfour v. Balfour p. 250
Husband promises wife monthly allowance.
Agreements such as these are outside the realm of contracts altogether. The common law
does not regulate the form of agreements between spouses. Their promises are not sealed
with seals and sealing wax. The consideration that really obtains for them is that natural
love and affection which counts for so little in these cold Courts (not consideration).
The terms may be repudiated, varied or renewed as performance proceeds or as
disagreements develop, and the principles of the common law as to exoneration and
discharge and accord and satisfaction are such as find no place in the domestic code.
Jones v. Padavatton - NOT IN MATERIAL
Daughter decides to pursue legal studies on promise of support from mother (house to live in).
Dispute and mother wants to evict her daughter. Clear there was an family arrangement, issue is
whether: (i) intended to be legally binding; and (ii) sufficiently certain to be enforceable.
Test is objective. In familial relationships there is a presumption of fact against intention to
create legal relationship. But agrees with trial judge that the facts unique:
(daughter had a comfortable, well-established career; mother had interest in daughter becoming
barrister and moving to Trinidad - grandmother would see her grandson; mother made a clear
offer; mother’s lawyer wrote to confirm arrangement; reliance for five years)
Enforceable – but an implied term of support for a reasonable period—after five years had
not completed what she should have in three years.
**In certain cases, where it looks more like a business arrangement (ex: parents have a basement
suite), then it is possible to enforce.
Rose and Frank Company v. J.R. Crompton & Brothers p. 253
Commercial parties can agree that a business arrangement will not give rise to legal
relations.
TD Bank v. Leigh Instruments p. 255
Comfort letter dos not impose guarantee/indemnity obligations on parent company of a
wholly owned subsidiary. They can have commercial value even if they do not impose legal
obligations.
Sealed documents
Sealed documents are enforceable because they are sealed: seal is a formality that serves
functional purposes--evidentiary, cautionary and requiring deliberation. A sealed document has
traditionally been conceptualized as a symbolic transfer of property – it is an executed gift –
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rather than a contract. Rather than give you $500 in cash, I could give you a promissory note in
which I covenant under seal to give you $500 – this is in law a transfer of $500 to you.
A seal does not “import” or provide consideration. A sealed document is a non-bargain promise.
(seals stand in for consideration, completely different basis for enforcement of promises). Variety
of names: deed (usually for land), covenant, formal contract (as opposed to a common law
informal contract or parol contracts), specialties
A promise can be made enforceable if done by way of a deed – a promise that is: in writing;
signed by the promisor; sealed; delivered
I ______ promise to pay _________ $500 on 1 January 2018.
Signed, sealed and delivered.
Signature, Date
Royal Bank v. Kiska p. 259
In this case, no wafer seal attached, but the words “sealed” had been printed. Formality
serves a purposes and some semblance of it should be preserved. Signatory must affix or
adopt the seal as his or her own.
In other cases, courts have stated that the modern test of whether a document is sealed
depends on intention – did the parties intend that the document be sealed. Was the
application of the seal a conscious and deliberate act?
The requirement of writing
Statute of Frauds (1677) imposed writing requirements on various kinds of contracts. Very
complex and convoluted technical distinctions made as courts tried to do justice between parties
where the contract was not in writing. Survives in amended form in some jurisdictions, but not in
BC or Ontario.
However, BC makes writing a requirement for land contracts not including leases of 3 years or
less. The BC Law and Equity Act requires a written guarantee and indemnity promises.
LAW AND EQUITY ACT
Enforceability of contracts
59 (1) In this section, "disposition" does not include
(a) the creation, assignment or renunciation of an interest under a trust, or
(b) a testamentary disposition.
(2) This section does not apply to
(a) a contract to grant a lease of land for a term of 3 years or less,
(b) a grant of a lease of land for a term of 3 years or less, or
(c) a guarantee or indemnity arising by operation of law or imposed by statute.
(3) A contract respecting land or a disposition of land is not enforceable unless
(a) there is, in a writing signed by the party to be charged or by that party's agent, both
an indication that it has been made and a reasonable indication of the subject matter,
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(b) the party to be charged has done an act, or acquiesced in an act of the party
alleging the contract or disposition, that indicates that a contract or disposition not
inconsistent with that alleged has been made, or
(c) the person alleging the contract or disposition has, in reasonable reliance on it, so
changed the person's position that an inequitable result, having regard to both parties'
interests, can be avoided only by enforcing the contract or disposition.
(4) For the purposes of subsection (3) (b), an act of a party alleging a contract or disposition
includes a payment or acceptance by that party or on that party's behalf of a deposit or part
payment of a purchase price.
(5) If a court decides that an alleged gift or contract cannot be enforced, it may order either or
both of
(a) restitution of a benefit received, and
(b) compensation for money spent in reliance on the gift or contract.
(6) A guarantee or indemnity is not enforceable unless
(a) it is evidenced by writing signed by, or by the agent of, the guarantor or
indemnitor, or
(b) the alleged guarantor or indemnitor has done an act indicating that a guarantee or
indemnity consistent with that alleged has been made.
(7) A writing can be sufficient for the purpose of this section even though a term is left out or is
wrongly stated.
ELECTRONIC TRANSACTIONS ACT
Requirement for a record to be in writing
5 A requirement under law that a record be in writing is satisfied if the record is
(a) in electronic form, and
(b) accessible in a manner usable for subsequent reference.
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SECTION 7 – PRIVITY OF CONTRACTS
1. Privity of contract:
Contract can neither confer rights not impose obligations on 3P. 3P cannot enforce K. Even
where purpose of the contract is to convey a benefit to a third party. Exceptions by legislation:
Insurance Act
Tweddle v. Atkinson p. 288
Fathers (Tweddle and Guy) promise to pay children $ upon marriage. No payment by either
father. Plaintiff sues the estate of his father in law.
Action cannot be maintained. No consideration flowing from plaintiff.
But note: Neither father had performed contract. Son could not be sued for failure of his father’s
promise so he cannot sue his wife’s father
Beswick v. Beswick p. 295 and 296
Denning’s failed attempt to overrule Tweddle
Peter Beswick enters into contract to sell his coal business to his nephew, who agrees to pay him
an allowance for the rest of his life. Nephew also agrees to pay Mrs. Beswick an allowance of $5
for rest of her life after Peter’s death. Peter passes away and his nephew only pays Peter’s widow
once. Mrs Beswick sues as administratrix of the estate and in her personal capacity.
CA Denning General rule is that a third person cannot sue or be sued on a contract to which
she/he is not party—but this only a rule of procedure.
“Where a contract is made for the benefit of a third person who has a legitimate interest
to enforce it, it can be enforced by the third person in the name of the contracting party
or jointly with him or, if he refuses to join, by adding him as a defendant. In that sense,
and it is a very real sense, the third person has a right arising by way of contract. He has
an interest which will be protected by law….”
NOT OK, House of Lords goes against it.
House of Lords: Proceeds on the basis of privity of contract : contract confers no right on 3P
and 3P cannot sue. Accordingly, widow cannot sue in her personal capacity, but she has the right
to sue as administratrix of the estate. Accept that estate can claim specific performance.
Rationales
Doctrinal rationale: not a party; no consideration; 3P could prevent modification, since 3P rights
could be seen as having crystallized
Economic: encouragement of market based concepts, support nascent capitalism; self-reliance;
minimize liability
Vertical and horizontal privity
Vertical privity relates to a buyer within the distributive chain who did not buy directly from the
defendant.
Manufacturer
Problem – The chain may be broken
|K
- bankruptcy
Distributor
- exemption clauses
|K
- limitation periods
Retailer
- seller/distributor closed/cannot be located
|K
Consumer
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Horizontal privity relates to a person who is not a buyer within the distributive chain, but who
consumes, uses or is affected by the product.
Seller
|K
Buyer — User
2. Avoidance of the contractual box
Trust, assignment and agency: categorize the 3P as beneficiary (trust) or assignee (assignment).
Alternatively and more commonly, view B as also contracting as an agent for 3P, so that 3P is in
a direct contractual relationship with A. Result: 3P is no longer a 3P, if categorized as a trust
beneficiary, assignee or principal.
A contract B
X (3P)
Trust
Trustee (T)
Beneficiary (B)
Assignment
Assignor (Aor)
Assignee (Aee)
Agency
Agent (A)
Principal (P)
Trust
Trust is a legal relationship in which a person (the settlor) transfers property to another (the
trustee). The property is held for the benefit of a third party (the beneficiary). The result is the
creation of two interests: the trustee’s legal interest and the beneficiary’s beneficial interest. Thus,
it is said that the trustee holds the trust property “in trust” for the beneficiary.
B, the trustee, is bound to hold the trust property for the benefit of C, the beneficiary. C can
enforce the terms of the trust directly against B and third parties with whom B has contracted.
Agency
Agency is the legal relationship between two persons, a principal and an agent, whereby, the
principal grants the agent the authority to act on the principal’s behalf.
In a simple agency scenario, while negotiations (offer and acceptance) occur between A and C,
consideration will flow from P to C, and the terms of the resulting contract will only be binding
on P and C. A contract can be made between P and C even if, at the time of formation, A did not
have the express authority to act on behalf of P, provided that P subsequently ratifies the
agreement made by A.
Assignment
An assignment is a transfer of a right from one person to another, usually by way of sale. A has a
contract with B. B assigns her contractual rights to C. C can enforce the contract against A.
(Buys the debt at a discount)
Law and Equity Act
Assignment of debts and choses in action
36 (1) An absolute assignment, in writing signed by the assignor, not purporting to be by way of
charge only, of a debt or other legal chose in action, of which express notice in writing has
been given to the debtor, trustee or other person from whom the assignor would have been
entitled to receive or claim the debt or chose in action, is and is deemed to have been
effectual in law, subject to all equities that would have been entitled to priority over the
right of the assignee if this Act had not been enacted, to pass and transfer the legal right to
the debt or chose in action from the date of the notice, and all legal and other remedies for
the debt or chose in action, and the power to give a good discharge for the debt or chose in
action, without the concurrence of the assignor.
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Exclusion clauses
An exclusion or limitation clause is a term in a contract that limits liability. These occur
everywhere. For example, parking tickets: the liability of parking lot owner in contract or tort is
limited to nothing or $25 or $50 dollars.
3. Employee Liability
Doctrine of respondeat superior, the employer is liable for torts of employee (vicarious liability).
Assume that Canadian Tire/Customer contract contains an exclusion clause: Canadian Tire not
liable for damage that exceeds $100. Applies to both K and Tort action. Result is that my action
against Canadian Tire is restricted to $100.
But there is no limitation on right to sue employee. Employee has no common law right of
indemnification from employer.
Greenwood v. Beattie – NOT IN MATERIALS
Mall owner to insure. Insurer to have no rights of subrogation—insurer cannot sue tenant,
Canadian Tire. Employees cause fire—negligent.
Insurer – contract of insurance – Greenwood – lease – Canadian Tire
(landlord)
(tenant)
|
Beattie (welders - employees)
SCC--employees are third party beneficiaries, exceptions do not apply. Situation is not within
agency requirement as established in New Zealand Shipping:
1. The negotiating parties must have intended that the third party benefit from the contract.
No evidence that clause was intended to apply to employees
2. The contracting party must also be contracting as agent of the third party.
No evidence that Canadian Tire was in fact contracting for employees.
3. The party that acted as an agent for the third party must have had the authority to do so.
No authority or ratification.
4. There must be consideration moving from the third party to the non-agent party. No
consideration from employees to G. It was a lease – not a contract to fix Greenwood’s
car. No performance that could act as consideration.
Assessment of Greewood v Beattie: formalistic, failure to consider consequences of judgment /
unfair surprise / distributive justice: who works in malls? / disrupts risk allocation / inefficient,
means that employees need to insure also, double insurance
London Drugs v. Kuehne & Nagel p. 310
Storage of transformer. LD to insure. Employees negligently damage transformer.
SCC relaxes doctrine of privity in context where employee is third party beneficiary to exclusion
clauses between employer and customer, provided:
(a)
Limitation of liability must expressly or impliedly extends benefit to employee
(b)
The employee is acting in the course of their employment and providing the very
services provided in the contract when the loss occurs.
How is Greenwood distinguished? Lease of space: employees not necessary to the performance
of the agreement.
Edgeworth Construction Ltd. v. N.D. Lea & Associates p. 320
Edgeworth is a road construction contractor. Builds road and loses $, allegedly on the basis of
errors in the specifications and construction drawings. Cannot sue government because there is a
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limitation clause by government. Claims negligent misrepresentation against firm and individual
engineers.
Issue: Can the firm/engineers take advantage of the limitation clause?
Engineering firm argues that contract negated the tort duty of care that it would otherwise have
owed in terms of negligent misrepresentation.
Court rejects: Look at intention of the parties. Clause was not intended to protect engineers—it
was intended for the benefit of the province alone. London Drugs does not apply. Engineers
could have taken steps to protect themselves
What problems continue?
(i)
Employer may have no insurance/no limitation clause. Employee only obtains 3P
benefits if employer has protected itself.
(ii)
Even if insurance/limitation clause, employer might not ensure that it extends to
employees.
(iii)
Employer may not decide to insure employees.
Employee options: ensure insurance coverage extends to employees / ensure employee benefits
from waiver of subrogation / employee self-insures / employee obtains indemnity from employer
Fraser River Pile & Dredge Ltd. v. Can-Dive Services p. 322
Barge charterer seeks to rely on waiver of insurer’s right of subrogation in insurance contract
between insurance company and barge owner. Barge sunk due to negligence of charterer.
Insurance Company ----------- K---------------- Fraser Pile (Barge Owner)
|
Can-Dive (Barge Charterer)
- London Drugs is not limited to employment situation. The principles exception can apply in
other circumstances.
- Parties intended 3P to benefit from K. Insurance K referred to charterers.
In no uncertain terms, the waiver of subrogation clause indicates that the insurers are precluded
from proceeding with an action against third-party beneficiaries coming within the class of
“charterer(s)”, and the relevant inquiry is whether to give effect to these intentions by enforcing
the contractual term, notwithstanding the doctrine of privity of contract.
- Activities performed by the 3rd party are the very activities contemplated as falling within the
scope of K–chartering of boat.
- Fraser Review and insurer, having contracted in favour of Can-Dive, they cannot revoke
unilaterally Can-Dive’s rights.
- Sound policy reasons to allow Can-Dive to benefit from the clause.
4. Legislation
New Brunswick, Law Reform Act, RSNB 2011, c. 184.
4(1)
Unless the contract provides otherwise, a person who is not a party to a contract but who
is identified by or under the contract as being intended to receive some performance or
forbearance under it may enforce that performance or forbearance by a claim for damages or
otherwise.
4(3.1) For the purposes of subsection (1), a person who is identified by or under a contract as
being intended to receive some performance or forbearance under it includes
(a)a person who is intended to receive the performance or forbearance only in certain
circumstances, if those circumstances occur, and
(b)a person who is not named in the contract but is a member of a class of persons
intended to receive the performance or forbearance.
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SECTION 8 – CONTINGENT AGREEMENTS
1. Types of Conditions
Condition as Contractual Term
A term of the contract that is foundational. If it is breached, the contracting party is entitled
to repudiate (terminate) the contract and sue for damages.
Distinguished from a warranty – a term that gives rise to a right of damages.
Example: I agree to sell you my 1966 Italian Lambretta. It turns out the scooter in question is a
later Spanish reproduction called a Serveta. You are not required to complete the contract. A
condition of the contract was that I was selling an Italian Lambretta not a Spanish Serveta.
Condition Precedent
(a) Condition precedent to the formation of a contract
A “condition” that must be satisfied before a contract arises. It is not really a contractual
condition at all, but an offer/acceptance that is subject to a condition. (contingent condition)
Example: I will sell you my Lambretta if you will sell me your Vespa OR agreement for the
purchase of the Lambretta, subject to you deciding you like the colour.
These are like agreement to agrees; too much uncertainty and ambiguity; depends on a subjective
state of mind
(b) Condition precedent to the performance of obligations imposed by a contract
(i)
a term of an existing contract, as opposed to a term of an offer to contract;
(ii)
which describes an event or state of affairs the occurrence of which has not been
promised by either party, and
(iii)
whose fulfilment is a prerequisite of the obligation of both to complete the contract
A true condition precedent:
A contract has been concluded but the contractual obligations are suspended until the condition
occurs and this condition is outside of the discretion of the parties.
Example: A contract in which I agree to sell you my Lambretta and you agree to buy it if Dean
Fortin is re-elected as mayor of Victoria.
 Note: If I sell my Lambretta to someone else before the election, I breach my
contractual obligation to you and you can sue me.
 But you would only be able to obtain damages if it turns out that Dean Fortin wins
the election.
A condition precedent that requires one party to do something:
A contract for a sale of my Lambretta subject to the oil being changed and the engine being tuned
within two weeks.
 Court will imply terms that owner/seller is required to exercise reasonable/good faith
efforts to have these things done.
 Court will not rewrite a contract for parties but will imply terms under the business
efficacy and officious bystander tests: i.e. act in good faith; use reasonable efforts; not to
act arbitrarily or without providing reasonable grounds for decision
 Courts will often do this in order to constrain opportunism and to ensure that one party
cannot take the advantage of the deal while also avoiding the downsides
 Obligations to do something in order to satisfy a condition are sometimes described as
subsidiary conditions.
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Wiebe v Bobsien p. 334
Contract to sell property subject to buyer selling his own property before August 18 th. If Seller
had an offer from a third party, Buyer had 72h to remove the condition precedent from the
contract. Issue: Is the interim agreement a form of option that can be cancelled by Seller prior to
August 18? OR is it a binding agreement for sale and purchase of Seller’s property?
Determined to be a condition precedent.
Condition precedent can have two effects 1) prevents the creation of contract; or 2) merely
suspends performance of some or all of the obligation set out in the contract until the condition is
met. Depends on the intention of the parties as gathered from the words they have employed.
Condition will prevent creation of contract if illusory, if involves fancy or taste.
In Real estate contract, condition precedent usually result in a binding agreement where the
obligation to complete the contract is in suspense. Unless never an intention for parties to bind
themselves
Wiebe v Bobsien p. 340
Dissent from first judgment as to the application to the facts.
Indicated that there are three classes of conditions precedent: (1) conditions that are so imprecise
and subjective that the contract process still must be regarded as an offer (ex. “subject to the
approval of the president”); (2) conditions that are clear, precise, and objective (ex. “subject to
John Smith being elected as Mayor in the municipal election on 15 October of this year”); and (3)
conditions that are partly subjective and partly objective (ex. “subject to planning department
approval of the attached plan of subdivision”).
This case falls into the first class. It leaves unresolved the question of whether the plaintiff must
sell at any price he can get, or if he can hold off until he gets the price he wants. Therefore, a
contract was not formed in this case until the plaintiff either removed the condition or sold his
house. Since the standing offer was withdrawn before the contract was formed, the defendant is
under no obligation to sell his house to the plaintiff.
This problem could be dealt with by stating the price and essential terms upon which the
purchaser must sell his own house in the conditional agreement.
Dynamic Transport Ltd v O.K. Detailing Ltd p. 345
In a purchase and sale situation, the “person who proposes to carry out a subdivision of land” is
the intending vendor. It is he who must divide his parcel of land for the purpose of sale. The
vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale. I
cannot accept the proposition that failure to fix responsibility for obtaining planning approval
renders a contract unenforceable. The common intention to transfer a parcel of land in the
knowledge that a subdivision is required in order to effect such transfer must be taken to include
agreement that the vendor will make a proper application for subdivision and use his best efforts
to obtain such subdivision. This is the only way in which business efficacy can be given to their
agreement. In the circumstances of this case, the only reasonable inference to be drawn is that an
implied obligation rested on the vendor to apply for subdivision.
There is a contract, and some things must be done before others. Subdivision is a condition that
must be done before the tranfer of the land.
Condition Subsequent
A condition that discharges parties from contractual obligations or their agreement.
Example: You agree to buy my Lambretta. If the electrical system malfunctions within two
months you can return the Lambretta to me for a full refund.
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2. Waiver of Condition
Often conditions are included to benefit one of the parties (often the purchaser), i.e. the real estate
deal is subject to the purchaser obtaining financing, a satisfactory building inspection etc. Issue is
whether the condition can be waived by one of the parties?
Turney v. Zhilka p. 352
Property sale subject to following condition: “Providing the property can be annexed to the
Village of Streetsville and a plan is approved by the Village Council for subdivision.”
All that waiver means in these circumstances is that one party to a contract may forgo a
promised advantage or may dispense with part of the promised performance of the other
party which is simply and solely for the benefit of the first party and is severable from the
rest of the contract.
This is a true condition precedent—an external condition upon which the existence of the
obligation depends. Until the event occurs there is no right to performance on either side.
The parties have not promised that it will occur. The purchaser now seeks to make the
vendor liable on his promise to convey in spite of the nonperformance of the condition
and this to suit his own convenience only. This is not a case of renunciation or
relinquishment of a right but rather an attempt by one party, without the consent of the
other, to write a new contract. Waiver has often been referred to as a troublesome and
uncertain term in the law but it does at least presuppose the existence of a right to be
relinquished.
There is a tortured jurisprudence distinguishing: (1) a non-waivable true condition
precedent (reliance on a third party) from (2) an ordinary condition precedent, which may
be waived. Depends the interpretation of the contract
Barnett v Harrisson p. 354
The rule expressed in Turney v. Zhilka should not be disturbed for the following reasons:
- There is a distinction made between (i) the manifest right of A to waive default by B in the
performance of a severable condition intended for the benefit of A, and (ii) the attempt by A
to waive his own default or the default of C, upon whom depends the performance which
gives rise to the obligation, i.e., the true condition precedent to be valid.
- When parties aided by legal advisors make a contract subject to explicit conditions
precedent and provide therein specifically that in the event of non-compliance with one or
more of the conditions, the contract shall be void, the Court can’t simply introduce an
implied provision conceding to the purchaser the right to waive compliance (can’t rewriting
the agreement).
- If the purchaser is to be put in the position of being able to rely on the conditions
precedent or to waive them, depending on which course is to his greater benefit, the result
may be that the purchaser has been given an option to purchase, for which he has paid
nothing
- Wheter the condition precedent is for the benefit of one or two parties: not relevant question
anymore.
- Don’t have to ask if the conditions precedent is severable from the balance of the agreement.
Law and Equity Act, R.S.B.C. 1996, c. 253
54. If the performance of a contract is suspended until the fulfillment of a condition precedent, a
party to the contract may waive the fulfillment of the condition precedent, even if the fulfillment
of the condition precedent is dependent on the will or actions of a person who is not a party to the
contract if
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(a) the condition precedent benefits only that party to the contract;
(b) the contract is capable of being performed without fulfillment of the condition precedent; and
(c) where a time is stipulated for fulfillment of the condition precedent, the waiver is made before
the time stipulated, and where a time is not stipulated for fulfillment of the condition precedent,
the waiver is made within a reasonable time.
3. Damages
Courts can grant damages for loss of a chance where there is uncertainty as to the contingent
event occurring.
Eastwalsh Homes Ltd. v. Anatal Developmens Ltd p. 348
Anatal agrees to sell to Eastwalsh lots to build homes on. Agreed condition was that Anatal
would use best efforts to have the plan of subdivision registered by closing date of the sale. If this
condition not satisfied then agreement terminated. Plan not registered in time and Eastwalsh sues
for specific performance or damages for breach.
Judge finds Anatal did not use reasonable efforts to achieve registration, therefore Anatal in
breach. Judge reasoned that had Anatal discharged its duties there would be a 50% chance of the
subdivision being registered by date. Lots had increased in value from contract formation to
repudiation, Anatal ruled liable for 50% of the difference.
Appeal judge upholds Anatal in breach but cannot substantiate trial judges 50% chance of
registration. Plaintiff proves breach and that loss of chance constitutes “some reasonable
probability” of “an advantage of some real substantial monetary value”. Court found that even
with reasonable efforts no probable chance of registration before time elapsed on contract
therefore damages only nominal.
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SECTION 9 – REPRESENTATION AND TERMS
1. The Issue
What is the legal significance of various statements made during the formation of the contract?
Categories of Statements, Remedies and Interests
Classification
Remedy
Interest Protected
Mere Puff
None
Caveat emptor
Innocent
Misrepresentation
Rescission
If contract performed or executed
right to rescind is limited
Restitution
(prevent unjust enrichment)
Negligent
Misrepresentation
(tort)
Reliance damages
Reliance
Fraudulent
Misrepresentation
(tort)
Rescission and reliance damages
Reliance
Warranty
(contract term)
Expectation damages
Reasonable expectation
Condition
(contract term)
Repudiation and expectation damages
Reasonable expectation
Reasonable expectation
Damages or repudiation depending
Intermediate or
on whether the result of the breach
Innominate or term
goes to the root of the contract
(Hong Kong Fir)
Mere Puff: A legally meaningless statement of the sort often made by a seller to encourage
someone to make a purchase. For example: “This car is a real beauty
Representation: A statement of fact that may give rise to liability if it turns out to be untrue, i.e. if
it is a misrepresentation.
Warranty: A representation that is elevated to a term of the contract. If a warranty is untrue it
amounts to a breach of contract.
Condition: A term that goes to the root of the contract
Analytical approaches
Doctrinal: the legal test
Policy approach: protect reliance and reasonable expectations of one party while avoiding unfair
surprise.
Economic approach: Who should bear the risk that the representation is wrong? Who could have
avoided the risk at least cost?
Remedial approach: Categorization is remedy driven. Justice is done between the parties by
selecting the appropriate remedy.
2. Misrepresentation and Rescission
Rescission is an equitable remedy that a court exercises to set aside a contract because of a defect
in its formation. Comes from equity (court have significant degree of discretion to grant or not).
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Rescission should be distinguished from the termination of a contract by agreement of the
parties or in accordance with the terms of the contract / the right of a party to repudiate a
contract where the other party breaches. Court rescind, parties terminate and repudiate.
Innocent misrepresentation
An erroneous, false statement, but speaker did not know that the statement was false, may even
have thought that it was true.
Conflicting considerations regarding what we ought to do about such statements: Caveat emptor
(if a fact is important, then ought to be made express term of the contract) VS Unjust Enrichment
Remedies: some relief – but limited to rescission. The innocent party can apply to court and have
the contract rescinded. The consequence is that there are no damages, but benefits that were
transferred will be returned - if deposit or purchase price and rescission then returned to
purchaser. Neither reliance nor expectation damages.
Moreover, courts placed limitations on when rescission is available: no relief if contract executed
or restitutio in integrum not possible.
Note: Typical consumer sales contract – no “right to return”. One performance complete (money
for good) you are stuck with it, unless there is something seriously wrong with it (a breach of
condition)
Doctrinal Requirement for Innocent Misrepresentation
 must be a representation of fact that turn out to be false
 must be material – i.e. an important matter
 must induce the making of contract/be relied upon (but this will be presumed); and
 innocent party did not know correct facts
Redgrave v Hurd p. 361
Plaintiff vendor selling his law business and house. Informs defendant purchaser that annual
income from business amounted to £300-400/per year. Purchaser does not inspect all of the
papers relating to the law business. Purchaser enters into written agreement to purchase house
(£1,600) and pays deposit of £100. Takes possession of house - and before balance paid discovers that practice is only £200. Buyer refuses to complete sale of house and vendor sues.
Trial: No recovery. Caveat Emptor. Could have discovered.
Appeal: Misrepresentation gives right to rescission. Recovery of deposit but no damages.
…. for when a person makes a material representation to another to induce him to enter into a
contract, and the other enters into that contract, it is not sufficient to say that the party to whom
the representation is made does not prove that he entered into the contract, relying upon the
representation. If it is a material representation calculated to induce him to enter into the
contract, it is an inference of law that he was induced by the representation to enter into it, and in
order to take away his title to be relieved from the contract on the ground that the representation
was untrue, it must be shewn either that he had knowledge of the facts contrary to the
representation, or that he stated in terms, or shewed clearly by his conduct, that he did not rely
on the representation.
Smith v Land and House Property Corp p. 365
The vendors offered for sale a hotel, stating that it was currently leased to “a most desirable
tenant”. The defendants purchasers agreed to buy the hotel. Shortly thereafter Fleck went into
bankruptcy. Defendants refuse to complete arguing that misdescription of Fleck’s virtues
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amounted to a misrepresentation. Court finds there was a misrepresentation. Statement was not a
mere opinion.
But if the facts are not equally known to both sides, then a statement of opinion by the
one who knows the facts best involves very often a statement of a material fact, for he
impliedly states that he knows facts which justify his opinion
Note: One important factor is disparity of knowledge and who was in the best position to know
whether the statement was true. Distinguished from a situation where both parties know the facts
and one party is simply expressing an opinion.
Bank of British Columbia v Wren Developments Ltd p. 366
Bank claims against Allan on a guarantee for a company debt. Some of the security held by the
bank had been released by the bank without the knowledge of the guarantor. Allan asked to sign
second guarantee to replace first one, without knowledge that the collateral had been impaired,
Court: Guarantee signed in the mistaken belief that the collateral was still held by the bank.
Upon the evidence I find that the defendant Allan, when he signed the second guarantee,
was misled by the words, acts and conduct of the plaintiff into believing that there had
been no change in the collateral securities held by the plaintiff, and otherwise he would
not have signed it. In short, there was a unilateral mistake on the part of the defendant
Allan which was induced by the misrepresentation of the plaintiff in failing to disclose
material facts to him. In those circumstances, the defendant Allan is not liable to the
plaintiff upon the second personal guarantee…
Note: This case is difficult to reconcile with general rules that there is no duty to disclose. Better
viewed as based on doctrine of mistake?
Kupchak v Dayson Holdings Ltd p. 369
Kupchak purchases shares in motel company from Dayson Holdding in return for two properties
held by Kuchap and mortgage. Kupchak finds out two months later that there were false
misrepresentations made about the motel’s earnings and stops making payment on the mortgages.
In the meantime, Dayson, sold an undivided hald interest in one of the properties.
Kuchak’s seek rescission. Court of Appeal. Grants rescission and awards compensation for the
one property that cannot be returned.
In the result, under the authorities the respondents’ dealing with the Haro St. property,
which they acquired by fraud, ought not to bar rescission of the transaction unless it be
impractical, or so unjust to the respondents that it ought not to be imposed upon a guilty
party.
In determining whether rescission is practical, equity’s power to remove inequities
resulting from rescission and deficiencies in restitution by compensation, account, or
indemnity must be kept in mind
Rescission is an equitable remedy, and in my opinion equity has the same power,
operating on the conscience of the parties, to order one to pay compensation to the other
in order to effect substantial restitution under a decree for rescission, as it has to order
one party to pay money on account, or by way of indemnity.
Is rescission barred by conduct or delay (laches – slackness)? No. No undue delay and retaining
the shares and operation of the motel should not be treated as an affirmation of the contract.
Limitations to Rescission
a.
In real estate contracts, execution of contract constitutes a bar to rescission. Must be
sought before performance or execution of K. i.e. while it remains executory.
Redican v Nesbitt (1924): Vendor’s agent makes innocent misrepresentation that property
has electricity. Purchaser only able to inspect 2 days after purchase $ paid, documents
executed and keys handed over. Held: K executed and no rescission. (Note 6, page 376)
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However: Ennis v Klassen (1990): Innocent misrepresentation with respect to BMW
model. Purchase $ paid, delivery and car registered.
“Rescission ceases to be available where the contract has been accepted, which
inmost instances will mean after the passage of a reasonable period of time for
the purchaser to determine whether representations are true.”
b.
Promisee must be able to give back what she got from the promisor (restitutio in
integrum) but note reference to Spence v. Crawford in Kupchak v. Dayson:
“The court must fix its eyes on the goal of doing “what is practically just.” How that goal
may be reached must depend on the circumstances of the case, but the court will be more
drastic in exercising its discretionary powers in a case of fraud than in a case of innocent
misrepresentation. . . . There is no doubt good reason for the distinction. A case of
innocent misrepresentation may be regarded rather as one of misfortune than as one of
moral obliquity. There is no deceit or intention to defraud. The court will be less ready to
pull a transaction to pieces where the defendant is innocent, whereas in the case of fraud
the court will exercise its jurisdiction to the full in order, if possible, to prevent the
defendant from enjoying the benefit of his fraud at the expense of the innocent plaintiff.
Non-disclosure as misrepresentation
Traditional doctrine is that a party negotiating a contract is not subject to a duty to disclose
material facts. Silence/non-disclosure is generally not misrepresentation.
Exceptions: Half-truths; Active concealment; Changing circumstances affect the truth of an
earlier statement; Contracts uberrima fides (utmost good faith); Contracts arising out of fiduciary
relationships
Note 3, page 369: In earlier chapters, we explored the possibility that parties negotiating an
agreement might be subjected to a duty to bargain in good faith. … Under American law, a duty
to disclose information in the course of bargaining has been recognized in circumstances where
nondisclosure “amounts to a failure to act in good faith”.
C.A Ontario, obiter, suggested that a similar duty to disclose ought to be recognized in Canadian
common law: 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), Weiler J.A. suggested that
the following five factors are indicative of when such a duty should be imposed:
(1) A past course of dealing between the parties in which reliance for advice, etc., has been an
accepted feature;
(2) The explicit assumption by one party of advisory responsibilities;
(3) The relevant positions of the parties particularly in their access to information and in their
understanding of possible demands of the deal;
(4) The manner in which the parties were brought together, and the expectations that could create
in the relying parties; and
(5) [W]hether “trust and confidence knowingly [has] been reposed by one party or the other.”
3. Warranties
A term of a contract that parties intend to be binding (a contractual promise), the breach of which
gives rise to damages (expectation damages).
Collateral contract/warranty: In sale situations, often the written contract might only specify the
thing that is being sold (for example a horse, a car). What about the representations that were
45
made during the sale? Rather than one contract (sale of a racing horse), the courts sometimes
adopted a two-contract approach
K1= contract for sale of horse
K2= if you enter K1, I promise it is a racing horse. Unilateral contract, the performance
of which is entering into K1.
It is collateral to the main contract (which was put in writing). Note that if the collateral warranty
is made after the main contract is concluded it is a contractual modification and under the
traditional rule is unsupported by consideration.
Heilbut, Symons & Co v Buckleton p. 377
Test for warranty: "An affirmation at the time of the sale is a warranty provided it appears on the
evidence to be so intended". In this case, no collateral contact. Rare, must be strictly proven. No
test except intentions of the parties, relies solely on the facts.
“He must shew a warranty, i.e., a contract collateral to the main contract to take shares,
whereby the defendants in consideration of the plaintiff taking the shares promised that
the company itself was a rubber company.”
“Any laxity on these points would enable parties to escape from the full performance of
the obligations of contracts unquestionably entered into by them and more especially
would have the effect of lessening the authority of written contracts by making it possible
to vary them by suggesting the existence of verbal collateral agreements relating to the
same subject-matter.”
“The intention of the parties can only be deduced from the totality of the evidence”
Dick Bentley Production Ltd v Harold Smith (Motors) Ltd p. 382
Prima facie, warranty if: representation; made in the course of dealings; for the purpose of
inducing other party to act (important issue); induces entry into K (reliance); reliance is
reasonable
Difficulty, because essentially the same as for misrepresentation.
“… whether a warranty was intended depends on the conduct of the parties, on their words and
behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a
warranty was intended, that will suffice. What conduct, then? What words and behaviour, lead to
the inference of a warranty?
Looking at the cases once more, as we have done so often, it seems to me that if a representation
is made in the course of dealings for a contract for the very purpose of inducing the other party to
act on it, and it actually induces him to act on it by entering into the contract, that is prima facie
ground for inferring that the representation was intended as a warranty. It is not necessary to
speak of it as being collateral. Suffice it that the representation was intended to be acted on and
was in fact acted on. But the maker of the representation can rebut this inference if he can show
that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making
it, and that it would not be reasonable in the circumstances for him to be bound by it.”
Leaf v International Galleries p. 384
Sale of “Constable” painting. Five years later, L tried to sell the painting and found out it was not
by Constable. L took it back to the seller and asked for his money back (i.e. rescission of the
contract). Too late – no rescission. Should have claimed for damages (because here, could have
claimed that it was a condition).
“So, assuming that a contract for the sale of goods may be rescinded in a proper case
for innocent misrepresentation, nevertheless, once the buyer has accepted, or is deemed
to have accepted, the goods, the claim is barred.”
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Note: Sale of Goods Act once the good has been accepted and after the period of reasonable
inspection, a condition may only be treated as a warranty:
15(4) If … the buyer has accepted the goods or part of them, or if the contract is for
specific goods the property in which has passed to the buyer, the breach of any condition
to be fulfilled by the seller can only be treated as a breach of warranty, and not as a
ground for rejecting the goods and treating the contract as repudiated, unless there is a
term of the contract, express or implied, to that effect.
Sale of Goods Act
There are a number of implied conditions in every sale of goods contract:
- there is an implied condition that the goods must correspond with the description (Section 17)
- there is an implied condition that the goods are reasonably fit for that purpose (Section 18(a))
- there is an implied condition that the goods are of merchantable quality (Section 18(b))
- there is an implied condition that the goods will be durable for a reasonable period of time
(Section 18(c))
See also Business Practices and Consumer Protection Act
4. Distinguishing between innocent misrepresentations and warranties
The doctrinal test for distinguishing between innocent misrepresentations and warranties requires
an objective assessment of the promissory intent of the parties: did the parties intend the
statement to be a binding promise? While the determination is necessarily fact specific, a number
of factors influence the assessment.
Timing of Statement: The earlier the statement was made in the negotiations, the less likely that
it was a warranty, or indeed even a misrepresentation. A certain amount of puffery in the initial
stages is expected and early statements may be displaced or merged in the later negotiations.
Importance of statement: How important was the statement to the person to whom it was made
– to what extent did it induce formation of the contract?
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 or will that person be unfairly
surprised by finding that it has contractual consequences?
Relative knowledge and skills of the parties: Does the person making the statement have a
special skill or knowledge of the facts upon which the other relies? 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:
a.
How specific or vague is the statement?
b.
Opinion or Fact: Was the statement merely and obviously an expression of opinion, or
was it offered as a statement of fact? Obvious statements of opinion will not usually be held to be
warranties, though this may turn on knowledge and skill of speaker.
Context: What was the degree of formality surrounding the statement? Was it an offhand or
casual opinion or did it play a central role in the negotiations?
Have the parties taken the trouble to reduce the contract to writing? If yes, then the parties
had an opportunity to incorporate the statement as a term of the contract. Courts are reluctant to
add oral terms to written documents especially where the term significantly adds to or deviates
from the obligations of the parties.
Disclaimers: 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?
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Price/consideration: Does the price charged tell us anything about how the parties allocated
responsibility for the truth of the statement (e.g. buying a “gemstone” for $5.00 is different from
buying the same stone for $5000).
5. Concurrent Liability in Contract and Tort: Negligent Misrepresentation
Tort of negligent misrepresentation
Hedley Byrne & Co. v. Heller & Partners – NOT IN MATERIALS
The elements of the tort of negligent misrepresentation are:
- duty: special relationship between speaker and receiver - speaker provides “information,
opinion or advice”
- representation false
- provided negligently – did not meet standard of case
- reasonable reliance
- damage
Why a traditional reluctance to recognize tort?
Harm caused by negligent misrepresentations often arises in a commercial context: e.g.
statements by lawyers, accountants, bankers etc.:
- commercial is the arena of contract
- in commercial context risks should be allocated by contract: individual self reliance
- floodgates concerns regarding economic loss
- words are different from acts: potential plaintiffs unlimited
- words exist forever
- economic not physical loss
Older cases – contractual relationship ousts tort
J. Nunes Diamonds Ltd. v. Dom. Elec. Protection Co. – NOT IN MATERIALS
“the basis of tort liability considered in Hedley Byrne is inapplicable to any case where
the relationship between the parties is governed by a contract, unless the negligence
relied on can properly be considered as ‘an independent tort’ unconnected with the
performance of that contract. . .”
Newer cases - concurrency
Sodd Corp. v. N. Tessis p. 398
Accountant, trustee in bankruptcy, makes representation about value of stock in warehouse.
Plaintiff submits tender for goods.
In our view, the defendant as a professional accountant and trustee in bankruptcy was in
a special relationship creating a duty of care to the plaintiff and was negligent in his
representation concerning the retail value of the stock-in-trade.
… the defendant’s negligent misstatement also constituted a collateral warranty inducing
the plaintiff to submit its tender. The defendant’s stipulation amounted, in our view, to a
binding promise, depriving him of the terms of the exemption.
It is clear from the cases that the defendant’s representation, whether characterized as a
negligent misstatement or as a collateral warranty, falls outside the exemption clause. . .
BG Checo International Ltd. v. British Columbia Hydro and Power Authority p. 401
Checo sued seeking damages for negligent misrepresentation or breach of contract. Judge found
Checo had been fraudulently induced to enter the contract. SCC affirms that where a wrong
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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.
… the law should move towards the elimination of unjustified differences between the
remedial rules applicable to the two actions, thereby reducing the significance of the
existence of the two different forms of action and allowing a person who has suffered a
wrong full access to all relevant legal remedies.
What is the effect of a contractual clause that limits tort liability?
A contract may limit the scope of the tort duty or waive the right to sue in tort—thereby limiting
or negating tort liability. Contractual limitations must be done in clear terms and are subject to
other contract law doctrines (mistake, fraud, unconscionability).
Three situations generally arise (In Checo)
(i)
The contract stipulates a more stringent obligation than tort law would impose
… The first class of case arises where the contract stipulates a more stringent
obligation than the general law of tort would impose. In that case, the parties are
hardly likely to sue in tort, since they could not recover in tort for the higher
contractual duty. The right to sue in tort is not extinguished, however, and may
remain important, as where suit in contract is barred by expiry of a limitation
period.
(ii)
The contract stipulates a less stringent obligation than tort law would impose
… The most common means by which such an intention is indicated is the
inclusion of a clause of exemption or exclusion of liability in the contract.
… the only limit on the right to choose one’s action is the principle of primacy of
private ordering—the right of individuals to arrange their affairs and assume
risks in a different way than would be done by the law of tort. It is only to the
extent that this private ordering contradicts the tort duty that the tort duty is
diminished.
… it is always open to parties to limit or waive the duties which the common law
would impose on them for negligence. This principle is of great importance in
preserving a sphere of individual liberty and commercial flexibility.
(iii)
The duty in contract and the common law duty in tort are co-extensive
The common calling cases, which have long permitted concurrent actions in
contract and tort, generally fall into this class.
If there are concurrent claims in tort and contract, what damages may be recovered?
For tort, reliance. For contract, expectation damages.
In practice, a reliance based calculation for loss of opportunity is often functionally equivalent of
loss of profits.
6. Parol Evidence Rule
Issue: Determining the Terms of a Contract
Conflict between written contract and other extrinsic evidence (oral, written, electronic etc.).
Prototypical situation is where there is an oral representation that either conflicts with the written
contract or is excluded by an “entire agreement” clause:
Entire Agreement - This Agreement including the Schedules hereto constitutes the entire
agreement of the parties and supersedes all prior agreements, negotiations, representations
and proposals, whether written or oral. There are no conditions, covenants, representations
or warranties, express or implied, statutory or otherwise relating to the subject matter hereof
except as herein expressly provided.
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Signature Rule in L’Estrange (Eng. CA, 1934): Signed contract is binding.
traditionally accords high degree of deference to the written contract.
Common law
Parol Evidence Rule
Extrinsic evidence is inadmissible to alter the contract.
“if the language of the written contract is clear and unambiguous, then no extrinsic parol
evidence may be admitted to alter, vary, or interpret in any way the words used in the
writing” (Fridman, The Law of Contract).
Although the rule is nominally procedural, it operates substantively—in the face of a written
agreement, the prior representation or statement has no contractual effect.
Hawrish v. Bank of Montreal p. 418
Hawrish guarantees debts of company and bank sues on guarantee. Hawrish defends and says the
bank manager promised that he would be released when bank obtained joint guarantee from
directors. Bank obtained other guarantee but Hawrish not released. Signed guarantee contradicts
oral assurances (there is no provision for release when other guarantee obtained).
Held: Guarantee binding / Oral evidence not admissible
- Parol evidence of a distinct collateral agreement that does not contradict main instrument is
admissible (i.e. can be admitted if it adds to or supplements the written agreement).
- Collateral agreement allowing for the discharge of the guarantee cannot stand as it contradicts
the terms of the guarantee.
Bauer v. Bank of Montreal p. 421
Bauer guaranteed loan. Alleges that bank manager promised to return security for loan
(assignment of the company debts) to Bauer if he paid. Bank did not register security and cannot
return it to Bauer.
Held: Guarantee binding / Oral evidence not admissible
Evidence of oral representation is inadmissible under the parol evidence rule and any collateral
agreement founded upon it may not stand in the face of the written guarantee (because contradict
the term of the written agreement)
Rationales
Administrative/adjudicative ease; Prevent fraud/perjury; Enhance certainty/predictability;
Efficacy of commercial documents; Prevent unfair surprise; Control agents/employees
Exceptions to the admissibility of the evidence
- The written agreement is not the whole contract.
- Interpretation: Extrinsic evidence can be introduced to clear up an ambiguity in the contract.
- Invalidity: Extrinsic evidence can be introduced to show that the contract is invalid because of
lack of intention, consideration or capacity
- Misrepresentation: Extrinsic evidence can be introduced to show there was a misrepresentation
that was innocent, negligent or fraudulent.
- Mistake: Extrinsic evidence can be introduced to show that there was some mistake as to the
nature or effect of the agreement.
- Rectification: Extrinsic evidence can be introduced to correct an error/mistake in putting the
agreement in writing.
- Condition precedent: Extrinsic evidence can be introduced to show that there was a condition
precedent to the agreement taking effect.
- Collateral Contract/Warranty/Agreement: Extrinsic evidence can be introduced to show that
there was a separate agreement along with the written agreement.
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- Unconscionability: Extrinsic evidence can be introduced to show that the transaction was
brought about through unconscionable means.
- Modifications and discharge: Extrinsic evidence can be introduced to show that the contract has
been modified or terminated.
- Equitable remedy: Extrinsic evidence can be introduced in support of a claim for an equitable
remedy.
What is left of the rule? When is evidence inadmissible?
- To provide evidence of subjective intentions of the parties
- According to Hawrish v. Bank of Montreal to introduce evidence of a collateral agreement that
contradicts the written agreement.
Reformulation of the rule
Gallen v. Allstate Grain p. 428
Plaintiff farmer buys buckwheat seeds from Allstate. Allstate’s Manager assures farmer that there
will be no problem with weeds - buckwheat would choke the weeds out. Contract has an
exclusion clause: Allstate gives no warranty as to the productiveness or any other matter
pertaining to the seed sold to the producer and will not in any way be responsible for the crop.
The farmer sued on the basis of the oral representation as a warranty. Allstate counters with parol
evidence rule—representation contradicts contract.
Anderson:
“Not responsible for the crop” must be interpreted in light of the express promise. Where there is
an exemption/exclusion clause, the clause will be construed narrowly so that its words do not
defeat an express promise or warranty.
Lambert:
There was a warranty and it was not contradictory to the terms of the contract. Oral representation
that adds, subtracts or varies written contract is okay, not the same as contradicting.
Oral Representation: The buckwheat would “grow up and cover the field like an umbrella”.
Buckwheat will choke out weeks.
Written Clause:
Goes to productiveness of crop (yield). The statement that Allstate will
“not in any way be responsible for the crop” means that Allstate is not
responsible for the yield. This simply adds to the contract.
Parol evidence rule recast as a presumption:
“Once it has been decided that the oral representation was a warranty, then, in my opinion,
(a) evidence accepted on the basis that there would be a subsequent ruling on
admissibility, becomes admissible;
(b) the oral warranty and the document must be interpreted together, and, if possible,
harmoniously, to attach the correct contractual effect to each;
[Courts often will engage in strict interpretation “reading down” the exclusion clause]
(c) if no contradiction becomes apparent in following that process, then the principle in
Hawrish, Bauer and Carman has no application; and
(d) if there is a contradiction, then the principle in Hawrish, Bauer and Carman is that
there is a strong presumption in favour of the written document, but the rule is not
absolute, and if on the evidence it is clear that the oral warranty was intended to
prevail, it will prevail.”
Dissent: Seaton – Oral and written statements cannot stand together / Clause is clear and is
neither unreasonable or unconscionable / Plaintiffs were businessmen and had time to review
written terms / Written contract should be respected – certainty is an important value
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Strength of Presumption
Varies depending upon the circumstances.
------------------ Presumption in favor written K strengthening ----------
Adds a term
Varies
Contradict
Specific Representation on Key Issue and Inconsistency with Standard Form Contract
J. Evans & Son (Portsmouth) Ltd v Merzario (Andrea) Ltd p. 423
P contracted D to have cargo shipped from Italy to England. D promised orally that the container
would be transported below deck, then neglected to do so. Written K had clauses indicating that
D was responsible for deciding how goods would be handled and limiting liability for lost or
damaged goods.
Extrinsic evidence allowed: Look at totality of evidence to determine what is included in contract.
Oral promises that induce party into contract can override written clauses in certain cases
Denning: The oral promise induced plaintiff into contract. Defendant breached oral agreement, so
can’t rely on contract to limit liability.
Roskill: This contract was partly oral, partly written and partly by conduct, so parol evidence rule
doesn’t apply. Look at whole situation.
Zippy Print . v. Pawliuk para. 45 – NOT IN MATERIALS
“A general exclusion clause will not override a specific representation on a point of
substance which was intended to induce the making of the agreement unless the intended
effect of the exclusion clause can be shown to have been brought home to the party to
whom the representation was made by being specifically drawn to the attention of that
party, or by being specifically acknowledged by that party, or in some other way”.
Factors influencing application of the rule
(a)
General: Intent, reliance, reasonable expectations, unfair surprise
(b)
Nature of change/conflict: how serious is the conflict/contradiction.
(c)
Nature of Document
- Intended to be whole agreement—entire agreement clause?
- clarity of wording
- read by parties (knowledge)?
(d)
Bargaining Relationship
- power
- standard form contract
- past relations/experience
- evidence of sharp practice
- legal advice obtained
(e)
Nature of Representation
- quality and credibility of evidence
- clarity and specificity
- significance
Business Practices and Consumer Protection Act
187 In a proceeding in respect of a consumer transaction, a provision in a contract or a
rule of law respecting parole or extrinsic evidence does not operate to exclude or limit the
admissibility of evidence relating to the understanding of the parties as to the consumer
transaction or as to a particular provision of the contract.
NOTE: "consumer transaction" means a supply of goods or services or real property by
a supplier to a consumer for purposes that are primarily personal, family or household.
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7. Classification of terms
How to classify a term such as “seaworthy” or “rust-free”, where the defect in question will exist
along a spectrum from trivial to complete destruction/write-off?
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd p. 442
A contract to hire a ship, a “charter-party” or “charter”, between the owners of the ship and
charterers for 24 months. When the ship was delivered to the charterers the engine room was
understaffed and the staff incompetent. In total there were some 20 weeks of repairs in the first
six to seven months of time charter. Freight rates dropped about 70 between June and August
1957. Charterers purported to repudiate the contract on June 6 and September 11. On Sept. 15,
vessel was seaworthy in every respect, with 17 months left to run on the charter.
Was the term of the charter that the owner would provide a seaworthy vessel a condition or a
warranty?
Held: Breach of contract (vessel was not seaworthy) but charterer not entitled to repudiate.
Charterers not entitled to repudiate for unseaworthiness by itself nor delay entailed by the
owners’ breaches: The delay in question was not so great as to frustrate the commercial purposes
of the contract. It was a term of contract that during repair periods over 24 hrs no hire payment
was due. In addition, the charterer had the option of adding the time lost for repairs to the charter
time.
Diplock says that common law recognizes two different kinds of contractual undertakings:
 those collateral to the main purpose of the parties as expressed in the contract
(warranties);
 those which were mutually dependent, so that the non-performance by one party of such
an undertaking excused the other party from performance (conditions—i.e. a condition
precedent to the obligation to perform)
It is now recognized that it is really the resulting event, flowing from the breach (or
frustrating event) that relieves the other party from performance. In the circumstances of a
frustrated contract, both parties are relieved of their obligations. And the issue of whether a
particular event relieves a party from performance cannot be determined by treating all
contractual undertakings as either conditions or warranties.
With respect to repudiation, the test is whether the:
occurrence of the event deprive[s] the party who has further undertakings still to
perform of substantially the whole benefit of the contract which it was the
intention of the parties as expressed in the contract that [the charterer] should
obtain as the consideration for performing those undertakings.
Innominate/Intermediate Terms
Contractual term the breach of which may give rise to a right to repudiate, or only to damages,
depending on the severity of the consequences of the breach (post-factum analysis)
Parties may expressly make any term a condition, but they should make it clear that by calling a
term a condition any breach of that term (however small) will entitle the other party to repudiate
the contract.
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Wickman Machine Tool Sales Ltd v L. Schuler A.G. p. 449
Majority finds that word “condition” is not used in technical sense as providing a right to
repudiate, rather it is a term of a contract, the breach of which is governed by the
termination provision (Clause 11): can terminate if notice given of material breach, which
is not remedied in 60 days.
Condition has multiple meaning, imprecise term, therefore need to be careful in the drafting
of the contract.
Convention on the International Sale of Goods
Under Article 49, the buyer may declare the contract avoided if the seller’s failure to perform
obligations amounts to a fundamental breach of contract. A breach is fundamental:
if it results in such detriment to the other party as substantially to deprive him of
what he is entitled to expect under the contract, unless the party in breach did not
foresee and a reasonable person of the same kind in the same circumstances
would not have foreseen such a result. (Article 25)
Principles of International Commercial Contracts
7.3.1 (1) A party may terminate the contract where the failure of the other party to perform an
obligation under the contract amounts to a fundamental non-performance.
(2) In determining whether a failure to perform an obligation amounts to a fundamental nonperformance regard shall be had, in particular, to whether
(a) the non-performance substantially deprives the aggrieved party of what it was
entitled to expect under the contract unless the other party did not foresee and could not
reasonably have foreseen such result;
(b) strict compliance with the obligation which has not been performed is of essence
under the contract;
(c) the non-performance is intentional or reckless;
(d) the non-performance gives the aggrieved party reason to believe that it cannot rely on
the other party's future performance;
(e) the non-performing party will suffer disproportionate loss as a result of the
preparation or performance if the contract is terminated.
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