Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
THE LAW OF K
General Policy Considerations

Reasonable expectations vs. unfair surprise

Sanctity of K vs. allocation of risk (who should bear the loss of a rogue, frustration)

Caveat emptor v. reliance/ unjust enrichment

Promotion of private ordering vs. social utility: Will this type of promise contribute to
social utility, or is it an area that should be left to private ordering?

Who’s the least risk avoider?

Unjust Enrichment? Has one party gained at the expense of another, for example, as a
result of money being exchanged for the promise to perform an act?
o Restitution: one party gave up something for a long-term relationship and
then 2nd party acts opportunistically.

Reasonable Reliance? Did one party rely on the other party’s promise to their
detriment?
1
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
K FORMATION: IS THERE A K?
It appears that there is a K, as the requisite elements: offer, acceptance, consideration, are
present
Offer
1. General
-
The offeror is the master of the K
-
The offeree can bind the offeror to the K (has the power of
acceptance) and thus to claim expectation damages
Denton v.
Great
Northern
Railway
2. Specific Rules
a. There must be an intent to be bound – mere advertisement,
enticement or invitation to treat (ie. negotiate) is insufficient
i. An ad quoting prices and showing puffery is not an offer to
sell (K)
ii. Exception: An ad that is clear, definite, explicit and leaves
Johnston
Bros
Lefkowitz
nothing open for negotiation amounts to a K. Can change
offer anytime before acceptance, but cannot change it after
iii. A display in a store is like an ad (NOT an offer). Customer
Boots
bringing goods to cashier is the offer, cashier taking money is
the acceptance
b. The offer must be sufficiently specific and comprehensive that the
terms of the agreement can be identified (the problem of
uncertainty)
c. An offer ceases to exist if it is rejected, and in any event expires
Manchester
Diocesan
after a reasonable time (the length of which determined by the
context)
i. AKA a refusal of the offer by offeree if not accepted within
reasonable time (conduct of both parties post offer is
assessed)
d. An offer can be revoked anytime before being accepted. But unless
the offer has expired (passage of reasonable time), effective
Dickinson v.
Dodds
revocation may require notice
e. An offer is binding once it is accepted, and cannot be revoked
2
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Intention
1. General
-
Acceptance by word/ return promise is a
bilateral contract
-
Acceptance by performance/ action is a
unilateral contract
Jones v.
2. Specific Rules
a. Must be a clear intent to be bound
Padavatton
Daughter argues there is
a K with her mother
allowing her to stay in
the house until she
i. Jones K unenforceable (3 concurring in
passes the par exam.
result):
Held: no K
1. Due to uncertainty (meant to be
flexible family arrangement, not
K)
2. Other judgment: K, but implied
term of a reasonable time period
had elapsed
ii. Parties can agree that a [business]
arrangement won’t give rise to legal
Rose v. JR
Compton
relations
3
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Acceptance and Correspondence
1. Acceptance must sufficiently correspond to the offer – otherwise it is a
counter-offer
Eliason v.
Henshaw
2. Offeror can specify how the offer is to be accepted (place/ time/
method)
3. Generally, acceptance must be communicated (letter, verbal) to the
offeror and must be done before the offer has expired or been revoked
Larkin v.
Gardiner
a. Method of communication may be stipulated by offeror
b. Silence is not acceptance
4. K formation generally occurs where acceptance is received
5. Specific rules
a. Postal acceptance rule: offer accepted when offeree puts notice in
the mail. K formed where the letter is posted.
i.
Applies when post is the contemplated method of
communication only
i.
Does not apply to revocation – offer open until revocation
communicated
ii.
If you post a rejection/ counter-offer and then an
Henthorn
(post in
cont)
Howell v.
Hughes
(post not
accepted)
Byrne v. Leon
Henthorn v.
Fraser
Pollock
acceptance, the r/c-o is valid as long as it’s received first
iii.
Rationale:
a. Policy: efficient (2 letters v. 3), offeror can control
how offer is accepted
b. Doctrinal: postal service is the offeror’s agent
b. Faxed document: instantaneous communication rule applies – K
forms where the acceptance is received
c. Email: acceptance is likely instantaneous: made when and where the
email is available (lands in the server/ inbox)
Eastern
Power v.
Azienda
Electronic
Transactns
Act
Formalization and Certainty
4
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
1. Courts will not enforce an incomplete agreement:
a. Lacking an essential term (ex. agreement
about price)
May v.
Tentage – no K because
Butcher
prices, quantity and
delivery not agreed upon.
Court likes certainty.
Hillas v.
Lumber – K despite
Arcos
uncertainties because
parties acted as if there
was a K (intent). K to
enter into K is a K.
Foley v.
Petrol for land – K,
Classique
okay to K to agree upon
Coaches
reasonable price (there
was intent to K).
Between May and Hillas.
b. Vagueness/ ambiguity (ex. I’ll take your
butter if good”)
c. Agreement to agree/ to negotiate (letters of
intent, memo of understanding)
2. Policy: Generally, where the courts are willing to read a term as being forming of a
contract, there has been an agreement that already works (and hint of unjust
enrichment). K likes certainty + commercial efficiency.
-
Sale of Goods Act: where there’s no agreement on the price of sale, courts can read in
term of reasonable price (generally only for executed Ks)
3. Courts can enforce an agreement to negotiate for
mutual agreement
Empress v.
Rental agreement.
Bank of NS
Ongoing relationship that
had worked in the past,
o There’s a duty to negotiate in good faith
a whiff of unjust
o Questionable – but good authority in BC so
enrichment
far
o HL recognized no duty to negotiate in good
faith
o No tort duty to negotiate in good faith
Walford v.
Miles
Martel
Building v.
Canada
Consideration
1. Policy: to control the kinds of promises that are legally
5
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
enforceable
a. Evidentiary Function: the need for evidence of the
existence of a contract.
b. Cautionary Function: ensure that parties deliberate before
they contract.
c. Channelling Function: ensure there is a simple, external
test of enforceability.
2. General
a. Bargain promises must be made for consideration in order
to be enforced
b. Usually, issues arise when there are contractual
modifications or for personal Ks
3. Background considerations for determining if there’s
consideration:
a. Evidence of the K
b. Deliberation (arriving at an attempt to be legally bound)
c. Unjust Enrichment
d. Reliance (someone relies upon a promise, courts much
more willing to enforce when there’s been detrimental
reliance)
e. Social utility/ facilitate private ordering/utility of
exchange (ex. not everything is subject to exchange, and
policies are in place addressing illegality of certain
contracted agreements)
4. Specific rules
a. Motive and consideration are separate things
b. Court will not look into the adequacy of
Thomas v.
1$ and maintaining the
Thomas
property for life interest
in house is good
consideration if it has economic value since
consideration – binding K
this indicates formality and intent
5. Personal relationships (no consideration of economic
value)
a. Abstaining from complaining is not adequate
The whining son.
White v.
Bluett
consideration – no right to complain
i. Newcombe: no right to receive $ but
perhaps right to complain – evid issues!
6
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
b. Consideration can be a detriment to the
promise
Hamer v.
The puritan nephew
Sidway
i. Newcombe: evidence was sound
c. If not a K, promises to make charitable
donations not enforceable (incomplete gift)
6. Exchange of mutual promises is good consideration
a. Mutual obligations are good consideration –
each promise must have value though
b. Courts may imply a promise to use
reasonable efforts on behalf of the defendant
to find a K
7. Going transactional adjustment (modifications)
a. Traditionally: K modification w/o fresh
consideration is unenforceable
i. Promise to do what you have already
Ked to do is not consideration
b. Modern law (leading case) adopts the trad’l
approach
Dalhousie v.
Said he would pay
Boutilier
money, but gift not in
will
No K because no
Tobias v.
mutuality – Tobias didn’t
Dick
promise anything for
exclusive selling rights
Wood v.
K - because looks like a K
Lady Duff
Gordon
Stilk v.
Sailors already sold all
Myrick
their services. Today,
Harris v.
would be dealt under
Watson
economic duress
Gilbert
Steel
c. How can GTAs be made enforceable?
i. Seal
ii. Find new nominal consideration
iii. Find new additional consideration
1. Promise of good price in future
K’s is not good consideration
(too vague)
2. Additional credit provided is not
Unsuccessful
in:
D (Uni) refuses to pay
Gilbert
increase in price, claiming
Steel v.
no new consideration.
University
Held successful.
Construction
good consid
3. Forbearance on a legal right (ex.
right to sue, to fire) is good
Techform v.
Not firing an employee
Wolda
given for signing a noncompetit’n agreement is
consideration
4. Paying a lesser sum for a greater
sum id not good consideration
iv. Find a new practical benefit
ok
Foakes v.
Beer
Williams v.
Practical benefit of
7
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Roffey
completing building on
time is good consideration
for price increase
v. Find rescission of K1 and new K2
1. Change in price considered
variation, not a new K
2. Change in price can be considered
creation of a new K, if price is
Gilbert
Evidentiary issue – not
Steel
found in this case
Deluxe
Change in price can be
French Fries
considered creation of a
new K, if price is the
the only important element of K
only important element
a. Oblig. under K1 are the
of K
consideration under K2
vi. Promissory estoppel
d. Super modern law: dispose of the
requirement
i. “Post K modification, unsupported by
Nav Cda v.
GFAA
consideration may be enforceable as
long as the variation wasn’t procured
under econ. duress”
8. Forbearance on a right to sue is good consideration
Fairgrief v.
Agreement to pay $1000
Ellis
for past services good,
even though underlying
claim would’ve failed
a. BUT only if the claim is
i. Reasonable,
ii. Made in good faith (no extortion)
Scott v.
Merit
iii. And no concealment of material facts
b. Claim based on invalid claim not good
consideration
i. Wife’s waiving right to sue husband is
not consid - she couldn’t give it up
BDC v.
Arkin
Combe v.
Combe
under statute
9. Debt Settlement/ Compromise Agreements
a. Agreement to pay partial sum (lesser for
Law and
Equity Act
greater) is enforceable if expressly accepted
by creditor
8
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
9
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Non-Bargain Promises
1. Under Seal (clear intention)
2. Consideration given after K transaction is not good:
a. Consideration must be contemporaneous with
promise, not after the fact
Roscorla v.
Promise that horse was
Thomas
free of vice was given
after K transaction
b. Policy: lack of deliberation, lack of reliance,
(horse for $) – no
consideration for this
no unjust enrichment, moral v. legal
obligations, concerns re: fraud on creditors
from “paying” family back
3. Acts done before consideration generally not good:
a. Can’t sue for voluntary courtesy,
Lampleigh v.
Asks to get pardon for
Braithwait
killing a man (like snow
shoveling). Held: K good,
b. But if past act was done at the request of
since requested.
promisor, can characterize as unilateral K to
get around consideration
c. BUT may be considered K if:
i. Act must be done at promisor’s
request
ii. Parties must have understood that
Pao On v.
Lau Yiu
Long
there would be payment
iii. Payment must have been legally
enforceable if promised in advance
4. Even absent consideration, may be able to use reliance (estoppel)
b. Reliance is not consideration, but can use promissory estoppel to protect against
detrimental reliance on another’s statement, incl. in the context of GTAs
c. Party is barred from denying the truth of
their statements re: future action
Hughes v.
Landlord can’t enforce
Met.
strict rights, counter to
Railway
dealings between parties.
Estoppel.
Promise to accept smaller
High Trees
sum is binding, even
absent consideration.
Estoppel.
d. Elements
i.
Existing legal relationship between the
parties;
High trees
and Owen
Sound
Library
10
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
1. In personal cases, may not find
legal rel.
N.M v.
P gives up job to move
A.T.A
to Canada to be with D.
No estoppel.
ii.
a clear promise or representation;
iii.
made with the intention/knowledge
that it be relied upon;
1. That one party grants indulgences John
to another isn’t enough to
create an expectation that the
strict rights of the K wouldn’t
No intention that the
Burrows Ltd
legal relationship re:
v.
payments would be
Subsurface
altered
Owen Sound
Negotiations may be
Library
“assumed” to be moved
be enforced
2. BUT doesn’t require direct
evidence – can be inferred based
to a later deadline
on evidence (obj test)
Newcombe: it’s a stretch
…
iv.
reliance; and
v.
no compelling reasons to excuse person
from representation (i.e. coercion,
D & C
Builders abt to go
Builders
bankrupt coerced by
woman into accepting
duress)
vi.
lesser sum
equity, therefore clean hands required
e. Shield only – not a cause of action
i.
Don’t stretch High Trees too far
Gilbert
Steel
Combe v.
Wife unsuccessfully using
Combe
it as a sword against
husband who promised to
pay
ii.
Policy: estoppel as a cause of action would makes K tort-like (injurious
promise)
iii.
Is a cause of action in US … perhaps
the SCC will recognize it in the
future if v. egregious
Red Owl,
Waltons v.
Maher
Unilateral K
1. Historically: motive does not matter, only conduct
Williams v.
Reward for info leading
Carwardine
to murder conviction
2. Modern C/L: motive is relevant
Crown v.
Reward for into leading
11
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
a. To be eligible for award, must have
knowledge of the offer and act with the
Clark
to murder conviction
(Australia)
intention to accept it
3. Performance of the unilateral K = acceptance, no
notification required
4. Government programs must have clear windows of
eligibility – otherwise following the program leads
to entitlement of benefits
Carlill v.
Ad, intended as promise
Carbolic
and not puff
Smoke Ball
Grant v.
Potato stabilization
New
program. Finds program is
Brunswick
offer, meeting elig and
submitting form is accept
a. Note: how do characterize performance?
a. Also, government officials are ppl who have
apparent authority (in this case), implied
Dale v.
ACCESS funding for U of
Manitoba
M students throughout
degree, binding
authority, actual authority
5. How can courts protect from revocation before
performance complete?
a. Imply 2 K – the second being a promise not
to revoke
Errington v.
K1- pay mortgage and
Errington
house will be yours
K2- as long as you pay
mortgage, you remain in
possession
b. Imply bilateral K by an exchange of mutual
promises
Dawson v.
Dawson gave Helicopter
Helicopter
info re: mines w/o
reward
c. Offer cannot be revoked when performance
has commenced
d. Interpretation of what promise called for
Ayerswood
Energy efficiency program
v. Hydro1,
Dale
Grant,
Carbolic
e. Find a relationship for trust and confidence
between the parties, hold 1 liable for breach
of trust
Standard Form Ks and the Tendering Process
Battle of the forms
- Seller and buyer use standard form contracts. Each relies on its standard
form, but overlapping terms
12
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Approaches:
1. First shot rule: first set of terms governs
2. Last shot rule/ performance doctrine: last form wins (C/L adopts this)
3. Reconcile the terms. If contradictory, they cancel each other out and
the court implies reasonable terms
Tendering process
- Owner/ buyer makes calls for tenders/ bids. Two contract approach:
- Contract A: governs the tendering process. The call for tenders is an offer
and the submission of bid is acceptance. If a bid is accepted, the bidder
must enter into K B
o Contract A terms depend on the call for tenders
MJB
Enterprises
Double N
Earthmovers
- Contract B: The contract for the provision of goods/ services
- Generally, contract A must accept only compliant tenders (otherwise the
next K in line has right to damages), and must treat all bidders fairly
and equally
13
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
K FORMATION: WHO IS INCLUDED IN THE K?
Third-Party Beneficiaries
1. Only the contracting parties have rights and
obligations, beneficiaries of the K who are not
Tweddle v.
2 fathers agree to
Atkinson
exchange dowry. One
father dies, son in law
party to it have no privity
sues for promised
a. POLICY: beneficiary gave no consideration,
contribution. HELD: no
want to avoid coercion from beneficiary
privity of K!
b. Natural love and affection is not
consideration
Beswick v.
Man sells coal business to
Beswick
nephew (K), nephew
agrees to terms (to pay
widow) but ceases.
HELD: no privity with
widow but she could sue
as executor of his will!
Dunlop v.
Manuf->Wholesaler-
Selfridge
>Retailer. W is not an
agent of M. No privity
between M and R even
though price control
between W and R is for
benefit of M
2. Only those in a K have protection under exclusion
of liability clauses
3. To get around these issues can argue:
a. Trust (trustee in K  beneficiary is 3P)
b. Assignment (assignor is in K  assignee is
3P)
i. Governed by Law and Equity Act s. 36
c. Agency (agent is in K  principal is 3P)
THE AGENCY TEST
NZ Shipping: stevedores
Greenwood: employees of CT
FROM NZ SHIPPING
negligently damage a drill
negligently cause fire. Are the
while unloading it. Are they
protected by the limitation of
14
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
protected by the limitation
liability between the shopping
of liability between plaintiff
centre (lessor) and CT (lessee)?
and carrier? YES!
NO! Held: risk was allocated in
lease arrangement.
1. Negotiating parties
Yes. Bill of lading (K) had
No. No evidence that clause
intended 3rd party to
clause extending protection
intended to apply to employees.
benefit
to “every IC of the carrier”
2. Contracting party
Yes. Bill of lading state
No. No evidence that CT was
must also be
carrier was acting as agent
contracting for employees.
contracting as agent
for ICs
of the 3rd party
3. Party acting as
Yes. Carrier authorized
No. No authorization or
agent must have had
because stevedores is a
ratification.
authority to do so
subsidiary. Also, this can be
granted ex post factos.
4. There must be
Yes. Stevedores unloaded
No. No consideration from
consideration moving
the drill from the boat
employees to Greenwood. It was
from 3rd party to the
(unilateral K – you unload
a lease – no performance by
non-agent party
drill, I accept you’re
employees that could count as
covered)
consideration
4. ISSUE: Greenwood shows that the NZ Shipping agency test is formalistic, causes unfair
surprise, provides poor distributive justice (employees unable to pay), inefficient (if
employees have to get own insurance)
5. MODERN LAW: relaxing privity in the context of employment relationships (relaxed
NZ Shipping test)
a. POLICY: corporations have no arms and legs
15
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
THE RELAXED AGENCY
London Drugs: LD enters
Hypothetical Greenwood: Does
TEST FROM LD – for
into K with KN to store
LD overrule Greenwood?
employment relationships
a transformer. K limited
Court holds no – it’s
KN warehouseman’s
consistent (distinguishes G,
liability to 40$, LD gets
see below). Newcombe:
own insurance. LD asks to
Greenwood is likely overruled.
retrieve transformer
employees negligently
damage transformer.
1. Express or implied
Yes. Exclusion clause
Likely no. K was about lease
terms in limitation of
identified warehouse
of space – employees not
liability clause to include
employees
necessary to perform K
the employees
(Newcombe: unconvincing,
without employees no reason
to lease space)
2. Employees acted in
Yes. It was the job of
Likely no. Employees
course of their
employees to move the
strangers to K. Clause was a
employment and were
transformer.
lease provision, not limitation
providing the very
clause.
services provided in the
K when loss occurred
b. ISSUES: employees still unprotected if employers have no insurance/ limitation
clauses, or if they aren’t extended to employees
6. MODERN LAW: relaxing privity in the general commercial context (Fraser River v. Can
Dive)
16
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
THE RELAXED AGENCY TEST FROM
Fraser River: FR rents out vessels to
FRASER RIVER – for non-
charterers. Boats are insured, K between FR
employment relationships
and insurer includes waiver of subrogation.
CD charters and negligently sinks ship –
insurer pays, but can’t sue CD since no
subrogation. Can insurance co amend K to
get subrogation rights? No – charterer can
rely on waiver of subrogation even though
they are not in privity. Since 3P had a
right to rely, it cannot be revoked once
crystallized.
1. Did the King parties intent to
Yes – express reference to charterers in
give a benefit to 3rd party?
insurance
2. Are the actions of the 3
rd
party
in the contemplated scope of the
Yes – chartering the boat was within the
contemplated scope
contracting parties?
17
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
K INTERPRETATION: WHAT IS IN THE K?
Guiding Principles to K interpretation
1. Purpose of K interpretation is to ascertain the true
intentions of the parties at the time the K is
signed
2. If ambiguity:
a. Literal meaning should not be applied where
it would bring about unrealistic result
b. Where the words can bear 2 construction,
Consolidated
Bathurst v.
Mutual
Boiler
choose the more reasonable one/ the more
fair result
3. If no ambiguity: above rule is not determinative –
presume that parties intend the legal consequences
of their words unless result is absurd
a. No need for extrinsic evidence (see Parol
Evid below)
4. Objective approach to determining parties’ intention
at time of K
5. The “factual matrix”, “commercial context” and
“surrounding circumstances” are almost always
relevant to the written K, regardless of extrinsic
Eli Lilly v.
Novopharm
Waddams
Reardon
Smith v.
Yngvar
Hansen
BG Checo v.
BC Hydro
evidence
6. Interpretation must give effect to all parts of the
agreement – presumption that no provision is
Re CNR and
CP
redundant/ meaningless
a. Resolve inconsistencies if possible
b. In reality, lawyers often use duplicative
language
7. Subsequent conduct
8. Related agreements: if agreements are a component
of a larger transaction
9. Meaning of words: natural/ ordinary meaning, unless
18
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
evid of otherwise
10. Contra proferentem: ambiguities to be construed
against the drafter
Parol Evidence
1. If there’s a conflict between written K and extrinsic
Carman
evidence, there’s a strong presumption that the
written K contains the entire agreement
2. General: parol evidence is presumptively inadmissible
Prenn
K re: purchase of shares.
Parole ev not admitted,
a. Even without parole evid (ex. evid of
but commercial context
negotiations), the K is still to be
used in K interpretation
interpreted in its context
to achieve the same
thing
Hawrish v.
Signed guarantee is
BMO
binding despite oral
assurance by bank
manager that are
contrary to the signed K
a. If language of K is clear and unambiguous,
extrinsic evidence not admissible to alter it
b. Policy: administrative ease, prevents fraud,
Fridman,
KPMG v.
CIBC
enhances certainty, efficacy of commercial
docs, prevents unfair surprise, controls
agents/ employees
3. Exceptions – parol evidence admissible if:
a. Parol evidence of a distinct collateral
agreement that doesn’t contradict main K
i. Therefore a way to get parol evidence
into a K is to characterize it as 2 Ks
b. Written agreement not the whole K
c. There was a separate agreement along with
written K claimed (collateral K, warranty,
but NOT condition): follow modern rule
Gallen v.
Allstate
Grain
19
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
d. There’s an ambiguity that needs clarifying
e. There’s a claim of:
i. Misrepresentation
ii. Mistake
iii. Rectification
iv. Condition precedent
v. Unconscionability
vi. Modification and discharge
vii. An equitable remedy
f. However, inadmissible:
i. To show the subjective intention of
the parties
ii. To introduce evidence of a collateral K
Hawrish: oral assurance
Hawrish v.
by bank manager that are
BMO/Bauer/
contrary to the signed K
Carmen
contrary to the written K
4. Modern rule:
g. If the oral representation was a warranty,
then:
i. Parol evidence is admissible;
Gallen v.
Oral warranty that
Allstate
wheat would grow over
Grain
weeds, but written
exclusion clause states no
ii. Oral warranty and document must be
warranty re:
productiveness. Held:
interpreted together and harmoniously
written clause is about
if possible;
yield, doesn’t affect its
1. Ex. can read down exclusion
ability to grow over
clause: if you mean for
weeds
something to be excluded, do so
explicitly
iii. If no contradiction, then
Hawrish/Bauer/Carmen has no
application; and
iv. If there is a contraction, follow
Hawrish: strong presumption in favour
of the written K (but not absolute);
and
v. If on the evidence it’s clear that the
Zippy Print
oral warranty was intended to prevail,
it will prevail
Franchisor – franchisee,
20
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
vi. Note: contra proferentem
clear disparity in power
between the two parties
h. If there was a representation:
A general exclusion clause will not override a
1) specific representation on a
2) point of substance which was
3) intended to induce the K unless the
4) intended effect of the exclusion clause
was made clear. Factors:
i. General: intent, reliance, reas. exp,
unfair surp
ii. Nature of representation: quality of
evidence, clarity and specificity,
significance
iii. Seriousness/ nature of contradiction
iv. Nature of document: whole
agreement? Clarity? Read by parties
(knowledge)?
v. Bargaining relationship: power, standard
form K, past relations/ experience,
sharp practice?
i. Presumption in favour of written K increases:
i. Adds a term -> varies -> contradicts
j. Today, exclusion clauses explicitly exclude a
lot of things
Misrepresentations, Warranties and Conditions
Classification
Remedy
Interests Protected
(a) Mere Puff
None
Caveat emptor
(b) Innocent
Rescission
Restitution (prevent
Misrepresentation
(c)
unjust enrichment)
Reliance
Reliance (tort
Negligent
These are
damages for the
Misrep
tort }
fraud)
21
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
(d)
actions, not
Fraudulent
actions in K
Rescission and reliance
Reliance (tort
damages for the
Misrep
fraud)
(e) Warranty
Expectation
Reasonable
expectation
(f) Condition
Repudiation and expectation
Reasonable
expectation
(g) Innominate term
Damages or repudiation
Reasonable
(Hong Kong Fir event)
expectation
K to sell law firm to
1. Puff
lawyer. Buyer finds it’s
a. Legally meaningless, to encourage a sale, no
not worth as much as
remedy – caveat emptor
represented, refuses to
2. Innocent misrepresentation
a. Test
i. Representation of fact that
buy. Note: lawyer had
Redgrave v.
opportunity to see books.
Hurd
Seller argues specific
performance (P). Buyer
unknowingly are false;
argues rescission (D).
ii. Material (important matter);
Held: innocent misrep,
iii. Induces the making of the K; and
rescinded.
iv. relied upon (can be presumed)
b. Policy: caveat emptor v. unjust enrichment
c. Remedy: rescission (equity) to protect
unjust enrichment (restitution), but only
possible if:
i. It’s possible to put the parties back
into the state before K was formed
K for sale of cottage
Redican v.
cannot be rescinded after
Nesbitt
performance, since land is
land, regardless of
electric.
(ex. can return goods as they were)
ii. K is not executed
1. In sale of land, rescission not
available once K is executed
2. More leniency in sale of consumer
goods: reasonable inspection
Ennis v.
Sale of BMW, misrep of
Klassen
model discovered 3 days
later, rescission allowed
period
a. 5 years is too long –
Leaf v. Int’l
Sale of “Constable
22
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
should argue warranty or
Galleries
painting, 5 years later
found out it wasn’t real.
condition (if not under
No rescission – too late.
Sale of Goods Act) instead
3. Note: Sale of Goods Act has
reasonable inspection period (1-2
days)
d. Note: can only get equitable remedies
(restitution, rescission), no reliance damages
(which are C/L)
Bank negligently provides
3. Negligent
a. Tort, not K (therefore can get around
privity of K)
Hedley
positive credit report,
Byrne
causing economic loss to
lender. Establishes the
b. Remedy: Reliance
tort of neg. misrep. but
c. Application:
neg. misrep not found
since express disclaimer
i. In providing information/advice/opinion,
a professional has a duty of care in
tort even without a K relationship
Esso
Neg misrep found: Esso
Petroleum
has professional knowledge
re: expected fuel output
and did not usereasonable
care in providing it.
4. Fraudulent misrepresentation
a. Tort, not K (therefore can get around
Peek v.
Derry
privity of K)
b. A known false statement
c. Remedy: rescission, reliance, to protect
reliance damages
Buys shares in rubber co,
5. Warranty
a. A term of K that the parties intend to be
binding, but not central (“intelligent
Heilbut
held no warranty. Found
Symons
innocent misrep but no
rescission available since
bystander” test for intent, based on words/
they had sold their
behavior, not thoughts)
i. We can characterize a warranty as a
collateral (2nd) K – but this is a legal
shares
Esso
Warranty found. See
Petroleum
under negligent
misrepresentation.
23
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
fiction
b. Remedy: Expectation damages, to protect
reasonable expectatn
c. Test: prima facie a warranty if:
i.
Representation
ii.
Made in the course of dealings
iii.
For the purpose of inducing the other
Dick Bentley
statement about mileage,
buyer finds later that
it’s false. Was the
representation innocent
party to act (an important issue)
iv.
Induces entry into the K (reliance)
v.
And reliance is reasonable
d. Representations made by a brochure can also
amount to warranty if they meet the Dick
Bentley criteria
i. Manufacturers who would be liable for
direct sale are also liable for indirect
sale
e. Representer can rebut this by showing
innocent misrep, ex. if the representer truly
Care salesman makes
misrep or a warranty?
Held: warranty, sellers
should have known
Murray v.
Manufacturer liable to
Sperry Rand
farmer for a forage
harvester that did not
meet the represented
expectations (defective or
unsuitable). Brochure,
which indicated the
machine’s
specs/performance, held
to be a warranty.
24
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
didn’t know, and for good reason
6. Condition
a. A term of fundamental importance (going to
the root of the K) ex. price or type of good
b. Remedy: Repudiation and expectation
damages to protect reasonable expectation
c. Sale of Goods Act (can K out of these)
i. s. 32: unless otherwise agreed, delivery
of goods and payment are concurrent
conditions
ii. Goods are reasonably fit for their
purpose, are of a merchantable quality,
durable for a reasonable time
iii. Once goods have been accepted and
Hong Kong
Fir
after a reasonable inspection period, a
condition is treated as a warranty
(damages but no repudiation)
7. Innominate Term
a. Between a condition and a warranty –
remedy depends on whether the breach is
fundamental (repudiation and damages) or
not (damages only), to protect reasonable
expectation
8. Analytical approaches
a. Doctrinal: legal test
b. Policy: protect reliance, reasonable expectation, while avoiding unfair surprise
c. Economic: who is the least cost avoider?
d. Remedial: categorization is remedy driven
Concurrent Liability in K and Tort
1. Historically, courts reluctant to recognize right of action in a tort in the context of a k
a. commercial is the arena of contract – risks should be allocated by contract
b. floodgates concerns re economic loss
c. words are different from acts: potential plaintiffs unlimited, especially once you
25
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
put them in print
d. words exist forever
e. economic not physical loss
2. SCC: where a given wrong is prima facie actionable
BC Checo
in K and tort, party can sue in either or both,
subject to any limits the parties themselves have
place on that right by their K
3. Tort modified by K
a. K-ing into more obligations: K oblig > tort
b. K-ing out of obligations (express terms only
– exemption/ exclusion of liability clause): K
Central
You can K out of torts
Trust
oblig < tort
c. K = tort: K is easier case to make, but tort
may have longer limitation period (in BC, 2
yrs)
d. These modifications by K apply only wrt the
wrongs falling within the scope of the K
4. Remedy: Torts give rise to reliance damages, but
with a “whiff” of expectation damages = a lot like
Esso
Reliance damages from
Petroleum
neg misrep, but included
his opportunity costs.
K damages
Looks like expectation
a. Capital, interest overdraft, lost wages, time
measure!
it’ll take to re-establish self after wasted
endeavour
Exclusion of Liability (Exclusion Clauses, Waivers, and Limitations)
D (purchaser) refused
1. Doctrine of Fundamental Breach –
a. Exemption clause can’t excuse liability for a
breach that goes to the root of the K
(Denning)!
b. Rejects Doctrine of Fundamental Breach as a
rule of construction, not a rule of law
i. No more doctrine of “fundamental
breach” for exclusion clauses! Contra
Proforendum
delivery of severely
Karsales v.
damaged used car, P
Wallis
relies on exclusion clause.
Denning finds fund breach
Suisse
Atlantique
Photo
K to provide security to
Production
building, burns it down.
Exclusion clause applies –
26
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
services for security cost
ii. Replaced with test of reasonableness:
very little, more cost
examining the reasonable intentions of
effective for factory to
the parties at time of K re: what falls
have insurance
in the exclusion clause. Ex. Commercial
context
iii. Breach brings K obligations to an end
K for conveyor systems,
2. Canadian Approach:
a. Lay the doctrine of fund breach to rest and
deal explicitly with unconscionability
Hunter
gears fail. Exclusion clause
Engineering
applies. Clause clear an
v. Syncrude
unambiguous. No evidence
of unconscion.
b. The end of Fundamental Breach
i. As a matter of interp, what is the
exclusion clause meant to incl?
1. Ambiguity, contra prof etc. Ex.
Tercon
Exclusion clause does not
Contractor
apply, but because the
v. B.C.
issue was outside the
tendering process which
Is the exclusion lmtd to the
had the exclusion clause.
subject matter of THAT K? Can
there be a collateral K for other
stuff?
ii. If the exclusion clause applies?
2. Unconscionability at the time K
was made?
3. Public policy and illegality (Plas
Tex v. Dow)?
iii. Newcombe: removes lots of flexibility
Defences – How to Get Out Anyways
Non Est Factum (it is not my deed)
1. General: Signature rule – signed contract is proof of
acceptance
a. No estoppel available
L’Estrange
Saunders v.
Anglia
2. Exceptions:
a. Fraud/ forgery (person had no signed)
b. Person did not know what they were signing
(blind, illiterate, lack of mental capacity)
27
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
c. EFFECT: rescission – K void
d. For plea to be available:
i. Document must be fundamentally
Saunders v.
Aunt relied on nephew,
Anglia
did not ask for it to be
read aloud when her
different from what the signer believed
glasses were broken and
it to be. If you know you’re signing a
there was no mistake re:
legal doc, non est factum not avail
essence of the doc. K is
good.
ii. Signature must not be brought about
by carelessness of signer in taking
precautions
e. If you’re a literate adult of a normal mental
capacity, then presumption that your
signature is binding
f. Rationale: signer is in the best position to
avoid loss
Marvco
Parents held careless
Color
Doctrine of Reasonable Notice
1. Generally: signature rule – signed contract is proof of L’Estrange
acceptance
2. Exception: unsigned docs that contain conditions
(ex. tickets: train, bus, movie, amusement park,
parking, museum, skiing etc.):
a. Doctrine of reasonable notice: where customer
did not know of the specific conditions,
Mellish Rule
in
Parker v.
Ticket received for
South
storage of bag at railway.
evidence is required to show assent to terms: Eastern
i. Actual knowledge that docs contain
Railway
Bad lost, ticket limited
damages to 10 pounds
conditions
ii. Reasonable steps taken to provide
notice that doc contained conditions
a. The more onerous the condition (unusual,
unexpected) the more notice required
3. Exception: party may not rely upon terms if signer
had no actual knowledge and no reasonable steps
were taken to bring it to his attention (adopting
Doctrine of Reasonable Notice)
J. Spurling
v. Bradshaw
Tilden Rent-
Standard form K.
a-Car
Exclusion clause was very
broad, and had an
Karrol
onerous provision that
was inconsistent with the
28
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
purpose of the K.
a. Limitation: applies only when contract writer
knew/ ought to have known there was no
actual assent (applied narrowly)
i. Ex. transaction supposed to be fast –
situation does not anticipate that
customers will read the K
ii. Ex. onerous provisions in standard form
K
4. Relevant factors re: reasonable notice:
a. reasonableness/ onerousness of
exclusions,
d. size of the font
e. length of the K
b. whether notice was in plain English,
f. context (ex. standard form K)
c. when it was made available
5. Modern law: traditional rule prevails - in absence of
evidence of unconscionability, fraud,
Delaney v.
Cascade
misrepresentation, non est factum
a. Tilden is only applicable in special
circumstances: where person knew or had
Karrol v.
Waiver for ski race upheld
Silver Star
– K said that it was a
“waver of liability”, clear
reason to know of other’s mistake as to its
language, short, routine,
terms
no contradicting purpose
Penalties and Forfeitures
Provision requiring
1. Damages clauses ok: parties can K for their own
payment of gross trading
damages based on the damages estimated to suffer
profit for breach of
2. Courts will not enforce penalties/ forfeitures,
convenant not to sell
where there’s no relationship between the amount
to be paid and the amount damages would be
a. Penalty: whether it would terrify you into K
competing goods is
Thermidaire
“grossly excessive and
Corp
punitive?
Stockloser
Default on machinery
v. Johnson
leading to repossession
performance, sum is extravagant compared to
loss
b. Forfeiture: whether it would be grossly
disproportionatee and unjust enrichment
3. Law and Equity Act s. 24: court may relieve
against all penalties and forfeitures, and in granting
and retaining all
installment payments is
grossly disproportionate –
29
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
the relief may impose any terms as to costs,
expenses, damages, compensations and all other
matters that the court thinks fit
1 day late and 10 day
late lead to same
forfeiture
30
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Illegality (residual)
1. Contrary to public policy: “No court will lend its aid
to a man who founds his cause upon an immoral or
illegal act”
a. Injurious to the state (bribery, corruption)
b. Contracts injurious to the administration of
Holman
Trade of the from France
World duty
to UK
free v.
Kenyan
Airport
justice (paying a witness not to testify)
c. Contracts involving immorality
d. Contracts affecting marriage
e. Contracts in restraint of trade
f. Contracts to benefit from crime
Restrictive covenant for
Shafron
employment
Assisted
Human
Repro Act
g. Contracts for surrogacy
2. Common Law illegality
a. Re: restraint of trade, non-competition
clauses must be clear and certain
i. Remedy: doctrine of severance (blue
pencil test)
Clause struck out, since
Shafron v.
the legal entity did not
KRG
exist
Brisette
Man kills wife. Insurance
cannot be paid out, even
if it’s to create a trust
b. Person committing illegal act cannot benefit
for the children, since
from it (ex. cannot be paid insurance)
c. Innocent parties should not be disentitled
husband is the beneficiary
Oldfield
Husband dies while
smuggling cocaine. Wife
benefits
doesn’t know, allowed to
collect insurance.
3. Statutory illegality
Rogers v.
Sale of cottage void since
Leonard
signed on Sunday
contrary to Lord’s Day
Act
4. Mitigating the consequences of illegality (remedies)
a. Traditionally: if there’s illegality, the K is
void as contrary to statute
b. Modern law: there’s a spectrum of remedies
i. Void ad admissio because illegal from
the beginning (ex. K to sell heroine)
ii. Regulatory illegality (ex. transport
31
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
truck doesn’t have insurance) – court
may find K is valid, but with
administrative sanctions
c. Exceptions to non-enforcement (where court
will find K despite illegality)
Outson v.
Zurowski
Pyramid schemed, find
both parties are in equal
fault. Ignorance of the
i. Parties are not in equal fault – less
law makes you no less
blameworthy can seek action against
blameworthy
more blameworthy
ii. One party repents prior to K
completion
d. Notional severance: capping interest rate to
non-criminal rate (CC s. 347, >60%/annum)
e. Severance (blue pencil test)
f. General principle post-Still: what public policy
is engaged? On these facts and given the
purpose of the statute is it contrary to
public policy to permit P an action?
New
Interest rate is 60.1%
Solutions
SCC 2004
Shafron
Still v.
Still applied for
Minister of
permanent res and
Natl
worked. EI benefits later
Revenue
denied because her
employment was illegal.
Court held she is entitled
to relief: she acted in
good faith and paid into
EI, she wasn’t en illegal
immigrant.
32
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Unconscionability, Undue Influence and Duress (residual)
1. Issues re: fairness of bargain can be dealt with using
undue influence, unconscionability, duress at the
time of K formation
2. Remedy: rescission
Unconscionability:
1. Focus on overall commercial morality of the bargain
Marshall v.
Agreement by Walsh
Canada
(elderly man, mentally
Perm Trust
incapacitated) to sell his
estate held to be
2. TEST:
a. Procedural - Inequality in bargaining power;
AND
i. Contextual factors: economic resources,
unconscionable
Mundlinger
Wife, while on
v.
medication, agrees to
Mundlinger
relinquish rights to
support and the family
knowledge, education, need, disability
home to husband for
ii. Common categories: tend to be from
$10,000 (husband angry
existing relationships (employment,
when she contacts
family) but no express categories
b. Substantive – improvident bargain
i. Assume pareto efficiency
3. A combination of a) and b) means agreement
should, prima facie, be set aside. Onus on party
lawyer). Held:
unconscionable.
St. Pierre
House with taxes in
v. St.
arrears. K by family with
Pierre
grandson that if he pays
taxes, he can have the
seeking K performance to show they considered the
house after grandmother
interests of the other party (Mundlinger)
leaves. Kicks grandmother
out. Held: unconscionable.
Also found undue
influence.
Lidder v.
Punjabi man and ICBC
Munroe
adjuster. Held innocent
misrep, also found
unconscionability.
4. Measured at the time of the K
Hunter Eng
5. Community standards test (less accepted): is the
Harry v.
transaction a s a whole sufficiently divergent from
Kreutziger
community standards of commercial morality that
it should be rescinded?
33
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Undue Influence:
1. Focus on improper exercise of influence by someone
in a special relationship of trust/ confidence that
overbears will
Earl of
Aylesford v.
Morris
2. TEST:
a. 1. Actual undue influence: emotional, physical
violence (onus on undue influence claimant)
b. 2. Presumed undue influence:
i. a. De jure (of law): fiduciary
Elderly Mr. Bundy signs
relationships, trustee/beneficiary,
solicitor/client, doctor/patient,
bank guarantees for debt
Lloyd’s Bank
priest/worshipper (onus on K claimant) v. Bundy
ii. b. De facto (of fact): if 1)
of son’s company, secured
by his farm (only asset).
Held undue influence,
relationship of trust
relationship of trust/ confidence and
between bank manager
2) improvident bargain (onus on undue
and Mr. Bundy.
influence claimant) then up to K
claimant to discharge proof
1. Ex. spousal relationships: 1) often
Pridmore
ICBC adjuster is like de
jure relationship between
both parties trust one to
solicitor and client. Note:
manage finances 2) fear of
discusses the fact that
damaging the relationship is a
these categories aren’t
actually separate.
ready weapon
2. The greater the disadvantage, the
more cogent the relationship will
have to be
3. Spousal/ co-habitant relationships
a. There is always constructive notice of the
risk of undue influence where spouses/ cohabitants co-sign for debts and they meet
the de facto category
Royal Bank
Wife charges matrimonial
of Scotland
home as security for
v. Etridge
husband’s debts. Bank
tries to collect, wife
asserts undue influence.
i. Banks put on notice, to absolve
themselves of liability should;
1. Meet with spouses privately
2. Explain extent of liability
34
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
3. Warn of the risks
4. Urge the person to obtain indep
legal advice
Duress
1. Focus on coercion of will that vitiates consent – no
Pao On
alternatives
2. Traditionally: K void – vitiated consent
3. Modern approach: voidable at the option of the
party who was the object of the duress
4. Categories:
a. Duress to person
b. Duress to goods, property
c. Economic duress
Universe
5. Test:
a. Pressure amounting to compulsion of the will
of the victim
Tankships v.
ITWF
i. Victim’s intentional submission from
the realization that there are no
practical alternatives
ii. Factors: whether the coerced party
Lidder
protested, the availability of
alternative options (determinative!),
existence of indep legal advice, whether
the coerced party tried to avoid the K
b. Illegitimacy of the pressure exerted, in light
of the nature of the pressure and the
nature of the demand
i. Ex. threat of unlawful action
c. If the victim expressly or implicitly approves
the K after the pressure ceases to exist, no
duress will be found
6. Applies to GTAs, but the illegitimacy test is hard
to apply (incoherent, unruly)
Gordon v.
Coercion found in GTA in
Roebuck
real estate transaction,
but no duress because no
illegitimate use of power.
35
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Gotaverken
GTA in a pulp contract,
Energy
court found duress
Systems
because pulp co had no
effective alternative. Pulp
co agreed under protest,
hadn’t taken legal advice
re: duress and avoided
the K once work
completed.
a. New test for GTAs?
i. Was the promise extracted as a result
NAV Cda v.
Duress found
GFAA
of “demand or threat”
ii. Did the coerced party have no practical
alternative
iii. Assuming i and ii, did the coerced
party consent to the variation?
b. Factors: was promise supported by
consideration? Was the coerced promise made
“under protest”? If no, did the coerced
party try to disaffirm the promise
ASAPractical?
7. Not yet adopted by SCC
36
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Mistake (residual)
Mistakes occur when there's a misunderstanding in
assumption regarding the facts. Mistake can be pleaded
during a K, or after it’s been completed
Common Law Mistake
1. TEST (a common mistaken assumption):
a. If there is a true ambiguity;
b. regarding an important/fundamental term of
the agreement;
Raffles, Sherwood, Bell
Staiman Steel (sharp practice), Smith
c. there is no reason to prefer one party’s
understanding over the other; and
d. parties have not allocated this risk contractually
already (express or implied),
e. the agreement may be void for mistake.
2. Remedy: K void
3. Policy: assignment of risk: who ought to bear it?
4. Traditionally, mistake was based subjectively on
whether there was a meeting of the minds
Raffles
Peerless 1 and 2. Court finds
v.
K void due to fundamental
Wichelha
mistake – no subjective
us
meeting of the minds.
Newcombe: likely wrongly
decided
5. Modern Law: when the mistake is based on K
formation, the test is objective: what would a
reasonable person have thought?
Smith
D believed he was buying old
v.
oats, P was selling the
Hughes
present oats. Held no mistake
based on objective K
formation. He relied on his
own judgment of what the
oats looked like (didn’t ask
specifically) therefore own
mistake.
Staiman
K for “all the steel in the
Steel v.
yard. K formation issue.
Commer
Court held a reasonable
cial
person would assume all the
old steel, therefore no
mistake - there is a K for all
37
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
the old steel.
6. When the mistake is based on terms of the K, court
may find mistake if:
a. Identity of contracting parties
b. Res extincta and res sua
c. Quality of subject matter is fundamentally
Sherwoo
Rose II of Aberone: beef or
d v.
breader? Mistake, K void.
Walker
mistaken
Bell v.
No fundamental difference
Lever
between terminating with
Bros
severance and terminating
with cause. No mistake.
Note: courts rarely interfere
with settlement agreements
38
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Equitable Mistake (common, unilateral or mutual mistakes)
1. Factors:
a. Neither party can be at fault
b. Must rise to the level of unreasonableness for
a party to profit from the mistake
c. There must be no injustice to innocent 3rd
Ron Eng
parties
d. The mistaken terms may not have to be
fundamental?
2. Remedy: K voidable
Solle v.
B rents apartment to S,
Butcher
both believe it’s not subject
to rent control. Common
mist. Equitable mistake, K
voidable.
3. The UK no longer recognizes equitable mistake
4. Canada still recognizes equitable mistake, to retain
the policy flexibility to correct unjust results. But
it’s hard to differentiat from C/L and equitable
mistake
Great
Ships mistakenly 36 hours
Peace
apart. CoA overrules Solle –
Shipping
no equitable mistake.
Miller
Affirms Solle v. Butcher
Paving
Ron
Engineeri
ng
Mistaken Identity – The Rogue
1. In cases of a rogue, which innocent party bears the losses?
a. C/L and Sale of Goods Act: no one can transfer to another something that she
does not have – buyers beware. Protects seller
b. Equity: tends to protect the BFPV
c. Economics: favours buyer, because seller is the least cost avoider (ex. require full
payment before transfer)
2. Remedies are fact based, not premised a principled solution. Issue: who should bear the
loss?
39
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
a. No offer. K A->B is void ab initio because
the offer was not made to the rogue – it
Ingram v.
K void. Car sale to
Little
“Hutchinson”. The
identity of the rogue
was made to the person rogue was
mattered because it’s
impersonating. Therefore B cannot pass to C.
the only reason seller
A retains title, C bears loss.
i. Issue: are you intending to K with the
claimed person, or the person present?
agreed
Phillips v.
K good. Jewellery for
Brooks
cheque. A bears loss, held
K was with person
Presumption that you’re intending to
present. Bcus rep.
K with the person in front of you -
occurred after K?
to rebut it must show otherwise
ii. Note: Lewis v. Avery holds that Ingram and Phillips aren’t reconcilable –
in both K wasn’t complete until goods exchanged hands
b. Fundamental mistake (re: the identity of the
contracting party), void. C bears loss.
c. Fraudulent misrepresentation – K voidable. K
between A->B is good, but A has a right to
rescind under equity. A can regaining title.
i. If voidable K not rescinded before sale
to BFPVw/oN, then C takes title. A
Lewis v.
Lewis sells car for
Avery
cheque. Held voidable,
but only if BPFV is not
bears loss.
punished
1. This is the position in the Sale
of Goods Act
ii. Issue: what’s the diff between
fraudulent identity v. fraudulent
Lewis v.
K voidable. A bears loss
Avery
attributes?
Frustration
1. Frustration is a mistake in assumption regarding
future events. It may be available when an event
occurs after K formation but before K completion,
that makes performance problematic
a. Impossible to perform: promisor to marry
dies, painter loses sight, music hall burns
down
D’s land is invaded and
he’s expelled, so fails to
pay rent under lease (no
40
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
b. Undue hardship: imposes inordinate and
unexpected expense
2. Remedy: relieves parties of future performance
income). Held: no
Paradine v.
frustration, should’ve
Jane
anticipated this in K
obligations
3. Policy: assignment of risk
4. Historically:
a. Stage 1. Rule of absolute promises. K liability
is strict.
a. Stage 2: Relaxing the absolute rule and imply Taylor v.
a condition of the continued existence of the
Caldwell
K for music hall, hall
burns down. Held:
frustration
subject
i. Critique: the test is based on
presumed intent of the parties (that
if they thought about the situation,
they would have agrees this way)
b. Stage 3: Doctrine of Frustration as a rule of
law and implying that a K is frustrated if
Krell v.
Rooms rented to view
Henry
coronation, coronation
cancelled (Edward VII
the foundation/ commercial purpose of the K
sick)
is destroyed
c. Land: frustration is not available for sale of
land – land is unique and can’t be destroyed
2. Modern law:
a. Land: K for land can be frustrated if it
involves not just the land but the commercial
K to sell land for 8.8
KBK v.
mill (Safeway to KBK).
Safeway
Zoning in ad. City
rezones land, loss in value
development of the land
of 3.4 mill. Held:
i. Note: if K is completed, SOL
frustrated. Newcombe
disagrees.
Vessel charter to salvage
b. TEST: whether, due to changed
oil tanker. Port
circumstances, the risk of unfair hardship to
one party outweighs the policy of
enforcement (caveat emptor)
c. A “multifactorial approach” to determine
whether what happened is radically different
than expected, making performance
unreasonable
authorities prevent vessel
Sea Angel
leaving. Are costs of
delay part of the K?
Held: no frustration –
charterer must pay cists
if delay. Delay is
foreseeable, risk of delay
41
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
contemplated, not unjust
for charterers to bear
the risk
d. FACTORS:
i. The disrupted circumstance is
Krell, Taylor. KBK
fundamental to the K
ii. Substantial hardship: major economic
impact, more than an increase in
expense, deprives a party of the
intended benefit
iii. Unanticipated risk (could be
Sea Angel
Sea Angel
foreseeable, but unanticipated)
iv. No allocation of risk by K (expressly,
impliedly)
v. No Fault
3. Losses
a. C/L: losses lie where they fall. Issue: losses
are pure chance
b. Reform: restitution
i. Issue: recovery on restitution is limited
to monetary payments, not expenses
Appleby v.
Myers
Fibrosa v.
Fairbain
incurred in reliance
c. Modren law: Frustrated Contracts Act
i. Losses (ex. reliance damages)
apportioned equally
ii. Does not apply to lost profits!
Rectification
1. Rectification applies to a typographical or
transcription error – to restore what the parties’
agreement actually was
2. TEST (Sylvan Lake)
Sylvan Lake
480 by 110 yard,
accidentally wrote 110
feet
a. Plaintiff must prove the existence and
content of the prior oral agreement
42
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
b. There must be “convincing proof” of the oral
agreement (between balance of probabilities
and beyond a reasonable doubt)
c. Plaintiff must provide precise wording for the
rectification
d. Plaintiff must show that the defendant
knew/ ought to have known of the mistake
in the written doc
Shafron
Rectification does not
apply to change
“Metropolitan City of
Vancouver” (which is not
a legal entity). Doesn’t
meet a) or c)
43
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
Consumer Protection
1. Policy rationale:
a. Prevents monopolies
b. Accounts for externalities
c. Adjusts for information failures (prohibiting fraud, mandatory disclosures)
d. To ensure adequate consumer education
e. Paternalistic concerns: protecting vulnerable people from predatory sellers
f. Redistributive concerns: ex. rent control, interest rates
2. Sale of Goods Act
a. Applies only to goods: software is a disc (property) + a licence to use the
software (servive)
b. Cannot K out of Sale of Goods Act if it’s a new good for retail sale (and not
business use)
c. S. 17-19 = statutory warranties
d. S. 20 = cannot waive/diminish Sale of Goods Act warranties and conditions if
it’s a new good for retail sale (and not business use)
3. Business Practices and Consumer Protection Act
a. Applies to:
i. Goods, services and land
ii. “Consumer” includes consumers outside of BC dealing with a BC company
iii. “Consumer transaction” includes pre-K activities (representations)
iv. “Suppliers” includes suppliers outside BC doing business with BC consumers,
regardless of privity
v. “Supply” = sale, lease, assignment …
b. Scope
i. S.5: if deceptive act or practice alleged, burden of proof on supplier to
show it didn’t occur
ii. S.9: if unconscionable act or practice alleged, burden of proof on supplier.
S.10: if found, transaction is not binding on the consumer
iii. Express provisions for:
1. door to door sales (10 day cancellation if >50$)
2. future performance K (ex. dance classes/ gym memberships have a 10
day cancellation period)
44
Sharon Zheng | LAW 108A | Spring 2012| Andrew Newcombe
3. internet (distance) sales (certain information must be provided)
4. unsolicited goods (if unsolicited, you can keep it)
5. time share (10 day cancellation)
6. prepaid purchase cards (no expiry date)
7. consumer credit and debt collection
8. funeral services Ks
iv. s. 3: no waivers/ releases of areas covered under the act, unless expressly
permitted by act
v. Remedies: damages recoverable (s. 171), and can bring an action a) to
declare that a contravening act/ practice has occurred/ is about to occur,
b) an injunction restraining a supplier from contravening the Act
4. Rushak v. Henneken: P purchases 14 year old Mercedes, described as a “very nice car”.
Held: breach of Trade Practices Act – car salesman’s conduct had the effect of
misleading a person, “puffery” can’t be used to give an unqualified opinion when the
representer knows it may be wrong. Act is to protect consumers, not punish vendors
(deception doesn’t have to be deliberate)
5. Telus Arbitration Clause: in BC, cases relating to the K must be settled under the
arbitration clause, but claims of statutory breach under the BPCPA can go to court
45